E/XR L PEADE OBERN LIBRARY THE UNIVERSITY OF CALIFORNIA SANTA BARBARA PRESENTED BY GEORGE OBERN BUSINESS ADMINISTRATION A Library of Business Principles, Practice, and Experience Edilor-in-Chiej WALTER D. MOODY Former General Manager, Chicago Association of Commerce Managing Director, Chicago Plan Commission Author, "Men Who Sell Things" Managing Editor WILLIAM BETHKE, M.A. Department of Business Administration LaSalle Extension Universit)' LaSalle Extension University BUSINESS ADMINISTRATION Being an organized presentation of the prob- lems of business management prepared by an unusual group of successful and authoritative Organizers, Educators, and Business Experts lR%aNG R. Allen Sales Counselor, Chicago William Bethke, M.A. Educational Director LaSalle Extension University Ernest Ludlow Bogart, Ph.D. Professor of Economics University of Illinois Theodore E. Burton, LL.D. Former United Stales Senator Harry J. Carpenter National Bank of Commerce New York J. W. COBEY Formerly Traffic Manager, National Cash Register Company E. F. Dahm, B.A. LaSalle Extension University Formerly Assistant Director Retail Research Association Hugo Diemer, M.E. LaSalle Extension University Formerly Personnel Superintendent Winchester Repeating Ar7ns Company Coleman duPont Chairman, Equitable Office Building Corporatio7i, New York B. C. Forbes Business and Financial Writer Louis Guenther Editor, "Financial World" Arthur B. Hall, A.B. Hall & Ellis, Real Estate, Chicago Fred L. Ham, M.B.A. Director, Department of Business Administration, LaSalle Extension University F. C. Henderschott New York Edison Company Samuel D. Hirschl, S.B., J.D. Harry Arthur Hope, M.C.S. Organization Counsel Federal Reserve Bank, New York B. Olney Hough Editor, "American Exporter" E. H. Kastor //. W. Kastor b' Sons Advertising Company, Chicago Percy H. Johnston President, Chemical National Bank New York Edwin Herbert Lewis, Ph.D., LL.D. Lewis Institute, Chicago Walter D. Moody Late Managing Director, Chicago Plan Commission Hugo Mlnsterberg, Ph.D., LL.D. Paul H. Nystrom, Ph.D. Director, Retail Research Association New York C. C. Parsons Secretary-Treasurer, Collateral Mortgage Corporation of New York Joseph M. Regan Editor, "Bankers' Monthly" Alexander H. Revell President, Alexander H. Revell &• Company, Chicago George E. Roberts Vice President, National City Bank New York Maurice H. Robinson, Ph.D. Professor of Industry, University of Illinois Stanley H. Rose Foreign Sales Manager, Barber Asphalt Company Charles M. Schwab Bethlehem Steel Corporation I. Leo Sharfman Professor of Political Economy University of Michigan Edward M. Skinner General Manager, Wilson Brothers, Chicago J. F. Strombeck President, Strombeck-Bccker Ma7iufaciuring Company, Moline, Illinois Theodore N. Vail Late President, American Telephone and Telegraph Company F. E. Weakly General Office Manager, Halsey, Stuart b' Company R. S. White Collection Manager, American Steel and Wire Company, Chicago H. Parker Willis, Ph.D. Professor of Banking Columbia University John North Willys President, Willys-Overland Company Richard P. Wilson Batavia Rubber Company INDUSTRIAL ORGANIZATION AND MANAGEMENT HUGO DIEMER, B.A., M.E. Professor of Industrial Engineering, Pennsylvania State College; Consulting Industrial Engineer; Author of Factory Organization and Administration La Salle Extension University - C h i c a g^ o 1922 Copyright, 1918 LaSalle Extension University CONTENTS I. The Principles op Business Organization Organization, Administration, and Control... 1 Line Control 2 Line-and-Staff Control 3 Functional Control 4 Committee Control 5 Types of Control Compared 7 Specialization 8 Specialization and Fuuctionalization Con- trasted 9 Combination 10 Classes of Industry 11 System 11 Efficienc}^ 12 Correct Use of Technical Terms 13 Developing Organizing Ability 14 II. Types of Organization Charts of Organization 16 Charting Line Control 16 Charting Line-and-Staff Control 18 Charting Functional Control 18 Charting Committee Control 19 Chart Illustrating Departmental Specializa- tion 20 "Three-Column" Type of Industrial Organiza- tion 22 The Seven M's 23 Charting Progress of Orders 23 Indicating Paths of Material on Charts 27 Charting Responsibilities of Department Heads 28 III. Locating an Industry General Considerations 31 Materials 32 Power '^^ V vi Contents Climate 34 Transportation Facilities 34 Labor Supply 36 Special Inducements Offered 37 Money Market 38 Sales Markets 38 Local Site 39 Local Labor Market -. . . 39 Local Transportation Facilities 39 Nearness to Local Trade Centers 40 Fire Prevention, Water Supply, and Sanita- tion 40 Industrial Surveys ■. 40 IV, Manufacturing Plants and Equipment Importance of Arrangement and Equipment. . 43 Principal Factors to be Considered in Plant Lay-out 43 Process-Mapping 44 Routing Individual Parts or Classes of Material 47 Selection and Arrangement of Machinery and Fixtures 49 Departmental Arrangement by Processes 51 Power-Generation and Transmitting-Apparatus 51 Heating, Ventilating, Humidifying, and Air- Washing Apparatus 52 Advantages of Hot- Blast System 53 Light 54 Wash and Locker Rooms 55 Transportation 55 Store Rooms 55 Receiving and Shipping 56 Tool Rooms 56 Foremen 's Offices 56 Planning-Department Fixtures 57 Inspectors' Quarters 57 Fire-Prevention, Safety, and Welfare Arrange- ments 57 Drafting and Designing Space 58 Commercial Offices 58 Final Arrangement 58 V. Buying Qualifications of a Purchasing Agent 61 Knowledge of the Materials 62 Contents vii Data Kegarding Materials 62 Knowledge of Markets 64 Records of Former Purchases 66 Record of Quotations 67 The Human Element in Buying 67 Requisitions on Purchasing Department 68 Filing Purchase-Order Copies 70 Following Up Purchase Orders 71 Financial Problems in Buying 72 Relation of Receiving, Stores, and Purchasing Departments 73 VI. Receiving, Storing, and Recording IMaterials Determination of Material Requirements 76 Financial Importance of Materials 77 Stores Accounting 77 ]\Iaterial Specifications 78 Relation of Material Records to Various De- partments . . . 80 Perpetual Inventories of Stores 83 Making Entries in the Stores Ledger 86 Physical Features of Store Rooms 89 VII. Planning Planning of Industrial Activities in Advance . . 93 Planning as to Finances 94 Planning as to Sales 94 Planning as to Production 96 Planning Department as Designed by F. W. Taylor 97 Modified Taylor Planning Department 98 Separation of Planning from Routine Activities 99 Planning Work in the Shops 100 Planning as to Employment 107 Does Planning Mean Additional Non-Produc- tive Labor? 108 VIII. The Determination of Costs Inaccurate or Inadequate Costs 112 Need of Accurate Costs 113 Cost as a Basis of Selling Prices 114 Wastes Disclosed by a Cost System 115 Lower Production Costs Necessary 115 Cost of Repair and Detailed Parts 117 Correlation of Costs to Other Manufacturing Data 118 viii Contents Comparative Costs 118 Classification of Costs 119 Elements of Cost 119 Correlation of Cost Records and General Ac- counts 123 Manufacturing Expense 126 Difference Between INIanufaeturing Cost and Selling Cost 128 IX. Methods of Collectincj IMaterial and Labor Costs Sources of Cost Data 131 Assembling the Cost Data 142 Comparative Costs 145 Periodic Reports by the Cost Department 1,47 Supplementary Reports 148 X. The Distribution of the Expense Burden The General Divisions of Expense 150 Allotment by Product 152 Allotment by Labor 153 Local and General Burden Rates 156 Allotment by Machines 159 The Standing Expense Orders 161 Typical Standing Orders in the Administrative- Expense Group 161 Typical Standing Orders in the Manufacturing- Expense Group 162 Typical Standing Orders in the Selling-Ex- pense Group 162 Co-operation Avith Accounting Department .... 163 XI. Standardization Importance of Standards 165 Advantages of Standardization 165 Disadvantages of Standardization 166 The Field of Standardization 167 Standardization in the Administrative Division 167 Standardization in the Production Division. . . 169 Organization of the Production Division 169 Standardization of Product 169 Standards in the Drawing Department 170 Standards in the Pattern Department 173 Standards in Materials 174 Methods of Planning and Supervising 174 Contents ix Standards in Processing 174 Standards Relating to Tools 175 Time Standards for ^Machine Operations 175 Time Standards for Handling Operations 178 Efficiency Standards 178 Wage Standards 179 Standards of Testing Product 180 Standardization in the Selling Division 181 Permanence of Standards 181 Essentials of Good Standards 182 XII. Scientific Management Broad and Narrow Interpretation 184 Can a Science Have Definite Aims? 185 The Application of Scientific Management. . . . 186 The Securing of Data 188 Applying the Data and Standards 189 Making Further Investigations 189 Securing the ^laximum of Prosperity' for all Concerned 190 Taylor's Principles of Scientific Management 190 Conclusions of the American Society of Me- chanical Engineers 191 Obstacles in the Way of Scientific Management 191 Objections by Proprietors 192 Objections by Employes 193 Xm. Time and jMotion Studies Definitions 197 Standard Elemental Operations and Times... 197 Method of Timing Observations 199 Moving Pictures as an Aid to Time Study. . . . 199 Mapping Motions 201 Qualifications of Time-Study Observer 203 Preparation of the Instruction Card 204 Doing the Work According to Instructions. . . . 205 Allowances for Exceptional Conditions 207 Time Study Does Not Mean Driving 208 Inspection 209 The Expense of Time Studies 210 Desirability of Publishing Time-Study Data. . . 210 XTV. "Wage Systems General Classification of Wage Systems 212 Time Work '. 212 X Contents Ordinary Piece Rate 214 Differential Piece Rate 216 Collective Contract Work 219 Time Work with Efficiency Records 220 Halsey Premium System 221 Rowan Premium System 224 Gantt Bonus System 226 Bonus System on Individual Jobs 227 Diemer Combined Bonus and Premium System 229 Efficiency System 230 Selecting and Introducing Wage Systems 231 XV. Welfare and Betterment Work Aims of Welfare and Betterment Work 236 Activities Included Under Welfare and Better- ment Work 237 Organization for Welfare and Betterment Work 237 Safety, Accident and Fire Prevention 239 Educational Activities 243 Rest Periods and Luncheons 244 Social Activities 245 Medical and Hygienic Activities 246 Physical Training 246 Suggestion System 247 Benefit Societies 248 XVI. Employment Problems Desirable Qualifications of Employes 252 School and Education Record 265 Family History 265 Industrial History 265 Housing and Thrift Data 265 Co-operative Employment Agencies 266 Is there an All-round ]\lan ? 266 Union or Non-union Men 266 Organized Labor and Scientific Management. . 268 Importance of Employment Bureau 269 XVII. Reports to Executives Duties of the IModern Industrial Executive. . . 271 Selling-Division Reports 273 Predetermining Each Sales Territory's Earn- ings 274 Reports of Actual Sales Made 274 Manufacturing-Division Reports 275 Contents xi Detailed Parts Manufacturing Program 276 Work for Each Machine and Production Center 277 Classified Reports of Materials and Supplies. . . 277 Pay-Roll Estimates 277 Comparison of Probable Money Income and Expenditure 278 Cost-Department Reports 278 Detailed Expense Budget 279 Reports of Suggestions 280 Profit and Loss Statement 280 Physical or Non-financial Reports 281 LIST OF FORMS AND ILLUSTRATIONS Fig. 1. Chart Illustrating Line Control 17 Fig. 2. Chart Illustrating Line-and-Staff Control 17 Fig. 3. Chart Illustrating Functional Control 18 Fig. 4. Chart Illustrating Committee Control 19 Fig. 5. Chart Illustrating Departmental Specialization by Processes 21 Fig. 6. Chart Illustrating Going's Principle of the "Seven M's" 22 Fig. 7. Chart Illustrating Progress of an Order Through Departments 24 Fig. 8. Chart Showing Origin and Progress of Shop Orders and 3.1aterial 26 Fig. 9. Chart Showing to Whom oMen in Departments are Responsible 28 Fig. 10. Lay-out of a Flour Mill 45 Fig. 11. Lay-out of an Ore Mill 46 Fig. 12. Lay-out of a Structural Steel Plant 47 Fig. 13. Lay-out of a Locomotive Shop 48 Fig. 14. Typical Routing Card 49 Fig. 15. Departmental Lay-out of a Machine Shop 50 Fig. 16. Final Lay-out of Ground Floor for a Manufactur- ing Plant 58 Fig. 17. Index for Information and Catalogue File 63 Fig. 18. Index for Purchasing Department's Information and Catalogue File 64 Fig. 19. Materials-Purchased Record 66 Fig. 20. Request for Requisition 68 Fig. 21. Purchase Order 69 Fig. 22. Department Requisition 70 Fig. 23. Report of Accounts Payable 72 Fig. 24. Purchasing Agent's Report of Invoices Approved 73 Fig. 25. Material List 79 Fig. 26. Chart Illustrating Relation of Material Records to Various Departments 81 Fig. 27. A Typical Perpetual Inventory Sheet 84 Fig. 28, Materials-Received Report 87 xiii xiv List of Fornix and Illustrations Fig. 29. Credit Memorandum 88 Fig. 30. Withdrawal Order for Materials Issued 89 Fig. 31. Memorandum of Materials Shipped 90 Fig. 32. Chart Illustrating Planning 95 Fig. 33. Detail or Individual-Piece Route Sheet 102 Fig. 34. Record for Keeping Balance of Work Ahead .... 104 Fig. 35. Record of Date at Which Each Component Part is Due 104 Fig. 36. Shop Bulletin Board 104 Fig. 37. Planning Department's Office Bulletin Board 105 Fig. 38. Tracing Record 106 Fig. 39. Chart Illustrating Costs 120 Fig. 40. Chart Illustrating Sources of Cost Data 132 Fig. 41. Typical Copy of Sales Order 133 Fig. 42. Front of Tag Type of Production Order 134 Fig. 43. Reverse of Tag Type of Production Order 135 Fig. 44. Receiving-Department Report of Materials Re- ceived 137 Fig. 45. Clock Stamp Time Card 138 Fig. 46. Clock Stamp Job Card 140 Fig. 47. Stiff JNIanila Envelope for Material Slips and Job Time Cards 142 Fig. 48. Typical Traditional Cost Posting Card 143 Fig. 49. Form for Comparing Total Costs of Assembled Product 144 Fig. 50. Comparative Individual-Part Cost Record 146 Fig. 51. Comparative Operative Cost Record 146 Fig. 52. Standard Title-Plate, etc 171 Fig. 53. Standard Cross-Hatchings 172 Fig. 54. Standards as to Forging-Tools 176 Fig. 55. Standard Symbols for Classification of Tools 177 Fig. 56. Tool List 198 Fig. 57. Time-Study Observation 198 Fig. 58. Observation Sheet and Stop-Watch 200 Fig. 59. "Before and After Taking" 201 Fig. 60. The Gilbreth Clock 202 Fig. 61. Time and ]\Iotion Observations by the Moving-Pic- ture Camera 202 Fig. 62. Moving-Picture Film 202 Fig. 63. Rack from which the Workman Assembles Parts. . 203 Fig. 64. Taking Time-Study Obsen^ations 203 Fig. 65. Drawing of Piece on which Time-Study Data Were Taken 204 Fig. 66. Instruction Card for the Piece Shown in Fig. 65. . 206 List of Forms and Illustrations xv Fig. 67. Chart Illustrating Pay under Ordinary Piece Rate 215 Fig. 68. Chart Illustrating Pay under Differential Piece Rate 218 Fig. 69. Chart Illustrating Pay under the Halsey Premium System 222 Fig. 70. Chart Illustrating Pay under the Rowan System 226 Fig, 71. Chart Illustrating Pay under the Gantt Bonus System 227 Fig. 72. Chart Illustrating Pay on the Individual-Job Bonus System 228 Fig. 73. Chart Illustrating Pay under the Diemer System 230 Fig. 74. Chart Illustrating Pay under the Emerson Effi- ciency System 232 Fig. 75. Tabulation Showing the Method of Calculating Wage Data 233 Fig. 76. Transfer Table, ]\Iotor Gears Uncovered 242 Fig. 77. Transfer Table, I\Iotor Gears Covered 242 Fig. 78. Method of Guarding a IMill Motor. 242 Fig. 79. Pig-iron Trestle Shield to Prevent Injuries 242 Fig. 80. Gardens — American Bridge Company 242 Fig. 81. Bird's-eye View of Town of Marguerite 242 Fig. 82. Group of Slavish Laborers Who are Stockholders 242 Fig. 83. Swimming Pool — Leisonring No. 1 Mines 242 Fig. 84. Playgrounds, National Tube Company 242 Fig. 85. Playgrounds, National Tube Company 242 Fig. 86. Photograph Showing Column Ventilators at the Ford Motor Works 242 Fig. 87. Emergency Hospital, Continental Works 242 Fig. 88. Sales Manager's Report of Sales and Demand 272 Fig. 89. Shipments of Locomotives, 1914 276 Fig. 90. Money Income and Outlay Chart 279 Fig. 91. Weekly Cupola Report 282 INDUSTRIAL ORGANIZATION AND MANAGEMENT CHAPTER I the principles of business organization Organization, Administeation, and Control Organization is the development of an organic struc- ture, that is, a structure composed of organs. The term "organ" signifies a part which is a natural division in an animal or plant, capable of performing some special action essential to the life of the whole. The term ' ' industrial plant " is a figure of speech which illustrates the analogy between industrial activity and natural life. An organ in a mechanical contrivance is a component part performing an essential office in the work of the mechanism. In the steam-engine, for example, the cylinders, valves, cranks, etc., are organs. To develop an organic structure, therefore, we must arrange the parts so that each has a natural and specific function, office, and relation. A business organizer pursues the methods of the scientist in gaining an insight into the nature of the whole, basing his work upon a careful examination of all the parts and their interrelations. Organization determines the scope and limits of activity of each individual or group of individuals in a business or industrial undertaking, together with their relations and connections with one another. Organization is the 1 2 Organization and Management chief source of power of large corporations. It means that the experience, technical skill, tact, and abilities of all kinds of carefully selected men are directed in such a manner as to be most effective in the interests of the business. The act of managing or directing an organization is designated by the term ''administration." The term is sjTaonjTnous with "management." By management we mean the carrying-out or executing of the laws of the organization. Organization has already been seen to be based on the methods of science. On the other hand, management comes more nearly in the field of art. Man- agement requires guiding by careful or delicate treatment. It involves a knowledge of all the human characteristics, prejudices, and affiliations of the individuals and groups of individuals composing the organization, together with the power successfully to cope with these characteristics, prejudices, and affiliations. It brings all of the individuals into harmonious relations and subservience to the laws of the organization. The term "control" is used to designate the methods by which the executive or managing heads of a business carry out their authority to regulate its affairs in accord- ance with the laws of the organization. Control may be of the following types: (1) line control; (2) line-and-staff control; (3) functional control; (4) committee control. Line Conteol The term "line" in military usage means a row of men abreast of one another. In military line control the plan of campaign is not disclosed by the commander-in-chief to the line officers. Previous to the development of the modern system of staff officers, the commander-in-chief planned out which way the divisions should march, where Principles of Organization 3 they should seek shelter, how they should be provisioned, where bridges and roads were to be built, etc., and he gave his orders at the proper time to the line officer next below him in rank, who in turn passed the orders to other officers down the line. In line control as applied to industry, each foreman is responsible for everything in his own department or shop. He must see that the proper sequence of work is observed, that he does not run out of orders, that he keeps up with the work in hand, that he is provided with the necessary materials, supplies, and tools, that he is not extravag'ant with these, that the work is correctly done, that it does not cost too much, that his men are satisfied, and that his machines are in good working order. Line control may be further illustrated by the divisional organization employed in many railroad systems. In divisional control the division superintendent is given absolute authority over the methods of his division in all lines, being held responsible only for results. This type of line control is also found in some large manufac- turing plants. For instance, in an agricultural machinery manufacturing plant divisional control would give to the respective shop superintendents absolute authority as to methods, wages, and manufacturing policies, so that the superintendent of the mower department might use methods entirely different from those of the superin- tendent of the thrashing-machine department, and the superintendent of the gray-iron foundry might use methods of handling labor quite other than those of the superintendent of the malleable-iron foundry. LiNE-AND- Staff Conteol Caesar and Napoleon employed line control. It was von Moltke who developed the staff principle. He ap- 4 Organization and Management pointed special ofificers to furnish expert guidance, each staff officer ha\'ing a field in which he was specially trained and expert. Thus, one member of the staff supervised engineering features, another the commissary, etc. As industry began to avail itself of the expert knowledge of men with special training and ability — for instance, in the fields of engineering and chemistry — we find business owners and managers employing staff specialists in these subjects. In military line-and-staff control and in its industrial analogy we find the staff officers and their assistants working out special problems and making their recommendations to the chief, who issues orders molded by the expert advice of his staff, through his line officers. Functional Control This type of control does away with all of the com- missioned-officer type of foremen and assistant superin- tendents, and retains only one head at the top and gang bosses in the line. The staff control is extended to cover direct control of routine work instead of through the medium' of expert advice to the chief line officials. In other words, the functional experts apply their expert knowledge not only to the formulating of rules, but to the regular course of business as it occurs each day, and each functional expert or boss deals directly with the men in the ranks, either personally or through the medium of expert instructors. Thus, we may have functional experts assigned to the tasks of answering the following questions with regard to the regular work of a manufacturing establishment: "What work is to be done next?" "Wliere shall the work be done?" "How shall it be done?" The first question is answered by a functional head with a com- petent force of assistants who determine what shall be Principles of Organization 5 the order of each day's work for each department and each man, and work out the system which will assign, at least a day in advance, each man's tasks for the follow- ing day. Such a functional force is sometimes designated by the term ''bureau" to distinguish it from one of the processing departments of an industry. The name '*order-of-work bureau" or "scheduling bureau" or ' * bulletining bureau ' ' may be applied to such a functional division. The question as to where the work shall be done can be answered by another functional bureau which knows all about the equipment and processes as well as the adaptability of men and tools to various kinds of work. Such a functional division may be designated as a " rout- ing bureau." The question as to how the work shall be done is made the subject of study by the men in another division who have specialized in the methods and the requirements of each job, and they prepare detailed instructions as to how work shall be done. Such a bureau may be designated as an "instruction bureau" or "instruction-card bu- reau, ' ' Committee Control The committee system involves the carrying-on of meetings of the officers of the business or shop at regular intervals. At these meetings, committees appointed to take charge of specific functions, as well as special com- mittees which act from time to time on matters of new methods and policies, make their reports. It has been claimed that in industry and business as well as in pri- vate life there should be no attempt at government with- out the consent of the governed, and the advocates of democracj in biisiness and industry claim that the com- 6 Organization and Management mittee system is most productive of loyalty and intelli- gent co-operation. Committee meetings afford an opportunity for discuss- ing methods proposed by staff specialists or line officers, and give the chance for looking at these proposals from various augles. They afford an opportunity for adverse critics to express themselves and at the same time give the proposer a chance to defend his schemes. These meetings provide also an opportunity for the various heads to get better acquainted with each other and to recognize the good points in each other's characters. Whether the control be line, line and staff, or functional, the committee system is applicable. Among the purposes of various committees which report to the general meeting of officers, we may cite the following as representative : 1. The manufacturing committee, which decides on the manufacturing program, determining what stock of manufactured product and parts shall be built, and dis- cussing the general status of orders from customers and summarized reports from the order-of-work bureau. 2. The tool committee, which determines on new tools, considering whether the conditions justify them or not and selecting the most important ones. This is an im- portant matter in a seasonal business such as automobile- building, where cheapness of production, rapidity of getting out new styles, and interchangeability depend largely on the adoption of tools that can be built quickly by a department which under no circumstances can hope or expect to get out a complete set of tools before the current season is over. 3. The suggestion committee, which considers all sug- gestions as to improvements and decides on the awards for the best suggestions, as well as ways and means of Principles of Organisation 7 keeping the suggestion system up to a state of high efiSciency. 4. The safety committee, which will make recom- mendations for safeguarding machinery and for provid- ing conditions favorable to the health and physical well- being o-f employes. 5. The welfare committee, which can consider such matters as social activities, athletics, library, home better- ment, etc, 6. The educational committee, which will consider the apprenticeship system and methods of providing special- ized education for all classes of employes, so as to make them more effective in the business. 7. The committee on new designs or new products. 8. The committee for considering cost reductions and economies in general. 9. The committee on complaints. Types of Conteol Compabed Line control is avowedly autocratic. It demands un- qaestioning obedience to the line officer. The matter of obtaining results is put up to each succeeding lower officer in the line by the officer at the top. The danger is that the lowest line officer is apt to put it up to the men in the ranks to get results in a variety of activities. Line control demands the greatest degree of all-round ability on the part of each officer and each man in the ranks. Line-and-staff control recognizes the value of special education and training and accepts the advice of spe- cialists. On the part of line officials there is apt to be a considerable amount of mental reservation as to the desirability of certain staff recommendations coupled with frequent failure to carry out the recommendations of the staff. However, there is no question but that it is a great 8 Organization and Management advance over the all-line type of control and has super- seded the latter in practically all industries requiring expert engineering and chemical skill, such as the steel industry and chemical manufacturing. Functional control brings the expert guidance into im- mediate touch with the worker, as applied to his daily routine. Functional control is apt to be strenuously re- sisted by the incumbents of positions of authority in the old line organization, who resent interference with their autocratic authority. It is unquestionably coming into Avider use in our industrial undertakings, since in almost every large industrial center we find factories in which such matters as routing, scheduling, and instructions to men are being taken care of by functional bureaus. Specialization It has been truly stated that the two great underlying principles of modern industry and business are combina- tion and specialization. The combining of small under- takings into large ones naturally paved the way for minute specialization. In the administrative field of business we find the principle of specialization first appearing in the division of management under three headings, namely, producing, selling, and accounting. On the production side we find the principle appearing in the departmentalization of factories. The first natural division of a metal-working factory was into foundry, forge-shop, pattern-shop, and machine-shop, with the de- signing and drafting done by the superintendent and assistants. This division was followed by distinct de- signing and drafting departments, separate departments for distinct processes in the machine-shop, such as lathe department, drill-press department, sorew-machine de- partment, etc. Principles of Organizatio7i 9 AVith the expansion and enlargement of shops we find the work of the individual workman becoming more specialized and restricted. The all-round mechanic has become practically obsolete. As a result strong efforts were requisite to develop courses of training to counteract the harmful effects of over-specialization. Continuously performing the same task has been found to deteriorate rapidly the body and mind of the worker. It has been claimed that the loss due to this rapid deterioration, which means a lessened earning power, is greater, from the public point of view, than any gain the consuming public has made by the greater speed and cheaper pay of men kept at a single operation. Specialization and Functionalization C'onteasted Functional control must be clearly distinguished from specialized departmentalization. Functional control means the selection of some feature of the work common to all departments, and placing the control of this feature in the hands of those men in the existing set of employes most capable in that special feature. The special features here referred to are those relating more particularly to planning, inspection, repairs, and speed of machinery, and not to technical processes peculiar to individual de- partments. It has been truly said that the all-round man does not exist. A man may be a fairly good all-round mechanic, but it is likely that, if his mechanical skill is pronounced, he will be lacking in certain desirable mental qualities essential to successful planning of work. Some foremen and some men in the ranks have the mental characteristics that peculifirly fit them to be engaged in scheduling or order-of-work activities. To others such work is distasteful, while they might be remarkably well 10 Organization and Management adapted to work connected with accuracy or inspection. Others would not have the characteristics necessary to excel in either of the above-mentioned features, but would be admirably adapted to finding out the greatest speed which may be used without fatigue, and with due allow- ance for necessary periods of rest. For this last-named function, men who have the reputa- tion of being drivers, or who are not well liked by the workmen, would not do at all. Functionalization, it is e\ddent, is important in the matter of control. Specializa- tion is impoi-tant in departmentalizing a business or industry in accordance with the materials and processes which naturally form a distinct division. Specialization is the natural outcome of the merging of small businesses into larger ones. Combination One of the causes for the study of principles of organi- zation as applied to business and industry has been the tendency toward combination, aggregation, integration, or consolidation of businesses. Such integration may be partial, if it affects only one of the leading production factors, such as the selling end, or selling and producing, or it may be complete, if it affects the source of raw materials, the transportational facilities, the production, and the selling. An example of almost complete integra- tion of production factors is afforded in the organization of the large steel companies. In the oil companies we have another example, although the raw-material sources are frequently leased in this industry. Naturally the planning of the organization for a given business or indus- try is affected by the extent to which combination of production factors, and of various smaller business units, enters into the problem. Principles of Organization 11 Classes op Industry Industry is broadly divided into the following classes : (1) producing, (2) transporting, (3) financing, (4) dis- tributing. In the producing class we have agriculture, mining, and manufacturing. In transportation we have railways, steamship companies, canals, express companies, and local delivery companies. In financing we have banking, insur- ance and bonding companies, stock exchanges, and bond houses. In distribution we have wholesalers, jobbers, brokers, and retailers. Manufacturing industries are classified according to their processes as analytic or synthetic, and as having consecutive, simultaneous, or intermittent processes, or combinations of these. Analytic manufacturing separates a raw material into its constituents, selecting and assort- ing them as leading products, by-products, and waste. The lumbering business is an example of this type. Syn- thetic manufacturing builds up a compound product out of simple raw materials. An example of this last-named type is furniture-building. Consecutive processes are apparent in a cement mill, a hat factory, or a wall-paper factory. Simultaneous processes are apparent in an automobile factory. System System is a term applied to the methods by which the objects of the organization are carried out in an orderly way. We organize to manage, and we manage largely through system. The characteristics of good system are simplicity and efficiency. When system is lacking in these characteristics, it is well named "red-tape." 12 Organization and Management Having planned an organization and determined on the activities, authorities, and limits of action of each indi- vidual and group of individuals, we prepare a series of ways and means for securing results as planned. These methods, when arranged according to a logical, scien- tific, and orderly plan, constitute system. A man may be a good systematizer, and yet not be a good organizer, and even a poor manager. The man who aspires to rise higher than a systematizer must make system his serv- ant and be ever watchful lest the situation be reversed and he become system's slave. Efficiency By efficiency we mean the ratio of output to intake. For instance, an electric motor of 85 per cent efficiency gives out only 85 per cent of the horse-power value of the electricity delivered to it. In speaking of the effi- ciency of a cost system or production system, we are comparing the net useful worth of the results secured through such a system with the total cost of operating the system in the way of salaries of clerical and adminis- trative employes, cost of stationery, and first cost and depreciation in value of furniture, fixtures, and mechan- ical appliances required to carry out the system. A system devised for a specific industry and organiza- tion can rarely be applied to another industry or to a different type of organization in the same industry. It is the sure sign of an amateur to be a "form-collector" and to spend more time in devising the details of card indexes, loose-leaf files, and storage cabinets than in studying and mastering principles. On the other hand, it is equally the earmark of the ignoramus and reaction- ary to decry all principles of organization and all orderly methods as ''red-tape." Principles of Organization 13 Correct Use of Technical Terms The preceding discussion has laid stress on defining the meaning of certain terms. The dictionary and encyclopaedia give us definitions of terms in several ways. They usually lay greatest stress on the meaning of the terms when used in their most commonly accepted popular sense. They give us also the meaning of these terms when used in a technical sense. For instance, when used as a technical legal term, a word has a different meaning from that which it conveys in its most general popular use. Business and industrial management, as they have devel- oped into sciences, have adopted certain words in a technical way in just the same manner as legal science has done. For the sake of uniformity of expression and mutual understanding, it is therefore necessary for the student of business and industrial management to familianze himself with the technical meaning of the terms used in his profession and to use them in the same sense and A^th the same meaning as they convey when used by men who are the leaders in his profession. Hence, the begin- ner is advised to study carefully the terms used in this and the following chapters. They have been carefully selected with a view to representing the most generally accepted expressions of correct present-day usage. There is a tendency among narrow-minded men who have made a mistake in the emplojTuent of terms to say, ''Well, we use that word here to mean something else. ' ' The danger of insistence on a different meaning from the generally accepted one is that it will confuse new employes, audi- tors, and other members of the organization. 14 Organization and Management Developing Organizing Ability As promotion to positions of responsibility frequently hinges on the reputation of being a good organizer, it is worth the while of every ambitious worker to know some- thing about how to develop organizing ability. The first requisite is a keen interest in one's duties, coupled w^ith strict self -discipline in performing one's assigned routine tasks in accordance with directions of superior officers. There will always be room, however, for the individual to show ability in systematizing materials and tools in an orderly and sequential way, whether his work be mechanical or clerical. The manner in which a clerk keeps his pens, ink, pencils, erasers, and current supply of stationery, and the orderliness of the drawers in his desk assigned him for his personal private use, may be made the subject of his careful thought. No matter in how detailed a manner the routine work may have been specified by higher authority, there will always be found opportunities to systematize work as well as materials and tools. Naturally, the man who has super- vision over several others will find a still wider field in which he can practice the development of organizing ability. In later chapters the human element in manage- ment will be dwelt on at greater length. For the present it will suffice to say that an agreeable personality which commands respect is important in the ability to organize men. TEST QUESTIONS 1. Define organization. What are the aims of industrial organization ? 2. How is an organization designed? Describe the analytical or investigational steps and the synthetic or constructive steps. 3. How is management related to organization? Principles of Organisation 15 4. What part does system play in relation to organization and management? 5. How do all-line control, line-and-staff control, and func- tional control differ? 6. Does committee control replace any of the other types of control, or can it be used in connection with them? What types of activities may well be conducted under committee con- trol ? 7. Do you consider military types of control necessary or advisable in industrial undertakings? 8. Contrast specialization and funetionalization. 9. What are some of the leading general functions in an in- dustrial undertaking? 10. From what classes of employes would you build up vari- ous committees? 11. How are industries classified? 12. What is the argument in favor of correct use of technical terms ? 13. How may one develop organizing ability ? 14. How does the human element enter into management problems ? 15. Contrast departmentalization by product with depart- mentalization by processes. 16. In what way does the functional expert apply his spe- cialized knowledge to the regular running production routine to a greater extent than the staff expert ? 17. In what way can principles of democracy and self-gov- ernment be introduced into industry without injury to the inter- ests of the proprietorship? 18. Which type of organization, military or functional, re- quires the most capable all-round supervisional heads and why? 19. How has the tendency toward larger industrial units due to combination and consolidation affected production factors ? 20. Give some examples, drawn from your own knowledge or experience, of analytic industries, of synthetic industries, of simultaneous processes, of consecutive processes. CHAPTER II types of organization Making Charts op Organization The relationships between departments and the scope of activities and limits of authority of various officials and department heads are most clearly visualized through the medium of organization charts. Such charts usually represent the leading departments by rectangles or circles. These departments are then connected by lines showing their relationships to one another. Charting Line Control Figure 1 shows the application of charting to illustrate line control. An inspection of this chart shows that the board of directors (1) formulates certain policies which are carried out by the general manager (2), the latter being free to adopt such methods as he sees fit. The general manager has charge of three distinct divisions, these having to do with accounting, producing, and sell- ing, and supervised, respectively, by the comptroller (3), the works manager (4), and the sales manager (5). The works manager has jurisdiction over the produc- tion superintendents, namely, the superintendent of foundry (6), superintendent of forge-sliop (7), and superintendent of machine-shop (8). Each of these superintendents has jurisdiction over a number of fore- 16 Types of Organization 17 TROL COMPTROLLER © SUPT. FOUNDRY 9 9 9 TJ BOARD OF DIRECTORS GENERAL MANAGER © WORKS MANAGER ^ SUPT. FORGE SHOP Mm [13[^ llSOol [iolliol [iolOo] Mm lJol[!ol [jollio] DoHJol Fig. 1. — Chart Illustrating Line Control Squares marked "9" represent department foremen. Squares marked "10" represent gang bosses. ® BOARD OF DIRECTORS GENERAL MANAGER ® W0RK5 MANAGER 6, 7, 8, etc.. same as in Fig. I Fig. 2. — Chart Illustrating Line-and-Staff Control Squares marked "4A" and "4B" represent the staff for expert guidance. 18 Organization and Management men (9). Each of these foremen has jurisdiction over a number of gang bosses (10), through whom orders are given to the men in the ranks. Charting Line-and-Staff Control Figure 2 shows line-and-staff control. In this type of organization we have the line organization identical with that sho\vn in Figure 1. The works manager (4), how- ever, is assisted by a staff consisting of the chief engineer (4A) with his force of assistants, and the chemist (4B) with his force of assistants. These staff officials report to the works manager on technical questions connected with their specialties. Charting Functional Control Figure 3 is a chart illustrating functional control. In this chart the works manager (1) exercises his control through the medium of the functional heads (2 to 9). These functional heads have charge of the following branches or bureaus: (2) order of work and routing; (3) Fig. 3. — Chart lUustrating Functional Control Types of Organization 19 instruction cards; (4) time records and costs; (5) disci- pline; (6) gang and specialized department supervision; (7) speeds and methods of operating machinery; (8) repairs; (9) inspection. These eight functional heads consult directly with the men in the ranks (10), either personally or through assistants, giving advice and instinictions direct to the workmen. Charting Committee Conteol Figure 4 is a chart illustrating committee control in connection with functional control. The functional or- FiG. 4. — Chart Illustrating Committee Control over Certain Activities together with Functional Control over Shop Routine 20 Organization and Management ganization is identical with that shown in Figure 3. The works manager is, however, assisted by various commit- tees, shown bj circles lA to ll, inclusive. Of these lA represents the manufacturing committee; iB, the tool committee; iC, the suggestion committee; ID, the safety committee; lE, the welfare committee; iF, the educa- tional committee; IG, the committee on designs or new product; iH, the committee on cost reduction; ll, the complaint committee. Chakt Illustrating Departmental Specialization Figure 5 illustrates how departmental specialization is arranged for through the medium of distinct productive departments, each department being in charge of a fore- man or gang boss who is a specialist in the processes in- dicated. In this chart the works manager (1) exercises supervision through the superintendent of the forge- shop (2), superintendent of the foundry (3), and super- intendent of the machine-shop (4). The superintendent of the forge-shop controls the work of that shop through specialized foremen as follows: foreman of hand-forg- ing (5), foreman of drop-forging (6), foreman of ma- chine-forging (7), foreman of tool-forging (8). The superintendent of the foundry exercises control over the foundry through the medium of the foreman of core-making (9), foreman of flasks (10), foreman of molders (11), foreman of cupolas (12). The superintendent of the machine-shop exercises his control through the foreman of the machine-tool depart- ment (13), foreman of tool room (14), foreman of group assembly (15), foreman of erecting (16). The foreman of the machine-tool department exercises his control through certain gang bosses, such as lathe gang boss (17), planer gang boss (18), drill gang boss (19), etc. Types of Organization 21 The chart of departmental subdivision of a plant by processes (Fig. 5) may be supplementary to and entirely independent of a chart shomng functional control, each SUPT. FORGE SHOP 2?! ^> z o ® 35 ^€ z o © S> z o IIIX. H O O-n r-o z o (D WORKS MANAGER ® (io) (n) n o S3 7\> zZ o (D SUPT. FOUNDRY TI -no -I oo z> SUPT. MACHINE SHOP >> / Zm 8^ © ?5o 8| n o r-"n ^^ m> 2Z (16) pi-n nm oz © HO © D E o r- > r- Z ^ o Fig. 5. — Chart Illustrating Departmental Specialization by Processes of the various specialists occupying \'irtually the same position in the functional organization as the gang boss in Figure 4. In functional control the foremen's duties 22 Organization and Management do not include any of those assigned to the functional heads, but are confined to technical questions as to set- ting up work in machines and assisting the men to do the work in accordance with their instruction cards. ''Three-column" Type of Industrial Organization The charts shown in Figures 1 and 2 illustrate what is designated as the ''three-column" type of industrial or- GENERAL MANAGER © ASSISTANT GENERAL MANAGER ^0\ XiK ,/Q\ X&\. y<^ ytih^M^^ / Mo~y \/ Mcdiod, \/ M>J^tr, \^ Malo,.l, \/ Ma. \/ M..k«.^>w Organizing Accountant Chief Tool Purchasing Employ- Sales Engineer Auditor Engineer Designer Agent ment Manager Works Store- Advertising Correspon- Bookkeeper Engineer keeper Works Manager dent Cashier Chief Receiving Supt. Transporta- Cost-keeper Inspector Clerk Welfare and Safety Manager Director Corporation School tion Manager Fig. 6. — Chart Illustrating Organization Embodying Going's Principle ol the "Seven M's" ganization, in which the activities of an industrj'^ are di- vided into three distinct groups, namely, (1) production, (2) selling, and (3) accounting. This division is the most usual one, but it is by no means the only division, and it must not be assumed that other tj^es of general or- Types of Organization 23 ganization which depart from this type may not be more effective under certain circumstances. Indeed, there has been a tendency to depart from the "three-column" type within recent years. The Seven M's Charles B. Going advocates organization under seven distinct headings. For easy memorizing of these heads he uses a word beginning with M for each, namely, Man- agement, Materials, Men, Machinery, Methods, Money, and Markets. Figure 6 illustrates a type of organization in which these seven factors are made the underlying basis. An organization of this kind is in use at the Remington T}^e writer Works, and has proved entirely satisfactory. Chakting Progkess of Okdees Charts are sometimes advantageously employed to show the progress of an order through various depart- ments. Figure 7 shows such a chart. An examination of this, beginning at the top, indicates that the order is first received by the sales department, whence it passes to the works manager's office, where the order is entered, and from which three groups of activities connected with the execution of the order are put into action. On the left-hand side the order passes through the designing de- partment, which in turn passes it to the drawing depart- ment for the making of such drawings as are needed to supplement any new designs or for the requirements of the shop. Thence it passes to the inspection department whose duty it is to inspect materials, work in process, fin- ished parts, assembly groups, and erecting. Wlien the work is finished, it is tested by the testing department. 24 Organization and Management which must also receive a copy of the order and specifica- tions. Following next the right-hand path, we find that the SALES DEPARTMENT WORKS MANAGER'S OFFICE, ORDER ENTERED . PLANNING OR PRODUCTION DEPT. ROUTING INSTRUCTION CARD WRITING RATE FIXING ORDER OF WORK OR SCHEDULING FOLLOWING UP OR TRACING SHOP DEPARTMENTS SHIPPING DEPARTT-1ENT ACCOUNTING DEPARTMENT Fig. 7. — Chart Illustrating Progress of a.ii Order through Variou? Departments This type of chart may be made in the form of the hot-water bottle, as shown, or other convenient shape. accounting department has received a copy of the order, the connecting line between the accounting department Types of Organization 25 and the production department showing that the latter provides such information as is required by the former in reference to stores and materials to be purchased for the order. The accounting department passes the order to the stores department, where an analysis of the bill of material is made and the balance-of-stores records checked up to indicate what materials and parts are on hand and those which have to be made in the shop, the production department being notified of the results of this accounting. Next, the purchasing department re- ceives from the stores department the information as to what purchases need to be made by reason of the entry of the order. Next, the cost department is notified of the order and its status as to parts to be drawm from stock, parts to be purchased, and parts to be built in the shop. Following the center path, we find the planning or pro- duction department receiving the order simultaneously with the designing department on the left and the ac- counting department on the right. The planning depart- ment at once starts another set of activities requisite to the expedition of the order through the shops. As indi- cated, these activities pertain to the routing of the order through the shop departments, the getting ready in ad- vance of detail instructions as to the making of each piece and group and putting them together. Next comes the work of rate-fixing or the establishment of such in- ducements or rewards in the waj of premiums, bonuses, or piece rates as will be offered in connection with the order. Then comes the proper placing of the various parts required in the shop's program of work, after which each part and group and the order as a whole is followed up or traced as it progresses through the shop. Finally, 26 Organization and Management the various sub-orders must be delivered with all instruc- tions to the various shop departments. Looking at the lower part of the chart, we see that the work of the shop, including the completion of the work of the planning department's branches, is finished simul- taneously with the work of the testing department on the left-hand or technical engineering branch, and with the work of the cost department on the right-hand or accounting branch. The order now passes to the shipping department, and after shipment, all data go again to the accounting department for billing and determination of the profit or loss on the order. FORM OF GRAPHICAL CHART TO INDICATE PROGRESS OF ORDERS The example just given is arranged in a manner w^hich has been designated as the ''hot-water bottle" type of chart. Other striking forms which may be used for this purpose are charts in the form of an hourglass or dra^\Ti up so as to imitate the lines of the nervous and circulatory system of the human body. For the most part these de- vices are merely "catchy" talking-points used by pro- fessional systematizers. The best way to arrange such a chart is to cut out pieces of paper in the form of circles or rectangles, a separate piece of paper being prepared to represent each separate department which has anything whatever to do with the handling of an order. Next, cut out a number of long, narrow strips of paper to serve as connecting paths between the circular or rectangular templets al- ready cut out. Now, connect the various departments in proper sequence Avhen considered from the viewpoint of progress of orders, grouping together such departments as come under one general supervisory heading. After this arrangement has been made, you can change the Types of Organizaiion 27 proportions of the circles or rectangles in such a way as to make a symmetrical chart. A little artistic tempera- ment and imagination will enable you to construct out of the chart almost any kind of picture desired, if you want to make it ''catchy." Indicating Paths of Material on Charts By making comments in condensed form along the lines connecting the departments after they have been arranged in the form best adapted to showing the progress of an or- der, we can utilize the chart not only to indicate the prog- ress of the various papers connected with the execution of orders as they pass from department to department, but we can also make it indicate how the raw materials, work in process, finished parts, and groups flow from de- partment to department. Figure 8 is an illustration of such a chart as prepared by the author when he was superintendent of an auto- mobile factory. This chart proved to be very useful in training the various store-room assistants, timekeepers, cost clerks, and shop foremen to a comprehensive under- standing of shop conditions. Reference to the chart gave the men in the receiving department information as to where various classes of material were to be sent. Simi- larly, each shop foreman saw that the parts and groups were not to pass to or from his department indiscrim- inately, but that there were fixed paths to be followed implicitly. The finished stock room was the clearing- house to which all parts or groups came and from which they issued in proper sequence. This method of proce- dure made it easy to inspect individual parts and facili- tated control over the flow of material. It prevented the disorder incident to using the shop floor as a store room. 28 Organization and Management Charting Responsibilities of Department Heads The charts illustrating general organization, which have been heretofore described, make no reference to of- ficials or departmental heads by name. In preparing an ideal or ultimate organization chart for an existing or new business, it is always desirable, first, to chart the existing organization in this personal manner. It will nearly always be found that in an existing organization the personal element has played an important part. The organization has frequently had to adapt itself to the personal strength or weakness, specialized knowledge, or versatility of various individuals. When we consider that the corporation as a permanent institution is likely to outlive the various existing officials, it is quite appar- ent that it is desirable to make the chart of the organiza- tion as nearly ideal as possible. It frequently happens, however, that the realization of this ideal chart must be deferred for some years. In the meanwhile it is im- portant that various officials and department heads, as well as minor employes in the various departments, un- derstand exactly where they stand and to whom they are responsible. Hence, it is highly important to have an organization chart showing the relationships of de- partments to each other and the lines of responsibility and authorit}' of the ^'ario^s officials. Figure 9 illustrates a chart of this type. It refers to the same establishment as the one shown in Figure 8, and the figures designating the various departments, it will be noted, are the same in each chart. The name of each department head is given in each circle. Blue-print cop- ies of this chart are distributed to the various depart- ment heads and posted on the various bulletin-boards in the shops and offices. While in some cases there may be J, — C7/^/^/=< "7- tf'e fid,^ /"^r* < fw ^^ b Types of Organization 29 good reasons for treating the ideal or ultimate organiza- tion chart as confidential information for the use of the compan}^ officers and general manager, there is every reason why a chart of the existing organization should receive the widest publicity among employes. Such pub- licity ^\^.ll prevent any misunderstandings and help em- ployes towards getting a clearer understanding of the business as a whole. TEST QUESTIONS 1. What are organization charts? How are they constructed? 2. Draw an organization chart showing the relationship and responsibilities of stockholders, directors, general manager, and department heads. 3. Draw a chart illustrating military line control without staff. 4. Draw a chart illustrating line-and-staff control. 5. Draw a chart illustrating functional control. 6. Draw a chart illustrating the sphere of action of shop com- mittees. 7. What are some of the activities and statistics to be taken up by the manufacturing committee ? 8. What are the duties of the tool committee? 9. What are the duties of the suggestion committee ? 10. What are the duties of the safety committee ? 11. What are the activities to be considered by the welfare committee ? 12. What sort of questions are taken up by the educational committee ? 13. What matters does the committee on designs of new prod- ucts consider? 14. What sort of questions will be investigated by the com- mittee on cost reduction? 15. What are the duties of the complaint committee? 16. Draw and explain a chart showing the principal sub- 30 Organization and Management divisions in the administrative, production, and selling divisions of some industry ^\^tll which you are familiar. 17. What are the seven M's listed by Charles B. Going as the principal production factors? 18. Draw a chart showing the progress of an order from the sales department through the designing department and planning division of the shop. 19. What steps are taken by the designing department on the receipt of an order? 20. When a production order is issued, how is the provision of necessary materials taken care of? CHAPTER in locating an industry General Considerations The factors that enter into the selection of a location for an industry concern themselves chiefly with the three production factors, materials, men, and markets, although a fourth, namely money, also plays an important part. When an industry is about to be started, or when through consolidation of smaller units into larger a combination has taken place, one of the most important questions con- fronting the management is that of where the industry is to be located so that from every viewpoint the site selected shall be the best. After the particular town in which the industry is to be located has been decided upon, there remains to be solved the no less important question as to what particular district or neighborhood in that town will be best. So far as the selection of the general location is con- cerned, the following factors need consideration: (1) raw, semi-finished, and finished materials, supplies, and accessories essential to the business; (2) power required and available and its cost, whether water power or gas power is preferable to coal, or coal preferable to either of the others; (3) the effect of climate upon production; (4) transportation facilities ; (5) the desirability of water transportation; (6) labor supply; (7) inducements in the 31 32 Organization and Management way of free land for buildings, cash bonuses, stock sub- scriptions; (8) money market; (9) sales markets; (10) nearness of other industries in the same or similar lines. So far as the local site is concerned, after the general location has been selected, we have to deal with the fol- lowing considerations: (1) space for expansion; (2) fixed charges due to high or low cost of land; (3) local labor market; (4) nearness of this local labor market to site; (5) local transportation facilities for freight and workmen; (6) fire prevention; (7) nearness to local trade centers. These various factors will now be considered in further detail. Materials If the materials required are but few and bulky, it is quite likely that nearness to supplies of cheap raw mate- rials will be an important factor. Taking, for example, the iron and steel industries, we have to consider that pig iron is composed of approximately 28 per cent of coke, 16 per cent of limestone, and 56 per cent of iron ore. Some forty or fifty years ago central Penns^dvania was dotted with small furnaces, because limestone and iron ore were plentiful and hickory wood for coke abounded. As production centers rearranged tliemselves along the lines of the railroads, the cost of hauling from these country furnaces to railroad lines became an important factor and soon led to the concentration of the Pennsyl- vania iron and steel furnaces in certain railway centers convenient to the raw materials. A new element appeared, however, in the Superior iron fields. Here the iron ore was so located that it could be handled by mechanical processes with a minimum of wage cost, since it could be conveniently dug with steam shov- els and conveyed by machinery to the holds of vessels, Locating an Industry 33 which in turn were unloaded by machinery. However, the Superior iron fields were remote from coal; hence, the furnace industry spread gradually toward the lake ports where the combined cost of coal, iron ore, and lime- stone showed a most favorable cost figure. Where the raw materials are not so bulky, as for in- stance in the textile industries, nearness to raw mate- rials is not so important. The New England States still lead in textile manufacturing, although the raw materials come from the South so far as concerns cotton, and from the West so far as concerns wool. Where the materials supplied are numerous and of a semi-finished or finished nature, as is the case in an as- sembling business like the making of automobiles, requir- ing supplies of bar stock, bolts, nuts, washers, rods, etc., in great variety, as well as drop-forgings and castings purchased mostly from jobbing shops, the best market for raw materials will be a general metal-manufacturing ter- ritory. Here there will be competition in prices of the materials as well as avoidance of delays due to a scarcity of suppliers and inability to follow up purchase orders. Again, taking the automobile business, after it has been settled that a metal-manufacturing territory is essential, the further consideration arises as to nearness to manu- facturers of finished accessories such as radiators, mag- netos, tires, etc. All of these considerations have led to a concentration of the automobile-manufacturing indus- tries in a territory roughh^ indicated by a line connecting Buffalo, Cleveland, Indianapolis, Lansing, and Detroit. Power Power is an important factor in the steel, glass, brick, tile, pottery, iron, and forging lines of business. In the assembling ones it is less important. There are also cer- 34 Organization and Management tain metallurgical and electrochemical industries which require a great proportion of power in their conduct. These considerations have resulted in the establishment of iron and forging enterprises in locations having cheap coal for power and recommended by nearness to raw ma- terials. Such a combination is found in Pennsylvania, Ohio, and parts of Indiana, Illinois, and New York. A combination of clay and cheap gas fuel such as is required for the ceramic industries is found in the gas fields of West Virginia and Ohio. The abundant water power in the vicinity of Minneapolis accounts for the establish- ment of flour mills which are also near to the market for raw material. Similarly, cheap power combined with cleanliness has led to the establishment of the carborun- dum works and shredded-wheat factories at Niagara Falls. Climate Prior to the perfection of mechanical methods of hu- midifjdng, dehumidifying, heating, and cooling local bod- ies of air in factories, warehouses, kilns, etc., the natural climate played an important part in the selection of sites for certain factories such as cotton mills, silk mills, cigar factories, etc. On account of the ability of manufactur- ers to produce artificially almost any desired climatic condition in the factory, climate is less important at the present time for the foregoing considerations than for its influence on the comfort and healthfulness of the workers in their homes and life outside of the industry. Transportation Facilities Where the raw materials and finished product are bulky and heavy, the cost of transportation is an important fac- tor. Where the materials and product are light, the prob- Locating an Industry 35 lem is less important from the standpoint of first cost of production, but it is equally important from considera- tions of adequacy of service. From considerations of transportation costs, that loca- tion is most advantageous which minimizes the combina- tion costs of freight and express on incoming materials and on outgoing finished goods. In the furniture-manu- facturing industry, for example, a factory located close to the source of lumber supply might have any advantage due to closeness to raw materials offset by the high freight on finished product and by the inability to make quick deliveries of finished product owing to its remoteness from sales markets. Convenience to various fields of raw materials and to markets is afforded by selecting a site where railways converge. This is particularh^ true when the railways are long, important lines. Examples of such centers are found in Kansas City and Indianapolis. Adequacy of service is assured where there is competi- tion between transportation companies. Rebates and other forms of rate-cutting are not to be considered as a fruit of competition, but the securing of commodity rates and prompt car service as well as prompt attention to tracers are all advantages resulting from rivalry in trans- portation service. .Water transportation is advantageous wherever it con- nects the plant with important sources of raw material or good sales markets. It by no means follows that it is a weighty factor merel}^ in those industries using large bulky materials which are not injured by water. Lum- ber, iron ore, coal, and oil are certainly important items in the list of articles carried by water-transportation companies, but an inspection of the docks and wharves at any of the inland ports where railroads and water- 36 Organization and Management ways converge will reveal the miscellaneous nature of the goods shipped by water, and show that much in the way of finished goods is carried by boat. Certain inland cities afford excellent competition be- tween land and water transportation as well as a wide field for operation between the factory on the one hand and raw materials, supplies, and sales markets on the other. Such cities usually can also furnish at low cost an adequate water supply for power and manufacturing purposes and they have abundant water for fire-depart- ment use. Among cities of this class we may mention, for example, Pittsburgh, Cincinnati, and St. Louis as possessing the advantages of rivers and railroads, Buf- falo, Erie, Cleveland, Detroit, and Milwaukee are rec- ommended by the competition of lake and rail routes. Boston, Providence, New York, Philadelphia, Savannah, New Orleans, Galveston, and San Francisco are exam- ples of cities having coastwise shipping routes along with railways, being at the same time convenient for foreign export or import. Labor Supply An industry requiring a large number of unskilled la- borers is preferably located near a source of that kind of labor. The tendency of immigi^ation from southern and eastern Europe has been to follow certain lines of distri- bution. Pittsburgh and Chicago are important points on these lines and hence afford good markets for a sup- ply of this class of labor. Certain sections of the country have developed centers of population where an almost hereditary liking for the trades requiring a medium de- gree of skill is found. In the Connecticut River valley there is an abundance of labor proficient in operating au- tomatic metal-working machinery. In the Cincinnati Locating an Industry 37 territory raachinists are plentiful. In Pennsylvania steel and furnace workers in general are easily found. Indus- tries requiring large numbers of highly skilled operators, such for instance as engraving and lithographing estab- lishments, usuallj^ find large centers of population the best source of supply for highly skilled labor. Special Inducements Offered A grooving industrial center ^ill frequently offer de- sirable inducements to industries in search of a location. These inducements may take the form of free sites for buildings, cash bonuses, stock subscriptions, or a com- bination of all of these. Free land alone is not an in- ducement unless the land is well located, is subject to low tax rates, and affords opportunity for expansion. More- over, the to^VIl in question must be of some strategic value when all of the other factors already discussed are taken into consideration. Cash bonuses are less frequent, but their equivalent may take the form of buildings and sites reverting to the donors in case the industry fails to keep its part of the agreement, w^hich is usually that employ- ment is to be given to a specified minimum number of men. Cash bonuses are sometimes raised by a sale of lots adjacent to the land given *the new enterprise. Stock subscriptions are often desirable in order to secure the co-operation of local investors in the enterprise. All of these inducements must be considered as sec- ondary to the primary advantages of best natural loca- tion. At the same time these inducements, coupled with natural advantages, may make it possible to start a thriv- ing industry which could originate in no other way, or they may enable an industry which is handicapped by lack of room or other factors to find just the right place for growth and expansion. 38 Organisation and Management Money Market Any thriving industry depends very largely on local or near-by banks for occasional advances of money on the securities it has to offer. A business wishing to realize the greatest possible earnings from its capitaliza- tion can afford to maintain only a small percentage of that capitalization in the form of bank balances, since such bank balances do not jjay any profits. Yet it often happens that large purchases and large pay-rolls must be provided for before the receipts from the sales of in- creased outputs are available. Under these conditions it is important that local banking facilities be such that the business can be put on an equal footing with similar ones in other localities. These considerations point to the need of investigating the local money market as an im- portant factor in determining the location of the pro- posed plant. Sales Markets A large number of important industries made their start in the best sales market. After the business was thoroughly developed and a strong sales department or- ganized, they could afford to select a new location. Un- der such conditions the old site could be used as a branch factory. Places where buyers congregate afford nat- ural advantages for a business just starting. Taking the furniture-manufacturing business, for ex- ample, we find tliat buyers congregate at Grand Rapids in the summer and winter at predetermined dates to inspect new styles. Permanent furniture expositions are also conducted in Chicago, New York, St. Louis, and San Francisco. A new furniture business might well con- sider carefully the advantages due to nearness to that Locating an Industry 39 one of these markets in which it proposes to conduct its strongest selling campaigia. Nearness to other establishments in similar lines is also often of advantage. Buyers from various parts of the world come to Cincinnati to inspect machine tools. Numerous small concerns building specialties in the ma- chine-tool line have as a consequence found it advan- tageous to start in Cincinnati. Local Site Having determined on the particular town in which the industry is to be located, the selection of the local site is one of equally great importance. There must be room for expansion, and at the same time the fixed charges due to interest on the investment in land and taxes must not be too high. LocAii Labor Market A fluctuating force of employes is always a severe han- dicap. A location which attracts permanent w^orkers rather than '* floaters" is to be sought. Most employes do not like long rides on street cars or on commuters' trains. Hence, a location near the homes of people who would form the working force of the business is desir- able. Nearness to the working-men's homes makes it easier to develop athletic and social activities fostering the personal relationship and personal interest in the business. Local Transportation Facilities If the factory is to be a place to which prospective cus- tomers are to be brought, the question of local transporta- tion service is important. There is always also a con- siderable proportion of the employes who will have to 40 Organization and Management be drawn from localities other than the immediate neigh- borhood of the jDlant or the area within walking distance. Hence, good street-car or accommodation train service is necessary. From the viewpoint of greatest advantage in freight transportation, it is desirable to be located at the inter- section of several railroads or on a belt-line, and in a locality where teaming or auto-truck service to other depots is not a heavy expense charge. Neaeness to Local Trade Centers If the industry is of an assembling nature requiring the purchase of small items of raw material, or purchased finished parts on short notice, then it is important that the site be near local sources of supply of such items, as remoteness would cause delays. Fire Prevention, Water Supply, and Sanitation A suburban site is frequently remote from good fire- department apparatus, and the cost of installing and maintaining a fire-prevention system must be considered. Similarly, adequacy of water-pipe lines and sewers and cost of installing private lines need consideration. Industrial Surveys In order to aid business men contemplating location in a given industrial center, we frequently find boards of trade, commercial clubs, or municipal commissions employing expert industrial engineers to prepare what have been designated as ''industrial surveys." Such surveys report on the nature of the leading indus- tries in the locality in question, the number of persons employed, amount of money invested, bulk and value of output, to what points the output is shipped, advantages Locating an Industry 41 of the town or city in question as regards some or all of the foregoing- considerations discussed in this chapter. Such surveys are also used to set forth opportunities for certain lines of industry which appear to exist ac- cording to the opinions of the persons making the survey. Industrial surveys are taking the place of hai:)hazard solicitation of new industries. They afford just the data needed by the directors of industries seeking a new loca- tion. Incidentally, industrial surveys serve another very useful purpose, namely, that of helping bureaus for voca- tional gTiidance in connection with public-school systems or private social efforts, and assisting young people to get a view of the local field of employment. TEST QUESTIONS 1. What are the principal factors that enter into the selection of a certain town as a desirable location for an industry? 2. When the town is decided upon, what considerations affect the selection of the local site ? 3. Under what conditions is nearness to raw materials desir- able? 4. In what classes of business is power an important factor? 5. Discuss the influence of climate on the selection of factory location. G. How may we secure good transportation service? 7. Under what conditions is water transportation advan- tageous ? 8. How does the question of labor supply affect factory loca- tion ? 9. How may a progressive young town in a favorable indus- trial location finance the offering of free factory sites including bonuses, buildings, or stock subscriptions? 42 Organisation and Management 10. How may railroads and navigation companies assist in- dustries as well as towns along their systems in the way of fac- tory location? 11. How do local financial conditions affect the selection of a town for a factory location ? 12. Under what conditions is it desirable to locate in or close to the sales market ? 13. How does local labor supply affect the selection of a fac- tory site in a given city? 14. How does the question of local transportation facilities affect the selection of a factory site in a given city? 15. How does nearness to local trade centers influence the selection of a factory site? 16. Wliat influence do questions relating to fire prevention, water supply, and sewage, have on the selection of a local site ? 17. What is an industrial survey? 18. How can an industrial survey be made useful in connec- tion with educational policies? 19. How can an industrial survey be made of use to local industries? 20. What sort of educational training and experience would you consider necessary for a person who is to act as industrial agent or adviser in questions of factory location ? CHAPTER IV manufacturing plants and equipment Importance op Aeeangement and Equipment Many successful industries had their beginnings in rented quarters or in small buildings not planned with any particular reference to production. As these in- dustries grew and a careful analysis was made of costs of production, it became evident that the influence of the arrangement of buildings, departments, and equip- ment on costs of production was very important. The realization of the economic importance of these factors has led successful manufacturers to considerable expen- ditures in money and time in making careful lay-outs of industrial plants for the purpose of starting a new one, for making extensions, or looking to removal from an old site to a new one. This same recognition of the importance of the prob- lems involved has led to the rise of a class of industrial engineers, some of them acting as designers, others as designers and contractors, who make a specialty of the lay-out, design, equipment, and sometimes the initial operation of industrial plants. Principal Factors to be Considered in Plant Lay-out The controlling influences in arranging and designing industrial plants are (1) processes and (2) service. 43 44 Organisation and Management Under the heading of processes we shall have to con- sider (a) the general process-mapping of the industry; (b) the routing of the separate classes of material or parts through the establishment as a whole and through each distinct department; (c) machinery and fixtures in- volved in industrial processes; (d) departmental ar- rangement by processes. Under the heading of service we shall have to consider the following: (a) power; (b) heat; (c) ventilation; (d) light; (e) sanitation; (f) transportation; (g) storage of (1) raw materials, (2) work in process, (3) finished individual parts, (4) assembled groups, and (5) com- pletely finished product; (h) receiving and shipping; (i) tool rooms; (j) wash rooms; (k) foremen's offices; (1) spaces for planning department, bulletin boards, time clocks, cost and stores records, etc.; (m) inspectors' quarters; (n) fire-prevention, safety, and welfare ar- rangements; (o) drafting and designing space; (j) com- mercial, administrative, and supervisional officials' of- fices. Process-Mapping Process-mapping consists of the charting of the gen- eral processes involved in the industry. Naturally, ana- lytic manufacturing would present a different type of process-mapping from that of synthetic manufacturing. Similarly, an industry employing consecutive processes would present an entirely different process-mapping from that of an industry in which simultaneous processes are the rule. For instance, a linseed-oil factory is an ex- tractive or analytic industry and would require an en- tirely different process-map from the one needed by a cement mill, which is a synthetic industry. Again, a rail, mill is a continuous process and requires entirely differ- Plants and Equipment 45 ent process-maps from those of a sewing-machine fac- tory, which typifies simultaneous processes followed by assembling. Preliminary general process-maps can be made for a given industry by listing first the general operations. If these are all consecutive, we shall have the list in one CLEANING GRINDING SCREENING PURIFYING PACKING SHIPPING Fig. 10. — Lay-out of a Flour Mill, Illustrating an Analytic Industry with Consecutive Processes, Located in a Single Multifloor Building column. If some are simultaneous, they will be in several columns. Then we can decide definitely, from our knowl- edge of the processes, which of them require separate buildings and which can be housed together, also which processes must be on the ground floor and which may be on upper floors. For example, it is easy to decide that painting agricultural machinery by the dipping process 46 Organization and Management should be in a separate building from the machine work on the metal parts, and that assembling large boilers must be done on the ground floor. We can now roughly sketch a phantom-perspective view of a building or group of buildings devoted to process- ing, for the present omitting power-plant and all service RAW MATERIAL ROLLS STAMPS CONCEN- TRATORS TANKS GRINDERS SETTLING AND CLEANING Fig. 11. — Lay-out of an Ore Mill, Illustrating an Analytic Industry with Consecutive Processes, Located on a Hillside to Take Advantage of Gravity equipment. We may indicate in colored crayons or col- ored inks the various principal processes and the paths for the flow of materials, supplies, and work in process, as well as by-products and waste, if any. Figures 10, 11, 12, and 13 are simple forms of preliminary process- maps. Plants and Equipment 47 Routing Individual Pakts or Classes of Material Routing is different from process-mapping in that it traces the path of a single part. For instance, in making a process-map for an automobile factory, we have before us an entirely different task from that required if we OFFICE DRAFTING ROOM TEMPLET SHOP AND ROUGH STOCK SHEARS PLANERS RIVETERS FINISHED STOCK Fig. 12. — Lay-out of a Structural Steel Plant, Illustrating a Consecutive- Process Synthetic Industry route a crank case to be made in that same factory. To route the crank case, we inspect the blue-print and list the separate operations to be done. Process-mapping is a generalized survey of the whole industry. Routing 48 Organization and Management GENERAL ASSEMBLY 1 PATTERN "" SHOP ^ ^ rni iMHRV if ^ rUUiNL>/I\. I BOILER ^m-»» SHOP FORGE SHOP MACHINE % SHOP n Fig. 13. — Lay-out of a Locomotive Shop, Illustrating a Synthetic Industry with Simultaneous Processes, FoUowed by General Assembly Plants and Equipment 49 is a detailed investigation which, when thoroughly built up, may materially modify preliminary process-mapping. A well-organized system of routing and a good stock of routing records covering the product form the very best basis for an intelligent process-map. Of course, in start- ing an entirely new industry the experience and judg- ment of the men in charge of the productive end of the P»n BOX - RAHIC SU. ] 1 1 1-1/2 ■ C»rd No. 269 r Un, 1 OPERATION SYMBOU MIna. each REMARKS 1 Bore & Turn (Outs. & ins.) B & T 21.6 2 Koyway for babbitt Kl 17 3 Babbitt B40 50 4 Bore (Roll babbitt & OilRroove! B 23.5 5 Turn T 35 Fig. 14. — Typical Routing Card Giving Operations to be Performed on Each Piece Mnemonic (symbols for operations are jrenerally used on all shop tags and cost cards, tlius saving time and space. enterprise form the only basis for process-mapping. Fig- ure 14 is a typical routing card giving the operations to be performed on an individual part. Selection and Arrangement of Machinery AND Fixtures After having laid out the preliminary general process- map, it is desirable to take a large sheet of drawing- 50 Organization and Management paper for each separate department and indicate roughly the most prevalent routes of material, parts in process, and supplies, by-products, and waste through this de- partment. Knowing the capacity of output, we must next determine how many units of processing machinery or devices are to be placed in the department, and of what capacity each must be. We are going on the assumption now that w^e have not restricted the confines of the de- partment by any room or building walls, but are going to make the building and rooms suit the processes. We can be guided by the number of units and capacity of processing machinery and devices for a given quantity of output used in similar establishments elsewhere, if such data are available. If they are not, it becomes necessary to estimate the time required for processing each part and for providing the necessary number of units of proc- essing machinery to furnish the output wanted in a given time. We next investigate the floor area required by each processing machine or device and its dimensions together with space required around it for operators and storage. We must also allow room for free transportation by truck, wheelbarrow, industrial railway, or crane, as well as room for expansion by the placing of an additional processing unit in the future in the most desirable loca- tion, provided there is any likelihood of such expansion, any floor space available, and the allowance of such space does not increase cost of production. In arranging the various machines and fixtures, it is very convenient to cut out forms or templets to scale so as to represent the floor space occupied by the various machines and fixtures. The name of the equipment and horse-power required, together with dimensions, should be written on the templet. These templets are then ar- =m open ru- -^irer MACHINE roff Mau/vc BAses OF £Hi>lfiE5 flACHIffE 60 V^^ftrtCAL Of^ lUin^ MACHINE lNO\JSTf^lAL fffi^lLWAY rOTAi. flOMiZ ^or. r r/cAL rt/fi/fcr i VO » -Otr/CAL O- UlLLmO T^^£AQ /r/ii//Vtf /TACf'f^e fc Jt/ J^ % — IVQ-li £Aie//¥£ LAr^^f =n£Sa C Plants and Equipment 51 ranged and re-arranged until the most satisfactory col- location in the department has been reached, whereupon they are fastened with tacks to the paper or board repre- senting the department. Figure 15 is an example of a plant lay-out arrived at by use of templets as indicated. Departmental Arrangement by Processes The foregoing investigation will give sufficient infor- mation on which to base approximate dimensions for the leading processing departments. It is desirable to have data available from similar establishments giving the square feet per department per unit of output and per employe. Such data are useful for comparison. We now are in a position to cut out templets on a smaller scale than the large sheets representing departments, a templet for each department, and can arrange the departments in most advantageous relation to each other so far as processing is concerned. Before deciding anything defi- nite, however, we have next to consider the space and location requirements of the service equipment and serv- ice departments. Power-Generation and Transmitting-Apparatus It has already been suggested that the horse-power should be listed on each templet representing processing machinery. We cannot designate the motor required for each department nor the power required for the plant as a whole until we have investigated certain other power- consuming service apparatus connected with heat, ventila- tion, light, and transportation. It is therefore the last item to be considered. 62 Organization and Management Heating, Ventilating, Humidifying, and Air- Washing Apparatus This part of the plant is entirely too important as an economic factor in production to be left to an inexpe- rienced architect or to a local pipe-fitting contractor. Unless there is experienced engineering skill available among the employes of the establishment, this matter as well as the entire question of factory specifications should be left to an experienced industrial engineer. However, it is necessary for everyone connected with shop management in any form to appreciate the im- portance of the principles involved. For this reason the discussion has been introduced here. Direct radiation arises from the running of pipes con- taining steam or hot water into the rooms and spaces to be heated, and running these pipes either overhead, along the walls, or fastening them to radiators. Where direct radiation is used in factories there should be a system of controlling the circulation of the steam and condensed water by other means than gravity, as the long distances involved usually interfere with the success of the gravity return system. Direct radiation is preferred by many shop-owners to a hot-blast system, because it costs a little more to heat the air and blow it through the establish- ment than it costs to install direct radiation. However, where direct radiation is used, it should be accompanied by a suction foul-air exhaust system arranged to remove the vitiated air at a proper rate. Such a system consists of ventilating flues in the walls connected with a central flue, at the top of which is a suction fan of required ca- pacity. Plants and Equipment 53 Advantages of Hot-Blast System The hot-blast system has advantages from a hygienic standpoint that make it well worth the slight additional cost over that of the direct radiation system. There is always plenty of fresh air, if the supply of air to be warmed is pure. This air, on being forced out from the hot-air flue, penetrates in all directions and is better circulated than the air heated by direct radiation, even with the aid of foul-air ducts and an exhaust fan. The ventilating ducts and exhaust fan are also used in con- nection with the hot-blast system. The greatest advantage of the hot-blast system, how- ever, and one appreciated only within recent years, lies in the fact that we can by it control not only the tempera- ture of the air supplied, but also its humidity. The lassi- tude of workers confined in buildings has been found to be largely due to the dryness of the air. This same dry- ness makes us demand a higher temperature. Air at proper humidity and at a temperature of 63° Fahren- heit is as comfortable as dry air at TO"". Hence, we can save coal in our heating-plant and insure freedom from colds and from catarrhal and grippe troubles by humidi- fying our air. Humidifying apparatus is now sold by the manufacturers of all mechanical heating appliances and is becoming so generally used that no progressive industrial establishment can afford to be without it, as it is a most important economic factor in bettering the health of employes and thus securing greater content- ment and bigger output. So far as department lay-out is concerned, the only way in which the heating and ventilating apparatus en- ters is in the matter of locating radiators and registers or ducts. These locations should be indicated in their 54 Organization and Management preferred positions, so that these may be conformed to as near as possible in the installation. Light Provision should be made for abundant daylight. The use of metal sash enables us to make the window frame of strong, light material. Where the light must pene- trate more than twenty or twenty-five feet into floors hav- ing a height of only ten or twelve feet, it is desirable to introduce prismatic-glass panes into the upper sections of the window sash. Where multifloor construction is used with widths of floors of more than sixty feet it may be necessary to introduce artificial lighting in the day- time. The tendency is all in favor of the reflected light or ''full indirect" type of chandelier presenting an opaque surface to the eye and reflecting the light to a diffusing ceiling. Ordinaiy illumination for rough work demands an intensity of light of not less than one foot-candle, which means that the light is the same as would be given on a sheet of paper a foot distant from a standard candle. For reading purposes, an intensity of two foot-candles is required, and for accurate machine work three foot- candles are requisite. The spacing of the lights and their height from the floor and below the reflecting ceiling must be determined by calculation. In single-floor buildings more than fifty feet wide the saw-tooth roof with northerly exposure gives us good daylight illumination. However, unless level reflecting surfaces are provided, the full indirect reflecting system cannot be used with a saw-tooth roof, and a translucent glass is used under the chandelier in- stead of a reflecting opaque type. This is known as the ''semi-indirect system." The drop cord with unpro- Plants and Equipment 55 tected glaring filament is absolutely obsolete so far as intelligent illumination is concerned. It is a source of eye-strain and fatigue which materially interferes with efficiency of production. Wash and Locker Rooms It would be better if these rooms were distributed about the plant instead of being concentrated in one lo- cation. Such distribution saves the time of employes who are compelled to use them during working hours. Departmental arrangement must provide for such rooms in convenient locations. Transportation We must allow room for the easy passage of trucks as well as a storage room for trucks not in use. We must also provide for modern elevating trucks loaded with ma- terial. If the storage-battery type of motor-driven trucks is to be used, provision must be made for their storage and maintenance. If industrial railways are to be used, space must be allowed for tracks and turn-tables. Room must also be allowed for trolley systems, hoists, and over- head cranes, if it is found that they are requisite. Store Rooms Storage of raw materials, work in process, finished in- dividual parts, assembled groups, and completely fin- ished product must be provided for by allowing space for such storage wherever needed. The store rooms re- quire proper equipment in the way of bins, racks, shelves, etc., to insure ready accessibility as well as safety against damage and theft. The working part of the shop should n.ot be interfered with by any attempt to combine store- room functions with prbc^sing activities. 56 Organization and Management Receiving and Shipping The receiving department may be under the same juris- diction as the purchasing and stores, or under the ship- ping department. In any event its location is likely to be most favorably determined when we consider its own. functions irrespective of what other department it may be under, so far as jurisdiction is concerned. If most of the small materials are received by team or express, it may be desirable to have it located where such teams can most conveniently arrive, unload, turn around, and depart. Both receiving and shipping must be convenient to the store rooms. Receiving will probably have to be nearer the raw-material stores, and shipping will have to be nearer the finished-product stores. In case carload re- ceipts and shipments are only occasional and there is but one track, this track will have to be accessible to both receiving and shipping departments and a clear passage- way to it from both of these departments will have to be provided. If coal and ashes in carload lots constitute a considerable factor, these items will also have to be con- sidered in laying out the trackage. Tool Rooms Tool-making and tool-storage are distinct functions and must not be confused. Tool storage and delivers^' may require a messenger-boy service, a pneumatic-tube service, a cable-driven basket service, or a dumb-waiter service, as well as supplementary storage and delivery rooms. Foremen's Offices Where the foreman is a working gang boss he will probably not need any desk room. However, there ape industries which, even when pro\'ided with a planning Plants and Equipment 57 department, require that certain foremen may have pri- vacy for studying blue-prints and specifications and for interviews. The clerical help of foremen must always be kept at a minimum. AVliere a private office for a fore- man is in the interests of efficiency, it must be provided for and space allowed for it. Planning-Depaetment Fixtubes A planning department usually requires the allowance of room for bulletin boards on which are listed the jobs to be worked on by each man in a department or sub- department. This means that the floor around this bulletin board must be kept clear and preferably fenced off by pipe. Inspectors' Quarters Space will have to be allowed for inspectors as well as for benches and appliances, accommodating as much work in process as is likely to accumulate in such space. In some establishments inspection takes place only prior to turning a piece into the stock room for finished parts. Under such conditions only one space is required for inspectors. In other establishments inspection takes place at more frequent intervals and in various parts of the shop; in such cases the inspectors' quarters must be lo- cated so as to cause least delay in the progress of ma- terials. Fire-Prevention, Safety, and Welfare Arrangements The location of hose attachments, hose, chemical extinguishers, fire escapes, belt guards, and any other safety devices taking up space, will have to be taken into consideration. Among welfare arrangements those re- 58 Organization and Management quiring space are such as hospitals, rest rooms, physi- cian's ofiSce, lunch rooms, library, and assembly room. Drafting and Designing Space The drafting and designing space must be located where it has the advantage of good daylight, and as nearly as possible situated at an equal distance from the commercial and sales offices, the main planning-depart- mcnt office, the pattern and drafting department, and the main inspection office. The resulting location is usually something of a compromise. Commeecial Offices The commercial offices used for administrative and supervisional officers should be arranged in such a manner that visitors to the purchasing department, accounting department, applicants for positions, and prospective customers can be directed into separate waiting rooms. The internal arrangement of the commercial offices should be made the subject of as careful a lay-out as the arrangement of the factory equipment and productive departments. Final Akrangement After having indicated on the preliminary separate departmental sheets, and also on a large preliminary general lay-out, the location of all the service equipment and service departments, we are now ready to make the final lay-out. This lay-out can be visualized more cx)m- pletely by means of a wooden model built to the scale of the proposed factory buildings, but showing the side walls in framing only and having the floors solid. On the floors are fastened (with pins) templets showing the various equipments, deprartmBntal bonndarifes being indi- Plants and Equipment 59 cated by painted lines. The principal paths of progress of material, as determined by the preliminary process- mapping, are inrlicated by the use of threads of various colors. Figure 16 shows the ground-floor plan for a gas-engine manufacturing plant, which has been arrived at by cutting out templets representing various depart- ments and arranging them until the most satisfactory collocation has been secured. TEST QUESTIONS 1. What four groups of considerations are involved in study- ing processes as related to plant lay-out? 2. What features are to be considered under the heading of service ? 3. What is process-mapping? 4. Make a graphical process-map for some simple industry with which you are familiar. 5. What is routing, and how does it differ from process-map- ping? 6. What considerations enter into the arrangement of sur- rounding floor space for process machinery and fixtures in a given department? 7. Of what use are paper templets of machines and fixtures in making a department lay-out? 8. What comparative statistical data are desirable in de- termining the area of various departments ? 9. How may paper templets be used in determining depart- mental arrangement? 10. What arrangements should be made for controlling the circulation of steam in radiators and for the removal of foul air when a direct radiation heating system is used in a factory? 11. What are the advantages of a plenum hot-blast system? 12. What arrangements should be made fdr abundant daylight iUumination ? 60 Organization and Management 13. What is meant by a foot-candle of illumination? 14. Wliat intensity of artificial illumination is required for reading purposes? For accurate machine work? 15. Discuss the injurious effects of glare and state how they may be avoided. 16. What considerations are involved in the design of wash and locker rooms, store rooms, and tool rooms? 17. What provision must be made for transportation of various sorts ? 18. What considerations are involved in locating receiving and shipping department, foremen's offices, inspectors' quarters? 19. What considerations are involved in locating fire-preven- tion and safety apparatus, drafting and designing space, and commercial and administrative offices? 20. How may the final arrangement be visualized in the most striking manner? CHAPTER V BUYING Qualifications of a Purchasing Agent The purchasing agent's activities involve almost all of the production factors enumerated. He has, of course, to deal primarily with materials and the markets for these materials. In his contact with salesmen and sup- pliers of materials he must deal with men. In knowing his financial limits he has to deal with money. In devising good systems and running his department economically he has to do with methods. It is quite apparent, therefore, that he must be a versatile, broad- gage man. He is probably the most important official next to the general manager and works manager. It is important that an assistant or substitute for the purchasing agent be under training in every well- organized business. While such an assistant may not, before he has had sufficient training or experience, be ready to take the purchasing agent's position in case of a sudden vacancy, he can tide over the intervening period between the old department head's time of leaving and the time required for the new purchasing agent to become acquainted with the business. In a great many instances, if the assistant has had sufiScient training and experience and is mature enough, he can be appointed to be the head of the department in case of a vacancy. 61 62 Organization and Management Knowledge of the Materials Although the purchasing agent is not expected to possess the scientific accuracy with regard to the tech- nology of a business that must characterize the chief chemist, chief engineer, or designer, he must have or acquire a knowledge of the industry and its processes, so that he can discriminate intelligently in all questions relating to the materials and supplies he is called on to buy. Data Regarding Materials The purchasing department should maintain a bureau of information covering the sources of supply of all materials and supplies of the business. Such information is contained not only in catalogues of suppliers, but also in text-books, periodicals, and clippings relating to these subjects, as well as in statistical data covering past pur- chases, the source of these purchases, the quantity bought, and prices paid. The above information is best kept in document cases or in some of the various proprietary styles of filing cases designed to hold catalogues, circu- lars, leaflets, and sheets. A uniform style of container is advisable. A mnemonic system of classification is rec- ommended. A mnemonic system is one in which certain classes of subjects are designated by abbreviations selected so as to give a hint of the word and yet different enough from one another not to be confusing. As an alternative method a system like the Dewey Library system is commended, in which a certain number stands for a certain subject, decimals signifying sub-classifications. For instance, in a mnemonic system we might indicate vertical water- tube boilers by the symbol BVWT, and all catalogues, specifi- cations, data, etc., regarding vertical water-tube boilers Bwifi/ng 63 would be found in that section of filing boxes in which the boxes were marked ^vith the symbol BVWT, each individual catalogue, circular, or sheet being marked in the same manner. We should then have two alphabetical finding indexes, one set arranged by names of materials and articles, the other being arranged by names of firms or authors. SUBJECT Water-Tube Boilers! Vertical) SYMBOL. ^^^^ NAME ADDRESS CAT. Wlckea Broe . Saginaw, Mich. Wil Fig. 17. — Index for Information and Catalogue File in Purchasing Department Knowing the subject, one can locate the catalogue, pamphlet, or book by means of this index. Figure 17 shows the card for materials in the finding index, and Figure 18 the card for names of firms or authors of papers, pamphlets, or books. The method of filing as above outlined is much better than another frequently used, according to which cata- logues are filed, either consecutively or by sizes, as they are received, being designated by consecutive numbers 64 Organization and Management indiscriminately. It is true that the index cards under such a system will serve to locate the catalogues and pam- phlets. The method illustrated has the advantage of keeping together all material pertaining to a given sub- ject. The mnemonic system or the Dewey decimal sys- tem with abbreviations after the decimals to indicate the name of the author or firm, admits of flexibility in that NAME Wlclcea Bros. ADDRESS Saginaw, Uich SYMBOL CAT. ARTICLES Water Tube Boilers (Vertical) B V W T Wl 1 Fig. 18. — Index by Names of Firms or Authors for Purchasing Depart- ment's Information and Catalogue File KnowluK tbe name of the firm or author, one can locate the catalogue, pamphlet, or book by referring to this index. the space allotted to any subject may be enlarged as the number of catalogues or papers pertaining to that sub- ject increases. The tests of a good filing system are flexibility, expansibility, and ease of finding the desired information. Knowledge of Markets There are two distinct policies observed in connection with buying. One limits the purchasing agent's activities to the buving of materials at such times and in such Buying 65 quantities as requisitions from the departments author- ized by the works manager to make requisitions may specify. The other policy encourages the purchasing agent to study the markets with a view to buying when prices are low. The first policy contends that to buy when the market is low is taking the purchasing function into the field of speculation. Where production is variable and diflScult to determine approximately in advance from the basis afforded by a comparison of past statistics with estimates of the future, the first policy is usually necessary. Where records of former purchases and data regarding orders in hand and probable production of the next six months or a year form a reliable basis as to estimates of material required for this period, the second policy of encouraging buying when the market is low is frequently adopted. This policy, when it involves outright purchase in advance of requirements, means that money must be available in the form of cash on hand or borrowing ability to provide for the stocking up, and there must be as well storage room for stores of materials thus bought in advance. A compromise policy is sometimes feasible in buying certain lines. For instance, in buying copper wire, copper and brass bar stock, steel and iron bar stock, and sheet steel, contracts can be made calling for the delivery of a certain weight or tonnage of materials of these classes within a specified time at a price a certain number of cents per pound, or dollars and cents per ton, over and above the current ''base" price of the market value of the raw materials, such as ingot copper or steel, at the time of placing orders, or the average of such ''base" price during each month may be stipulated as the basis of price. 66 Organizatian and Management Records of Formeb Purchases For gathering statistical data on which to base esti- mates of future requirements and money expenditure involved, it is essential that a record of former purchases be kept. Such record should be classified by materials MATERIAL Braes Bars SIZE 1/2" roiind SUPPLIER Date of Invoice Quantity Bought Unil Pnce Total Pnce Bridgeport Brass Co. 1/15/15 560 lb .18 67.20 1 , Fig. 19. — Materials-Purchased Record Used as a Statistical Basis for Estimating Quantities of Materials and Supplies Consumed in a Given Period of Time, Showing Also the Past Cost and show sources, quantity, and prices. Figure 19 shows a materials-purchased record of this form, indexed by materials and wdth a separate card for each size of mate- rial. These records are filled out from current invoices as they are received by a clerk in the purchasing depart- ment, who is assigned to the task of keeping up the record. Buying 67 Recoed of Quotations It is desirable to maintain records of quotations distinct from records of materials purchased. The reasons for keeping such a quotation record are: (1) It affords in compact form the names of firms that have made quota- tions in the past and from whom quotations can be secured again for the material under consideration; (2) it serves as a proof to show that competitive prices were secured. The quotation record may be kept on cards or loose leaves ruled in a manner similar to that of the record of materials purchased shown in Figure 19, the only differ- ence being that in the case of quotations there will usually not be so many detailed sizes and styles as in the record of actual purchases. The Human Element in Buying It goes almost without saying that the buyer must be on friendly terms with the suppliers and their representa- tives. Hence, a purchasing agent cannot afford to be haughty or ' ' grouchy, ' ' nor should he be too busy to see salesmen. He certainly cannot give every salesman all the time that he would like to have, but he must have the good-will of as many of them as possible. In his capacity as department head he must be able to develop loyalty on the part of his assistants and clerks. In his dealings with department heads he will have to be diplo- matic. Each department head naturally believes that his particular requirements and grievances should have precedence over all others, and the purchasing agent needs to have the friendship of the various department heads just as much as that of the suppliers' salesmen. 68 Organization and Management Requisitions on Purchasing Department The management must designate a list of department heads authorized to make requisitions on the purchasing department. Such requisitions should bear the signature of the department head and the countersignature of either the works manager or the office manager, showing that he has approved them. In the interests of economy it PENNSYLVANIA STATE COLLEGE — REQUEST FOR RBQUI84TION o'thMarUcHT or Industrial Eng'g* Engineering aUAMTITV OCBCRimoN 2000ft Oailfornia White Pine Pattern Lximber 4/4" thick 10- wide 180 00 PWRP«3( Pattern Shop WkNTtD VT WHAT D«TC RCaUIRCD BY 2/10/15 1/10/15 APPROVCO Di^^^^t^/z^i/ii/is NUnetR OF RFaUISITION 5 67 1/12/15 Fig. 20. — Request for Eequisition Sent the Department Head by Certain Designated Members of Department Authorized to Make Such Requests is customary not only to allow the purchasing agent to make suggestions to the works manager or office manager in regard to requisitions, but also to encourage him to do so. Such suggestions, even in entirely technical materials and apphances, lead to a mutual understanding which is not developed if the purchasing agent is compelled to buy without questioning exactly what is specified. However, there should never be any departure from the specifica- Buying 69 tions of the requisition when it has once been approved after inquiry and suggestion on the part of the purchasing agent. Each department in turn should designate certain men as authorized to write out requests for requisitions. Such requests should be on a standard form. Figure 20 illus- trates such a form. The request for requisition should The Pennsylvania Stale CoDege Vie/is. Wllllaasport Hard Wood Lvunber Co., No. I.E. 587 Willlamsport, Pa. SBfS. — Pleese (urnbh the follovrinf (oods to the Department of Industrial Eng'g, The Peniuyivaaia State College, Slate CoUese, Pcnna., to U Alppeitta Freight MAIL BILLS tnd CORRESPONDENCE IN REGARD TO THIS ORDER TO THE PURCHASPiC AGENT SEND BILL OF LADING to the PURCHASING AGENT IMMEDJATELY UPON SHIPMENT c7) 3 2 6 \ "^ u- a wZ o ^ 1 "^ o "c U^ / ^ UJ D 6 a> < 1 < -o CO Q 1. V G> > tn — r' z o c r^ UD Qi «^ c (0 3 c C o5 to 1 c o c a> Id \ a 6 3 ) 4> c CD ( _ Q en k Receiving and Storing 85 ** Account No." This is used if stores are classified as to their serving certain departments. For instance, foundry materials and supplies might constitute a cer- tain account number, while forge-shop materials and supplies constitute another account number. The space for "Reference No." is filled in either with the number or mnemonic identification mark of the piece, this symbol being the abbreviation or shop term used on withdrawal orders, time tickets, and elsewhere, to economize time and space. For instance, in designing a mnemonic-sym- bol system we might first use a letter to indicate a certain group, as for example H for hardware group ; then would come a subdivision of the group, as for example Ca for catches, and a further symbol to indicate the size, number, or other description of the material. For instance, bronze cupboard catches would be indicated as HCaCBr, and this symbol would be followed by a number, if there were a specific number or size designated. A further annotation in the upper right-hand corner of the sheet refers to minimum stock to be carried. This is filled in with a number only when the use of the article is thoroughly standardized. In all other instances a rubber-stamp entry, "Report to Production Depart- ment," is inserted. It is not wise to leave to the discre- tion of a stores-record clerk the replenishment of stocks of materials which in many cases may be in a transitional or obsolescent stage. Next on the sheet follows the location of the article as to the section of the store room and the bin in which it is located. Then comes the unit, whether pounds, feet, dozen, one, etc., and the money value of one unit, space being allowed for changes in the money value per unit. Where a perpetual inventory is kept and monthly balances of the money value of stores on hand, received, 86 Organization and Management and issued are reported, it is customary to include inward freight and hauling (and sometimes also a percentage to cover cost of buying, receiving, and storing) in the unit prices at which materials are charged to work in process or manufacturing expense, but the amounts thus charged to stores do not appear in the expense account. This procedure is coming to be recognized among accountants and appraisers as not only legitimate but correct, inas- much as inward freight and the cost of buying, receiving, and storing material increase the replacement value of material and constitute in a going concern an asset and not a loss. By charging inward freight and drayage and cost of buying, receiving, and storing to a general ex- pense or other revenue account, we are undervaluing our stores. Making Entries in the Stores Ledger The stores ledger has usually five groups of columns relating to the following transactions : (1) goods ordered ; (2) goods received; (3) goods reserved for orders; (4) goods issued; (5) goods available. The entries in the columns referring to goods ordered are made from copies of purchase requisitions. The entries relating to goods received are made from copies of receiving-clerks' reports. The entries relating to goods resen'ed for orders are made from the bill of material. The entries relating to goods issued are made from copies of withdrawal slips or orders on store room and from shipping reports. The balances relating to goods available are easily struck when the preceding sets of columns are properly filled. The forms for bills of material and purchase requisitions have already been considered. We have still to consider the reports from the receiving department, the withdrawal slips covering Receiving and Storing 87 goods issued, and shipping memoranda relating to goods shipped. ENTRIES RELATING TO GOODS RECEIVED The receiving department should render reports cover- ing all materials received from outside. Such reports are sometimes made in the form of a single one referring MATERIALS RECEIVED Date From Via Check Which Bale Crate Package Bbl. Reel Loose Purchase Order No. Article Quantity or Weight Received by Delivered to Fig. 28. — ^Materials-Eeceived Eeport used by Eeceiving Department for Separate Eeport on each Inward Consignment to receipts from various sources or in the form of a separate sheet for each distinct incoming consignment. The latter form is more flexible, as a iiile, although it occupies more paper. Figure 28 illustrates a form for reporting receipts of material in which a separate report is used for each inward consignment. This report is usually written in manifold, an autographic-register machine being fre- 88 Organization and Management quently found advantageous for this purpose. One copy is kept on file in the receiving department, another sent to the purchasing department, another to the stores- record department, and sometimes another to the pro- duction department. Another source of receipts by the store room would be material returned by the shop. For material returned in STORES CREDIT Received frort< Req. No. Order No Qoapttty Materia/ Received eo3t Unit Amount (UmIo. ort» rt«»n only) Remark! °*** " ■ - sw- Km... 1 Fig. 29. — Credit Memorandum Covering Items Eeturned to Store Room this manner a stores-credit memorandum is used, illus- trated in Figure 29. ENTRIES RELATING TO GOODS ISSUED Two types of reports relating to goods disbursed have been mentioned: (1) those relating to raw materials or finished parts issued to the shop and (2) finished stock shippod outward by the shipping department. Figure 30 illustrates a form for withdrawal order for material. In a well-organized shop these withdrawal Receiving and Storing 89 orders for material are prepared at the same time with the material list, being written out in advance and stored in a pocket in a large fibre-board portfolio designed to hold all the various papers, drawings, lists, etc., relating to a given order. Reports from the shipping department are made in the form of a shipping memorandum or packing list. This is also written in manifold, one copy going to the order department, one to the billing clerk, one to the stores WITHDRAWAL ORDER FOR MATERIAL TO BE USEO FOR ONE ITEM ONLY Charge toOrdsr No. Acet No. Rel. No. Quantity OaaoripUon of ItMii Wanted Cost /Unit Amount r-\ Ressrved vsw Itrri I authoriz* tha withdrawal of thia matsrial Fig. 30. — Withdrawal Order for Materials Issued from the Store Eoom record, one to the consignee, and one remaining on file in the shipping department. Figure 31 illustrates such a memorandum. Physical Features of Store Rooms The stores of an industry, although the records and perpetual inventory may all be kept in one place, may have to be distributed in rooms or buildings most con- venient to the efficient handling of materials, each separate store room being provided with the necessary clerical and laboring help, all being under the supervision of the gen- 90 Organization and Management eral head of stores department. For example, castings may have to be located near the first machining processes ; bar stock for the forge-shop may have to be located near the forge-shop; finished machined parts may be midway between the machine tools and the assembling and erecting department, and finished product may have to be adjacent to the shipping department. SHIPPING MEMORANDUM Date Nn From . Order No. Car No. Via No. Pkg. Contents Weight Pack< 'd by- "" Fig. 31. — Memorandum of Materials Shipped Careful attention must be given to the location of store rooms and stores buildings as essential features in an industrial plant. The store rooms and buildings must be designed so as to prevent overcrowding. There must be room for the passage of trucks, good natural and arti- ficial light, room for expansion, and often bins and racks must be designed for special purposes. A pneumatic-tube service system between all the departments handling material records is frequently desirable, since it permits Receiving and Storing 91 of more continuous and up-to-the-minute accounting than a factory mail-delivery system. Dumb-waiters to various floors and cable-driven baskets for light goods are also frequently installed. A standard form for sections and bin units has already been suggested. It is quite apparent that the handling of materials of all sorts affords opportunity for the best managing ability and is a most fruitful field for developing economies and increased efiQciency of production. TEST QUESTIONS 1. How may we determine in advance the approximate an- nual material requirements of an industry? 2. What is the argument in favor of high-grade help in the stores department? 3. "What information should be disclosed by a complete sys- tem of records of stores receipts and disbursements ? 4. What is a material list or bill of material? What use is made of it in comiection with stores records? 5. Indicate by a chart the relation of material records to the sales department, the order department, the desiring depart- ment, the stores department, the purchasing department, the receiving department, the production department, and shop. 6. What monthly financial summaries should be recorded and reported by the stores department? 7. Make a sketch of a balance-of -stores sheet as used in a per- petual stores-inventory system. 8. From what source is mformatiou received relative to goods ordered ? 9. From what source and in what manner is information re- ceived relative to goods received? 10. From whom and how is information received relative to goods reserved for orders? 92 Organization and Management 11. From what source and in what manner is information received relative to goods issued? 12. Where is a good location for storing the following: (a) iron castings; (b) bar stock for forge-shop; (c) finished machined parts; (d) complete finished and assembled product? 13. Discuss the desirability and practicability of (a) pneu- matic-tube service system; (b) dumb-waiter stores delivery sys- tem; (c) cable-driven stores service basket system. 14. Under what conditions is it preferable to have a number of distinct store rooms rather than one large central store room ? 15. Why is the perpetual stores inventory preferably kept near the cost and production records rather than in the store room? 16. Why will bin-ticket records not answer the same purpose as perpetual inventory sheets kept adjacent to the stores and production records? 17. Why should stores-record clerks not be permitted to issue replenishment orders without approval by higher authority? 18. Would you recommend verifying the paper perpetual stores inventory by some system of physical stock-taking ? If so, what system would you recommend? 19. If a man is a laborer or window clerk in a store room, how can he train himself for promotion to a more responsible position ? 20. What provision should be made for recording materials returned to the store room? CHAPTER Vn planning Planning of Industrial Activities in Advance This has come to be recognized as an important and necessary feature of management. The general manager must forecast future trade, labor, and market conditions from his knowledge and study of the statistics of the industry in question. He must shape the future policies of the business so as to make them coincide with the wishes of the directors. He must devise improved meth- ods of management, assisted in this by his principal subordinates. The planning of all of the industrial activities is a much more comprehensive problem than looking ahead in the shop alone. The same principles underlie this larger problem as form the basis of shop-planning. Shop- planning methods were introduced because it became evident to the progressive manager that mechanics look- ing for blue-prints, tools, fixtures, materials, and supplies, and waiting to be told which job to do next were losing valuable time. Very often the next job assigned by the foreman was selected on the basis of expediency, being the job most easily found or most readily disposed of, instead of being the most important job to be done next. 93 94 Organiaat'ion and Management Comprehensive planning involves: 1. Finances. 2. Sales. 3. Production. 4. Labor. 5. Plant. Figure 32 is a chart illustrating comprehensive plan- ning along the lines indicated. Planning as to Finances The treasurer or comptroller will consult with the sales, order, and accounting departments as to what money is coming in and when it is coming in. He vdW. consult with the purchasing department, pay-roll depart- ment, and accounting department in order to get informa- tion as to what money is going out and when it will have to be paid. Using both of the above classes of information as a basis, he will have to determine what money, if any, is to be borrowed, what securities can be offered for loans, also whether it would be advisable to present to the board of directors any proposals as to sales of unissued capital stock, increasing the capital stock, or issuing bonds. Planning as to Sales The sales manager will have to determine first of all what to sell. If the output of the industry is at all varied, the sales manager will have to plan on what classes of finished product to lay greatest stress. The selection as to what to sell will be based on (1) consideration of what is the most profitable product; (2) what is in greatest and most steady demand. He will have to plan next how Planning 95 PLANNING INDUSTRIAL ACTIVITIES I. As to finances Treasurer or S GjmptroUer | II. As to sales Sales Mana- ger What money is coming in and when What money is going out and when What money must be borrowed or raised and how What to sell ^ How much to sell How to sell it What work is to be done < Production Manager What materials are required Stores Manager ^ Secures data from: ^ Sales department Designing depart- ment Manufacturmg committee Order department Stores department /■Secures-data from: Bill of material department As to definite and probable future work As to materials needed As to what is on hand and what has to be bought or made Purchasing depart-j ^s to outward orders ment J III. As to pro- /where work is to be duction / done , Works Managed Roy te Manager /-Secures data from: Production depart Routing depart- ment 1 As to what is to be made As to where to do the work How work is to be done Ti me Study and Instruction Manager Secures data from : Time study depart-"! As to detailed methods and ment J *"»« How long work will take and when it shall be done ^ Order of Work Manager L r Inspection depart- V. ment 'Secures data from Sales and order de- . partments art- "\ As to accuracy Cost department Order of work depart- ment As to when work is wanted > As to how long work usually takes As to work ahead at each machine, bench, or other production center IV. As to em- ployment Employment / Manager or Superintendent What kind of men and how many to employ What kind of men and how many to drop Whom to promote What welfare, social safety, and educational activities to conduct V. Fro. 32. — CTiart rUustrating Planning 96 Organization and Management much to sell. In this he will be guided primarily by considerations as to capacity of the shop. He will have to plan also as to how to sell the product. This involves consideration of whether salesmen shall be on a commission or salary basis, or on a combination of both. It involves the question of whether there shall be branch offices or whether salesmen shall all have their headquarters at the main plant. It involves also the routing or planning of the visits of salesmen in advance, giving them definite instructions as to whom to interview and on what days to do this. It includes also the ques- tion of advertising and how much shall be expended so as to secure the best results. Planning as to Production The planning of production in advance involves the following considerations : 1. What work is to be done. 2. What materials are required. 3. Where work is to be done. 4. How work is to be done. 5. How long work will take and when it shall be done. If the shop superintendent and shop foreman can be relieved of all of the planning indicated, they will be free to devote their entire attention to carrying out successfully the work in hand. However, in order that the planning may be systematically carried out, it is essential to classify it as indicated and to make certain department heads definitely responsible for such sys- tematic planning. Planning 97 Planning Department as Designed by F. W. Tayloe This writer on shop management advocates four func- tional heads in the planning department, namely: 1. The order-of-work and routing clerk. 2. The instruction-card clerk. 3. The time-and-cost clerk. 4. The disciplinarian. In addition to the four leading functions which he lists, he states the following as the activities of the planning department : 1. The complete analysis of all orders for machines or work taken by the company. 2. Time study for all work done by hand throughout the works, including that done in setting the work in machines, and all bench and vise work, transportation, etc. 3. Time study for all operations done by the various machines. 4. The balance of all materials, raw materials, stores and finished parts, and the balance of the work ahead for each class of machines and workmen. 5. The analysis of all inquiries for new work received in the sales department and promises for time of delivery. 6. The cost of all items manufactured with complete expense analysis and complete monthly comparative cost and expense exhibits. 7. The pay department. 8. The mnemonic-symbol system for identification of parts and for charges. 9. Information bureau. 10. Standards. 98 Organization and Management 11. Messenger system and post-office delivery. 12. Employment bureau. 13. The shop disciplinarian. 14. A mutual accident-insurance association. 15. Rush-order department. 16. Improvement of system or plant. Modified Taylor PiANinNG Department Mr. Frederick A. Parkhurst, who applied Dr. Taylor's principles to the organization and management of the Ferracute Machine Company, Bridgeton, N. J., puts the planning department in charge of a man designated as '' production clerk." The production clerk has one sub- stitute, who assumes his duties during his absence. Those employed in the planning department proper are as follows: 1. Production clerk. 7. Shipping clerk. 2. Shop engineer. 8. Receiving clerk. 3. Stores clerk. 9. Time clerk. 4. Cost clerk. 10. Schedule clerk. 5. Route clerk. 11. Factory mail boy. 6. Order-of-work clerk. 12. Time boy. In addition to the above, but directly responsible to the production clerk, the shop employs the following: 1. Inspector. 2. Stores keeper. 3. Move-material boss. The three last named are all functional foremen, each having specific duties which are clearly defined in writing and which may bring all of them successively in touch with each and every man in the shop. They practically Planning 99 form the shop representatives of the planning depart- ment, which really controls and runs the shop through them. Those employed in the planning department are likewise filling functional positions. Separation of Planning from Routine Activities An inspection of the various activities listed above under the general supervision of the so-called ' ' planning department" shows that those collected by Taylor and Parkhurst under one general head not only have to do specifically with the planning of production in advance, but involve routine production records and statistics collected by various individuals who secure continuous running data for the guidance of the men who are actually engaged in the planning ahead, on the one hand, and certain other individuals who see that the produc- tion is carried out in accordance with the planning. It follows that, in a well-organized planning department, there must be certain heads who are free from routine work and who can devote their entire energies to plan- ning and executing. Figure 32 endeavors to emphasize the distinctly planning and executing functions. The chart in this figure places the works manager in charge of the planning department. The title "works manager" is more suitable than that of ''production, clerk." The so-called "production clerk" in the Taylor and Parkhurst organizations is, in fact, the works manager. Figure 32 also gives the titles "production manager, " " stores manager, " " route manager, " " time- study manager," and " order-of-work manager" to the men who must do the actual planning in these important activities. To pick out the best foremen or department heads in an industry and then designate them merely as "clerks" 100 Organization and Management or * ' bosses ' * looks too much like a come-down to the men, whereas, if they are called by the titles indicated, they will feel that they have had a promotion. There is no more danger of their having exaggerated ideas of their importance through receiving these titles than is the case in the large department stores, which long since adopted the title "department manager" as the most desirable one. Planning Work in the Shops Reference to Figure 32 shows that this function is allotted to the production manager, who is the first assistant to the works manager and takes the latter 's place as head of the planning function in his absence. He secures his data from the sales department, the de- signing department, the order department, and the manufacturing committee, and censorizes all of the so-called ''automatic replenisliment" of standard stock- production orders that come up as a development of the balances shown by the perpetual inventory of stores. From his contact with the sales department and designing department he will be in a position to know what items are likely to become obsolete and what items will prob- ably be in strong demand. PLANNING MATEBIALS FOR SHOP ORDERS In Chapter VI were detailed the various departments and statistics that dealt with materials. To co-ordinate all of these statistics and records and to see that all requirements are properly taken care of, there needs to be a functional head who has no routine duties but is free to plan and execute with reference to material requirements. Figure 32 centers this responsibility on the stores manager. He secures from the bill-of-material Planning 101 department data as to materials needed, from the clerks in his own department as to balances on hand and what has to be bought or made, and from the purchasing department as to outward or purchase, orders and de- liveries promised on the same. PLANNING WHERE WORK IS TO BE DONE This responsibility is centered in the route manager in Figure 32. He secures his data from his own depart- ment. He needs to be supplied with exhaustive informa- tion as to the equipment and processes of the industry. He should be a technical man, so far as the processes are concerned. He is assisted by having models and draw- ings of the plant showing the location of equipment and the process-maps. His department designates what department and what machine or group of similar machines will have to perform operations on each order. He secures from the production department data as to orders in hand. He issues standard route sheets for standard product and has new route sheets prepared for new pieces, groups, or product. These route sheets are of two classes: (1) individual- piece route sheets; (2) general route sheets. Individual- piece route sheets list the operations and machines re- quired for making an individual piece. For the sake of economy of time and space as well as to avoid unnecessary publicity, mnemonic symbols are generally used to designate the names of the operations and the names of the machines involved. Individual-piece route sheets can be put on card indexes for general reference, and they may be advan- tageously reproduced in the lower right-hand corner of detail drawings blue-printed for shop use. Figure 33 shows a detail route sheet of this form It will be 102 Organization and Management noticed that it gives first the complete name of the piece ; second, its mnemonic symbol, this being the abbreviation by which it is designated on work and material orders. Then follow the operations listed in regular sequence, separated by the natural dividing-line between the work done by one man and the work done by the next man to whom the work is passed. For each operation there is an abbreviation or mnemonic symbol. The tool symbol indi- cates the machine, vise, or fitting space to which the route department assigns the piece. The last column refers to a specific instruction-card number. Piece DETAIL ROUTING Namp WrlBt Plate Stand Pin Piece Symbol P w P s 18 for 12" cyllndore Operation No. Operation Name. Operation Symbol Tool Symbol Instruction No, 1 Center & Hnugh Pinlah era L 1 1621 « Grind a a e 1622 s Fit P F fi 1623 4 Drill 4 Tap DT D 3 1624 Fig. 33. — Detail or Individual-Piece Route Sheet or Card, Often Listed on Blueprints The instruction card is a detailed expansion of the operation. For each operation there may be from twenty to a hundred distinct motion and time elements which are detailed on the instruction card. The extent to which the instruction card goes into detail will vary with the nature of the business. PLANNING HOW WOEK IS TO BE DONE This responsibility is centered in the time-study and instruction-card manager. After the detail route sheets Pla/nning 103 are prepared, the time-study and mstniction-card depart- ment consults its records to see whether time studies and instructions are available for every item. In case they are not, such as are deemed necessary are made and detailed instructions are written up on the basis they afford when combined with standard time elements on file. A detailed discussion of the principles and methods of time and motion studies and their relation to instruction cards and labor efficiency is given in a later chapter. PLANNING WHEN WORK IS TO BE DONE The responsibility of planning how long work will take and at what time it will be completed is centered in the order-of-work manager. He secures from the sales department and order department data as to when work is wanted, and is in turn consulted by them as to the time at which delivery can be guaranteed. He secures data from the cost department as to how much actual time has been consumed in the past, not only in the actual work on certain types of product, but as to the elapsed time between the beginning of work and its completion. From the records in his own department he has positive knowledge as to the work ahead at each bench, machine, or other production center. These dates are posted on a record in which a card or sheet is kept for each machine, vise, or other production center. Such a form is illus- trated in Figure 34. The postings on this form indicate the balance of work ahead at each production center. As a result of investigating these balances, a definite date is determined at which each individual part will leave each machine or production center. These dates are then posted on a so-called general * ' route-and-time sheet," one of these being prepared for each group or 104 Organization and Management completely assembled machine or other product. This form is illustrated in Figure 35. At the left-hand side of the form are listed in a column the symbols of the various pieces which go to make up the group. To the WORK ASSIGNED TO MACHINE Nc >. Work Assigned to be Added Bcilance Hrs. Work Ahead Work Completed to be Deducted Order No. Piece Symbol Time Allowed Order No. Piece Symbol Time Taken ^^ _ Fig. 34. — Record for BJeeping Balance of Work Ahead at Each Machine, Vise, or Other Production Center GENERAL ROUTE AND TIME SHEET For Oorltai wrl«t riataii for la* orllM«r« Order No. J«™ Required by e/is/iJ No. Pa. W Tool Symbols and Dales Due B D F 1 G 1 L M P S 1 1 1 3 fML iT 2 3 dc. 1 2 «c I 2 cic. 1 2 tK. 1 etc. 1 etc. 1 2 3 etc > • P 8 18 ^f. ^0 }ie \i „^,^^^ i . _ _ u _ __ Fig. 35. — Becord of Date at Which Each Component Part Is Due at Each Machine, Vise, or Other Production Center right are other columns in which are listed the various separate machines, vises, and production centers of the plant, a separate column for each one. In the illustration these colamns have been condensed. In a shop having a large number of machines, this form may have to be Fig. 36.— Shop Bulletin Board on Which are Listed at the Left the Assign- ments to Specific Machines, Benches, or Other Production Centers of Workmen in the Department, and at the Eight the Work Ahead at that Machine, Bench, or Other Production Center Fig. 37. — Planning Department's Office Bulletin Board for Scheduling or Dispatching Purposes, Showing Work in Process and Ahead at each Machine, Bench, or Other Production Center Planning 105 wide enough to fold or it may be composed of several sheets fastened together. The date at which the piece is expected to leave each production center is then indi- cated in the proper column as shown. It is the duty of the order-of-work manager to see that each job is begun in the order in which his department has designated. He is assisted in this work by the use of bulletin boards. In each department there are two bulletin boards. The first (Fig. 36) shows what work each man is doing. At the left-hand side of this bulletin board are listed the names of the men in the department together with their check or clock numbers. Opposite each man's name is the symbol of the machine or pro- duction center to which he is assigned together with the numbers of certain hooks on the bulletin board on which hang little paper slips indicating the jobs assigned. The second bulletin board (Fig. 37) has a series of three hooks for each machine or production center in the department. The upper hook has hanging on it the job on which the man is working. The next hook has jobs ahead at the machine or production center in the order in which they are to be worked. The third hook has jobs to be worked at in the future, but w^hich are not as yet at the machine. In the central office of the planning department, at a window which opens out on the main shop floor and is connected by chutes to the other shop floors, is a master board containing duplicates of the three-hook type of bulletin board for each department or section of the shop. As work is completed, the slips of paper representing w^ork at the machine are removed by the workmen, checked by the gang boss or time clerk, and brought to the window of the planning department, where the correctness of the 106 Organization and Management procedure is verified and the progress of the work recorded on the tracing sheet illustrated in Figure 38, An alternate method is to have a clock stamp at each foreman's or gang boss's headquarters to enable hun to stamp the time of completing each job. The move- INDIVIDUAL PART TRACING P £COF Pie ID ^ . , P W P 8 132 P,prr MAMP. ''^Ist Pl^te Stand Pin for 12"cylindera o.M,,N. 1625 R«,-HK„S/15/1S ^„ p,. 10 OPERATIONS Material Moved Operation Performed Inspected DR.\WING FINISHED PATTERN MADE MATERIAL ORDERED MATERIAL IN STORES ROUTING READY INSTRUCTION CARD READY TOOL LIST READY SKETCH READY DETAILED OPERATION SYMBOLS: CFR G F DT U . _ . — — , ■ N FiQ. 38. — Tracing Eecord, Showing Progress of Work on each Piece The heavy black line shows how far the work has progressed. material man on his regular trip takes completed work to the next operator or department, carrying the job slips for completed work to the planning or production office window. This latter method does away with the neces- Plarming 107 sity of having the workmen or mechanics spend any time in carrying the slip to the ^vindow. Planning as to Employment Responsibility in this field is centered in the employ- ment manager or superintendent. He secures from the production manager and the order-of-work manager data as to the amount of work ahead and when it is to be completed, and he determines when he must put on addi- tional men and when he must lay off men. With well- organized planning, however, these fluctuations in the number of employes will be smaller than under traditional management. Planning as to employment involves the consideration of the kind of labor to use. The labor force may consist of: Men Women Children A careful analysis of the work and of the working con- ditions is required to make an intelligent choice along this line. Economic, humanitarian, and legal conditions must be balanced against each other. Natural aptitudes, physical endurance, permanence of employment, initia- tive, problems of supervision, labor-union activities, and similar matters should be taken into consideration. Each class has some special advantages and the wise employer will not overlook them. Even more subtle employment factors must be adjusted to the employment problem. Standards should be used as to the degree of mental and physical energy required in the work. A rough classification as to skilled or 108 Organization and Management unskilled labor is desirable. This requires an analysis of the exact demands of each machine in operation. Some machines require mere supervision over supplies, the attendant doing simple unskilled labor. Others require simple adjustments to be made from time to time. Still others require a high degree of skill and considerable training in the correct operation of the machine. With all of this information at hand, the employment manager is able to specify pretty definitely the kind of labor that he wants much in the same manner that the purchasing agent uses his standardized specifications of materials. The question of wage payment might well be included in planning as to employment. It makes considerable difference whether time, piece, premium, bonus, differ- ential piece rate, or other systems of wage pajnnent are used. Decision must be made as to whether the job is to be treated on a salary or on a wage basis. The employment manager must be planning as to where he can get additional help to fill new places or to fill the places of men who are leaving. He ^vill assign a man to continuous duty on this important question, as well as on the matter of individual efficiency of the various m^n in the shop. He will plan with regard to welfare, social, educational, and athletic activities among employes, assigning a capable man to this work. A more completely detailed description of methods in this field is given in a later chapter. Does PiANinNG Mean Additional Non-productive Labor? A superficial examination of planning methods fre- quently misleads proprietors, managers, and superinten- Plannhiff 109 dents accustomed to traditional methods, so that they form the opinion that planning means exceedingly high overhead expense. In actual practice, however, it has resulted in remarkably increased production with the same number of men and machines. Under an efficient systena of planning no new work is introduced into a business enterprise. It means simply the scientific dis- tribution of the planning work engaged in under tradi- tional management by all classes of foremen and clerks. A scientific planning system introduces the principle of specialization of labor to the work of planning by allot- ting to each man the kind of work to which he is best adapted. At the plant of the Tabor Manufacturing Company, in Philadelphia, the introduction of a planning depart- ment resulted in an almost doubled output without any increase in the total number of employes or equipment. However, it is important to bear in mind that the members of the planning or production department are not clerks or experts hired from outside, but are the very best men already in an existing organization. For this reason it is desirable to use the title "department manager" rather than the designation "clerk" or "boss." The designation "planning department" is also apt to be somewhat misleading, since planning has to be done by all of the leading officials and department managers. To be sure, the works manager's office and the subsidiary department managers under him do most of the strictly shop planning, but the chart in Figure 32 shows that equally important planning must be done by other offi- cials. The principles involved are the same in the case of each department or official considered. The important department head or official must be left free from detail routine, in order that he may tliink and plan, but there 110 Organization and Management must be thoroughly systematized methods of having available data to help him in his thinking and planning, as it is only through the combination of these conditions that he can accomplish satisfactory results. TEST QUESTIONS 1. "What sort of planning in advance by the general manager is essential ? 2. What sort of planning in regard to finances must be car- ried on by the treasurer or comptroller? 3. Discuss the kind of planning as to sales which must be carried on in the sales manager's office. 4. What considerations are to be covered by the planning as to production? 5. Describe the planning department as designed by F. W. Taylor. 6. How does the planning department as used by Frederick A. Parkhurst differ from that designed by F. W. Taylor? 7. Draw a chart showing the organization of a planning de- partment in the production division. 8. What data and methods are involved in planning the work to be done in the shops? 9. What data and methods are necessary to plan for materials required for shop orders? 10. What information is necessary to plan intelligently where work is to be done ? 11. What information is necessary in order to plan how work is to be done? 12. What information is necessary in order to plan how long work will take and at what time it will be completed ? 13. What justifies the additional overhead expense involved in installing a planning department? 14. What planning should be done with regard to employment questions ? Planning 111 15. Why could not the superintendent and foreman attend to all the shop planning? 16. What is left for the shop foreman to do when the planning is all done by others ? 17. Do members of the planning division give orders directly to men in the shops? If not, how are their orders carried out? 18. Do you think workmen in a shop having a planning di- vision would be likely to quit on account of having too many bosses? 19. If you were about to establish a planning division where would you go to look for men to fill the positions of route clerk, order-of-work clerk, and instruction-card clerk? 20. Do you think planning-department principles could be applied to one's personal private life? If so, how? CHAPTER VIII thz: determination of costs Inaccurate or Inadequate Costs Almost every industrial establishment carries on some kind of system of records relating to costs, yet it is notoriously true that the most important members of the managing staffs of these establishments have, as a rule, a very meagre knowledge of the elements which go to make up the costs of their product. Frequently they have still less knowledge of the detailed items of cost involved. Generally they have given but little thought to the ques- tion of whether the cost methods which they are following are those best adapted to their particular industry. Frequently they may be of the opinion that they are using the best possible cost system for their business. However, this opinion is often the result of self-satis- faction and does not at all arise from a thorough comparative study of cost-keeping as a whole. Even after such a general study many fail to make an adequate application of cost-keeping methods to their particular industry. Probably the chief reason for inaccurate cost systems is that the subject of cost accounts has not received extensive and exhaustive attention on the part of the management. In the average business the tremendous advantages to be gained from scientific cost-accounting 112 Determination of Costs 113 methods in the way of cost reductions are not realized As a rule, only two purposes are served by the traditional cost system. These two purposes are among the very least of those which can and should be served by a scientific cost system. They are as follows: (1) The traditional cost system gives the billing department some land of basis for establishing prices on repair parts; (2) it also furnishes retrospective information to the superintendent when a job has apparently cost a great deal more than the same or a similar job cost according to previous records. Another reason for inaccurate costs is that the work of cost-keeping is left to poorly paid clerks. The head of the cost department is usually burdened with so many duties and so much routine work that he has no oppor- tunity to plan or study. It is quite customary for a corporation with a business of a million dollars a year to have a thousand-dollar-a-year cost-department head, although the head accountant and purchasing agent are paid three times this salary. A company doing a business of a million dollars a year could unquestionably get far bettor results with a cost department consisting of a head at three thousand dollars, a first assistant at fifteen hundred dollars, and two clerks at a thousand dollars, making a total of sixty-five hundred dollars, than could be secured with a cost department in which the head is paid a thousand dollars, and having ten clerks at six hundred dollars each, making a total expenditure of seven thousand dollars. Need of Accukatb Costs The need of accurate costs is thoroughly demonstrated when manufacturers of similar commodities, such as machine tool builders or furniture builders or shoe manu- 114 Organization and Management facturers, get together and discuss cost accounting. Different cost systems, as will be later demonstrated by numerical examples, result in the most widely fluctuating apparent costs, leading to absurdly ruinous competition, the tendency being always to meet the lowest selling price offered. In the metal trades a common example of absurd com- petition is afforded when an establishment which has been building a limited line of medium-weight machines undertakes to build hea\'y machinery, adding powerful machine tools to its equipment for the purpose of getting out the heavier line of output. Instead of devising a proper redistribution of operating expenses, allotting the proper machine rates and departmental expense rates to the machines and departments working on the heavier line of machines, the same old expense percentage is added as was reckoned on the former general line of out- put, resulting in an apparent cost that will enable the company, according to these erroneous figures, greatly to underbid old established concerns building heavy ma- chinery. At the end of a year the total expenses will be seen to have run up, and the uniform distribution of manufacturing expense will now make the standard lighter product apparently cost so much that it cannot be sold at the old prices. Prices are raised on the old line and business lost. This procedure has been gone through with in a number of instances by companies engaged in the steam-engine and the electric motor and dynamo business, with business failures as the finish of undertakings based on inaccurate costs. Cost as a Basis of Selling Prices In most competitive lines of business it is quite true that in the past competitors' prices have controlled selling Determination of Costs 115 prices. Accurate cost systems, however, will disclose which particular items are the ones on w^hich the largest profits are possible, for naturally the trade in these items will be the trade w^hich the sales department will wish to develop. At the same time, the most profitable items may not be the ones which are in greatest demand. From the standpoint of sales policy we must make the most desirable goods at as low prices as our competitors do, and preferably with some features which will make them more desirable than the competitors' goods. The value of accurate costs has in the past been overlooked by many successful managers for the reason that in many cases success has been due more to fortuitous circumstances, such as natural advantages of location, transportation, and priority in the business, than to efficient business methods. Wastes Disclosed by a Cost System Comparative costs of the material and labor entering into the same item made at different times will reveal at all future times any overrunning of past averages. If these past averages have been supplemented by time- and-motion studies, and standard costs predetermined as a basis of current performances, it becomes possible to detect current wastes as they occur, instead of in a retrospective manner. A good system of classified stand- ing-expense orders closed monthly and compared month by month will show also any fluctuations in the classified expenses. The study of expenses thus brought about will result in the avoidance of wastes. Lower Production Costs Necessary The entire history of manufacturing consists of a record of improved processes involving shorter times of 116 Organization and Management production, decreased power and supply bills, and a smaller proportion of waste. The principal factors which have been incentives to the inventor and works manager in bringing about this condition are increased competi- tion, widening sales markets, and longer transportation distances. About the middle of the nineteenth century, when notable improvements were made in textile machinery increasing the output per man, there was much fear that there would not be enough work to go around. In Man- chester, England, mills were burned and machinery destroyed by mobs. Subsequent developments in the textile industry have proved that these fears were entirely groundless, for today's machinery produces an output per man eight times larger than was produced by the machinery of 1840, while the number of textile workers in Manchester is six times the number engaged in this field in 1840. The history of industry shows that the increased output per man, as a whole, has resulted in a greater demand for the article by reason of lessened selling prices. Meanwhile, increased purchasing power of the com- munity as a whole has resulted in entirely new in- dustries, which have quickly absorbed the less capable workers temporarily out of work in certain lines of indus- try where improved machinery resulted in a greater output per man, and the demand did not increase immediately at a sufficient rate to justify the emplojrment of all of the previous workers. This last-named condi- tion is the exception, however. About the only examples of it which can be cited are those of the linotype machine in the printing trade, which took the place of the hand type-setters, and of the glass-blowing machines which are being installed in bottling works. Determination of Costs 117 The profits in an industry may be increased by (1) increasing the selling prices wdth stationary or lowered costs of production, (2) by increase in quantity of sales with the same plant and equipment, or (3) by decreasing the cost of production under either of the first two assumptions. Unfortunately, the tendency in some industries has been to maintain selling prices even in the face of lower costs of production. In order to secure a uniform dis- tribution of wealth and greater general purchasing power in the nation, it is absolutely essential that lessened production costs be accompanied by lower selling prices ; otherwise, the lack of uniform distribution of wealth mil lead to a decreased general demand for commodities of all kinds, which demand is the basis of continued manu- facturing activity. Cost of Repair and Detailed Parts The establishment of correct prices on repair parts and minor details is greatly facilitated by accurate cost sys- tems. It stands to reason that a company making individual parts in quantity is in position to make a considerable profit on these individual parts, since the selling price need be only slightly less than that offered by a job shop which would have to make the parts singly and consequently at a much greater cost than the manu- facturing establishment. Moreover, the manufacturing- establishment making them in quantity and having them in stock can, under ordinary circumstances, make immedi- ate delivery of all standard repair parts. Any cost system relating to assembled products, therefore, should be built up in such a manner that the costs of individual parts are easily determined. The cost data should be indexed and classified in such a wav 118 Organisation and Management that quick and ready reference may be made to the data relating to any part. Correlation of Costs to Other Manufacturing Data The collection of the necessary statistics for records involved in conducting a cost system makes available data which are useful in guiding us in many matters of manu- facturing methods and policies. From records of material costs we secure data as to the promptness with which the material specifications are furnished, the efficiency of the store-room management in replenishing depleted stocks, the promptness mth which the shop can make special parts, and the accuracy with which the various parts are collected and issued for assembling and erecting pur- poses. Our data in regard to labor costs furnish information as to productive capacity of various individual men and groups of men, as to the accuracy of the time-keeping department, the effect of piece-rate, bonus, and premium wage systems on shop costs. The cost-department data with regard to manufactur- ing expense will disclose the economy or wastefulness of various foremen and suggest lines of investigation as to how certain expenses can be reduced. Comparative Costs Any complete cost system, in addition to furnishing data on work as it is completed, should supply complete information as to the comparative cost of the same process as performed on similar orders in the past. The comparative costs, together with the standard or ideal ones — which are the goal to be achieved, must be pre- determined and kept prominently before all persons who are to be encouraged to achieve the desired efficiency. Determination of Costs 119 Ketrospective comparisons with former costs are not of much advantage. Predetermined costs, as suggested, serve a very useful purpose, however, since they establish a limit beyond which we must not go, when placed in writing prominently before the workers and foremen. Classification of Costs In a merchandise or trading business it is quite cus- tomary to determine the costs of buying, handling, storing, and selling the goods for any one department by means of the receipts for that department. In continuous manufacturing types, whether analytic or synthetic, such as ore mills or cement mills, it is usual to figure the costs of processing per unit of the output's bulk and compare these costs daily, weekly, and monthly. In assembling types of industries, such as the building of machinery and furniture, it is the rule to figure costs by the individ- ual orders, which in turn are assembled costs consisting of costs of detailed parts, some of which have been made in quantity on stock orders and some of which have been made up specially for a given assembling order. Elements of Cost Figure 39 indicates the fundamental cost elements. Manufacturing costs constitute the first group. They consist of three elements: (a) material cost, (b) direct labor, and (c) manufacturing expense. The first element consists of (a) material costs. These consist of the invoice cost of raw materials, to which is added a factor known as the ''material burden," cover- ing the cost of buying, transporting, receiving, storing, issuing, and recording materials. Frequently the mate- rial burden is added to the invoice price for a quantity of material received and di^^ded by the quantity in order to determine the unit price for cost-finding purposes. 120 Organization and Management Cost as a Basis of. Selling Prices r Material Gjat Direct Labor. Manufac- turing Cost! Invoice Cost Material Burden < Manufacturing Expense < Expense Material Indirect Labor Supervisional Salaries Clerical Salaries in Works Fixed Plant Charges Variable Plant Charges V_ r Selling Expense Salary of Sales Manager Office Expense in Selling Salesmen's Salaries and Commissions Advertising Shipping Department Selling Losses r .... I Salaries and Elxpenses of General Officers Admmistra-/ tiveExpense\ Office Expense Deferred Charojes V_ Percentage for Profit Fig. 39. — Chart Illustrating Costs as a Basis for Selling Prices Determination of Costs 121 The next element is (b) direct labor. This element con- sists of all labor expended directly upon the order in question. It does not include any indirect labor, the latter being charged to expense order numbers. The third element is (c) manufacturmg expense. This element consists of the following subdivisions: (cl) ex- pense material, such as waste, machine oil, brooms, etc. ; (c2) indirect labor which cannot be charged directly to a production order and is therefore charged to a certain expense order of the standing-expense order series, as explained in a later chapter; (c3) supervisional salaries of bosses, foremen, and superintendents, planning-de- partment heads, and works manager; (c4) all clerical sal- aries connected with the works; (c5) all fixed charges, such as interest, depreciation, taxes, and insurance on plant; (c6) all variable plant charges, such as power, lighting, heating, plumbing repairs and maintenance, etc. The second group of cost is selling expense, includ- ing salaries of sales manager; cost of clerical work; sta- tionery and supplies in main and branch selling offices; salaries and traveling expenses of salesmen, if on a salary basis, or commission, if on a commission basis ; all adver- tising expenses; expenses of the shipping department; and losses on customers' accounts. The third group of cost is administrative expense, and includes such items as salaries and expenses of gen- eral officers, clerical help, stationery and supplies in administrative offices, deferred charges relating to organ- ization expenses, etc., which must be distributed over several years and included in selling prices of goods, if we wish to cover actual costs. Finally, if a cost price has been determined by the ad- dition of all the foregoing elements, it is necessary to add 122 Organization and Management a percentage for profit, which should be not only am- ple to cover dividends and surplus, but should be sufficient to provide a factor of safety, so as to counterbalance er- rors in design or construction, defective goods, bad debts, and ordinary sources of loss suffered by every business. The amount to be added for profit is rarely less than 20 per cent above the manufacturing cost. Under ordinary circumstances it varies from 20 to 50 per cent on indi- vidual parts, with a tendency towards somewhat lower figures in the case of assembled products subject to brisk competition. It is not likely that a concern wishing to declare the dividends customary in industrial work, which are usually 7 or 8 per cent, will have an exor- bitant surplus left after the addition of 20 per cent or higher on the manufacturing costs of individual parts. It must be borne in mind that manufactured stocks of parts depreciate and become obsolete, and while the de- preciation factor is not so great a one as in mercantile business, it is nevertheless very important. From the standpoint of management, it is imperative that the several elements of cost that make up the selling price should each be kept separate and distinct. The history of many industrial establishments shows that they have been exceptionally strong in one branch and inexcusably weak in another. Perhaps production was efficient, but selling was weak. Perhaps both selling and production costs were low, but the administrative costs, especially those relating to financing the business, were absurdly high and carried on under a policy likely to be ruinous to any establishment. Unless, therefore, the ele- ments of cost are so kept that each can be made a subject of investigation, it is difficult to lay the finger on the weak spot. Determination of Costs 123 Correlation of Cost Records and General Accounts One of the aims of every modern accounting system is the merging of all cost records with the general double- entry boolikeeping system in such a manner that com- plete balance sheets can be presented monthly. The tra- ditional type of cost record made no attempt to combine cost data with general accounts, except once a year at the annual inventory time. Under traditional methods, the bookkeeper, in order to determine the profit or loss in manufacturing, kept certain controlling accounts in his ledger, such as (1) materials, (2) labor, and (3) manu- facturing expense. Each of these controlling accounts probably had several subsidiary accounts, particularly the manufacturing-expense account. At the close of a fiscal period the subsidiary accounts were closed into the three fundamental controlling accounts, and then an in- ventory was taken of (a) materials, (b) work in process, and (c) finished stock. The manufacturing account was now written up. It was debited (a) with the value of work in process at the beginning of the fiscal year just closed, as per last in- ventory; (b) with the total cost of all labor which the cost department designated from month to month to the account department as being productive labor; (c) with the cost of all raw materials reported as used by the cost department's records, the material account being cred- ited with the same amount; (d) with the total amount of manufacturing-expense account as it appeared in the accountant's ledger, no attention being paid to any fig- ures which the cost department might have used to desig- nate expense burden. On the credit side of the manufacturing account was placed the cost of goods in process of manufacturing at the close of the current fiscal period. 124 Organization and Management The rest of the manufacturing account was intended to show the total expenditure by reason of manufac- turing. Modern accounting differs from the traditional type, as indicated, in that a monthly balance sheet is demanded instead of merely an annual statement. This demand re- quires the introduction of perpetual inventories to cover (a) material, (b) work in process, and (c) finished stock. The methods of procedure can best be illustrated by put^ ting the discussion into ledger form as follows: MATERIAL BURDEN Debit (1) With salaries of pur- chasing agent and all clerks in purchasing office; all station- ery, supplies, traveling and other expenses in purchasing department. (2) With salaries of man- ager of stores department. Salaries of all clerks in stores office or other store room; wages of all labor employed in handling and arranging store- room material; also cost of all stationery and other expenses connected with the conducting of the stores department. (3) With salaries of receiv- ing clerk and assistants; wages of laborers in receiving depart- ment. (4) With freight, express, and drayage on all materials received. Credit (1) With the amount of material burden added as a percentage to invoice costs of material received during the current fiscal period. At this time debit material account with a like amount. Determination of Costs 125 MATERL\X, ACCOUNT Debit (1) With the total cost plus material burden of materials on hand at the beginning of the fiscal period. (2) With the invoice cost of all materials purchased during the fiscal period. (3) With the amount of material burden added as a percentage to invoice costs of material received during the current fiscal period. At this time material burden is cred- ited with a like amount. Credit (1) With goods applied to work in process as per records of withdrawal from stores. This procedure assumes that the balance-of-stores clerk re- ceived authorization covering everything entering into work in process. (2) With any goods re- turned to suppliers. PAY-ROLL ACCOUNT Debit (1) With, total amount of cash put by cashier in all pay envelopes of men working on hourly basis. Credit (1) With such proportion of pay-roll as is subsequently reported by cost department to represent indirect labor. Charge at this time manufac- turing expense or a subsidiary account for which manufac- turing expense is a controlling account with a like amount. (2) With the amount subse- quently reported by the cost department as representing di- rect-labor portion of the pay- roll. At this time debit direct- labor account with the same amount. 126 Organization and Management OreECT-LABOR ACCOUNT Debit Credit (1) With the totals of di- (1) With the total money rect-labor portion of pay-rolls value of direct labor to be as represented by cost depart- charged to work in process in ment. a given fiscal period. At this time debit work in process with a similar amount. Manufacturing Expense As previously explained, there may be but one manu- facturing-expense account to which all manufacturing expenses are charged as they occur, or manufacturing expense may be an account controlling a score or more subsidiary accounts which include manufacturing ex- penses. The example stated below is put into simple form, and although the items composing manufacturing expense may not include all classes, they are representa- tive of some of the most ordinary items to be found. The ledger account given beloAV will therefore assume that manufacturing expense is not a controlling account, but carries all classes of manufacturing expenses in the sin- gle account. MANUFACTURING EXPENSE Debit Credit (1) With the cost of all ex- (1) With the total of expense pense materials and supplies charged to work in process which do not enter directly during the current fiscal period into the manufactured product, as per reports of the cost de- (2) With the proportion of partment. At this time charge all pay-rolls during the current work in process with a similar fiscal period which have been amount. designated by the cost depart- Determination of Costs 127 ment as representing indirect or expense labor. At this time credit pay-roll account with a similar amount. (3) With all supervisional salaries of gang bosses, fore- men, and superintendents. At this time credit salaries ac- count with a similar amount. (4) With all clerical and administrative salaries in works. At this time credit salaries account with a similar amount. (5) If the fiscal period is monthly, with one-twelfth of the fixed plant charges. At this time credit fixed plant- charges account with a similar amount. (6) With such proportion of variable plant charges for the current year as it has been decided shall be borne by cur- rent fiscal periods. At this time credit variable plant- charges account with a like amount. WORK IN PROCESS Debit Credit (1) With the total value of (1) With the total manu- work in process on hand at faeturing cost of all work in the beginning of the fiscal process completed and trans- period, formed into finished product (2) With total amount of as per records of the cost de- materials applied to work in partraent during the current process as per records of fiscal period. At this time 128 Organization and Management withdrawals from stores. At debit finished-product account this time credit material ac- with a similar amount, count with a similar amount. (3) With all direct labor reported by the cost depart- ment during the current fiscal period. At this time credit direct labor with a similar amount. (4) With all manufacturing- expense burden added to work in process during the current fiscal period reported by the cost department. At this time credit manufacturing expense witli a similar amount. FINISHED PRODUCT Debit Credit (1) With the manufactur- (1) With the manufactur- ing cost of all finished product ing cost of all finished product on hand at the beginning of shipped or turned over to the the fiscal period. sales department or branch (2) With the manufactur- offices during the current fiscal ing cost of all work in process period. which has been transformed into finished product during the current fiscal period. At this time credit work in process with a similar amount. (3) With the manufactur- ing cost of all returned goods. DlFFEREl^rCE BETWEEN MaNUFACTUEING CoST AND Selling Cost As previously explained under the heading ' * Elements of Cost," the total cost will vary from manufacturing Determination of Costs 129 costs by including further factors covering selling ex- penses, administrative expenses, and a percentage for profit. Some manufacturing establishments prefer to add a slight factor of safety over and above manufacturing expense so as to allow for fluctuations in cost, billing the goods to the sales department at a slightly higher price than the total manufacturing cost. In order to allow for fluctuation in cost, any apparent profits made by the shop can be transferred to reserves for meeting deprecia- tion of plant and equipment. TEST QUESTIONS 1. What are the principal purposes sensed by the old- fashioned or traditional cost system? 2. What are the reasons for inaccurate costs? 3. Why are accurate costs essential to business success? 4. How may the cost system he made to disclose wastes? 5. In what different waj^s may the profits of an industry he increased ? 6. In a business making assembled product what is the argu- ment in favor of collecting costs of individual parts? 7. In what way may the cost system be made to reveal the economy or wastefulness of various foremen? 8. What are predetermined costs and what purpose may they be made to serve? 9. Under what conditions is the process method of determin- ing costs preferable to the product order or business cost method? 10. Draw a chart indicating the fundamental cost elements which go to make the total cost of any kind of product. 11. Define the following: (a) material burden, (b) direct labor, (c) expense material, (d) indirect labor, (e) supervisional salaries, (f) fixed charges, (g) variable plant charges. 12. What items constitute selling expense? 130 Organization and Management 13. What are the chief items which go to make up adminis- trative expenses? 14. What is the argument in favor of merging summarized cost records with the general accounts of the business? 15. Give the ordinary debits and credits to material-burden account. 16. Give the ordinary debits and credits to material account. 17. Give the ordinary debits and credits to pay-roll account. 18. Give the ordinary debits and credits to direct-labor ac- count. 19. Give the ordinary debits and credits to manufacturing- expense account, 20. Give the ordinary debits and credits to work-in-process account. 21. Give the ordinary debits and credits to finished-product account. 22. Explain the difference between manufacturing cost and selling cost. CHAPTEK IX methods of coliiecting material and labor costs Sources of Cost Data The diagram in Figure 40 indicates the five principal sources of cost data. These data relate to (1) orders, (2) materials, (3) material burden, (4) direct labor, (5) manufacturing expense. DATA REGARDING ORDERS The cost department needs to have for its own files an exact copy of all orders issued by (a) the shipping or order department as a result of instructions from the sales department authorizing the shipment of completed product in parts in stock, or the making to order of product, or the repair of parts or completed product; (b) the production department, whether stock orders for detail part replenishment, orders for assembling groups or entirely erected product, or special repair part or repair orders. It frequently happens that the serial numbering scheme of the commercial order department may be quite dif- ferent from that employed by the production department, since the order department's system will be adapted to ease of reference from the standpoint of selling and commercial records, whereas, the production depart- ment's numbering system will be adapted to ease of ref- erence and natural classification of product in the shop.. 131 132 Organization and Management r^ Croup i Orders From shipping or order department From production department >■ Croup II > Materials \ Croup HI Material Burden From bill of material department From stores manager From receiving depart- ment From purchasing agent From accounting depart- ^ ment Data to be Fur- nished/ to / Cost \ De- \ part- men t Croup ivy Direct / Labor \ From employment department From time-keepcre r From cashier Croup V Manufac- turing Expense From accounting depart- ment ^ < From cost department's system of standing < orders Copies of all shipping orders and con- tracts to ship r Copies of all shop stock orders for detail part replenishment Orders for assembling groups or entirely erected product, special repair part, or repair orders All material specifications All withdrawal orders on store-roona. Copies of all lists of materials received Copies of all invoices or prompt advices as to quantities and prices of all goods purchased r Totals of inward freight and hauling Totals of purchasing department, receiv- ing department, and stores department salaries and wages as well as cost of supplies, traveling, and other expenses in these departments Names of all persons employed, together with check numbers, rate of pay, and exact date of employment of each Names of all persons quitting, together with exact date of quitting and check number Exact time put in on each productive or expense order by each employe Distribution of each man's work during every pay period, such distribution being checked against pay-roll, time, and money amount I Copies of all pay-roUs All administrative and clerical salaries. All supervisional shop ssdaries All fixed charges, such as interest, de- preciation, taxes, insurance, etc. >- Expense material, such as waste, machine oil, etc. Indirect labor charged to standing ex- pense orders Variable plant charges covering power, lighting, heating, plumbing, repairs, maintenance, etc. V Fig. 40, — Chart Illnstrating Sources of Cost Data Collection of Costs 133 ^ o C o o « a ^ &^ o ^ la « .S o a "o g-a 134 Organization and Management The commercial order department will probably clas- sify its orders into series. For instance, orders desig- nated by the prefix "C" followed by the number would Amt. Model (g)l^ Article To be Finuihed Material Wanted Material Receive<1 Inspector Good 1 1 >V>VREHOLISB s. o COUPON Article Material Wnnled Amount Ft. Material Sl;:e Dale Delivered RETURN TO MATERIAI, CLERK Warehouse S. K. FiQ. 42. — Front of Tag Type of Production Order For reverse, see Fig. 43. Collection of Costs 135 be contract orders; orders designated by ''E" followed by a number would be repair orders ; orders designated by "D" followed by a number would be detail orders. Such detail orders might carry sub-order numbers as- signed by the order department; for example, a ''D" Te Foremen 4, Time-Takers A Tag of this sorr^rrrtfTt accompany all Material on which work is to be done. Foremen must not assign work for which there is no Tag. The Tag is the order to the man to do the work. If you wish to make less than the amount called for, an additional Tag will follow to keep track of this item. Wt. of material (other than C. I.) issued to this job—: -...lbs — ozs. Sifraed by (storekeeper) Mat'l used.. Form .302 4 3 06'5m Date Tag issued Date cstgs. to mach. shop. Date rec'd by Assembler. Amt. rec'd by Assembler. Balance In stock Counted by STUB. rO CLEANING ROOM FOREMAN ANO STOCK-MOVER. This Tag with stub attached is to be kept on file by Foreman of Cleaning Room until this item begins to come through. When castmgs go to machine shop, fill in "Date Castings to Machine Shop." The Stock^Mover is responsible for delivering the castings with Tag safely attached. He is to tear off the Stub and turn it in to Production Clerk. If less than the whole number of pieces come through, be sure not to forget to fill in the No. and weight of the first lot on both Tag and Stub. Form 302-4 3-OS Sm. Date Tag issued.. Date castgs. to mach. shop. Fig. 43.— Eeverpe of Tag Type of Production Order Shown in Fig. 42 order number might be followed by a prefix *'S" followed by a sub-order number to indicate detail parts to be shipped from stock, or the detail order number might be followed by the letter ''P" followed by a sub-order nmn- ber to indicate that a production order had been issued by the shop to make some of the items for the detail order. 136 Organization and Management The orders written by the order department are usually manifolded on a billing machine. The different series are usually written on different shades of colored paper. Figure 41 illustrates a type of order as issued by the commercial order department. It will be noticed that orders of this sort contain commercial and financial in- formation which, while necessary as a matter of record, is not essential information for the production or plan- ning departments. The orders written by the production or planning de- partments more often take the form of follower tags to accompany the work in process through the shop. Fig- ure 42 illustrates the front and Figure 43 the reverse of a tag of this sort. Manifold copies of the tags are filed in the production-order office. DATA REGAKDING MATERIALS In order that the cost department may have a record of the total charges to material account, it is necessary that a copy of the receiving department's report of ma- terials received be sent to the cost department. Figure 44 illustrates a typical receiving-department report. A different type of report of materials received is illus- trated in the chapter on stores. In order that the mate- rials may be correctly priced, the cost department should receive either the original invoice from the purchasing agent or copies of the same. In case the original in- voices are sent to the cost department, the routine of handling them must be arranged in such a manner that they are not delayed at all. In order that the cost department may credit material account with the proper amount for all materials with- drawn from store room, it is necessary that copies of aU material specifications be sent to the cost department. Collection of Costs 137 It is also necessary that all withdrawal orders on the store room, as well as any credit slips for returned materials (as soon as they are entered on the perpetual inventory record by the balance-of -stores clerk), be sent to the cost department. DATA REGARDING MATERIAL BURDEN In order that the cost department may establish the material burden properly, it is necessaiy that the ac- PflJB No. ^ 4ATERIAI .S RECEIVED Report No.- Consignor Date Shipped Purchase Order No. Articles Quantity ^ Fig. 44. — Eeceiving-Department Report of Materials Eeceived, a Manifold Copy of Which Goes to Cost Department counting department furnish all information as to inward freight and hauling, totals of purchasing depart- ment, receiving department, and stores department sala- ries and wages, as well as cost of supplies, traveling and other expenses in these departments. DATA REGARDING DIRECT LABOR In order that the cost department may charge to work in process or manufacturing expense, as the case may 138 Organisation and Management Week pndirnr — No. Ifame. DAY IN LOST OR OVERTIME OUT OUT IN s A, M. P. M. M A. M. P. M. T A. M. P. M. W A. M. P. M, T A. M. P. M F A. M. P. M. S A. M. P. V. TolcHtime _ . . -. -. ..Jm Hace „ Tbtai Vi ages for weei fc s. Fig. 45. — Clock Stamp Time Card Registering Arriving and Leaving Time of Employes The totals on these cards must check with the totals on individual-job cards shown in Pig. 46. Collection of Costs 139 be, the correct amount of labor at the correct rate, it is necessary that the employment department furnish the cost department the names of all persons employed, to- gether with check number, rate of pay, and the exact date of emplojTuent of each; also a list of all persons quitting, together with the exact date of quitting and the check number. From the time-keeping department the cost department will receive data showing the exact time put in on each productive or expense order by each employe. Figures 45 and 46 are examples of time cards. Figure 45 is used for registering only the arriving and leaving time of employes and is used primarily for pay-roll purposes. Figure 46 is a job time card, sometimes called a ''work card, ' ' on which is listed the time charged to a given pro- ductive or expense order. Most modern systems for keeping record of time spent on various jobs provide a separate slip for each job. ^Vhen this arrangement is used the separate slips can be filed either back of guide cards or in envelopes, thus doing away with the need of transferring postings from a general time card to the various cost records. With a well-ordered planning department the time slips or work orders are written out in advance, everything being filled in excepting the check number of the worker and the time of starting and finishing. It is important that the money value of time postings against various productive and manufacturing expense orders in a good pay period foot up to exactly the same amount in dollars and cents as the total pay-roll for that period. In connection with this checking it is quite customary to prepare for each shop department a so- called ''distribution-of -labor sheet" for every pay period. On this distribution-of-labor sheet appears the time of 140 Organization and Management IN OUT Klrfapecd T ime Oper. No. Oper. Name Article F. O. No. Draw, No. D. W. Rate Machine No. P. W. Pnce Amt, Finished Prem. All'ce Amt Del, Previous Amt. to Pay Total Finished Emp. No. Emp. Name Job Card No. Fig. 46. — Clock Stamp Job Card Rogistering the Time Charged to a Given Production or Expense Order The totals on these cards in a jriven pay-period must check with totals on payroll cards shown in Fig. 45. Collection of Costs 141 each employe in the department, together with a clas- sification of the time as well as the money which will be paid to him. The total postings of labor expressed in money value on cost records in a given pay period must be the same as the total of the pay-roll distribution. In order to effect this balance, the entries covering the cost of frac- tional hours ^\ill have to be increased or decreased by a cent or two here and there. The only way to make such an adjustment is to have the distribution of labor specify the order numbers in the cost department against which each man's time has been charged. These postings are listed on the adding machine, and if they total more or less than the man's joay envelope money, adjustment entries are made until the amounts agree. The cashier 's department should furnish the cost department with copies of all pay-rolls in order that this checking may be done. DATA REGARDING MANUFACTURING EXPENSE In order that the cost department may establish a cor- rect expense burden, the accounting department should furnish complete data in regard to all administrative and clerical salaries, all supervisional shop salaries, all fixed charges, such as interest, depreciation, taxes, insurance, and all special manufacturing expenses, such as legal and patent expenses. The cost department must secure, through its own system of standing orders covering shop expenses, the money value during a given fiscal period for expense material, such as waste, machine oil, etc., indirect labor charged to standing shop expense orders, all variable plant charges covering such items as power, lighting, heating, plumbing, repairs, maintenance, etc. The next chapter will outline the various methods em- 142 Organization and Management ployed in determining and distributing the expense burden. Assembling the Cost Data Figure 47 illustrates a stiff manila envelope arranged for filing in a standard card-index drawer, the envelope being designed to hold material withdrawal slips and roSM C. 6. 1 ig JUNt •« IM Billed s>/i\)i (o^^b^'^teU) COST SUMMARY ARTICLE PoSTeK?T?^n^ For foi<.-KJfY>p TV\eaKr9. ({^r. U o^) Order No - Their Req. }0IU \ No MONTH DIRECT LABOR MACHINE Time MFG. EXPENSE RAW MATERIAL MATERIAL BURDEN JLnej^tH- TOTAL ^1 \ n 10 Tl •tE $ ' TH *c. » » A H 50 tb — / 3c TOTAL COST PRICE 2.5.3I0 1 Fig. 47. — Stiff Manila Envelope to Contain Material Slips and Job Time Cards Arranged lor Monthly Balance Sheet Collection of Costs 143 time slips for shop orders. The printing and columns on the face of the envelope are designed to facilitate the monthly closing of accounts as well as to serve the pur- pose of condensed cost analysis. These envelopes may vary in capacity from an ordinary flat envelope designed DETAIL COST CARD S.O. [1 Qiiantitv ! Guide 1 No. Date Operation Wkm. 1[ ■ - Hrs. 1 Rate Labor No. Pnn Fin Time Name Size Class 1 1 -\ —^ ■^^ J ' ^ ~ ' p— \ • > >__ — T ■ 1 1 \. h— 1 Total Labor. Mfg. Ex. Mstettal. Total, 1 Fig. 48. — Typical Traditional Cost Posting Card Necessitating Transfer of Time Postings from Job Slips by Clerks This type is being largely superseded by the type showm in Fig. 47. to hold a dozen or more papers, to the accordion-plaited type of envelope designed to hold bunches of slips, run- ning from 1 to 10 inches in thickness. The envelope type of filing time and material records is gaining in favor, because it eliminates a large amount 144 Organization and Management (Xt c '^. (0 u H / ^ C M \ •:= C 1 aj.5 \ a. ■w u 60 CO 1 \ O 1 &0 1 H i ■w C O , I.e ( AND <^ is 05 ' Lju \ Q I 1 \ u I O 1 "5- H ; -J ' 0-0- iS ' O "■> [VE T Voltag CQ , H (0 { S , O \ < 1 >- \ S 1 1 ^-0 1 8 i 1 1 / *j ) o ■- b 2^ / c \ a 1 6 ] ^ Collection of Costs 145 of copying and posting. The traditional method is to post all labor costs from time cards or job slips to larger slips arranged by order numbers, a separate sheet or card being used for each separate piece on a given shop order. Figure 48 illustrates a typical labor cost card of this sort. CoMPAEATmE Costs Comparative costs are of three kinds : (1) Comparative total costs of completely assembled product; (2) com- parative total costs of individual parts; (3) comparative operation costs. In order to prepare a record of comparative total costs of assembled product it is necessary only to prepare a card index or loose-leaf binder in which are recorded the chief groups which constitute a total cost. Figure 49 illustrates a form for recording comparative total cost of dynamos and motors. A study of these comparative total costs is necessary when the management contem- plates placing new designs on the market and is comparing probable cost factors in connection with the new line with those recorded for the existing styles. The comparative total costs are also valuable for the works manager in noting any fluctuations in the leading factors and in demonstrating to him the benefits accomplished by improved methods. Figure 50 illustrates a comparative total-cost record of individual parts. This comparative cost record serves as a basis for preparing price-lists of repair parts and also in noting the results of improved shop methods as affecting costs. Figure 51 is a comparative operation-cost record. The entries on this record show the relative cost of the leading operations performed by various workmen or groups of 146 Organization and Management workmen, and serve as an aid in determining the stand- ing of employes, as well as in the establishment of bonus or premium incentives, either for the operations in ques- tion or for new similar operations. COMPARATIVE PIECE COST RECORD \ Drawing Part No. \ •Order No. Oute Quantity Labor Material Exper^se Cost Ea. Average Cost i \ \ \ 1 :^==^ r — , - L-A . - rH P^=^ \ \ \- y I \ ^ r' \ Fig. 50. — Comparative Individual-Part Cost Eecord COMPARATIVE OPERATION COST RECORD ^5 ^^-/^^ Type of Machine R.D.3 H.P. 1350 rflv. 500 volt. -Sheet INo. 1| Part Annature Winding ner Winding Spec. #562 Other D^fa 36 Slots 73 coils 12 turns ^a-- -"^19 d.n.o.. Order No. OPERATION COSTS First Winding Second Oonnooting Man's Time Flat Bonus Total Man's Time Flat Bonus Total No. Taken Cost Cost Np. Taken Cost Cost 15S31 69 9 2.70 15 2.85 85 1/2 15 08 23 15532 69 7 2.10 45 2.55 65 3/4 25 04 27 15533 73 9 ^.70 15 2.85 67 1-1/4 38 00 38 15534 73 8 2.40 30 2.70 67 1 30 00 30 Fig. 51. — Comparative Operative Cost Record The comparative operation cost record cannot in any way take the place of a scientific time and motion study. The latter must always be the basis of the time feature Collection of Costs 147 in connection with the accomplishment of shop opera- tions. Our comparative operation cost record, however, introduces a new feature not disclosed by the time and motion studies, namely, the rate of pay and total amount of bonus, which vary with different employes. Peeiodic Reports by the Cost Depaetment The calendar month, as a rule, does not constitute so well-balanced a fiscal period as one of four wrecks, since the calendar month would sometimes include four pay- rolls and sometimes five. In order to assist in adapting the fiscal periods to pay-roll periods, it is customary in a good many lines of business, which have undertaken the preparation of fiscal reports every four weeks, to change all salaries from a monthly to a weekly basis. The reports for each fiscal period should cover: 1. Value of material received at the close of period. 2. Value of material received during this period. 3. Value of work in process in shop at the end of period. 4. Total of all charges to work in process during this period. 5. Value of finished stock on hand at the close of period. 6. Total of all stock finished during this period. 7. Value of direct labor during this period. 8. Value of indirect labor during this period. 9. Value of all manufacturing expenses during this period. The foregoing reports should be listed on sheets in such a way that the figures can be easily compared Avith figures covering the same items during previous fiscal periods and for the corresponding fiscal period in previous years. 148 Organization and Management Supplementary Repokts The principal supplementary report of the cost depart- ment will be that in which the subdivisions of the manufacturing expense account are classified. This is explained in detail in the next chapter. Another t}^e of supplementary reports delegated to the cost department includes efficiency records. These efficiency records consist of (a) the records of individual Avorkmen showing each man's percentage of efficiency as compared with an established standard for each job on which he has worked during a given period; (b) departmental efficiency records in which output, number of employes, pay-rolls, and costs are compared by depart- ments; (c) estimated value of outstanding purchase requisitions for material during this period. In some organizations the efficiency reports are made up in a labor bureau, and the value of outstanding material requisitions are turned in by tlie purchasing department instead of the cost department. TEST QUESTIONS 1. What are the five principal sources of cost data? 2. What data relating to orders does the cost department need to have? 3. What sort of data regarding materials does the cost de- partment need to have? 4. What data in regard to material burden does the cost de- partment need to have ? 5. How are data in regard to direct labor collected and posted ? 6. How may the labor postings on cost records be checked against pay-rolls? Collection of Costs 149 7. Describe the standing order system of securing informa- tion in regard to manufacturing expenses. 8. From what sources other than standing order system are data relating to manufacturing expense gathered? 9. What methods are used for assembling the material, labor, and expense data relating to a given order or process? 10. What are the three classes of comparative costs? 11. What method is used for tabulating each of the above? 12. What sort of summarized reports relative to material should the cost department make ? 13. What summarized information should the cost department report as regards work in process? 14. What sort of summarized reports relative to finished parts or finished stock should be made ? 15. What sort of summarized reports relative to labor should the cost department prepare ? 16. What sort of reports relative to expenses should the cost department make? 17. What sort of individual efficiency records can be prepared by the cost department? 18. What sort of departmental records can be prepared by the cost department? 19. Draw a chart showing the principal departments from which the cost department obtains data, indicating very briefly the kind of data obtained. 20. What kind of work in the cost department requires ability as a detailist, and what kind of work demands ability to general- ize? CHAPTEE X the distribution of the expense burden The General Divisions of Expense There are three general groups of expenses, namely, (1) administrative expenses; (2) manufacturing ex- penses; (3) selling expenses. We should remember that administrative expenses are a general charge upon the business as a whole, while manufacturing expenses and selling expenses are peculiar to the two activities of pro- ducing and selling. Furthermore, it is desirable to dis- tinguish clearly between manufacturing costs and selling- costs in order that changes either in manufacturing or in selling conditions may be properly registered. The production division should not be held accountable for unusual selling expenses, and vice versa. This treatise is not concerned with the detailed operations of selling expense. administrative expenses Administrative expenses include organization expenses, such as promoter 's and legal fees. The legal fees in this group will exclude such as are connected with patents and compensation matters, which are manifestly manu- facturing expenses. Administrative expenses will include also the pay and expenses of directors, salaries of ofl&cers, general accountants, clerks in general office, depreciation of 150 Distribution of Costs 151 general office equipment, expenses in the way of sta- tionery, postage, and supplies in general office, and wages of janitors and other laborers doing work in connection with the general office. In order to show administrative expenses as a cost fac- tor, they are usually proportioned to manufacturing and selling costs. For example, suppose the total manufac- turing expenses to be $1,000,000, the selling expenses $100,000 and the administrative expenses $100,000, and that the manufacturing cost of one article is $100. Since the administrative expenses are 10 per cent of the total manufacturing cost, we add 10 per cent of $100 to get the administrative cost to be added to this particular article, and since the selling expenses are also 10 per cent of the total manufacturing cost, we add another 10 per cent on $100 to get the selling expenses on this one article. Thus, the total cost of the article would be $120. It is customary and rational to allot administrative expenses in this manner as a percentage on the money value of product. It is worth mentioning, however, that other methods have been proposed. For example, in establishments where all other expenses are allotted to the unit of product, as per ton of output, administrative expense can be easily allotted on the same basis. In public-school systems and in colleges, an allotment on the basis of expense per school-child or per student-hour may be made. In railroads the allotment can be made on a basis of the ton-mile or the passenger-mile. MANUFACTURING EXPENSES Having segregated the material cost and direct labor cost from the manufacturing cost totals, there remain various methods of allotting, distributing, or distributing the manufacturing expense burden or overhead. This allotment is made in one of the four following manners : (1) allotment by product; (2) allotment by labor; (3) allotment by machines ; (4) combinations of the preceding three methods. 152 Organization and Management AULOTMENT BY PRODUCT The simplest method of allotment by product is by- bulk in a continuous process analytical manufacturing establishment, as in the case of the making of mineral or vegetable oils. A single rate will suffice, if the product and process are fairly uniform. However, as soon as we have different classes of product with different processes, it becomes necessary to divide the manufacturing ex- penses into two general groups, the first one including expenses common to all product and to all processes, and the second including expenses peculiar to certain classes of product, thus making two rates, a general rate per gallon or barrel for all oils in the case of oils, and a class rate per gallon or barrel to be added to each class, distinct from the general rate. Instead of the allotment by bulk we usually have an allotment by weight, as in foundries and rolling-mills. Here again we shall have different classes of castings. All of the castings must bear a certain assessment per pound for the expenses common to all castings. On the other hand, there will be a class rate per pound to cover such expenses as are peculiar to each class of castings and not general. Another method of allotting expenses by product is to assess the expense as a percentage on the cost of material. Where the material is uniform this method answers prac- tically the same purposes as an allotment per unit of finished product. Wliere the material varies in cost, however, this method cannot be applied. For instance, it is manifestly erroneous to charge an article made out of brass with seven or eight times the burden charged on an article made out of iron in the same plant, simply because the raw material in the brass article costs seven Distribution of Costs 153 or eight times what the raw material in the iron article does. AlJ^OTMENT BY LaBOR Probably the most widely used method of assessing the manufacturing expense is by allotting it in accordance with the direct labor factor in production. There are two methods of allotting by direct labor: (1) the per- centage on direct labor method; (2) the hourly manu- facturing expense rate, in accordance with which for every hour of direct labor charge there is an hour of manufacturing-expense charge. THE PERCENTAGE-ON-DIRECT-LABOK METHOD In this method ^ve keep accurate record of the flat cost of all wages charged directly against production, such charges including only labor going directly and physically into specifically recognizable production goods. All other labor finds its way through various subsidiary accounts ultimately into the manufacturing expense account. At the close of a fiscal period or at the close of a predetermined series of fiscal periods, the money total of the direct-labor costs for the time in question is com- pared with the money total of the general manufacturing expenses of all sorts, including all indirect and non- productive labor charges. Taking the total direct-labor costs as representing 100 per cent, we determine what percentage of this amount is represented by the money total of the manufacturing expenses. For instance, if the direct labor costs in the period were $100,000 and the manufacturing expenses during the same period were $150,000, then we call the direct labor costs 100 per cent and we find that the manufacturing expenses were 150 per cent. We therefore decide to assess 150 per cent of 154 Organisation and Management the direct labor cost of every piece or assembled group or completed product to the coml^ined cost of labor and material so as to arrive at the total manufacturing cost. For example, our cost records might show that a spur gear costs us 20 hours of direct labor at 30 cents an hour, making a total direct-labor cost of $6.00. Our manu- facturing expense burden would be 150 per cent of $6,00, or $9.00, making the combined cost of direct labor and manufacturing expense $15.00. If the material cost $1.00, we should add it at cost, provided our manufacturing- expense account included material-burden charges. The total manufacturing cost of our spur gear would then be : Material $1.00 Direct Labor 6.00 Manufacturing Expense 9.00 Total $16.00 In case material burden was kept separate and not included in the general manufacturing expense account, and not added to material prices when material was credited to stores and charged to work in process, we shall have to add a percentage on material cost to cover material burden. This percentage may be from 10 to 30 per cent of the invoice costs of material. The percentage-on-direct-labor method is today the most usual one of assessing the manufacturing expense burden. The argument in its favor is that it is the simplest of all systems to apply and the easiest one to figure. Opposed to this argument are certain manifest defects. If the rate of pay for the same kind of work varies, we are not only paying a higher-priced man more money for doing the work, but w^e are assessing a higher share of the manufacturing-expense burden to the job he did than if a lower-priced man did the work. If the Distribution of Costs 155 lower-priced man took twice as long to do the work, then the job had the benefit of the floor space, the power, light, heat, mechanical transportation, supervision, and indirect labor factors of the shop for twice as long a period as the same job did when done by the higher-paid man. Our percentage-on-direct-labor method takes no notice of the time element in direct-labor costs. Where the product is fairly uniform and the same rate of pay prevails for the same class of labor and the time in which each job is done does not fluctuate much, this defect may be overlooked. However, such conditions rarely exist. Hence, the tendency among progressive manufacturers is to abandon the percentage-on-direct- labor method and substitute for it the hourly manufac- turing expense rate. THE HOURLY EXPENSE RATE In this method we keep an accurate record not only of the total flat cost of all wages charged directly against production, but also of the total time of all this direct labor. As in the percentage-on-direct-labor method, all other labor finds its way ultimately into the manufactur- ing-expense account. At the close of a fiscal period or a series of fiscal periods, the total hours spent in direct labor during the time in question is calculated. The manufacturing expense for the same time is divided by the total hours of direct labor. The quotient gives an hourly expense rate for every hour of direct labor. In favor of this plan it is argued that rent, taxes, depreciation, and all other fixed as well as variable plant charges vary directly with the time element. Under this system a job which consumes ten hours of direct labor in the shop is charged with t\vice the manufacturing 156 Organization and Management expense of a job which consumes five hours of direct labor in the shop. If, for example, the direct labor costs in a period are $100,000 and represented 400,000 hours, and the manufacturing expenses during the same period were $150,000, we divide the $150,000 by 400,000, giving us 37 1/2 cents an hour as the hourly manufacturing ex- pense rate. Taking now the spur gear which cost us 20 hours of direct labor at 30 cents an hour, making a total direct labor cost of $6.00, we should add 20 hours of manufacturing expense at 371/2 cents an hour, making $7.50 as the expense burden. If, however, the direct labor cost of $6.00 had represented 30 hours at 20 cents an hour, we should add 30 hours of manufacturing expense at 371/2 cents an hour, making $11.25 as the expense bur- den. Under the percentage-on-direct-labor system, the expense burden would have been the same in each in- stance. A^Hien we compare the widely differing results under the two different systems, we begin to realize that, while accounting accuracy is absolutely essential, it is not accuracy in postings alone that will result in true costs. The National Machine Tool Builders' Association has adopted the hourly expense rate for the sake of uni- formity, as well as for its apparently greater accuracy in manufacturing lines of the synthetic or assembling type. LocAX. AND General Burden Bates No matter which of the former methods is used, there is one argument which will have to be met, namely: If we manufacture a wider line than our competitors, have we allotted our expense burden so as to charge it against the various departments faii^ly? If we manufacture two lines, one requiring only light machinery and much Distribution of Costs 157 bench work, and the other, heaA^^ machinery and little bench work, is it fair to charge the first line with the same manufacturing expense burden rate as we charge to the second? Does this procedure not make the first line apparently cost us too much and the second line cost us too little? If so, how can we remedj^ the defect? This argument has been met by segregating all manu- facturing expense items common to all departments from those local to specific departments, establishing first a general expense rate common to all departments and next local expense rates for certain departments or groups of departments. Such a division would relieve all bench and vise work from any overhead involving operation of machines, and would separate a light machine shop from a heavy machine shop. This division is easily provided for on the hourly basis by dividing the direct- labor total for a given fiscal period into its group- constituents. For example, suppose wahad the following group-constituents : DlKECT- Direot-Labok Costs Laboe Hours Small -machine shop $ 50,000 200,000 Heavy-machine shop 25,000 100,000 Vise and floor work 25,000 100,000 Total $100,000 400,000 Manttfacturing-Expense Distribtttion General overhead $ 65,000 Small-machine shop 25,000 Heavy-machine shop 50,000 Vise and floor work 10,000 Total $150,000 We should now divide our general overhead of $65,000 by the 400,000 of total direct labor hours, obtaining a 158 Organization and Management general overhead burden of I614 cents an hour. We should divide our small machine shop expense of $25,000 by 200,000 of total direct labor hours worked in the small machine shop, giving a local burden rate for the small machine shop of 12 1/^ cents an hour. We should divide our heavy machine shop expense of $50,000 by 100,000 of total direct labor hours worked in the heavy machine shop, giving a local burden rate for the heavy machine shop of 50 cents an hour. We should next divide our $10,- 000 of vise and floor expense by 100,000 direct labor hours worked in vise and floor departments, giving a burden rate of 10 cents an hour as the local burden in vise and floor departments. The following would now be the hourly local rates: In small-machine shop, I2I/2 cents In heavy-machine shop, 50 cents In vise and floor shops, 10 cents In addition to the above, there is a general overhead hourly expense of I6I/4 cents per hour, making the total burden rate to be charged in each group : Small-machine shop, 28% cents Heavy-machine shop, 6614 cents Vise and floor shops, 26^4 cents It is quite evident that, if we figure our costs on the above basis, we may cover a wide line of work, and our costs will enable us to figure on the same basis as the man who does not cover so wide a line. Where light and heavy product is built in the same shop, the above method is absolutely indispensable, especially if there is any competition in light repair parts (and possibly the lighter assembled product) with local job shops or smaller competitors. Distribution of Costs 159 AliiOTMENT BY MACHINES The allotment of the manufacturing expense to various machines is a practice which has existed in a rather unscientific form for many years in planing-mills and in job machine shops. The method in these establish- ments is what has been designated as the old type of machine rate. According to it w^e apportion the entire manufacturing expense to machines only. For example, assuming that we have a total manufacturing expense of $150,000, we should get an approximation of the total number of hours that all of the machines of any one type and class were running, and allot to each of these groups of machines a portion of the manufacturing expense which the machines must earn, as it were, by being paid an hourly rate for their time. This old type of machine rate does not establish local or general burden rates distinct from the machine rates, but makes the machine rate carry the entire manufacturing expense burden. The more modern machine rate is one which allots a budget to each machine or group of similar machines, such budget covering the portion of manufacturing ex- penses as is chargeable only to different machines or group of machines. This will naturally leave a portion of the manufacturing expense not chargeable to machines to be covered by additional burden rates. The additional burden rate may be (1) a general overhead rate only; (2) both a local departmental and a general overhead rate. The last-named method is unquestionably the more accurate and satisfactory apportioning of the manufac- turing expense. DETERMINING THE MACHINE EATES The first step toward determining the machine rates is to separate from the manufacturing expense account 160 Organization and Management total such portion of it as exists by reason of the owner- ship and operation of machinery. This portion will include a share of the charges for depreciation of buildings, taxes, and insurance based on the space occu- pied by machines, all of the charges for depreciation of machinery, such portion of the small tools account as represents tools used on machines, such proportion of power charges as represents power needed for driving machines, and in fact everything in the way of expenses incurred by reason of operating the machinery. Having determined what total portion of the manu- facturing expense must be borne by all of the machines, the next problem is the allotment of a budget to each machine, which it must earn, as it were, by charging an hourly rate for its services. To determine this budget we need to know the approximate power-consumption of each machine, the rapidity with which it wears out small tools, and the number of total hours in a given fiscal period that each machine was operated. Having allotted to each machine the budget which it must earn, we divide the amount of this budget by the hours the machine was operated in a similar fiscal period, so as to obtain the hourly machine rate. We now write out a card or loose-leaf binder sheet for each machine, and as we charge up machine rates to work in process, we credit the machine on its card or sheet with such earnings. At the end of a fiscal period we balance the earnings against the budget. If the earnings have fallen short, we may have to increase the rate for the next period. If they have been in excess of the budget, we may be able to decrease the rate somewhat. The local and general burden rates exclusive of machine rates are determined by allotting the residue of the manufacturing expense account after we have taken out Distribution of Costs 161 the amount we expect the machines to earn, in accordance with the methods described on page 156. The Standing Expense Oeders In order to take care of the proper collection and dis- tribution of the expense burden, it is desirable to assign a capable man to this work as his regular duty. If the establishment has more than a hundred employes, this w^ork will take nearly all of one man's time. If there are two hundred employes, it will unquestionably take all of one man's time in an assembling type of industry. The method used for collecting the manufacturing, sell- ing, and administrative expense data is most generally that of classifying the various kinds of expenses in each group and assigning a number or symbol to each kind. The symbol and number used together will be found more advantageous than a numerical system, since the symbol letter followed by numbers is more flexible and permits of the addition of new standing orders without disarrang- ing the existing list. Typical Standing Orders in the Administrative- Expense Group As an example of the standing orders in this group the following may be cited : EAl — Promoter's fees. EA2 — Legal fees. EA3 — Pay and expenses of directors. EA4 — Salaries of general officers and assistants. EA5 — Salaries of general accountants, assistants, and clerka. EA6 — Depreciation of general-office equipment. EA7 — Salaries of general-office stenographers. EA8 — General-office stationery, postage, and supplies. EA9 — Wages of janitors and gardeners. Etc. 162 Organization and Management Typical, Standing Orders in the Manufacturing- Expense Group The list suggested below indicates the nature of the groups under manufacturing expense, which will classify expenses making up the general overhead burden: EMGl — Salaries of works manager and assistant works manager. EMG2 — Depreciation of works office equipment. EMG3 — Salaries of planuing-department heads and assis- tants. EMG4: — Salaries of planning-department clerks and stenog- raphers. EMG5 — Depreciation of planning-department equipment. EMG6 — Planning-department stationery, postage, and sup- plies. EiMGPl — Power-house labor. EMGP2 — Power-house supplies. Coming next to the group of standing orders which would be utilized to make up local departmental burden rates, we might have : EMLFl — Salaries of foremen and gang bosses in foundry. EjMLF2 — Labor in connection with charging cupola. EMLF3 — Labor in connection with pouring. EMLIMI — Salaries of foremen and gang bosses in machine shop. E]\ILM2 — Labor in operating cranes. Typical Standing Orders in the Selling-Expense Group In this group we might have standing orders as follows : ESI — Salaries of sales manager and assistants. ES2 — Salaries of clerks and stenographers in sales depart- ment. Distribution of Costs 163 ESS — Salaries of salesmen. ES4 — Salaries of advertising manager and assistants. ESS — Salaries of traveling salesmen. ES6 — Traveling expenses of salesmen. Co-operation with Accounting Depaetment It is absolutely essential that the head of the cost department and the head of the accounting department have a perfect understanding in regard to the collection and allotment of expense data. As a matter of permanent record, it is frequently desirable to designate after each standing order the debits or credits to certain book accounts in the general records. For instance, we might have a standing order worded as follows : EMLM17 — Machinist's time spent in oiling and cleaning up machine (credit pay-roll; debit manufacturing expense). The information in parentheses is a record of the agreement between the cost department and the account- ing department as to the disposal of the item in question. Similar annotations in parentheses may be put at the end of the description of each standing order. TEST QUESTIONS 1. What are the three principal divisions of expense? 2. In what manner are administrative expenses assessed? 3. In what sort of industries is it fair to allot manufacturing expense by bulk? In what sort by weight? 4. Under what conditions would it be equitable to allot manu- facturing expense as a percentage on cost of material? 5. Describe the percentage on direct labor method of diffus- ing manufacturing expense. 164 Organization and Management 6. Compare the percentage-on-direct-labor method in the case of a man working 20 hours at 30 cents with the case of a man working 30 hours at 20 cents. 7. Describe the hourly expense rate. 8, Illustrate by an example how the hourly expense rate would operate as compared with the percentage-on-direct-labor method. 9, What is the argument in favor of having a variety of local burden rates and an additional burden rate ? 10. Would it be practicable to take care of all manufacturing expenses by means of machine rates without having any other expense rates? Explain. 11. Describe the method which allots a budget to each machine. 12. How do we establish a machine rate which shall be distinct from local and general departmental rates? 13. How may we determine whether the machine rates assessed in a given period have fallen under or overrun the correct amount ? 14. Give a typical list of standing orders to cover administra- tive expense. 15. Give a typical list of standing orders to cover manufactur- ing expense. 16. Give a typical list of standing orders to cover selling ex- penses. 17. In what way can a cost department co-operate with the accounting department in the matter of standing expense orders ? 18. What is the argument in favor of competing companies in the same class of industry adopting a uniform cost accounting system ? 19. If the uniform cost accounting system adopted involved a single hourly expense burden, would any advantage accrue to a manufacturer of the association operating under the uniform system, from adopting in his own shop a system which used ma- chine rates, together with local and general burden rates ? 20. Could a cost system be applied to the operation of public schools? If so, what would be the unit and what methods of com- parison might be adopted? CHAPTER XI standardization Importance of Standards When we consider how many standards of national and international significance have been the subject of controversy and even wars, and to what extent civiliza- tion has been advanced by the adoption of standards and retarded by conflicts regarding standards or by the ad- herence to false standards, we begin to realize how im- portant the subject is. Such matters as the calendar, methods of measuring the time of day, language — spoken and written, weights and measures, mathematical and scientific units have all been submitted to adjudication by competent authorities, usually after lengthy contro- versies. Considering matters of immediate industrial impor- tance, we have commercial standards in accounting methods, engineering standards relating to such things as screw threads, pipe flanges, methods of conducting engine and boiler tests, and many similar examples. Advantages of Standardization The advantages of standardization may be discussed from the standpoint of (1) advantages to the proprietor of a business; (2) advantages to the employe; (3) ad- vantages to the consumer. 165 166 Organization and Management From the standpoint of advantages to the employer or proprietorship, we may cite the following: (a) Less designing is required and the expense of paying design- ers is reduced; (b) less labor is required, since every- thing is uniform and adeptnesg and speed are acquired by the workers; (c) a less extensive line of materials, equipment, and tools is necessary. From the standpoint of advantage to the worker, we have (a) greater comfort due to full equipment of all tools and devices to make work easier; (b) greater stead- iness of employment, since the making of a smaller num- ber of varieties and styles will always tend to greater stability of business. From the standpoint of advantage to the consumer we have (a) lower prices; (b) prompt deliveries ; (c) a mini- mum of delays in waiting for repair parts. Disadvantages of Standardization The disadvantages of standardization may be dis- cussed from the same standpoint, namely, those accruing to (1) the proprietor; (2) the employe; (3) the con- sumer. From the standpoint of disadvantages to the propri- etor we may list the following: 1. When competition forces new designs on the mar- ket, the specialized machines and tools adapted to old standard designs must be scrapped, causing a large loss. This argument is, of course, a negative one and assumes that standards do change. 2. When processes, tools, and manual operations be- come standardized, competition becomes greater. From the standpoint of disadvantages to the worker we have, first, the substitution of handicraft specialists for all-round mechanics. When such a specialist loses his Standardization 167 job he has a hard time finding another. Secondly, since all-round mechanical ability is not demanded, the handi- craft man is developed from the ranks of laborers, and wages are low. From the standpoint of disadvantages to the con- sumer we have, first, pronounced delay in adopting im- proved types, particularly in those industries where centralized control prevails. Hand in hand with this objection is the charge of suppressing patents for im- proved types by the centralized proprietorship which can purchase the patent at its own price, since it consti- tutes the only sales market open to the inventor. Then we have the difiiculty of changing standards which have become widely used, as, for example, the difficulty in adopting the metric system of weights and measures. The above statements regarding disadvantages as well as ad- vantages of standardization are made at the outset, in order that the proper attitude toward the subject may be had at the very beginning of this discussion. The Field of Standaedization The applicability of standardization in industrial activ- ities may be considered with respect to the same three groups as were considered in connection with the ques- tion of general expenses, namely, (1) standardization in the administrative division, (2) standardization in the production division, (3) standardization in the selling division. Standardization in the Administeative Division In this di\dsion the different steps towards standard- ization consist of the following: 1. The preparation of the general organization chart showing each department's scope and limits of authoritj''. 168 Organization and Management 2. The preparation of a departmental organization s«t of charts showing the authority and responsibilities of each individual in the administrative division. 3. The preparation of detailed instructions as to the daily, weekly, and monthly routine of each position. 4. The collection of all the above material into a so- called **book of standards," a copy of which is supplied to each department and which is accessible to any mem- ber of that department. 5. The preparation of a book of printed forms. In this book of forms all of the forms relating to a given division of work are designated by a mnemonic s\Tnbol followed by a number. This allows indefinite expansion of forms in a given division. When they are pasted on large stiff sheets in a loose-leaf binder it gives the assurance that all of the forms relating to any one division will always be found together. Opposite each form, or underneath it, is pasted a sheet of paper on which are typewritten instructions as to the use of the form. The book of standards will probably make frequent reference to cer- tain form numbers, so that this book of printed forms mil have to be frequently consulted. It may be desirable to have several copies of this book made and kept up to date. 6. A list of all the impersonal accounts kept in the books of the company. Such a list of accounts is to be followed by an explanation in ledger form, showing what are the ordinarj^ debits and credits to these accounts and how they are to be closed at the end of each fiscal period and how re-opened at the beginning of each new one. This description of accounts must clearly explain which are controlling accounts and which are subsidiary ones, showing plainly just what type of transactions Standardisation 169 each subsidiary account covers, and just what subsidiary- accounts each controlling account covers. 7. A detailed list of all reports to the executive as well as of reports to the board of directors and stockholders, together with specifications as to the form of such reports. Standardization in the Production Division Standards in this division will refer to the following: (a) organization of production division; (b) product; (c) drawings; (d) patterns; (e) materials; (f) methods of planning and supervising; (g) methods of processing; (h) tools; (i) time standards for machine operations; (j) time standards for handling operations; (k) em- ployes' efficiency standards; (1) wage standards; (m) test standards of product. Organization of the Production Division After a definite conclusion has been reached as to the t}T)e of control to be employed in the production division, the general organization chart of this division must be prepared, also the departmental charts in the same man- ner as was outlined in connection with the administra- tive di\nLsion. In case the organization involves the inclusion of functional control in an establishment where military line control formerly prevailed, it will be nec- essary to define clearly in the charts the works manager's limits of authority, as also those of the superintendent and the planning-department heads. Standardization of Product This involves a decision on the number of styles and sizes of product which are to prevail. Many industries adopt standards of product for a year. This custom 170 Organization and Management still prevails in the automobile industry, although even in that the tendency to stick to well-tried standards is becoming more marked each year. In general the changes during the year are only such as are urgent by reason of defects or new inventions. However, the last- named type of changes has to be carefully considered. An over-enthusiastic designing department with plenty of creative talent mil naturally wish to place on the market a continuous stream of new designs. Where the industry is a large one, full scope is given to this type of talent by assigning a building (including a good shop) to the construction and trying out of new models. In a smaller industry this is impossible, but developmental work, important as it is, must not interfere with regular production. Standards in the Drawing Department The standards in this department will include the division of the drafting work into (a) designing, of which there may be several varieties, such as drafting, tracing, blue-printing, and filing; (b) the adoption of standard sizes of drawings; (c) standards as to quality of tracing-paper, tracing-cloth, blue-print paper, and sup- plies; (d) standards as to title plates, border lines, let- tering (see Fig. 52) ; (e) mnemonic symbols for parts (Pig. 53) as to drilled, reamed, and tapper holes, bolts, screws, and fastenings in general, and the interchange- able use of minor details, such as gears, bushings, bear- ings, etc.; (f) the adoption of definite limits of accuracy required in various kinds of fits and methods of design- ing these limits on the drawings; (g) forms of drawing lists and material lists; (h) filing of tracings, blue-prints, and general information in the drafting department. Standardization 171 o CD >- C/0 UJ a. \ l| |i bt) a ; ; 3 a J T fa 172 Organization and Management This last-named item is of great importance and requires an intelligent man to take charge of it. In some organizations an information bureau is estab- lished under the general supervision of the head of the Cast Iron w. Wy/ ^ '^// / /// // y// CLjCu. ^// Wrought Iron Malleable Iron ^ ''^M- steel Casting Machine Steel Cast Steel Brass Copper ?/*■> ^'.f — r ■ '^vtyyi Lead Babbitt Rubber Aluminum Wood Vulcanized Fibre Fig. 53. — Standard Cross-Hatchings to Eepresent Materials on Drawings (Proposed by Oscar E. Perrigo in Iron Trade Review) planning bureau, such information bureau being located in a place accessible to the drafting department, purchas- ing department, and planning room. Standardization 173 The Efficiency Society of America has prepared a bulletin outlining a scheme of symbols to be used for filing material for information files, which may be made the nucleus of a system adapted to any particular indus- try. For example, in their scheme PRt refers to produc- tion routine, task; PRtl is the file containing papers, clippings, etc., relating to motion studies; PTo refers to production technique, co-operation; PTol is the file containing papers, clippings, etc., relating to suggestion systems. The entire bulletin covers twelve pages, in which an attempt is made to classify all topics relating to indus- trial management, with a symbol for each topic.^ Standards in the Pattern Department In such industries as require castings, whether of brass, copper, aluminum, iron, or steel, the pattern de- partment is one in which the principle of standardization is liighly important. The following are the important points to be covered: (a) definite authorization as to making, altering, or repairing patterns; (b) standard procedure as to approval of requests for new, altered, or repaired patterns before the authorization is issued; (c) the determination of how many castings are to be poured from an existing pattern before requested altera- tions or substitutions of new patterns take effect; (d) definite standards as to shrinkage allowances; (e) methods of accounting for material and labor on each pattern job; (f) the determination of which patterns con- stitute part of the cost of an order, which are to be considered standard patterns, and what shall be the 1 The pamphlet may be purchased for $1.00 from the Efficiency Society of America, 41 Park Row. New York City. 174 Organization and Management method of valuing standard and special patterns for inventory purposes; (g) system of keeping track of location of all patterns, whether in storage in pattern- room, and if so, on what shelf or rack and in what aisle located, and if at foundry, when and how they left and when they should be returned. Standaeds in Materials Definite specifications must be prepared covering the nature of all materials of production, also the routine of buying, receiving, and storing, as explained in previ- ous chapters relating to these subjects. Methods of Planning and Supervising While the general organization chart of the produc- tion division ^vill outline broadly the functions of the planning and super\dsing heads, a distinct book of stand- ards for the planning bureau must be prepared, explain- ing fully the routine of each position accompanied by references to the book of printed forms in use in the various branches of the planning bureau. Standards in Processing The data regarding standards of processing are best filed where they may be accessible to the man in charge of routing, the inspector, the man in charge of speeds and feeds of machines, the men in charge of time studies and instruction cards, and their assistants. These data include complete information in regard to (a) the gen- eral process-mapping of the business; (b) location of all machines and non-machine processes; (c) existing con- ditions of all machines as to shaft, pulley, and spindle speeds, methods of changing these speeds, together with Standardization 175 the conditions which are to be the ultimate standards; (d) standard speeds and feeds for stock of various sizes and degrees of hardness for machines in present condi- tion, and standard speeds under conditions ultimately to be reached when all non-standard conditions on ma- chines have been rectified; (e) standard routing for all regular product; (f) standard instruction cards for all regular product. Standaeds Relating to Tools In a metal-working industry these standards will in- clude (a) standard shapes for forging tools, with stand- ard templets and forge-shop devices for adhering to these standards; (b) standard specifications for heating and cooling tools together with the necessary instruments for this purpose; (c) standardized tool-grinding with definite exact shapes and sjTnbols for each shape; (d) tool lists prescribed for every piece of work done; (e) tool storage and issuing system. (See Figs. 54 and 55.) Time Standards foe Machine Operations Having determined for each machine the speeds at which it shall be run and the rapidity at which either the work or the tool shall be fed, the next set of standards is that relating to the time of the machine, as a machine only, in performing the various operations. These machine-time standards are wholly exclusive of handling time. They do not form the basis for compensation, but are absolutely essential when used in connection with the standards for handling operations and the allowances for length and frequency of rest periods and unavoidable time losses in making up the ultimate time standards for eflficiency records of employes. 176 Organization and Management DIRECTIONS FOR FORGIKG TAYLOR STAN- DARD SHAPE CUTTING TOOLS The blacksmith's work on tools may be divided into four operations common to all: 1 — Cutting the bar 3 — Symbolizing. 2 — Forging the nose. 4 — Hardening. The first main operation, that of cutting the bar, is, with the ex- eption of the angle at which the nose-ead is cut, the same for all ypes of tools. The operation is completed as follows : FIRST-CUTTING THE BAR Mark bar to be cut in equal lengths, as nenr standard as possible, using all the steel in it. At every second mark the cut is made at 9iP and the cuts between (for the nose-ends) are made — For round-nose tools at 6 M. M^ Center Puncti H • C • G • H ermaphrodl tea 6" M. C. F» H. Lfl.thp> Tool r/bxi" P> V. V. A* P. R. S, E. Steel Seal e. _6!L 3U fi, S, C alipe r ^!L W , C . F . S . Center Gau ge M> G. A. Fig. 56.— Tool List possible efforts will already have been made to stand- ardize the procedure of getting material, tools, drawings, clamps, and other fastening devices. For example. Figure 56 shows the tool list for the work illustrated in the subsequent figures. The next procedure is the listing EXERCISE /7^ f TIME STUDY OBSERVATION SHEET DATE STARTED ' ' / 1 T (D -..- SUflFACE speco ...0 OEJTH DETAIL OPERATION "1" TIME TIME ;:: CONTI 71 "mT :::; IT z. zr 1" MINIMUM . y^rjf.u/Lj^^ ^ 1 /r r V. iVnUl t^ ir^j to 3 ly f '- 'x£a^ a^j.,^ ^^fu^/a . VI If li ; I cjL/^ y^// -^-^-^ua li S jf ;i- 5 /'..J-d.^^CJUPAl-Cjt.^ n > >* / 6 rtj.>/:*.75*f^/jH^ ImJ6^ "^h^fH- 11 1 f/ / » &^Jx^ /fL,^ -6.^ ^..^ '. ' 10^ ^'^ (Tl 30 f (itOi uf, hUo . //'' 5 (H" 1 » Wail^ '^t^-^^h^hAAAZ^. \\v r- \5 :3 " TV' ^^^-^ Uli-4fij^Lj<^^i '\%0 i r^ + "■ fj^ppjfi^aji^j^^ IV3 3 ^v 3 '* 5 \S Ji^.irfhuL,^^,.^ . \f\ 1 40 s /* C'^X^'TSWlC (1.W36* >5o f 1^0 SO /T H^^%A44i..^ VS' 1 ;- \r 18 ^^ ^^uyr/:0\^ >4J "f if^Z'^ 11 W'U(l-f,t^4^fn^h'«o /f 5 1 U> -^ ^^tr^^ iOtUZ-^ad'd*^. V8I 1 1- 30> i-l i,i l-e ^'■PuJ'hl^ ^^Aj^^^^.:^rJPr- -is 3 m 1^ I' 7?i^ ^Arfi ;§L^ ^"^ i- jOt- 7.t- ^* y/^^f^i^. so 53 3^ 3 ^(U^.. ^M^^S^^f IV VO JO *^i |0 ^ xi^/72.^j:.:.^ ■ ; V 1 V "Co FlO. 57.— T Dtl" Stands for continuous time consumed and me-St -Indl' ady O tor bserva ndlTld al tin e actually appUed to tlic operation. n Time and Motion Studies 199 of all the detail operations without any attempt at accu- rate timing. Figure 57 illustrates the time-study obser- vation sheet. The broad column with the heading ' ' Detail Operation" is first filled in by the obsei^^er. In some cases it will take two or three sets of observations to list these details when the process of taking time studies is first being initiated. Method of Timing Observations Figure 58 shows a board arranged to hold the time- study observation sheet, the sheets being held to the board by a so-called giant or bulldog clip. At the upper left-hand corner of the board is a projection with cup hooks arranged to hold the stop-watch. The operator starts and stops the watch mth the left hand while he is taking notes with the right hand, as shown in the figure. The stop-watch has the minute divided into 100 divisions instead of into seconds. This makes it easier to calculate the elapsed time or individual time, as indicated in the alternate columns on Figure 57. The watch is so ar- ranged that, after ha\dng been stopped, it can be started again for the second operation at the point at which it was stopped instead of being thrown back to zero. This feature enables us to stop the watch whenever any un- usual interruption takes place. It also gives us the total elapsed time from the start of the first reading. Moving Pictukes as an Aid to Time Study Mr. Frank B. Gilbreth has used with marked success the motion camera as an adjunct to scientific manage- ment. While actually performing his work the mechanic is photographed by the macliine. His every movement is recorded on the films. As he works, a specially designed clock is so placed as to appear in the picture, recording 200 Organization and Management the exact time taken by every movement. The clock dial is about 30 inches in diameter and has a pointer which makes ten complete revolutions of the dial in a minute. The dial itself is divided into 100 parts, so that each move- ment of the pointer represents 1/1000 of a minute. A permanent record is thus secured. The expert is enabled to study the operation in detail for the purpose of elim- inating all useless motions. The unnecessary motions of the workman having been so clearly revealed, new and shorter ways of doing the job are devised. At the plant of the New England Butt Company, Provi- dence, R. I., a job which formerly required 371/2 minutes is now done in Sy^ minutes as a result of the micro-motion study. In many other jobs the time has been cut do\vn until the work is now done in from one half to one fourth of the former time. When a workman reaches out his hand to pick up a tool, the time of the movement is shown by the film. By noting the position of the pointer on the clock in the picture showing the beginning of the move- ment, and its position in the picture showing the end of the movement, the precise time is ascertained. It is in the analysis of these motions that the moving- picture machine has been utilized by Mr. Gilbreth. Close study of the films showed that a great many of the mo- tions of the various workmen were wholly unnecessary — also that a great deal of useless work was done in picking up pieces from boxes and trucks on the floor when these pieces, if arranged on an assembling-board, could be reached for and put into position in a much shorter time. As a result, various styles of so-called ''assembling- boards" were designed upon which cheaper help in the stock room placed the various lighter parts of machines to be assembled. When the expert mechanic was ready to assemble the machine, the use of the assembling-board Fig, 58. — Method of Mounting Observation Sheet and Stop-Wateh on Board for Taking Time- Study Observations ^2 - C — a =3 S £ S =- 5 5" ;: c ^ 2 ""' fl 5 c •; •'" ec £ c; :j- ^ . ^ a :.=: 'jf c o Time and Motion Studies 201 eliminated a great deal of the time formerly lost in bend- ing down and stooping over. Mapping Motions Another device used by Mr. Gilbreth consists in attach- ing a small electric light bulb to the hand of the operator, the bulb being connected by flexible wiring with a battery or other source of current. The light in the vicinity of the operator is slightly darkened so that the electric light in the hand rather than the man and machine will be recorded on the photographic plate. The camera is trained on the worker as he performs the operation which is under investigation. The plate is exposed as long as is necessary for the completion of several complete paths of motions. When the plate is developed, it will show a line of light traced in an irregular path. The figures of the man and machine may be faintly visible, but they do not count. The main thing is the path made by the light which shows exactly the path that the operator's hand traversed in the operation (Fig. 59). Where the light has passed two or three times over the same path it will be expanded to a broader band. This band is an accurate record or map of the motion which is being studied. In the majority of cases it will be found that the path is not in a straight line, but represents a curve more or less complicated. The straight line would be shorter. The problem then resolves itself into providing such fixtures, stands, or tools that the path may be shortened, and also that the workman may be trained in new habits of motion such as will assist in shortening the path. Where the record of light shows a path full of twists and angles, Mr. Gilbreth reasons that something must be the matter with the arrangement of the parts which the 202 Organization and Management band must reach. For example, at the plant of the New England Butt Company one of the plates showed that the operator of a certain machine made a considerable reach of the hand in order to seize a certain lever. The opera- tion had become habitual, and even the trained eye of the efficiency expert failed to note that there was any unneces- sary movement. The photographic record, however, showed that this reaching was an extra complication which resulted in some loss of time. The mechanism of the machine was altered so that the lever was within short reach of the workman. In order to introduce the time element, Mr. Gilbreth devised a disc whose revolutions make or break the elec- tric current leading to the lamp on the operator's hand. Instead of a continuous line or band the photograph of the machine will now show a line of dots and dashes. By gearing the disc which makes and breaks the circuit to a definite speed the number of flashes in a second is known. If there are ten flashes in a second and a line representing movement of the hand shows thirty flashes, the motion has taken three seconds. The shape of the flash, blunt at one end and sharp at the other, shows in which direction the motion was made. Mr. Gilbreth has designated this type of motion record as a cyclegraph, since each plate records the complete cycle of motion. Figure 60 illustrates the clock used in micro-motion study work. Figure 61 shows a cinematograph motion study being taken at the New England Butt Company. It will be noticed that the floor and backgi'ound are cross- sectioned so as to make more easy the determination of surrounding conditions and motions. Figure 62 shows a tj'pical set of micro-motion pictures. The cross-sec- tioned background has the heavj^ lines 12" apart and the light lines 4'' apart. An inspection of the pictures . 105HDCT 16.2 GILBRETH CLOCK HEW EKGL4H0 BUTT CO " >> W.5.11 lOfU' Fig. 60.— The Gilbreth Clock This clock records 1 1000 of a second. It shows the exact time taken by every motion made by the workman. £-»■ WW Fig. 01. — Time and Motion 01)servations by means of the Moving-Picture Camera It is sometimes diflicnlt for the workman to concen- trate liis attention upon liis work when sub- jected to the movins-pieture ordeal. The mechanic shown in this picture is unconsciously "posing." Fig. 62. — Moving - Picture Film ITsed in Studying Assembly of Small Ma- chines Fig, 63. — The Eack from which the Workman Assembles the Different Parts of the Machine He is Making Fig. 64. — Group of 8tu(l('nts Taking TimfStudy Observation in the Machine Shop of the Pennsylvania State College Time and Motion Studies 203 shows that it takes a man one second to let go of the work he w^as doing and get his hands to the assembling-board. Figure 63 shows an assembling-board with the various parts of the braider machine arranged in sequence of use in assembling the various features for holding the parts which have been designed particularly mth reference to use and quickness of grasping. Qualifications of Time-Study Observer It is desirable, although not absolutely essential, that the observer be trained in the trade under observation. He need not necessarily be an expert. He should be patient, diplomatic, and unprejudiced. College training in laboratory practice in which a man has become accus- tomed to taking accurate readings is good preparation for this work, provided it has been followed by some shop training in the trade involved. The workman on whom the time study is made should always be informed of its purpose, and his interest and co-operation secured. Time study for the purpose of getting the motion and time elements should always be made on first-class men, and such percentage of extra time added in establishing a time lioiit as will afford an incentive for the average man. It is customary to pay an advance over a man's ordi- nary rate when he is acting as a subject for time and motion studies. This extra pay is in no sense in the nature of a bribe, but it is in recognition of the fact that the man is being called upon to assist in a higher grade of work, since he and the time-study man are now doing team work of a research nature, which is a higher grade of work than ordinary production. The workman may be called upon by the time-study man to stop suddenly in the midst of a process, and to think about certain motion 204 Organization and Management elements involved, and discuss whether these elements are ordinary practice, or whether a certain improvement, short cut, or device suggested by the time-study man is feasible or not, and many similar matters. Preparation of the Instruction Card Figure 65 shows a drawing of the part on which the time-study observations showTi in Figure 57 were taken. U. S S*an<*QrrfT35r»orf _ - _ LfJ^t hand TAre^tf ^ /?(o A^,A«nrf /A reo rf ^ // T/i,reai<3 tt (Ae (Kih J- C TfoLLBD SrCEL FlG. 65. — Drawing of Piece on which Time-Study Data Were Taken Shown in Fig. 57 Figure 66 shows the instruction card which is the syn- thetic or constructive result of the analji;ic or observa- tional operation known as the time study. It will be noticed that in the instruction card each element or sub- operation is distinctly listed and the standard time which has been agreed on is listed after each sub-operation. After the time-study work has progressed to such an extent that a considerable variety of standard elemental Time and Motion Studies 205 operations and times have been listed and filed, the build- ing-up of the instruction card for a new piece will consist very largely in assembling these standard elements, leav- ing only a few elements remaining, for which the time can frequently be figured from known data, so that the actual time-study work becomes less all the time, and the result of every additional time study becomes more and more extensive. Figure 64 shows a group of students at the Pennsylvania State College taking time-study observa- tions in the machine shop. Doing the Work According to Instructions Where the men have never worked under instruction cards, it will require patient and systematic training and an insistence on careful reading and following of the individual steps of the elemental operation instructions. At the beginning men who have been accustomed to looking at the time consumed on a job merely in the light of the total time are apt to consider impossible the time reductions indicated on most instruction cards. The writer had experience of this sort in the assembling of automobiles and of engine-governors. After consid- erable preliminary work in planning and getting mate- rials and tools ready, accompanied by careful time studies, it was decided to offer a bonus in the case of automobile-assembling, beginning at 100 total hours of assemblers' time. The best previous record had been 225 hours. With careful handling of the men the time was reduced at the first to 90 hours and ultimately it was a common occurrence for the total assembling time to take no longer than 65 or 70 hours. In the case of steam- engine governors a great deal of time had been lost by reason of poor fits and the necessity of having the assem- blers do a great deal of filing. After the adoption of 206 Organization and Management INSTRUCTION CARD FOR OPERATION SHEETS. SHEET No. DRAWING No. MACHINE No. ORDER No. MATERIAL CLASS No. PIECES DESCRIPTION OF OPERATION Ceater.Faoe.Turn.GrooTe, Thread ITEM DETAILED INSTRUCTIONS FI£D SPEED Eloxa CMIMraaui 1 Pick up toole .07 2 Walk to vise .0? 3 Lav down toola .02 4 PIr.V lip nhnik ftiTl chalk both ends .11 5 Lay doyn chalk and pick up center and sorlber .02 6 nfint.or both ends .25 7 X.B.y down norlber- and Pick up center punch .0? 8 Piinch both ends .25 9 pick lip tonln .06 10 WhIV hnr.V t.n manhtne .04 n Lav down tools and Pick up center drill .04 12 Walk to apeed lathe .OR 13 .03 14 Put. fli-ni In chuck .44 15 Start machine ,02 16 AdjUHt tail stock .06 17 Drill both ends .30 18 Stop machine .02 19 Tftkfi out drill .28 20 Walk bnok t/> naohlne .07 21 Lav down drill and pick up doR »06 22 Put do;^ in piece .oe 23 Piit pinr.fl between centers and ad.1UBt .25 24 Pick up aide tool .10 25 5ot olHn tool .40 26 Rtart machine .05 27 Ohango speed and feed .10 28 Face first end 1.33 29 Kt.np machine .02 30 Take nut piece .10 31 32" .10 -30 33 Put. do J on ploce .15 34 Put Piece between centers and adjust .23 35 • OS 36 ►inlob fni-.n to length 1.06 37 .OS 38 Take out elde and put in round .17 Month D.y Yur Si«ncd Checked Fig. 66. — Instruction Card for the Piece Shown in Fig. 65 Time and Motion Studies 207 standard limits on the parts which were to be fitted together, the total time of assembling governors was reduced to about one-third of the former time. A skilled demonstrator or leader needs to remain with the workers until they are able to do the tasks specified in the instruction cards, and within the time limits desig- nated. When a job has reached the stage where it is- continuously done in the time specified, it can be safely left alone. Frequently, however, after considerable sav- ings have been made on work done by an experienced man or group of men, when a new man or group of men undertakes the same task, it takes a much longer time. Under these circumstances it is quite likely that the ser^dces of the demonstrator or leader will be again required. Allowances for Exceptional Conditions Where there is a difference in the quality of material, such as, for instance, in cast iron or cast steel, in which there are frequently as many as three classes of hardness recognized, a definite procedure should be agreed on regarding alterations in the surface speed and depth of cut to be used, together with the consequent results to be put in the time standards of the instruction sheet. In case there is a functional foreman in charge of the feeds and speeds, he would be the man to pass judgment on the quality of the metal. In case there is no such official, the foreman would be the man to make the decision. There should be no allowances made for the cleaning of a machine while the work is in process of being done, or of any oiling not specified on the instruction sheet. In case of delay for making a necessary repair, this should be approved by the functional repair boss, if there is such 208 Orfjanization and Management a man in the organization, or, in the absence of such a boss, by the foreman. Time Study Does Not Mean Driving Scientific time study recognizes the fact that the worker must not use too much strength and vitality at one stretch. This is important. It is not only requisite to know that in some classes of work the necessary rest periods aggre- gate two hours a day, while in certain other classes of work they are as high as one-half of the total working time. It is necessary also to know how long a man should work between the rest intervals in order to avoid fatigue. For example, in the case of a skilled drop-hammer black- smith, we might know that, generally speaking, a man would need to rest approximately one-half of the work- ing time. We shall have to know also whether it is best to work five minutes and rest five minutes, or to work ten minutes and rest ten minutes. This information can be gained only by careful experiment. It must also be borne in mind that interest in one's work will lessen fatigue. Hence a man's mental attitude to- wards his work means a great deal. The development of loyalty and enthusiasm among the employes, as well as the employment of the right sort of men to take the time studies, \vill do much towards keeping up the man's in- terest in the work. A suitable system of extra remunera- tion for work done in accordance with instructions, and within the time limits specified, will also tend to keep up the interest, especially if each job is made the subject of a distinct bonus chart applicable to the particular ma- cliine, or to conditions at the particular production center where the work is being done. The scientific determination of the amount of fatigue after continuous exertion of various kinds and for certain Time and Motion Studies 209 lengths of times has been investigated by various experi- mental psychologists.^ One method employed is to utilize an instrument recording by electrical contact with the pulse the rapidity and pressure of the pulse, which acts as an indicator of the fatigue. Where the facilities are not at hand to make scientific tests to determine the frequency and length of pauses and rest periods, the common-sense and good judgment of an experienced observ^er of the methods pursued by the workers who show a combination of greatest output with least fatigue must decide the questions. The power of i-esisting fatigue varies with training, occupation, sur- roundings, an^l the constitution of the individual. Where the work is repetitious for a long time, a change in posi- tion will frequently afford a change in blood-pressure, which mil prevent fatigue. To this end special stools have been devised with foot and back rests, so that the position is easily changed. Fatigue is worthy of study in every industry. Workmen must be taught to husband their energies, as fatigue interferes not only with their industrial efficiency, but also with their social efficiency. Inspection A thorough system of inspection is a necessary accom- paniment of any system employing instruction cards, time standards, and bonuses. The system of inspection, to be 1 The following authors have contributed to the literature of fatigue: J. Golilmark, Fatigue. F. S. Lee, Fatigue. A. Mosso, Fatigue. F. M. Strattou, Experimental Psychology. C. S. Yoakum, An Experimental Study of Fatigue. Adelson, Mental Fatigue. Aral, Mental Fatigue. 210 Organization and Management thorough, involves the employment of floor inspectors who accompany the move-material men in transferring work in process from department to department. The move-material men move from one department to the next such work as is approved by the inspectors. In some well-equipped establishments a motor-driven truck pro- vided with storage batteries is used to facilitate the rapid transportation of work in process, move-material men, and inspectors from department to department. The Expense of Time Studies It must be borne in mind that, after standard elemental operations have been timed, these operations \vill be found to repeat themselves again and again, so that the time spent in a complete analysis of a new job is trivial after time study has been well established. At the begin- ning of time-study work it may take several days to analyze a job, while after six months of time-study work a similar job would take but a few minutes by reason of standardized data available. Desirability of Publishing Time-Study Data It is unfortunate that the great accumulation of time- study data which have been gathered in various machine shops cannot be published and made available. It is hoped that educational institutions and goverimient bureaus will undertake the determination of standard time elements in various classes of work and publish them for the benefit of the public. TEST QUESTIONS 1. What is time study? 2. What is motiou study, and how does it differ from time study ? Time and Motion Studies 211 3. What are standard elemental operations ? 4. Why is it advisable to make the standardization of ele- mental operations the first and most important phase of time and motion study work? 5. Describe in detail the method of timing observations with a stop-watch. 6. What are the qualifications of time-study observers? 7. Describe the application of moving pictures to time-study work. 8. Describe the cyclograph method of mapping motions. 9. How is the instruction card built up from time studies? 10. Why is it desirable to inform the workman to be studied that time study is to be made on him? 11. How may we assist and encourage men in doing work in accordance with instruction cards? 12. What allowance should be made for variable conditions? 13. How would you meet the objection that time studies and instruction cards tend to drive men? 14. How would you meet the objection that time studies and instruction cards make machines of men? 15. What attention must be given to instructions when men are working under instruction cards? 16. What is the argument justifying the expense of time studies ? 17. In what way does the element of fatigue enter into the establishment of time standards? 18. How do you account for the opposition of organized labor to time studies ? 19. Discuss the advisability of publishing time-study data. 20. What methods have you to suggest whereby proprietor, worker, and consumer could secure their fair share, respectively, of the benefits of time and motion studies? CHAPTER XIV WAGE SYSTEMS GrENERAL CLASSIFICATION OF WaGE SySTEMS The methods which have been devised for remunerating labor may be classified into three general groups, as follows : 1. Time work, in which the employe is paid by the hour, the week, the month, or the year. 2. Contract work, including (a) the ordinary piece- rate method, (b) the differential piece-rate method, (c) the collective contract, whereby a contractor agrees to furnish the labor for a certain quantity of product at a certain price, the contractor selecting his own method of remunerating those who work for him. 3. Bonus, efficiency, or premium systems, including (a) promotion systems under day rate as a reward for increased efficiency, (b) the Halsey premium system, (c) the Rowan premium system, (d) the bonus system, (e) the efficiency system, (f) combinations of the above. Time Work Under this system in its usual form there is no record of the individual's performance. There is no incentive for effort except of such a sort as will result in the em- ploye's being designated as a ''good man" by tlie foreman or other superior. There is no penalty for ordinary 212 Wage Systems 213 inefRciency or time-killing. As soon as we introduce any kind of reward for individual efficiency, we are departing from the traditional time work or day rate, even though our reward may be of a sort which is not recognized among the so-called bonus or premium systems of pay. It is possible to introduce time and motion studies and insti'uction cards, together with standardized routing, scheduling, moving of material, and functional foreman- ship in connection with the traditional day rate ; but un- less some inducement is offered to the employe to reward him for sustained effort to follow out the instruction cards and for his success in so doing, together mth some penalty for failure to put forth effort, we shall not realize more than a fractional part of the advantages which can be gained from standardization and planning. Some ad- vantage will surely accrue in the way of economies and avoidance of waste in materials and labor — indeed, the advantage gained will be such as to pay for the work done and also a handsome profit ; but unless a reward is offered, there will be too many cases of backsliding and neglect of the instruction cards. Proper supervision as well as standardization and planning, and good working conditions, such as are devel- oped by proper welfare activities, will go a great way toward remedying time losses under a day-rate system. These conditions are, in fact, necessary prerequisites to the introduction of any other system of remuneration. It is always desirable to leave the wage question as the last problem. This placing it at the end of the list does not mean that it is a problem to be feared or avoided, or that it is of minor importance. It is a problem to be met in a liberal, tolerant manner, but it must be met and solved, since it is of vital importance. 214 Organization and Management If America is to maintain its industrial standing, it must practice to the fullest extent conservation of labor- energy while at the same time securing the highest effi- ciency out of its labor-energy. America's aim is to have the highest paid labor in the world. This means that we must face international competition at home as well as abroad. There is hardly any establishment or undertak- ing in which, no matter how variable the individual items of product made, the elemental sub-operations are not repetitious. Hence, time standards are practically uni- versally ascertainable, and our verdict on time wage with no stimulus for the loyal and efficient and no punishment for the disloyal and inefficient is that it is merely a temporary expedient. The foregoing remarks apply to the crude traditional class of day work in which the workmen of a given trade or handicraft are paid a class rate, regardless of indi- vidual merit. As soon as we have established elemental time standards and instruction cards, we begin to realize that good workers are worth twice or three times as much as poor ones. This immediately suggests some system of compensation or promotion under the day-rate method that will recognize individual merit. Such a scheme will naturally fall under our grouping of efficiency methods of compensation and is not to be considered under tradi- tional day rate. Oedinaey Piece Rate The principle of the piece-rate system, which proclaims pay for measurable results rather than for time service, w^ould at first sight seem to indicate the substitution of free contract for paternalism and vassalage. If em- ployers were always fair and workers always reasonable, ordinary piece rate would be mathematically fair. The Wage Systems 215 system has been so badly abused, however, that there is a tremendous prejudice against it. It has come to be associated with the sweat-shop system where the cupidity of the employer sets the piece rates so low that only excessively long hours and high speed enable the worker to eke out an existence. "" "■ "" — "~ ~~ ~" — ~ \ \ ax \ i ?'i 175 n? ^ ^ 1 ii;ii \ "ill ^ ; ^ J- r/el ce / fa ^e 5 \yi ti '/r. /J /?/'ti fi at e i f^ r pA "C ».t ^ ;; KM) \ h ol ^ ' ^ ^ «^ ^ •^ •^ 1 — ■*■ 25 I "^ — __ >.■ a J (L _ u id -J3 o_ _J _! _1 J^ oj _| _J i^ _2 KL ^ ± Si Per Ctnl o/ Normal Pay Fig. 67. — Chart Illustrating How Normal Pay Increases with Increased Output and Decreases with Lessened Output Under Ordinary Piece Rate Piece rate has been used as a bait to speed up em- ployes to a certain pace and then, when that pace was reached at which a certain class of workers earned more pay than the proprietorship considered they were worth, the rate was cut. After several such cuts the system produced nothing but fear and hostility together with intentional loafing on all new work, so as to get the piece rate set as high as possible, since it was bound to be cut. If piece rate is to be used at all, it must be accompa- nied by a guarantee that there will be no change in the 216 Organisation and Management rate so long as methods, tools, and machines are not changed. When time reductions are in no way the result of effort on the part of the employe, a change in rate cannot be called a cut. For example, the introduction of high-speed tool steel enabled machine-tool operators to run their lathes so as to have a surface speed from two to three times as great as had been possible under former condi- tions with the use of carbon tool steel. A doubled output was easily obtainable without the workman's being com- pelled to exert himself any more than with the old steel. On the other hand, the company, under these circum- stances, can afford to pay a piece rate slightly in excess of one half the former piece rate, since there is likely to be also a saving in view of the fact that a larger quantity of output is turned out without a correspondingly greater increase in the overhead rate or manufacturing expense. Figure 67 shows how normal pay increases and decreases under ordinary piece rate. Differential Piece Rate The differential piece rate consists of two rates : (1) the ordinary piece rate, which is paid a man for a nonnal or ordinary output, and (2) a higher rate, which is paid per piece, if a man turns out more than an ordinary output. It is quite apparent that the reasoning in the case of differential piece rate is entirely different from that which resulted in cuts under the traditional piece-rate methods. Under the differential piece-rate system the workman not only has no fear of the rate 's being cut, but he has a tremendous incentive to earn high pay, in view of the fact that he receives an exceptionally high reward for accomplishing good results. Wage Systems 217 For example, assuming that, as the result of time study and the building-up of an instruction card, it is shown that a piece of work can be done in 30 minutes. In order to allow for necessary rest periods and avoid lost time, 60 per cent is added to the possible time, an increase of 18 minutes as an incentive, making 48 minutes the normal or average man 's time. In an eight-hour day w^e should have 480 minutes ; hence, the normal average output of an ordi- nary man would be ten such pieces. Under the differential piece-rate system there would now be two rates offered, say, for example, 30 cents per piece for an output of ten or less, and 35 cents per piece for an output of more than ten. It will be seen, therefore, that if the man produces ten pieces, his earnings for the day ^vould be $3.00, whereas, if .he turns out eleven pieces, his earnings rise to $3.85. It is argued that this system would tend to make a man exert himself beyond the limit of good health. In reply to this we can say that the man has an instruction card showing that the work can be done in 30 minutes, so that, ^vithout any rest periods whatever, the output would be sixteen pieces in an eight-hour day. The workman is given instructions in regard to the percentage of rest periods applicable to each class of work. Assuming this to be lathe w^ork, he is told that the total of rest periods should aggregate 20 per cent of the time. Of course, it is possible to take some of these rests while the tool is doing work ; hence, it would be entirely possible to turn out thirteen or fourteen of these pieces in a day with abundant time allowance for rest. The company can afford to offer the increased piece price, because the cost of operating a machine tool, including power, light, heat, rental for floor space, tools, oiling, repairs, etc., is likely to be as great as the rate of the mechanic who is operat- 218 Organization and Management ing the machine, and the day rate of the machines remains very nearly stationary while the output increases. Figure 68 shows how under the differential piece rate the pay per piece increases at a more rapid rate as time is reduced than under ordinary piece-rate. This last point may be illustrated mathematically. Let us assume in the above case that the cost of operating the machine is 35 cents an hour. The formula for determin- ~~ ■n -1 ^ — — """ ~" "" i { n' *^! {11 \ t> ^1 ' S" r^ vl r1 J f/-; -er \-e/ If c > ■o V r «o ■^ y J 0« •' '1 / ^/i? h ^ \ a \ ^ *«. 1 ^ ■»> ^ 1 ■ ^ — ^ 50 1 ^ _ \__ 1 — 1 I — ^ — - 2. J L L_ _ 4d u J J J ml J _al fij _| _ 2H) A jd e_ -^ lO m Pa Cent qf Normal Paif Fig. 68. — Chart Illustrating How Pay Increases Under Differential Piece Eate at a More Rapid Rate as Time Per Piece is Reduced than Under Ordinary Piece Rate ing the direct labor and machine cost per piece will be Machine rate X hours + piece rate X number of pieces Number of pieces Cost per piece If a poor workman, then, turns out only eight pieces during an eight-hour day, the cost per piece then will be : 35X8+30X8 =65 cents Wage Systems 219 If, on the other hand, a workman turns out eleven pieces, the cost per piece will be as follows : 35X8+35X11 =601^ cents 11 You will observe that in the first case the workman earns $2.40 per day and the cost to the employer is 65 cents per piece. In the second case, the workman with his higher piece rate earns $3.85 a day, while the cost per piece to the employer is only 60y2 cents. This illustra- tion shows how both employer and employe may profit under a properly adjusted wage system of this kind. Collective Contract Work Where work is repeated over and over again in consid- erable volume, the practice exists of making a contract with competent workmen whereby they are to furnish a certain number of pieces at a specified price. Under this arrangement the contractor employs his own men, while the company furnishes the material, buildings, equip- ment, and tools. This contract system is quite generally employed in several of our larger locomotive shops. An inspection of these shops indicates that there is considerable loss due to the contractor's requisitioning more material and fin- ished parts than he actually requires, so that there is an accumulation of surplus parts which have to be returned to stock, or made over, if possible, or scrapped. The contractor claims that these overdrafts are necessary be- cause of the possibility of defects or poor fits. It is also claimed that the contractors are careless with the com- pany's tools and machines. The only satisfactory reason for the emplojmient of collective contract work seems to 220 Organization and Management be that organized labor will submit to a brisk pace when imposed upon its members by a contractor who is himself a member of the organization. It is quite apparent that fear of cutting the contract price will operate with the contractor in just the same way as it does wdth the workman under the traditional piece-rate system. The contractor will feel that, if the management thinks he is making too much money, it will not give him the same price on the next contract ; hence, he dare not turn the work out at a rate so rapid as to jdeld an exceptional profit. Time Work with Efficiency Records As previously stated, the crudest type of day work is that in which the workmen are paid a uniform class rate, regardless of individual efficiency. As soon as w^e have accumulated data with regard to standard elementary times, and the correct total time in which various jobs should be done, we can establish a record for every em- ploye in which the time he took under the day-rate system is compared with the time standard established. If the total hours which he spent on standardized work are re- corded, and the sum of these standard times is divided by the time which he actually took, we shall get a percentage which roughly approximates his efficiency on standard- ized work. For instance, if during a certain week a man has had jobs on which time standards have been estab- lished to the extent of 30 hours of work according to the established standards, and the time it actually took him to do these jobs was 40 hours, then his approximate effi- ciency was 1^, or 75 per cent. If we have accumulated records of this sort covering the performance of a number of workmen, we shall soon Wage Systems 221 find that we have certain good workers who turn out regularly from two to three times the quantity of work done by poor ones. It is immediately apparent that a company can afford to increase the efficient worker's rate gradually until it is one-third, or more, higher than the former average rate, simply for the purpose of retain- ing the high-grade man. At the opposite end of the scale the efficiency record will soon disclose what workers are uniformly inefficient. These should receive instructions with a view to bettering their efficiency. If they do not show themselves willing to better their efficiency, they should be dismissed with the least possible delay. Under a combined daj^-rate and efficiency-promotion system of this sort advances may be made at intervals of from three to six months in the hourly rate of the employe until he reaches the maximum rate. This system will gradually attract the good workers of a vicinity to the establishment, since they know that they will receive good wages. The poor workers will be rapidly weeded out, and the news ^\^ll be spread that poor workers are not wanted in the establishment. The only difficulty in connection with this system is that, in case organized la- bor is employed, an amicable agreement should be made at the outset whereby the organization will agree not to demand that the maximum rate be paid all of its members, and that they mil countenance the discharge of members whose efficiency records show them to be unfit. Halsey Premium System In the premium system as devised by Mr. F. A. Halsey the workman receives his hourly rate, and in addition to this receives extra pay every time he does the work in less 222 Organization and Management time than the time standard. The time standard origi- nally employed by Mr. Halsey was the average of the records of previous performance. At the present time, however, the time standard is usually taken from 40 to 60 per cent higher than the time in which a skilled work- man can do the work under correct conditions, such time standards having been established by a scientific motion and time study made during demonstrations by a skilled "" ' — ■— ~ ~* — ^ r — — — — — — — — — "■ inr 17^ .1 ^ IJ* H ?/, pe V Be \n Ui 1 k ?t( ^/) i c '/ /^ *f\ ^e f>^ ^ ^ yj 4? £ hj ^u s ■s ^ r lot '^ ^ \a. 7 Pt ■e ^\ 'u\ w Wai ^^ <. vi \t< ^rt ."> ro S^ "\ JS °: H rp tH '>3aK r^ d > s 3 ?> ^ [^ t> v ■in ' k, 7^ ■>^ '>> \ ^ - 11. ^ Ji (L J Q. _H lO .u 10 21 P«r CatI qf Nonnat Pag Fig. 70. — Chart Illustrating How Pay Remains the Same if the Time is Not Reduced and How it Increases as the Time is Reduced under the Rowan System he receives a bonus, usually from 20 per cent to 60 per cent, depending on the nature of the work. If he does the work in less than the standard time he receives the time rate for the standard time plus the same bonus. In other words, the system is virtually a time rate for the man who does the work in more than standard time, and it is a piece rate for those who reach or better the standard. Wage Systems 227 Suppose, for example, that the standard time for a given job of work is eight hours, the rate of pay is 40 cents per hour, and the bonus is 30 per cent. If the man takes ten hours to do the work he gets ten times 40 cents, or $4.00 for the Job. If he does the work in eight hours, he gets eight times 40 cents, or $3.20 plus 30 per cent on eight hours — ^which is 96 cents. This makes his earnings $4.16 for eight hours, and his hourly rate is 52 cents. If it takes him six hours to do the work, he receives $2.40 for the time at work, plus 96 cents as a bonus, making his total wage $3.36 and his hourly wage 56 cents as contrasted to 40 cents in the first instance and 52 cents in the second. The object is tc \ secure tc ► 1 the workman his earnings 1 r r;-T 'T^' rrTi n v\ 'rrrr-r-rTTTTi 1 ! \ 1 i ! If--, - J 1 -f -j-- itu 1 G B.) .Y t '>,s Tft 77 of' '■i'< es"= iU 2 P ■L ,' '^to U< ¥<\r6 f 7 '■]/»;<» 1 S > S ? uv j ^ ^l_ 1^ - - 'v 1 "— 1 P^ ^i " — -J ~" 1 — ^-^. ^ J i It : _ il ir _ i] fi.- m m J A. _ .M 1 i^ 1 M nr^i Wf 1 ;,.J fa Csf:! c/ / ioTITJll Pci) Fig. 71. — Chart Illustrating How Day Rate is Paid Irrespective of Output and How Pay Increases as Time is Reduced under the Gantt Bonus System while he is learning the job, and then to pay him a sufficiently large bonus to keep him working at his highest rate of efficiency. In addition to the bonus paid the workmen, a bonus is also frequently paid to the foremen. This foreman's bonus varies with the number of workmen in his gang who earn 228 Organization and Management their bonus; i. e., it is larger if all the men in the gang succeed in earning their bonus than if only some of them are successful. For instance, assuming that the foreman had ten men under him, he get would 10 cents per man bonus, or $1.00 per day, if nine of his men made their bonus. If, how- ever, all his men made their bonus, he would receive 16 cents per man, or $1.50. This system applies the differ- ential piece rate for rewarding the foreman. There is an ~ "■ "^ — "■ ■■ "■ ~ - ~ "~ -1 "" "*■ — — ~" "~" — r- w 1 TT ^ ?/ ^k "A ir s ' W 9Q \e S 's^e m i Z\ 'O > 5 5i r 'o Be \n iS ^ \ 8 i >.> ^ 3 IM ^ p '^ (0 ^ % 5 T tS 1 ^ ^ ^ fl .. n J2 L M K » l< 2 Cent (^ Samal Pay PiQ. 72. — Chart Illustrating How Pay on the In dividual -Job Bonus System Increases as the Time ia Reduced inducement for him to secure the highest efficiency from every workman. The particular field for this bonus system would be in industries in which the standards had become pretty well established under the original Gantt bonus system. It will be noted that the individual job bonus system recognizes 100 per cent efficiency on the individual job, but does not reward a man for his effort, in case he does Wage Systems 229 not attain 100 per cent efficiency. The payment of bonus on individual jobs demands a high grade of accuracy and integrity on the part of the person keeping the time rec- ord, so as to prevent the robbing of time from one job and putting it on another in order to favor the working men. Moreover, the most desirable employe is not the one who makes gains by occasional spurts, but one who averages high in efficiency. Under the individual- job bonus system there is no incentive to maintaining a uni- formly high efficiency on all jobs. Figure 72 shows how pay on indiAddual-job bonus system increases as time is reduced. The data used are from bonus charts prepared by Frederick W. Parkhurst. DiEMER Combined Bonus and PREMniM System The writer introduced in 1905 at the Atlas Engine Works at Indianapolis a system in which the workmen were paid a 10 per cent increase of their wages if they reduced below past average the time in which the work was done. They were paid 20 per cent of hourly wage increase if the work was done in a specified standard time, such standard time being based on motion and time study, on demonstration by skilled mechanics, and about 30 per cent being added to this time. A further so-called ''gain-sharing bonus" on the Halsey premium plan was allowed if they did the work in less than the specified standard time. In addition to the bonus wages paid, a record was kept of every man's percentage of success during each pay period, and each man's percentage of success under the system was made the basis of promo- tion in his hourly rate. The field for this system is the same as that for the bonus system. Its particular advantage lies in the fact that, recognizing the tendency of men to work in spurts 230 Organization and Management on certain jobs, it offers inducements to men who are faithful and steady in their efforts to do every job in the standard time. This system was described in the Engineering Magazine for August, 1905. Figure 73 shows how with guaranteed day rate the pay increases as time is reduced under this system. Efficiency System In this system a standard time is established for each job. During each pay period a record is made of the ~ ~ - - ""^ - — — ~^ fi er ne r Cd m bi ne d W sq e ^u >m 1 c '0 Vo f/ eri u'l. n\ + ■^ oy Yoi 7ii S t- ?" r •^ 1 ^ y ^ c ^ ^ ^ jK :^ * r^ o: ij r •v "«N -^ -^ . ^ k-. — — ^ 1 Q IQO JS 2_ _^ 169 J ^ Pa Cent of Normal Pay . Fig. 73._Chart Illustrating How with a Guaranteed Day Eate the Pay Increases as the Time is Reduced under the Diemer Combined Bonus and Premium System number of hours a man worked on the jobs on which time standards were estabhshed. Then the total hours in which he did these standard time jobs is divided into the total sum of the time standards. For example, if the sum of the standard times in a given pay period aggregates 210 hours, and the man took 240 hours on these jobs, then his efficiency would be |^. or 87.5 per cent. Wage Systems 231 Mr. Harrington Emerson devised a sliding-scale for determining the bonus to be paid under the efficiency system. This scale is as follows : PEB CENT BONUS AS EFFIOIEHOY KaACTION OF WAGES 66.0 0001 68.0 0004 70.0 0020 72.0 0055 74.0 0101 76.0 0161 78.0 0239 80.0 0330 82.0 0435 84.0 0555 86.0 0693 88.0 0840 90.0 1000 Above 90 per cent efficiency add the percentage above 90 to 10 per cent and the sum is the fraction of the wages to be paid as bonus. Figure 74 shows how with guaranteed day rate the Emerson system rewards for increased efficiency. Figure 75 tabulates methods of cal- culating the data from which the preceding curves were plotted. Selecting and Intkoducing Wage Systems The type of wage system to be introduced will depend not only on the extent of standardization, but also on whether the workmen are of a high or low grade of intelligence, and whether or not they are under the domination of strict union regulations in regard to wages. A good many writers introducing wage system suggest the Halsey premium system as a transitional plan to be used where time studies have not been intro- duced. While it is true that the premium plan as in- 232 Organization and Management stalled in the early 90 's made use of the past averages of time performance, as shown by time tickets and cost records, we must bear in mind that Mr. Taylor's first paper describing time study methods was presented be- fore the American Society of Mechanical Engineers in 1895. Systematic time study, in accordance Avith Mr. Tay- lor's recommendations, was taken up by a great many "^ Xti ITS r i '/n ?r fO 7 , «/- /(? m o)Fi' r^ 7f= ^ 1'in 2C e J/7 /5 or [^ m =>! ^Kc rh ec / J k ■t. .,!> c^ ^ ^ \ . ^ inr =^'i s N '^ ^1 ^ w> Pi ^ "■ ■"" ■~ rn <\ "■ ■~ „_ - 1 IK 1 SL l_ J JL [A li _ lJJ 0_ _je J! 10 1 -m jcaJ Pa Cent <4 Normal Paif Fig. 74. — Chart Illustrating How with Guaranteed Day Rate the Pay Increases as Efficiency Increases under the Emerson Efficiency System competent engineers and shop managers outside of the circle of Mr. Taylor's immediate associates. Among the machine-tool builders in the Cincinnati district time study took the place of past averages in the late 90 's. It was realized by these machine-tool builders that standardization and time studies were essential prelimi- naries to any successful wage system. Moreover, they also realized that bonus and premium rates must be specially established for each distinct machine or Wage Systems 233 o ►-5 00 -« o ^ P o ■o a> -^ -a S ^ ^ (- (D ij J § £0 c a 2 c .^ B O an " Q) E a &!; 0) g^ o .Si c 'a 8 (N m oo 3 3 fl G O O X X a u fl. 4 T or V. LO O (N to > 0. > a a. CJ II ^ s: 5^ TS CO 03 CC 3 3 3. "5, .£ .£ cr C C o CO "a c > "■5 ^ Si «4- . a. c c X "bi) fe^ £ fe5 Q Q ^ a i::^::^&5K c (M h o oo C c c c c c o C c o o o o ^^ 'CM 'r (M IM cs r>j CO (M C5 C^J Cvl (M -<; "-" CC CC CC CC CC CC CO CO CO OC-l c c c c c C o C c o o o lO ^^ rf CC M- Tt Tf •^ CO ^ Tt< '^ TH Tt* C^ »" c^ QC c t> ■* a- CO o >0 CO ^ (N rH r-l 03 CO m ^ a 3 3 IS o fl fl m P «— .« X o o c C £ o r i X X c c c '£ rf P a iC o C B ^ X (— .0^ c ■> > c ^ > a, cr c _o 1' £ C 4^ -t- C CC X c c 0. £ £ i£ 3 3 J3 X Ph 0h !:^-< 'f £ K a Pi H c K Q flH 2 f^ i:j Q -d syo -^ u fl -u CS U ? «*-! T? X .a 234 Organization and Management method, and that an iron-clad guarantee must be given that the rate once established will not be cut, and this guarantee must be faithfully lived up to. In general, we may state the field of the various systems as follows : Where standardization has not been developed very far, time work with efficiency records is appropriate. Where standardization is under way, but has not been very well developed, the premium system is applicable. Where standardization is fully developed, the bonus system on indi\T.dual jobs, the combined bonus and pre- mium system, or the efficiency system may be introduced. Various systems may be introduced in the same shop. At the Link Belt Engineering Company, in Philadelphia, some of the work is ordinary piece rate, some on differ- ential piece rate, some on premium rate, and some on individual- job bonus. TEST QUESTIONS 1. Into what three general groups may we classify wage systems? 2. What are the disadvantages of time work 1 3. How may time work be made most effective ? 4. What are the objections to ordinary piece rate ? 5. Describe the differential piece-rate system. 6. Describe collective contract work. 7. How may time standards and efficiency records be applied to a time-work system ? 8. Describe the Halsej' premium system. 9. Describe the Rowan premium system. 10. Describe the original Gantt bonus system. 11. Describe the bonus system as applied to individual jobs. 12. Describe the Diemer combined bonus and pi'eraium sj'stem. 13. Describe the Emerson sliding scale and efficiency system. Wage Systems 235 14. Discuss the question of selecting the proper wage system for various conditions. 15. What remedy would you propose to do away with "soldier- ing" or loafing? 16. In case new equipment or new methods promote time re- ductions for which the worker is not responsible, how would you endeavor to justify to his satisfaction the lowering of piece rates or premium times? 17. Under the Halsey and other premium systems do you think it is fair that the proprietorship should retain half of the value of the time saved by the worker? Give reasons for your answer. 18. Under a day-rate system with efficiency records, what course should be pursued with regard to the men showing the lowest efficiency? 19. How would you explain the attitude of organized labor favoring a uniform wage scale and opposing any type of extra compensation based on individual efficiency? 20. What are the preliminary steps in connection with organ- ization and system which must be taken before the wage question can be considered? CHAPTER XV ■welfare and betterment avork Aims of Welfaee and Betterment Work Strength, both physical and moral, happiness, content- ment, thrift, industrial and social intelligence among workers as well as supervising forces, are the aims of modern industrial welfare and betterment work. When intelligently undertaken and systematically carried on, such work will result in as marked an advantage to the employer as the result from well-organized planning and standardization. The closer relationship established between employers and employes develops interest and enthusiasm to such an extent that increase in efficiency, as regards qualitj^ and quantity of output and avoidance of wastes, more than pays for the expenses connected with welfare undertakings. Naturally there will be some failures from suspicion and from ingratitude, no matter how intelligently and unselfishly welfare and betterment work is undertaken. It is nevertheless true that, if a company wishes the most competent and intelligent men, it is essential to provide the most inviting surroundings and conditions, since intelligent and thrifty men will naturally seek an intelligent and wholesome environment in which to work. In order to carry the work as far as possible, and at the same time avoid the charge that the employer is paternalistic, it is necessary that the workmen them- 236 Welfare Work 237 selves carry on the management of tlie work, the em- ployer furnishing only the suggestions and inspiration. It follows necessarily that the work cannot be hurried. If some of the men are opposed to certain results, or scoff at them, it is sometimes best to put them on a com- mittee to carry out these measures, with a diplomatic foreman or superintendent on the same committee. Activities Included Under Welfaee and Betterment Work The activities coming under this general head may be grouped into those relating to: 1. Safety and accident prevention. 2. Education. 3. Rest periods and luncheons. 4. Social. 5. Medical. 6. Physical training. 7. Suggestions. 8. Benefit societies. Organization for Welfare and Betterment Work The greatest success has been achieved where ques- tions of safety, welfare, and betterment have been re- ferred to committees composed not only of engineers and higher officials, but of workmen and foremen and even outside persons. In so far as certain features of safety problems are mechanical, certain uniform stand- ards can be adopted, but even the safety problem is only to a small degree mechanical. As the problem is very largely a human one, condi- tions will be Avidely different. The manufacturer who copies what others have done in safety, welfare, and betterment work w^ill find that he is attacking his own 238 Organization and Management problem in no more satisfactory a manner than if he were to adopt the factory accounting forms of some other establishment. He may get some useful sug- gestions from the work done by others, but he will have to apply his own initiative (and that of such members of his force as show ability in this direction) towards developing methods suitable to his particular problems. The ordinary form of organization is to have a per- manent committee, consisting of a chairman, who is gen- erally selected from the engineering or works manage- ment -division, with two or three other members, usually of foreman's rank. This committee should hold monthly meetings regularly and such special meetings as may be necessarj^ The duty of this committee is to pass upon all recommendations and make such inspections as are necessary in coniiection with recommendations. In addition to the permanent committee, workmen committees are appointed. These men are chosen among the workmen holding lower rank than assistant foreman. In some industries good results have been obtained by having these men serve a month, and ap- pointing them fifteen days apart, so that there will always be a man of some experience with a new man on a committee. These men are instructed by the chairman of the permanent committee. If on safety work, they make inspections once a week and turn in their reports to the permanent committee, which acts on their recom- mendations either favorably or adversely. The aim of having the workmen's committees is to secure as wide- spread an interest in the work as possible. Besides the permanent committee and workmen com- mittees, in case a plant is large enough, a permanent safety, welfare, and betterment man may be employed to give his entire time to supervising the work. Welfare Work 239 The organization for welfare work at the Cadbury Works, at Bournonville, one of the best examples in the world, of successful work of this sort, is as follows: All welfare and betterment work is under the jurisdic- tion of a works committee. There are four divisions of this committee, namely: 1. The works education committee. 2. The men's works committee. 3. The girls' works committee. 4. Suggestion committee. The general committee meets on Monday mornings. There are sub-committees of the men's works committee dealing respectively with holidays, accidents, gardens, benefits, recreation grounds and buildings. The girls' works committee deals with promotions to staff, exami- nations, plans of additional buildings and extensions, investigates complaints and accidents, maintains fire drills in the girls' departments, and makes periodical inspections of dressing-rooms, dining-rooms, kitchen, baths, gymnasiums, store-rooms, etc. They also period- ically inspect the girls' recreation grounds. Sapety, Accident and Fiee Prevention The installation of proper accident and fire preven- tion apparatus is beneficial from several points of view. It does away with loss to the proprietorship in the way of actual fire damage and interference with business in case of fire. It prevents many losses due to compensation for unavoidable accidents and injuries, as well as the liti- gation that arises out of them. But equally important is the fact that it tends to do away with fear on the part of the employes, develops a kindly attitude, and thus as- sists to increase output. 240 Organization and Management In factories it is necessary that sheet metal or cast aluminum guards, so constructed that they can be easily removed, be placed over all exposed gears. Proper screening, preferably made of expanded metal somewhat heavier than wire mesh and supported on pipe frames, should be placed around all moving belts to a height of 414 feet from the lloor level. Overhead belts should have guards underneath them, so that in case of a break they will not whip around. Punch presses should be equipped in such a manner that they will not operate until the workman's hand is withdrawn from a position which would endanger him. Guards should be provided over all saws or cutters in woodworking machines, and substantial fences should be furnished for operators at band-saws and similar ma- chines where the workman is exposed to danger in spite of the best modern safety devices. This ience is to pre- vent the workmen from being jostled by anybody else. Dust exhaust systems must be provided in all wood- working shops, around grindstones, emery-wheels, buf- fing-wheels, and polishiug-wheels, so as to carry off dust and small particles, which are injurious to the health of workers. Detailed methods for safeguarding practically every kind of machinery are furnished at the present time by the various compensation insurance companies, and by the bureaus of labor, industry, and compensation estab- lished as state departments in a number of states. As regards fire prevention, the principal remedial steps to be taken are: 1. The providing of ample fire escapes. 2. Automatic sprinklers with an abundant supply of water independent of the ordinary system. Welfare Work 241 3. Chemical extinguishers. 4. Fire hose at sufficiently close intervals to be effect- ive. 5. Water-buckets and sand-buckets kept filled and available for immediate use. 6. Metal cans with self-closing lids to receive oily waste and any other inflammable material. 7. Fire drills among employes. 8. Shop fire companies. The various fire underwriters' bureaus have available detailed descriptions of fire prevention apparatus and building specifications for various kinds of industrial establishments, which should be carefully consulted by committees having this subject in charge. Figures 76, 77, 78, and 79 illustrate typical modem machine safe- guards. Under the existing apprentice systems at the General Electric and Westinghouse companies, it costs those cor- porations about $1,000 over and above the value of the productive work of the apprentice to make him a valu- able worker. If an accident occurs to this apprentice the company loses, therefore, an investment of $1,000, in addition to any liability for damages. Moreover, they must start over again, expending not only the money but the time also in training another apprentice. For the ordinary factory without safeguards the aver- age rate of insurance for compensation for accidents is about $2.50 per $1,000 of pay-roll. With proper safe- guards this rate can be cut in half. The most hazardous industries in order of greatest number of accidents hap- pening per annum are as follows: 1. Metal mining. 2. Coal mining. 242 Organization and Management 3. Fisheries. 4. Navigation. 5. Railroads. 6. Electricians. 7. Building construction. 8. Street railroads. 9. Telephone and telegraph men. 10. General manufacturing. The most common causes of accidents of all sorts in all of the above industries are as follows : 1. Hand tools and hand apparatus. 2. Objects falling from piles. 3. Hoisting and moving objects. 4. Power-driven saws. As indicating the effect of proper illumination in pre- venting accidents it is interesting to know that the num- ber of industrial accidents increases rapidly as the days shorten. By far the highest number of accidents occur in the middle of December, and by far the smallest num- ber in the middle of June. One must not expect the complete elimination of acci- dents in the first year of installing safeguards and or- ganizing for safety work. However, in the Pennsylvania Railroad Company the number of accidents was reduced to 63 per cent of what they had been prior to safety or- ganization at the end of one year in a shop group em- ploying 33,000 men. The Cadillac Motor Car Company reports a reduction of 64 per cent in the number of acci- dents at the close of its first year's safety organization in a shop employing about 3,000 men. The Pullman Com- pany gathered statistics as to the time lost by reason of accidents and found that at the end of one year's safety Fig, 76. — Transfer Table, Motor Gears Uncovered U. S. Steel Corporation Fig. 77. — Transfer Table, Motor Gears Covered U. S. Steel Corporation Fig. 78.— :Metliod of Guarding a Mill Motor U. S. Stpcl Corporation Fig. 79. — Pig-iron Trestle Shield to I'reveut Flying Chips from Pig Iron Injuring Workmen U. S. Steel Corporation Fig. 80. — Gardens — American Bridge Company, Amluiilye, I'a. Land is owned l).v the American liridge ('cimpany. laid out in plots and allotted to their employes for raising .garden truck. Aljout sixteen acres are under cultivation by tlicm. Fig. 81. — Bird's-Eye View of Town of Marguerite Fi(i. 82. — Group of Slavish Laborers Who are Stockholders Clairton Stool Works, Carnegie Steel Company Fig. 83. — Swimming Pool — Leisenring No. 1 Mines II. C. Frick Coke Company I'll;. ^4. — L'l;iygrouni|s, ,\;itioii;il Tuhe (J(iiii|i;iiiy Fig. 85. — Playgrounds, A'atioual Tube Company I Fig. 86. — Photograiih Showing the Location of Column Ventilators at the Ford ]\Iotor Works Washed and humidified air under pressure enters through the openings in the columns. Fig. 87. — Emergency Hospital, Coutiueutal Works, National Tube Company Welfare Work 243 organization they reduced the average lost time per em- ploye, by reason of accidents, 14 minutes per year — from 48 minutes to 34. Educational Activities These will include instruction in trades and processes of the industry, technical and scientific training relating to the industry, business and accounting, principles of economics, sociologj'', and citizenship. Where the estab- lishment is large enough to introduce a corporation school of its own, information as to organizing and carrjT.ng on such a school can be obtained from the Pro- ceedings of the National Association of Corporation Schools, in regard to which Mr. C. R. Dooley, of the Westinghouse Electric & Manufacturing Company, East Pittsburg, Pa., or the Secretary, Irving Place and Fif- teenth Street, New York, can give information. Local school superintendents in industrial centers and state departments of education in many states have avail- able information as to ho^v to organize vocational, con- tinuation schools and night schools. Where a business is not large enough to justify local corporation schools, general classes can be organized. In some states the state will defray a part of the expenses of conducting such schools. Even a small industry will find it desirable, however, to supplement the work of such general schools by spe- cial training for the company's own work. The sim- plest beginning is a series of lectures by members of the sales and engineering staff. After these members have lectured, it is usually possible to persuade the su- perintendent and some of the foremen to take part in the lectures. Members of the sales departments of com- panies which supply machinery and material to the in- 244 Organization and Management dustry may also be called in as well as local factory and insurance inspectors. The most effective results are naturally obtained through the training of the appren- tices, who obtain thus at an early age an unbiased and intelligent industrial and economic attitude in conse- quence of their training in the apprentice school. Among other educational activities are the small shop or traveling libraries adapted to industrial needs. The co-operation of local library and state traveling library officials can be secured, and in some cases they will provide a speaker to accompany the books to the shop the first time and talk on the value of good books and reading. The home reading-box is a box in which va- rious employes place periodicals, bulletins, and books which they have read and are willing to pass on to others. The classes for non-English-speaking men and boys, also illustrated lectures to the for«ign-bom on citizenship, history, commercial geography, heroes, traveling, etc., offer further opportunities for educational service of an extension nature. Musical entertainments with explana- tory lectures have been introduced in a number of in- stances. The Curtis Publishing Company, of Philadel- phia, has from time to time secured the co-operation of some of the most prominent musicians and opera singers in the world in this connection. Rest Periods and Luncheons Realizing the influence of pleasant surroundings dur- ing meals on the digestion and temperament of em- ployes, an increasing number of industries is providing attractive luncheon-rooms instead of compelling em- ployes to eat in alleys or around their machines and work-benches. Where no luncheon service is provided, tables can be furnished in a well-lighted room decorated Welfare Work 245 with a few plants and pictures. Arrangements can be made for warming the soup, coffee, and tea brought by the men. Naturally, the next development of the luncheon-room would be the pro\dding of hygienic lunches designed to give the greatest nutritive value combined with palata- bility and low cost. Indigestion due to unbalanced noon lunch is pretty nearly a universal affliction together vnth lack of nourishment ascribable to the omission of certain essential food factors. A phonograph will provide recreation after luncheon, while a reading or rest room will prove a welcome addi- tion, especially for women workers. A system of rest periods of 15 or 20 minutes' duration in the middle of the forenoon and afternoon has been found to pay for itself in many industries. Social. Activities Receptions and socials in social centers such as schoolhouses near the shop can be conducted under the auspices of a committee of employes who will arrange a program and use as much of their own talent as pos- sible. Such occasional receptions, together with weekly musical entertainments or illustrated lectures, will help counteract the ill effects of saloons and commercial enter- prises. ** Smokers" for the men, dances for the young women and their friends, and the celebration of national holidays are among the social activities which have been successfully carried out. In order to increase interest in the home, prizes may be offered for the best back-yard, the best vegetable- garden, the best flower-gardens, and the best window or porch boxes of flowers. There may also be competitions in cooking, baking, and dressmaking under the auspices 246 Organization and Management of social clubs, to the maintenance of which the company will contribute. Figures 80 to 85, inclusive, illustrate social-welfare projects. Medical and Hygienic Activities Matters of sanitation, ventilation, and light have already been considered in connection with the original lay-out of the plant. Figure 86 shows the system of fur- nishing pure air employed at the Ford shops. It is nec- essary, however, that the employes be instructed in the principles of controlling these matters, in order that they may not interfere with the carrying out of the intentions of the management in the shop, and that they may also apply these principles in their homes. The employment of visiting nurses is a sei*vice w^hich can well be undertaken by a number of industries co- operating. Lectures on sanitation, hygiene, first-aid to the injured, and sex education, the providing of a com- pany physician who will make a medical examination of all applicants for work as well as a periodic examina- tion of all emplo5^es, and who acts as the family physician of members of the benefit society, are all activities which come under this head. Figure 87 shows a well-equipped emergency hospital. Physical Training Nearly all normal persons take pleasure in participa- ting in athletic games and competitions. Baseball always appeals to a considerable proportion of the men, and it is usually easy to organize one or more teams. A com- prehensive plan, however, will attempt to provide some kind of exercise involving the game idea to be partici- pated in by practically every employe ; hence, such a plan will include such games as basketball, football, soccer, Welfare Work 247 and track athletics. An athletic committee can super- vise athletic sports at the noon hour in the factory- yards or grounds, twiUght or Saturday afternoon games, the conducting of field day sports, and the candying on of calisthenic exercises during the morning, afternoon, and rest recess. The same committee or a special committee can carry on extension work, so as to provide exercise for the younger children of employes' families, such as evening games in vacant lots and the promotion of playgrounds under the supervision of local schools or park authori- ties. In case there are-women employes, a women's athletic and physical culture committee should be appointed. It will be found that they will take as active an interest in competitive physical games as do the men. Excellent help can be secured in this field from local Y. M. C. A. organizations and the Industrial Department of the Y. M. C. A. in New York City. Suggestion System The benefits to be derived from a well-conducted sug- gestion system have already been pointed out several times. Among them are not only the direct benefit of the improvements suggested, but encouragement of initia- tive on the part of the employe. Influencing him to think about things the company can do in better ways will develop a frame of mind and disposition worth collec- tively in many ways fully as much as the improvements actually installed as a result of suggestions. The usual manner of encouraging suggestions is to provide boxes similar to mail-boxes at various points of the establishment, marking them conspicuously '* Sug- gestion Box." Near the box are placed pencil and pad 248 Organization and Management with carbon paper, so that the employe may retain a cop5^ of his suggestion. Copies of rules controlling the suggestion system are usually posted on or adjacent to the boxes. The contents of the boxes are collected at regular intervals and submitted to committees. It is usually desirable to classify the suggestions into va- rious groups, such as : 1. Machinery and tools. 2. Health, safety, and general welfare. 3. Savings improvements in non-machinery processes. 4. Improvements in shop and office systems. 5. Suggestions for advertising. Each individual case will suggest a modification of the foregoing grouping. In order to pass intelligently and with judgment on the suggestions, it is desirable to have each group referred to a committee especially competent to pass on that group. It is also desirable to offer prizes in each group as well as additional prizes for the suggestions which result in the greatest economies or profits within six months or a year after their adoption. Benefit Societies Benefit societies have been conducted for a good many years as local organizations in a great many industrial companies. The original aim of most of these societies was the providing of insurance in case of accident, sick- ness, or death. Within recent years a great many states have passed compensation laws whereby the state, the corporation, and employe share the burden of compulsory insurance to provide for compensation in case of acci- dental injury or death. Welfare Work 249 Where such compensation laws exist, there still remain many enterprises which can be conducted under the auspices of company benefit societies. Among these may be mentioned the providing of insurance in case of sickness on the part of a member or any of his direct family, and the providing of vacation and Christmas funds. Frequently the benefit association will plan for special rates for vacation trips, camps, and similar un- dertakings. The benefit association mil sometimes also act in the capacity of a savings bank. This does not mean that the association actually engages in a banking business. It simply encourages the making of small deposits by pro- viding convenient places of deposit and by means of no- tices on the pay envelopes calling the men's attention to the desirability of making deposits, which funds it turns over to a reliable banking institution. The benefit or- ganization acts only as an intermediary and supple- mentary agency, so far as actual banking is concerned. The usual amount of insurance consists of half-wages for as long as a year, if necessary. In case of illness or accident, the tendency in America is to grant this in- surance only if the accident occurred while on dut3^ British or European compensation systems care for the workmen of small means, even if the accident or dis- ability occurred while off duty. In case of death, the tendency in America seems to be to allow one year's wages for death from sickness or accident happening while off duty, and two years' wages for death due to accident while on duty. The ratio of the cost of insuranae to the total pay- roll runs from ll^ to 2i/^ per cent. In many cases the management undertakes to bear a part of this expense. The Lodge and Shipley Manufacturing Company uses 250 Organization and Management the premium wage system, in which the workmen are paid one half of the money value of the time saved, and distributes the other half of this fund in such a way that part of it goes to the foremen, part to the clerical work of the premium system, and part into tool and equipment funds, while the remainder goes into the benefit and old- age pension fund. TEST QUESTIONS 1. What are the aims of welfare, betterment, and social serv- ice work in industry? 2. Give a list of the activities ordinarily included under wel- fare and betterment work. 3. How can we best assign and organize welfare and better- ment activities ? 4. Discuss some of the features to be considered in connection with safeguarding. 5. Discuss briefly the principal considerations relating to fire prevention. 6. Discuss in general the question of educational activities to be carried on by industries. 7. Give statistical figures to show that it pays to undertake systematic safety work. 8. Discuss the advantages of rest periods and luncheons. 9. What are the advantages of social activities promoted by an industry ? 10. What benefits can be obtained from medical and hygienic activities ? 11. Discuss physical training and athletics as a part of welfare work. 12. What are the main points to be considered in mstalling a suggestion system? 13. Describe the organization and aims of industrial benefit societies. Welfare Work 251 14. How may we secure the co-operation of employes and prevent suspicion and indifference with regard to welfare work? 15. What are the arguments in favor of paying attention to the home life of employes ? 16. Discuss the advantages to be derived from publishing a little house organ in which are presented accounts of the com- pany's safety, welfare, and social activities. 17. Discuss the relationship between poor illumination and accidents. 18. What sort of co-operation by local and state school au- thorities would you advocate in connection with educational activities in industries? 19. Where state compensation laws are in existence, what activities can be undertaken by local industrial benefit societies? 20. What would you consider the requirements of a good in- dustrial welfare supervisor? CHAPTER XVI EMPLOYMENT PROBLEMS Desibable Qualifications of Employes Some years ago the author made an extensive canvass of employers of technically educated young men to get from them the particulars as to the qualifications which they considered desirable. The replies included a great many characteristics. Some of these are in direct con- flict with each other and could not exist in the same man. The complete list is as follows: Address Appearance Neatness Energy Vitality Speed Concentration Observation Eeason Application, diligence, and industry Accuracy Punctuality Economy Order and system Knowledge Intuition Culture Prudence Grit and tenacity Tact and diplomacy Judgment and fairness Eeliability Steadiness Loyalty Integrity Thoroughness Initiative Adaptability Optimism Cheerfulness Eeserve Enthusiasm Sincerity Sympathy Self-control AbUity as detaUist Ability as generalizer Obedience to acknowledged authority Ability to know men Ability to get along with men Self-confidence 252 Employment Problems 253 ADDEESS, APPEAKANCE, AND NEATNESS A man who shows attention to his appearance in snch matters as a clean-shaven face, neatly trimmed hair, well-brushed clothes and shoes, and general cleanliness, is pretty sure to have well-developed self-reepeot. He is quite likely to be neat in his work. If he is of pleas- ing address, that is, agreeable in meeting strangers, in asking and answering questions, and not rough, uncouth, or boorish, he possesses qualities which are of value in contact Avith other men. An employment man- ager can easily determine these qualities by a general look-over of applicants. ENEEGY, VITALITY, AND HEALTH From a philanthropic or charitable standpoint, the insistence on these qualifications as necessary charac- teristics of new employes would debar many persons who are deserving in many ways. Labor organizations are already protesting against the establishment of health standards by various large corporations as a pre- requisite to employment. In reply to this objection the employers state that the medical inspection is intended to eliminate only such new employes as would be likely to be a menace to others by reason of their having in- fectious or chronic diseases, or organic weaknesses which would make them charges on the company's benefit socie- ties. The stress which is being laid by employers on these qualifications should serve to emphasize both the importance of engaging in systematic physical training and the avoidance of habits which tend to destroy health, energy, and vitality. SPEED For certain classes of work speed is an indispensable requirement. This is especially true of work which is 254 Organization and Management essentially routine, such as accountancy, stenography, and clerical work in general. In the lighter mechanical processes, where large quantities of light material have to be handled by hand, speed is also necessary. Some people are able to acquire a high speed of manual and mental activity without its being a strain. It is this type which is best adapted to this class of work. The author has seen employes whose temperament was such that they could not stand a degree of speed normal and easy for others. Certain well-meaning friends of labor lay entirely too much stress on the w^ear and tear of speed in industry and clerical work. Any person who has had experience in kindergarten w^ork realizes that speed is a natural gift and must be natural without any effort or fatigue. The question of determining whether an applicant has the necessary speed required for a given position may be determined by simple mechanical tests. The lack of speed is by no means an indication that the applicant is undesirable, since there are certain other qualities fit- ting men and women for the highest kind of positions, which do not go with the temperament frequently pos- sessed by persons capable of high speed. Failure in a speed test need not involve discouragement further than arises from the loss of the immediate position desired. CONCENTRATION The ability to give continuous conscious attention to a certain line of effort without allowing the mind to wan- der, or become distracted, is in most cases the result of good school training and discipline. The continuation of this habit by persons who have completed their school- ing depends a good deal upon the ambition of the indi- vidual, or self-satisfaction. An elementary test for con- Employynent Problems 255 centration would be to require the applicant to do a fairly- complex arithmetical problem in a short time under con- ditions which would tend to distract attention. If the ability to concentrate is demanded for a position of pretty high grade, the only way to determine the appli- cant's ability in this line is to inquire from others. If he has been on the company's pay-roll, possibly a re- port is on file in regard to this qualification. OBSERVATION Some superintendents and foremen have the reputa- tion of being able to spot any slight defect or inaccu- racy, or infraction of the rules, if they make a casual walk through their shops or department. Such men may be said to have a pronounced degree of ability to observ^e. A skillful employer can form judgment on the observational ability of a man by spending a lunch hour with him and leading the conversation in direc- tions which will draw out the desired information. BEASON An employe who has been recommended as worthy of a high grade in reasoning ability is not likely to be subject to the so-called psychology of the mob. Hfe is apt to think before he decides. A conversation carried on by a skilled employment manager will soon deter- mine whether an applicant jumps at conclusions or bases on reason his replies to questions. INTUITION Intuition is closely related to obser^-ation and reason. In its crudest form it consists of what are believed to be racial fears, dislikes, and likes. The term is also used to express the possession of the power to form 256 Organization and Management judgments without any apparent application of observa- tion and reason. The practical value of intuition con- sists in the ability of an individual to feel without rea- soning, as it were, what persons are scamps and what persons are honorable; to know, without thinking or reasoning, what sort of acts on one's own part are credit- able and which ones are discreditable. A good many conclusions with regard to the intuitive ability of an applicant can be gained by large corpora- tions which conduct a trial department such as is car- ried on by the Curtis Publishing Company. Under these arrangements applicants are paid during the period under which they are on trial. During this time the employment manager has ample opportunities to form judgments in regard to many characteristics of the ap- plicant. APPLICATION, DILIGENCE, AND INDUSTRY The most desirable worker in the long run is not the one who accomplishes brilliant results by occasional spurts with intervening laj^ses characterized by ineffi- ciency, but the one who maintains a uniform, steady, non-strenuous pace. Consultation with former employ- ers will give some information as to these qualifications. Such information, however, is not always reliable. Moreover, it is necessary that the kind of work be one in which the employe takes an interest and to which he is adapted before any general judgment can be passed on him in regard to these qualifications. However, the employe who knows that he is being observed and is ambitious for promotion is likely to apply himself. Where a labor and employment bureau maintains records as to the efficiency and characteristics of men, it is worth while for the manager of such a bureau to Employment Problems 257 compare with the reports of foremen and department heads his opinion based on observation and he should make careful inquiries in case his own opinion is dif- ferent from the reports. ACCURACY This is one of the qualifications in regard to which data can be secured by the test or examination process. While this qualification is extremely important in such work as is connected with pay-rolls, invoices, costs, time records, and accounts in general, there are classes of work in which, though desirable, it is secondary to other characteristics. PUNCTUALITY One naturally thinks of the time clock as the most re- liable source of information regarding punctuality. There is, however, a higher degree of punctuality than that involved in promptly coming to work. This con- sists in the getting out of required reports on the sched- uled date; in coming to committee meetings on time; and in seeing that any documents, work, or material which must be passed on to others are conscientiously taken care of. There are many men of unquestionably high grade who resent being gauged by the time clock records of their arrival in the morning and after lunch time, but who are extremely conscientious and punctilious in see- ing that no work is retarded nor any person delayed by their failure to meet their engagements and appoint- ments promptly, or to get out and pass on work on time. ECONOMY The use of a short pencil may be a sign of slovenliness instead of an indication of economy. The same is true of 258 Organization and Management the use of a defective pen-point or a worn-out drill or cutting-tool. True economy consists in attaining the greatest output with the least expenditure. The use of worn-out carbon papers by stenographers is- considered by some employers as a sign of carelessness rather than of economy, since time and eyesight are saved by clear copies. In comparing various foremen in order to de- termine which one shows the greatest economy, it is desirable not to compare one department with another in such matters as cost of sweeping, helper's time, re- pairs, and in general, the relation of indirect to direct labor, but to compare each department's records of expenditures related to output month by month and the same month in one year with the same month in a previous year. ORDEK AND SYSTEM A man may be neat and still not be systematic. For instance, in a foundry the flasks may be piled very neatly in the yard, but in such a manner that there has to be a great deal of unpiling and repiling as well as walking a considerable distance, where a little less neatness and a better system would have resulted in higher efficiency. An observant foreman, superintendent, or labor super- visor will soon notice which employes can organize and systematize to the best advantage the materials and tools they have to use. Here again a man deserves recognition who is able to save himself from useless strenuousness and exertion by the application of ability in planning order and system for his own work. KNOWLEDGE In employing a man to do the work of a given trade, it stands to reason that knowledge of that trade is essen- Employment Problems 259 tial. The same is true of such work as accountancy and stenography. However, a knowledge of the particular business in question, obtained in a competitor's estab- lishment, is sometimes a decided handicap, since the new- comer will find difficulty in adapting himself to different mothods. There are many successful sales managers who prefer to competitors' salesmen those previously employed in selling a line entirely different from the one which they are to sell. CULTUBE Gentlemanliness and refinement are necessary qualifi- cations of men who are to receive visitors and salesmen. Courtesy is a quality which is characteristic of most well-managed shops, even in the roughest kind of con- struction work. One can notice effective results accom- plished by foremen who are strict disciplinarians, but in no sense bullies. PBUDENCE In a general way this quality means that its possessor will be cautious, that he will be careful to look before he leaps. The American Revolution was won by the skill of Washington and Greene in always knowing when to retreat and in turning possible defeat into ultimate victories. GRIT AND TENACITY These are among the most important qualifications of gang bosses and foremen, who will be called upon to stand their ground unflinchingly. These qualities should characterize any men on whom is placed the responsi- bility of carrjdng into effect any changed or new proc- esses or systems, since they will have to overcome the opposition of habit and prejudice. 260 Organization and Management TACT AND DIPLOMACY Department heads and supervisional officers must be able to handle employes who are temporarily upset by ill- temper, misunderstandings, ill-bealth, family troubles, or other unfavorable influences. They will have to adjust many differences of opinion in a way which will still maintain them in the esteem of all parties to the con- troversy. Popular fiction abounds with stories of inter- national and industrial intrigue in which diplomacy is pictured as duplicity. Successful business in America is characterized by fair dealing. A fair deal does not mean, however, that the employer needs to show his hand to his adversaries. JUDGMENT In order to pass judgment a man must have what is designated as the ''judicial temperament." He will se- cure evidence and weigh it before he comes to any con- clusion. Authorities have been known to postpone their decision on important matters, in order that they might be sure they were giving proper consideration to the subject. Good judgment is an essential qualification of anyone who is occupying an executive position. RELIABILITY AND STEADINESS These terms are really an addition to a to-be-taken-for- granted essential, honesty. A man may be honest enough to keep out of jail, but it is a higher degree of honesty to be dependable in all statements, in the fulfilling of all duties, and in steadfastly adhering to them. LOYALTY A man is disloyal who makes mean or derogatory statements about his employer or the business in which Employment Problems 261 he is engaged. There is no disloyalty in constructive criticism made to the right persons and in the proper spirit. It is this quality, more than any other, which will result in a man's promotion to the very highest positions in business. INTEGBITY Integrity is also another addition to the so-called honesty which is presumed to be possessed as an essen- tial characteristic by every applicant. Integrity means unswerving resistance to any evil temptation, the ability to stand one 's ground for honest principles in the face of opposition and intrigue. This qualification is an essential for every employe in the cashier's department, the pur- chasing department, and store-rooms, and also for men engaged in demonstrating time-study and rate-fiLxing work. THOROUGHNESS To be thorough in industrial work a man must be able to do things quickly, accurately, and economically. Thor- oughness, as a mental qualification, makes its possessor "go the limit" to know all about any position or any undertaking. He will not do a job partly and then quit. Thoroughness is an essential qualification for a good foreman. INITIATPVE This quality is closely akin to inventive ability with the addition of enterprise. The possessor of initiative will find a way to overcome difficulties. He will not only dream of new ways of doing things, but will actually put them into effect. Initiative is an essential qualification for a designer, a tool-maker, or a systematizer. 262 Organization and Management ADAPTABILITY This quality, in order to be a desirable one, does not mean that its possessor is willing to hang his hat any- where, to engage in any kind of work with laborers of any nationality. It means that he w^ill do all of these things, if compelled by necessity. To be adaptable means that a man is a ''good mixer." This quality is necessary for a salesman or promoter. OPTIMISM AND CHEERFULNESS A man who emphasizes the positive rather than the negative, who emphasizes the good rather than the bad, who is of a pleasant temperament rather than morose or disagreeable, is a desirable employe. Optimism and cheerfulness radiate contentment in a contagious way. Similarly it is true that disagreeableness and ''grouch- iness" radiate discontentment. RESERVE A man with this quality will not be forward nor familiar. He will be the possessor of dignity. This quality is necessary in timekeepers and watchmen. A certain amount of it is necessary for superv^isional offi- cials, but not enough of it to amount to aloofness. Too much reserve in an official is almost as undesirable as insufficient reserve. ENTHUSIASM A man may be loyal, but lack enthusiasm. Enthusiasm is contagious and has won as many industrial victories as it has athletic contests. Employers who take their employes into their confidence, who give them illustrated lectures on materials, methods, and markets connected Employment Problems 263 with their business, and who aim to make the employes feel that they are an essential part of the business, will do a great deal towards arousing enthusiasm. SINCEEITY AND SYMPATHY These qualities are indispensable in all employes who are to be engaged in social service, welfare, and better- ment work. Persons who have undertaken such work merely to form the acquaintance of wealthy or influential people, or as a fad, are sure to make a failure of it in the long run. SEIiF-CONTROL This quality is shown in a man's temper and in his habits. It is particularly necessary for any employes who are apt to be subjected to trying conditions, and it is absolutely indispensable to an exchange clerk or trou- ble clerk in a large department store, gas or electric light office. ABILITY AS DETAILIST OR GENERALIZER In cost department work ability as a detailist is excep- tionally desirable in the work of making entries. When it comes to making up graphical reports and comparisons, ability as a generalizer is required. The two qualities are seldom combined in the same person. OBEDIENCE TO ACKNOWLEDGED AUTHORITY Like adaptability, this quality is of highest value when it requires some conscious effort on the part of one who is subjected to the authority in order to be obedient. An employe who follows like a sheep in a flock would be just as likely to follow an unprincipled leader by reason of his weakness. The ability to realize the necessity of 264 Organization and Management obedience to authority on the part of an otherwise high- spirited man is an indication that he himself will prob- ably make a good leader. ABILITY TO KNOW MEN This ability is partly intuitive and partly acquired. It cannot be acquired wholly through a study of books on psychology. A good many employers have a great deal of confidence in their own ability to size up a man in a very few minutes. As a matter of fact, it is possible to secure in a brief interview reliable data in regard to some few qualifications. It is quite likely that these men who size up an applicant so quickly, concentrate on three or four qualities such as address, appearance, reserve, and vitality. There is no occult power which enables one to secure information with regard to such qualities as dili- gence, order and system, or initiative, for example, by means of a brief interview. ABILITY TO GET ALONG WITH MEN This trait includes a number of qualities such as tact, cheerfulness, and s^Tnpathy. Still, a person may possess all of the foregoing qualities and yet be so absorbed in his work that he cannot drop the absorption for a long enough period of time really to get acquainted with the human side of his associates. A friendly disposition and tolerance of other people's prejudices and eccentricities are desirable in this connection. SELF-CONFIDENCE This is an essential quality for every leader, whether he be a gang boss on construction work or works man- ager. This quality should by no means be confused with an exaggerated idea of one's own abilities, which will Employment Problems 265 lead to disaster far more quickly than timidity or a lack of self-confidence. If a man, having received adequate education and training, is considered capable of a new assignment given him, and on reflection he finds nothing that should prevent his succeeding in the undertaking except timidity, or inertia, he should welcome every new experience as an opportunity to develop the desirable quality of self-confidence. School and Education Recokd Modern school records cover a considerable line of data which should be of material assistance to an em- ployment manager in forming correct estimates of appli- cants. Such records reveal facts as to punctuality, application, conduct, proficiency in various branches, and time of leaving school. Inquiries as to the kind of studies the applicant hkes best or least and the kind of reading he at present enjoys, are frequently useful. Family History Data with regard to the father's occupation, health, nationality, number of brothers or sisters and their occu- pation, are also useful. Industeial Histoby It is desirable to secure data in relation to the previous jobs or positions held by the applicant, the length of time he held them, his reasons for leaving, employer's reasons for the leaving, the amount of earnings at the various jobs, and likes and dislikes in regard to the various jobs. Housing and Thrift Data Henry Ford lays great stress on the general character of the residence or home condition of premises, orderly 266 Organization and Management condition of rooms, home sanitation, cleanliness,v^ttention to appearance and education of children, amount of savings in bank, and ownership or non-ownership of home or building lot. In fact, the foregoing information, if satisfactory, forms the chief basis of the Ford Com- pany's putting a man in the so-called five-dollar-a-day class of American citizens. Co-operative Employment Agencies From the foregoing list of qualities, which one needs to consider before passing judgment on an applicant for employment, it is quite apparent that a good deal of needless expense accrues when an employer endeavors to determine for himself and to keep on file in his own employment department written data with regard to various applicants for positions. This energy should be concentrated on accumulating additional facts and data in regard to employes already at work. A central public employment bureau can advantageously gather together most of the foregoing data, so far as they relate to unemployed persons or young persons just beginning to work. Is there an All-round Man? The very length of the above list of desirable qualities gives a negative answer to this question. Our problem, then, is to select those particular qualities which are most important for a given job or position, and then find among our applicants the one who possesses the special qualifications for the work at hand. Union or Non-union Men The Supreme Court rendered a decision in February, 1915, which stated that it is the inviolable right of every Employment Problems 267 employer to decide whether he shall employ union men or not. Where a company must employ men who have served their apprenticeship and have had their experi- ence in skilled trades, it is very likely that it is easier to secure union men than non-union men. If it is at all possible to have all union men or non-union men in a given trade or department, such an arrangement is gen- erally more desirable than one in which part of the men in a department are union men and part of them non- union men. If the employes in a given department are non-union, or an attempt is to be made to employ either union men or non-union men, the minimum-wage scale should be the union rate. In order to avoid hostility on the part of organized labor, it is desirable at all times to pay as a minimum wage the union scale, reserving the right to pay any additional bonuses for increased efficiency and re- serving also the right to select one's own employes as well as to direct the manner in which work is to be done. In a shop in which there are both union and non-union men, when a proposal as to new methods of management is explained to the men and is submitted to them for an expression of opinion, it is usually desirable to have the groups of organized labor consider the proposals and report on them independently of the employes as a whole. It sometimes happens that union employes in a shop in which pleasant relations exist between the men and the management may be entirely willing to accept bonuses or premium-wage systems over and above the union scale, but will not be permitted to do so by the vote of the other members of their local union. Under these circum- stances arrangements may be made whereby the bonus will be allowed to accumulate to the credit of each man 268 Organization and Management aud be paid to him in the form of an increase in his hourly rate. Tliis arrangement should satisfy ail pai"ties. Organized Labor and Scientific Management In February, 1915, riders were attached to the army and navy appropriations prohibiting the making of time studies of the movements between starting and complet- ing any job of work done by an employe in any arsenal or navy yard. Any violation of this prohibition shall be punished by a fine of $500 or by imprisonment for six months. These riders are the result of aggTessive propaganda carried on by representatives of organized labor. The reasons for their attitude are stated as follows, by Mr. Keating, of the Committee on Labor: The tendency of so-called scientific management through the timing (stop-watch) and bonus features will be to aggravate further the accident disabilities and mortality among American workmen and to reduce the workman to a mere mechanical instead of a social and moral relation to his work, and, moreover, it is unnecessary in order to secure adequate efficiency of labor. The Taylor system regards the workman as a machine to be "speeded up" to its maximum capacity. When this human machine fails to function to the satisfaction of the management, it is to be cast aside to make room for a new machine — a fresh workman. The authors of the system do not appear to have con- cerned themselves about the ultimate fate of the human derelicts who may be compelled to drop out because they can not stand the pace. Mr. Taylor boasts that, when he installed his system in the Bethlehem Steel Works, he purposely made the tasks so hard that "not more than one out of five laborers (perhaps even a smaller percentage than this) could keep up." That may be the kind of "efficiency" which produces dividends for the Steel Trust, but it is surely not the system which a beneficent Govern- ment should force upon its employes! The main object of the Employment Problems 269 Taylor system, and of all its related "systems," is to produce the maximum of output at the minimum of expense. The so-called bonus or premium system is a fraud and a snare. It really oper- ates to reduce the workman's wages, not to increase them, as the proponents of the Taylor system maintain. In reply to the above cliargos the advocates of scientific management claim that making time studies has nothing whatever to do with "speeding up." Time and motion studies disclose the expenditure of useless energy and wasted time. Attainment of safe conditions and avoid- ance of fatigue of any sort are among the avowed objects of scientific management. The statement that the Steel Trust does not concern itself with the fate of its employes needs no further answer than the illustrations of safety and welfare work carried on by this great corporation and shown in the half-tone pictures in this text. Importance of Employment Bureau The foregoing discussion gives us ample grounds for concluding that a capable employment manager is one of the most important officials of a large industrial corpo- ration. There can be no universal system for selecting workers or keeping record of their characteristics. Each employment manager will have to develop such a system to suit his own conditions, and he ean use his influence to further the establishment of central labor and employ- ment bureaus where tests can be made and records kept of the qualifications of persons seeking employment. TEST QUESTIONS 1. Discuss the advantages of pleasing address and neatness. 2. Is it fair to demand a clean health certificate from appli- cants for employment V 270 Organization and Management 3. In what sort of work is speed an essential requirement? 4. "What sort of positions demand concentration? 5. In what sort of work is keen observational ability desirable ? 6. What sort of jobs require well-developed reasoning ability? 7. Wliat sort of positions require the possession of natural initiative ? 8. How may we judge as to an applicant's diligence and industry ? 9. How may we determine as to an applicant's accuracy? 10. Why is punctuality an important factor in rating em- ployes? 11. Distinguish between true and false economy. 12. What importance would you give to order and system in rating employes? 13. What kind of positions require a thorough knowledge of the business? 14. How would you define culture? 15. What kind of positions require grit and tenacity? 16. How would you proceed to train an employe to develop tact and diplomacy ? 17. What is good judgment ? 18. Why is loyalty one of the most essential qualifications of employes ? 19. WTiat is initiative ? 20. What method would you adopt for classifying and testing applicants for employment? CHAPTER XVII reports to executives Duties of the Modern Industrial Executive There was a time when the only data available for the executive were those that were of a retrospective nature ; in other words they were a record of past history. These data were expressed only in dollars and cents and in columns of figures. The duties of the old-time executive were to see that profits were made for current dividends, that results in this line were obtained regardless of methods. The modern industrial executive must think, plan, and organize for the future. He gets from the sales division the probable demand, from the manufacturing divi- sion the probable output, and he determines the most profitable lines to manufacture. He aims at a definite selling and manufacturing program, and with these standards and plans as a definite goal, he works towards their achievement. In production he aims at many other things than immediate dividends. He must have data regarding the permanence of employment, increased effi- ciency, and earning powers as profit-makers of the various classes of employes, and he must aim at higher standards in these fields. This involves reports and statistics containing much information which cannot be told in tables of dollars and 271 272 Organization and Management District SALES, 1915 SALES (estimated). 1916 Pitts- burgh Office $150,000 $300,000 $400,000 $150,000 $300,000 $350,000 l^MxWW^ 1 Locomo- Coal Supplies tives Cutters Locomo- Coal Supplies tives Cutters Chicago Office $100,000 $200,000 $250,000 $100,000 $200,000 $250,000 l^xf^WM 1 Locomo- Coal Supplies tives Cutters Locomo- Coal Supplies tives Cutters Denver Office O O o O O o O O o o o" O O in u-\ '^ mi 1 Locomo- Coal Supplies tives Cutters ^$120,000 2 $ 50.000 $150,000 Locomo- Coal Supplies tives Cutters TOTAL SALES FOR 1915 COMPARED WITH ESTIMATE OF SALES FOR 1916 o 8 8 8 o op o o fC, »n CO r5 — I915| ^>^><^<^>^\\\\\\\\\\^ 1 1916 kx>^.^Mx\\\\\\\\\\^ 1 ^ Locomo- O Coal O Supplies O P tives P Cutters P P 2 en in t^ r° ~" Fig. 88. -Sales Manager's Koport of Last Year's Sales and Next Year's Demand Reports to Executives 273 cents alone. It is only through the medium of systematic reports presented in such ways as to encourage independ- ent conclusions that general and departmental executives can have clear-cut ideas as to existing conditions and needs for the future. SELLiNG-DmsioN Reports Figure 88 shows a sales manager's report of the past year's sales and his estimates of next year's demand. The next year's demand is based on carefully prepared estimates of the various sales offices. Note how the reports are made more striking by the simple graphical method used of drawing a bar to scale representing the figures which are inserted at right angles to the bar. The report of each of the three branch offices is given sepa- rately, while at the bottom of the sheet is the combined total of the reports from all three offices. An investigation of the reports shows that the Pitts- burgh office expects no increase in the business in loco- motives and coal-cutters, and expects a decrease in the supply business. The Chicago office expects a business identical with that of the past year. The Denver office expects an increase in the locomotive and supply busi- ness, and no change in the coal-cutter business. The combined expectations for the next year show an increase in $20,000 worth of locomotive business, the same volume of coal-cutter business, and a decrease of $40,000 in the supply business, making a total decrease of $20,000 worth of business expected the next year. It seems as though the biggest decline anticipated is in the supply business in the Pittsburgh district. An investigation needs to be started at once as to whether this expected decline is due to competition of local repair shops which may be getting away some of the company 's 274 Organization and Management supply business. Suggestions are asked as to bow to prevent this. Among tbe suggestions offered is one tbat deliveries were not always prompt. This suggestion is followed by a request for a detailed classification of the supply business with estimates on next year's business. This is followed by recommendations as to the varieties of articles to make up for stock so as to be able to effect prompt delivery, especially on competitive items. Pkedetermining Each Sales Territory's Earjtings Having prepared the selling program for each terri- tory in the way of quantity of each style or variety of product, it is essential to list against the foregoing data the allowable manufacturing costs together with the share of administrative burden, and the allowable sell- ing expenses for each territory. This will include the district sales manager's salary and expenses, salaries and expenses of all salesmen in the district, rent, insur- ance, taxes, clerical salaries, depreciation of office fix- tures in the district sales office, probable expenditures for new" office furniture and fixtures, stationery, postage, telegrams, advertising, and all other district sales office expenses. This budget must be carefully scanned and compared with the selling program, with a view" to showing the greatest possible profits in earnings. If it is desirable to try to modify the demand from a style wliich is not so profitable into one which makes greater profits, the local sales force needs to be informed thoroughly and coached to push energetically and tactfully the new line. Reports of Actual, Sales Made Each salesman should make a daily personal report to the district office. The district office should make to the Reports to Executives 275 main office a daily report covering sales made. A monthly report must be made showing the actual sales for the month together with the actual expenses of the district office and the predetermined manufacturing costs of the articles sold. The main office will compare the selling expenses with the predetermined budget, and also the actual manu- facturing costs with the predetermined budget. Those departments showing a record of having done better than the budget estimates should be encouraged by an expres- sion of appreciation, and a thorough investigation should be made of departments failing to come within the budget limits. Manufacturing-Division Repobts As soon as the manufacturing division has received the sales division's estimate of sales for the coming year, it will be necessary to determine at that time what prob- able shipments will have to be made. To open up this question, records of the previous year's shipments, ar- ranged by groups, are desirable. Figure 89 shows in graphical form a statement of shipments of locomotives for 1914. This report is submitted to the sales division with the request that an approximate statement as to the probable dates of shipment of the various classes of product for the coming year be prepared by the sales division, and furnished to the manufacturing division. This infonnation will serve as the basis for a tentative manufacturing program for the year, which will then be divided up into a tentative program for each month. At the beginning of each month the manufacturing and ship- ping program for the rest of the year and for the remaining months of the year will have to be modified to suit the requirements of actual sales. The general 276 Organization and Management manufacturing and shipping programs will form the basis of a good many subsidiary reports which depend upon them. Detailed Parts Manufactueing Program From the running inventory covering the balances on hand, manufacturing quantities, and consumption for I'"'iG. 89. — Shipments of Locomotives, 1914 manufactured parts, and for shipment as repair parts of various individual parts, annual and monthly programs will next be made up covering the manufacture of indi- vidual parts in quantities. The preparation of these reports will require the co-operation of the man in charge of the running inventory and balance of stores record, the man in charge of order of work and routing, and the shop superintendent. Reports to Executives 211 WoEK FOR Each Machine and Production Center With the detailed parts manufacturing program as a basis and past time records as guides, it is now possible to anticipate work ahead for each machine and at each production center. This information will serve as a guide for settling such questions as those relating to the advisability of purchasing additional machinery and tools, employing additional men, and enlarging work areas in the shops. Classified Reports of Materials and Supplies The foregoing reports will furnish information as to the total quantities of the following supplies to be pur- chased for the year : castings — iron, steel, brass, and cop- per; the various kinds of bar stock, bolts, nuts, screw^s, and hardware ; and boxing and crating materials for the pattern shop, forge shop, and foundry machine shop. This annual program will have to be divided into ap- proximate monthly buying programs, which will have to be modified from month to month. A statement of the probable money expenditure for materials and supplies together with times at which payments must be made will also have to be prepared. Pay-Roll Estimates With the previous year's pay-rolls and the current year's manufacturing program as a guide, estimates must be prepared of the number of men to be employed for the coming year, and this divided into monthly estimates. These reports must cover not only the number of men employed in the various departments, but also the amount of money required to meet salary and wage pay-rolls. 278 Organization and Management COMPAKISON OF PrOBABLE MoNEY InCOME AND Expenditure With the foregoing estimates as to money required to meet bills for materials and supplies to be purchased, salaries and pay-rolls to be met, and further information as to money required to meet other expenses, such as dividends, taxes, insurance, rents, repairs, additions to buildings and equipment, graphical statements can be prepared showing money expected to be paid in and amounts which will probably have to be paid out. A statement of this sort can be prepared in the form of curves in different colors of ink. For money expected to be paid in, black ink may be used ; for money expected to be paid out, red ink can be used. This report may indicate that during certain months more money will have to be expended than is available for expenditure. This means that arrangements will have to be made to borrow money to cover such periods and in order to take greatest advantage of cash discounts. It is quite likely that money can be earned by borrowing funds from the bank, paying the ordinary rate of interest for the same, in order to take advantage of cash discounts. Two per cent for cash is a frequent discount, while 6 per cent per annum is usually all that will have to be paid for borrowed money. Figure 90 illustrates the probable form that such a report of money income compared with money outlay expected is likely to take. Oost-Dbpaetment Reports The cost department should use the manufacturing program reports as the basis for plotting the labor, ma- terial, and expense costs of work to be done. These pre- determined costs represent the limit beyond which the Reports to Executives 279 shop must not go. In different-colored inks there will be superimposed on these curves at a later date the actual costs showing the savings made by cutting under the predetermined costs. A manufacturing establishment, in order to be progressive and to keep up with the times, must be constantly showing diminished unit costs. This $100,000 — ^ \ \ \ 90,000 r y • f ■~\ 80.000 / / f /.. \ / L 70.000 / 7 \ / \ Y^ / \ \ *» 60.000 \ / / 1 / \ y ^--c 50.000 *• 40.000 30.000 20.000 10.000 Jan. FebMar.Apr.MayJun.JulyAug.Sep.Oct. Nov .Dec. Fig. 90. — Money Income and Outlay Chart — Money receipts expected — Money expenditures expected does not signify that lower prices are paid either for materials or labor, but that improved methods and greater efficiency are being employed. Detailed Expense Budget The various subsidiary manufacturing expense ac- counts should be plotted separately. Previous records 280 Organization and Management of these classified expenses will serve as a basis for such advance budgets. Every person responsible for the in- curring of expenses must have before him his budget which he dare not exceed and which he must constantly aim to reduce. Reports of Suggestions With the record of suggestions made in the past a statement can be prepared of the number of suggestions made in the various classes by members of various de- partments together "^ith the prizes given for such sug- gestions and the estimated savings as the result of these suggestions, this being accompanied by a statement of the suggestions made, prizes awarded, and the antici- pated savings to result from suggestions made during the current month and year. A statement of this sort may be advantageously published in a monthly paper to be distributed among the employes. Such a monthly publication may well be made a medium for arousing interest, enthusiasm, and loyalty on the part of employes. The Ford ''Times" is an example of such a pubhcation. Profit and Loss Statement The progressive establishment will have a profit and loss statement prepared every month, instead of only once a year. This statement will give in condensed form the gross earnings from all sources during the month, gross expenditures of all kinds during the month, inter- est on bonds, preferred stock dividends, common stock dividends, and financial surplus or deficit for the month. A graphical report of the above items may be advan- tageously prepared for each month of tlie current year as well as for the corresponding month of last year. Reports to Executives 281 Physical or Non-financial Reports Each industry will have its own peculiar physical data which need to be reported at regular intervals. Figure 91 is a typical report of this sort. It represents a weekly cupola report of a foundry, showing the number of kinds and corresponding percentage of each kind and amount of pig iron used, the total iron charged to the cupola, also supplementary material such as coke and manganese used, good castings delivered, the scrap, gaggers and clamps, flasks and bars, and total of all castings made expressed in pounds and in per cent ; also the loss in the cupola in pounds and per cent. Many similar data can be made the basis of physical reports. In the power-plant such matters may be listed as the heating value, volatile matter, and ash in the coal consumed, continuous record of unburned gases in the stack, pounds of water used by the boiler, pounds of dry steam delivered by the boiler, records of switch-board instruments, total pounds of coal burned, total pounds of ash removed, expression of the above data in unit ratios such as pounds of coal per kilowatt hour, etc. The labor and employment bureau mil make reports covering the number of men quitting, the number of men laid off, the number of men discharged, the total hours of regular time work, the total hours of overtime work, the hours and pay-roll for day work, the hours and pay-roll for piece work, the hours and pay-roll for pre- mium work, the hours and pay-roll for bonus work, to- gether with explanations of any notable increases or decreases. It should be borne in mind that mere figures are not of much value, but the relationship of the figures to other facts is important. 282 Organization and Management CUPOLA REPORT WEEK ENDING mo ■ t9lS Kind and Grade of Pig Iron Used No. of Pounds. PerCenf i^_^_ fpl^ No. Pig Iron -^ af^ oo ^: No. ^ Pig Iron No. Pig Iron d f 660 J/^ New Scrap /o^o o /CO Foundry Scrap lMo,o /z^ M. Shop Scrap New Olo Total ^%6oo Remelt Scrap ^/ /B%o /^./x No. pounds Man^nese used in Cupola /^/^ 0./%^ Castings made but not deliver* ^(^(U&A ^Mi^J ^oo oo^ Good Castings delivered Foundry Scrap 66f6/ ^^^S O60 M. Shop Scrap M^ OO'^ Gaggere and Clamps £oo_ o^ Flasks and Bars /^OO 026 Total Castings made Loss in Cupola [Excluding Remelt.] yw^/> /^^ RZMARKS: S6/0 Of¥ Note : Per cent of iron based on total charge. Per cent of Casfings based on Castings made. Fig. 91. — Weekly Cupola Report Reports to Executives 283 Accumulation of reports from which no definite con- clusions are reached is a sure sign that such reports serve no useful purpose, and should be discontinued. The mak- ing of reports is a matter which can easily be overdone. At the same time, systematic reports disclose conditions which would othenvise not have been revealed. They serve as a spur to action where mthout them there would have been no incentive at all TEST QUESTIONS 1. Discuss the necessity of reports to the modem executive. 2. What are the advantages of preparing a selling program in advance ? 3. How may we prepare a budget for each sales territory? 4. What sort of records should be kept as to the results ob- tained by each individual salesman? 5. What points have to be considered in preparing in advance an annual manufacturing program? 6. What data will guide us in our manufacturing program of detail parts? 7. What statistical data will lead to a sound judgment re- lating to the advisability of purchasing additional machinery, employing men, or enlarging work areas? 8. From what sources are data obtained to indicate the nature of the annual and monthly buying program? 9. From what sources are data obtained as to future pay-rolls to be made? 10. What sort of reports should be prepared to indicate the relation of probable money income to probable expenditures? 11. How may predetermined costs be made effective in holding down actual costs? 12. What statistics and data afford a basis for allotting ex- pense budgets in advance in manufacturing departments? 284 Organization and Management 13. What are the advantages of monthly balance sheets and profit and loss statements ? 14. What data must be secured from cost and stores depart- ments in order that we may have monthly balance sheets? 15. What are the advantages of graphical charts in connection with any of the foregoing reports? 16. What sort of physical or non-financial reports should be prepared by the foundry? 17. What sort of physical reports should be turned in by the power division? 18. What sort of reports should be made by the labor and employment bureau ? 19. What sort of report can be made on the efficacy of a sug- gestion system? 20. How may we determine what reports are worth while and which ones are not? INDEX Ability, organizing, development of. 14. Accident and fire prevention, 239-43. See also Committee on safety. Accounting : correlation of cost rec- ords and general accounts. 123-26 ; standardized list of impersonal ac- counts, 168-69. See also Costs ; Ex- pense. Accounting department, 24-25, 26, 82, 94, 123, 137, 141. 163. See also Accounting ; Organization. Accuracy in employes, 257. Adaptability in employes, 262. Administration : defined, 2 ; distribu- tion of costs of, 150-51 ; expense of, 120-21, Ifil ; standardization in, 167-69. See also Control ; Organiza- tion. Air-wasbing;^ 52-54. American Bridge Co., gardens main- tained by, plate beticeen 242 and 243. American Society of Mechanical En- gineers, conclusions of, on scientific management. 191. Analytic manufacturing, defined, 11. Appearance of employes, 253. Apprenticeship system, directed by a committee, 7. See also Educational work. Arrangement of machinery and fix- tures, 49-51. See also Plants and eguipment. Assembling department, 90. Athletics : favored by nearness of workingmen's houses, 39 ; handled by a committee, 7 ; by the employ- ment manager, 108. See also Wel- fare and betterment work. Automobile assembling under scientific management, 205. Automobile industry, locating, with reference to supply of materials, 33. Banks, a factor in locating an Industry, 38. Benefit societies, 248-50. See also Wel- fare and betterment work. Billing department. 113. Bonus system on individual jobs. 227- 29. See also Wages. Bulletin bo.nrds. for data of orders, 104 and 105. Bulletining bureau. 4-5. Bureau : bulletining, 4-5 ; Instruction, 5 ; order-of-work. 4-5 : routing, 5 ; scheduling, 4-5. See also Control. Business Organization. See Organiza- tion. Buying : data regarding material, 62- 64 ; filing purchase order copies, 70- 71 ; financial problems in, 72-73 ; following up purchase orders, 71-72 ; knowledge of markets in. 64-05 ; Qualifications of a purchasing agent. 6l ; records of former purchases, 66 ; relation of. to receiving and stores departments. 73-74 ; requisi- tions on purchasing department, 68- 70 ; the human element in, 67. See also Purchasing department. Cadbury Works, welfare organization of, 239. Carnegie Steel Co.. laborers, plate be- ttceen 242 and 243. Charts : of committee control. 19 ; of costs as a basis for selling prices, 120 ; of departmental specialization, 21; of functional control. 18; of lay-out of flour mill. 45 ; of lay-out of gas-engine manufactiii:ing plant, plate between 58 and 59 ; of lay-out of locomotive shop, 48 ; of lay-out of machine shop, plate betiveen 50 and 51; of lay-out of ore mill, 46; of lay-out of structural steel plant, 47 ; of line-and-staff control, 17 ; of line control, 17; of organization on "seven M's" principle, 22 ; of pay increase under differential piece work, 218; of planning of industrial activities. 94 ; of progress of order. plate between 26 and 27 ; of progre.ss of order ('•water-bottle"), 24 ; of re- lation of material records to various departments. 81 ; of sources of cost data, 132 ; of standardized organiza- tion. 167-68 : of standardized organ- ization in the production division, 1.69 ; showing how pay varies with output under ordinary piece rate, 21o ; showing working of Diemoi" combined system. 230 ; showing working of Emerson eflQclency sys- tem. 232 : showing working of Gantt bonus system, 227 ; showing work- ing of Ualsey premium system. 222 ; showing working of Indlvldual-job bonus system, 22S ; showing work- ing of Rowan premium system, 226. See also Charting. Charting : committee control, 10-20 ; departmental specialization, 20-21 ; 285 286 Index functional control, 18-19, 21-22 : Une-und-staff control, 17-18 , line control, 17-18; processes, 44-46; progress of orders, 23-27 ; responsi- bilities of department beads, 28-29 ; routing individual parts or classes of material, 47-49. 6'pe also Cliurts. Cincinnati, a center of the macblne- tool business, 39. Climate : a factor in locating an in- dustry, 34. Clock for use in motion pictures. 199- 200, plate between 202 awl ^(Ki. Collective bargaining, not Interfered with by sclentlflc management, 195. See also Union men. Collective contract work, 210-20. Combination : leading to specialization, 8-9 ; partial and complete, 10. Commercial offices. 58. Committee on complaints, 7 ; on cost reductions and economies, 7 ; on edu- cation, 7; on manufacturing. 0; on new designs and products, 7 ; on safety, 7 ; on standards. 182 ; on sug- gestion, 6-7 ; on tools, 6 ; on welfare, 7. 238-39. See also Control. Committee controL 5-7, 19-20. Conopetltion : lx>tween transportation llnee, an advantage to an indut-try, 35-36 ; ruinous, based on Inaccurate costs, 114. Complaints, committee on, 7. Concentration In employes, 254-55. Concerts, 244. Consecutive processes, exemplified, 11. Contract work, 214-20. Control : by committee, 5-7 ; charting the various types of. 16-29 ; defined, 2 ; functional, 4 5 ; line. 2-3 ; Une-and- staff, 3-4 ; specialization, 8-9 ; special- ization and functionalizatlon con- trasted, 9-10; system, 11; types of, compared, 7-8. See also Organization. Co-operative employment agencies. 266. Corporation Schools, National Associa- tion of, 243. Cost department, 25, 83, 103, 126, 127, 128, 131. 136, 139. 141. 147. 148. See also Costs. Costs : as a basis of selling prices, 114-15 ; assembling cost data on ma- terial and labor, 142-45 ; classifica- tion of, 119 ; committee on reduction of, 7 ; comparative, 118. 145-47 ; com- parison or, vrlth probable receipts. 278-79 ; co-operation between cost de- partment and accounting department, 163; correlation of cost records and general accounts, 123-26; correlation of, to other manufacturng data, 118; determination of, 112-29; distribution of, in administrative expenses. 150- 51 ; distribution of In manufacturing expenses. 151-161 : distribution of the expense burden, 150-63 ; elements of, 119-22 ; estimated In sales manager's report, 274 ; importance of keeping elements distinct, 122 ; inaccurate or Inadequate. 112-13; lower production costs necessary, 115-17 ; manufactur- ing cost different from selling cost. 128-29 ; manufacturing expense In ac- counting, 126 ; methods of collecting on material and labor, 131-48 ; need of accurate, 113-14 ; of purchasing, receiving, and storing, 74 ; periodic reports of, by cost department, 147 ; of repairs and detailed parts. 117-18 ; reports on, 278-79 ; sources of cost data on material and labor, 142 ; standing expense orders, 161-63 ; sup- plementary reports of. by coat depart- ment, 148 ; waste disclosed by cost system, 115. See also Cost depart- ment. Cross-liatchlngs to represent material In drawings, 172. Culture In employes, 259. See also Wel- fare and l)elterment work. CMrtls Publislilng Co., trial department conducted by, 256. Departmental specialization, charting. 20-21. Departments, arrangement of, by proc- esses. 51 ; in factories, 8-9. See also Organization ; Plants and equipment. Designing department. 23. 80, 100, 170. Detallist, 263. Diemer combined bonus and premium system, 229-30. Diligence in employes, 256-57. Direct-labor account, 126. See also Costs. Dlstrllxiting Industry, 11. Divisional control : In an agricultural machinery manufacturing plant, 3 ; in railroads, 3. Drafting and designing space, 58. Drawing department. 23 ; standardiza- tion In. 170-73. Economies, committee on, 7. Economy, in employes, 257-58. Educational record of employes, 265. Educational work : activities enumer- ated, 243-44 ; committee on, 7 ; planned by department manager, 108 ; Efficiency : broad and narrow Interpre- tation of, 186 : defined, 12 ; reports on. 148 ; standards of, 178-79. See alfto Scientific management. Efllclency Society of America, informa- tion-filing plan devised by the. 173. FCfflciency system of wages, 230-31. See also Emerson. Harrington. Emerson, Harrington : his sliding scale for wages. 231. See also Scientific management Employes, desirable qualifications In, 252-65 ; health of. cared for by a com- mittee. 7. See also Labor. Employment : agencies for, co-opera- tive. 266 ; bureau of, 269 ; problems of. 252-69; reports on, 281. See also Labor, Employes. Employment manager. 107, 108, 139. Energy of employee. 253. Enthusiasm In employes, 262-68. Equipment. See I'lants and equipment ; machinery ; Purcliaslng department. I.xecutlves : duties of, 271-73 ; reports to, 271-83. See also Administration ; Control ; Organization. Expense : administrative, distribution of. 150-51 ; co-operation between cost department and accounting depart- Index 287 ment, 163 ; distribution of burden, 150-6^; manufacturing;. 126-28; 151- 61 ; manufacturing, allotment of by labor, 153-58 ; manufacturing, allot- ment of by macblnes, 159-61 ; manu- facturing, allotment of by product, 152-53 ; standing expense orders, 161-63. See also Costs. Experts, functional, duties of, 4-5. Family history of employes, 205. Fatigue, 208-209, 217. -b'ee also Scien- tific management. Finance. See Accounting department ; Costs ; Organization. Finances, planning for, 94. See aUo Executives. Financial problems in buying, 72-73. Financing industry. 11. Fire prevention, 239-41 ; a factor in locating an industry. 40 : arrange- ments for in tlie plant. 57. Fixtures, selection and arrangement of, 49-51. See also Plants and equip ment. Floor area, 50. Flour mill, lay-out of. 45. Following up purchase-orders, 71-72. Ford Motor Works, ventilation in, plate between, 242 and 243. Foremen's offices. 56-57. Forms, standard, in tiie administra- tion division, 168. Frick. U. C. Coke Co., swimming pool maintained by, plate between 242 and 243. Functional control, 4-5 ; charting, 18- 19, 21-22 ; compared with other types, 8 ; contrasted with specialization. 9. See also Control. Functional experts, duties of, 4-5. Gantt bonus system. 226-27. Gardens, i>late bctueen 242 and 243. Gas-engine manufacturing plant, lay- out of, plate between 58 and 59. Generalizer, 263. Getting along with men, 264. Gilbreth. Frank B. : on scientific man- agement, 192 ; motion studies by, 201-203 ; use of moving pictures by, 199-201. Grand Itapids. a center of the furni- ture business, 38. Grit In employes, 259. Halsey premium system, 221-24. Handling, time standards for. 178. Heads of departments : brouglit to- gether at committee meetings, 6 ; charting responsibilities of, 28-29. See also Organization. Health of employes. 253 ; cared for by a committee, 7. See also Welfare and betterment work. Heating a plant, 52-54. Home l>etterment. looked after by a committee, 7. Homes of employes, 265-66. Hospital (emergency), plate between 242 and 243. Hot-blnst system. 52-54. Hourly-expenso-rate method of alloting manufacturing expense, 155-56. Human element in buying, 67. Humidifying a plant, 52-54. Inducements, special, a factor in locat ing an industry, 37. Industrial engineers, 43. industrial history of employes, 265. Industrial surveys, 40-41. Industry : classes of, 11 ; distributing. 11 ; financing, 11 ; locating an, 31- 41 ; producing, 11 ; transporting, 11. Information department, 172-73. Initiative in employes, 261. Inspection department, 23. Inspectors' quarters, 57. Instruction bureau, 5. Instruction cards for orders, 102, 204- 206. Insurance, 249. Integration. See Combination. Integrity in employes, 261. Intuition in employes, 255-56. Inventories, perpetual, of stores, 83-86. Job-card, 140. Judgment in employes, 260. Keating, Edward, of Congressional Committee on Labor ; his statement against scientific management, 268- 69. Knowledge in employes, 258-59. Knowledge of men, in employes, 264. Labor : advantages of standardization to workmen, J 66; cost of, 121; di- rect-lalx)r account, 126 ; direct-labor data, 137-41 ; disadvantages of stand- ardization to workmen, 166-67 ; methods of collecting costs of, 131- 48 ; pay-roll account, 125 ; planning as to employment, 107-8 ; reports on, 281. See also Employment ; Organ- ization ; Union men ; Wages. Laborers holding stock In steel works. plate between 242 and 243. Labor supply : a factor in locating an industry, 36-37 ; local labor market, 39. See also Labor. Lay-out of a manufacturing plant, 43- 49. S«e also Plants and equipment. Library, managed by a committee, 7. Library officials, co-operation of, in eAlucational work, 244. Light-bulb in motion study, plate be- ixoeen 200 and 201. 202-203. Lighting a plant, .54-55. Line-and-staff control, S-4 ; charting of. 17-18 ; compared with other types, 7-8. Line control, 2-3; charting of, 17-18; compared with otiier types, 7-8. Local and general burden rates in allot- ting manufacturing expense, 156-58. Locating an industry, 31-41 ; for cli- mate, 34 ; for fire prcTentlon, water supply, and sanitation, 40 ; for labor supply, 36-37 ; for local trade cen- ters, 40 ; for material. 32-33 ; for money market, 38 ; for power, 33-34 ; for sales markets, 38-39 ; for special Indncements, 37 ; for transportation facilities, 34-38; industrial surveys, 288 Index 40-41 ; local labor market, 39 ; local site. 39. Locomotive shops. lay-out of. 48. Lo.valty in employes, 260-61. Luncheons. 244-45. Machinery : opposition to improved, 116: safceu.Trdina:, 240, plate be- tween 242 and 243: safetruardlns of, handled bj' a committee, 7 ; selection and arrangement of, 49-51 ; time standards for, 175. See also Plants and equipment. Machine-shop, lay-out of, plate between 50 and 51. Management : defined. 2 ; efficiency in. 12 : scientific, 184-05 : system in, 11- 12. See also Orgrani/ation. Manufacturing: analytic. 11; commit- tee on, G. 80, 100 ; consecutive proc- esses in. 11 : costs of. 119-21. 126-29. 141-42. 151-62 : intermittent proc- esses in. 11 : plants and equipment for, 43-59 ; reports on. 275 : simul- taneous processes in. 11 : standard- ization in products of, 169-81 ; syn- tlietic, 11. See alfto Organization. Manufacturing industries, classes of. 11. Mapping motions, 201-203. Margin of safety, in costs, 121-122. Marguerite (town of^, plate between 242 and 243. Markets : for sales, a factor in locating an industry, 38-39 ; knowledge of, in buying, 64-65. Materials : accounting for. 77-78. 125 ; a factor in the location of an in- dustry. 32-33 : costs of analyzed. 119- 20 : data regarding. 62-64". 136-37 ; determination of requirements for. 76-77 : financial importance of. 77 ; knowledge of. 62: makinc: entries of, in the stores ledger, 86-89 ; material burden in accounting, 124. 137 ; methods of collecting costs on. 131- 48 ; perpetual inventories of, 83-86 : physical features of store rooms. 89- 91 : receiving, storing and recording of, 76-91 : relation of material rec- ords to various departments, 80-83 : reports on. 277. 281-82 : materials, routing of, 47-49 : showing course of. on charts. 27 ; specifications for, 78- 80 : standards in, 174. Medical and hygienic activities. 246. See also Welfare and betterment work. Minneapolis, supplies water power for flour mills, 34. von Moltke, developed staff principle, 3-4. Money market, a factor in locating an industry. 38. Motion studios. 197-210. Moving pictures. 199-201, plate be- ■ t^veen 202 and 203. M's, the seven, 22-23. National Association of Corporation Schools, 243. National Tube Co.. play-grounds and hospital maintained bv. plates be- ticeen 242 and 243. New designs, committee on. 7. New England, leader in textile manu- facturing, 33. New England Butt Co., motion-studies by. 2U0, 202. New products, committee on, 7. Niagara Falls, supply cheap water power. 34. Non-union men, 267-68. See also La- bor. Obedience in employes, 263-64. Observation in employes, 255. Oil companies, an example of integra- tion, 10. Optimism in employes, 262. Order and system in employes, 258. Order department. 100. 10:5. 131. 134. 135. 136. See also Orders. Order-of-work : manager of, 103, 105, 107 : bureau of, 4-5. See also Organ- ization. Orders : charting progress of. 23-27 ; data regarding. 131-36; job-card for, 140: order forms for purposes of record of. 131-36. Ore mill, lay-out of, 46. Organization : diarting the various types of, 16-29 ; defined, 1 ; divi- sional, in railroads, 3 ; for buying, 61-74 ; for committee control, 5-7 ; for departmental arrangement by processes. 51 : for efficiency. 12 ; for functional control. 4-5: for line- and-staff control, 3-4 ; for line con- trol, 2-3 ; for receiving and shipping, 56 ; for receiving, storing, and recording materials, 76-91 ; for spe- cialization, 8-9 : for welfare and bet- terment work. 237-39 ; industrial en- gineers, 43 ; of manufacturing plants and equipment. 43-59 : scientific man- agement. 184-195 : selection and ar- rangement of machinery and fixtures, 49-51 : specialization and function- alization contrasted. 9-10; system In, 11-12; 'three-coJjmn" type. 22-23; types of control compared, 7-8 ; use of technical terms in. 13. Organized labor and scientific manage- ment, 268. -See also Labor ; Union men. Organizing ability, developing, 14. Overtime, payment for, 180. Parkhurst. Frederick W.. his modifica- tion of Taylor's design of a planning department. 98. Parts, routing of, 47-49. See also Charting. Pattern department, standardization in, 173-74. Pay-roll account, 125. See also Wages. Penn.'ylvania. adapted to iron and steel industry, 32. Percentage-on-direct-lahor method of al- lotting manufacturing expense, 153- 5. Personality, an agreeable. Important in organizing work, 14. Physical training. 246-47. See also Welfare and betterment work. Piece-rate, differential. 216-19 ; ordi- nary. 214-16. Index 289 Plg-iron safety shield, plate between 242 and 243. Planning. 93-111; as to employment, 107-S ; as to finances, 94 ; as to pro- duction. 96 ; as to sales, 94 ; does It Involve additional non-productive la- bor? 108-10; how work is to be done, 102-.3 ; materials for shop orders, 100-101 ; separation of, from routine activities. 99-100 : standardization in, 174 ; when work is to be done, 103-7 ; where work is to I)e done, 101-2 ; work in tlie shops, 100-107. See also Planning department. Planning department, 25. 83, 105, 106, 136. 139. 162 ; designed by F. W. Taylor, 97-98 ; fixtures for. 57 ; Parkhursfs modification of Taylor's plan for. 98. See also Planning. Plants and equipment, manufacturing, 43-59 ; departmental arrangement of, by processes. 51 ; heating, ventilat- ing, humidifying, and air-washing apparatus for, 52-54 ; industrial en- gineers, 43 ; light for, 54-55 ; lay- out for, 43-49 ; power-generation and transmltting-apparatus in, 51 ; proc- ess-mapping. 44-46 ; receiving and shipping, 56 : routing individual parts or classes of material, 47-49 ; selection and arrangement of machin- ery and fixtures, 49-51. See also Or- ganization. Power, a factor in locating an industry, 33-34. Power-generation and transmltting- apparatus. 51. Prices: based on costs, 114-15: effect of maintaining, when costs decrease, 117. Processes, departmental arrangement by. 51. Processing, standardization in, 174-75. Process-mapping. 44-4G. See also Chart- ing. Producing Industry, 11. Product : standardization of. 169-70 ; standardized testing of, 180-Sl. Production, planning for, 96. See also Organization. Profit : and loss, report on, 280 ; an ele- ment in costs, 121-22 ; how Increased, 117. Program for manufacturing detailed parts. 276-77. See also Planning. Promotion, often dependent on organiz- ing ability, 14. Prudoncp in employes. 259. I'unrtuality in employes, 257. I'urchase-order copies, filing of. 70-71. See also Records of former purchases. Purchasing agent, assistant to, 61 ; qualifications of. 61. Purcliasing department, 25. 82, 88, 94, 101, 124, 137, 148. Quotations, record of, 67. Railroads, divisional organization in, 3. See also Transportation facilities. Rapeer. Dr. : his list of the require- ments of good standards, 182. Reason in employes, 255. Receiving and shipping, 56. See also Organization : Shipping department. Receiving and stores departments, re- lation of, to purchasing department, 73-74. Receiving materials, 76-91. See also Stores department. Recording materials, 76-91, Records of former purchases, 66. See also Purchase-order copies, filing of. "Red Tape," defined, 11. Reliability in employes, 260. Reports of materials and supplies, 277. iS'ee also Materials. Reports, to the executive, 169. Requisitions on purchasing department, 68-70. Reser\e in employes, 262. Responsibilities of department heads, charting. 28-29. Rest-periods. 208-209, 244-45. See also Welfare and betterment work. Route-and-time sheet, 103-5. Route manager, 101. Route sheets for orders, 101-2. Routing bureau. 5. Routing individual parts on classes of material. 47-49. Rowan premium system, 224-26. Safeguarding machinery, handled by d committee, 7. See also Safety meas- ures. Safety committee, 7. Safety measures. 239-43. See also Wel- fare and betterment work. Salaries : See Accounting. Salaries : cost-keepers of, 113. Sales : markets for. a factor in locat- ing an industry, 38-39 ; planning for, 94-96 ; reports on, 272-75. See also Organization. Sales department, 80, 100, 103, 121, 12.S. 129, 167, 181, 243. See also Organization. Sanitation, a factor in locating an In- dustry, 40. See also Welfare and betterment work. Scheduling bureau, 4-5. See also Plan- ning. Scientific management, 184-195 : appli- cation of, 186-88 ; applying data and standards of, 189. ; broad and nar- row interpretation of. 184-85 ; con- clusions of the American Society of Mechanical Engineers regarding, 191 ; continued Investigation in, 189- 90; genuine distinguished from false applications of. 185-S6; objections to, 192-95; obstacles to, 191-195: organized labor and, 268 : securing maximum prosperitv for all, 190: se- curing of data for. 188-89 : Taylor's principles of. 1!)0: time and motion studies for, 197-210. See also Labor: Organization. Selection of machinery and fixtures. 49- 50. Self-confidence in employes. 264-65. Self-control in employes. 203. Selling: expense of. analyzed. 120-21: standardization in. 181; typical standing orders, 162-63. See also Organization. 290 Index Seven M's, the. 22-23. Shipping department, 82, 89, 90, 121. See also Organization. Simultaneous processes, exemplified, 11. Sincerity In employes. 263. Social activities. 24.5-46 ; favored by jiearness of working-men's homes. 39 ; handled by a committee, 7 ; planned by employment manager. 108. See also Welfare and better- ment work. Society for Promotion of the Science of Management, the. 189-90. Specialization : a fundamental principle of modern business, 8-9 ; contrasted with functionalizatlon, 9 ; depart- mental, charting of, 20-21 : harmful results of, 9. See also Labor ; Or ganizatlon. Speed of employes, 253-54. Speed studies, personal qualifications for. 10. Staff principle, 3-4. Standards : importance of, 165 ; per- manence of, 181. Standardization, 165-82 ; advantages of, 105-66 ; disadvantages of, 166-67 ; Dr. Rapeer's list of the requirements of, 182 ; of efficiency. 178-79 ; of handling operations. 178 ; of machine operations, 175. See also Scientific management : of materials, 174 ; of planning and supervising, 174 ; of processing. 174-75 ; of product. 169- 70 ; of selling, 181 ; of the adminis- trative division, 167-69 ; of the draw- ing department, 170-73 ; of the pat- tern department. 17.3-74 ; of the production division. 169-81 ; of the testing of product, 180-81 ; of tools. 175-77: of wages. 179-80. See also Scientific management. Standing expense orders. 161-63. Steel companies : an example of inte- gration. 10; located where material is abundant, 32-33. Stock room, 27, 82. See also Organiza- tion. Stop-watch In motion study, 193, 199. plates between 200 and 201, 202 and 203. Stores : accounting for, 77-78 ; depart- ment of. 25. 118, 124, 137; ledger for, 86-89 : physical features of, 89- 01. See also Organization. Store rooms. 55 ; Storing materials, 76- 91. See also Store rooms. Stnictural Steel-plant, lay-out of, 47. Suburban sites, often remote from good fire-departments. 40. Suggestions : committee on, 6-7 ; han- dled by a committee, 6-7 ; reports of, 280; system of. 247-48. Superior iron fields. 32-33. Surveys, Industrial, 40-41. Swimming pool, plate between 242 and 243. Sympathy in employes, 263. Synthetic manufacturing. 11. System, defined, 11-12. Tact in employes, 260. Taylor, Frederick W. : beginnings of his work. 232 ; experiments in metal cutting, 188-90; on objections to scientific management. 191 ; planning department designed by, 97-98 ; prin- ciples of scientific management, 190. Technical terms, use of, 13. Templets. 50-51. Testing departujent, 2.3-24, 180. 'J'estlng product, standards for, 180-81. Thoroughness In employes, 261. "Tliree-column" tvpe of organization, 22-23. Thrift in employes, 265-66. Time and motion studies. 197-210 ; al- lowances for exceptional conditions in, 207-208 ; definitions for, 197 ; doing the work according to Instruc- tions, 205-207 ; expense of, 210 ; In- spection, 20910; mapping motions, 201-203 : method of timing in, 199 ; moving pictures in, 199-201 ; not driving, 208-209 ; prohibited in U. S. arsenals and navy yards, 268-69 ; publishing of data of. 210; qualifica- tions of observer in, 203-204 ; the instruction card. 204. 206. See also Scientific management. Time-card for employes. 138. Time standards : for handling opera- tions, 178; for machine operations, 175. Time-study and Instruction card, 102- 103. Time-study observation sheet, plate be- tween 198 and 199, 198. Time work. 212-14 ; with efficiency records. 220-21. Tool committee, 0. Tool list, for time and motion studies, 198. Tool rooms. 56. See also Plants and equipment. Tools : selection of. by a committee, 6 ; standardization in, 175-77. See also I'lants and equipment. Tracing record, showing progress of w-ork, 106. Trade centers, local, a factor in locat- ing an Industry. 40. Transportation facilities : a factor in locating an Industrv, 34-36 ; local, .•59-40. Transportation industry. 11. Transportation, within the plant, 50-55. Treasurer, 94. TTnion men. 266-69. See also Ijabor. U. S. Steel Corporation, safety devices of, plates betwoon 242 and 243. Ventilating a plant, 52-.54 ; through columns, plate between 242 and 243. Vocational guidance, aided by indus- trial surveys, 41. Wages ; bonus system of, on individual .1obs, 227-29 ; collcctiove contract work, 219-20; contract work, 214-20; Diemer combined bonus and premium system of, 229-30 ; cHlfcrential piece rate for, 216 ; efficiency system of, 230-31 ; Gantt bonus system of, 226- Index 291 27 ; Halsey premium system of, 221 24; ordinary piece rate for, 214-16; pay-rate not cut under scientific man- agement, 194, 215 ; pay-roil esti- mates, 277 ; planning for, 108 ; Row- an premium system of. 224-26 ; se- lecting and introducing wage sys- tems, 231-34 ; special arrangement of to avoid trouble with unions, 267-68 ; standardization of. 179-80; systems of 212-34; time work", 212-14; time worlj with efficiency records, 220-21. See alfto Organization. Wash and locker rooms. 55. Waste, disclosed by cost system, 115. Water supply, a factor in locating an industiT, 40. Water transportation, an aid to indus- try. 34-36. Welfare and betterment work, 236-50 ; activities Included in, 237 ; aims of 236 : arrangements for. in the plant, 57-58 ; benefit societies. 248-50 : com- mittee on, 7 ; educational activities in. 243-44 : insurance, 249 ; medi- cal and hygienic activities. 246 ; or- ganization of. 237-39 ; physical train- ing in, 246-47 ; planned for by em- ployment manager. 108 ; rest periods and luncheons, 244-45 ; safety, acci- dent and fire prevention in. 239 ; so- cial activities, 245-46 ; suggestion system, 247 ; under employment man- ager, 108. See also Organization. Works manager, 23. UUSB LIBRARY 000 525 818