CarttfU HtttuFrBttu fCtbrarg BOUGHT WITH THE INCOME OF THE SAGE ENDOWMENT FUND THE GIFT OF Slenrg W. Sage 1891 JMSS.H.: O^MMU:.^ 9306 Digitized by Microsoft® Cornell University Library T 56.J97 The administration of Industrie enterpr 3 1924 021 454 503 Digitized by Microsoft® This book was digitized by Microsoft Corporation in cooperation witli Cornell University Libraries, 2007. You may use and print this copy in limited quantity for your personal purposes, but may not distribute or provide access to it (or modified or partial versions of it) for revenue-generating or other commercial purposes. Digitized by Microsoft® THE ADMINISTRATION OF INDUSTRIAL ENTERPRISES Digitized by Microsoft® The original of tiiis book is in tine Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924021454503 Digitized by Microsoft® THE ADMINISTRATION OF INDUSTRIAL ENTERPRISES WITH SPECIAL REFERENCE TO FACTORY PRACTICE BY EDWARD D. JONES, Ph.D. PROFESSOR OF COMMERCE AND INDUSTRY IN THE UNIVERSITY OP MICHIGAN AUTHOR OF "economic CRISES," " THE BUSINESS ADMINISTRATOR: HIS MODELS IN WAR, STATECRAFT, AND SCIBNCB," ETC. LONGMANS, GREEN AND CO. FOURTH AVENUE & 30th STREET, NEW YORK 39 PATERNOSTER ROW, LONDON BOMBAY, CALCUTTA, AND MADRAS 1916, Digitized by Microsoft® /\,^(e55M.C| COPYRIGHT, 1916 BY LONGMANS, GREEN AND CO. Digitized by Microsoft® PREFACE The purpose of this work is to present what may be called first-class practice in the administration of industrial enter- prises. The manufacturing industry is the one which has been held in mind chiefly. The major topics, in order of their presentation, are, first the problem of equipment, second, the formation of an admin- istrative organization, third, the adjustment of the relations of labor and capital and, fourth, the process of mercantile distribution. In discussing physical equipment it has been necessary to skirt the borders of a vast field of technical knowledge, choos- ing such matter as the general executive should possess in his attempt to supervise the work of technical experts. With reference to administrative organization, the aim has been to bring the contributions of scientific management into relation with the general body of underlying principles of administration which are valid for all forms of joint action; and to do so by sketching the evolution of administrative practice rather than by a systematic review of pure principles. The relations of labor and capital have been handled with two leading purposes in mind, namely, to present the labor problem from the viewpoint of the employing manager and, second, to elaborate somewhat the meaning of the new philanthropy which aims to bring to the less favored classes a fuller measure of the rational objects of life, through the organized and normal processes of industry, rather than through extra-economic alleviative agencies. The methods of mercantile distribution are presented in outline, without entering upon a criticism of the vast wastes Digitized by Microsoft® vi PREFACE entailed by the modern evolution, for the reason that it is becoming customary to separate the discussion of industrial organization from that of commercial organization, and for the further reason that the Author hopes at a later time, Deo favente, to present a work upon the American domestic market. ' Throughout this book two things have been held in mind; to trace the apphcation of the scientific method in industry, and to point out the efliciency and the charm of an economic policy based upon welfare and service. EDWARD D. JONES Ann Arbor, Mich. October S, 1916 Digitized by Microsoft® CONTENTS CHAPTER PAGE ■^ I The New Method and the New Spirit 1 "II Launching an Industrial Enterprise 21 ■^III Location op an Establishment 37 " IV Layout op a Manupactuhing Plant 67 -' V Buildings and Equipments 75 ^ VI Power . . 106 VII Administration . . 123 VIII The Functions op the Works Manager 150 IX Cost Accounting 169 X The Employment of Labor 188 " XI Fatigue 212 " XII The Measurement op Wage Factors ... . . 226 XIII The Older Wage Systems: Day Wages, Piece Rates, Propit Sharing, and the Sliding Scale .... 242 XIV The Newer Wage Systems: The Halsey, Rowan, Taylor, Gantt, and Emerson Systems 265 XV Welfare Work 291 XVI Office Departments .... 324 XVII Purchasing and Stores Departments 3*39 XVIII Selling 365 XIX Advertising 382 XX The Traffic Department 397 XXI Credit and Collection 417 Index 435 Digitized by Microsoft® Digitized by Microsoft® THE ADMINISTEATION OF INDUSTRIAL ENTERPRISES CHAPTER I THE NEW METHOD AND THE NEW SPIRIT The New Method The American evolution. — American industry is now in a transitional state. At first, for us as a nation, economic growth meant the mere spread of the settled area westward, with increase of population, and enlarged totals of production, and the multipUcation of business units on the same plane of method and purpose. The economic process presently became more specifically the exploitation of crude resources. Inventive genius revolutionized the mechanism of farming and lumbering, and made possible a speed and scale of operations which soon transformed the western farmsteads into something like the southern plantations, — but with machines as slaves, — and developed the saw mills from local custom shops into factories producing standard articles for distant markets. The early suc- cesses with mechanism created such a conscious pride in the nation's inventive genius that succeeding steps in industrial progress developed the railroad amazingly on its mechanical side, and forced from infant to adult state all that class of manufacturing which depends chiefly upon machinery. The law of the machine presently suggested large-scale production, so that, as the domestic market was of enormous extent, the effort to enlarge profits soon became one to extend 1 Digitized by Microsoft® 2 ADMINISTRATION OF INDUSTRIAL ENTERPRISES selling campaigns over the entire country, through the evolution of previously unknown arts of pubUcity. Success in this achievement opened the way for the consolidations of the decade 1895-1905, and later, in which the arts of financing achieved a forced growth. As a result of the trust movement, there were constructed some powerful consoUdated interests, and patched together a number of loose agglomerations of heterogeneous establishments, which all began to look forward hungrily toward ultimate monopoly. Thwarted in this aim by the assertion of pubUc will, enterprise was next shunted in the direction of perfecting legal monopolies, under the shelter of the laws of patents and trade marks, the process being to differentiate and specialize merchandise, and identify it for purposes of exclusive control by the use of packages, coined names, and exclusive " talking points." These methods also have now encountered the resistance of Federal law and Supreme Court interpretation. Thus, in various directions, competitive effort has been exploring the field of possibilities. In each direction, after a certain evolution has taken place, natural limitations have developed themselves, so that it has been necessary to find a direction of less resistance elsewhere. The factor of administration. — Now that the careless use of resources must give place to conservation; and that the prob- lem of mechanism is not simply to invent machines, but to adapt them to the laws of fatigue; now that the economies of produc- tion on a large scale are measurably exhausted; and that indus- trial units have grown to great size, only to discover that they require an art of administration comparable to the strategy of war or the government of states, it is becoming clear that, henceforth, the problem of industry is no longer one of simple extension, but is the more difficult one of refining the texture. The administrative technique must be revised throughout. Leaders and lieutenants are required who are thinkers, rather than drivemasters. Men of investigative and scientific temper are needed who can formulate policies upon an enduring foun- Digitized by Microsoft® THE NEW METHOD AND THE NEW SPIRIT 3 dation of accurate knowledge. Representatives are wanted who can justly conceive their relations to the general interests of society, and avoid punishment at the hands of a public opinion which has grown vigilant. Alongside of the tradi- tional economic categories, " Land, labor, and capital," there must be installed a fourth primary wealth-producing factor, — management. Present wasteful practice. — " Very few of those who have not made special investigations," says Harrington Emerson, " realize how very low the average efficiency of endeavor is, even in a highly civihzed country like the United States. Every- where we see briUiant results; rarely can any one follow the losses between result and initial supply. " Not only are recurring wastes more flagrant than is gen- erally admitted, but it is also not reahzfed that very hard and extremely exhausting work is not an evidence of efficiency. It is not because men do not work hard, but because they are poorly directed and work under adverse conditions, that their efficiency is low. . . . " Railroad repair shops throughout the country do not show 50 per cent efficiency on an average as regards either materials or labor. " In a big locomotive shop, a careful study of the machines which had been in operation for twenty years showed that the location of 75 per cent of them would have to be changed, so as to facilitate the orderly, effective, and economical progress of work from one to the other. This and other eliminations of wastes doubled the output, with less labor costs. " Coal wastes on railroads are almost as bad as labor and material wastes. On a very large railroad system, the fuel charged per 1,000 tons of train weight per mile averaged 260 pounds; yet actual tests where all coal used was weighed showed a consumption between terminals of only 90 pounds. This actual consumption could be doubled, be made 180 pounds, yet this standard be only 60 per cent of the coal paid for. . . . Digitized by Microsoft® 4 ADMINISTRATION OF INDUSTRIAL ENTERPRISES " Mr. Taylor found a labor efficiency of only 28 per cent in the rough labor employed in the Bethlehem Steel Company's yards. The writer, by time studies, determined an efficiency of only 18 per cent in a gang of laborers excavating a founda- tion, and even less on some construction work in the erection of the large office buildings in New York. " Inefficiency is not a local evU.. It extends through the whole of American life — extends through the whole industrial life of the world." ^ Mr. Gilbreth, the leading expert in motion study, has esti- mated that the loss due to the tuadequate division of labor between men of greater and less skiQ in the manual trades is sufficient, if it could be saved, to pension one half the workers in the United States on full pay.' Science and industry. — It is significant that, at this time, the attention of men everywhere is turning to the scientific study of industry. Industry is the greatest exponent of action in modem life: science is the chief exponent of modern thought: much is to be hoped from the union of the two. The contrast between the efficiency of science and the inefficiency of tradi- tion has been so strikingly illustrated in medicine and surgery, and in warfare, that the inference can no longer be repressed that science can likewise help industry onto a higher plane of efficiency. In a couple of decades the general attitude of business men toward science has changed from neglect or distrust to profound respect. Already there has been convincing contact between science and industry. Science has devised many new processes and compounded new materials and constructed useful instruments of precision. Some one of the many branches of engineering now reaches ahnost every industry. Already the geologist directs the miner, while the lumberman begins to respect the forester, and the farmer asks for the appointment of a district ' Efficiency as a Basis for Operation and Wages, N. Y., 1909, pp. 15-24. 2 F_ B Gilbreth, Motion Study, N. Y., 1911, pp. 73-74! Digitized by Microsoft® THE NEW METHOD AND THE NEW SPIRIT 5 adviser who has been educated at an agricultural college. As men of scientific training, the engineers are having a wide range of administrative duties thrust upon them; while in the demand for trained accountants and actuaries and employment oflStCers and secretaries of commercial associations, may be seen a hunger for scientific control which has become keen in all departments of practical action. The general advance of prac- tice is betrayed by the multipUed use of laboratories and planning rooms, in the rapid rise of a literature devoted to the search for principles applicable to industry, in the growth of university courses in business administration, and in the multi- plication of scientific societies for various classes of industrial experts. We have already witnessed the formulation of a body of intelligent administrative principles for the control of the raw-material industries, as the result of the " conservation move- ment." And now American industry is concerned with a newly aimounced code of rules known as " scientific management," which aims to give greater precision and efficiency to the pro- ductive processes involved in manufacturing. Upon the heels of these events we can perceive in another quarter an increas- ing restlessness expressed in the " high cost of Hving move- ment," which, promises to bring the distributive industries, also, upon a new plane of scientific operation. The scientific method. — The scientific method differs from ordinary thinking in degree rather than in kind. It may be briefly described as the orderly, persistent, and thorough use of the mind: a sort of sublimated common sense. It may be more fully described by dividing it into steps, as follows: 1. The analysis of the facts, problems, or conditions, which are made the subjec1>-matter of study, into their elements, to improve the ratio between the difficulty of the subject and the natural vigor of the investigating mind, and to insure the col- lection of data in a form sufficiently disintegrated to be manage- able. Professor W. D. Scott, in one of his books says, " It is a general law of psychology that all things tend to fuse, and Digitized by Microsoft® 6 ADMINISTRATION OF INDUSTRIAL ENTERPRISES only those things are analyzed that must be analyzed. . . . We do not at first perceive the parts and unite them to form the greater wholes, but we first perceive the wholes, and only after the process of analysis has been completed do we perceive the parts." ^ 2. A very complete, and even exhaustive collection of data, sufiicient to make it certain that the law of the subject is fully recorded, and to reduce accidental errors and other variations due to chance to a neghgible, or at least to a definitely calculable, percentage. 3. The classification and arrangement of facts in such a telling manner as to show all significant agreements, differences, and concomitant variations between them, so that everything may be brought to bear clearly and definitely in answer to a given question; and so, also, that the juxtaposition of ideas win finally lead the mind to take the fourth step. 4. The making of inferences, or the drawing of conclusions, from the facts by induction, deduction, analogy, or any other logical method; using ingenuity to choose the most effective order and combination of these methods, and imagination to increase to the utmost the vigor and span of the mind. In inductive reasoning the order of procedure is from the specific to the general, beginning with individual facts and building up to principles. Deductive reasoning passes from the general to the specific, showing that principles necessitate certain specific facts, or that restricted principles are contained within those of a more general nature. There is no conflict between the proper functions of inductive and deductive reason- ing; the only matter for dispute is their relative fitness in any particular case, considering the nature of the subject-matter, and the character of the individual minds involved. Most persons use induction and deduction in the most intimate alter- nation. Analogy rests upon the perception of a like arrangement ' Theory of Advertising, Boeton, 1903, pp. 98-99. Digitized by Microsoft® THE NEW METHOD AND THE NEW SPIRIT 7 between the parts of two distinct bodies of truth, and the inference that what is true in one set of circumstances is likely to be true, in some degree, of similar circumstances. The value of the analogy lies in the fact that by it certain cases, in which the relations are clear and conspicuous, can be used to familiarize the mind with the nature of a relation so that, when similar phenomena are studied, we are able to detect the presence of the relationship, even though it be subtle and partly hidden in its new form. The inference or new idea which is the product of investiga- tion is not to be at once permitted to exercise full and unre- stricted influence upon the judgment, but only such influence as will facilitate the taking of the fifth step. 5. New inferences' are to be subject to criticism and test in every possible way, by the use of established facts, to determine whether these iiiferences are truth or error. Ultimate reliance is placed upon the harmony of all parts of truth with each other, and upon the equal validity of truth for all normally constituted minds. Those who think over their experiences, and deduce general conclusions from them, soon raise themselves out of the con- fusion of specific instances, pass beyond the limitations of rules of thumb, and liberate themselves from the laborious safeguards of mere retentive memory. As the late Professor WiUiam James, said: "The best possible sort of system into which to weave an object, mentally, is a rational system, or what is called a ' science.' Place the thing in its pigeon-hole in a classificar tory series; explain it logically by its causes, and deduce from it its necessary effects; find out of what natural law it is an instance — and you then know it in the best of all possible ways. A ' science ' is thus the greatest of labor-saving contri- vances. It reUeves the memory of an immense number of details, replacing, as it does, merely contiguous associations by the logical ones of identity, similarity, or analogy. If you know a ' law,' you may discharge your memory of masses of Digitized by Microsoft® 8 ADMINISTRATION OF INDUSTRIAL ENTERPRISES particular instances, for the law wiU reproduce them for you whenever you require them." * Motion study as an illustration of the scientific method. — Let us select two illustrations to show the scientific method of solving problems of production, and to give some indication of the efiiciency which may be attained by its aid. Mr. Frank B. Gilbreth, a mechanical engineer and contractor, who in his youth had learned the bricklayer's trade, some years ago came under the influence of Mr. F. W. Taylor, the chief exponent of " Scientific Management." He determined to study the process of laying brick, to see whether or not improve- ment could be made in it. At first sight the imdertaking seemed presumptuous. Bricklaying is one of the oldest of the crafts, having a history dating from Babylon and Nineveh. For sev- eral hundred years no noteworthy improvement in processes had been made. Mr. Gilbreth, however, made persistent observa- tions of the most detailed character, disentangling the processes into the elementary movements composing them, and observing the position and character of the apparatus and suppUes and finished work which determined the efficiency of each movement. The traditional method of laying brick is familiar to every one. Mr. Gilbreth found tenders bringing up thick mortar and unselected brick to the scaffolding, and dumping them at the feet of the masons. The scaffolding was raised only at inter- vals, when further reaching was impossible, and was then put up even with the wall. He found the masons reaching and stepping and stooping to get mortar and brick, often pausing to work up the mortar or select the best face of a brick. On the wail the mortar was spread and cut off, the ends of the brick were buttered, and the brick was tapped into position with the handle of the trowel. The mortar squeezed out by the tap- ping was then cut off and disposed on the wall or the board. ■ In this way there was completed a cycle of operations contain- ing eighteen elements. ' Talks to Teachers on Psychology, N. Y., 1899, p. 126. Digitized by Microsoft® THE NEW METHOD AND THE NEW SPIRIT 9 Mr. Gilbreth soon began to introduce changes. One of the first things done was to devise a new scaffolding. This was planned to include, first, a lower platform consisting of a front portion next the waU, on which the mason stands, and a rear part, away from the wall, along which the tender walks. A second platform consists of a shelf upon which the mortar and brick are disposed conveniently to the hand of the mason. The front of the material shelf is seventeen inches from the line of the wall, thus eliminating all stooping and stepping for sup- pKes on the part of the mason. The scaffolding was so con- structed that it could be raised by the tender, a few inches at a time. The order in which the brick should be placed in the waU was next studied. A sequence was worked out for each type of wall, involving the least total travel in laying up a given number of courses. To save the time used by the mason in picking out sound brick and selecting the best face, low-priced helpers were employed to do this work on the ground; the brick being sent to the mason, and sometimes to the job, in packets of twraity four selected brick, each brick having the best face up. To avoid loss of time with the mortar, a box was devised with sloping sides so that the mason naight insert the trowel without looking, while his eyes followed the other hand to the brick packet. Strict control of the consistency of the mortar was instituted so that a brick could be pushed into its place on the wall without tapping, and without cutting off extra mortar. By means of such improvements this ancient craft has been completely changed. Of the eighteen processes previously performed by the mason, ten have been eliminated, one has been arranged to appear only in every other cycle, three have been combined with other elements, and two have been improved. The apparatus has aU been redesigned — even a fountain trowel being invented; the materials have been standardized in quality and located at the most convenient points; the most economical movements and sequences of movements have Digitized by Microsoft® 10 ADMINISTRATION OF INDUSTRIAL ENTERPRISES been adopted; and a rational division of labor has been worked out between mason and helper. As a result of these changes, a mason can now lay 350 brick per hour with no more fatigue than the laying of 120 brick per hour would have entailed under the old system. The speeding of machines as an illustration of the scientific method. — Another example of the utility of the scientific method may be found in the investigations made by Messrs. Taylor, Sinclair, Gantt, Barth, and others, into the elements which compose the problem of setting the proper speed for a machine tool in cutting a metal. The history of this investigation is given by Mr. Taylor as foUows: " In 1881, in the machine shop of the Midvale Steel Company, the writer began a sj's- tematic study, by devoting the entire time of a large vertical boring mUl to this work, with special arrangements for varying the drive so as to obtain any desired speed. The needed uni- formity of the metal was obtained by using large locomotive tires of known chemical composition, physical properties, and hardness, weighing from 1,500 to 2,000 pounds. For the greater part of the succeeding twenty-two years these experiments were carried on, first at Midvale, and later in several other shops, under the general direction of the writer, by his friends and assistants, six machines having been at various times es- pecially fitted up for this purpose. The exact determination of these laws and their reduction to formulae have proved a slow but most interesting problem." We may pause to remark that the accurate fixing of the vari- ables involved, and so the final setting of the most profitable speed in metal cutting, is a problem which could by no possibil- ity have been solved by the mechanic unfamiliar with higher mathematics, through the use of ordinary experience; nor could it have been transmitted from one workman to another as a rule of thumb or craft tradition. The variables entering into the case have been enumerated by Mr. Barth as, 1, The size and shape of the tools to be used, 2, The use or not of a cool- Digitized by Microsoft® THE NEW METHOD AND THE NEW SPIRIT 11 ing agent on the tool, 3, The number of tools to be used at the same time, 4, The length of time the tools are required to stand up to the work (life of the tool), 5, The hardness of the material to be turned, 6, The diameter of the material or work, 7, The depth of the cut to be taken, 8, The feed to be used, 9, The cutting speed, 10, The cutting pressure on the tool, 11, The speed combination to be used to give at the same time the proper cutting speed and the pressure requii'ed to take the cut, and, 12, The stiffness of the work. To return to Mr. Taylor's recital of the history of the experi- ment, he says: " By far the most difficult undertaking has been the development of the methods and finally the appliances (i.e. slide rules) for making practical use of these laws after they were discovered. The difficulty, from a mathematical standpoint, of obtaining a rapid and accurate solution of this problem wUl be appreciated when it is remembered that twelve independent variables enter into each problem, and that a change in any of these will affect the answer. " In 1884 the writer succeeded in making a slow solution of this problem with the help of his friend, Mr. Geo. M. Siaclair, by indicating the values of these variables through curves, and laying down one set of curves over another. Later my friend, Mr. H. L. Gantt, after devoting about 1^ years exclusively to this work, obtained a much more rapid and simple solution. It was not, however, until 1900, in the works of the Bethlehem Steel Company, that Mr. Carl G. Barth, with the assistance of Mr. Gantt, and a small amount of help from the writer, suc- ceeded in developing a sUde rule by means of which the entire problem can be accurately and quickly solved by any mechanic." ^ It is necessary to design a sUde rule for each type of machine on the basis of the number of tools to be used, the cooling device, the attainable speeds, and the power of the machine ' F. W. Taylor, Shop Management, pp. 179-180. Digitized by Microsoft® 12 ADMINISTRATION OF INDUSTRIAL ENTERPRISES to resist stresses. When, further, there has been a proper standardization of the size and shape and material of the tools, and of the depth of cuts for given classes of work; and after allowance has been made for the hardness of the material, and the stiffness of the work, it is possible to sift the problem down to a few combinations of speed, feed, and life of tool. Choosing the most efficient combinations, special sUde rules can be pre- pared to indicate quickly what puUey and cone combinations must be used to drive the tool at the indicated speed on work of a given diameter. Difficulties of application. — It is to be expected that the project of introducing a new method of handling the practical problems of industry will encounter difficulties. The champions do not at once acquire perfection in practice; and as they feel their way toward a new point of view their utterances are not even entirely consistent. The great mass of minds are mildly negative, preferring that some one else should " waste money" on experiments. Active hostility arises from those who think their organization or their cause is in danger. It is easy to misunderstand the nature of a movement like that to employ scientffic methods. In the past, science applied to industry has meant the handing over of some new material, or instrument of precision, by scientific men to capitalists for development. Or it has meant the installation here and there in industry of a man of scientific training, to control some par- ticularly intricate process. The present movement signifies that aU the problems of industrj"^ — administrative, commer- cial, and financial, as well as those of a phj-^sico-technical character — are to be looked upon as problems of science, to be investigated with the care and thoroughness heretofore characteristic of pure scientffic research only. It may be objected that old methods in industry have proved their fitness by surviving; and that there is a hazard of a new method not proving applicable. The scientific method is not, however, something different in kind from ordinary methods Digitized by Microsoft® THE NEW METHOD AND THE NEW SPIRIT 13 of thinking, but is rather thinking raised to a high standard of strictness and completeness. It has no quarrel with the sudden illumLaation of intuition or the slow wisdom of unsystematized experience. The scientific method has never had to retreat from any field in which it has been estabUshed; and it has already produced brilliant results in industry. In carrying the methods of research over into industry it must be recognized that financial and time limitations will exert an important effect upon the procediure followed in investi- gation. An endowed research, or a research carried on as an avocation subsidiary to teaching in institutions of higher learning, may be excused from strict accounting as to the rela^ tion between results and expenditure in a measure that indus- trial research cannot be. Nevertheless, concessions should not be allowed to sap the significant characteristic out of the new movement, for the purport of it consists precisely in that, whereas temporary and superficial methods have long been in vogue, it is now proposed to see what thorough-going investigations will accomphsh. Closely coupled with this poiut is the further one that, in industrial Luvestigation, the working hypothesis must play an important part. While results in pure science may be long withheld from application until ideally complete and ideally confirmed, in industrial research ultimate goals will be reached rather through a series of approximations, at each step of which intermediate results wUl be used to secure a differential advantage in competition, by which the next step in advance is financed. In industrial research, where the factors involved are always numerous, great care will always be required to determine the comparability' of data; and a large allowance will always be necessary for disturbing conditions. In many branches of scientific research it is possible to bring conditions under such control as to largely eliminate disturbing influences. A labora- tory may, indeed, be viewed as an instrumentaUty for reducing Digitized by Microsoft® 14 ADMINISTRATION OF INDUSTRIAL ENTERPRISES the number of variable factors which require to be dealt with at one time. But in industrial research the laboratory is the wealth-producing and distributing system upon which society depends for the satisfaction of its current needs. This equip- ment can only to a very shght degree be turned from its original purpose to serve as a laboratory. When the United States Steel Corporation desired to compare the records of various plants of a similar character, it had first to install a uniform system of cost accountiug. A basic cost was then determined for each plant. By fixing a series of permissible differences in costs, to allow for inequalities in the conditions of diEferent plants, it became at length possible to compare individual records fairly with a standard of attainable cost, made by averaging the results of the six best establishments. Thus an internal competition of records was inaugurated which proved to be more searching in its discovery of the true causes of effi- ciency and inefficiency than the previous comjjetition of prices upon the open market had been. Industrial research requires the reduction of final recommen- dations to simple form, to insure rapid and general utilization. Of. this the history of the apphcation of the shde rule to machine speeding affords an excellent example. CompUcations may be little noticed among experts, but when experts undertake to prescribe standard practice for industry, the methods must be such as can be understood and controlled by the average busi- ness administrator. The New Spirit When a group of new methods show themselves in any depart- ment of practical action, it usually imphes that some funda- mental point of view has been changed and that a basic transformation is taking place which will mean new decisions upon many specific mattera. When we say that a man has become animated by a new spirit or a new point of view, we mean that he has grasped an idea which has far-reaching con- Digitized by Microsoft® THE NEW METHOD AND THE NEW SPIRIT 15 nections, and which enters as a component factor into the formation of a wide range of practical judgments. That such a master-idea imderlies " Scientific Management " was affirmed by Mr. F. W. Taylor in the following remarkable passage. " Scientific management," said he, " is not any efficiency device, not a device of any kind for securing efficiency; nor is it any group of efficiency devices. It is not a new system of figuring costs. It is not a piece-work system; it is not a bonus system; it is not a premium system; it is no scheme for paying men; it is not holding a stop watch on a man and writing things down about him; it is not time study; it is not motion study nor an analysis of the movements of men; it is not the printing and rul- ing and unloading of a ton or two of blanks on a set of men and saying, 'Here's your system; go use it.' It is not divided fore- manship or functional foremanship; it is not any of the devices which the average man calls to mind when scientffic management is spoken of. I am not sneering at cost-keeping systems, at time study, at functional foremanship, nor at any new and improved scheme of paying men, nor at any efficiency devices, if they are really devices that make for efficiency. I believe in them; but what I am emphasizing is that these devices in whole or in part are not scientific management; they are useful adjuncts to scien- tffic management, so are they also useful adjuncts of other systems of management. " In its essence, scientffic management involves a complete mental revolution on the part of the workingmen engaged in any particular estabhshment or industry — a complete mental revolution on the part of these men as to their duties toward their work, toward their feUow men, and toward their employers. And it involves the equally complete mental revolution on the part of those on the management's side — the foreman, the super- intendent, the owner of the business, the board of directors — a complete mental revolution on their part as to their duties toward their feUow workers in the management, toward their workmen, and toward aU of their daily problems. And without Digitized by Microsoft® 16 ADMINISTRATION OF INDUSTRIAL ENTERPRISES this complete mental revolution on both sides scientific manage- ment does not exist." ' The scientific spirit. — There are certain qualities of will, and attitudes of mind, and virtues of disposition which are favorable to the use of the scientific method. Aware of th e many imperfections of the human mind — cramped as it is by habit, dulled by ignorance, and swept by emotion — the . general attitude of the searcher after truth should be watch- f ulness with regard to himself and tolerance for the mistak es^ of others. The perception of truth demands complete eradicar- tion of such preconceptions and prejudices as may prevent due allowance for any pertinent fact; it calls for breadth of interest to welcome suggestions from any source; and it requires con- centrated attention to make progress by fully comprehending each thing in its turn. The ideal is a fluent, sensitive, teachable spirit. The scientific attitude is one of candor, compounded of con- fidence and humility, in facing the truth, and in conforming to reason, whatever that may necessitate. IMiss Edith Wyatt, who was retained by a prominent publisher to investigate the condition of women in certain establishments operated accord- ing to efficiency principles, testified before a Congressional Committee, " I have never seen so great a spirit of candor in any estabUshment in regard to hours, or wages, or any particular as in these establishments where this system has been tried." ^ The progress of an investigation aiming at the truth demands watchfulness not to be bound by class views, or old habits of mental approach. Thoroughness is attained by energy and tenacity in worldng oneself deeply into a subject. Clearness comes from pondering the facts again and again in one's own mind, and from filtering one's opinions through the minds of others. Consistency results from carefully unravelling and '■ Hearings before the H. of R. Sp. Com. on The Taylor and Other Systems of Shop Management, Washington, D. C, 1912, III, p. 1387. ' Ibid., 1912, I, p. 600. Digitized by Microsoft® THE NEW METHOD AND THE NEW SPIRIT 17 explicitly stating everything which is involved as implicit or assumed in the conclusions one holds. When once a position has been taken as the result of an investigation, the scientific temper exerts itself to avoid dogma- tism and undue fixity of opinion. It strives to hold judgment more or less open on all complex matters, so that new truth will be hospitably received, while yet making necessary concessions to the requirements of immediate "action through temporary policies or working hypotheses. Under failure much can be retrieved by a courage which is sufficient to look a situation squarely in the face, and so collect the necessary knowledge for a more successful policy. The search for truth should not be allowed to degenerate into dull mole-work, but should ever be bravely conceived as a joyous mode of self-expression, stimulated by exultation in the triumph of mind over matter. The greedy and anxious person, unduly concerned with thoughts of self- advancement, works with divided aim, the law of the subject and the law of self-interest continually clashing, so that energy is consumed by internal friction. The best mental work involves a certain abandonment to the subject, which opens it freely to view throughout its entire panorama without distortion. It involves, also, a spirit of unselfishness which permits true objectivity, and makes one spiritually akin to aU things, so that one perceives the true positive principle in all things, by which (and not by reason of defects) they exist and perform a function. Professional pride. — When many persons become conscious of their life work as a form of art, or as a social service, and when their devotion to this work is intensified by the knowledge that many others, in the same field of endeavor, are united with them in a sort of invisible brotherhood, it is possible for their personal pride in individual achievements to be so broadened and elevated by consciousness of class that it becomes professional pride. This feeling which is so marked among scientific workers has Digitized by Microsoft® 18 ADMINISTRATION OF INDUSTRIAL ENTERPRISES been, hitherto, but httle developed in industry, for industry has had to contend with infinite diversity of institution, and with methods which were the progeny of tradition and make- shift. As a result of the movement to introduce scientific methods we may hope to see an industrial practice arise which, from its precision and appropriateness, will exert a charm as a true art, and will therefore provide a new center of interest to stand alongside the profit of the result, namely, the elegance of the means. As professional pride appears among business men we may be sure that two conditions are observed; that methods are based on principle, and that ultimate aims are elevated by altruism. The human factor. — It is natural to proceed from physical problems, and from calculations as to raw materials and ma- chinery and power, to soUcitude over sanitation and accident prevention, and the laws of fatigue, and the conditions which evoke loyalty and enthusiasm in a force. As progress is made in the standardization of physical conditions, competitive endeavor must concentrate itself upon the mental and moral forces involved in the productive process. The ultimate ad- ministrative problem of sociaUzed production is the handling of the human stuff. And science is revealing to us that this stuff is dehcate tissue which must be protected not only from accident, disease, overstrain, and premature invaJidism, but from monotony, apathy, and antagonism of spirit. Ethics.— All this involves an ethical problem, because it is a question of shaping conduct in conformity mth the require- ments of a wide range of social reactions. We have a rehgious faith, with a body of commandments all embarrassingly applic- able to daily hfe, but we have been chiefly interested to use it as a passport to a better future world. And we have a produc- tive process which is highly social in its essential nature, but we have endeavored to operate it as a means of individual wealth-getting, under a rather meanly conceived program of every man for himself. But now " We have begun quite gen- Digitized by Microsoft® THE NEW METHOD AND THE NEW SPIRIT 19 erally to conceive slowly a new and different type of business man," says the author of " Inspired Millionaires," " that wiU not have to be apologized for by always saying what a fine personality he is in private life. . . . We have made up our minds that business should not be any longer a specially marked off barbarian country, a fighting-place or cock-pit where a man can- go out and crowd and buUy and strike below the belt and steal for his family, and then come back into the house and put on his coat and coo to the baby and be a beautiful character until ten the next morning." ^ BIBLIOGRAPHY General references on business administration. Going, Chas. B.: Principles of Industrial Engineering,- N. Y., 1911. Kimball, D. S.: Principles of Industrial Organization, N. Y., 1913. Ennis, W. D.: Works Management, N. Y., 1911. Duncan, J. C: Principles of Industrial Management, N. Y., 1911. Carpenter, C. U.: Profit Making in Shop and Factory Management, N. Y., 1908. Diemer, Hugo: Factory Organization and Administration, N. Y., 1910. The Library of Factory Management, 6 vols., A. W. Shaw Co., Chicago, 1915. Especially vahmhle are the files of The Engineering Magazine, N. Y. (mo.). System, Chicago (mo.), American Machinist, N. Y. (weekly), Factory, Chicago (mo.). Industrial Engineering, N. Y. (mo.), Iron Age, N. Y. (weekly). The Engineering News, N. Y. (weekly). References on the Scientific Method in Industry. Pearson, Karl: The Grammar of Science, London, 1900. Particularly Ch. I. Strong, T. B. (Editor) : Lectures on the Method of Science, — Lecture I, The Scientific Method as a Mental Operation, by Thomas Case, Oxford, 1906. ' G. Stanley Lee, Inspired Millionaires, Northampton, Mass., p. 295. Digitized by Microsoft® 20 ADMINISTRATION OF INDUSTRIAL ENTERPRISES Gore, Geo. : The Art of Scientific Discovery, Part V, London, 1878. Darwin, Chas. F.: The Life and Letters of Charles Darwin, Including an Autobiographical Chapter. Edited by his Son, N. Y., 1887. Carpenter, R. C, and Diederichs, H. : Experimental Engineering and Man- ual for Testing, N. Y., 1911. Ch. I, Introductory. Ch. II, Apparatus for Reduction of Experimental Data and for Accurate Measurement. Gilbreth, F. P.: Motion Study, N. Y., 1911. Gilbreth, F. P.: Bricklaying System, N. Y., 1909. Brinton, W. C: Graphic Methods for Presenting Facts, N. Y., 1914. Ennis, W. D.: Works Management, N. Y., 1911. Ch. Ill, Statistical Records. Gibson, Geo. A.: An Elementary Treatise on Graphs, London, 1910. Jones, Edw. D.: The Business Administrator: His Models in War, State- craft, and Science, N. Y., 1914. Chs. V-IX incl., on The Ad- ministrator as a Scientist. References on the New Spirit in Industry. Lee, Gerald S. : Inspired Milhonaires, Northampton, Mass., 1912. Redfield, W. C: The New Industrial Day, N. Y., 1912. Lewis, E. St. Elmo: Getting the Most Out of Business, N. Y., 1915. Cabot, Dr. Rich. C: What Men Live By, Boston, 1914. Part I, Work, Chs. I to IX incl. Jones, Edw. D.: The Business Administrator: His Models in War, State- craft, and Science, N. Y., 1914. Ch. I, The Rise of a New Profes- sion. Chs. X to XII incl., on The Administrator as a Diplomat. Digitized by Microsoft® CHAPTER II LAUNCHING AN INDUSTRIAL ENTERPRISE The idea. — The first step in the inauguration of an enter- prise is the development of the idea that there is a specific business opportunity. This idea may arise from the knowledge of an unused supply of raw materials or an undeveloped inven- tion, from the observation of the inferiority of some article or service now holding the field, from a knowledge that certain firms are making large profits or are turning away business, or from an impression that a favorable opportunity has at length arrived for utilizing the knowledge one has gaiaed of a particu- lar branch of business. Inasmuch as a sanguine disposition, coupled with youth and good health, makes new ventures seem attractive; and since there is a general tendency for minds which are " made up " to collect only confirmative testimony and neglect opposing evi- dence, special precautions should be taken in forming the first decisions. So prone are loving relatives to believe that one is capable of anything, and so politic are friends in leaving disil- lusionment to the course of events, that the business pioneer must create subjective restraints to prevent becoming over- warmed by his own initiative, or being driven by false pride arising from the consciousness of being publicly committed. One should even go further than this, and search actively for negative influences and unfavorable signs. The records of business failures show that the presumption is strongly against the average new enterprise. The power of independent leader- ship is rare; nevertheless the industrial community is con- 21 Digitized by Microsoft® 22 ADMINISTRATION OF INDUSTRIAL ENTERPRISES stantly harassed by the hair-trigger initiative of a vast number of ignorant and inadequately-financed individuals. Necessary persons. — The success of most enterprises is dependent upon the quality of that smaU group of leading spirits which is free to assert whatever administrative talent it possesses by reason of the possession of full executive authority, and which is strongly stimulated to exertion by the pledging of estate and reputation. As this group is at first easily formed, but is difficult to alter later on, the origiual choice of entrepreneurs should be carefully considered. Inasmuch as talents should conform to functions, there should be included in the original group a person able to deal adequately with each important phase of the business. This would ordinarily mean a financial man to take a leading part in raising capital and in keeping the finances in order, a technical expert to plan the processes of manufacture and recommend proper equipment, a selling expert acquainted with the market to be entered, and a general executive able to formulate comprehensive policies and to hold the various lines of specialized effort in proper proportion. Under certain circumstances it may be desirable to add to the group of organizers a corporation lawyer, a representative of local banlcing interests, and one or more persons connected with firms which are likely to be important patrons. As to how far proprietorship interest should be extended down the line of officers toward subordinate executives, no general rule can be given. On the one hand, there is the danger of gathering in some officious and intermeddling subordinates; on the other hand, there is no energizer like final responsibility. Mr. Carnegie once said, " I don't beheve any corporation can manage a business Uke a partnership. When we were partners we could run all 'round corporations.' You take twenty-five young men, give them an interest in the business, and each one will be looldng around for the leaks." ' ■ Iron Age, Jan. 18, 1912, p. 197. Such an interest could, of course, be provided for promising young men in a business quite as well under the Digitized by Microsoft® LAUNCHING AN INDUSTRIAL ENTERPRISE 23 The market and its fluctuations. — In the analysis of the market a variety of questions suggest themselves. What is the present demand for the article? If there is no active demand, as in the case of a new thing, what is the need or potential demand, judged by the relation the proposed product will sus- tain to present consumers' habits and to articles which are abeady in use? Is the article a necessity or a luxury? WiU it be sold chiefly on price or on quality? Will the market be steady or fluctuating? The fluctuation of demand which must usually be encountered in supplying a luxury suggests that the pro- duction of some staple article, or article in special demand in hard tunes, be coupled with it. The more distant future of a projected enterprise raises the question of the manner in which the market will be effected by general movements such as the increase of population, a continued rise in the cost of Uving, the spread of education, the increase of restrictive legislation, any improvement in the means of transportation such as in local trucking or in suburban electric traction, the continued settling of the West, the exhaustion of natural resources such as forest resources in certain localities, etc., etc. Price minus cost equals profit. — Examining somewhat more in detail the economic sigEiificance of a market, it may be asked, What are the current prices? If the prices seem to be very high caution should be redoubled. There is usually some catch. This is a country of active and intelligent people, and there is an abundance of capital and administrative talent on the lookout for opportunities, so that anything so obvious as a set of prices conspicuously out of line with normal profits caimot long endure. Investigation of such cases should be directed to ascertain whether demand is not seasonal, or answer- able to some non-periodic fluctuation, or whether there is not some unnoticed accompanying free service rendered, or whether corporate form of organization as by a partnership. Mr. Carnegie did, in fact, provide such an incentive in the Carnegie Steel Company, when that business was a corporation. See Chapter XIII, pp. 259-260. Digitized by Microsoft® 24 ADMINISTRATION OF INDUSTRIAL ENTERPRISES there does not exist a trade group of products one element of which alone is permitted by custom to carry the profit which must suffice for the entire group. What is the depth of a mar- ket, that is to say, the elasticity of demand under pressure of an increase of supply? What increased productive capacity is in preparation, and due to become effective within a given time? From prices costs must be subtracted before profits are arrived at. The costs of a young and small establishment are not those of a large and favorably known business. It is an easy mistake for the founders of a new business to carry away with them the ratios of the estabHshed businesses from which they resign, and to apply these ratios in the estimates of a small concern which for the first few years must carry the extra costs of estabUshing a going business. Policies of dominant interests. — In these days of powerful corporations and of unrevealed aUiances resting upon harmony of interest, interlocking dii'ectorates, or joint banking control, it is wise for a new business to consider the extent and temper of the opposition it may have to encounter. Some of our great interests have admirably preserved the peace with their smaller rivals, but others have waged a warfare of extermination. Intol- erance may be shown through the monopoly of basic mate- rials, through the trade ostracism of exclusive buying and seUing contracts, and through " predatory competition." Predatory competition is a plan which can be followed by a corporation which covers an extensive territory in dealing with a competiton whose operations are confined to few localities. It consists in reducing prices at competitive points to a figure which destroys profits, and in elevating prices at non-competitive points suffi- ciently to recoup the loss. American law has not yet devised a protection from this savage policy. Scale of operations. — The proper scale for initial operations is a function varying with the degree of certainty of ultimate success. Where experienced persons, backed with ample capital, enter upon the production of a staple article, the first Digitized by Microsoft® LAUNCHING AN INDUSTRIAL ENTERPRISE 25 object may reasonably be the purely capitalistic one of attaining the economies of production on a large scale. But where the establishment of a new enterprise involves the trying out of a number of experiments as to processes or selling plan, the initial scale of operations should be as small as wiU yield the desired experimental knowledge. Such a business should aim to be at jBrst as purely as possible an enterprise selling personal service, untU the experiments show that it is safe to use capital in it freely. A strong element of uncertainty always means that investments of a permanent and specialized character, such as those for buildings, machinery, and manufactured stock, should be kept at the minimum; and that long-term contracts for mate- rials, for the services of high-priced experts, or for the use of patent rights, should be avoided. It is sometimes possible, in making a beginning in manufacturing, to contract for such parts or for such semi-manufactured materials as require ex- pensive plant, or as involve in their production only ordinary converting profits. Partnerships. — The partnership relation has many disad- vantages for a business which is to use much fixed capital, or in which individual transactions may involve the creation of large habihties. The partnership does not create an artificial person, but merely estabhshes a limited set of relations between natural persons. Each partner is an agent able to bind the others with respect to all regular matters, such as the buying and selling of stock in trade, the employing of servants and agents, the borrowing of money, or the issuing of negotiable paper, and the compromising or releasing of claims. While the acts of a partnership are in the name of the firm, the responsibility created is individual, and usually unlimited, no agreements between the partners to limit this liability having vahdity as against the claims of outside uninformed parties. When, therefore, one member of a partnership is negUgent, or commits a tort, or is guilty of a fraud, within the scope of his authority, his partners are equally hable with him, financially. In the con- Digitized by Microsoft® 26 ADMINISTRATION OF INDUSTRIAL ENTERPRISES duct of' the ordinary affairs of a partnership a majority of persons governs: while, in case of any important departure in poUcy, any dissenting member can oppose an effectual bar. No partner can compete with his firm, nor can he, without express permission, sell to it, or buy from it, or otherwise deal with it as an outsider, without rendering himself hable to the others for an accounting of profits. Interest in a partnership is not transferable without unanimous consent. Unless there is an agreement to the contrary, the death or withdrawal of a member dissolves the partnership. A partner may even be held responsible for the acts of a firm after he has withdrawn from it if any third parties, not having received notice of his withdrawal, deal with the firm relying upon his continued liability. The corporatioii. — An industrial corporation is a collection of natural persons empowered by law to perform a designated range of industrial acts, and to enjoy the facihty of operating as a unit or artificial person. The members of a corporation can contract, hold property, and sue and be sued in the cor- porate name. They may possess a common seal. They may frame by-laws for their own government. They have the power of continuous succession, during the prescribed period of cor- porate existence. In contrast with the partnership, a corpora- tion has the advantages that it cannot be dissolved by the act of an individual member, that its members are not agents unless specially appointed, and that the liability of the shareholders is limited, as a rule, to the par value of the stock held by them; managerial control lies with a majority of the shares. The stocks and bonds of a corporation possess many advantages as investments for persons who do not desire to be active in man- agement. For this reason a corporation has an advantage over a partnership in raising capital and in borrowing money. The corporation charter. — The drafting of the charter of a corporation is an important matter, inasmuch as only such powers are possessed by a business as are expressly conferred, Digitized by Microsoft® LAUNCHING AN INDUSTRIAL ENTERPRISE 27 or as are implied in the realization of its avowed lawful objects or by reason of its existence as a corporation. An industrial corporation has, usually, the implied power to borrow money, to appoint agents, to issue negotiable paper and receive the same in payment of debts, to take and hold property in trust and execute the trust when conformable to expressed objects, to purchase and dispose of its own stock, and to purchase and hold as much land as may be necessary to accompUsh the pur- poses of its creation. It has not the power to lend money, except surplus funds, unless banking powers have been con- ferred. It has not the power to become surety for another, unless it be given the franchise of a siurety company. Nor has it the implied power to take the stock of another corporation, except for debt or in payment for goods, and then only with the intention of seUing it and not of holding it. A manufacturing corporation cannot engage in buying and selHng goods, except as this may be necessary or incidental to its declared object. A corporation empowered to manufacture one kind of goods cannot manufacture other kinds. A trading corporation em- powered to buy, sell, and hold certain kinds of goods cannot trade in other goods. Any action of a corporation beyond the scope of its authority is ultra vires and void. An injunc- tion against such contemplated action may be secured by a dissenting shareholder. In drafting a charter two rules of legal terminology should be held in mind, (a) The express mention of a thing is tanta- mount to an exclusion of other related things, (b) When a general term follows a special term it is held to apply only to the kind or class of thing which has been specially mentioned. Thus, a corporation authorized to carry on " a business of mechanical engineers and general contractors " was held only to have the power to do such acts of " general contractors " as it was usual for " mechanical engineers " to perform. Local capital. — New concerns of small size, known only near home, will usually be dependent upon local capital. The Digitized by Microsoft® 28 ADMINISTRATION OF INDUSTRIAL ENTERPRISES local investor has a natural advantage in keeping track of his interest. This makes the local man of means the logical patron of new small enterprises. It is, as a general rule, easiest to raise money for a new establishment in those localities which have already before them the example of successful establish- ments in the same line. As a rule, also, an individual will more easily make a new investment in a line of industry in which he has previously had success, than in an untried line. Trustees. — When investors do not constitute a local group, able easily to keep in touch with the progress of launching, it is advisable that subscriptions to stock should be deposited with a financially responsible trustee, such as a bank or trust company, which trustee is bound by the terms of a carefully drawn agree- ment. Such an agreement should provide that, if sufficient funds are not subscribed within a given period to make the undertaking possible, the money of subscribers shall be re- turned to them, less an agreed percentage allowed to cover the expenses of promotion. Upon receipt of sufficient funds, the trustee should be empowered to apply them for exphcitly designated purposes, upon the presentation of vouchers drawn by the proper officers, and under a system of inspection calcu- lated to insure the honest use of the funds for the intended purposes. The promoter. — If the leading individuals in an enterprise have not the time or the talents for the work of promotion, it may be desirable to employ a professional promoter. Promo- tion in recent years, in this country, has become a business in itself. A class of men has sprung up to serve as middlemen or intermediaries between men with money to invest, and men with undeveloped property or unutilized abihty which is for sale. The less influential of these middlemen employ themselves chiefly with the functions of stock and bond salesmen, organiz- ing campaigns to dispose of securities. The standard promoter, however, is an expert in assembling a proposition. This he does by securing options upon the necessary property, and by Digitized by Microsoft® LAUNCHING AN INDUSTRIAL ENTERPRISE 29 working out the plans of organization and operation far enough to reveal the significance of the project to the capitalists who are to be approached. Syndicate managers. — The highest class of promoters is composed of the representatives of syndicates of banks and groups of large private investors. These persons, after making rigid investigation, recommend the financing of the propositions they approve to the moneyed interests which depend upon their judgment. The financing which syndicate managers provide usually takes the form of the purchase of a block of securities of the newly organized corporation at special prices, care being taken to secure sufficient representation upon the board of directors. When the financed corporation has estab- lished a record of earnings so that the market may be trusted to take care of itself, or when the period within which it was under- taken to control the market has expired, the syndicate members may dispose of their securities, making such profit as they can above the purchase price. Engineering promoters. — There are in existence a number of promoting corporations which have, in addition to the usual financial machinery, a corps of engineers able to take charge of construction, and a corps of administrators able to supervise going businesses. These promoting engineers are able to pass upon propositions the analysis of which demands engineering skiU. Upon accepting a project they construct the works and receive their pay in securities. They then either sever con- nections by selling the securities, or continue in the control of the management as the representatives of investors aflSliated with them. Engineering promotion of this character is now important in the building and operation of irrigation works, street railways, water-works, gas-works, and plants furnishing electric light and power. Application of funds. — The funds in the hands of a new business must be allotted in 'such a way as to cover various classes of requirements. A portion will go into fixed and rela- Digitized by Microsoft® 30 ADMINISTRATION OF INDUSTRIAL ENTERPRISES tively pemianent forms, such as buildings, machinery, and office equipments; another part must be reserved for raw mate- rials, finished stock, pay roU, credit advances to customers, and other rapidly changing forms of investment. This classi- fication brings into view the contrast between fixed and cir- culating capital, with regard to which the following points should be noted. 1. Circulating capital is that which encounters frequent liquidation, or change in the character of the property which represents the values. The opportunity of changing the form of investment frequently occurs. Fixed capital requires . considerable periods of time for the wearing out of the property and the gradual release of the values for reinvestment. As the values disappear from the original fixed forms they find existence, in transmuted form, in the increase of the values of the materials worked upon. Liberal fixation of capital is appro- priate only for enterprises of a permanent nature. 2. Fixed capital may be of various degrees of specialization. SpeciaHzation may be of form (only useful for certain purposes) or of place (only available for enterprises which can accept the location). When a factory is built in a thriving city, and is of standard loft design and arrangement, so that it can be turned to a variety of manufacturing uses, a considerable portion of the values locked up may be recovered by sale, if the original project fails. If, however, a plant is located in the country, and is strictly speciahzed for one purpose, if that use fails, the loss is heavy. The degree to M-hich capital should be speciahzed is a function of confidence in the soundness of the nature of the project and of its location. 3. The recovery of the values in fixed capital is a process requiring the continuous supplying of circulating capital. Materials, labor, and repairs must be provided to support the productive process; and without them the values locked up in fixed forms will be wasted. Mr. James Hartness has said, " A plant and business is useless when not in motion, and when Digitized by Microsoft® LAUNCHING AN INDUSTRIAL ENTERPRISE 31 under headway requires money. Money must be poured into it steadily to an amount which, every year, generally equals the total capital in the business. Much time and energy have been consumed in careful consideration of the cost of the plant, but not enough thought has been given to the money tied up in the business in other ways." ^ In short, as Poor Richard said, " It is easier to build two chimneys than maintain one in fuel." 4. To a limited extent there is a reciprocal relation between the amounts of fixed and of circulating capital required to carry on a productive process. A factory building of concrete has a lower insurance and maintenance charge than a frame building. With sufficient mass of traffic, a weU-built railroad will attain lower ton-mile costs than a cheaply built one. The normal balance between fixed and circulating capital is reached when the saving in operating expenses to be effected by the next increment of fixed capital is equal to the fixed charge which that increment will create. 5. There is danger in the launching finance of underestimat- ing a certain class of necessary expenditures which result in the intangible forms of capital bearing the names " good will " and " going value." Among such expenditures are the costs of organization, of introducing a new product to the trade, of maintaining a state of productive efficiency during the initial period of waiting, and of learning many kinds of wisdom by experience. Voting control. — In the early financing of a business the question of control is constantly involved. In the day of small things a few hundred dollars may decide where control shall rest and, if growth is later made from undivided earnings, and if successive issues of stock are made proportionate to holdings, such early investments may decide in whose hands large ulti- mate values shall rest. By the use of preferred stock to repre- sent money and property contributed, and common stock to > Human Factors in Works Management, N. Y., 1912, pp. 133-134, Digitized by Microsoft® 32 ADMINISTRATION OF INDUSTRIAL ENTERPRISES represent services, patent rights, etc., it is possible to adjust voting control in any desired manner among a group of persons. Time of flotation. — The business of the country passes through a succession of trade cycles of uncertain length, but averaging, perhaps, ten years. The order of changes in a cycle may be indicated approximately as follows: 1. Money is plentiful and interest rates are low. 2. Gilt-edged securities rise. 3. Speculative securities rise. 4. Commodities of short life rise in price. Business pros- perity. 5. Commodities of long life, such as real estate, the value of which is partly a forcast of future earning power, rise. 6. Money becomes scarce and interest rates are high. 7. Gilt-edged securities fall. 8. Speculative securities fall. Crisis followed by depression. 9. Commodities of short life fall. 10. Commodities of long life fall. 1. Money is again plentiful and interest rates are low. It has been suggested, on the basis of the trade cycles, that the financing of new enterprises, or of extensions of old ones, may be most advantageously carried out during periods 3 and 4, while securities are stiU being absorbed freely at high prices, and before a panic breaks. The money so raised can then be applied in providing equipment during the ensuing depression, while the prices of materials and labor are low. The aim of a launching plan thus timed would be to prepare for business slowly and thoroughly, to try out processes, select the cream of the labor market, establish discipline, and settle all factors into a smooth working order, so as to be ready to take advantage of the first recovery in demand. Mr. Matheson has said : " If [an establishment] is trans- ferred at a time of high prices, the real value depends mainly on the readiness of the factory. If, because of high prices, capi- talists begin to build new works, it will often be found that by Digitized by Microsoft® LAUNCHING AN INDUSTRIAL ENTERPRISE 33 the time they are ready prices have fallen, probably because new factories have increased the productive power, or even because the mere prospect of new factories induces competitors to lower their demands. It is in a time of deep depression that prudent purchasers will often find the best opportunity for buying or building a factory." * The method of financing should be adjusted to the stage of the trade cycle. In the beginning of an optimistic expansion bonds may be offered to good advantage. At a later time, when speculative enthusiasm is strong, stocks will yield better returns. Duriag depressions short-term notes may be issued, if the credit of the issuing corporation is high. The financing plan may be adjusted to the conditions of the money market and the security market by varying the proportion, rate of yield, term, denomination, and guaranteed rights of the securities issued. Processes. — A preUminary study of the steps of manufac- ture should be made with the utmost thoroughness. If new processes are to be introduced, it must be determined whether the apparatus deserves patenting, or whether any feature is to be preserved as a trade secret. In this cormection a word of warning may be dropped. Successful processes or apparatus are usually a matter of slow growth. A new mechanical con- trivance, which is to be offered to the pubhc as a consumer's good, is usually in a crude state when patented; it is almost never brought to perfection until the designer's original idea has been thoroughly revised in the fight of shop experience in production and consumer's experience in utifization. Further- more, an American patent, covering an idea of real value, has been defined by those who have had experience as a " Keense to litigate." Buildings and equipment. — It is only on the basis of the exact determination of the nature and sequence of manufactur- ing processes that the character of the buildings, machinery, 1 The Depreciation of Factories, 3d Ed., London, 1903, pp. 114^115. Digitized by Microsoft® 34 ADMINISTRATION OF INDUSTRIAL ENTERPRISES yard spaces, track connections, and general lay-out of an establishment can be specified and contracted for. There are two difficulties with reference to equipment which lie in wait for a new concern. The first is that articles must be bought by persons who are more or less inexperienced, and of whose igno- rance certain supply dealers are willing to take advantage. The second is that the new equipment must be tried out by a force not yet seasoned to its duties nor accustomed to working together, with the probable result of low speeds, heavy wear and tear, considerable spoiled work, and numerous accidents. Second-hand plant. — The advice of men of experience is against the purchase of second-hand plant or machinery. The record of a failed concern casts an unpleasant shadow upon a new tenant. An establishment, of old design, built with a dif- ferent original purpose in mind, imposes many limitations of arrangement, Hghting, heating, ventilation, fire hazard, and power supply. The exact state of old equipment is hard to judge, not only with reference to physical condition, but as to how obsolete it is in comparison with new models. The buyer of new machinery can rely upon coming fairly abreast of the evolution of machine design. With such purchases comes the maker's original guarantee. By patronizing firms of estabhshed probity and technical efficiency, much help wiU be received in the way of expert advice as to the best models to select for the purpose in hand, and in the form of preliminary instruction in the methods of operation. There are exceptions to the rule that second-hand equipment is not worth whUe. In businesses like ore concentration and reduction, where sudden changes in the nature of the ore body may require the rebuilding of a mill, or in the shipping industry, where the opening of canals or changes in tariffs or mercantile ' marine legislation require changes in the nature of the vessels on certain routes, it is possible to buy second-hand equipment which is in good condition and free from the stigma of failure. Again, in businesses lilce most of the public service industries, Digitized by Microsoft® LAUNCHING AN INDUSTRIAL ENTERPRISE 35 where duplicate equipment is required to insure continuous operation in case of breakdowns or repairs, second-hand appa- ratus will often answer adequately the purpose of stand-by- equipment to be used as a reserve for emergencies. Managerial staff. — It goes without saying that, as the gen- eral scheme of functions of a mechanical, mercantile, and financial nature is conceived, steps should be taken to clearly define the various classes of executive duties, and to group them in such a way that there wiQ be arranged for each person a consistent range of functions, and that these persons wUl be bound together in a well-balanced administrative hierarchy. It is an advan- tage to record the administrative determinations on a chart of authority, as they are made to insure that every necessary duty has been assigned, but that no one is overloaded. Unless a beginning is made with clear-cut decisions and adequate records, a confused temporizing habit of muddhng along will be established, which wiU be difficult to break, not only because of the subtlety of the repressed attitudes but because of the sensibilities which must be regarded in carrying through any- thing which has the appearance of a " shake-up." The labor force. — A new business, having no men of its own training, must face the problem of gathering rapidly a com- plement of skilled workmen and capable foremen. Men who come together from various shops, bringing with them different ideas as to speed and method of work, as to the etiquette of foremardzing, and as to shop rules generally, have to be brought into harmony with strange policies and become adjusted to an inexperienced staff of superior officers. A new management tends to fall heir to the riff-raff of the labor market, which is ever moving on to the new employer for reasons best known to the old. Among the* undesirable types, aside from the dis- sipated and obviously unfit, are those restless persons who never remain long in one place, those enterprising young men who represent themselves as skilled while they are " stealing a trade," those who are always financially embarrassed and ask Digitized by Microsoft® 36 ADMINISTRATION OF INDUSTRIAL ENTERPRISES for advances and assign their wages, those who try to obtain employment through influence, those who justify themselves by attacking the character and methods of previous employers, and those men of capacity who have turned sour and become trouble makers from enmity for all placed in authority. The employment officer should be a first-class man, for out of the rank and file will come the future foremen, and department heads, and junior partners. BIBLIOGRAPHY Meade, E. S.: Corporation Finance, N. Y., 1910. Chs. I, II, IV, V, VIII to XIII inol., XIX to XXV incl. Haney, L. H.: Business Organization and Combination, N. Y., 1913. Ch. XVII, Internal Organization of a Going Corporation. Ch. XVIII, Promotion as a Step in Organization. Ch. XIX, Underwriting as a Step in Organization. Moore, E. W.: Starting a Manufacturing Business, System, Sept., 1906, pp. 265-268. West, Thoa.: Inaugurating a Business, Illustrated by the Gray Iron Foundry Business, Iron Age, May 23, 1907, p. 1564. McConnell, I. W.: Things Promoters Ignore, Stone and Webster Journal, Jan. 1916, pp. 31-36. Digitized by Microsoft® CHAPTER III LOCATION OF AN ESTABLISHMENT Location determines, to some extent, the efi&ciency of every economic factor. Much progress has, imdoubtedly, been made in a generation in evening up local inequalities, and so in reducing the significance of the factor of location, by the stand- ardization of machinery and factory buildings, the leveling of wage rates and interest rates, the wide distribution of technical information by the trade press, the more imiform operation of the agencies of education, and by the standardization of habits of consumption over wide areas. But locahty still exerts a decisive influence on the accessibility of raw materials, con- venience to markets, and the degree of rivalry and emulation under which men work. The smaller an estabUshment the more significant is the question of location to it. A small estabhshment has chiefly a local market, and appeals only to near-by investors. It is compelled also to employ outside service industries to perform a wide range of functions for it, and so flourishes or suffers according to the completeness or incompleteness of the local equipment. A large concern, on the other hand, can be more self-contained, because it will support its own service departments. Such a concern, being more widely known, can look farther afield for capital and managerial talent. Its mass of capital and its extensive per- soimel enable it to exert a transforming influence upon its neighborhood. Whatever the significance of location may be, in any individual case, that influence is made weU-nigh irrevo- cable, when once determined, by the difiiculty of moving. 37 Digitized by Microsoft® 38 ADMINISTRATION OF INDUSTRIAL ENTERPRISES Wellington's rule. — Mr. A. M. Wellington, the author of "The Economic Theory of the Location of Railways "' has laid down the rule that the best location for any economic unit is the one which yields the largest difference between capitaUzed gross income and total capitahzed cost. While this seems to be nothing more than a financier's way of saying that we should locate where the most valuable results can be achieved with the least outlay, Wellington elucidates the special significance of the rule by calling attention to the fact that the costs which must be kept in mind are not simply the individual or internal costs of an establishment, but the entire chain of costs involved in bridging the gap between the supphes of raw materials and the consumers of the finished products. Thus, a plant should be placed, not where the making costs are least, but where the sum of the costs for raw material, transportation of the same to the plant, manufacture, selling, and the transportation of finished product to market will total the smallest possible sum, considering the market to be reached. Nearness to materials. — There are a variety of factors entering into material cost. Besides the obvious matters of original purchase price, buying expense, and transportation rate, there are such items as the expense of the reserve stock which must be carried at the plant to allow for irregularity of supply, and the extra converting expense caused by lack in range or dependabihty of quality. The effect of reUability of supply and of a wide assortment from which to select is fre- quently so great that an estabhshment will prosper better in a great market than in a region of original supply. The ideal location with reference to materials is the one where all factors combine to make the lowest possible raw-material cost per unit of completed product. The test is not the cost of a unit of materials laid down, but the material cost of a unit of com- pleted product. In the latter figure the relative importance of the different materials involved in the product is brought ' N. Y., 1887. Digitized by Microsoft® LOCATION OF AN ESTABLISHMENT 39 to a final balance. The location of perishable or bulky materials wiU, of course, exercise a special effect upon material costs. Beyond the effect of location upon the supply of such materials as are specifically required by an industry as its raw materials, there is the broader effect resulting from the presence or absence in the neighborhood of those natural resources which are requi- site for the well-being of a body of people. The cost of a raw material depends not only upon the crude resource which is to be directly exploited, but upon the local cost of labor, capital, and management. The cost of these factors will in turn depend upon whether there is an abundance or scarcity of the things required to maintain a satisfactory standard of life. It is said that there are many rich ore deposits known in the West which are unexploitable because of inaccessibiUty. This inaccessibil- ity really means that those ores are in a region bare of the resources required to support life. The difiiculty hes not so much in getting the ore out as in getting supplies in to the work- ers. If a raw material hes in a region where timber is scarce, so that wood must be brought a long distance for houses; if there is no coal near by, so that power is expensive; if there is lack of water, so that agriculture is impossible, and the food of men and horses must be brought in by train and pack trail; if, in short, the material which is the object of calculation is unassociated with the other materials upon which industry depends', it wiU need to possess extraordinary quality and quan- tity to develop any value, for the high costs wUl fix the margin of exploitabihty at a high point. The value of any resource or raw material in a given location is partly the reflected image of the general fitness of that region for life, industrial effort, and civilization generally. The great resources which make most regions prosperous are a fertile soil and an adequate climate to provide cheap food, good steam coal or water power to give low-priced power, and adequate stnictural materials to make the cost of housing moderate. Digitized by Microsoft® 40 ADMINISTRATION OF INDUSTRIAL ENTERPRISES Nearness to sources of power. — In so far as power is trans- fonned coal, oil, or gas, the advantage of location with reference to these materials wiU imply advantage with reference to power. Location close to water power wiQ be attractive for continuous- process industries, like flour millin g or paper manufacture, and for industries, like pulp mills, which must locate in remote dis- tricts where transportation rates on coal are high. The advan- tage of locating where pubHc service industries furnish electric power consists not so much in the price per horse-power year, as in the fact that capital does not need to be invested in power plant, and that with a fluctuating load the expense for power rises and falls more closely in conformity with the amount used than is the case when a private power plant is maintained. Miscellaneous natural advantages. — A healthful and invig- orating climate, free from such violent extremes of temperature as make out-of-door operations diflacult, and without that exces- sive fluctuation from humid to dry which disturbs the physical condition of materials in process of manufacture, is of advantage to industry. The violent fluctuations from which the central portion of the North American continent suffers make neces- sary special precautions in the way of buUding construction, and of systems of heating and ventilation, to maintain the health and energy of operatives. Inasmuch as the prevailing winds in the northeastern portion of the United States are from the west, it is wise for factories producing articles prized for their immaculate character to locate on the west or windward side of cities where the air is free from dust and smoke. Labor supply. — The supply of unskilled labor in a district is a tolerably simple function of the mass of total population. Difficulty in recruiting a labor force centres upon the higher ranks of craftsmen and the lower ranlcs of clerical and adminis- trative staff. Our chief dependence for skilled laborers is at present immigration. The cities of the eastern seaboard, and the cities of the North Central states which are located on the Great Lakes, have an advantage in first choice from the incoming Digitized by Microsoft® LOCATION OF AN ESTABLISHMENT 41 human stream. This advantage has served, until recently, to congest manufacturing unduly in the northeastern section of the coimtry. As between cities of similar geographical position and attractiveness as labor markets, the distribution of foreign- bom artisans depends upon the accident of the formation of a colony of persons of the same race, language, and nationality, and possessing a size sufficient to satisfy social instincts. The rehance of the future for skilled labor must be increasingly upon specially adapted educational institutions. American employers have not yet generally perceived the profit of local trade schools, as have the Germans. There seems to be a fear that a community which supports a special type of school wiU find itself paying for the education of young men of other neighborhoods. But a trade school is a device for skimming the cream of the youthful talent of the surrounding region and putting it at the disposal of the employers nearest at hand. The local employer enjoys the opportunity of making first choice from the exceptionally capable youths who have had the enter- prise to leave home in search of an education. As between city and village, in the matter of labor supply, it may be said that the large centre presents the advantage of the more highly skiUed labor, and of the larger supply of float- ing labor available for temporary requirements by simply hanging out the card " Help Wanted." The small place offers a more steady and devoted force, and one the members of which are better acquainted with each other, and so more disposed to team work. Village labor is of good general intelligence, and not easily influenced by agitators who plan industrial disputes. And this supply the village offers at lower wages, corresponding to the lower costs of hving. Capital. — There is an economic geography of the supply of loanable capital, and of the activity of financial -institutions, as there is of raw material or labor supply. Every one knows that, in a general way, a loan or investment transaction which in the East would pass at 5 per cent, would require 6 per cent in Digitized by Microsoft® 42 ADMINISTRATION OF INDUSTRIAL ENTERPRISES the Middle West, and 7 per cent in the Rocky Mountain and Pacific states. More important to an individual business con- cern than the general level of rates throughout the country is the fact that in small money centres the banks and investors are prepared for small transactions only, dealing in money at retail, while in large centres money is dealt in at wholesale. Retail prices are higher than wholesale. It is desirable, therefore, that an industrial institution should carry its financing to the largest financial market upon which it can establish a standing. In behalf of the bankers in small places it may be said that they have a greater sense of individual responsibility to take care of local enterprises than have the banks of the larger centres. Association with other industries. — Competition between business establishments is a point so much emphasized, and this competition is so usually interpreted as if it were a state of pure antagonism, that the truth is often overlooked that industries usually thrive best in groups. 1. A number of similar concerns in a locality can usually secure materials to better advantage than any one can do single. An illustration is the Chicago Union Stock Yards, supported by a number of packers, and able to absorb train loads of cattle without breaking the price. This steadiness of price or " depth," which one firm alone could not insure, is what gives confidence to cattle men and promotes hberal shipments. The concentration of a number of similar establishments serves to increase the variety of materials which can be offered by sup- pliers. This may be illustrated by a textile weaving centre such as Philadelphia. Because the spinning mUls located in all parts of the East and South have seUing agents there, manu- facturers who desire to make mixed fabrics or specialty cloths find that neighborhood a good one to locate in, because they can there secure yarn of any material, size, color, and tightness of twist, at a moment's notice. 2. Concentration of establishments, even of a like kind and du-ect competitors, improves the labor market, both for Digitized by Microsoft® LOCATION OF AN ESTABLISHMENT 43 employer and employee, in many ways. The city of Grand Rapids, Mich., has become a veritable training school for cabinet makers and furniture designers and salesmen. Even the public library of Grand Rapids has speciahzed, for it contains one of the best collections of books on furniture in existence. East Liverpool, Ohio, has become an objective point for English potters. The potters who are on this side keep up the supply by writing back to their friends in " the five towns," telling them where to migrate. A locaUty preeminent in any line draws to itself such skUled workmen as lose their positions elsewhere and are averse to changing crafts, and such specialists as feel safer in a locaUty where there is more than one possible employer. 3. In specialized centres the banks become famihar with the requirements of the dominant industry. They learn the stand- ing of the firms in the trade, and can more readily and safely discount the special line of commercial paper. And, if their resources become overtaxed, the recognition of their expert- ness by banks elsewhere makes it easy for them to rediscount. 4. A group of plants can jointly produce such a demand as will cause a variety of repair and supply industries to estabhsh themselves nearby, such as foundries, machine shops, pattern makers, miU supply houses, laboratories, mill architects, and designers. 5. Carrying the division of labor a step further, a specialized industrial centre adds to the service industries various part makers and assemblers who, by concentrating upon special kinds of work, reach a high perfection. The presence of these concerns makes it possible for a new enterprise to confine it- self at wni to a restricted field, corresponding to its capital or technical abiUty. 6. Finally, a group of similar or related manufacturers established in one place serves to perfect their local market. The reputation of each firm supplements that of others, until the name of the town becomes almost a trade mark, and a firm Digitized by Microsoft® 44 ADMINISTRATION OF INDUSTRIAL ENTERPRISES enjoys prestige from the mere fact of location in the noted place. South Bend suggests wagons; Troy stands for collars and cuffs; Holyoke, Mass., signifies water power equipment; Grand Rapids means furniture, and Detroit automobiles. To such markets Wjnnipeo Billings fn&Mnat WadeViaJar ^ .j/llchiganwie Watertowng Iroquois (^ Mlni^ppolisN _Spart?~ 'M^nkatoS^ Otta«JJ3)^^^"!r , O'NWid 'Meijicine Bow T ,„„ [Kearney^ ^ 'I'L^i'dviiir '^'""•"j'^i l^uebli Salinas WIchitad Dubuqu^ f GrinnelL ^Lansmo- .(feniS. JSSaileWl.oliansP'"' ST.LftUIS TEn.# KifsasCity Q _..Jr~ ^ 3^ort Scott E3»nsvill/'P^is»''"V ipringfieltl, ^_— _ _ BNashville I'lilalionla Hoiie® ^Pit e Bluffy ^_Col^rBiJo ^Ei Paso TexarltflTia" AtlantaQ Mojitoom^ry . ^orsicanj® J^. /Jackson Aiexandna^ AustinlSL Batoji Rouoe San^nftnlotl^ ^^''©Galyeston ©iSorpus Christ! !St5io\ ;^^ ivei Americvl k Jackson**' .■ensacow^ m Orleans .Fig. 1. Distance in Terms of Time The map shows the average number of days required for package freight from St. Louis to reach the indicated destinations. consumers, dealers, and would-be agents are attracted, and the general rule that the seller must seek the buyer is, to some degree, reversed. A large^ speciahzed market is able to afford various service industries which have to do with trading functions, Digitized by Microsoft® LOCATION OF AN ESTABLISHMENT 45 such as packers, insurers, forwarders, professional graders, commercial photographers, and trade papers. Economic geography. — In the calculations of economic geography, it should be remembered that commercial distance is not physical distance. Commercial distance is not measured in miles but in terms of cash outlay, time expenditure, risk, inconvenience, and the mental inertia to be overcome. It is a complex of many factors; and since it is not a simple factor there never can be any such thing as a complete economic map. It is possible to represent the freight charges of a single class rate from a single centre by a map, but such a map will not correctly represent the relative positions of the places as viewed from other centres of shipment, much less make allowance for such factors as time in transit, frequency of train and car service, and convenience of terminals. To distinguish clearly the economic geography of a region from the physical geography, and to conceive truly the highways of commerce, and the forces which impel or re- tard the movement of goods and persons over them, is no small revolution of one's customary ways of thinking of space relations. Locatioa and freight rates. — The classification rules and the freight rate structure of American railroads show that the strategic places for the location of industries which involve important assembling and distributing functions are, (a) points on competing water-ways, especially ocean ports and Great Lakes ports, (b) centres at which numerous competing railways converge, (c) locations within influential common- point territory, adjacent to the previously mentioned centres, and, (d) locahties so influential in the supply of certain products as to enjoy favorable commodity rates on those articles. Natural protection. — There is, of course, a limit to the advantage of any single location. As distance increases, trans- portation expenses form an increasing natural protection, insuring to a distant competitor relative advantage in his neighborhood. It has been foimd, therefore, that in the sup- port of national distributive campaigns it is often necessary Digitized by Microsoft® 46 ADMINISTRATION OF INDUSTRIAL ENTERPRISES to operate a series of plants, locating each establishment in such a way that it will command the trade of a district. To whatever oflSce orders may be sent, they can then be filled by the plant nearest the customer. Cross shipments can be avoided; excess stocks can be shifted; and accidents and other interruptions localized. The local market. — The tendency of our commercial evolu- tion seems to be to break down the distinction between a man- ufacturing East and an agricultural West, and to develop in each region manufacturing and jobbing centres for the supply of the territory lying about them. The imjjortance of intensive cultivation of local territory is, therefore, increasing. Estimates of population. — The market which a community affords for consumption-goods depends upon the population, its wealth, and its habits of life. There are various methods in use for estimating population between census years. 1. The rate of growth between the last two census periods can be calculated, and assumed as continuing unchanged since the last census. This is a very unsafe method, as wiU be seen when it is observed that Detroit, which increased 77 per cent between 1880 and 1890, in the next decade increased only 38.8 per cent, but m the decade 1900-1910 increased 63 per cent. Chicago, which increased 118.6 per cent between 1880 and 1890, in the next ten years gained only 54.4 per cent, and in 1900- 1910 only 28.7 per cent. 2. The endeavor is sometimes made to calculate the popula- tion from the number of votes cast at elections. The chain of relationships here involved (using percentages based on the election records of November 1900 for aU cities over 50,000 in population) is: Percentage of males in the total population 50% Percentage of adult males in the male population 60 % Percentage of citizens in the adult male population 89 % Percentage of votes oast to citizens 72er Percentage of votes to total population igm Digitized by Microsoft® LOCATION OF AN ESTABLISHMENT 47 This gives a ratio of one vote cast for every five inhabitants. The method is unreliable, however, because of the varying interest in elections. 3. Estimates can be made on the basis of the names in the city directory. The ratios vary from 1:1.8 to 1:2.8, with an average for twenty eight large cities in 1900 of 1:2.31. Uncer- tainty, arises from the fact that there is no settled practice with reference to the insertion of the names of married women, and from the further fact that the age at which the names of young persons are admitted varies in different directories from sixteen to twenty-one years. 4. The population of school age may be used. The general ratio is approximately one school child to 3| persons in the total population. But the population of school age is variously defined in different places, the lower age limits ranging from four to eight years and the upper ones from fourteen to twenty years. The diligence and accuracy of boards of education in census taking are, of course, variable factors. Tributary territory. — The extent of the surrounding region which is tributary to any village or city is not easily determined. The experience of travelling salesmen, retail merchants, banks, and railroad ticket agents is valuable, but difficult to collect. Rough calculations can, of course, be made from census data, distributing the rural and village population between competing points on the assumption that the attraction of rival centres is inversely as the square of the distance and directly as the size. Accurate mapping of tributary territory has as yet been done rarely by American cities. The business men of the city of Delevan, Wis., have determined the limits of the influence exerted by their city, by an actual canvass. A reproduction of the map resulting from their work may be found in the World's Work for February 1913, page 468. A somewhat different analysis of tributary territory abandons the map method of presentation and tabulates the population accessible at given freight rates. Digitized by Microsoft® 48 ADMINISTRATION OF INDUSTRIAL ENTERPRISES Style movement. — It is not natural that the people of a community should purchase style goods from a market which Aberdeen, Grand ForkstJ) i^'>^-«r7- »t Crookston® ^"!>«#^'>*y Fig. 2. Distance in Terms op Cost The map shows the cost of shipping 100 pounds of first class freight from Chicago to various destinations. To points marked 1 the freight charge is between S0.40 and 80.60, to points marked 3 it is between $0.65 and $0.85, to points designated by 3 the charge is between $0.90 and $1.10, while to points 4 it is between $1.15 and $1.35. they believe to be one receiving new ideas later than them- selves. The law of style movement in the United States is that a new idea passes from east to west, from larger cities to Digitized by Microsoft® LOCATION OF AN ESTABLISHMENT Freight Rates and Tributary Population 49 The following statistics compiled by the Commercial Club of Kansas City, Mo., show the population within reach of certain commercial centers of the West, at specified freight rates. City Rate in cents not to exceed Population Rate in cents not to exceed Population Rate in cents not to exceed Population St. Louis . . . Kansas City Omaha Memphis . . . Dallas Denver . . . . 26.66 27.66 25.06 24.56 28.57 20.82 1,462,778 1,227,077 481,237 258,940 496,587 280,188 44.84 45.75 45.79 44.14 39.93 30.11 6,059,966 3,971,522 3,779,946 939,825 973,437 348,837 50.16 56.50 54.02 53.76 53.65 52.45 9,456,625 8,143,225 6,227,728 2,889,674 1,522,045 556,696 smaller ones, and from neighborhoods of wealth to those of less wealth. City measurements. — The statistics of industry have now been so much improved that persons who are choosing a location for a plant can supplement personal observations by compre- hensive measurements, in many cases. With reference to taxa- tion it may be asked, Does the per capita taxation of the place under investigation vary much from the average of $12.02,'- which is normal for cities of 30,000 to 50,000 population, or from the average of $13.56i for cities of 100,000 to 300,000 population, or from $22.87,^ the average of cities of over half a million inhabitants? What is perhaps more pertinent, is the question. Is the rate of taxation per $1,000 of assessed valua- tion $15, or $20 (which latter figure is approximately the aver- age of northern cities), or is it $25 or $30? And, further, is the assessed valuation 100 per cent of the true value, or 25 per cent or 50 per cent or 75 per cent? Are the water rates 10 cents per 1,000 gallons (which is a fair average rate), or are they 3 cents with Philadelphia, or 4 cents 1 Statistics of 1913. See Statistical Abstract of the United States, 1914, pp. 560-563. Digitized by Microsoft® 50 ADMINISTRATION OF INDUSTRIAL ENTERPRISES with Cleveland, or 25 cents with San Francisco, or 33 1 cents with Tacoma? Is gas sold at the usual price of 90 cents per thousand feet, or does it run as low as 70 cents in emulation of Los Angeles, or as high as $1.40 to equal Spokane? Is there evidence of normal growth by annual building activ- ities involving a per capita expenditure of $30.00, or is there temporary stagnation such as Lowell, Mass., experienced with but $8.82 1 invested, or a boom such as carried Detroit's outlay up to $58.53 I Is the city's annual fire losses at about the American 1914 average for cities of over 20,000 population, namely, $2.32 per capita; or do these losses fall under f 1.00, so that the locality is one of the 65 honor cities, or are they over $5.00, and so in the class of the 30 worst offenders against life and property? Finally, do the bank clearings of a city of 100,000 to 125,000 population average $1,665^ per capita, or are they low with Low- ell at $353,=' or high with Houston, Tex., at $4,895 2? If the city is of 300,000 to 500,000 population are the clearings an average figure at about $2,952 ^ per capita, or are they down with Washington, D. C, at $1,115,^ or up with San Francisco at $5,673,^ indicating a great commercial center? Other statistics which are worth while considering are bank deposits, and especially savings deposits, as an index of the well- being and thrift of wage-earners, post office receipts,* the per- centage of home ownership, whether or not the sexes are equally balanced, and the death rate. President Nicholas Murray > Statistics of 1913 are taken as more norma] than those of 1914. Statis- tical Abstract of the United States, 1914, pp. 174-175. ' Statistics of 1914. The averages are based on the clearings of 10 cities of 100,000-125,000 population, and on the clearings of 10 cities of 300,000- 500,000 population. ' The post-office receipts of 15 cities, chiefly in the South and West, and ranging from 2,000 to 91,500 population, averaged for the ten months end- ing September 1915, the sum of 37 cents per capita per month. The range was from 10.5 cents in Fall River, Mass., to 81.8 cents in Dallas, Tex. Digitized by Microsoft® LOCATION OF AN ESTABLISHMENT 51 Butler has said, " Where the pubUc school term in the United States is longest, there the average productive capacity of the citizen is greatest." The percentage of children of school age who are actually in school is important as it is an evidence of the quahty of the labor force which is in preparation for to-morrow. The severest test of the school system is the percentage of the children of foreign-bom parents who are in school. The Census of 1910 indicates that under good conditions approximately 90 per cent of such children, from 6 to 14 years of age, should be enrolled in school. Some of the honor cities are New Haven, Conn., Cambridge, Mass., Denver, Colo., and Boston, Mass. Bad conditions exist where less than 80 per cent are in school. Some cities with poor records are New Orleans, La., Scranton, Pa., Baltimore, Md., and Memphis, Tenn. Factory sites. — The exact location of a factory involves the consideration of a class of real estate for which the standards of value are not as definitely fixed as they are for mercantile or residence, property. The erratic fluctuation of the prices of manufacturing sites is due partly to the fact that the market is not active, and that the property involved is commonly located on the outskirts of cities where speculative prospects determine values, rather than the capitaUzation of current income-produc- ing power. The price of speculative property varies with the vividness of the imagination of the holder, and with the state of local excitement created by recent transactions. Another reason for the uncertainty of values is that a wide variety of real estate conditions is involved, ranging from central-district property, in plotted areas, on paved streets, with trackage facilities, and enjoying fire, water, and poUce services, to distant swamp land, dealt in on an acreage basis, and suited for Uttle else than the dumping of manufacturing wastes. This variety interferes with the defining of types and the calculation of characteristic values. In a general way, manufacturing sites in cities of from 20,000 to 100,000 population are worth from $500 to $2,000 per acre, Digitized by Microsoft® 52 ADMINISTRATION OF INDUSTRIAL ENTERPRISES without trackage, and from $1,000 to 125,000 per acre with trackage. The larger the size of a city the more stable the price of any given class of manufactming sites becomes, and the more easy it is, therefore, to borrow money on such real estate. The off-set- ting advantage of country location is that lower prices per square foot allow the works to be spread out so that the fire hazard is reduced, and a free use of one-story structures can be made. The location of retail establishments. — The location of mercantile estabhshments in a city is primarily based upon the fact that the central point of a settled area (xmeven topography aside) is the point most accessible to customers. If the existing retail center is not near this point, that is to say, if the city has been growing more rapidly in some directions than in others, the retail district will be found to be in a slow process of travel toward the centre of population, inferior stores, small repair shops, and abandoned buildings marking the off-side, while new specialty shops mark the approach toward the main residence district. Within the shopping district the universal providers, such as the department stores, and the better man- aged institutions which are able to utilize high densities of traffic to best advantage, wUl be found occupying the best central locar- tions, while single-line shops of narrow appeal, and the less efiiciently managed stores will occupy the side streets and the outskirts of the shopping district. Within the shopping district a store will seek the neighbor- hood of stores of its kind, or stores which appeal to the same class of customers. The habit of the customer, when bent upon a particular errand, is first of all to place himself or her- self in the quarter where there is the best combined assortment within a street frontage of a few hundred feet. The customer will then shop around from store to store, only going to outly- ing stores after the stocks of the chief group have been exam- ined. Most shopping streets, especially in medium-sized and small cities, will be found to have one side devoted to women's Digitized by Microsoft® LOCATION OF AN ESTABLISHMENT 53 trade and occupied by dry goods stores, jewelry stores, furniture stores, and the like; while the opposite side of the street will have the hardware stores, saloons, and cheaper restaurants. There is a sUght tendency for the woman's trading center to be on the south side of an east and west street, to secure the advantage of shade. There is also a slight tendency for this center to occupy the side of the main street which Ues nearer to the best residence district. Mercantile values are injuriously affected by vacancies, buildings in course of construction, and by non-mercantUe buildings, such as a church or court house. They are also injuriously' affected by slopes which materially increase the effort of movement on foot or in vehicles. When a city reaches such size that a couple of hundred fam- ilies Uve at a distance of approximately a half mile from the chief shopping center, there is likely to be formed a neighbor- hood-convenience sub-centre, consisting of a grocery store, a meat shop, a saloon, and a drug store in which the sale of soda, cigars, and magazines and newspapers helps out the prescrip- tion trade. With the continuance of growth, such sub-centres tend to arrange themselves at half-mile intervals on the chief lines of radial travel. Local inducements. — To return to the question of the loca- tion of manufacturing institutions, the usual forms of induce- ment offered by cities to new enterprises looking for a location are, free sites, subscriptions to stock, loans on easy terms, exemption from taxation for a period of years, and general assistance in learning the resources of the locaUty and in making business connections. The best opinion is strongly against tax exemptions or outright gifts in any form. In some aggressive cities the boards of trade or chambers of commerce are experimenting with the poHcy of aiding new con- cerns by means of specially organized fostering corporations, which do not aim at private profit, but at the general upbuilding of the neighborhood. In one locaUty effort may take the form of a Loan Corporation organized by citizens with the object Digitized by Microsoft® 54 ADMINISTRATION OF INDUSTRIAL ENTERPRISES of loaning funds to new enterprises approved by the local com- mercial association, sufficient interest being charged to pay- expenses and even, perhaps, yield a smaU dividend. In another place the enterprise may be a Holding Company which will invest not over a given maximum sum in the bonds or stocks of an approved new concern. StiU another form of fostering corporation is a Real Estate Development Company which stands ready to purchase a site and build structures for parties approved by the commercial association, either renting the properties or selling them on easy instalments. Credit guarantee funds. — Several cities have been helping new concerns by means of a credit guarantee fund established by the subscriptions of citizens. Under this plan no money is called for. The subscriptions are simply guarantees. The subscribers appoint trustees or attorneys-in-fact to represent them, empowering these trustees to obligate them to the extent of their subscriptions. An applicant deals with an invesftigating committee of the local commercial association. If this com- mittee reports favorably, it recommends to the trustees a defi- nite loan of credit. Should the trustees approve, the borrower makes out his notes, receives the endorsement of the trustees upon them, and on this collateral secures a loan from a desig- nated bank. Interest is charged, and the rate may even be fixed one or two per cent above the current rate to cover costs and provide a contingent fund. The period of the loans may range from five to ten years. In case the loans are paid, the subscribers to the fund are not called upon. But if there is default, the subscribers must pay pro rata according to the amount of their subscriptions. Subscriptions are for a defi- nite period. Copies of the subscription, of the power of at- torney, and of the essential contracts must be filed with each bank making loans. The plan is intended to aid only in the initial financing of young concerns. With various modifications of detail this idea has been used at Worcester, Mass., Williams- port, Pa., Jackson, Mich., and Peoria, lU. Digitized by Microsoft® LOCATION OF AN ESTABLISHMENT 55 Mr. W. S. Milliner, Secretary-Manager of the Williamsport Board of Trade says, in a letter to me, that the guarantee plan was abandoned there in June 1914, after continuing for about fourteen years. The management of the fund was very con- servative, the attorneys-in-fact taking mortgages upon some property of the borrower whenever endorsing notes. The losses were so small that they were, in each case, met by the directors of the Board of Trade and by prominent and wealthy citizens, so that a general assessment on the guarantors was never made. In practice, it was found that the credit of a borrowing concern was materially injured, so that it was diffi- cult for that concern to secure further accommodations, except with the same kind of security. It is the judgment of those connected with the plan in WiUiamsport that the chief advan- tage resulting from it was the attention attracted to the city, and the inquiries brought from industries seeking a new loca- tion, rather than anything which resulted from the actual operation of the plan after the industries had been, attracted. "It is doubtful," concludes Mr. Milliner, "if any plan of this sort, or any modification of it, will secure for a city industries which are really worth while, that could not be secured through estabUshed and Hberal banking circles, together with the aid of pubHc spirited citizens able to become investors in a worthy industry." BIBLIOGRAPHY The Localization of Industries, Twelfth Census, 1900, Vol. VII, Manu- factiires, Part I, pp. cxc-ccxiv. Reports on cities made by the National Board of Fire Underwriters of 135 William St., New York City. These reports, now available for the larger cities of this country, contain information on topography, tem- perature, population, growth, taxes, principal industries, fuel used, fire hazard, fire record, and fire-fighting facilities.. They include large and accurate maps. Sherman, P. T.: A Study of the Causes of Congestion of Manufactures in New York City, Bulletin of N. Y. Bureau of Labor, Sept. 1908, pp. 303-323. Digitized by Microsoft® 56 ADMINISTRATION OF INDUSTRIAL ENTERPRISES Methods of Estimating Population, Twelfth Census, Special Report, Sup- plementary Analysis, 1900, pp. 580-594. Burnette, H. L.: Location of a Factory Plant, System, March 1905, pp. 262-272. Duncan, John C: The Principles of Industrial Management, N. Y., 1911. Ch. Ill, Theory of Plant Location, Ch. TV, The Ideal Situation. Diemer, H. : Factory Organization and Administration, N. Y., 1910. Ch. I, The Economic Theory of Factory Location. Scott, Albert: The Selection of Mill Sites. Trans, of Nat'l Asso. of Cotton Mfrs., 1912. Also published in Industrial Engineering, Oct. 1912, pp. 158-160. Hurd, Rich. M.: Principles of City Land Values, 3d Ed., N. Y., 1911. Bureau of Statistics, Department of Commerce and Labor, The Statis- tical Abstract of the United States, Washington, D. C. Issued annually. Contains statistics of mimicipal population, building con- struction, bank clearings, etc. Digitized by Microsoft® CHAPTER IV LAYOUT OF A MANUFACTURING PLANT The problem. — The planning of an industrial works is much like the planning of a farm, or a garden, or a residence, or even a kitchen, — for a kitchen is a workshop. It has points of similarity with the planning of a city. In each of these cases there are certain functions to be provided with space require- ments, which functions must sustain definite relations of area and direction with each other. The functions of an establish- ment, of course, vary greatly in individual significance. They vary also in the degree of handicap they will suffer from lack of adequate space and position. The problem of layout is to dis- cover such an arrangement as will secure- the greatest con- venience for the most important functions. To state this a little more accurately, we may say that the optimum plan is the one in which a series of quantities representing the importance of the various functions, multipUed by quantities representing the advantage secured for those functions by space and location will amount to the greatest possible sum. Layout and administration. — A proper plan conforms to economy by insuring complete utilization of buildings and grounds, and by faciUtating the movement of material from process to process; but it avoids the parsimony of condensing things to such an extent as to produce a cluttered shop with its impeded movements and its perpetual rearrangements to make room. It is a great merit of a plan if it facihtates the judgment of the state of affairs in each shop by the mere observation of the locations of things. A confused advance of materials per- 57 Digitized by Microsoft® 58 ADMINISTRATION OF INDUSTRIAL ENTERPRISES mits soldiering, for it interferes with the individualization of work. It is a cardinal point of policy in "drive management" to secure straight-line sequences, so that an undue accumular tion of material at any point can be taken as the sign of inad- equate performance. A clear progression of work is essential in any management which aims at a definite time schedule, for it is only by the movement of definite quantities of work in definite periods of time that the capacity of individual produc- tion centres can be measured, and such capacity be held to specific performance. The given factors. — The points which are most likely to be decided upon before serious work on the layout of a plant is begun are, that a given sum of money can be devoted to the enterprise, that a certain piece of land is to be used, and that a given output is to be provided for. From these determinations the number and size and character of the processes can be deduced, and a general estimate be made of the requirements in the way of men, machines, power, buildings, and ground area. The layout then involves the exact determination of the space relations of the various production centres. Its completed conception is of a huge mechanical leviathan or automaton of a certain length, breadth, and height. The last step in planning is to cover the whole with a shell of appropriate buildings. The analysis of a production centre. — The determination of the layout of a works includes the location of the individual productive units withm each shop or department, and the grouping of the departments to compose a complete plant. The first step is then the analysis of production centres. How does the space divide itself in a single centre, composed of a workman who stands in front of a section of wall bench, or composed of a machinist at his machine surrounded by aisle spaces and piles of materials? What space is necessary on the four sides of a certain type of machine, to permit access for adjustment? What aisle width is necessary between ma- Digitized by Microsoft® LAYOUT OF A MANUFACTURING PLANT 59 chine rows? What should be the width of main aisles? What floor area is needed to pile a given amount of certain mate- rials? What is the proper width for work benches? It will facilitate matters to make a number of standard space deter- minations for such elements as occur again and again. The total space requirement of any production centre can then be arrived at by allowing for all the standards iuvolved in it, and adding space for any special requirements. In this way analysis of areas may proceed from one process to another, covering in the end not only the requirements of manufacturing depart- ments, but of the warehouses, offices, and yards. Sequences. — A different problem of layout is to determine the relations of production centres with reference to the sequence of processes and the movement of materials from step to step in manufacture. Some industries comprise a single simple chain of performances which may be represented thus: 1 2 3 i Fig. 3. Simple Sequence The material moves straight on, as in a paper mill, from one process to another, imtil the end is reached. Other industries involve a niunber of separate sequences which move along in parallel series. 1 2 3 4 1 2 3 4 Fig. 4. Paballel Sequence Still other industries, such for example as slaughtering and meat packing, consist of the repeated subdivision and elabora- Digitized by Microsoft® 60 ADMINISTRATION OF INDUSTRIAL ENTERPRISES tion of a complex raw material, until it is differentiated into a large number of separate commercial products. 2 3 2 3 — 3 — 3 4 4 Fig. 5. Elabobative Sequence One of the commonest manufacturing processes involves the manufacture of parts which may individually run through longer or shorter series of simple sequences, to be then grouped into minor assembUes, which in a final synthesis take their places in a complex completed product. The simpler the sequences the straighter can be the line of for- ward movement, and the freer it can be from detours and re- verses and complex doublings. Straight-line movements have the advantage of speed, minimum trucking expense, compact lay- out, close supervision, minimum of noise and dust, and minimum distraction of attention from work by journeyings to and fro. Coordination. — In order that all parts of an establishment may be kept full of work and under even pressure (a condition essential to the development of a uniform habit of the shop), it is necessary that each class of production centre should coor- dinate in capacity with those centres which precede it or follow it, and which must therefore either supply it with work or take Digitized by Microsoft® LAYOUT OF A MANUFACTURING PLANT 61 1 2 3 1 — 4 — 3 6 1 2 3 4 3 4 Fig. 6. Assembly Sequence work from it. If we imagine a manufacturing process consist- ing of three stages, designated as A, B, C, and diagramatically represented as follows: 600 600 1000 — 200 — 200 — 200 — 200 — 200 Fig. 7. Diagram of Coordination Digitized by Microsoft® 62 ADMINISTRATION OF INDUSTRIAL ENTERPRISES it will be obvious that two machines of 500 capacity for A will fuUy employ a machine of 1,000 capacity for B, and five machines of 200 capacity for C. If we install a B machine of 1,300, in the best adjustment possible we shall either lose 200 on A equip- ment and 100 on the C, or else lose the 300 extra capacity in the new B machine. If a B machine of 1,400 capacity be installed, we shall lose 100 on ^1, in the best possible adjust- ment. Not until we equip all the processes for 2,000 can we again obtain as good a correlation as was had at 1,000. A rule of perfect coordination is that the total capacity of a series of connected manufacturing departments should be some common multiple of the capacities of the individual production centres composing those departments. Transportation. — In internal transportation the complete journey is from tool point to tool point. The ideal in handling- economics is to have the final position of a piece of work, at the conclusion of an operation, serve as the initial position for the next operation. As such a condition is rarely attainable, the general ideal should be to reduce journeys between tools, as far as possible, to three parts: (a), a single short detail hand- ling from tool to container, (6), a transfer trip of a quantity of products from the receiving position to the deUvery position, in an easily propelled container, (c), a short detail handling from the container to the next tool. The costly elements in these journeys are the handHngs, and especially the vertical ones. When the trunk of a workman's body must be bent for each piece, the efficiency of the energy expended is probably a small decimal. The aim should be to keep all handlings as short as possible, and keep them in the same vertical plane. A few vertical planes should be established for work throughout a shop; and change from one plane to another should be made in large lots by means of appropriate mechanical apparatus, such as elevating trucks or tiering machines. The shop unit. — On the basis of the known space requirements of production centres, and the sequence of processes, and taking Digitized by Microsoft® LAYOUT OF A MANUFACTURING PLANT 63 into due account the laws of coordination and transportation, a process-area-diagram can be constructed. But before the centres are grouped into shops, it is necessary to ascertain the requirements of each process as to light, shafting connections, headroom, crane service, special foundations, and the relations which are to be sustained with every type of administrative and service department, so that in the final adjustment these needs will receive consideration. It is also necessary, in laying out the plans for a shop, to allow space for the foreman's ofiice, for stairways and beltways, and intermediate storage spaces and toilet rooms. Arrangement according to sequence versus arrangement according to type of work. — A problem arises, in organiziag a series of shops, as to the proper location for work of a given kind, which occurs again and again at different stages in the process of manufacture. Should such work be done at the various points where it occurs in the regular line of advance, with the necessity, perhaps, of instaUing the same kind of machine in two or three shops? Or should all work of a kind be done in one place, even though it be necessary to shift materials back and forth? If the first plan is followed, as is the tendency in mass production — the dominant thing will be a straight- forward progression. If the second plan is followed, — as usu- ally happens in specialty manufacturing — the controlling motive will be to secure the advantage of massing all of one kind of machinery, labor skiU, and administrative experience in one place. The usual solution of this problem is a compro- mise, which may be defined briefly as straight-line movement of materials when they are handled in quantity, while at the same time expensive units of equipment are kept in operation as steadily as possible. Arrangement of shops to compose a plant. — The elements of which manufacturing establishments are composed may 'be listed as, 1, Raw-material storage and finished-product storage. 2, Intermediate storage. 3, Manufacturing centers. 4, Assem- Digitized by Microsoft® 64 ADMINISTRATION OF INDUSTRIAL ENTERPRISES bling rooms and erecting floors. 5, Tool rooms. 6, Stairways, beltways, elevators, and halls. 7, Toilets, lockers, and rest rooms. 8, Drafting room. 9, Planning room. 10, General offices. 11, Power plant. 12, Yard departments. Service centres. — It is profitable to group certain of the ser- vice departments, the sanitary accommodations, and the spaces reserved for transportation and communication, in the form of narrow bands between the shops, and enclosed between fire- 1»^' LAVATORY storakI INrLAM-l MABLES Mail 1 Fig. 8. Plan showing the grouping of service centers between fire-proof walls, separating two shops. All doorways protected by self-closing, fire- proof doors. >J< = fire plug. proof walls. By this arrangement the shop areas are broken up as little as possible, building space is economized, Ughting is improved, and the hazaxd of fire is decreased. An illustra- tion of such a grouping is Figure 8. A similar plan, including beltways, is recommended by the Boston Manufacturers' Mutual Fire Insurance Company. See Figure 9. Segregation. — Since a group of associated departments will suffer from noise according to the noisiest one, and will take the insurance rate of the most hazardous one, there is economy in sorting out departments so that bu-ds of a feather wUl flock together. There will be some incidental segregation if a plant Digitized by Microsoft® LAYOUT OF A MANUFACTURING PLANT 65 is so arranged that the receipt of raw material, together with the power plant, and the heavy manufacturing processes — usually the preliminary ones — are grouped around the receiving switch; while at the other end of the main axis of the grounds, to the windward, and near the shipping switch, are located the finishing proc- esses, the finished stores, and the general oSices. Prudence wiU, of course, suggest the emphatic seg- regation of dangerous ele- ments, such as gasoline storage and high-tension transformers, and of noisy and dusty processes like those of the foimdry and forge. Yard departments. — A factory yard should be looked upon as a group of unroofed departments, to- gether with spaces reserved for future growth. Gen- erous room for storage per- mits buying in large lots. It facilitates mechanical handhng, by allowing stor- age spaces to be laid out as a series of parallelograms, within reach of track cranes SHOP A BELTORROPE TOWER BOILER HOUSE 1 Fig. 9. An arrangement of beltway, ele- vator, and stairway recommended by the Boston Manufacturers' MutuaJI Fire In- surance Co. And it reduces to a minimum the handling which is incident to rearrangement. Digitized by Microsoft® 66 ADMINISTRATION OF INDUSTRIAL ENTERPRISES In laying out standard railway tracks a minimum radius for short arcs is 100 feet, for longer arcs 150 to 200 feet. It is desirable to arrange easy curves, to separate receiving from shipping switches, and to tie the crane service and the industrial railway service together by judicious interlacing. But it is wise, also, to avoid running railway tracks through buildings; and to avoid arranging the walks and roads which must be followed by workmen in such a manner that tracks must be crossed near doorways or near the corners of buildings. Enlargement. — It is always a nice question to what extent present economy should be sacrificed in order to build on a plan which will permit of economical future enlargements. And it is also an uncertain matter in what proportion space for enlarge- ment should be distributed between the various departments. Questions concerning enlargement are the more easy of answer in the measure that an estabHshment is built upon cheap ground, or that it is large in size to begin with, or that it has to do with a branch of industry little subject to revolutionary changes in method. Again, enlargement is simple when growth means the duplication of certain distinct units rather than a funda- mental reorganization of the entire plant. Preservation of market values. — If a plant is constructed in a large city, where the sale of manufacturing buildings is possible, and where the shifting of population causes frequent changes in the functions of localities, consideration should be given to the preservation of the real estate values or sale values by building structures which can be adapted to a variety of uses with a minimum of remodeUng. What this implies in the way of design may be ascertained by the study of the loft buildings now being constructed for leasing purposes in large cities. As country or suburban plants are usually salable or rentable only at a great sacrifice, it is probably wise to give them the most perfect possible adaptation to the primary purpose, and stake everything on the original venture. Digitized by Microsoft® LAYOUT OF A MANUFACTURING PLANT 67 Ground plans. — The I plan: The simplest type of manu- facturing plant is a single building of a width consistent with Fig. 10. I Plan RR R. S. = Raw material stores. F. S. = Finished stock. M 1, 2, 3, 4 = Manufacturing departments in order of sequence. R. R. = Railroad siding. efficient lighting, and of a length depending upon the floor space to be provided. Such a plan may be illustrated, in abstract form, by Figure 10. Fig. 11. L Plan RR L and U plans. — The enlargement of an I plan is likely, at first, to produce some sort of an L or U plan, from the necessity of turning to avoid property hmits. Digitized by Microsoft® 68 ADMINISTRATION OF INDUSTRIAL ENTERPRISES Accretionary plans. — Further enlargements are then apt to give evidence of the breakdown of the plan, and to produce Fig. 12. U Plan the confusion of an accretionary factory type. Continued enlargements rapidly lower the efficiency of such a plan; while radical enlargements mean a clean sweep. Fig. 13. Accretionary Plan Digitized by Microsoft® LAYOUT OF A MANUFACTURING PLANT 69 Duplicate I plans. — An I plan may, of course, consist of several buildings. Fig. 14. Duplicate I Plan Quadrilaterals. — The enlargement of a duplicate I plan may produce a quadrilateral, when connecting structures are thrown across between the original buildings. Fig. 15. Qttadrilateral Plan RR Digitized by Microsoft® 70 ADMINISTRATION OF INDUSTRIAL ENTERPRISES This plan was in favor in this country, for a few years, in the seventies and eighties. It was even made the object of original construction, because of indoor communication, and in spite of the obvious disadvantages in the way of inaccessible courts, a bad fire risk, and varying hght. A modification of this idea, standing part way between the duplicate I and the quadrilateral plans, but without some of the disadvantages of the latter, is to employ a series of parallel main buildings, and to connect them with passageways devoted to service departments. The plant of the United Shoe Machinery Company at Beverly, Massachusetts, has the following general ground plan: Fig. 16. Ground plan of the factory of the United Shoe Machinery Co., of Beverly, Mass., showing service centers.' S = Service center including locker room, wash room, tool storage and delivery room, stairway, and con- necting passage between buildings. V = Ventilating fans. H = Emergency and first aid hospital. Enlargements as lateral extensions. — To provide a plan which will be from the start reasonably compact, but will per- mit of the independent enlargement of any of its parts without destruction of the original scheme, it is necessary to house the departments in separate buildings, and to provide that the ' L. P. Alford and H. C. Farrell, Factory Construction and Arrange- ment, Journ. of Am. Soc. of Mech. Eng., Oct. 1911, Vol. 33, No. 10, p. 1144. Digitized by Microsoft® LAYOUT OF A MANUFACTURING PLANT 71 1^ a* E V Direction of -4- progress of work Fig. 17. The Pkinciple op .Easy Enlargement main direction of the progress of work shall lie at right angles to the direction of enlargement. This simple but exceedingly important idea may be graphically expressed as in Figure 17. RR 1 1 1 R S ■ I 1 ::::::::." Lm M 1 1 1 ^^ 1 1 1 1 1 M mJ ■ 1 1 1 A 3 1 I 1 ' r s '' 1 OFFICE 1 t 1 Fig. 18. The Enlargement of a Unit I Plan RR Digitized by Microsoft® 72 ADMINISTRATION OF INDUSTRIAL ENTERPRISES ■ M M 1 f 2 o 1 1 I 1 1 1 I V^vvv^* J ^^ 5 j 1 f % s 1 1 RR Fig. 19. The EnIiAkgement of a Unit U Plan Enlargement of unit I and unit U plans. — The above-men- tioned law of planning may be worked out in I and U plans, as 1 r — * ; — — — — -I 1 1 ' II 1 1 1 ■ 1 1 1 1 1 — — " " ^ 1 • M 2 M 3 r s R S 1 W 1 M k r s //)}}} ' 1 RR Fig. 20. Arrangement Permitting the Partial Enlargement op a Unit I Plan Digitized by Microsoft® LAYOUT OF A MANl/FACTURING PLANT 73 shown in diagrams 18, 19, and 20. In diagrams 18 and 19, enough separate buildings are provided so that each depart- ment either has an entire building, or an end of a building to itself, and has a direction free for enlargement without shifting Fig. 21. The Enlargement op an Assembly Shop and Subsidiabt Departments railroad sidings. The housing of departments in separate build- ings gives rise to what is called a unit plan. In such plans each department can be enlarged by carrying the building along, while yet the proximity of any department to the other depart- Digitized by Microsoft® 74 ADMINISTRATION OF INDUSTRIAL ENTERPRISES ments which lie along-side of it in parallel buildings is not disturbed. In Figure 20 a complete enlargement would require the mov- ing of the railroad siding, or the rearrangement of partition walls. Enlargement of assembly shops. — The assembly type of manufacturing structure can be arranged to permit of the inde- pendent expansion of parts in the manner shown in Figure 21. BIBLIOGRAPHY Day, Chas.: The Routing Diagram as a Basis for Laying Out Industrial Plants, Engineering Mag., Sept. 1910, pp. 809-821 (with diagrams). Hess, Henry: Works Design as a Factor in Manufacturing Economy, Engineering Mag., July 1904, pp. 499-520. Becker, O. M., and W. J. Lees: Building a Factory: Site and General Design, System, Sept. 1906, pp. 239-250. Orcutt, H. F. L. : Shop Arrangement as a Factor in Efficiency, Engineering Mag., Jan. 1901, pp. 717-722. Collins, D. C. N.: The Design and Construction of Industrial Buildings, Engineering Mag., Sept. 1907, pp. 906-930. Perrigo, O. E.: Rearranging Machines for Greater Efficiency, Industrial Engineering, Nov. 1910, pp. 384r-389. Digitized by Microsoft® CHAPTER V BUILDINGS AND EQUIPMENTS Functions. — The principal functions which manufacturing buildings perform are to control the conditions with reference to heat, light, humidity, and air circulation, ensuring the com- fort and health of workmen; and to protect mechanical equip- ment and materials in process of manufacture from injury by the weather. Buildings provide foundations for machines, and a rigid framework for the transmission of power. They sub- divide and regulate fire risks, isolate noisy and dusty depart- ments, multiply floor area by means of upper stories, and provide "A local habitation and a name" for each of the shops and administrative units. The general executive and the technical expert. — The preparation of a set of plans and specifications for a manufac- turing plant is a task which requires the working together of technical knowledge and general administrative power. It, therefore, raises the problem of the way in which general administrative officers shall adjust themselves to specialists. It is easy to say that each should decide those matters for which he is best prepared by formal training or experience. The difficulty lies in the application of the rule, for in the degree that men specialize they become ignorant of each others' training and special province of action. The general administrator must, of course, supply the given factors, informing the architect as to what line of manufacture is intended, what funds are available, and what site is owned or considered. But even upon such fundamental matters there 75 Digitized by Microsoft® 76 ADMINISTRATION OF INDUSTRIAL ENTERPRISES may be a profitable response from the expert's special knowledge. A mill architect may be able to point out a by-product industry which should be coupled with the main project. Regarding financial limits, he can call attention to those economies which are costly and those additional expenditures which will bring more than proportional returns. He will consider a proposed site, not so much from the point of view of its price, as with reference to footings, drainage, and the effect of size, outline, and contour upon the general layout. As the calculations proceed from general matters to such details as Hve and dead loads, girder spans, location of pillars, design of roof trusses, intervals between wall pilasters, arrange- ment of windows, location of beltways and lines of shafting, the type of ventilating system to be used, the location of lighting units, et cetera, the administrator will be confined more and more to such general supervision as has for its object to see that his firm secures the service it is entitled to expect, considering the fees paid and the scientific maturity of the profession involved. When a general administrator supervises work in a field with which he is not familiar, he must resort to general tests of capacity, such as the steadiness or uniformity of the expert's opinion on any given matter, the clearness of his ideas as evidenced, for example, by ability to express the gist of tech- nical discussions in simple language, expertness in details as shown by speed and precision in handling, the soundness of such ideas as the expert may express on subjects of which the administrator happens to be a competent judge, and unwilling- ness to work with methods or under conditions which would endanger success. In the choice of machinery and equipment, where engineering theory must be supplemented by operative experience, and consequently there are two aspects of a matter to be kept con- currently in mind, the consulting expert and the practical execu- tive must tactfully feel their way into an intimate cooperation as working partners, finding each other's points of strength and Digitized by Microsoft® BUILDINGS AND EQUIPMENTS weakness, and supplementing each other in good fai' conceit, suspicion, or intolerance mark the attitude ol party this deUcate adjustment will be impossible. If t) eral administrator possesses superior knowledge of loca'' tions, he should consider the apphcabUity of the rates o of wages, of taxes, and of insurance used in the cor of the expert, as well as the reasonableness of the S( assumed. The object of the discussions of this chapter, <" following it, is to faciUtate the approach of the istrator to the field of the technical expert; it is his encroachment into that field. Unit stresses. — The unit stresses to which wiU be subjected will determine the thicknesi cross sections of the girders and piUars, and struction. A well prepared layout, showin; location of equipment, the delicacy of the s' for the machines to be used on the vario weight of materials to be carried, will assii make proper provisions, while yet localizuij of construction. First floor and basement. — The height (' usually determined either at the ground levi; of the floor of a railway car, or at a height s of a basement. If the site is reasonably levi' have like floors of all buildings at exactly 1 above the sea level, so that, in case connec' built in the future, the use of stairs or inch avoided. If the first floor is to be several feet above t ment can be added at very httle extra expei M. Brill has said, "To provide against frost carry foundation walls from three to five feel of the ground. This depth, with the distar floor added, gives nearly the requisite height Digitized by Microsoft® ADMINISTRATION OF INDUSTRIAL ENTERPRISES ire, such space can generally be obtained for the expense mng the soil and increasing the depth of the f oundar- ^ Such basements are convenient for storage and for .wiring, shafting, and heating pipes. On basement heaviest machinery can be provided with adequate 3. id heights. — The width of a building and the height i' are dimensions which must be determined with h other. Unless there is roof lighting, the greater lilding, the higher the windows must be to give ation in the centre of the rooms. Let us ration, that it is decided to build a structure ~)iy, will provide an inside shop, bounded by ',de walls and two partition walls; and that it e in these shops a lighting standard expressed le square foot of window area to each five r space. Let us further assume that on the L oi (.Le space of each running foot of outside ■,d to ^v'i)l(lows. If we set a ceiling height of iv irea ner running foot of wall will be 8.25 inuiiiplLcu by 5 gives 41.25 feet as the maxi- tance from the wall to the middle line of the i in the same manner for the opposite wall, "a total building width of 82.5 feet, inside ke conditions a 10 foot ceihng would indi- ding width, and a 12 foot ceiling a 90 foot er styles of factory construction which per- 3 per cent of the wall space to be in windows, as considered about right for 11 foot ceilings. ction, which allows 75 per cent of the walls such a ceiling height would light a building lly well. Exact adjustments with reference If course, take into account the interruptions ement, and Construction of Manufacturing Plants, f Engineers, Apr. 1908, Vol. 13, No. 2, p. 158. Digitized by Microsoft® BUILDINGS AND EQUIPMENTS 79 of pillars and belting, and the enhanced illumination possible with smooth ceilings, white paint, and prism glass. Length. — In determining the length of a manufacturing building, the fire hazard exerts an important influence. Assum- ing that the width has been determined by hghting considera- tions, the length of a floor must not exceed such a dimension as multiplied by the width will give a total floor area within the maximum allowed by municipal building ordinances and the rules of fire underwriters' associations. The Chicago building ordinances fix the maxunum floor area within fire walls at 9,000 square feet for ordinary construction, 12,000 square feet for slow-burning construction, and 30,000 square feet for fire- proof buildings. Using our previous illustration of a building 82.5 feet wide, this ordinance would give lengths of 109, 145, and 364 feet, respectively, at which points, according to the style of construction, it would be necessary either to end the building or divide it by a fire-proof partition wall. Another consideration determining length is the cost per square foot of floor area. The rapidity with which cost falls with increase of length differs according to the width, the num- ber of stories, and the style of construction employed. The decrease of unit costs with the increase of any dimension is not a uniform thing but is roughly in inverse proportion to the size of the dimension which is made the basis of calculation. The rule of decrease of unit costs is simply a special case of the general principle of economy of production on a large scale, so that if the general specifications already make a job large in size, little reduction in cost can be expected from the further increase of some particular dimension. When, therefore, the width of a proposed structure is large, or there are to be many stories, or the style of construction is expensive, an increase in length will exert slight influence in reducing unit costs. It may be stated in a general way that, for construction types of average expense, the increase of the length of a structure from 50 to 100 feet will decrease the floor square-foot cost from one-fifth Digitized by Microsoft® 80 ADMINISTRATION OF INDUSTRIAL ENTERPRISES to one-sixth. An increase from 100 to 150 feet will decrease cost by less than one-tenth. There is Httle economy in in- creasing length beyond 200 feet. Number of stories. — The first thought with reference to the proper number of stories is the convenience of keeping several processes within one building, but distinct from each other. In cotton spinning a three-story arrangement is often used; one floor being used for carding, another for mule spinning of fiUing, and a third for the ring spinning of warp. The United Shoe Machinery Company of Beverly, Mass., decided upon four- story buildings, because their service departments require as much space as the making departments. In their buildings the basements are used for storage, the first and second floors for the manufacturing departments, and the fourth floors for tool manufacture and experimental work. The lowest cost per square foot of floor space is achieved by three and four-story structures. The reduction of cost above two stories is not considerable however. With the addition of stories above the fourth, the square-foot cost increases rapidly, because of the necessity for better foundations, thicker walls, and more ample allowances for stairways, elevators, and fire escapes. Into the problem of fixing the number of stories enter such factors as the value of the land, the economy of heating buildings when the dimensions are approximately equal and the stiffness reqiiired in the structure to keep machinery in adjustment. One-story buildings. — With the exodus of manufacturing estabhshments from large cities in recent years, and the choice of locations in village and country neighborhoods, one-story buildings have come into frequent use. Mr. M. S. Ketchum says in behalf of them, "The best modern practice inchnes toward single floor shops, with as few dividing walls and parti- tions as possible. The advantages of this type over multiple- story buildings are, (1) the light is better, (2) ventilation is better, (3) buildings are more easily heated, (4) foundations Digitized by Microsoft® BUILDINGS AND EQUIPMENTS 81 for machinery are cheaper, (5) machinery being set directly on the ground causes no vibrations in the building, (6) floors are cheaper, (7) workmen are more directly under the eye of the superintendent, (8) materials are more easily and cheaply handled, (9) buildings admit of indefinite extension in any direction, (10) the cost of construction is less, and (11) there is less danger from damage due to fire." ^ Where clear floor spaces of twenty-five feet or over are required, multi-storied structures are undesirable, because of the expense of support- ing upper floors on long girders. Types of construction. — Factory buUdings may be divided into four classes, according to the materials employed in cour struction. "Ordinary frame " buildings are entirely of wood. "Slow-burning " mills are composed of brick walls and heavy wood framing. Steel frame structures may have curtain walls of brick and floors of wood, with exposed frame, or the steel may be fire-proofed with terra cotta or concrete. Reenforced concrete buildings consist of a framework of massive posts and deep slabs in which bxu-ied wires or rods serve as tension mem- bers. The floors are usually of concrete and the curtain walls of brick. Ordinary frame. — The "ordinary frame " factory is a form of combustible architecture appropriate only for one or two- story structm-es, large grounds, small capital, and temporary plans. It is constructed by the use of numerous thin joist and rafters, supported by inside posts and fight wall studs, the frame being thinly sheathed and roofed to keep out the weather. It is full of sharp edges of wood along which fire runs rapidly, and of spaces in which dirt can accumulate and fire make a protected advance. The stairways are usually built of light infiammable material and, in case of fire, carry the flames from floor to floor, cut off escape from the upper floors, and provide vertical shafts to improve the draft. 1 The Design of Steel Mill Buildings and Calculation of Stresses in Frameci Structures, N. Y., 1903, p. 142. Digitized by Microsoft® 82 ADMINISTRATION OF INDUSTRIAL ENTERPRISES Slow-burning construction. — "Slow-burning or standard mill " construction employs timber in massive sizes. It rejects all framing sticks any dimension of which is less than six inches; and it substitutes two to three inch roof plank and three to four inch floor plank for the thin boards used in ordinary frame build- ings. The reason for this generous use of wood is that the char- ring action of ordinary fires seldom penetrates a sohd stick more than half an inch. When all the wood supports and fire stops One inch sub-floor and one inch surface floor Joist 2" X 12" set 16" on centers Main Girder Fig. 22. Undesirable Floor Construction' The timber surface exposed in a ceiliiig area 8 by 8 feet in dimension is approximately 26,000 square inches. are able to bear this deduction from their dimensions, without bringing down the building, a reasonable opportunity is given for putting a fire under control. The difference between good and bad floor construction is illustrated by Figures 22 and 23. A second principle of slow-burning construction is that each floor shall be a closed fire unit. To accomplish this the floors must extend unpierced from wall to waU, and aU elevator ways and stairways must be enclosed in walls as incombustible as the floors themselves. All openings in inside walls should be equipped with self-closing fire-proof doors. A third principle is that the ceilings over all specially hazard- » Insurance Engineering Experiment Station, Report No. V, Slow- burning or Mill Construction, Boston, 1908. Digitized by Microsoft® BUILDINGS AND EQUIPMENTS 83 ous stock or processes shall be protected with fire-retardant materials such as asbestos board, sheet metal, or plaster on metal lath. Standard mill construction will average, perhaps, one- fourth more expensive than an ordinary frame. Steel frame buildings. — The chief structural members of steel buildings comprise a system of posts braced together at the junctures of floors and walls by horizontal girts, and carry- ing a series of braced roof trusses. Roofing materials are afiixed One inch surface floor of maple Sub-floor of 3" X 5"' pine planks, grooved and'spliued Main girders set 6' to lO* on centres Fig. 23. Desirable Floor Constbitction* The timber surface exposed in a ceiling area 8 by 8 feet in dimension is approximately 14,500 square inches. by means of light purlins connecting the trusses. The walls are Hght curtains of brick, tile, or sheet metal, filHng the rectangular spaces between the posts and girts. With wood floors and roofs, such structures are easily destroyed by fire, as a consequence of the buckhng of the exposed steel. With concrete or terra cotta floors, and fire proofing for the steel, such structures are admirable but expensive. This form of construction has the advantage of being thoroughly understood and reliable in its engineering aspects, and of economizing space on the lower floors of many-storied buildings. The steel frame can be made to serve not only the function of carrying the building, but of supporting travehng cranes and wall machines and shafting and counter-shafting. 1 Insuranqe Engineering Experiment Station, Report No. V, Slow- burning or Mill Construction, Boston. 1908. Digitized by Microsoft® 84 ADMINISTRATION OF INDUSTRIAL ENTERPRISES Reenforced concrete. — Factories built of reenforced con- crete are slightly more expensive than slow-burning structures, but are materially cheaper than those of fire-proofed steel. The advantages of concrete structures are that the floors are rigid and free from vibration, the sanitary aspects are unexcelled, maintenance charges are low, and fire hazard is reduced to the minimum. The drawbacks are that the safety of the structure is vitally dependent upon correct proportioning, a yet somewhat new field of design; and upon the mixing and pouring of mate- rials, a process which requires close supervision. The rear- rangement of shafting and machinery is difficult in concrete buildings, unless provision is made during construction for numerous points of attachment for hangers and floor bolts. FiEE Hazakd Significance. — The average fire loss of the United States, during the five years 1910-1914 inclusive, was $212,529,935 per year; a smn which amounted to $582,000 per day, $24,000 per hour, or approximately $400 per minute. Our annual losses may be pictured in the form of a street extending from Chicago to Denver, or from Chicago to New York City, lined closely on both sides with buildings, and being steadily Ucked up by fire at the rate of about three miles a day. At every thousand feet on this street there occurs a building from which an injured person has been rescued; at every three-quarters of a mile there is the scene of a horrible death. Some of the reasons why this country sustains losses enormously larger than most other civihzed countries may be indicated in an indirect way by recounting the history of a fire in BerUn, Germany, as reported by the National Fire Underwriters' Association. " An American gentleman, temporarily hving in Berlin, was awakened by smoke, and found that a fire originating in a room over him was eating its way through the ceiling of his dining-room. The blaze was extinguished with chemical apparatus without any water damage and without needless destruction of walls and Digitized by Microsoft® BUILDINGS AND EQUIPMENTS 85 furniture. A careful investigation was made by officials and the next morning the man who turned ia the alarm was sent for and taken before a fire marshal with iaquisitorial powers. The examination of aU involved showed that the fire started with a hot coal which had dropped from a laundry stove in the attic and rolled upon an improtected wooden floor. The tenant proved that the stove was an appointment of the build- ing, provided by the landlord, and that it was neither his duty nor his privilege to change it. The landlord proved that he had recently purchased the building under the usual guarantee that all laws and ordinances had been comphed with in con- struction and appointment, that this stove had not been changed, and that his attention had not been called to any con- dition involving a fire risk. The builder from whom the owner purchased was then called and had to admit that he was respon- sible for the setting of the stove,as the police had found it, and that he had violated the law in neglecting to provide a suitable metalhc hearth of the required kind and dimensions between it and the floor. This responsibihty was brought home to him by the assessment against him of the damage to the furniture and property of the tenants, together with the estimated cost to the city of responding to the alarm and extinguishing the fire, rounded out by an exemplary fine of 500 marks as a re- minder that German laws are intended to be observed. The builder was not required to pay for the damage to the building, it being held that while the owner had not committed the vio- lation of law which caused the fire, he had been neglectful in not discovering and correcting it, and for that reason should pay for his own repairs. He was informed that only the fact that he had owned the building for a short time saved -him from a fine in addition." Such laws and such enforcement help to ex- plain the fact that the usual per capita fire loss in Berhn is 10.30 annually, while the loss in Chicago is between $2.50 and $3.00. Safe construction. — The man who causes a building to be constructed assumes a serious social responsibility as the maker Digitized by Microsoft® 86 ADMINISTRATION OF INDUSTRIAL ENTERPRISES of a public record. He turns his mind inside out before the community. A miserable fire trap is a daily public demon- stration to the neighborhood of the character and purposes of the owner. Good practice in construction may be summarized in a series of points, those matters being omitted which have already been presented. 1. Employ a competent architect. 2. Provide more than one fire unit for all floors above the second, by constructing at least one fire-proof partition wall. The experience of factory fires shows that, where a hundred or more persons are employed on an upper floor, stairways and fire escapes, even of generous proportions, are highly dangerous. If a panic develops, and a few fallen persons cause a blockade, the loss of life may be very great. When, however, a fire-proof partition makes it possible for persons to pass from one room to another on the same floor, the feeUng of confidence that there is ample time to escape will preserve discipHne, and an orderly exit will be possible. Even if a building is fire proof, this sub- division of floors will give protection to life in this manner, as well as serve to subdivide the risk on contents. 3. Floors should have as few openings as possible, and these openings should be metal protected to prevent the passage of fire from one story to another. All openings should be finished at the floor by a boss to prevent water from passing from upper to lower floors, scuppers being provided for drainage through the outside walls at the floor level. 4. All walls and internal partitions should be either fire proof or of slow-burning construction. 5. Interior doorways connecting fire units should be protected by automatically closing, fire-proof doors. The windows open- ing upon all shaft-lilie areas, such as light wells or small courts, or looking upon other nearby structures, or standing close to an inside angle of the same building, should be provided with metal casings and sash, and with wire-mesh glass. It has been estimated that one-third of the total fire loss is caused Digitized by Microsoft® BUILDINGS AND EQUIPMENTS 87 by fire passing from one building to another, through window openings. 6. Stairways, beltways, and elevator ways should be en- closed in slow-burning or fire-proof partitions. In all cases where many persons are to be congregated on upper floors it is important that fire escapes should possess the two following characteristics : first, persons going down should not be obliged to pass in front of any opening of a lower floor from which flames can issue. The connection at each floor should be indirect, that is to say, around a corner or along an unpierced wall. Second, if the fire escape is enclosed, the menace of smoke should be avoided, and the draft action be broken up, by large openings to the outer air at each floor. Two fire-escape designs recormnended by "Industrial Engineering"' are as follows: Shop Open to the air Shop BalconywittisoM floor Fig. 24. FiBE Escapes with Indirect Approach and Free Aih Spaces AT Each Floor 1 October 1913. Digitized by Microsoft® 88 ADMINISTRATION OF INDUSTRIAL ENTERPRISES 7. If the outer covering of a roof is reasonably fire resistant a great source of loss from communicating fires is removed. Skylights and elevator pent houses are critical points in roof construction because, in case of fire, they are caps closing up possible chimneys. The Chicago ordinances provide that skyUghts must be metal protected in buildings less than 90 feet high, and fire-proof in all higher structures. 8. Fires usually have small beginnings. The main rule of strategy in dealing with them is to get at them early. The essential apparatus for a quick response is an automatic fire alarm, supplemented either by portable extinguishers, or stand- pipe with hose on all floors, or by a system of automatic sprinklers, or by all three. Automatic sprinklers. — One of the recommendations of the Board of Fire Underwriters of New York, following the disastrous fire of the Triangle Waist Company, was that no factory building containing inflammable goods in process of manufacture, or employing in excess of a limited number of operatives, and over 60 feet high, should be without automatic sprinklers. An automatic sprinkler installation consists of a system of pipes hung slightly below the ceilings, and so distributed that a head or valve wiU be centrally located over every 80 to 100 square feet of floor space. A fusible Unk in the head melts at from 155° to 160° F., and starts a water spray. The pipes must be connected with a dependable water supply. It is advisable to supplement the city water by placing a tank above the roof, of sufficient capacity to operate one-half the sprinklers on any one floor for fifteen minutes. If the pipes are to be placed where water would freeze, they may be filled with air kept under pressure by a dry valve, which will admit water to the system upon the opening of any head. As the system is not intended to cope with fires which have gained headway, it is essential to extend it to every part of the risk, or to isolate the unsprinklered portions. When the valves are once opened they continue to play until the water Digitized by Microsoft® BUILDINGS AND EQUIPMENTS 89 supply is cut off; it is advisable, therefore, to add an automatic alarm to avoid excessive water damage in case the valves are opened when the building is empty. The National Fire Pro- tective Association has compiled the history of 8,347 sprinklered fires. Of these 7,846, or 94 per cent, were put out by the sprink- lers unaided. The failures were due to the water being turned off, insufficient water supply, concealed spaces, fires gaining head- way in unsprinklered parts, etc. Fifty-five per cent of these fires were extinguished by 3 valves or less, 72 per cent by 6 valves or less. These facts show the locahzation of water loss as compared with the general destruction incident to the work of city fire departments. Insurance companies belonging to the National Board of Fire Underwriters grant a reduction of rates from 30 to 50 per cent for sprinklered risks, depending upon the character of the equipment. For a risk of fair size, the cost of installing can be paid for in a few years out of the saving in insurance premi- mns; indeed, there are construction companies ready to in- stall the system and take as their pay a part of the insurance saving. Insurance rates in building finance. — To bring out the power- ful influence exerted by insurance rates upon the calculations of building finance, let us take a series of illustrative cases involv- ing different types of construction. Three plans for a two-story building, with dimensions 25x30 feet, were drawn up by the Home Insurance Company in 1910, and submitted to builders in all parts of the United States for bids. The first floor of the building was to be flush with the ground; the height of the eaves was to be 22 feet; the peak of the roof was to be 10 feet above the eaves. The bids in detail averaged as follows: framing with brick walls $1,096, framing with concrete walls $838, wood framing $619, tin roof painted $120, slate roof $129, tile roof $212, shingle roof $87. Allowing $1,500 in each case for inside finish, the cost of construction with different materials was found to be, Digitized by Microsoft® 90 ADMINISTRATION OF INDUSTRIAL ENTERPRISES Style A. Brick walls and slate roof, $2,725. " B. Concrete walls and tile roof, $2,550. " C. Frame walls and shingle roof, $2,206. Inasmuch as the style of construction affects the insurance, not only on the building, but on its contents as well, it is neces- sary to take both rates into account. Assuming average condi- tions as to exposure, moral hazard, etc., the insurance rate per $100 per annum on building and contents, when used for various purposes, would be approximately as follows: Property As Dwelling As Store As Factory A Building $0,495 $0.95 $1.4125 " Contents 0.495 1.0125 1.4125 B Building 0.495 0.95 1.4125 "Contents 0.495 1.0125 1.4125 C Building 0.882 2.75 2.3875 " Contents 0.882 2.6875 2.3875 Let us assume that if the building is used as a dwelling the contents will be insured at $1,500, if used as a store at $3,333, and if used as a factory at $5,000. The annual insurance pre- miums for each style of construction, used in each of the three ways, will then be, for building and contents, as follows: Property As DwelUng As Store As Factory A Bldg. and contents $20.91 $59.64 $109.12 B " " " 20.05 57.98 106.64 C " " " 32.69 150.25 171.99 The differences between the annual premiums are : As Dwelling As Store As Factory Between A and C . . $11.78 $90.61 $62.87 " B " C. 12.64 92.27 65.35 Digitized by Microsoft® BUILDINGS AND EQUIPMENTS 91 The differences in original cost are: Between A and C $519 " B " C 344 If we divide the difference in the cost of the structures by the difference in the annual insurance premiums, without allowing anything for interest, we find that the saving in premiums will equal the difference in the cost, in the following periods of time : As Dwelling As Store As Factory Between A and C . . . 44 years 5 . 7 years 8 . 1 years " B " C 27 " 3.7 " 5.3 " If we take interest into account, compounding annually at 6 per cent on the sums represented by the differences in first cost, and putting the differences in the premiums into a sinking fund compounding at 6 per cent, we can discover in what periods of time the saving in premiums will equal the difference in cost of construction. It is obvious, at once, that the saving in premi- ums, when the structure is to be used as a dwelhng, is not suflS.- cient to extinguish the difference in first cost. When, however, we turn to the premiums which must be paid when the struc- ture is used as a store or as a factory, we perceive the decisive effect of the premiums paid on contents. The periods in which the premiums saved will extinguish differences in cost, when compound interest is calculated, are: As Store As Factory Between A and C . . A httle over 7 years A little over 11 years " B " C. .About 4^ years About GJ years From this it can be seen that cheap, inflammable forms of construction, to be used for store or factory purposes, have no standing whatever in a rationally financed plan. Nor does the insurance premium involve the whole case. Digitized by Microsoft® 92 ADMINISTRATION OF INDUSTRIAL ENTERPRISES There is usually an iminsured hazard. Furthermore, the expenses of maintenance and depreciation are generally higher on inflammable than on slow-burning or fire-proof construction. The annual rates of depreciation on the above-described struc- tures, as furnished by engineers from all parts of the coimtry, averaged for A style 1.11 per cent, for B style 1.27 per cent, and for C style 3.47 per cent. In addition the C type building is subject to an extra expense of from $20 to $30 for paint- ing every four years, and to an extra annual heating biU, estimated for the northern parts of the country at $20. TaJc- ing all these various items into consideration, the net rent of A and B structures for 20 years has been calculated at 7.77 per cent on the investment; that for C structure at 5.16 per cent. Safe operation. — Some points of good practice in the opers/- tion of shops, to lessen fire risks, are as follows: 1. The segregation of hazardous processes, and of all but the daily requirements of such substances as gasoline, should be complete. 2. Sharp supervision should be given to wastes and oily rags and dust preventives, and to all materials containing vegetable oils which oxidize at low temperatures. Metal waste cans are now to be had which can be conveniently opened and closed by means of a foot lever. 3. The aUgnment of shafting, and the condition of aU hangers should receive regular attention. The stages of a shafting fire are, first, combustion of the oil and waste at the bearing as the result of excess friction from lack of ahgnment; second, the melting of the Babbitt metal of the bearing; third, the drip of this hot metal, together with burning drops of oil, to the floor; fourth, general conflagration. 4. Smoldng should be prohibited during work hours and in work apartments and stock rooms. 5. The idea of a fire drill at frequent intervals should be carried from our schools to our factories. If fire-fighting appa- Digitized by Microsoft® BUILDINGS AND EQUIPMENTS 93 ratus is installed by employers, preliminary exercise in its use is as intelligent a thing as military drill is for war, or boat drill is for Atlantic liners. Heating and Ventilation Inadequate heating and ventilation cause inefficiency through sickness, lowered vitality, and the inferior average of ability which results from the fact that those persons for whom em.ploy- ers compete actively will select comfortable surroundings. The employees of the United States Pension Bureau averaged 18,736 lost days per year on account of sickness, while they were housed in poorly ventilated buUdings. When the Bureau was moved to its present well-equipped quarters, the losses fell to 10,114 days per year. The Telegraph and Telephone Company of Cambridge, Mass., emplojdng between 50 and 60 girls, with poor ventilation in 1906 averaged 4.9 per cent of the force absent, and in the following year 4.5 per cent. When good ventilation was provided the absences fell to 1.9 per cent.^ Good air. — Ideal heating and ventilation consists in dis- tributing, without injurious draft, an adequate supply of air of the proper temperature and degree of humidity, and free from dust and noxious gases. The traditional criterion of the quality of air has been the percentage of carbon dioxide (COa) in it. It has been held that, in first-class practice, the propor- tion should not exceed 6 parts per 10,000, while the maxi- mum allowable was from 9 to 12 parts per 10,000. To attain a standard of 6 parts per 10,000 requires an hourly supply of 2,500 cubic feet of fresh air per individual. The emphasis in ventilation is now placed by physiologists entirely upon the temperature and humidity of the air. Experiments appear to show that air is bad chiefly by reason of conditions which inter- fere with the proper functioning of the skin in regulating the temperature of the body. ' C. E. A. Winslow, Factory Sanitation and Efficiency, Industrial Engineering, June 1911, p. 46. Digitized by Microsoft® 94 ADMINISTRATION OF INDUSTRIAL ENTERPRISES Temperature. — A winter temperature of between 60° and 70° F. should be maintained in manufacturing departments, and somewhat higher temperatures in office departments. With vigorous exertion 55° to 60° F. is not uncomfortable, but if labor is intermittent, or the quick and accurate use of the fingers is necessary, a temperature of 60° to 65° F. is better. Heating calculations must take into accoimt the type of building construction, area of outside walls, window areas, velocities of the wind, outside temperatures, isolation, rate of change of inside air, and the heat generated by persons, lights, and machines. Htunidity. — The capacity of air to absorb moisture vapor increases with its temperature. If outside air at 75 per cent humidity, and at temperatures of 10°, 20°, or 30° F. be heated to 65° F., it becomes desert-hke in dryness with humidities of 8.5, 14, and 21 per cent, respectively. Air of this degree of dryness sucks moisture energetically from everything with which it comes in contact. Some processes, such as textile spinning and cigar making, are impossible in such air. Upon workmen the effect is bad: the membranes of the nose and throat become parched, while the dust raised by the dryness of surrounding objects contributes to increase irritation. The Chicago ordinances require that the humidity of factories shall be kept between 40 and 85 per cent. The normal humidity of out-door air may, perhaps, be taken as 65 per cent. This is an acceptable standard for inside practice. Ventilating and heating methods. — The ordinary system of ventilation is to depend upon the natural porosity of building materials, and to get an occasional change of air by the time- honored device of opening the windows. The ordinary method of heating shops is to attach steam pipes to the outside walls. Such equipment is expensive in fuel and in the upkeep of piping, and does the job poorly. A sheet of hot air flows upward along the windows and o-utside walls, cooling rapidly as it passes, and finally takes its place as a bank of warm air next the roof or Digitized by Microsoft® BUILDINGS AND EQUIPMENTS 95 ceiling. Meanwhile the central and lower parts of the room remain cold. The ideal system is indirect radiation and mechan- ical ventilation. The apparatus required consists of an intake and fan, a battery of coils for heating or cooling, a chamber of cold water sprays or steam sprays to regxilate humidity, a sys- tem of fresh air supply pipes of properly graduated dimensions and proper sized openings, together with corresponding venti- lators for the outflow of used air. With such a system about one-fourth as much steam piping is required as with direct radiation, for the fan drives the air rapidly over the heating coils. The piping, also, is conveniently concentrated for repair in a basement location, where leakage can do no harm. Artificial Illumination It has been said that man, in the productive process, can do nothing with materials, beyond moving them from place to place where they are variously acted upon by natural forces. The sense most employed in locating things is sight. This sense, in our latitude, must be aided, for about 15 per cent of the working day, by artificial illumination. The expense of good illumination is a neghgible factor in comparison with its efficiency. One of the most expensive forms of Hghting is the incandescent carbon-filament lamp. The cost of operating a 16 candle-power lamp of this character is about one-half cent per hour. If a workman receiving thirty cents wages per hour is hindered one minute by defective illumination, the wage loss alone, to say nothing of fixed charges, is sufficient to provide a lamp for an hour. If a workman loses ten per cent of his efficiency during working hoiu-s because of poor light, the wage loss would keep six lamps going during the entire day. Flexner and Dicker have estimated the cost of one 100-watt lamp for each man, burning 3| hours per day, at $6.36 per year.' If a 1 Good lUumination as an Accident Preventer, Proc. of Illuminating Engineering Society, 1914. Digitized by Microsoft® 96 ADMINISTRATION OF INDUSTRIAL ENTERPRISES workman receives $1,000 a year in wages, the cost of lighting is but about f of 1 per cent of the payroll. Essentials. — The essentials of an adequate system of illumi- nation are, 1, sufficient amount; 2, proper distribution and diffusion; 3, absence of glare; 4, freedom from fluctuations, and, 5, freedom from injurious invisible radiations. Intensity. — The hght intensity required for the illumination of yards, paths, and warehouses, where men must be able to see general inequahties and large obstacles, and must have sufficient hght to load and imload coarse materials, operate cranes, and handle large tools, will vary from 0.15 to 0.5 foot candles. The general illumination of machine shops should be between one and two foot candles. For the reading of blue prints and the close inspection of work in machine shops, and for desk work in offices, the intensity should be between 3 and 6 foot candles. Drafting rooms call for from 4 to 6 foot candles. Distribution and diffusion. — The difficulty of distribution Hes in providing an intense iQiumnation for the particular field of a man's work, while giving to the room as a whole an econom- ical general Ughting of low intensity; and yet, in doing these two things, to avoid the necessity for any individual pair of eyes making the change from one degree of illumination to another frequently or rapidly. A satisfactory solution of the problem requires the careful location of small, individual, hooded lights, set close to the work, and the general illumina- tion of the apartment by high-placed, open hghts of greater power. It requires, also, such a division of labor in the shop or office as will permit each person to work in one plane of illu- mination, as far as possible. The control of the reflection of Ught from non-luminous objects in an apartment is quite as important as the proper subdivision and location of the primary hght sources. The field upon which a workman's eyes are focused at any moment is but a minute fraction of the total area which must be illmninated. Economy Digitized by Microsoft® BUILDINGS AND EQUIPMENTS 97 in the use of illuminant demands, therefore, that the objects at which the workman is not looking should reasonably reflect back the light radiated to them, and thus assist in the illumina- tion of the object on which the eyes rest. It has been said that a 20 candle-power light will give as much illumination in a room with white surfaces as 100 candle-power will give in a black room. It is good practice to paint ceilings and walls and posts a Ught color. By this means a diffused and soft light, very agreeable to the eyes, is produced. Glare. — Glare is the, dazzling or blinding effect produced by excessive hght. The word is used to signify the more or less temporary injury of the retina by intense light. It also designates delay in accommodation, or the inability of the pupils to at once take in suflBcient hght for definition, when dropping from a high to a low degree of Ulumination. A third significa^ tion of glare is that a pupil which is taking in light from an intense source cannot, at the same time, open widely enough to give proper definition of less brilHantly illuminated objects. A workman who has a dazzHng hght source or reflection in his field of vision, and who is vainly trying to see a moderately illuminated piece of work, may complain of insufficient hght, when he is really suffering from excess of light. If the bril- hant Hght is excluded from the eyes, the pupils dilate so that the work is seen, and the trouble disappears. As the progress of illumination engineering causes new and increasingly intense Hght sources to be brought into use, the danger of glare is increasing. It has been advanced as a good general rule that no one should be exposed to the frequent view of any luminous object the brilHancy of which exceeds four candle-power per square inch. As the intensity of the gas mantle is about 32.5 candle-power per square inch, and of the carbon-filament 558 candle-power, and of tungsten, tantalum, and arc lamps much more, this rule can be interpreted to mean that no light sources, and no mirror-Hke or undiffused reflection of the direct rays from such a source, should be directly visible. Digitized by Microsoft® 98 ADMINISTRATION OF INDUSTRIAL ENTERPRISES Building Contracts The various forms of building contracts may be classified under four heads, with reference to the manner in which the financial relations between the owner and the contractor are determined. 1. Lump-sum contracts, or the form in common use at the present time. 2. Cost-plus-a-percentage contracts, with or without a guarantee not to exceed a stated maximum. 3. Cost-plus-a-fixed-sum contracts, one modified form of which provides a theoretical cost, and establishes a sliding scale of bonuses if actual cost is less, and of penalties if it is more. 4. Unit-price contracts, providing a series of prices according to which all materials furnished and put in place are to be paid for. Lump-sum contracts. — Under this plan the owner provides complete drawings and specifications, oh the basis of which contractors bid by naming a siun for which the work will be done. The lowest bidder secures the work, imless there is a clause employed which permits the owner to reject any or all bids. Among the advantages of this system the following points may be mentioned : 1. It necessitates clear and complete specifications and drawings. In the preparation of these the owner is likely to determine exactly what he wants before he calls for bids. The bids enable the owner to know at the start what the work will cost, so that he can promptly take the necessary steps to finance himself. 2. The contractor, Ukewise, knows from the moment his bid is accepted what materials and laborers will be necessary, and what his remuneration will be. 3. In the competition of bidding there is definiteness and simplicity. The plans are handed out; the bid is a single figure. Digitized by Microsoft® BUILDINGS AND EQUIPMENTS 99 The disadvantages include the following points: 1. The labor of arriving at bids is considerable. The owner must endeavor to foresee and provide for every contingency in the plans. The bidder must forecast all that might arise in the doing of the work. The labor of making such advance calcula- tions is labor lost to bidders who fail to land the contract. 2. On work of any magnitude, such forecasts are seldom accurate. If the contract contains clauses which place much arbitrary power in the hands of the supervising architect, it is impossible for the bidder to tell what will happen. On the other hand, if changes or additions are made as work progresses, the contractor has a chance to bring in the much-dreaded bill of extras; and he has, also, an excuse for not finishing the work on time. 3. When physical uncertainties exist, such as the chance that work on footings will reveal quicksand, or tunnelling work will encounter rock, a contractor may be made a bankrupt or may pocket imreasonable profits. A contractor speciaHzes upon labor, materials, and work processes, and so is a manufacturer rather than a trader. He is usually not equipped to carry speculative risks: and he cannot make the thoroughgoing inves- tigations which will avoid them, so long as he is a mere bidder uncertain of obtaining a contract. The owner is to possess the finished work, and it seems as fair that he should pay exactly what it costs as that he should pay an average or standardized cost. 4. The greatest objection which can be made against the lump-sum contract is that it arrays the owner, with his engineer or supervising architect, squarely against the contractor, making the interests of the two as opposite as possible. This antago- nism prevents these persons, who usually have different kinds of knowledge and talent, from working in harmony. It is this antagonism which makes loop-holes and extras dangerous, and which makes necessary elaborate specifications and rigid systems of inspection. Digitized by Microsoft® 100 ADMINISTRATION OF INDUSTRIAL ENTERPRISES Cost-plus-a-percentage contracts. — Under this plan the con- tractor agrees to furnish all the materials, labor, superintend- ence, and eqmpment necessary for the doing of a given piece of work. This he agrees to do at cost, taking his own remunera- tion in the form of a percentage — 10 to 15 per cent — calcu- lated on the cost. There is sometimes an arrangement that the cost is not to exceed a specified amount. The advantages may be first considered. 1. There is no dispute between the parties as to the qualities of materials or the character of the workmanship to be used, and very little as to the rate of advancement of work. The owner has his way and pays for it. The contractor has no reason to withhold advice which will lower the cost for, if he earns less for the job, the lowering of cost usually means the elimination of slow kinds of work, so that his rate of earning in terms of time is increased. 2. Plans may be changed as the work advances. This is convenient in cases where the specifications are poor or the drawings full of imperfections. 3. Time may be saved by starting work promptly. The specifications relating to later stages of the work can be prepared wlule the earher classes of work are imder way. 4. The contractor, by being reUeved of worry as to the weather, cost of materials, etc., has his mind free for the problem of doing the work in the best possible manner. 5. The owner has every motive to refrain from unreasonable demands. He is quickly educated by the cost reports he receives. Passing to the disadvantages, we find : 1. The elasticity of the plan encourages the starting of operations before plans have been well thought out, and before the cost has been reasonably counted by the owner. 2. Trouble may arise in any " cost plus " contract as to what items may properly be included as cost. If the contractor furnishes derricks and tools and wagons, what charge should be Digitized by Microsoft® BUILDINGS AND EQUIPMENTS 101 made for them? How shall the use of the contractor's build- ings and storage yards and office force be charged for? 3. Contracts based on cost are obviously open to the fraud of secret rebates. If the contractor does not take these rebates for himself, he may nevertheless fail in diligence in securing them for his employers. 4. There is an idea among workmen that it is justifiable to " soldier " at an owner's expense, whereas to soldier on a con- tractor is to rob him of his hving. This idea workmen are made bold to apply, since they vmderstand that the owner will not soon be on the market for labor again. The contractor has not the incentive to manage with energy, except as speed increases the number of jobs he can handle in a season. 5. The largest costs roU up in a given time when easy, com- monplace, standardized forms of work are imder way. The contractor will find it Uttle to his interest to do fine, difficult, or unusual work, which requires careful supervision, but upon which the percentage earnable per week is low. 6. The owner, who is at best an intelhgent amateur, may be overstimulated, so that he attempts to dictate in matters which he does not imderstand. A dispute as to the division of administrative authority may arise unless decisive clauses are in the contract. Cost-plus-a-fixed-sum contracts. — This plan provides that the owner shall pay the cost of a piece of work, and an additional fixed sum as the contractor's profit. The plan was devised to avoid the premium on sloth which the percentage plan was thought to offer. By pushing his work through energetically, the contractor gets his reward without diminution and in a shorter time. The defects of the plan are similar to those of the cost-plus-ar percentage plan, except for the premimn on sloth. Unit-price contracts. — The unit-price plan involves a schedule of agreed rates at which the owner will pay the contractor for various classes of materials, when finished and Digitized by Microsoft® 102 ADMINISTRATION OF INDUSTRIAL ENTERPRISES set in their places in the structure. It is a sort of lump-sum contract calculated for each unit of work: or it is a species of piece-rate appHed to contract work. Sometimes a maximimi amoimt to be paid for each kind of work is stipulated. The merits of the unit price may be designated broadly by saying, 1. That it pays accurately and exactly for what is done, and for that only. 2. It puts a premium on speed, as does the cost-plus-a-fixed- sxun contract or the lump-sum contract. There are several disadvantages: 1. The interests of contractor and owner tend to draw apart as in the lump-sum contract. 2. To protect the owner lq the matter of quality, and to determine the quantities for which payment is to be made, "quantity sxu-vejong " becomes necessary. If the construction to be paid for is a simple thing, such as an earthen embank- ment, a single survey at the conclusion of the work is suffi- cient. In architectural construction, however, where one material covers another, repeated surveys must be made, so that the plan becomes expensive. " Quantity surveying " is common in England, where the salaries of engineers and inspectors are much lower than they are in America, and where construction methods do not so greatly emphasize speed. 3. Rival bids submitted under this plan can be compared with difficulty. It is asserted that it is possible to prepare deceptive bids, in which the more prominent rates are low, while "jokers " are hidden away where they will attract Uttle attention until operations are begun. Digitized by Microsoft® BUILDINGS AND EQUIPMENTS 103 BIBLIOGRAPHY On General Construction — Becker, O. M., and W. J. Lees: Building a Factory, System, Sept. 1906 to Apr. 1907, incl. Timmis, W. S. : Manufacturing Buildings in Cities, Iron Age, Jan. 4, 1906, pp. 29-33. Main, Chas. T. : Mill Construction, Proc. N. Eng. Cotton Mfrs. Asso., 1886; Revised in the Proc. of Apr. 1904, No. 76; Revised as "Approxi- mate Cost of MiU Buildings," in Proc. of Apr. 1914; Revised to Jan. 1910, in Engineering News, Jan. 1910, p. 96. Evers, C. C. : The Commercial Problem in Buildings, N. Y., 1914. Bolton, R. P. : Building for Profit, N. Y., 1911. Slow-burning or MiU Construction, Report No. 5 of the Insurance Engi- neering Experiment Station, issued under the direction of the Boston Mfrs. Mutual Fire Ins. Co., Boston, 1908. Brill, Geo. M.: Location, Arrangement, and Construction of Manufactur- ing Plants, Joum. of Western Soc. of Engineers, Apr. 1908, Vol. 13, No. 2, pp. 149-172. Day, Chas.: Industrial Plants: Their Arrangement and Construction, N. Y., 1911. Tyrrell, Henry G.: A Treatise on the Design and Construction of Mill Buildings and Other Industrial Plants, Chicago, 1911, especially Part I, Chs. I to IX incl., on The Theory of Economic Design. Tjrrell, Henry G.: Engineering Shops and Factories, N. Y., 1912. Perrigo, O. E.: Modem Machine Shop Construction, Equipment, and Management, N. Y., 1906. Ch. II, General Plans; Ch. Ill, General Construction of the Buildings; Chs. IV, V, and VI on Slow-burning Construction. Kimball, D. S. : Principles of Industrial Organization, N. Y., 1913. Ch. XIII, Location, Arrangement, and Construction of Industrial Plants. Price, Geo. M.: The Modem Factory: Safety, Sanitation, and Welfare, N. Y., 1914. Ch. II, The Workplace; Ch. VI, Factory Sanitation. Diemer, H.: Factory Organization and Administration, N. Y., 1910. Ch. Ill, The Planning of Factory Buildings and the Influence of Design on their Productive Capacity. Factory Sanitation, Pittsburg, 1913, The Standard Sanitary Mfg. Co., gratis. Lane, H. M.: Special Handling Appliances for the Shop, Iron Age, Apr. 4, 1907, pp. 1033-1039. The building ordinances of the larger cities. Digitized by Microsoft® 104 ADMINISTRATION OF INDUSTRIAL ENTERPRISES On the Fire Hazard — Crosby, E. U., and Fiske, H. A. : Crosby-Fiske Handbook of Fire Protec- tion, Louisville, Ky., 5th Ed., 1914. Crocker, Edw. F.: Fire Prevention, N. Y., 1912. McKeon, Peter J.: Fire Prevention,- N. Y., 1912. Evans, P. (Editor) : Official Record of the First, Anaerican National Fire Prevention Convention, held at Philadelphia, Pa., Oct. 13-18, 1913. Philadelphia, Pa., 1914. Proceedings of the National Board of Fire Underwriters, N. Y. Zartman, Lester W. (Editor) : Fire Insurance, New Haven, Conn., 1909. Ch. V, Rates and Hazards, Rich. M. Bissell; Ch. VI, Fire-rating, A. F. Dean; Ch. VII, Scientific Fire-rating, Miles M. Dawson; Ch. XIV, Fire Insurance Engineering, F. C. Moore; Ch. XV, Fire Protection with Automatic Sprinklers, F. C. Moore. Dean, A. F.: Analytic System for the Measurement of Relative Fire Hazards, Chicago, 1906. Duncan, John C: The Principles of Industrial Management, N. Y., 1911. Ch. X, Fire Precaution and Its Effect on Layout and Structure. Huebner, S. S.: Property Insurance, N. Y., 1911. Price, Geo. M.: The Modern Factory: Safety, Sanitation, and Welfare, N. Y., 1914. Ch. Ill, Factory Fires and Their Prevention. The files of Safety Engineering, N. Y., (monthly). Woodbury, C. J. H.: Fire Protection of Mills, N. Y. On Heating and Ventilation — Carpenter, R. C. : Heating and Ventilating Bxnldings, 5th Ed., N. Y., 1910. Allen, J. R.: Notes on Heating and Ventilation, Chicago, 1906. Winslow, C. E. A.: Ventilation, Air Space, Humidity, and Temperature, Bulletin No. 13 of the Am. Asso. for Labor Legislation, N. Y. Perrigo, O. E.: Modem Machine Shop Construction, Equipment, and Management, N. Y., 1906. Ch. XII, The System of Heating and Ventilation. Price, Geo. M.: The Modem Factory: Safety, Sanitation, and Welfare, N. Y., 1914. Ch. VIII, Axe and Ventilation in Factories. Lee, F. S.: Fresh Air, Popular Science Monthly, Apr. 1914. Haldane, J. S. : The Removal of Dust and Fumes in Factories, Journ. of Society of Arts, May 22, 1908. Proceedings of Am. Society of Heating and Ventilating Engineers, N. Y. Moses, P. R. : The Heating, Ventilation and Air-conditioning of Factories, Engineering Mag., Aug. and Sept. 1910. Digitized by Microsoft® BUILDINGS AND EQUIPMENTS 105 On Illumination, Natural and Artificial — Bell, Louis: Art of Illumination, N. Y., 2d Ed., 1913. CleweU, C. E.: Factory Lighting, N. Y., 1913. ' Horstmann, H. C, and Tousley, V. H.: Modem Illumiaation: Theory and Practice, Chicago, 1912. Godinez, F. L.: The Lighting Book: A Manual for the Layman, N. Y., 1913. Elliott, E. L.: Notes on Industrial Lighting, Industrial Engineering, Mch., Apr., May, June, Oct. and Nov. 1912, Jan., Mch., Apr., and July 1913. Estep, H. L.: How to Light the Workroom, System, Dec. 1911, pp. 614-623. Elliott, E. L. : Factory Lighting, Bulletin No. 13 of the Am. Asso. for Labor Legislation, being Vol. I, No. 2, of the Am. Labor Legislation Review, 1909. Perrigo, O. E.: Modem Machine Shop Construction, Equipment, and Management, N. Y., 1906.^ Ch. XIII, The System of Lighting. Price, Geo. M.: The Modem Factory: Safety, Sanitation, and Welfare, N. Y., 1914. Ch. V, Light and Illumination in Factories. Transactions of The Illuminating Engineering Society, Easton, Pa. Transactions of the National Electric Light Asso., N. Y. Transactions of the Am. Institute of Electrical Engineers, N. Y. Literatiure distributed gratis by The General Electric Co. of Schenectady, N. Y., The Cooper-Hewett Co. of New York City, The Detroit Steel Products Co. of Detroit, Mich., The David Lupton's Sons Co. of Philadelphia, and The G. Drouv^ Co. of Bridgeport, Conn. Digitized by Microsoft® CHAPTER VI POWER It has been said that, of the thousand million dollars paid out annually in the United States for the coal burned under boilers, from one-eighth to one-foiirth could be saved, if first- class apparatus were used, and if the principles accepted by the engineering profession as controUing the efiiciency of the consumption of fuel were put into practice. Power problems. — The questions which arise in adminis- tering a power plant fall, broadly speaking, into three groups. The first of these has to do with the purchase of fuel on the basis of its fuel value, and its appropriateness for the furnace in which it is to be used. A proper check should be kept upon the amounts of fuel received and used, the en- deavor being to hold in storage only such a reserve as will insure regularity of operation. The second class of problems is concerned with the installation of furnaces and boilers, together with a more or less extensive equipment of auxiliary apparatus, such as mechanical stokers, super- heaters, condensers, water softeners, and mechanical draft. The operation of this equipment involves, among other things, the control of the vital process of stoking. The third set of problems is concerned with transmission, and involves not only the construction of a system of shafting, belting, wiring, and piping, but the supervision necessary to keep this widely scattered apparatus in a state of efficiency with reference to power absorption. Qualities of coal. — The customary way of purchasing coal is to judge the value of a new fuel by one's impression of the 106 Digitized by Microsoft® POWER ' 107 district from which it comes, by the personality of the selUng agent, or by the standing of concerns which are mentioned as users of it. If a new fuel is given a test, its fate is likely to turn upon its brightness, or the amount of dust in the sample car, or what the firemen say of it. The calorific power of coal depends upon the nmnber of heat units it will produce. The heat imit, known as British thermal vmit (B.T.U.), is the amount of heat required to raise one pound of water one degree in temperature — from 39° to 40° F. — at the sea level. A fair range of the thermal power of steam coals is from 10,000 to 15,000 B.T.U. per pound. The combus- tible element in coal is divided into volatile and fixed carbons. The volatile carbons vary from 5 per cent in hard coals to between 40 and 60 per cent in soft coals, calculating on a dry coal basis. The fixed carbons range from 50 per cent in soft coals to 85 per cent in anthracite. The market prices of coals vary , approximately with the percentage of fixed carbon, for the reason that special equipment and expert handling are required to obtain good results from the volatile elements. For this reason coal users who are equipped to handle volatile fuels will usually find that the cheapest coal is the best value for them. A rich soft coal carelessly handled means that as a quantity of fresh fuel is thrown onto the fire by the fireman, great volumes of gas will be distilled to escape unburned to the air, while vol- vunes of smoke will pass up the chimney coating all fiues and boiler surfaces with an insulating layer of soot. Coal contains varying amounts of moisture which serve to lessen its value, not only because water is not filel, but because there is required from ten to fifteen poimds of coal to evaporate one hundred pounds of water in a furnace. Inasmuch as the moisture ele- ment in coal may vary from day to day, and from one part of a stock pile to another, it is necessary to make comparisons of different fuels on a dry coal basis. Ash is earthy matter of no fuel value. In commercial coals it varies from 4 to 25 per cent. A high-ash content increases the expense of every operation, Digitized by Microsoft® 108 ADMINISTRATION OF INDUSTRIAL ENTERPRISES such as carting, stoking, sKcing, drawing, and diunping. Coals high in ash burn poorly because of the obstruction offered by the inert matter. They entail extra labor in cleaning the dust from the flues. The importance of the ash depends partly upon its tendency to fuse and form a clinker which cements itseK into a sheet in the lower part of the bed and shuts out the air from the burning fuel above. There are various minor con- stituents of coal, such as sulphur and phosphorus which, if present in large quantities, may give trouble by attacking the metal parts of the furnace and boiler. The size of the limips or particles of coal is important, uni- formity of size being a merit. When different sizes are used together the fine particles tend to sift into the interstices between the larger lumps and make a bed so compact that air does not readily pass through. Very fine coal is difficult to handle: if a thick bed is used the draft is poor; if a thin bed is resorted to the dust sifts through the grate, or spots burn out leaving holes in the bed through which the draft is lost. If the draft is strengthened dust is blown onto the flues and out of the chimney. Specifications. — The scientific way of buying coal is on the basis of detailed specifications. It is as reasonable to buy coal on analysis as it is iron ore or metals or fertihzer. The central point of a coal contract is the agreement that the fuel shall be paid for on the basis of a given number of B.T.U. — say 125,000 — for one cent. In important cities in the eastern part of the United States a commercial consumer wfll pay from 10 to 12 cents per 1,000,000 B.T.U. In order to designate the character of the fuel to be bought, a contract should contain a guaranteed approximate analysis, and limits of allowable varia- tion. The size of the coal may be controlled by describing the screens over which and through which it should pass. Other parts of the contract will refer to dates of delivery, and to the procedure to be followed in case of non-performance. Effect of transportation on value. — There is an important influence upon the relative values exerted by the transporta- Digitized by Microsoft® POWER 109 tion expense incurred in shipping coals of different composition to the place of consumption. The difference of caloric value between two fuels remains constant whatever their price or location. The laid-down prices of two fuels tend, however, toward a parity as the freight charge increases. If, for example, two kinds of coal, one A of 13,500 B.T.U. per pound, and one B of 14,500 B.T.U., sell at the mine for $1.05 and $1.25 per ton, respectively, the ratio of quahty is jJsqo or i5o' wMe the ratio of prices is j^ or jog- The B.T.U. of A is 93:1 per cent of the B.T.U. of B, while the mine price of A is only 84 per cent of the mine price of B. If we assume that the B.T.U. represent the relative fuel values to any individual buyer, it is clear that A is the better purchase at the mines. If we ship both coals, and pay $1.50 freight per ton on each, the price ratio is altered as follows: 1.05 1.50 2.55 92.7 1.25 "I l.SO ~ 2.75 ~ 100 The price of A becomes 92.7 per cent of the price of B. These prices are closely in accord with the relative fuel values. But if, however, we pay a freight of $3.00 (which is about the average charge from Eastern coal fields to interior points in New England), the price of A and B are related thus: 125 1 5:52 _ i:25 _ ?M 1.25 "I" 3.00 - 4.25 ~ 100 The price of A becomes 95.3 per cent of B, but since the fuel value remains 93 . 1 per cent, the higher grade and higher priced coal becomes the more economical of the two. Transporta- tion enhances the relative worth of superior quahties of all materials. Storage and handling. — The amount of coal which should be carried in reserve depends upon the rate of consumption, the effect of weather upon the type of fuel used, the cost of storage space, and the liability of railway or mine strikes or other inter- ruptions to supply. The prevailing idea is that a two weeks' Digitized by Microsoft® no ADMINISTRATION OF INDUSTRIAL ENTERPRISES supply is about right. The best modern practice in handling consists of unloading from self -dumping cars into pits below the track, automatic elevation into concrete overhead bins in the boiler house, and gravity feed to the furnaces. Some advantages of such installation are a saving of from one-fourth to one-half in handling cost over shoveling and teaming, the preservation of the coal dry and unfrozen, safety from theft, and economy of ground space. Requirements for combustion. — A furnace is a device in which the combustible elements of coal are volatilized by heat, and mixed at high temperature with a regulated supply of air, to bring about fairly complete combustion. The essential con- ditions for efficient combustion may be indicated broadly under seven heads. 1. Fuel should be introduced as evenly as possible, in order that the distillation of combustible gases may be uniform. In case of hand firing, small amounts of coal should be introduced frequently and spread evenly over the grates. The automatic stoker accomplishes the gradual introduction of fuel, without disturbing the drafts. 2. The fuel should be of uniform size, so that the draft will be uniform through the grate at all points. 3. Air must be admitted in sufficient quantities, that is to say, in proportion to the rate of distillation of gas from the fuel. 4. Ample space must be allowed for the gases and the air to become thoroughly mixed. 5. This mixing must take place at a high temperature, if combustion is to result. A more or less enclosed combustion chamber of fire brick should be provided. The temperature of combustion of carbon is from 1600° to 1800° F. The temper- ature of boiler surfaces is below 400° F. It is manifest, there- fore, that if any unburned gases come in contact with the shell or tubes of a boiler they will become so cooled that combustion will not take place, and they will be lost in the flue gases. The process of evolving heat in gases by combustion must be com- Digitized by Microsoft® POWER 111 pletely separated from the process of drawing the heat out of these gases into the boiler. A mixing chamber can be formed by constructing a heat-reflecting roof over the fire bed, which will confine the fire in an oven. To be certain that combustion is completed, there should be provided a special combustion chamber to the rear of this by hanging a tile roof from the bottom tier of boiler flues. The length and direction of the Fig. 25. Imperfect Fuhnacb Design The partly-burned particles of carbon are quenched by premature contact with the cool surfaces of the boiler, with the result of producing smoke and wasting fuel. travel of gas through the flues can be controlled by tile bafiies. A contrast between good and bad furnace design is presented in Figures 25 and 26. By providing a mixing chamber the process of combustion is completed before the absorption of heat by the boiler is begun. The result is smokeless combustion and efiicient use of fuel. 6. Overloads should be avoided as far as possible. A furnace designed to burn a given amount of fuel in a stated time is in perfect balance only when doing that quantity of work. Digitized by Microsoft® 112 ADMINISTRATION OF INDUSTRIAL ENTERPRISES 7. The furnace and the fuel must be adjusted to each other. After a boiler room has been equipped, and the proper type of coal has been decided upon, there should be as little variety as possible in the fuel provided. Firing systems. — There are three methods of hand firing: the coking system, the alternating system, and the sprinkling system. The coking system consists of pihng the green coal on ilg. 26. Good Furnace Design the dead plate inside the door, or on the front third or fourth of the grate, and allowing it to remain there for 20 to 30 minutes, until the volatile hydro-carbons have been driven off. This coked fuel is then pushed back evenly over the remainder of the grate, and a new charge of fuel is inserted in front as before. To secure good results, the air should be admitted through the door, so that it may mix with the gas driven off during the coking process. The furnace should be provided with a low roof to force the air and gas to travel backward close to the hot fire and be raised to high temperatures. At the rear of the grate Digitized by Microsoft® POWER 113 it is an advantage to have a bridge wall with vertical baffles to ensure thorough mixing. The coking system is suited for bitu- minous coals which are rich in volatile matter. It cannot be used with anthracite or non-coking coals. This method of firing is Uttle practised in the United States, but is used in marine work in all parts of the world, and in stationary engine practice in European countries. The alternate system of firing consists in replenishing the fuel first on one side of the grate and then on the other. The idea is to avoid cooling down the entire bed at once. A bright bed is left on one side to provide air and highly heated gas, while from the freshly covered side come rich gases of lower temper- ature. Precautions must be taken in the construction of an alternating furnace to insure the thorough mixing of the gases of the two sides. Two doors are required. The sprinkhng or spreading system consists of the even dis- tribution of a thin charge of coal over the entire grate surface at frequent intervals. The new charge should especially repair the thin spots in the fire, the idea being to have the bed offer the same degree of resistance to the passage of air in all of its parts. A new charge should not be spread until the volatile elements have been driven off the last one, and the bed has become reduced to a porous layer of burning coke. This is the system aimed at, but not often achieved with notable perfec- tion, by common practice throughout the United States. Firemen's rules. — Firemen should be instructed to add fuel frequently and in small amounts, so that volatile gases will not be hberated more rapidly than air can be mixed with them. A large mass of cold fuel thickens the bed, chills the fire, and diminishes the draft. A fireman who pokes a fire to stimulate the burning of green fuel does not understand his job. Poking is properly slicing, the object of which is to break up cakes of coke and clinker. It precedes charging rather than follows it, hastening the burning of the bed down to the point where fresh fuel is called for. It is bad practice to allow a fire to run Digitized by Microsoft® 114 ADMINISTRATION OF INDUSTRIAL ENTERPRISES up so high that severe checking is needed: The sudden cutting off of air while there is evolution of gas means wasted fuel. A skilful fireman will avoid the need of sudden checking by using the injector to regulate steam pressure. Mechanical stokers. — Stoking is a difficult art, being in reality the supervision of a complex chemical process of distilling and mixing gases. But, as a form of labor, it is attended with so many unpleasant features that it is difficult to secure a steady force of men with sufficient intelligence to realize the possibilities of the work. The first effort to solve the problem by. invention was in 1822, when a mechanical stoker of the sprinkler type was brought out in England. The first American stoker was built by Thomas Murphy of Detroit, in 1878, and was a double sloping grate. Mechanical stokers may be classed as inclined grates, chain grates, and underfeed furnaces. The inchned grate will burn coking coals, for the bed is broken up by the process of shaking down the fuel from a higher to a lower level. Chain grates do not break up the bed but travel with it from front to back; coking coals cannot be used on them. But the chain grate permits a thinner fire, and so a lower grade of fuel. The speed of the grate and the thickness of the bed must be mutually adjusted. If the speed is too fast, imburned fuel will be dumped; if too slow, the rear of the grate will become bare. Run-of-mine coal must be burned in a thick bed to pre- vent the fine particles from falling through into the ash pit. The chief claim of the underfeed grate is smokelessness. New fuel is forced in under the burning bed, so that the particles of carbon driven off by the first combustion are forced upward through the hot crown and are gasified. The fuel bed is so deep in underfeed grates that forced draft is required. The ash remains a long time in the hottest part of the fire, so that if it is of a fusible nature it melts into a solid clinker. The points of advantage of a good mechanical stoker are economy of labor (one fireman should handle from 8 to 10 stokers), economy of fuel, abiUty to utilize low-grade fuel, Digitized by Microsoft® POWER 115 increased efficiency of boilers, and longer life of boilers. The minimmn-sized plant which can advantageously use mechanical stokers is probably one of 500 horse power. Draft. — Natural draft depends upon the difference between the weight of a column of warm air in a chimney and the weight of an equal volume of cool outside air. The lower the temper- ature at which gases enter a chimney, the higher must the chimney be to ensure a given force of draft. Draft economy, therefore, balances the loss in hot gases over against the cost of a tall chimney. In good practice, coal should not be burned faster than 35 to 40 pounds per square foot of grate per hour; and the gases entering the flue should not be over 500° or 600° F. With mechanical draft expensive chimneys can be avoided, at the expense of steam consumption to operate a fan. Mechan- ical draft permits the use of low-grade fuels; it overcomes the retarding effect of an economizer; it permits overloads to be more quickly taken care of; and it permits of the regulation of draft automatically by steam pressure, and independently of temperature and barometric conditions. Boiler design. — The aims of boiler design are to cause the inside water and the outside gases to flow in opposite directions for the maximum travel at maximum speeds, to secure the shortest passage for steam from its place of origin to the steam chest, to prevent excessive fluctuations of pressure and, in general, to provide a simple, durable, flexible, and accessible piece of apparatus. The aim of boiler house design is to separate engines and boilers, and secure a system of steam mains which is as short as is consistent with the ability to cut out any unit for cleaning or repairs. Economizers. — An economizer is a collection of heavy, vertical, feed-water pipes, located between the boiler and the chimney. It is used for the purpose of saving a portion of the heat which remains in the gases after they have passed beyond the boiler surfaces. If an economizer has the capacity to reduce the temperature of the flue gases from 600° to 300° F. it will be Digitized by Microsoft® 116 ADMINISTRATION OF INDUSTRIAL ENTERPRISES able to heat the feed water to 150° F., and effect a 15 per cent economy in fuel. Economizers increase boiler capacity at a less cost than boiler additions. They help to care for sudden overloads by providing a quantity of partly-heated water which can be drawn upon. And they serve to precipitate a large part of the scale in a place where it can be easily disposed of. Shafting losses. — Ordinary practice in the transmission of power by belting and shafting is poor. It is calculated that losses average from 35 to 45 per cent of the power developed by the engine. These wastes result from excessive journal friction produced, (a), by incorrect design, as by the use of high stresses with large pulleys on heavy, slow-moving shafting; (6), by incorrect arrangement, as in the taking off of large amounts of power at the ends of the shafting; (c), by bad aUgnment, which means that the shaft not only rolls in its bearings but is twisted by them. Losses may be reduced by the use of hollow shafting of small dimension, revolving at high speed, and fitted with small pulleys. Alignment, in good practice, should never show a deflection of more than tJtt of an inch per foot. By the use of roller bearings as much as one-third of the shafting losses may be avoided: by the use of ball bearings, two-thirds may be avoided. Belting. — In a notable report presented before the American Society of Mechanical Engineers in 1894, Mr. F. W. Taylor, the founder of scientific management, communicated the results of nine years of continuous experimentation with belting. Among his conclusions were the following points. 1. "The number of square feet of double belt passing around a pulley per minute to transmit one horse power is, for oak tanned and fulled leather belts, 80 square feet, for other types of leather belts and 6 to 7 ply rubber belts, 90 square feet. 2. "The belt speed for maximum economy should be from 4,000 to 4,500 feet per minute. Digitized by Microsoft® POWER 117 3. "The best distance from centre to centre of shafts is from 20 to 25 feet. 4. "The faces of pulleys should be about 25 per cent wider than their belts. 5. "When it is necessary to run night and day through the week without stopping, each important belt should be suppUed with an idler pulley which can be tightened upon it while run- ning, in case of sUp. 6. "Idler pulleys work most satisfactorily when located on the slack side of the belt, about one-quarter way from the driving pulley. 7. "Belts are more durable and work more satisfactorily made narrow and thick, rather than wide and thin. 8. "It is advisable to use double belts on pulleys 12 inches diameter or larger. It is advisable to use triple belts on pulleys 20 iaches diameter or larger. It is advisable to use quadruple belts on pulleys 30 inches diameter or larger. 9. "As belts increase in width they should also be made thicker. 10. "The ends of the belt should be fastened together by spUcing and cementing, instead of lacing, wiring, or using hooks or clamps of any kind. 11. "Belts should be cleaned and greased every five or six months. 12. "Belts should be tightened and repaired and cared for out of working hours by one man as far as practicable; careful inspection as to their condition being made at regular intervals. 13. "The most economical average total load for double belting is 65 to 73 lbs. per inch of width, i.e., 200 to 225 lbs. per square inch section. This corresponds to an effective pulling power of 30 lbs. per inch of width. . 14. "The total hfe of belting, cost of maintenance and repairs and the interruptions to manufacture caused by belts, are dependent upon the total load to which the belts are sub- jected more than upon any other condition. The other con- Digitized by Microsoft® 118 ADMINISTRATION OF INDUSTRIAL ENTERPRISES ditions chiefly affecting the durabihty of belting being, 1st, whether spUced, or fastened with lacing or belt hooks; 2d, whether they are properly greased and kept clean and free from machine oil; 3d, the speed at which they run. 15. "The speed at which belting nins has comparatively little effect on its life until it passes 2,500 to 3,000 feet per minute." * Electric drive. — When electric transmission is used to con- vey energy to motors attached to hnes of shafting by which groups of machines are operated, the system is called group drive. When energy is transmitted to motors attached directly to individual machines, the system is individual drive. Group drive is best where a number of small machines — below 5 h.p. each — are to be driven at like speed and with httle variation of load, as in spinning, weaving, or shoe manufacturing. Indi- vidual drive is better suited for large machines, such as cranes, presses, and large planers, which are to be used intermittently,* and with great range of speed and load. Advantages of electric transmission. — The advantages of the use of electric power in mills and factories have been enu- merated with excellent thoroughness by Prof. F. B. Crocker,' as foUows: 1. A real economy in the amount of power used. 2. A reduction in cost of the construction of buildings, which can be lighter, owing to the fact that there is no need to install heavy hnes of shafting and pulleys. 3. A reduction in expense of service, such as oihng, deprecia- tion, etc. '■ Notes on Belting. Trans, of Am. Soc. of Mech. Engineers, Vol 15 (1894), No. 618, pp. 204r-259. * To illustrate the intermittent use of power in engineering establish- ments, the case of the Milwaukee Bridge Co. may be cited. With 23 individual motors aggregating 149 horse power, they found it necessary to use a central boiler of 75 horse power only. ' The Electric Distribution of Power in Workshops, Joum. of Frankhn Inst., PhUa., Jan. 1901, Vol. 51, pp. 1-7. Digitized by Microsoft® POWER 119 4. More efficient arrangement of machines and tools, which need no longer be placed in straight hnes parallel with the shafting, but can be located exactly as desired. 5. Access to the machinery is easier from the suppression of belts and puUeys. 6. Greater cleanliness, as there is less dust and no scattering of oil or steam, etc. 7. Hygienic conditions are improved, owing to the diminu- tion of dust and dirt; better hght, owing to the absence of shafting, pulleys, etc. ; the lessening of noise, etc. 8. Greater ease of placing different shops in separate build- ings, and in locating them according to the strict requirements of the work, and without regard to the necessities of the motive power. 9. Greater facility in the increase of establishments. 10. LocaUzation of accidents due to motive power, with con- sequent less injury to individuals, and the stoppage of work only at the point where an individual motor is incapacitated. 11. Greater control of the speed of the tools. 12. A marked increase in the product of any given estabUsh- ment. Whether to produce or to buy power. — The question whether to buy or to produce power usually brings into comparison the project of erecting a private steam plant with that of pvirchas- ing electricity from a pubKc service corporation. Into this question other things than the use of power may enter. If hve steam is needed in any process, or if exhaust steam can be used to advantage for heating, it may incline the scales in favor of a private plant. As a pure power problem, however, the general relation between central station prices and private plant costs is determined by a number of factors, prominent among which are the local cost of coal, and the load factors of producer and consumer. The lower the price of coal the greater the advantage enjoyed by the private plant. The reason for this is that when the cost Digitized by Microsoft® 120 ADMINISTRATION OF INDUSTRIAL ENTERPRISES of coal is low, the price of power delivered from a central station is strongly influenced by the charges which have to be added for the use of the poles, wires, and meters of the distributive system, and the services of accounting, meter reading, etc. When the cost of coal is high, these distributive and incidental expenses dechne relatively, and the fuel item becomes important enough so that the superior efficiency of the large power plant is able to exert a palpable effect upon the price. The load factor is the ratio of the average load to the maxi- mum load. When the average load of a central power station is low in comparison with its maximum load, the company is apt to offer attractive prices to consmners for electricity to be used at hours other than those of maximum load. If the con- suming plant has a low load factor, the cost of producing its own power will be high. The variation of cost with load factor is such that when the average load is but one-half the maximum load (designated as load factor of 50 per cent) the cost of pro- ducing power will be 50 per cent greater than when the use of power is uniform. With a load factor of 33.3 per cent, the cost of power will be doubled. The most advantageous condition for buying power exists when the purchaser wants the most power during the hours when the central station has the greatest surplus capacity for sale. Power and mill design. — In the days when direct-connected water wheels were the reliance of large manufacturing estabhsh- ments, mill architecture and yard layout were influenced by the cramped spaces into which factories squeezed themselves along the river banks. Streams of rapid fall commonly have deep beds, and httle level ground between the high banks and the water's edge. The narrow sites of the old mills, together with the restrictions imposed upon length by the heavy, slow-moving shafting, made necessary upper stories, and confirmed the first mill type as a narrow, tall structure. When the production of large fly wheels began to fairly reduce the pulsations of the steam engine, and the Corliss method of Digitized by Microsoft® POWER 121 regulating the engine by varying the point of cut-off at last made this source of energy steady enough for spinning and weaving, the manufacturers found their mills liberated from the thraldom of the waterway. The imperfection of belts and the shortness of hnes of shafting still kept the shops huddled closely about the power plant, however. With the advent of electric transmission all dynamic connection with the power house is at length severed, and the architect is free to group his departments on new principles of arrangement. Other fac- tors have come to the front, and discussions now turn on construction costs, routing diagrams, fire hazards, and welfare features. Administration. — The general administrator needs, at least, a broad familiarity with the standards employed in measuring efficiency in power production. He should know whether 14,000 B.T.U. per pound for coal with 35 per cent fixed carbon and 10 per cent ash means a good steam coal or not, whether 10 pounds of water evaporated per pound of coal consumed means good boiler performance or not, and whether 20 pounds of steam per horse-power hour for a simple Corliss engine with condenser is good work or not. He should understand some- thing of coal specifications. It might be useful to him to know the significance of changes in engine-room indicator diagrams. He should exact regular reports of the inspection of shafting and belting, and should expect repairs to be made invariably in advance of breakdowns. BIBLIOGRAPHY Kent, Wm.: Steam Boiler Economy, N. Y., 1901. Peabody, C. H., and MiUer, E. P.: Steam Boilers, N. Y., 2d Ed., 1912. Chapter on Combustion. Becker, O. M., and Lees, W. J.; Producing Power at Lowest Cost, Factory, Nov. 1907 to Apr. 1908 incl. Bement, A.: Some Results Due to Improvement in Boiler and Furnace Design, Trans, of Western Society of Engineers, 1908, Vol. 13, pp. 209-282. Digitized by Microsoft® 122 ADMINISTRATION OF INDUSTRIAL ENTERPRISES Webber, W. 0. ; Gas Producer and Gas Engine Plants, Iron Age, Mch. 16, 1911. Webber, W. O.: Comparative Costs of Gasoline, Gas, Steam, and Elec- tricity for Small Powers, Engineering News, Aug. 15, 1907, p. 159. Duncan, John C: The Principles of Industrial Management, N. Y., 1911. Ch. XII, The Power Problem. Randall, D. T.: The Purchase of Coal under Government and Commer- cial Specifications on the Basis of its Heating Value, Bulletin No. 339 of The U. S. Geological Survey, Washington, D. C, 1908. Randall, D. T.: The Burning of Coal Without Smoke in Boiler Plants, Bulletin No. 334 of The U. S. Geological Survey, Washington, D. C, 1908. Burrows, J. S.: Results of Purchasing Coal under Government Specifica- tions, Bulletin No. 378 of The U. S. Geological Survey, Washington, D. C, 1909. Hibner, A. E. : The Cost of Industrial Power, Proc. of Am. Inst. Electrical Eng., Mch. 10, 1911, pp. 485-503. Taylor, F. W.: Notes on Belting, Trans, of Am. Soc. of Mech. Eng., 1894, Vol. 15, No. 618, pp. 204-259. Smith, Robt. H. : Commercial Economy in Steam and Other Thermal Power Plants as Dependent upon Physical Efficiency, Capital Charges, and Working Costs, London, 1905. Digitized by Microsoft® CHAPTER VII ADMINISTRATION Administeative Histoky The history of the last century of American industry, con- sidered from the point of view of administration, may be divided into three periods; the day of the pioneer, the period of the engineer, and the newly-opened epoch of the administrator. The pioneer period. — The first period was, for the eastern portion of the United States, a time of mixed farming and petty shop keeping, made significant by the gradual growth of the shops of mechanics into small manufacturing establishments, and enUvened by the dashing seamanship and venturesome foreign trading of the merchant marine. In the West it was the day of the pioneers who waggoned their way to the frontier, built cabins of logs, cut down the timber, spUt the rails for fences, cleared the fields, surveyed the roads, established local governments, and did all the many kinds of heavy work required to convert the wilderness into a habitation fit for civilized man, and to make simple beginnings in the basic arts and crafts. Throughout the country there prevailed a condition of individualistic effort. Every man's business was his private affair. Methods were crude, and reputations were local. It was rather good health and native shrewdness which brought success than systematic knowledge or far-reaching policies. As the times were slow moving, they called for patience. As the methods were those of trial and error, they emphasized tenacity of purpose. The economic virtues extolled were self- 123 Digitized by Microsoft® 124 ADMINISTRATION OF INDUSTRIAL ENTERPRISES reliance and such basic things as industry, economy, and freedom from debt. The representative thinker of this period was Benjamin Franklin, whose terse sentences, put into the mouth of "Poor Richard," expressed the prevailing philosophy of the day. The most widely known sentence of Franklin is, "Honesty is the best poHcy." Of debt he said, "Thi nk what you do when you rtm into debt; you give to another power over your Uberty." "• He both practiced and preached frugahty and industry. "Take care of the pence, the pounds wiU take care of themselves." "A small leak will sink a great ship." "It is hard for an empty bag to stand upright." "A shilling spent idly by a fool may be picked up by a wiser person who knows better what to do with it: it is, therefore, not lost." "Dihgence is the mother of good luck." "The used key is always bright." "He that lives on hopes will die fasting." "Since thou art not sure of a minute, throw not away an hour." "The way to wealth is as plain as the way to market. It depends chiefly on two words, industry and frugality." Thus was laid what may be called the foundation course of the structure of business pohcy. Laid with maxims of an emphatically personal system of economics. The period of the inventors and the engineers. — The sec- ond period was inaugurated by the inventors and builders. A small group of colonial inventors, including Fulton, Franklin, Eli Whitney, Samuel Slater, John Stevens, and that universal but neglected genius, OHver Evans, struggled against the handi- caps of crude apparatus, small capital, and defective patent laws. With the coming into prominence of such men as Thomas Blanchard, S. F. B. Morse, and EUas Howe, there began a succession of mechanical geniuses which has been continuous to the present day. To it belongs Peter Cooper, iron manu- facturer and builder of the first American locomotive, Geo. H. CorUss, the perfecter of the steam engine, Obed Hussey and Cyrus McCormick, inventors of the reaping machine, James B. 1 This refers to imprisonment for debt. Digitized by Microsoft® ADMINISTRATION 125 Eads, first American builder of iron-clads and great steel bridges and the inventor of the jetty system, Alex. L. HoUey, perfecter of water-works machinery, and John Ericsson, inven- tor of the screw propeller and the hot-air engine and builder of the Monitor. To them, and men Uke them, it is due that the canals and trunk railways were built, that agricultural imple- ments were devised to handle the immense farm areas of the West, that the colonial iron-working shops grew into factories, that the principal machine-tools were perfected to accurate and semi-automatic operation, and that the principle of inter- changeable mechanism was perfected and given to the world. As the task of bringing physical agencies to the service of industry has reached a certain degree of intricacy, the inventor has been progressively supplemented by the engineer, whose advent means that to the inspiration of native talent there must be added the exact knowledge and certain power derived from systematic training in engineering science. The engineer is the first scientifically trained man to be introduced into indus- try. He is the first representative of science to come into con- tact with the autocratic rule of the practical man, and to begin the process of sifting methods derived from tradition with the instrument of controlled experiment. With his coming, and through his influence, there has been set up in industry new standards as to accuracy and completeness of knowledge, new conceptions of natural and economic law, new ideas as to the use of records and standards, and a new practice as to pre- liminary preparation, standardization, and the close coordina- tion of functioning parts. Admiration for these results has generated a demand that, in another department of industry, there should be introduced something which might, by analogy, be called "himian engineering." The Captains of Industry. — While pioneering is not yet entirely over, and while inventing and the appljdng of engineer- ing control are still important, we have passed into a period characterized by the prominence of questions of a purely admin- Digitized by Microsoft® 126 ADMINISTRATION OF INDUSTRIAL ENTERPRISES istrative character. Our first general administrators, now so often referred to as the Captains of Industry, had set before them an economic task of perplexing variety. Most of them were obliged to support themselves from an early age. With httle schooling, they picked up the rudiments of a general and trade education as they went along. They gathered together the small savings, and then the larger profits, by which their for- tunes were consolidated and their economic power as proprietors acquired. As their interests grew, and while under the pressure of current duties, they had to learn by experience the execu- tive's art, and catch such glimpses as they could of the under- lying principles of administration upon which that art rests. To do aU these things, and do them so well that the solutions could set a new standard was so difficult that few, even of our richly gifted race, achieved notable success. Such a struggle called not only for all-round genius, but for an aggressive tem- per hke that of the knights of the Middle Ages, or the con- dottieri of the Itahan Renaissance. The number of men capable of handling large affairs without conspicuous flaws of pohcy has been small. If one searches the records of insolvencies and bankruptcies and suits at dissolution, one is able to gain some conception of the toll exacted by the amateur administrator. The wastes have been those of a rude struggle for the survival of the fittest. There has been enough hard work done. In- deed, it may be doubted whether any nation has ever worked harder, more continuously, and even feverishly, than America during the recent past. What has been needed is not harder work, nor longer hours, but effort made more effective through the guidance of general principles and a comprehensive plan. The modern administrator. — Through the work of previous generations this age comes into the possession of such a vast accumulated wealth, and such powerful agencies of production, that the question of administering these instrvunentalities in the interest of human welfare becomes the leading one. As the engineers, or technical executives, learned to control physical Digitized by Microsoft® ADMINISTRATION 127 resources by science, it now remains for the administrators, or general executives, to control the human factors in industry in accordance with the fundamental principles of human nature. The reference in one case is to the natural sciences; in the other, it is to the social sciences, supplemented by physiology and psychology. With no less respect for individual eflBlciency than when Franklin's maxims were coined, modern industry, which unites many persons in joint enterprises and engages them in a highly social process, requires an outfit of social standards. The emphatic words were once independence, and at a later time accuracy; they are now the square deal, hberty, cooperation, courtesy, emulation, discipline, profes- sional pride, and self-expression. The principles which are required for the future guidance of general administrators will be formulated in part from the study of the successes and shortcomings of our Captains of Industry. The lives of such men as Wilham Morris, Stephen Girard, A. T. Stewart, George Peabody, J. J. Astor, Cornelius Vanderbilt, Jay Cooke, Oakes Ames, and Henry Villard will be examined, as well as of many other men of later date, whose names are now household words. This examination has, indeed, already begun, but in so destructive a spirit as to earn for itself the sobriquet "muck-raking." Business administration has, however, in part outgrown the Hmits of private affairs and become a branch of a much broader social art of conducting joint affairs. It may, therefore, look for inspiration in a wider field, and turn with profit to the history of all forms of joint effort. MiUtary strategy will yield to it rules for strenuous efliciency; statesmanship will sketch for it a broad philosophy; diplomacy will impart the secret of attaining harmony.^ Profitable study may be given to the methods in war of such men as Frederick the Great, ' For the further development of the contributions of these subjects to business administration, see the Author's work entitled, The Business Administrator: His Models in War, Statecraft, and Science, N. Y., 1914. Digitized by Microsoft® 128 ADMINISTRATION OF INDUSTRIAL ENTERPRISES Napoleon, Wellington, Von Clausewitz, Von Moltke, Lee, and Grant. In statesmanship the principles of MachiavelU, Riche- lieu, Peter the Great, Pitt, Bismarck, Cavour, Washington, and Lincoln wiU demand consideration. In diplomacy the balance and finish of Sir Phihp Sidney, CastigKone, Chesterfield, Metter- nich, Talleyrand, and Hay wiU challenge the emulation of the business leader. And so the executive engaged in industrial affairs may be brought into that great company of leaders who, as Goethe says, "By deeds and actions give laws and rules." The American Setting There are many reasons why America should now make as important a contribution to the science of management as it made at an earher period to mechanical progress. The new environment. — This country enjoys in industry, as in every other department of life, the stimulation of a new environment upon minds trained in old world systems of thought. If the historical sense is Httle developed with us, and if appreciation of the value of continuity in evolution is lacking, the omission only serves to stimulate decisive thinking by bring- ing institutions and practices more promptly and unceremoni- ously into contact with the chief touchstone of value, namely, present utihty. Opportvmity. — In America, the great natural regions, with their physical resources, and the many nationaUties with their diverse contributions to culture, have made an arena for a large-minded imagination type of industrial leadership. The possibihty of viewing accomplishments as the mere beginnings of future empires of industry, and hence as something of mys- terious potentiahty, has endowed business poUcies with a dra- matic exciting character, which seizes the attention, arouses the faculties and leads men to throw themselves into affairs with an intensity which petty and humdrum conditions could never evoke. Digitized by Microsoft® ADMINISTRATION 129 Large-scale operations. — Our extensive domestic market has made possible the organization of businesses on the largest scale. This elaboration has so magnified the agencies employed as to bring into notice matters which, in miniature, would have escaped attention. The factories of 1910 were approxi- mately 50 per cent larger than those of 1900. The average manufacturing institution of 1900 was two and one-half times as large as that of 1870, and five times as large as that of 1850. Many of the establishments now conspicuous for large-scale operations are from 20 to 50 times as large as their predecessors of the periods mentioned. By large-scale operations, the factors determining efficiency are disentangled somewhat as the parts of a complex living tissue are made distinct by the , magnification of a microscope. Distributive campaigns have grown so large that details such as the periodicity of a follow-up, or the exact weight of a catalog, have been studied to an extent causing surprise elsewhere. In the accounting of great cor- porations, the elements of intangible property, which in small affairs remain undefined, are so important as to have called into existence what amounts to a distinct subdivision of the science of valuation. Where a single administrator could rub along by intuition, the widely separated and much speciaUzed officers of a great staff have been obUged to elaborate the rules of action and give them permanent record in books of instruction. Distinction between capitalist and administrator. — The work of the administrator is beginning to be separate enough from that of the capitahst so that it is possible to perceive that the true art of administration is a thing which is in many ways distinct from the current process of acquiring a private fortune. We have long been famihar with the distinction between labor and capital: the two elements thrust widely apart by the introduction of the factory system. But we have not so clearly seen that this system is separating the administrator from the capitaUst. Property right is a slow thing to move, hampered as it is by much definition in books of record, and impeded by the Digitized by Microsoft® 130 ADMINISTRATION OF INDUSTRIAL ENTERPRISES dead weight of vested interests; but the art of administration is a thing of active change, responding to the forward reaching of natural leaders in the prime of Hfe toward ideals. So long as we have thought of owner-managers, we have confused administration with the economist's "risk-taking," and the business man's "money-making." The use of the corporate form of business has, however, been rapidly bringing about a distinction between ownership and administration. The American stockholder exercises very little direct influence upon administrative policies. He em- powers the directors to represent him; the directors, acting usually through a small executive committee of their members, place matters largely in the hands of the elected officers; these, in turn, delegate again and again down the successive ranks of the administrative Une. The result is that we now have, in great businesses, three distinct interests: namely, a body of investors who own the securities, a body of operatives who per- form the routine tasks and, standing between these two, a body of administrators. Professional feeling. — For the present, no doubt, the administrator looks upon himself chiefly as the representative of the investors, and takes the traditional capitahstic attitude. But he is fast awakening to a consciousness of his distinctive function, and is learning to think independently, and formulate standards which are purely administrative. The adminis- trative group finds itself in a pivotal position as the trustee of the property of investors, as the teacher and leader of the oper- ative force, and as a delegate responsible for the preservation of certain pubUc interests. Thus centrally set as an agency of progress, the business administrator, taken at his best, may be confidently recognized as the representative man of action of the age. As such, he is the spiritual descendant of a long Une of administrators of former ages, — the tribal leaders, spiritual princes, and knights-at-arms of past time. A new profession, and something more than a new profession, is in our time being Digitized by Microsoft® ADMINISTRATION 131 produced. As it emerges there comes forth from sifted and classified experience the first principles of a new science of administration, in the hght of which the administrator begins to understand the possibilities of his position. These new principles are welcomed by those who have imagined the ideal and are eager to find the means for its realization. They are welcomed by public opinion, which through multiphed interference with the doings of the superman as a mere money maker, has testified to its anxiety for a new day of more Hberal leadership. Scientific Management The latest material contribution of a systematic character to the science of management has come, as we should naturally expect, as the result of the work of men of scientific training, whose activities have carried them into business. Historical. — About the year 1880, a small group of mechan- ical engineers, attached to certain metal-working establish- ments in the eastern part of the United States, began to inquire seriously into the causes of the inefiiciency of shop operations. These investigators found that the conditions under which work was done had never been brought under sufficiently accurate control to determine whether failure to perform a given task was due to the workman, or to some one of the conditions over which he had no authority. They began a series of experiments looking toward better methods of handling labor; and carried these experiments through persistently for many years, although hampered at times from lack of funds, suspicion of motives, and the complexities of the subject itself. From the first these studies spread out over a variety of subjects, including the mechanics of the machining of metals, the laws of fatiguejjLhuinan motions, and the eguities of the wage"^ste m. Conditions found. — Through these studies it was found — 1. That the conditions involved in determining the efficiency of even the so-called simple forms of work are complex, Uttle Digitized by Microsoft® 132 ADMINISTRATION OF INDUSTRIAL ENTERPRISES understood, and beyond the power of operatives without scien- tific education to analyze. 2. That current performance and the method prescribed by craft traditions is crude and wasteful, judged in comparison with what is possible by scientific control. 3. That much of the tools and apparatus used is but indif- ferently fitted for its pm-pose. 4. That Httle is known and less practised with reference to the laws of fatigue, so that the tempo of work, and the sequence and duration of work and rest periods, is set by guess. 5. That workmen are everywhere performing tasks for which they are not fitted and, for the most part, without knowing it, or knowing for what they are fitted. 6. That no one, whether workman or manager, knows the time which the performance of a given piece of work should take, or how much a first-class man should do in a day. For a period of twenty years this group of men, most of whom were leaders in their profession, worked at available times upon these problems. Their general conclusions were that, in comparison with what is possible with scientific control, the industries of the country are working at about fifty per cent efficiency.^ In view of the self-satisfaction which at the time of the pubUcation of these reports marked most public utter- ances concerning American industrial achievements, the inde- pendence of this conclusion is striking. It is interesting to observe that these conclusions growing out of the study of shop processes were confirmed within a short time by independent investigations into the national methods of handling natural resources, by studies of the waste of mercantile distribution, by the reports of engineers concerning railroad operatioas, and by the conclusions of psychologists as to the low plane of efficiency upon which most men are contented to live. ' See, Hearings Before the Sp. Com. of the H. of R. on The Taylor and Other Systems of Shop Management, III, pp. 1389 and 1734. See also, Iron Age, Jan. 9, 1913, for results at the Watertown Arsenal. Digitized by Microsoft® ADMINISTRATION 133 The new program. — It will, be readily understood that if a workman is given a task to perform in a given time, let us say, on a machine, but if the machine is out of repair, or the belts do not convey the necessary power to attain the pre- scribed machine speeds, or the tools are dull or lost, or the materials are defective, or no foreman is at hand to give neces- sary instructions, such a workman cannot be held responsible for the failure. The failure is not his; it is a failure of man- agement. To bring imder control all these factors, and many others, and isolate thfe variables representing the workman, the pioneers of scientific management set themselves to organize some new agencies. They recognized that the management was responsible for a wide range of duties which had not been performed; responsible for discovering and prescribing the best method, and for standardizing aU conditions. These many new duties cannot be performed by the cus- tomary staff of executives. It is necessary to add new fore- men, some of whom wUl be engaged chiefly in planning how things should be done, while others wiU be instructors of the operatives. The planning foremen may be grouped in a plan- ning department, or sort of enlarged foreman's office. This oflBce aims to do for shop processes what the drafting room does for matters of design. Some one has said, "The drafting department is the planning room of design; the planning room is the drafting department of production." In such a department the more elaborate studies can be made, and records of performance can be compiled. Good records will ■ "nail down " every advance, so that the improvement of method wUl not shp away and get lost, and require to be discovered over again, but will serve as a firm basis for the next forward step. The leaders of scientific management next turned their atten- tion to the carrying out of the orders of the planning room, in the shop. They found as the sole administrative agency of the shop a foreman. This person was heavily overloaded with Digitized by Microsoft® 134 ADMINISTRATION OF INDUSTRIAL ENTERPRISES duties, and consequently left most matters to be settled by custom and the inclination of the men. It was necessary to materially strengthen this lowest rank in the administrative staff. The new plan is to add enough new foremen so that each man may be put in charge of one phase or aspect of the work. In this way a system called functional foremanizing — a foreman for each distinct group of functions — grew up. A scale of operations sometimes recommended is to appoint foiu- functional foremen, called clerks, to serve as assistant superin- tendents in the planning room, and four other fimctional fore- men, called bosses, to look after the execution of work in the shops. The experience accmnulated by the executive branch under scientific management is to be commimicated to the men by the functional foremen by personal explanations and demon- strations; but there are also provided explicit written instruc- tions for each job, to serve the workmen as reference records and a protection from undeserved censm-e. In putting these ideas into practice, it was found necessary to take steps to ensure the hearty cooperation of the workmen. The most important agency in this is a system of wage pay- ments which are just in amoimt, and which vary in accordance with individual performance. The, promoters of scientific management found in u se_j yarious methods of remuneratio n, such as the dav-wage svstem, cooperation, profit-sharing, the s liding scal e,_a.nd the pipf^p-ratP pystfF' Among these plans that which pays most nearly according to individual perform- ance is the piece rate. This plan was examined and foimd to be generally disliked by workmen and opposed by trades unions. The defect of it was found to he in the fact that rates were set by guess, so that when the workmen were able, by chance, to increase production to an unexpected degree, or when improve- ments were introduced by the management and had a hke result, the rates were cut, with the result that the workmen became convinced that the whole scheme was a trap, intended to reveal Digitized by Microsoft® ADMINISTRATION • 135 their maximuin productive capacity, and then exact the maxi- mum task for ordinary day wages. To remedy these evils, the leaders of scientific management planned a new form of piece rate bas ed upon (a), accurate measurement of the amount of work proper to do in a day; (6), the guarantee that no rate should be cut or time changed, except as conditions of produc- tion changed so that the task became in reahty a new one, and (c), the full recognition of the fact that an extraordinary day's work required an extraordinary day's pay. The aim, in brief, is to apply science as far as possible in measuring the factors involved in estabUshing the balance between performance and reward, and to deal squarely, generously, and openly with the laborer, so as to expect and deserve intimate cooperation and the entire banishment of discord. The creed. — The central ideas of this movement can be summarized in a hst of points somewhat as follows: 1. The management must be responsible for ah managerial fimctions. 2. An increased administrative staff must be provided, to perform the wide range of functions connected with planning and the supervision of performance. 3. Planning should be carried on in advance of, and dis- tinct from, performance. 4. A new group of standards should be formulated for the control of the condition of equipment, and the regulation of the time, place, and manner of performance. Standard times involve a schedule of events. A schedule necessitates system- atic routing, so that the whereabouts of work may be known at all times. These standards should result, finally, in the assignment to each person daily of a definite and clearly circum- scribed task. 6. Select persons who possess special aptitude for the task assigned to them. 6. Individuahze records of performance, and furnish prompt information as to results. Digitized by Microsoft® 136 ADMINISTRATION OF INDUSTRIAL ENTERPRISES 7. Remuneration should be in accordance with individual performance.' Secretary W. C. Redfield has thus summarized the points of the present movement: "Disclaiming attachment to any particular system or exponent of efficiency, the following ele- ments may be said to be clear in all that is proposed in behalf of the alleged new industrial gospel: "Close cooperation and sympathy between the management and the workmen. This is foremost and basic. If it is not reahzed that this is foremost and basic, the subject is completely misapprehended . "The standardization of equipment and accessories through- out the shop. "The systematizing of work in operation, of the care, main- tenance and issue of materials and tools, and the careful routing of all orders while passing through the works. "The planning in advance of the work for each machine, and furnishing tools, fixtm-es, and materials ready to the hand of the workman before needed, so that delays between opera- tions are cut out. "The study of the actual time occupied by each element or movement of every operation, in order to determine the correct time required for it, and to save waste energy. "The determination in time study of the proper allowance for rest, necessary delays, or interruptions of work. "The fixing of standard time for doing work, based upon the aforesaid studies, and the careful personal instruction of workmen in the best and easiest methods of working. "The payment usually to the worlcman of a bonus or pre- • Mr. Harrington Emerson has stated the principles of eflSciency in twelve points. 1, Definite plans and ideals. 2, Supernal common sense. 3, Competent guidance. 4, Discipline. 5, The fair deal. 6, Despatch- ing. 7, Reliable, immediate, and adequate records. 8, Determination of standards. 9, Standard practice instructions. 10, Standardized condi- tions. 11, Standardized operations. 12, Efficiency reward. Digitized by Microsoft® ADMINISTRATIOI^ 137 mium, based upon his doing the work in a certain relation to the standard time." ^ Influence exerted. — The investigations which we have here briefly considered were carried on quietly, with no further publicity than occasional papers read before professional soci- eties, until the railroad rate hearings in Washington in 1910 brought the system prominently before the public. In those hearings Mr. Louis D. Brandeis, representing eastern shippers, presented the argument that American railways would not need rate increases if they adopted the methods of scientific management. In particular, at this time, an estimate made by Mr. Harrington Emerson that the railroads might save $1,000,000 per day in operating expenses, attracted general attention and aroused lively debate. Since that time many books have been published on the subject of scientific man- agement, nimierous conferences have been held, and several national societies have been organized for the study of efficient business methods. The fuU program of scientific management, complete in every particular, is nowhere in operation. A moderate number of estabHshments employ the greater part of the plan. Countless businesses have been aroused by the story of the original experi- ments, and have felt the influence of certain ideas which form a part of the doctrine. The various essential points of scien- tific management are by no means all new; some of them are now enjoying a new vitaUty and definition as the result of new experiments, others are incorporated without change from accounting practice or from the system movement or from non-economic experience. The advantage of bringing the various elements together in a creed or code is that a logical system is thereby created which has more significance and carrying power than the various points would possess if advanced disconnectedly. With a ' The New Industrial Day: A Book for Men who Employ Men, N. Y., 1912, pp. 176-177. Digitized by Microsoft® 138 ADMINISTRATION OF INDUSTRIAL ENTERPRISES complete program before him, an administrator can select such matters for apphcation as his conditions or his state of mind wiU permit. It is altogether probable that the chief service which this movement will perform will be through a general process of permeation, by which ideas wiU pass infor- mally from establishment to establishment; a certain improve- ment being adopted in one place, a different feature introduced in another place, a new attitude of mind coming to animate a man here and there. If the movement starts anjdihing like a general process of self-examiuation among manufactm-ing con- cerns and other businesses of similar managerial conditions, its leaders may well feel content with their contribution to progress. Scientific management has come into existence at a logical time. It has come, as Mr. Charles B. Going has said, in company with engineering, conservation, fire prevention, fac- tory hygiene, weKare work, cost accounting, and government efficiency. Objections. — It is natxiral and proper that objections should be urged against scientific management. Among those which have been offered let us consider a few, aiming in the discussion, chiefly, to further elucidate the system. 1. Mental stagnation: It has been urged that since scientific management determines so many matters for the operative, and instructs him so much in detail, it will reduce him to an automaton, and destroy his power to think. In the average shop the method is ordinary: under scientific management it is the best attainable. Is it the superior method which is hostile to thinking? In the ordinary shop men are for the greater part of their time employed on tasks beneath them in quaUty, while the thought rambles in unproductive wool- gathering; in an efficiency shop the aim is to keep men upon the highest land of work of which they are capable. Is this concentration of faculties the road to intellectual stagnation? In the average shop there is httle instruction from persons of superior knowledge, and the processes drift along at the com- Digitized by Microsoft® ADMINISTRATION 139 fortable level of the average mind: under scientific manage- ment the operatives are intimately associated with a group of instructors who explain and demonstrate the best methods, as in a training school; and they are furnished with carefully pre- pared instruction sheets which are virtually the pages of a text-book upon the art in which they are engaged. Surely such a contact between higher and lower is not deadening. Drudgery is work done in darkness of spirit. The remedy for it is to let the light of intelligence shine upon it, by multiplying the means of communication between the world of thought and the world of work. The inteUigent man finds a means of robbing even the crudest work of drudgery, for his inner resources enable him to make out of the work a problem of method. For the man who cannot thus save himself there is but one salvation : to bring him and his task into contact with a superior mind, so that his blindness with reference to the possibilities of his task may be cm-ed. In answer to Mr. Mitchell's flourish that, "The worker should not be deprived of his right to think," ' it can safely be said that more thinking is done in connection with scientific management than any other system of production ever devised, and that a higher ratio of thinkers to mere "hands" is required to operate it than any other. Under scientific management the attention of the workman is sharply drawn to his task. He entertains a new respect for it, by learning that it is a worthy object of study, and that it is possible to bring out of it an unsuspected fine art. Fine methods act as a mental tonic. The tone of shops converted to efficiency methods is raised at once, and the men gain in self-respect. As to the hberty which the workman enjoys of suggesting better methods, a scientifically managed establishment offers the greatest possible opportunities, for it can most quickly test and reject inferior variants, and most fully reward those who discover superior methods, because its control of operar ' Greater Efficiency, Apr. 1914, p. 30. Digitized by Microsoft® 140 ADMINISTRATION OF INDUSTRIAL ENTERPRISES tions permits it to make the new method standard and so fully exploit its advantages. When it comes to the recognition of the exceptional talent which appears among workmen by giving promotion, no estabhshments are so favorably organized as those with fimctional foremanship, for none have such a large corps of subordinate oflEicers and special foremen to be recruited from the ranks. As is well known, the chief administrative bar, in ordinary establishments, to the making of suggestions by operatives is the general foreman, who is too busy to welcome criticisms from the force, who quickly gains the idea that a thinking workman is trying to make a showing to get his job, and whose uncurbed power over hiring and discharge makes his enmity fatal to an employee. The plan of functional foremanship, by destroying autocratic power, facihtates the upward as well as the downward passage of information. Mr. Leroy Tabor, President of the Tabor Manufacturing Company of Philadelphia has said, "In order to make a man feel that he is perfectly free to make any criticism along any and all hnes it is necessary to so arrange it that no foreman can directly discharge him." Scientific management imposes only one bar to suggestion, and that is the ancient rule recognized in every fine art and appUed in every scientifically controlled profession, namely, that no one shall presimae to revolutionize methods who has not demonstrated his mastery of the method already in use. The purpose of the rule is to defend the precious body of accepted knowledge from violent hands; and avoid the per- petual uproar as to methods which would ensue if attention were given to every one who pretended to a grasp of funda- mental principles. 2. Oppression: It has been asserted by a representative of organized labor that, "By scientific management, the em- ployers are trying to squeeze the last drop of blood out of the bodies of the workers." ^ This is simply a question of fact. ' Mr. Duffy in Greater Efficiency, Apr. 1914, p. 35. Digitized by Microsoft® ADMINISTRATION 141 The three volumes of Congressional investigation of the Taylor and other systems of shop management ^ are a standing proof that the combined efforts of disaffected individuals and hostile imions failed to prove any such thing as this in the case of any establishment operated according to the principles of scientific management. The distinction between scientific management, and a drive management, which may by chance use some scientific agencies, is that drive management secures results by driving operatives to work harder, and does so without proper safeguards against excessive pace; while scientific management secures its results chiefly by extending and energizing the managerial staff, and through it discovering a better way of doing things. The new duties of administration have been classified by Mr. F. W. Taylor as follows: " 1, Gathering all the great mass of traditional knowledge and reducing it to laws. 2, Scientific selection and progressive development of the work- man. 3, Bringing the science and the scientifically selected and trained workman together. 4, Ahnost equal division of the actual work of an estabhshment between the workmen and the management." '^ Where increased exertion is called for from the operative, scientific management safeguards him by numerous and rather elaborate precautions. There is, indeed, much still to be done by business administrators in protecting workmen from over-strain. This problem will be considered more at length in a later chapter. 3. Misuse of scientific agencies: It has been urged that, by discovering new tests of the worker's capacity and new agencies for his control, scientific management is forging weapons which may fall into the possession of harsh and selfish managements, ' Hearings before the Special Committee of the House of Representa- tives on The Taylor and Other Systems of Shop Management, Washington, D. C, 3 Vols., 1912. ^ Hearings before the Sp. Com. of the H. of R. on The Taylor and Other Systems of Shop Management, Washington, 1912. Vol. Ill, pp. 1393-1395. Digitized by Microsoft® 142 ADMINISTRATION OF INDUSTRIAL ENTERPRISES and be used for the oppression of operatives. This is not an argument against scientific management but against the dis- covery of any scientific instrumentality whatsoever. Effective agencies are, of course, effective in misuse, as in use. The danger of misuse does exist ; it exists here as it does at every step in progress which endows the human hand and the human brain with agencies of increased potency. The first answer is that the more refined and scientific the nature of an agency the more its use will be confined to men of education, whose minds are normal and orderly, who have learned to enforce discipline upon their own passions, and who aspire to broad- minded and just ideals. A second answer is that experience shows that, in the application of any new agency, good uses vastly predominate over bad ones. If we beheve that the majority of people are fair-minded, as those labor leaders who speak so much of industrial democracy certainly must do, we need have no fear of general results. A third answer is that any system which lays special emphasis upon investigation and scientific agencies of accmnulating knowledge is sure, sooner or later, to accumulate records which will reveal the true significance of every health-destrojdng condition and every policy which breeds the sense of injustice. It may at the start be crude, but it is bound to improve. "Let the fight shine," said Erasmus, "and the darkness will disappear of itself." A fourth answer has to do with the choice of methods of influenc- ing industrial evolution. The technical progress of the world's industry has now attained such momentum that it is not Ukely that any special economic interest can retard it materially. With each increase in the command which society possesses over the agencies of Hving there is a need of further enhghtenment as to the worthy objects of Ufe. What a world which is rapidly growing rich most needs is not those persons who rail against progress but those persons who can vividly picture the attrac- tions of the ideals which the technical advance has at last converted into possibilities. Digitized by Microsoft® ADMINISTRATION 143 What shall be the next step in the application of science to management? — Now that the nature of the contribution which scientific management has to offer is reasonably well defined, we may look beyond it and ask what more the application of science to management will involve. When the achievements of the period of the inventors and engineers are considered in comparison with the problems of general administration upon which interest now centers, scientific management appears in the Ught of a transitional aid or bridge connecting the day which was absorbed in material agencies of production with the present, which is concerned with hiunan relationships. Most of the pioneers of scientific management are men of engineering training. Beginning with circumscribed technical problems of shop operation, they followed the lead of their studies up into the higher world of general administration. They have by no means constructed a complete science of administration. They have, however, contributed some valu- able materials to it. Administrative Principles In order to present somewhat more fully the problem of the general administrator than was possible in connection with the discussion of scientific management, let us add to the principles there enumerated some others which bear upon the adjustment of the human factors. 1. The measurement of authority: Clearly defined relations of authority and responsibihty should be estabhshed, definitely assigning every function, placing no one in subordination to two others in the same responsibility, and avoiding undue concentration of authority or duty at any point. 2. Division of functions: The principle of division of labor apphes as much to administration as to execution. In subordi- nate administrative positions the grouping of functions will aim chiefly at bringing together work of the same nature. In the middle ranks it will aim at including in groups the functions Digitized by Microsoft® 144 ADMINISTRATION OF INDUSTRIAL ENTERPRISES for which an administrative subdivision, such as a bureau or a department, should be responsible. In the highest positions the chief aim will be to utiUze completely the talents of a gifted person. 3. Choice of persons: The underlying rule is that talents and functions should be in harmony. But since it is important to make the initial positions in any business as far as possible those positions which are at the bottom of the various lines of pro- motion, and since the higher ranks can only be kept full through the fitness of those who are below for advancement, it is impor- tant that candidates should possess talents not immediately utilizable, but which give the promise of growth. The lower a position is in the scale of advancement, the more essential is all-round talent in the candidate, so that future promotion can take any one of a variety of directions, according to the neces- sity arising from the balancing of the force. The higher a position is, the more wiU specific training and special talent decide the choice. 4. Coordination: Each agency in an organization, whether that agency be a gang in a shop, or a corps in an office, or a stand of machines adapted to a process, should be brought to such a degree of productive power as to be able to perform as much of its kind of work as the functioning of the other agencies will render necessary.^ The test of perfect coordina- tion is equivalent marginal utUity. The last doses of labor force, executive attention or invested capital applied to the various functions of an enterprise should bring in substantially equivalent profitable returns. 5. Cooperation: The power of an organization is the result of its constructive and aggressive forces minus its resisting forces. When the administrator feels himself to be the sole driving agency, and finds himself chiefly engaged in arousing those who are apathetic and coercing those who are antag- ' For mention of this principle, and an illustrative diagram see Ch. IV, Layout of a Manufacturing Establishment, pp. 61-62. Digitized by Microsoft® ADMINISTRATION 145 onistic, there is something vitally wrong with the plan. An administration should find itself mainly engaged in directing the energies which create themselves naturally in all parts of the business, and in finding the proper outlet for the eager up- ward striving of the ranks below. An administrator should not be chiefly a whipper-in but a guide; not a detective but a creator of opportunity. 6. The system of orders: Affairs are easiest controlled in their origins. The power of initiative belongs to the adminis- tration. All performance of a non-administrative character should be in response to orders only. The order, which is primarily a communication of necessary authority, should, under the complex conditions of modern industry, be elaborated to include all necessary instructions as to materials, tools, processes, sequences, and standard times. 7. The system of reports: An order communicates authority from a higher to a lower. A report discharges the responsi- bility of a lower to a higher. Just as an order should com- municate aU information necessary for execution, so a report should communicate all information essential for administra- tion. The functions of an organization should be so planned that the major part of the information necessary for the executives will come into their hands automatically, through the normal functioning of the business, and not as a result of their personal efforts in collecting it. 8. Information: There are three tides of information which should flow swift and straight and full within an organization. The first of these, mentioned in point 6, is the communication of authority and information downward. The order should carry this, but it should do more. It should aim to reveal to the mind of the operative whatever of elegance of means or refinement of art is known in connection with his task, so that somethiag of intellectual significance shall rise out of the work to arouse his interest, and give him ground for self-respect in his accompUshment. Digitized by Microsoft® 146 ADMINISTRATION OF INDUSTRIAL ENTERPRISES The second stream of information, mentioned in point 7, fiows in the reverse direction from operative to executive, giving account of the authority used. A perfunctory report should be a small part of the inpouring of information upon the executive from all directions. There is bound to be a large volume of valuable ideas springing from the experience of those in the ranks, provided men are encouraged to think as they work. It is the fimction of a suggestion system to gather such ideas by a plan which avoids the opposition of the foremen or fundamentally changes that attitude, which provides a compe- tent board to examine suggestions, and which rewards those who contribute both adequately and in a way to stimulate emulation. The third movement of information is again from adminis- trator to operative and has for its aim to inform the operative of his individual record, of the record of his department, and of the significance of these records in the achievements of the business as a whole. It is a deeply implanted instinct to desire to know the results of our efforts. A knowledge of results is an important part of the reward of effort. How much interest would there be in a football game if at the end of every quar- ter the ball were kicked into another field, where the play was continued by another team; and if no one but the athletic association could calculate the score, and no information as to results were given out until the end of the month? Associated production, engaged as it often is in processes which bear but remotely upon completed utihties, expects men to be interested in directing their energies into a void, where they are lost to calculation for a week or month, or perhaps forever, except as remote inferences can be drawn from occasional promotions and discharges. Mr. W. H. Mallock > has explained the work of a leader to consist in constructing out of ideas a sort of go-cart for wheeling along weaker intellects more rapidly than they could go with ' Aristocracy and Evolution, N. Y., 1901, p. 137. Digitized by Microsoft® ADMINISTRATION 147 their own powers of locomotion. Adequate information sets up a court of reason, banishing the reign of "Do this be- cause I say so," and substituting a government based upon permanently established, pubUc, and impersonal rules of action. 9. Promotion: Ambitious men aim to perform their tasks in such an excellent manner as to attract attention, and indicate their fitness for promotion. Wages do not balance the account for such services: a part of the expected reward is advance- ment. If an administration introduces men from the outside into the higher positions, it gives notice to its employees that promotions need not be expected, so that only so much service is looked for from them as will exactly counterbalance the cur- rent wage. But if a business makes a point of advancing its own men, the whole force becomes occupied in making records; and even the loss from the death or resignation of valuable men is partly offset by the stimulus which runs down the promotion lines. Promotions are faciUtated by forming posi- tions into a ladder or series of steps, in which the work of each place is a preparation for the next higher place. 10. The normal incentive: Wheli men work for themselves they are energized by three types of incentives: first, the pleasure they derive directly from the work itself as an outlet of energy and a demonstration of mastery; second, the con- sciousness of service, or the reahzation that the work satisfies the want of others; third, the personal profit arising from the remuneration received. It is a shame for an administration to cut off its employees from two of these incentives, and leave to them only pay as the energizer. 11. Administration and human nature: Administration is chiefly a task of handUng men. Its methods must conform to human nature. It should educate and interest men, and so conserve the delicate tissues of mind and body from which all human energy proceeds, that disease, premature invahdism, apathy, antagonism, and all other negative and destructive factors shall be reduced to the lowest possible sum. Men Digitized by Microsoft® 148 ADMINISTRATION OF INDUSTRIAL ENTERPRISES love distinctions, and social rewards; and delight in sharp group- ings which evoke the spirit of common cause, and emulations with the game of self-testing strong in them. Their nature is to learn by vivid personal illustrations; and to work in spurts for nearby and tangible rewards. Modern industry is often too prosaic and too mechanical to arouse men. There is need of more badges and distinctions and honorable mentions, for more foremanships and minor executive positions to aspire to, and for more special committees to serve on. The new day in administration will see a way found to introduce into industry more spice and romance, and more exercise for the emotional nature, — more strategic play to capture the interest, and more fine, imaginatively presented aims to awaken real devotion. BIBLIOGRAPHY Scientific management. Taylor, F. W.: The Principles of Scientific Management, N. Y., 1912. Taylor, F. W.: Shop Management, N. Y., 1911, first published in Trans. of Am. Soc. of Mech. Eng., 1903, Vol. 29, No. 1003, pp. 1337-1480. Emerson, Harrington: Efficiency as a Basis for Operation and Wages, 3d Ed., N. Y., 1912. Emerson, Harrington: The Twelve Principles of Efficiency, N. Y., 1912. Gantt, H. L.: Work, Wages, and Profits, N. Y., 1910. Gantt, H. L.: Principles of Industrial Leadership, New Haven, Conn., 1916. Gilbreth, F. B.: Primer of Scientific Management, N. Y., 1912. Thompson, C. B. (Editor): Scientific Management, Cambridge, Mass., 1914. Reprints of periodical articles on scientific management; extensive bibliography. Parkhurst, F. A.: Applied Methods of Scientific Management, N. Y., 1912. Hearings before the H. of R. Special Com. on The Taylor and Other Systems of Shop Management, Washington, D. C, 1912. 3 Vols. Dartmouth College Conference on Scientific Management, Dartmouth, N. H., 1912. Drury, Horace B.: Scientific Management: A History and Criticism, N. Y., 1915. Columbia Univ. Studies in History, Economics, and PubUo Law, Vol. LXV, No. 2. Digitized by Microsoft® ADMINISTRATION 149 Hoxie, Robert F.: Scientific Management and Labor, N. Y., 1915. Based on an investigation authorized by the United States Com. on Indus- trial Relations. Commons, John R.: Organized Labor's Attitude toward Industrial Effi- ciency, Bulletin Am. Econ. Asso. (The Am. Econ. Rev.), Sept. 1911, pp. 463-472. Brandeis, L. D., Scientific Management and the Railroads, N. Y., 1911. General Principles of Administration. Hartness, James: The Human Factor in Works Management, N. Y., 1912. Emerson, Harrington: Twelve Principles of Efficiency, N. Y., 1911. Church, A. H.: Science and Practice of Management, N. Y., 1914. Jones, Edw. D.: The Business Administrator: His Models in War, State- craft, and Science, N. Y., 1914, especially Chs. II to IV incl., on The Administrator as a General. Jones, Edw. D.: Principles of Administration, The Am. Econ. Rev., Vol. V, No. I, Mch. 1915, Supplement, Proc. 27th Annual Meeting of Am. Econ. Asso., pp. 209-226, with bibliography. Hine, Maj. Chas. D.: Modem Organization: An Exposition of the Unit System, N. Y., 1912. Ennis, Wm. D.: Works Management, N. Y., 1911, pp. 118-125. Gillette, H. P., and Dana, R. T.: Cost Keeping and Management Engi- neering, N. Y., 1909. Ch. I, The Ten Laws of Management. The Present State of the Art of Industrial Management. Report of Comm. on Administration of Am. Soc. of Mech. Eng., in Transac- tions 1912, Vol. 34, No. 1378. MachiavelU, N.: The Prmce, Trans, by W. K. Marriott, N. Y., 1908 (Everyman's Library). Machiavelli, N.: Discourses on the First Ten Books of Titus Livius, Boston and N. Y., 1891. Clausewitz, Gen. Carl von: On War, Trans, by Col. J. J. Graham, London, 1908, 3 Vols. Vache6, Col. Jean B.,: Napoleon at Work, Trans, by G. F. Lees, Lon- don and N. Y., 1914. Gracian, Belthasar: The Art of Worldly Wisdom, Trans, by Joseph Jacobs, London, 1913. Foster, John: On Decision of Character, N. Y. : 1875. Digitized by Microsoft® CHAPTER VIII THE FUNCTIONS OF THE WORKS MANAGER The supervision of manufacturing processes, and the control of the various service departments whose activities are directed specifically to furthering these processes, devolves upon the highest technical authority in an organization, namely, the general superintendent or works manager. This executive is expected to keep the physical equipment and the productive processes up to standard, and to employ an adequate force of foremen, laborers, and mechanics. He controls operations through a schedule, by means of a system of orders, and through an inspection system which measures the work both as to quantity and quality. He controls the drafting room, the planning room, the tool room, and any scientific laboratories which may be maintained. Let us consider briefly some of these functions of the works manager. The state of the art. — The duties of the works manager concern themselves with men, materials, equipment, and proc- esses. Men he has to hire, train, assign to positions, super- intend, remunerate, and promote or discharge. Materials he must select, test, purchase, store, use, and account for. Equip- ment he is expected to select or invent, build or buy, preserve and repair, and finally discard as scrap. Processes need devising, testing, introducing, superintendence, enforcement, and revision. Responsibility for "the state of the art " may be used as an expression to cover a wide range of technical duties resting upon the works manager and his administrative helpers. 150 Digitized by Microsoft® THE FUNCTIONS OF THE WORKS MANAGER 151 Motion study. — A new instrumentality has recently been devised for the analysis of the technique of production, called motion study and time study. Motion study has been defined as, "The science of eliminating wastefulness resulting from using unnecessary, ill-directed, and inefficient motions." ^ Its aim is "to find and perpetuate the scheme of least-waste methods of labor." Time study is defined as, "The art of recording, analyzing, and synthesizing the time of the elements of any operation. It differs from the well-known process of timing the complete operation, as for instance, the usual method of timing the athlete, in that the timing of time study is done on the elements of the process." Motion study aims to ehminate useless motions and save time and energy. It strives to link motions to each other in the most economical sequences, so that the end of one move- ment is as nearly as may be the starting point for the next. It endeavors to substitute a few effective movements for a multi- pUcity of ineffectual ones, as when a mason is instructed to Hft a paclcet of twenty-four brick to the wall, instead of laboriously transferring each brick separately. In the measure that motion study succeeds in achieving its aim it discovers the best method, and prepares the way for a standardization of processes and equipment such as will permit permanent time studies to be taken. The time studies in turn will make possible the determination of standard times upon the basis of which employees may be judged and rewarded. Standardization. — The original conception of a standard is of something standing, permanent, and stable. From this comes the idea that what is fixed may be used as a signal or mark or point of reference, Hke a royal standard in battle, about which many can rally, or after which they can foUow. When King Henry fought in Normandy in 1109, he caused his 1 Frank B. Gilbreth, Primer of Scientific Management, N. Y., 1912, p. 8. An illustration of the application of motion study was given in Chapter I, in the account of the revolution of the art of bricklaying. Digitized by Microsoft® 152 ADMINISTRATION OF INDUSTRIAL ENTERPRISES standard-bearers to take a position on ground favorable for defense, so that his men might rally about it. In 1120, when he decreed that the ell, or ancient yard, should be the exact length of his arm, he set up another kind of standard (the first definite one of length in England), about which his subjects might rally in the buying and selling of property. The word may signify that which is prescribed, or that which ought to be prescribed; in all cases the idea of uniformity imposed by authority is strong in it. Standards are by no means limited to the measurement of the physical properties of materials. They may be estabhshed for anything that is measurable. If it is ordered that the air in working apartments shall be changed three times per hour, a standard is set up; if it is ordered that there shall be no belt failures, a standard of efficiency in pre- liminary repairs is established; if a given time is allowed for a piece of work, a standard of speed is involved. The process of standardization is the attainment of such an intimate and thorough administrative control that every case of performance conforms to the rule laid down. When per- formance depends upon a variety of factors, standardization means the control of all the factors. When one factor is brought under control, the circumstances which cause the variation of the other factors are more easily studied. Each step facihtates the next. Mr. F. W. Taylor has said, "Complete standardiza^ tion of all details and methods is not only desirable, but abso- lutely indispensable as a preUminary to specifying the time in which each operation shall be done." ' Standardization means uniformity. Ideal standardization, or standardization used as an instrument of efficiency, means uniformity in using the best. This element of uniformity facihtates mutual under- standing, and by determining what is to happen makes possible preliminary preparation. Written orders. — Standards are authorized by standing orders or general orders. An order, as we have seen, is the '■ Shop Management, Am. Soc. of Mech. Eng., Paper 1003, Sec. 284. Digitized by Microsoft® THE FUNCTIONS OF THE WORKS MANAGER 153 communication of authority and information from a superior to a subordinate. In a small business, where the close personal touch makes easy a mutual process of adjustment, it is allow- able to give orders by word of mouth; but in large organiza^- tions, where executives are called upon to give more orders than they can hold in memory, or where the number of points involved in individual orders may overtax the retentive powers of operatives, or where efficiency depends upon the exact ad- justment of men to each other who are not in personal con- tact, orders should be written. A permanent objective record is advisable where considerable periods of time may elapse between the giving of the instructions and the completion of the task, or where instructions must be transmitted through a number of persons. In a large estabhshment an order may pass through as many vicissitudes as a contract between independent con- cerns: hke precautions ought, therefore, to be taken in its preparation, transmission, and recording. Written records are a safeguard against the thoughtless giving of orders. They recall the official to a reaUzation of the importance of what he is doing, by suggesting to him that the record may be examined by his superiors. They lead, therefore, to fewer orders, and orders of better quality. A written order serves the operative while he is performing his task as a means of reference. Later it offers indisputable evidence as to what he was told to do, and so protects him against unjust censure. Orders as text-books. — An order does not' successfully convey authority so long as the one who receives it cannot ascertain from it what to do in every particular which involves the exercise of the discretion proper to the superior officer. The act of communicating authority shades off by imper- ceptible degrees into the communication of information. A subordinate is never so open to instruction as when receiving orders: strategy suggests that a full meeting of minds should take place at this critical moment. Furthermore, the rule of preliminary preparation requires that difficulties should be f ore- Digitized by Microsoft® 154 ADMINISTRATION OF INDUSTRIAL ENTERPRISES stalled by explicit original instructions, rather than remedied by supplementary orders. Orders and scientific management. — The effort to utilize more science in the shop, to foresee difficulties, and to hold the administration responsible for a wide range of new functions, has naturally involved an elaboration of the order. A great step was taken, years ago, in engineering establishments, when drafting rooms began to send down blue prints to the shops, as a means of controUing the dimensions of work. Scientific management aims to extend this idea and estabhsh adminis- trative control of the times, methods, and equipments used in the shop, by means of orders issued from the planning room. A complete order in a well managed estabHshment is quite an elaborate affair. In an engineering estabhshment it includes, among other things, necessary drawings, descriptions of the work to be done and the methods to be used, hsts of materials, tools, attachments, jigs, and gauges, the sequence of operations, the Ust. of elementary minimum times, the standard or pre- scribed time, and the wage rate. It is no sHght task to provide a set of modern standard orders. In performing this task there is no useless work done, however, for there is no point decided which will not inevitably arise for decision during the progress of production. To use standard orders means simply to appoint capable men to decide matters once for all, in advance, and under favorable conditions, rather than allow these matters to drift until they are encountered in the progress of work, so that production stops while the workman ponders and experi- ments, or rummages for lost tools, or travels to the stock room, or hunts his boss. Analysis of customer's contracts. — When a purchase order is received at a works manufacturing such an article as stand- ard print cloth, it is not necessary for the operative departments to give it attention. The mill is kept going on one thing the year 'round: upon the selling department rests the duty of disposing of the product and avoiding stoppages. The situa- Digitized by Microsoft® THE FUNCTIONS OF THE WORKS MANAGER 155 tion is quite different when a customer's order arrives at a machine shop which does not fill orders from stock. In this case the new contract at once raises the question of possible deUvery dates, considering the amount of work which is ahead of it in the shop, and the urgency of the case. A survey of necessary materials must be made to ascertain which are on hand, and which must be ordered. Special drawings may be needed, and new shop orders may have to be prepared. If a number of parts are to meet in an assembly, it wiU be necessary to start work on some of them earlier than on others. For these and other reasons the selling department should consult with the making departments in accepting any contracts which call for special plans or for a departure from regular schedules. Schedviles. — ■ In recent years, manufacturers have taken a leaf from the book of railway administrators, in controlUng the order of events. A railway arranges a schedule of its trains, and the despatcher administers it with a view to keeping the rolhng stock of the road in motion. The jobs passing through a shop may be likened to a series of trains passing over a line of railway. The only way by which a continuous advance can be assiu-ed, and men and machines can be kept at work, under even pressure, is to lay out a route, estabhsh a schedule and despatch work from job to job. To attempt a schedule is to bring up the question of the time operations should consume, and to focus attention upon the causes of delay. To achieve a schedule is to make it pos- sible for a management to know the per cent completed on any job, to fix a probable delivery date, to regulate the advance of the component parts of a product so that they will make a simultaneous appearance in the assembly room, and to obtain such a power of directing machines and men from one task to another, that adjustments can be made for rush jobs or unex- pected occurrences without confusion. An illustration of the effect of introducing a carefully planned schedule (other condi- Digitized by Microsoft® 156 ADMINISTRATION OF INDUSTRIAL ENTERPRISES tions remaining unchanged) is afforded by the experience of the New York Navy Yard in removing two twelve-inch guns from the tiurets of the U.S.S. Connecticut and replacing them by two new guns. This job, which would ordinarily have taken thirty days, was finished in ten days, by carefully planning each move in advance. Current methods of foremanizing. — The final touch between administration and men is maintained through the foremen. In ordinary practice there is but one foreman to a shop. This man is expected to look after tools and machines, find materials and supplies for his men, instruct them in the manner of doing work, arrange tasks so that every one is kept busy, enforce a proper pace, write up the job cards and other records, preserve order, make reports as requested concerning the progress of individual jobs, inspect work for quahty, lend a hand in repairs, suggest improvements in equipment, and give an opinion on which to base promotions and discharges. This is a tremendous range of functions, and it is not surprising that many responsi- biUties of an administrative character sHp from the overloaded shoulders of the foreman, and fall upon the workman. Hence the general demand for "experienced " workmen; a demand which means that men are wanted who can take care of them- selves and not bother the foreman. In the one-foreman shop practice remains at a low level, while yet there is demanded excess capacity in the men, above what is needed for craft work alone, to enable them to perform administrative functions. When responsibihties of a discretionary character, concerning processes and equipment, are thrust upon craftsmen in this shiftless way, they rest upon persons not trained for them, not adequately clothed with authority, without effective leisure from manual operations, and without the stimulus of a prospect of an administrative career. The administrative relations for a single shop, in an ordinary estabUshment, are illustrated by chart number 27. In such a shop it is obvious that all the information and assistance which Digitized by Microsoft® Higher Executives Shop Service Depts 0. '^ e •A ■g Genl-Supt or G en'UDep ts 00 s •■e w ^ S s JLI±±±±I 1111111111111 20 WorMea Fig. 27. Chart of Authority fob a Shop Under Ordinary Condi- tions OF FOREMANIZING Digitized by Microsoft® 158 ADMINISTRATION OF INDUSTRIAL ENTERPRISES the higher executives, the general departments, the general manager, and the service departments can render to the work- men must pass through one channel — the single foreman. If there are twenty executives above the foreman, and twenty operatives imder him, one mind is called upon to serve as the intellectual connection for four hundred possible personal relationships between superior and subordinate. It is obvious that we have here an administrative blockade. Here is a weak hnk in the chain of authority connecting higher with lower. Scientific management has put its finger upon this weak spot. Functional foremanship. — The remedy prescribed is to open new means of communciation between the staff on the one hand and the operatives on the other, by multiplying the number of foremen, and by differentiating their duties in such a manner that each may be a speciahst. This is functional foremanizing: a foreman for each group of functions. It is the appUcation to the foreman of the same ideas of specializa- tion and division of labor as scientific progress has introduced among experts, and as the subdivision of trades has brought about among workmen. A particular plan of functionaUzing, recommended by the leaders of scientific management for cases where circumstances permit a reasonably complete develop- ment of the idea, is to install eight foremen; four to serve as clerks in a planning room, and four to serve as bosses in the shop. The four clerks may be thus described : 1. The Routing or Order of Work Clerk, who determines the order of jobs at each machine or production center. 2. The Instruction Card Clerk, who prepares the shop orders, including the standard instructions, the hsts of materials, the standard times, etc. 3. The Cost and Time Clerk, who sees that all time and material used is correctly reported according to the job, work- man, and shop, so that correct payroll and other cost records can be made. Digitized by Microsoft® THE FUNCTIONS OF THE WORKS MANAGER 159 4. The Shop Disciphnarian, who keeps the personal records on which promotions and discharges are based. There are four bosses — 5. The Machine-speed Boss, who sees that the machine speeds indicated on the instruction cards can be and are attained or are reported back for correction. This officer does not speed up the men, except incidentally in getting the prescribed per- formance out of mechanically impelled apparatus. He must be able to convince a doubting workman that a machine can be safely operated as prescribed, by turning to and doing the job himself. 6. The Inspector, charged with maintaining the quahty of the output. 7. The Repair Boss, who is the engineer in charge of repairs. 8. The Teacher, sometimes called the Gang Boss,, who is the old foreman reheved of many duties, and developed into a speciahst. His duty is to see that the men are provided with jobs, have the necessary equipment, understand instructions, and manipulate their work properly. This plan of foremanizing is represented in graphic form in chart number 28. A new yeomanry. — The project to greatly increase the number of shop executives has a significance aside from the increased efficiency which is the primary aim. If such a new middle class is formed between the capitahstic and artisan classes, it means that there will be a host of interpreters of the management to the workmen, and of the workmen to the man- agement, so that each side will understand the other better. Such a body of foremen should develop a notable power of opinion. They may prove to be such a social cement as to entitle them to be considered a new yeomanry, taking the place of the diminishing yeomanry of small independent pro- prietors. The existence of a large class of subordinate adminis- trators who must be famihar with shop processes, will greatly Digitized by Microsoft® Higher Executives JLJL M I llllllllllllill 20 Woilflnen Fig. 28. Chabt op Authobity for a Shop under Functional Foek- MANSHIP Digitized by Microsoft® THE FUNCTIONS OF THE WORKS MANAGER 161 increase the opportunities of promotion for exceptional work- men. The functions of such men will serve as a training school in the managerial art, giving promise that chief executives may continue to rise from the ranks, as in the past; giving promise, also, that labor organizations may at length be officered by men who have an adequate knowledge of costs, of capital risks, and of managerial difficulties. Theoretical and practical considerations in designing. — It is not difficult to find graduates of engineering schools who can make designs which conform to the laws of stress and resistance, or which are, as the phrase goes, theoretically correct. It is difficult, however, to find men for designing departments who combine with this capacity a knowledge of manufacturing processes and of the trials and tribulations of the user. Good design. — Practical designs in machinery avoid diffi- cult problems in moulding, and shun filets of compound curves for machined surfaces. They reduce highly finished surfaces to a minimimi, employ standard sizes of bolts, screws, and gears, and prescribe work which can be turned out with stand- ard arbors, bores, and tapers. A practical designer gives broad bearings at important points, provides easy adjustments to compensate for wear, equips feed screws with index dials, care- fully plans the lubrication system, and in general aims at sim- pUcity with positive action and few parts. In designing machine tools he makes detachable tool rests and attachments, so that preparations can be made off the machine. Control levers are so placed that there will be a minimum of reaching and bending for the workman. Dangerous parts are housed, and delicate ones protected, and yet accessibiUty is preserved for lubrication, adjustment, and repair. The significance of the test given to a design by manufactur- ing it and using it is well brought out by Mr. Chas. L. Grifiin. A successful design, he says, cannot be out of harmony with the organized methods of production. Hence in the art of machine design is involved a knowledge of the operations in Digitized by Microsoft® 162 ADMINISTRATION OF INDUSTRIAL ENTERPRISES all the departments of a manufacturing plant. The theoretical design must be so clothed and shaped that its production may- be cheap, involving simple and efficient processes of manu- facture. It must be judged by the latest shop methods for exact and maximum output. A machine may be correct in the theory of its motions; it may be correct in the theoretical pro- portions of its parts; it may even be correct in its operations for the time being; and yet its compKcation, its misdirected and wasteful effort, its lack of adjustment, its expensive and irregular construction, its lack of compactness, its inadequate supply of oil for the moving parts, its difficulty of ready repair, its inabihty to hold its own in competition — any of these may throw the balance to the side of failiu-e. "Every detail of the successful machine has been picked from a score or more of possible ideas. One by one, ideas have been worked out, laid aside, and others taken up. Little by little, the special fitness of certain devices has become estab- lished, but only by patient, careful consideration of others which at first seemed equally good. Every hne and corner and surface of each piece, however small that piece may be, has been through the refining process of theoretical, practical, and commercial design. Every piece has been followed in the mind's eye of its designer from the crude material of which it is made, through the various processes of finishing, to its final location in the completed machine." ^ The correlation of designing and manufacturing. — How can the production of good designs be ensured? One thing which will help is to provide for the designer convenient fists of the machines, tools, and attachments in the shop, and to prepare enumerations and diagrams of the various styles of work which can be produced in regular course. Shop conferences should be held to bring designers and men of shop experience together. It should be the rule to refer all points of design which involve the purchase of new equipment to an authority 1 Chas. L. Grifiin, Machine Design, Chicago, 1908, pp. 3-4. Digitized by Microsoft® THE FUNCTIONS OF THE WORKS MANAGER 163 higher than the designer before the drawings and specifications are finally approved. Designers should be required to follow personally, in the shop, the progress of manufacture of their experimental models. Design tested by use. — Use is the supreme test. The con- sumer sorrowfully gathers much wisdom. Designers should not only study their productions in experimental operation, and continue tests to failure, but should study their products away from the plant, in actual use, in the consumer's hands. They should gather up discarded and worn out specimens to ascertain what ended the useful fife, and find out why the design fell short of the coordination of "the wonderful one-horse chaise." Standards of accuracy. — Upon the general superintendent rests the responsibiUty of maintaining such standards of accu- racy as will preserve intact the quaUties aimed at in the original design of his product, and will permit easy assembling, and allow of interchangeability of parts. This involves especially the control of such matters as clearance, allowance, and toler- ance. Clearance is a quality of dimensions by which two adjacent surfaces stand clear of each other. Allowance is a difference in the dimensions prescribed for two parts to produce a certain quaUty of fit. Tolerance is a departm-e from dimen- sions permitted as an unavoidable or unimportant imperfection in workmanship. Tolerance dimensions. — The control of all dimensions which involve allowance or tolerance should be taken out of the hands of foremen and mechanics and concentrated in the hands of the superintendent and designer. This can be done either by placing upon the drawings a single figure for each dimension, with the addition of the plus or minus departures from it which will be allowed, or by giving two dimensions which are to be the outside ones tolerated. By indicating a large tolerance for unimportant dimensions, and a less one for more particular parts, the time and skill of the shops may be Digitized by Microsoft® 164 ADMINISTRATION OF INDUSTRIAL ENTERPRISES concentrated by the administration upon those parts of the work where they will count for the most. Measurement of output. — If it is desired to collect a system of unit costs, or to pay men on the basis of performance, ways must be found of measuring the work done. To do this presents no special problem where a good division of labor exists and conditions are standardized. But where there is variety of task and condition, as in the construction trades, the choice of measure and the administration of it is not easy. For painting and plastering and shingling the square yard may be used to state amounts, but it will mean httle imless the quahty of the work is determined. In concrete work the cubic con- tents of a structure can be measured, but such a record will merely summarize the result of handling materials, building and erecting frames, removing forms, placing reenforcing steel, tending the mixer, moving, pouring, and ramming the hquid concrete, and finishing exposed surfaces. "In engineering construction," Gillette and Dana tell us, "the cubic yard is a very common unit upon which contract prices are based, but the cubic yard itself is frequently a very imcertain unit of per- formance, for it is a composite of other units. Thus, in rock excavation there are several distinct operations involved, which may be enumerated as follows; 1, drilling; 2, charging and firing (or blasting); 3, breaking large chunks to suitable sizes; 4, loading into cars, carts, skips, or the like; 6, trans- porting; 6, dumping." ^ The aim should be to measure ele- ments rather than composites: in mathematical phrase, to measure variables rather than their functions. Hence the measurements sought should be, as far as possible, of elementary performances or single steps of manufacture, rather than of chains of operations. The work of single persons or gangs or of distinct classes of persons should be chosen rather than that of groups of persons pursuing unlike crafts. Thus, in concrete ' H. P. Gillette and R. T. Dana, Cost Keeping and Management Engineering, N. Y., 1909, p. 50. Digitized by Microsoft® THE FUNCTIONS OF THE WORKS MANAGER 165 work, measures may be taken of the loads of sand brought up, the bags of cement mixed, the board feet of framing con- structed, the number of standardized and individually keyed forms set up or taken down, the square yards surfaced, etc. In rock excavation account may be taken of the lineal feet of holes drilled, the number of charges exploded, the tons or yards of rock broken up, the amoimts of material loaded, unloaded, and carried given distances by given means of transportation. Inspection. — Among the objects to be attained by a system of inspection of products are, to detect poor materials, to dis- cover defective processes or inadequate apparatus, to sift and educate workmen, to save labor, as ia the hand fitting of mar chine parts at assembly, or the improvement of textile fabrics woven with defective yarns, to avoid the continuation of work on material, already spoUed, to ascertain the loss allowance nec- essary in cost estimates, and to escape loss of prestige from the dehvery of defective goods to customers. Inspection is, therefore, a check of very broad utihty. The chief problem of it is to so analyze and record discovered defects and their causes that an account can be opened with each man, and machine, and batch of material, and operation, and department, so that the inferences drawn may be specific and lead to specific reforms. The closeness of inspection will be proportionate to the losses which undetected defects may cause. It will be greatest where life and limb are involved, as in the case of signal oil and steel rails. Whether it should be terminal inspection or intermediate between processes, will depend upon the probability that addi- tional work will be done on defective pieces, and upon the danger of defective work being covered up. by subsequent steps of manufacture. The process of inspection may be automatic, voluntary, or professional. Automatic inspection occurs where a jig or fixture is made in such a way that work wiU not fit into it unless the previous steps of manufacture have been correct. Voluntary inspection occurs when men are paid according to the amount of perfect work finished by them, and hence such Digitized by Microsoft® 166 ADMINISTRATION OF INDUSTRIAL ENTERPRISES workman become critical of pieces which will be comited put, and of materials likely to cause them delay. Professional in- spection is a function of administration. It tends to pass into the hands of specialists in the measure that defects are subtle or their causes are difficult to trace. The tool room. — The immediate material agency in manu- facturing is the point of the tool. The problems of labor and management largely concentrate upon the task of bringing a succession of small cutting, grinding, or hammering surfaces into contact with materials, under given conditions as to stress, angle, temperature, and the Uke. A bench worker depends for the amount and quahty of his day's work upon the sharp- ness of a few inches of cutting edge on his chisels. A ditch digger may waste ten per cent of his energy by forcing an extra eighth of an inch of pick point into the clay. So important to any establishment is the condition of a few pounds of steel on the points of the tools that efficiency demands that the design of tools, the matter of an adequate supply, the sharpen- ing and repairing of them, and their accessibihty, should be taken out of the hands of workmen and general foremen and concentrated in the hands of specialists who can apply system and science to the tasks. A tool room may be described as a department where tools, attachments, and instruments of precision are selected, designed, manufactured, stored, inspected, sharpened, reforged, issued on authority, and accounted for. By being a conspicuous instance of a place for everything and everything in its place, it saves time in getting equipment promptly into its work. Machine stripping. — The time-consimaing practice of ma- chine stripping which goes on in ordinary shops has been thus described by Lieut.-Col. Wheeler of the Ordnance Depart- ment of the U.S.A. " In the usual shop, with some machines lying idle, if a man at a machine wants a dog or a bolt or a clamp, the easiest way for him to get it is to go to the nearest idle machine and help himself; and this is what he usually does, Digitized by Microsoft® THE FUNCTIONS OF THE WORKS MANAGER 167 except that he usually takes two, if available, and stows one away near his machine for possible future use. When the idle machine is wanted, much time is lost in suppljang it with the necessary equipment. Again, a new man is taken on and put at one of the idle machines and given a job; he does not know the shop and he hunts around for the necessary equipment, and after losing considerable time goes to the foreman, who will send him to the tool room, where he will probably be told that the appliance is with the machine. Tkid he goes from one man to another, trying to get the necessary equipment. After finally succeeding in starting on his work, he finds something else missing, and he has to go through the same thing again, and so on until he learns to go to the nearest idle machine and see what he can pick up." ^ In such a shop each workman will possess a miscellaneous assortment of cutting tools, and will have individual fancies and secrets as to angles and sizes. Much time will be spent by the workman in hunting for mis- placed tools, and in examining them and experimenting with them, and in grinding, or waiting at the emery wheel, during all of which his machine stands idle. The tools will be used in all degrees of dulness, and in all varieties of shape. From lack of standardized conditions standard times will be im- possible. Tool accounting. — A proper system provides each work- man with a machine kit, including micrometers, straps, bolts, files, etc., but not cutting tools. The workman signs for the kit, and it remains permanently with his machine. Cutting tools will be ground by an expert, to standard shapes, as indicated by the science of metal cutting. The proper tool for each kind of work will be specified in the standard instructions. A complete outfit, of tools in perfect condition will be issued by the tool room to the workman each time the job is assigned. On the completion of a job, the cutting tools used, together 1 Hearings before the Sp. Com. of the H. of R. on The Taylor and Other Systems of Shop Management, Washington, 1912, Vol. I, p. 113. Digitized by Microsoft® 168 ADMINISTRATION OF INDUSTRIAL ENTERPRISES with any special jigs and fixtures, will be returned to the tool room, to be examined and put in condition before being issued again. BIBLIOGRAPHY Taylor, F. W.: Shop Management, N. Y., 1911, especially pp. 95-110, on Functional Foremanizing, and pp. 110-128, on The Planning De- partment. Parkhurst, F. A.: Applied Methods of Scientific Management, N. Y., 1912. Ch. Ill, The Planning Department; Ch. IV, Systematic Rout- ing a Necessity; Ch. VI, 6A, The Standardization of Methods and Tools. Kimball, D. S. : Principles of Industrial Organization, N. Y., 1913. Ch. VIII, Planning Departments. Wilt, A. D.: The Relation of Inspection to Money-Making Shop Manage- ment, Engineering Mag., Feb. 1907, pp. 725-736. Gillette, H. P., and R. T. Dana: Cost Keeping and Management Engi- neering, N. Y., 1909. Ch. II, Rules for Securing Minimum Cost; Ch. IV, Measuring the Output of Workmen. Carpenter, C. U.: Profit Making in Shop and Factory Management, N. Y., 1908. Ch. IV, The Designing and Drafting Department; Ch. V, The Tool Room: The Heart of the Shop. Robinson, A. W. : The Relation of the Drawing Office to the Shop in Manufacturing, Trans, of Am. Soc. of Mech. Eng., 1894, No. 596. Jacobs, H. W.: Betterment Briefs, N. Y., 1909. Ch. on General Tool System of A., T. and S. F. Ry., pp. 204r-222. Barth, Carl G. : Slide Rules for the Machine Shop as a Part of the Taylor System of Management, Trans, of Am. Soc. Mech. Eng., 1904, Vol. 25, No. 1010. Diemer, Hugo: Factory Organization and Administration, N. Y., 1910. Ch. XXI, Inspection Methods in Modern Machine Shops. Digitized by Microsoft® CHAPTER IX COST ACCOUNTING If we picture to ourselves a typical manufacturing plant engaged in producing a variety of articles, and if we attempt to enumerate in our minds the various expenditures which will be made in the process of manufacture, we shall not be long in observing that these expenditures divide themselves into three main groups. The first of them includes the materials of which the product is composed, the second comprises the labor directly applied to these materials. The third group is com- posed of all those remaining items of outlay which do not at- tach themselves in a direct and definite way to the production of any individual unit of output. The first and second classes of expenditure are easily computed; when combined they form what is called prime cost. The third group is known as factory burden, or overhead, or simply as "expense." In a machine-building estabhshment, these three elements of costs are approximately equal in amount. And if to them we add interest on the capital invested — an item which is, properly speaking, a profit, but which for certain purposes it is convenient to handle as a cost — we should have four approx- imately equal subdivisions of outlay.^ In cotton spinning the cost of direct materials is nearly twice the direct labor cost: factory burden nearly equals direct labor: interest charge is a Uttle more than one-half the direct labor cost. In the boot and shoe industry direct materials will average somewhat over two ' James Hartness, Human Factors in Works Management, N. Y., 1912, pp. 155-156. 169 Digitized by Microsoft® 170 ADMINISTRATION OF INDUSTRIAL ENTERPRISES and one-half times direct labor, while factory burden will average a Uttle less than seven-eighths of direct labor, and interest will be not much over one-sixth of direct labor cost. In petroleum refining a typical cost calculated by the Bureau of Corporations showed direct material four times direct labor, and factory burden less than one-half of direct labor. A fair interest charge would be over one-third of direct labor cost. Selling Price Cost Manufacturing Cost Shop Cost Prime Cost Direct Labor Material Factory Expense General Expense Selling Expense Profit Fig. 29. Analysis of Selling Price The general relations of different classes of costs to each other may be illustrated by a diagram which separates the component parts of selling price. Direct material cost. — The most tangible and specific beginning of cost is when raw materials are purchased, out of which a finished product is to be made. When materials are used exclusively for a particular job — a job being a series of productive steps ending in the completion of a unit or lot of product — and when it is easy to measure the amount of the material used in connection with each job, the cost of such materials may be charged directly as direct material cost. The original cost may be interpreted either as the actual purchase price, or the last price, or the average price. Into the laid- Digitized by Microsoft® COST ACCOUNTING 171 down cost there enter other items, such as freight, cartage, and the expenses of receiving, storing, and issuing. These items will be difiBcult to subdivide onto each batch of materials requi- sitioned for a job, and so will be most practically handled as a part of expense. When we turn to such materials as coal, machine oil, belting, pohshing substances, and the Uke, we find that if we attempt to calculate the amounts used on individual jobs and fix the costs of such amounts, we shall be engaged in a hair-splitting operation. The practical course is, therefore, to throw these sums into expense. As Mr. H. A. Evans says, "Like direct labor there is some material that enters into the product that cannot be charged as direct material, but must be charged indi- rectly: glue used in a joiner shop or pattern shop; a few nails or screws used on a repair jobj, a small amount of solder on sheet-metal work; a few cotter pins on a job in the machine shop; the red lead or Htharge used in making joints; the mate- rial used with the oxy-acetylene welding plant, and many other similar items. On account of the difiiculty of measuring the quantity used of some of this material and the small amounts used of other classes, it is impracticable to charge these direct, and they must be included in the indirect charges." '■ Direct labor cost. — Turning to the labor used to make a salable product, we find no difficulty in charging directly the wages of those persons who deal immediately and exclusively with the work of a single job, and are engaged for a considerable interval of time upon each job. The expenses of the men at the benches, or in control of the machines, or at work on the erecting floor, can be disposed of easily. But when we consider the expense of truckers and crane handlers and foundry helpers, who pass rapidly from job to job, spending perhaps a few min- utes on each task, we perceive that it would be impractical to dissect the time of such men into minute fragments for charging ^ H. A. Evans, Cost Keeping and Scientific Management, N. Y., 1911 p. 27. Digitized by Microsoft® 172 ADMINISTRATION OF INDUSTRIAL ENTERPRISES purposes; and so these items pass over into expense. Because of a somewhat different trouble in dissection, the wages and salaries of foremen and superintendents, of the office force, and of the general manager, and of all others whose activities serve the interests of many jobs conciurently, must be carried to expense. Labor as a cost. — There is Uttle difficulty in getting the total labor time or labor cost of any man or of any shop, for the attendance record taken together with the wage rates wiU yield it. But resistance is often encountered in getting the labor time or wage cost of each job, because workmen object to making a highly detailed record, fearing that the manage- ment will use the statistics for censure or for a speeding-up process. Human beings are a cost, but more than a cost. While the purely material elements of cost respond in a passive and mechanical way to any cost system which may be employed in the interest of economy and efficiency, when system is applied to labor, an independent power of will must be reckoned with. Here the science of accounting becomes a part of a greater art of handling human nature. To one method of cost collecting operatives may respond with indifference or generosity, to another plan which in its accounting significance may not be materially different, they may reply with the bitter resistance of obstructive tactics. It is not safe for an administrator to long regard labor purely from the standpoint of cost. Expense items. — We now come to the category of "expense," of which something has already been said. We have noted that expense includes — (a) manufacturing supplies, such as coal, machine oil, and belting, (6) incoming freight charges, and the expenses of supply de- partments, (c) wages of the service force, such as truckers, crane handlers, and foundry helpers. Digitized by Microsoft® COST ACCOUNTING. 173 {d) wages and salaries of foremen, superintendents, office force, and general administrators. To these items we may add others — (e) the expenses of equipment, including all current charges on account of providing and maintaining buildings, machinery, and power plant, (/) the cost of service departments, such as the tool depart- ment, the drafting room, the planning room, the account- ing department, the employment department, and the legal department, {g) selUng expenses, including the advertising appropriation, and the expenses of administering credits and collections. Underestimation of expense. — The above Ust indicates that expense is an exceedingly heterogeneous group. It is easy to overlook some of the things which should be put into it. There are items belonging to it which are without tangible reminders at the plant, such as the cost of legal advice. There are expenses which only mature in the future, so that current charging means a calculation from past experience; such as the allowance for bad debts. Materials are visible to the naked eye; laborers troop in and out for their pay; but for the complete enumeration of expense items, cost accounting requires the aid of the comprehensive surveys of proprietorship accounting. Expense items as functions. — Some of the items of expense are pure fimctions of time, like taxes, rent, insurance, obsoles- cence, and a portion of depreciation. These outlays are incurred as a result of the mere existence of a business, regardless o^ whether the production of a period is large or small, or indeed whether the estabUshment be running or closed down. Other expense items, such as those for power, supplies, and salaries, wiU rise and fall with the activity of the business, though not in strict proportion to it. Grouping of expense items. — Expense items may be grouped for spreading purposes with either of two objects fore- Digitized by Microsoft® 174 ADMINISTRATION OF INDUSTRIAL ENTERPRISES most. The aim may be to put such items together as tend to rise and fall in response to the same law of variation, so that the law may be used as the principle of spreading. On the other hand, the grouping of items may have for its object to bring together all the costs for which some officer is responsible, so that the question of his efficiency may be brought home to him with clearness. Either of these principles of grouping calls for the separation of manufacturing expenses from selling expenses. If to direct cost, which is composed of direct material and direct labor, we add all the expense or burden which belongs to the factory or manufacturing end of a business, there will be produced a figure representing manufacturing cost. By this figure the general superintendent or works manager may be judged. In hke maimer, if all selling expenses are collected separately, there wiU be provided a basis for judging the efficiency of the sales manager. Systems of spreading expense. — The' items of cost for direct material and direct labor are somewhat difficult to col- lect, because accuracy of reporting is required of a large num- ber of persons: but once collected they may be distributed with ease upon the proper jobs. The items of expense, on the other hand, are easy to collect, but their distribution involves ques- tions of theory so complicated that, for the most part, they must be solved by arbitrary methods. If a business is of a very uniform nature, like a water-works, or a gas-works, or a blast furnace, or a brick yard, or a mill for the manufacture of flour or cement or paper, the various items of cost will tend to rise and fall together. Under such conditions it will not matter greatly what method of spreading is used, for any method will be, in reality, but a division of costs rather than a distribution of them. But when the different items of cost follow different laws of variation, the manner in which they are grouped and prorated with reference to each other becomes important. Mr. Going tells us, "One underlying idea appears in all meth- ods of expense distribution or apportionment that are commonly Digitized by Microsoft® COST ACCOUNTING 175 employed. It is this: expense does not naturally connect itself with individual jobs or individual units of product. It gathers like one general cloud over the whole business, but not in distinct wreaths around each transaction. Material and direct labor, however, do, from the beginning, identify them- selves with individual operations or individual units of product. You can almost see each job, as it goes through, attach to itself successive items of material and of work. You can see each man and each machine putting material and work together, in visible and measurable quantities, until each piece of product is completed. Now, the underlying idea of all methods of expense distribution or apportionment is to use some one or more of these visible, tangible, and measurable elements as a gauge, and to prorate the expense allotment by it. That is, they biu'den each job or each unit of product in proportion to the material that goes into it, or the wages paid for it, or the time spent working on it, or the use it makes of the machines and other facilities in the factory. This gives us five cardinal methods of expense distribution: by material, by percentage on wages, by man hours, by machine rates, and by production factors." 1 Percentage on materials. — An infrequently used method of distributing expense, and one which has little to recommend it, except its simphcity, is to divide expense as a percentage added to the cost of direct materials. Inasmuch as the cost of materials changes frequently, this method gives fluctuating ratios and unstable total costs. Expense is likely to increase less rapidly than output; it is Ukely to vary inversely with the quahty of materials used; but it remains almost entirely unin- fluenced by changes in the price of materials. Percentage on labor time. — If direct labor time is classified according to the jobs upon which it is expended, it will be possible to distribute expense as a rate per man hour. Such a 1 Chas. B. Going, Principles of Industrial Engineering, N. Y., 1911 p. 97. Digitized by Microsoft® 176 ADMINISTRATION OF INDUSTRIAL ENTERPRISES system of spreading exerts a pressure upon the management to save the time of the force. In this respect pohcy follows fact, in so far as expense is a function of time; but overemphasis of time endangers quahty of output, increases wear and tear on equipment, and endangers the health of employees. Further- more, such a system of spreading leaves out of account the difference in the cost of equipment provided for different work- men. If an operative at a bench, working with a kit of tools worth $25.00, spent an hour on a job he would draw down as large a proportion of expense upon his job as would a ma- chinist who used a $2,500.00 planer for the same length of time. To ignore the cost of special equipment in assessing individual jobs may, perhaps^ incUne foremen who are competing for low cost records to outrun each other in recommending the pur- chase of new machinery to save labor time, but it fails to bring out the expense of allowing equipment to stand idle or be operated at a speed below its capacity. Percentage on labor cost. — To tabulate expense as a per- centage on direct wages is a simple plan, and one very generally used. As it emphasizes wages it appears to recommend the poHcy of employing cheap men; a poUcy which becomes falla- cious when incompetent men are selected, since such men increase factory expense rather than diminish it. This system, like the preceding one, fails to distinguish between jobs which use expensive machinery and those which employ little equip- ment. Percentage on prime cost. — The use of this plan depends upon no principle of superiority in theory, but entirely upon the practical circumstance that prime cost is a perfectly clear concept, and that the figure representing it is usually at hand. A mere favorable ratio of burden to prime cost is of no sig- nificance, for burden may be kept relatively low by swelling prime cost items. Machine rates. — A machine rate is composed of items with- 'drawn from expense, and representing the more important Digitized by Microsoft® COST ACCOUNTING 177 parts of the cost of operating a given machinfe or other large unit of productive equipment. It is spread as an hourly charge upon all work using such equipment. A machine rate may be used when any of the previously mentioned systems are used to distribute the remaining items of expense; its effect will be to amend their neglect of equipment. As ordinarily composed, a machine rate includes charges for interest, depreciation, and repairs, and for power consumed. The machines are not rated separately, but are grouped into classes, each class having an expense rate. As these hourly rates are based upon the assumption of con- tinuous use, if a machine hes idle, an idle-time charge accimiu- lates, which must either be spread as a supplementary machine rate upon the jobs using the machine, or be thrown into general expense and spread over all jobs. When machines are operated overtime there is created a supplementary rate which must be deducted from the full-time rate. It is probable that a very large percentage of manufacturing estabHshments are overequipped in some particular. It is, therefore, a corrective poUcy to make the costliness of idle equipment stand out as distinctly as possible, by making a separate calculation of the loss, in the form of an idle-time charge. The penalized job. — After the various classes of machines in an establishment have been given an hourly rating, if a job is transferred from the proper machines, because they are all occupied, to an idle machine of higher rating, it does not seem fair to penalize the job by the amount of the difference in the rating. No greater offense has been committed than to use equipment which would otherwise have been idle. The proper reUef is either to carry the extra charge to the jobs normal for the machine used, or else to throw the item into general expense. Production centers. — As cost accounting analysis has pro- gressed, a tendency has shown itself to enlarge and perfect the machine rate, by including more and more items of expense Digitized by Microsoft® 178 ADMINISTRATION OF INDUSTRIAL ENTERPRISES in it, and by dividing the machines of an estabhshment into a larger number of classes so that each machine may carry an hourly rate which is approximately correct. The culmination of this tendency is the proposal to divide the entire working space of an establishment, including the locations of machines and work benches and erecting floors, into a series of produc- tion centres. For each of these centres an hourly rate or rental is to be calculated which shall include every item of expense properly chargeable to manufacturing. The conception has thus been elucidated by Mr. R. R. Keely. "In a machine shop each workplace may be regarded as enclosed by four imaginary walls, forming a room of suitable size for the performance of its operation. Each workplace is then con- sidered as a unit in itself from which profit may be made in turning out a product. It may be conceived as rented to an individual workman. "If all the workplaces are rented, then the source of income is not on product sold, but altogether from rental of the avail- able useful space of the manufacturing plant. All space, how- ever, cannot be turned into rentable workplaces, for there must be general heat, fight, and power plant, storage space, aisles, haUs, passages, offices, etc. . . . Each workplace unit must bear its share of interest and depreciation on its building, inter- est and depreciation on the cost of machine, taxes, insurance, etc., on thfe investment, repairs, and maintenance of building and equipment, its share of heat, fight, power, etc., as weU as all other general charges. The cost of the product from each workplace is made up of rental, raw material entering into the product, and a fair compensation for the worker. . . . Pro- vision must be made for the idle time of a workplace." ^ Into this production-centre rate wiU be inserted rentals for all service workmen and service departments, and for general management, just as in a modern high-class apartment ' R. R. Keely, Overhead Expense Distaribution, Am. Soc. Mech. Eag., Feb. 8, 1913. Digitized by Microsoft® COST ACCOUNTING 179 house the rental is made to include charges for elevator service and janitor service. This system of handling expense may be complex, but its leading champion, Mr. A. H. Church, boldly says, "No facts that are in themselves complex can be repre- sented in fewer elements than they naturally possess." ^ The discussion of this system is doing much to advance cost analysis. Conclusion on spreading systems. — No spreading system can attain theoretical accuracy. The degree of accuracy insisted upon must be conditioned by the demand for other virtues such as speed, economy, and simplicity. As Mr. D. S. Kimball says, "The method adopted should be as simple as the problem will permit. Thus, it would be folly to install an elaborate ma- chine-rate method in a continuous process plant manufactmng a single commodity, where a percentage-on-material method is amply accurate. Again, in cases where a few Hues of goods are made on small machines of low value, the percentage-on- wages or the hoxirly burden method may be fully adequate. Where the Hnes of production vary widely in size and character these simple systems are not sufficiently accurate, and a careful manager will go as far as he can in the direction of a machine rate." ^ A tabulated summary of cost items is here introduced to indicate the general relation of spreading systems to each other. Administration of Cost Accounting The preceding brief review of cost items and of the methods of distributing them serves to show that cost accounting is an important instrument of analysis, of which no business adminis- trator can afford to be ignorant. Mr. Chiu-ch has defined cost accounting as a means of showing "The connection of expendi- tures of all classes with the items of output to which they are ' A. H. Church, Production Factors in Cost Accounting and Works Management, N. Y., 1910, p. 172. " D. S. Kimball, Principles of Industrial Organization, N. Y., 1913 p. 138. Digitized by Microsoft® 180 ADMINISTRATION OF INDUSTRIAL ENTERPRISES Prime Cost Department Expense Factory Expense General Expense Selling Expense Cost items Direct materials Direct labor Foremanizing and other department indirect labor Shop space Machinery Supplies Power Buying and Stores Depts Receiving and shipping Tool room Engineering (repairs) . . . Drafting room Planning room Gen'l Supt. oflBce Employment office . Accounting Method of Distribution Direct As a machine- hour rate As a % on materials, or labor time, or labor cost, or prime cost Legal Welfare Dept Gen'l Officers, Directors Advertising Credit and collection Agency expenses Salesmen Sales Mgr.'s Office. . . Asa % on mfg. cost or divided between mfg. cost and sell- ing cost. Asa % on manufactured cost. J. " 3 2 ft £ incident." ' Proprietorship accounting ultimately sums up all items of expenditure into its totals, but it does not measure the items near enough to their sources to reveal the relation between expenditure and production in detail. Cost account- ing, on the contrary, is a scheme of measuring expenditures as close as possible to the time and place of the productive acts ' A. H. Church, Distribution of Expense Burden, N. Y., 1913, p. 13. Digitized by Microsoft® COST ACCOUNTING 181 which give rise to the cost. The object of securing this record at the point of origin of the outlay is twofold, first, to get a record sufficiently dissected and analytical in its nature to reveal the relation between expense and output in detail, and so reveal the cost of a unit of product; second, to so measure the outlay on account of men, machines, materials, processes, gangs, departments, agencies, plants, etc., that when this record of costs is brought into comparison with a record of Uke detail and corresponding classification, showing useful work done, the efficiency of each agency of production can be measured. Cost accounting is, therefore, an instrument of precision in the hands of the administrator: it is one of the many special forms of scientific analysis available as a means of control. When accotints are essential. — A good system of cost accounts is especially to be desired whenever costs are fluctuat- ing, when high-priced labor or expensive materials are used, or when the margin of profit in an enterprise is narrow, so that selling prices must be set with care. Accurate costs are useful as a sort of stethoscope for reveahng the internal conditions of a business where much delegation of authority exists, or where proprietorship rests in the hands of persons not technically expert, and so imable to gauge efficiency by the process of intxiition. The early warning which cost records give of chang- ing conditions is invaluable as a safeguard in disturbed and critical times, or when extraordinary expenses are being in- curred, or when large contracts must be entered into on the basis of preliminary estimates. An establishment which makes a considerable variety of products can discover the fines which are most profitable, and so determine the true field of its en- terprise and its proper function in the business world, only by a cost system. Limits of Elaboration. — It has become somewhat habitual to think of red tape in connection with accounting. This is probably due to the carrying of the balanced-to-a-cent rigidity of bank accounting (fiduciary accounting) into industrial insti- Digitized by Microsoft® 182 ADMINISTRATION OF INDUSTRIAL ENTERPRISES tutions; and the extension of a centralized requisition and voucher system to the petty acts of high officials not at head- quarters, so that the salary equivalent of the time taken to comply exceeds the amount of the items involved. As a cost system is simply one administrative agency among others, its development, and the expenditure proper to incur on accoimt of it, must be controlled by the general law of coordination or of equal utility of marginal outlay.^ This means that it should end at the point where any further expenditure upon it wiU yield a less return than could be secured if that expenditure were made to improve some other feature of the enterprise. Beyond this point hes the domain of red tape. The order system. — To ascertain costs it is necessary to bring imder control all the activities in coimection with which they are incurred, to the end that there shall always be a record where there is an expenditure. Such control is obtained by estabhshing the rule that no expense is to be incurred without an order; and that orders go into effect through a prescribed method of authorizatioii, and are concluded by a prescribed form of report. For such operatives as are subject to strict and detailed guidance in their work an order will appear to have the character, cliiefly, of a written instruction to do cer- tain things. But for those officers who receive infrequent, informal, or general instructions, and in whom is reposed much discretionary power, the order system will appear, chiefly, as a particular manner of requisitioning suppUes, or of reporting acts performed. In the shops an order system will mean that no materials can be secured except on a requisition bearing an order number, and that no workman's labor can be put on anything not specifically authorized, and accompanied by a job ticket bearing an order number. In the shops, each new lot of goods to be manufactured will require a new order, for there each order will expire as soon as work on the particular lot of materials or articles covered by it is finished. In the service 1 See Chapter VII, p. 144. Digitized by Microsoft® COST ACCOUNTING 183 departments and in the executive offices, where outlay cannot be directly coupled with any individual unit or lot of goods,, the order will be, in reaHty, the title of a certain permanent class or subdivision of expense, imder which each particular outlay is to be reported. Such orders will be permanent, so that we may speak of a system of standing orders as prescribing a certain classification of items in all requisitioning and report- ing. Some of the leading entries among standing, orders will be additions to buildings, repairs to buildings, new equipment, repairs to equipment, department payroll, stationery, royalties, legal expenses, advertising, and insurance. The classifica- tion of these orders is important, since it conditions the analysis of expenditures. Cost accoimting versus proprietorship accounting. — Cost accounting is a thing quite different from proprietorship ac- counting. The latter aims to show, by means of the balance sheet, what property there is at a given time, and what the claims of ownership are to it. By means of its trading, profit and loss, and revenue statements, it shows, in stramaarized form, what the receipts and expenditures have been for a period of time, what the profit or loss has been, and what disposition has been made of the profit. Proprietorship ac- coimting keeps the records of financial relations with outside parties, as the law requires; it maintains a check on fraud, internal and external; it constitutes one proof, among others, as to where ownership lies; it shows whether or not the capi- tal fimd is properly proportioned between the various forms of fixed and current assets; and estabUshes the condition of a business with reference to insolvency and bankruptcy. Cost accoimting, on the other hand, aims to collect all the items of outlay, great or small, incident to the production of a unit of goods or services. It uncovers the causes of fluctua- tions of expenditures, and indicates the true field of profit. It aims to measure the efficiency of all the agencies of production, in so far as this can be done by the use of a scale of monetary Digitized by Microsoft® 184 ADMINISTRATION OF INDUSTRIAL ENTERPRISES value. Proprietorship accounting admits only veritable original items: it balances its data in the form of debit and credit: and when in perfected form insists on the fine equilibrium of being balanced to a cent. Cost accounting freely uses estimates and averages, distributing sometimes more and sometimes less than it collects. One of these systems has had a long history; the other is of recent origin. One is the special instrimient of the financier; the other is the daily working tool of the production engineer and works manager. In spite of these distinctions of aim and method, cost accoxmt- ing and proprietorship accounting should be interlaced into one harmonious system of financial records. The connection will be made through the introduction of the totals of the control accounts of the cost system as items in the trial balance and in the profit and loss accoimt. Thus tied together, the cost sys- tem serves as an intensified study of certain items in the pro- prietorship accounts, while the proprietorship accounts serve as comprehensive surveys which make certain that all proper items have been introduced into costs.^ Uniform cost systems. — The estabUshment of a imiform system of cost accoimting for the individual establishments in a branch of industry exerts a great influence toward stable condi- tions and friendly relations. Without such imiformity in the cost-calculating process, competition is not able, in the more complex industries, to estabhsh agreement as to what fair cost is. Without it, therefore, a market can never reach anything better than an approximate and unstable equihbrium as to prices. The chief reason why unanimity of opinion as to costs cannot be reached, when different systems of accounting are used, is that there are many different ways of grouping and ' For the argument that cost accounts and proprietorship accounts should be kept separate, see H. P. Gillette and R. T. Dana, Cost Keeping and Management Engineering, N. Y., 1909, pp. 65-70. For the opposite view, see A. H. Church, Production Factors in Cost Accounting and Works Management, N. Y., 1910, Ch. VII, pp. 163-187. Digitized by Microsoft® COST ACCOUNTING 185 I spreading overhead charges or factory burden. Even a com- paratively simple item Kke the cost of raw materials may, in ordinary practice, include any grouping of a dozen or more different cost elements. The hne betwiBen direct and indirect labor is not drawn ahke m. two plants. In calculating the de- preciation of buildings and equipment, some concerns use the straight-line method, or calculate a fixed percentage from the original value annually; others deduct a fixed percentage from an annually diminishing value; and still others make no regular allowance but either set aside lump sums out of profits from time to time, or trust to offsetting against depreciation the appreciation of such assets as real estate or good-will. With such diversity of practice it is apparent that competitors can- not act upon the same concept as to cost, and cannot, therefore, estabHsh their prices in any definite and fair relation to cost. Profits are, therefore, arbitrary and uncertain, and not stand- ardized as "converting profits." It is well known that injurious competition often has its origin in the suspicious state of mind which is generated among rivals who do not know where the bottom rock of cost is. Rumors of cuts are given credence because the knowledge is not at hand to indicate their improbabihty; and such rumors are responded to more promptly because the folly of the action is not at once apparent. The introduction of a uniform system of cost accounts by a number of concerns in the same line of industry, as the result, perhaps, of the activity of a trade association, invariably brings these estabhshments into a state of intelligent reaction upon each other. Competition is not extinguished, though that abnormal form of it which consists in setting prices below cost may be discouraged. The interests of the public are better served in the long run, because the leadership toward lower prices comes from weU managed concerns of enduring power as factors in the market rather than from experimenters and price gamblers who exert but a temporary influence. Where costs Digitized by Microsoft® 186 ADMINISTRATION OF INDUSTRIAL ENTERPRISES are intelligently deait with by a group of producers, the price pressure of the leaders bears down discriminately at those points where improved efficiency is possible for others. When once all the items of a normal and proper cost are enumerated and brought into clear view, the idea of maintain- ing fair prices becomes a sign of intelligent management, and even a point of honor. By this means financing is made easier and capital flows in to work a greater tdtimate reduction in price, through the effect of good equipment and production on a large scale, than disorderly market wars could ever effect. Managements are released from the excitement of commercial and financial experimentation, and set to work upon those matters which constitute the proper domain of manufacturing activity. When the Biu-eau of Business Research of Harvard University began an investigation of the retaihng of shoes, it was obhged, as the first step, to formulate a system of accounts and introduce it into the cooperating estabUshments. Until that was done the reports of different establishments, show- ing different costs, prices, and profits, reflected differences of accounting method quite as much as they did differences of local conditions and business poHcies. As the contact of business men in the same line becomes more educative, by reason of agreement as to the real nature of the contest being waged with cost, trade associations are strengthened. The discussions of business gatherings become less rambling and popular, and more vital and searching. The impulse which a group of business men in a similar line gathered together naturally feel to adopt a temporary panacea, and control the market by some artificial means, is replaced by a desire to use their assemblage as an occasion for studying effi- ciency. The result of these influences is to work out a more rational division of territory between individual estabUshments in the same trade, and a better division of functions between alhed trades. Unprofitable lines are more quickly dropped, unprofitable departments are more readly ehminated, and Digitized by Microsoft® COST ACCOUNTING 187 unprofitable establishments are more promptly closed. This pm-ging action releases much unnecessary capital investment, and cuts off much unnecessary operating expense. BIBLIOGRAPHY Cole, W. M.: Accounts, Their Construction and Interpretation, Boston, 1908. Wildman, J. R.: Cost Accounting, N. Y., 1911. Webner, F. E.: Factory Costs, N. Y., 1911. Bunnell, S. H.: Cost Keeping for Manufacturing Plants, N. Y., 1911. Bunnell, S. H.: Expense Burden: Its Incidence and Distribution, Proc' Am. Soc. of Mech. Eng., 1912, Vol. 33, No. 1326, pp. 535-559. Church, A. H.: Production Factors in Cost Accounting and Works Man- agement, N. Y., 1910. Church, A. H.: The Proper Distribution of Expense Burden, N. Y., 1913. Going, Chas. B.: Principles of Industrial Engineering, N. Y., 1911. Ch. V, The Nature of Expense; Ch. VI, Distribution of Expense. Kimball, D. S. : Principles of Industrial Organization, N. Y., 1913. Ch. IX, Principles of Cost Keeping; Ch. X, The Depreciation of Wasting Assets. Towne, H. R. : Axioms Concerniug Manufacturing Costs, Journ. of Am. Soc. of Mech. Eng., Deo. 1912, Vol. 34, No. 1377, pp. 1945-1957. Franklin, Benj. A.: Cost Reports for Executives, N. Y., 1913. Gantt, H. L.: Industrial Leadership, New Haven, Conn., 1916, especially pp. 65-70. Digitized by Microsoft® CHAPTER X THE EMPLOYMENT OF LABOR Introductory. — The labor problem is a manifold thing, com- posed of many parts. If we arrange a few of these parts somewhat in the order in which they will present themselves in the term of an individual labor contract, the list will appear as follows: (a) emplojTnent: a bargaining process and a legal contract, (6) shop training: a form of delayed vocational training, (c) discipline, through shop rules, (d) the working environment, embracing such matters as light- ing, heating, ventilation, and the convenience of machine design, (e) measurement of work done, (/) reward in wages, and promotion or discharge, (g) welfare work, that " something more than wages" which gives evidence of the employer as a social being in contra- distinction to an "economic man." The cost of a shifting force. — In the course of an inquiry made into the irregularity of employment, the Russell Sage Foundation discovered that a certain mining company em- ploying on an average 1,000 men, was obHged to hire 5,000 new men each year, to maintain its force. A large machine shop, with a force of 10,000 persons, was foimd to have taken on 21,000 new employees in a year. Another large concern was recruiting at the rate of two men per year for every man on the average force. The Consumers' League of Eastern Pennsylvania found that the three telephone companies of 188 Digitized by Microsoft® THE EMPLOYMENT OF LABOR 189 Philadelphia, averaging 3,000 women employees, had 30 per cent of resignations and dismissals per year. The average service of girls employed by the Michigan Telephone Company has been foimd to be 20 months, showing a 60 per cent rate of annual change. Making some allowance for the special diffi- culties of telephone companies, these records and others of similar purport are characteristic of what is called the hiring and firing process, a recruiting method which consists of promiscuous hiring, costly sifting, inadequate adjustment, and early discharge. Every new employee introduced into an estabUshment, and adjusted to a particular place, entails an expense over and above what the continued service of a former employee would have cost. This expense has been estimated many times; and it appears to be the prevailing opinion that it is in the neighbor- hood of $100 per employee. Where a force shifts at the rate of a complete turn-over each six months, the cost of recruiting may amount to 20 per cent of the payroll expense. This cost is made up of the expense of the employment department, the extra attention required of foremen, the low rate of initial performance, the cost of spoiled work, the high accident rate, and the extra wear and tear of equipment. No allowance is made in these calculations for the lack of team work in gangs and departments where new and old employees are placed side by side; nor is any made for the low average performance which is Hkely to characterize a group of workers as long as novices or obvious misfits among them are permitted to estabhsh a poor performance as the permissible minimum. No allowance is made for the uneasiness and lack of loyalty of a constantly shifting force. The employment officer. — In small establishments workmen are recommended, if not actually hired, by the department foremen. In concerns of size it is profitable to entrust the emplo3anent of all persons below a certain rank to one officer. By this plan complete records can be established in one place. Digitized by Microsoft® 190 ADMINISTRATION OF INDUSTRIAL ENTERPRISES and experience can be made cumulative in developing some degree of skill in the chosen officer. The employment officers of a locaHty, if organized into an Employment Managers' Association, can come together for the study of the methods essential in their work, and can exert an influence in favor of vocational training and vocational guidance. Promotion.' — A position may be fiUed either by the pro- motion of an employee from an inferior place, or by shifting an employee from a place of equal rank, or by the introduction of an outsider. To firmly estabhsh the pohcy of promotion means to open a future inside the business for each person, and to make ambition a centripetal instead of a centrifugal force. To do this, functions must be grouped in such a way that the positions created will stand, with reference to each other, in a graduated scale, across the intervals of which it will be possible for individuals to move at the rate of normal development, until the limit of their talents is reached. When persons are thus linked together, each superior becomes a pattern and each subordinate " an understudy. The superior is released from detail, and gains a counselor whose judgment has the freedom due to exemption from direct responsibihty. As the understudy grows toward the superior in knowledge and power, the latter perceives that he is no longer indispens- able, and strives to rise into a higher world of efficiency. Transfer. — If a record is kept of the kinds of experience possessed by employees, and their natural aptitudes, it will often be possible to improve the adjustment of a force by shifting. Some of the establishments operating under scien- tific management use slack times as schooHng periods. At such times many workmen are shifted temporarily to new tasks for which they have shown aptitude. The object is to teach every man a second or reserve employment, not only with the hope of discovering latent talents which may lead to permanent transfers, but in order that the temporary shifting 1 See Chapter VII, p. 147. Digitized by Microsoft® THE EMPLOYMENT OF LABOR 191 required by rush orders or unequal pressure of work on different shops may be more easily made. In slack times a manage- ment can best spare the time to explore the hidden capacity of its operative force, for at that time the slowness of an experi- mental or learning process can best be endured. Sources of supply. — Out of 750 employers, who reported in 1911 to the New York Conunission on Unemployment, there were 458 firms, or 60 per cent, who secured practically all of their help from those making personal appUcation to them. Two hundred firms advertised in newspapers, in addi- tion to choosing from those who offered themselves. Fifty used employment agencies; 10 depended upon the trades imions. If a concern has a good reputation as an employer, new candidates may be secured from among the friends and rela- tives of the force, by merely posting notices about the works. Public advertising has the drawback of creating restlessness among employees, from the fear of discharge. But if an adver- tisement of help wanted is pubhshed without giving the name of the advertising employer, the best class of men will pay no attention to it. If an employer asks for references with the first apphcation of a candidate, those persons will be eliminated who do not wish to have their present employers know that they are looking elsewhere. Even unemployed persons reahze that the patience of previous employers must not be taxed too frequently by the requests of prospective employers for information. Employment agencies. — EmplojTnent agencies are useful chiefly in securing low-grade labor in large quantity on short notice, as for railroad construction or other contract work. There is a strong tendency to discriminate against the agency, and this feeUng operates to restrict it to the business of placing " floaters " with such firms as are always having labor troubles. PubHc employment agencies are, in general, below even the very inoderate standard of efficiency attained by American Digitized by Microsoft® 192 ADMINISTRATION OF INDUSTRIAL ENTERPRISES municipal and state governments. Mr. Wm. M. Lieserson, who as a member of the Wisconsin Industrial Bureau was largely instrumental in making the Wisconsin agencies an excep- tion to the above judgment, has said of pubKc agencies in general, "With few exceptions their operations have been on a small scale, their methods unbusinesslike, and their statistics valueless if not unreliable." The lUinois agencies upon which the state has for 14 years spent $50,000 annually, the late Professor Chas. R. Henderson pronounced almost complete failures. Here is a task for employment managers. In some states, notably Wisconsin, a beginning has been made of better things. The agencies of that state are organized into a system, through the prompt interchange of information. In that state an effort has been made to solve the problem of the "short job." Under usual conditions, in cities of any size, there are too many men attempting to live on short jobs. Each of these persons gets a job now and then; but the class as a whole is miserable, and but intermittently employed. The Wisconsin plan is to select from the casual labor class a group of men fitted for miscellaneous unskilled work, and not more numerous than can be kept continuously employed. The men of this group are carefully scheduled from one job to another. By turning others away from this class of work entirely, the extra supply is gradually disposed of in permanent positions, or is distributed to other locahties. When such a program is being followed by the pubHc agencies, the employ- ers of floating labor should cooperate by dismissing the lines of waiting men at their gates, and by taking casual laborers from the selected list only. Employment rules. — The following rules may be considered in forming the policies of an employment department: 1. Fill places by promotion when possible. 2. Hire with care. It creates an attentive teachable state of mind in a candidate to observe that it is not easy to get in. Careful hiring will aboUsh wholesale firing. Harrington Digitized by Microsoft® THE EMPLOYMENT OF LABOR 193 Emerson has pointed out the noble ideal toward which first- class administrators should work. He has said, "It ought to be as difficult to enter the service of a great corporation as to pass an entrance examination to West Point; but once in, it ought to be a catastrophe for a man to be forced to leave, because the company provides so much that he cannot provide himself, for his physical, financial, and professional welfare." ' 3. Elaborate the interview or the preliminary correspondence, with a view to judging the candidate from his expression of himself rather than from the testimony of others. 4. In examining letters of recommendation look especially for the opinion of such employers as are noted for their care and success in hiring. Of letters of recommendation President Emeritus Chas. W. Eliot has said, "Experienced officials pay but scanty attention to testimonials and letters of recom- mendation, particularly if they have been forwarded through the candidate, or procured by him. Americans are apt to be too charitable and good-natured when writing letters of recommendation. They are also fond of superlatives, and are too apt to deal only with merits, omitting defects, when they write testimonials at the request of a candidate." ^ 5. Somewhat overstate the disadvantages and imderstate the attractions of the prospective position. During the period of appUcation, the candidate is likely to view the desired place in somewhat too rosy a Hght, especially if it is to take him in from the cold world of unemployment. Some sobering of the picture only serves, therefore, as a correction by which things may be seen as they actually are. Furthermore, by this policy, those looking for soft berths and those of Uttle tenacity of purpose are discouraged. Those who are finally employed will be agreeably surprised to find the reaUty better than the promise. ' Harrington Emerson, EflSciency as a Basis for Operation and Wages, N. Y., 1912, p. 58. 2 Chas. W. Eliot, University Administration, N. Y., 1908, p. 91. Digitized by Microsoft® 194 ADMINISTRATION OF INDUSTRIAL ENTERPRISES 6. Observe the distribution of talent. Men trained to unusual specialties are most likely to be found in large cities where the differentiation of functions is greatest. Simplicity of character and personal loyalty is most apt to spring from village conditions. To have held position in noted centres, such as Detroit for automobiles or Grand Rapids, Mich., for the furniture industry, where the rivalry of standards is intense, is an evidence of capacity in an employee. One should look for the circumstances which stress a certain phase or type of performance. The men who do a certain kind of work well enough to pass muster in places where the accompHshment is either unusually difficult or unusually important are likely to know how to do it well; they have been developed by stress of external circumstance or of internal necessity. Estabhsh- ments or departments presided over by men noted for abihty in certain Hnes may be looked upon as training schools for labor, from the outside employer's point of view. Competent employees of such departments are graduates who can carry with them the methods they have learned. The service depart- ments of machine-manufacturing concerns may often be con- sulted with advantage, for they are interested in having their machines efficiently operated. The R. Hoe and Company conducts a training school for pressmen. The Mergenthaler Linotype Company does the same for operatives of its ma- chines. Trade expositions sometimes serve, incidentally, as clearing houses for foremen, tool makers, draftsmen, designers, and others sldlled in special lines. 7. Avoid the creation of bhnd-alley occupations, or occu- pations which interfere with the school education of youths, and do so without offering the offsetting advantage of giving a specific training for a higher position. Many occupations, such as folding, wrapping, sorting, and pasting, can be abol- ished by the introduction of machinery, or by this means be raised to the plane of adult occupations. For the irreducible minimum of uneducative youthful labor, involved in such work Digitized by Microsoft® THE EMPLOYMENT OF LABOR 195 as tending door and running erra,nds, the shop school or public continuation school are the proper counteracting agencies. 8. Before the final discharge of a man, a reasonable effort should be made to discover his aptitudes by transfers. At the plant of The Ford Motor Company in Detroit, the power of discharge from the estabhshment is not lodged with the fore- men; they can only discharge men from their departments. An employee, upon receiving a departmental discharge, reports to the employment ofl&ce, which places him in some other department. No one is finally dropped until a succession of departmental discharges has demonstrated his general inefl&- ciency. A system very similar to this is used by The Wm. Filene's Sons Co., in Boston. 9. Avoid a general lay-off. The problem of unemployment is a constant invitation to some form of radical pubHc initiative such as the inauguration of extensive public works, or the adop- tion of some form of unemployment insurance. Those employers who dislike the extension of pubhc initiative should remember that they may make a contribution toward the solu- tion of this problem by regularizing their own estabhshments. Conspicuous successes have already been achieved in this by establishments in some of the most seasonal industries; so that the plea that it is impossible to maintain a regular force must not be taken too seriously. 10. A discharged employee should be protected as much as possible. A discharge, even administered with the utmost diplomacy, is a blow to pride, and an experience which tends to break down courage and self-respect. Fairness demands that the minimum of injury be done to one whose failure may be more than half due to some oversight or inadequacy of the em- ployer's agents. Besides, it does not pay to turn loose an enemy. The psychology of employment. — The evolution of experi- mental methods in psychology is preparing the means of more accurately assigning men to the occupations for which nature has specially endowed them. Competent psychologists are Digitized by Microsoft® 196 ADMINISTRATION OF INDUSTRIAL ENTERPRISES now prepared to test the sense impressions as to their vividness, accuracy, and range. They can measure the reaction time, or the speed of response to various forms of sense impression. By memory and association tests, the nature of the mental imagery can, to some extent, be laid bare and the customary thought pa,ths revealed, to show the vocabulary, the acuteness of the intellect, the direction of interest, and the particular concepts which associate themselves with emotion. Dexterity in various simple mental and manual processes may be deter- mined. And so the psychologist is proceeding gradually toward the discovery of what holds the attention, what pleases, what excites to anger, and what dominates the ambition. By exploring the world of sensation and affection, advance is being made toward determining the quaUty of consciousness and the springs of individual action. Upon the basis of such investigations, there is already being suggested certain classifications of individuals which promise to become of practical value to the employer. Professor Muenster- berg refers to the men who are interested iu handling physical things, as contrasted with those whose dominant interest is in dealing with people, and with those who naturally labor in the service of ideals. And the same investigator refers to tests which will distinguish mental efficiency from manual efficiency, will divide the settled type of men who complain of upsetting changes from the roving type who complain of monotony, and will differentiate the dependent individuals who evade authority from those directive personahties who seek it.i The best known classification is that of Wundt, according to which a fourfold division of temperaments is made, "On the ground that, in every individual, there must be a certain combination of the two factors of strength and speed in that change which all mental processes undergo. The affections of the mind are therefore classifiable as either strong ' Hugo Muensterberg, Vocation and Learning, St. Louis, Mo., 1912, p. 265; Psychology, General and Applied, N. Y., 1914, pp. 417-418. Digitized by Microsoft® THE EMPLOYMENT OF LABOR 197 and quick, or strong and slow; or else as weak and quick, or weak and slow. By crossing these two principles of division the following scheme is derived: Strong Weak Quick Choleric Sanguine Slow MelanchoHc Phlegmatic "The quick temperaments are directed rather toward the present, the slow toward the future. The quick require addi- tional strength, the weak additional time, in order to achieve the largest amount of work possible for them. The choleric and phlegmatic are temperaments with respect to action; the sanguine and melanchoUc are temperaments with respect to feehng."! The evolution of industry is turning employers toward psychology. The increasing fineness of the division of labor, the greater significance in modern labor of special mental endow- ments, the accuracy of adjustment of the factors of production aimed at by the advocates of scientific management, the atten- tion attracted by the movement for vocational guidance, and the pubUcation of cost data with reference to the "hiring and firing " process have created an intense eagerness for any- thing which bears the word psychology. There remains, however, an immense amount of scientific work to be done before psychological tests will be serviceable in the employment department. The apparatus for exploring the sense impres- sions and the affections can only be practically appUed when the various occupations have been resolved into their essential component psychological elements and the relative significance of these parts in attaining efficiency has been determined. In this analysis scarcely a beginning has yet been made. Occasionally the psychologist can devise a complex laboratory test which reproduces the essential psychological situation of an occupation: of such tests barely a dozen have as yet 1 G. T. Ladd, Physiological Psychology, N. Y., 1892, p. 458. Digitized by Microsoft® 198 ADMINISTRATION OF INDUSTRIAL ENTERPRISES proved their value. In this juncture the true scientist asks for time, and for the faciUties for investigation; but, meanwhile, the commercial exploiter rushes in, and offers a mixture of phrenology and palmistry, promising to practitioners the speedy development of an uncanny power of divination. The solution of the problem of adjusting talent to function will require the support by society of largely increased facihties for pure research in psychology. It wiU require, also, the introduction into industry of a new type of specialist — a man who is as competent in psychology as the engineer is in physics, or the physician in physiology. It will require a special development in the schools, to permit the prolonged observa- tion of the abiUties and tendencies of the young; and so to supersede the ridiculous efforts now being made to measure and catalog personaKties in a single interview. It will require, finally, the estabhshment of bureaus of vocational guidance to apply the economy of a clearing house to functions which most employing concerns can never afford to perform according to the highest standards of science. Law of the labor contract. — Legally considered, the con- tract of employment must contain the same essentials as other contracts, namely, two parties competent to contract, a lawful consideration, a lawful object or subject-matter, and mutual assent or an agreement of minds. If any one of these elements is lacking the contract is void. The existence of a contract may be implied by the conduct of the parties without any direct discussion of terms, as where one labors for another with his knowledge and consent. When, after the expiration of a contract, one continues to labor for another with his knowledge and consent, a new contract is thereby formed for the same period, and on the same terms as the previous one. If a con- tract for employment is for more than a year it is only valid, under the Statute of Frauds, when put in writing. Term. — If the term of a contract is not stated it may be implied, either from the custom of payment (it being reason- Digitized by Microsoft® THE EMPLOYMENT OF LABOR 199 able to suppose that employment is to endure until the next regular pay day) , or from the customary term of contracts for the like class of labor, or from the expenditures and sacrifices made by either party to carry out the conditions. If a man moves his family to a new place specifically to accept a salaried position, it may be assumed that the period in contemplation between the parties was more than a week or month. In general, however, if employment is for an indefinite period, it may be terminated by either party without notice. Specific enforcement. — The law will not compel the enforce- ment of contracts for personal services. The courts have no means of establishing a guard over a man to see that he performs his work. The remedies for non-performance are, therefore, discharge, and action for damages. Discharge. — An employer has a right to discharge an employee for (1), wilful disobedience, (2), misconduct, (3) negligence, and (4), incompetence. Disobedience. — Not every act of disobedience is ground for discharge. If the orders of the employer are contrary to, or outside of, the terms of the contract, or are unreasonable, "or impossible of execution, obedience is not required. Misconduct. — Misconduct which injures the employer's business is ground for discharge. To disclose the employer's business secrets, to foment discord among co-employees, or induce co-employees to quit the employer's service, to take bribes from subordinates, or to steal the employer's property, are some of the acts justifying discharge. Drunkenness as a habit, or on specific occasions when the employer's interests can be proved to have suffered, is sufficient cause for discharge. Negligence. — NegUgence, like misconduct, must be of such a nature as to injure the employer's business, before it becomes cause for discharge. Illness for a considerable time operates, within the meaning of the law, as negligence. Absence without good cause, especially in the case of those in responsible posi- tions, is material. For a similar reason, the delegation of Digitized by Microsoft® 200 ADMINISTRATION OF INDUSTRIAL ENTERPRISES duties to another without notice to the employer, especially where the question of competence is an important one, as in the case of an architect or engineer, is not sufficient performance. Incompetence. — An employee is responsible for any mis- representation, express or imphed, as to his skill, experience, capacity, or training. In undertaking work an employee, in effect, affirms his abihty to perform it. Nor can he plead igno- rance of the nature of the work, at the time of entering upon the contract, if no fraud on the employer's side prevented his securing the information. If, then, the employee reveals his inabihty to perform the work, even though he may work with all his energy and talent, he may be discharged. If an employee accepts added duties while employed, he is bound to perform them, for he has entered into a new contract to do so. He might, lawfully, have declined to perform them, with- out invahdating the original contract, but having once assented to the new duties, he is bound for their proper performance. Wrongful discharge. — If an employee has been wrongfully discharged, and has acquiesced, he has thereby released the employer from all liabihty. When there is a question as to whether or not a discharge is absolute, the proper course for the employee is to tender his services until they are definitely refused; for performance, or tender of performance, is required of one party before he can require performance by the other party. When an employee has been wrongfully discharged, he is bound to seek similar employment with reasonable diligence, in the same general locaHty. Failing in this, or securing less remunerative employment, he can then hold his original employer liable for his wages, or for any deficit in his wages. He is, however, not bound to accept employment of a different kind. To illustrate. The Central Leather Company had bought out an independent concern. The superintendent of this concern had been engaged for a year, and refused to resign before the expiration of that term in favor of the com- pany's new superintendent. He was notified to appear at Digitized by Microsoft® THE EMPLOYMENT OF LABOR 201 the factory and earn his $8,000 salary by working as a factory hand, until the expiration of his contract. This he did, think- ing it necessary in order to maintain his rights. His only duty would have been to make a reasonable effort to obtain another position in the same locahty with activities substantially the same as before. Failing in this, he could have recovered the balance of his year's salary without working as a factory hand. Condonation of offense. — An employer having once con- doned an action cannot later discharge the employee for that action alone. The retention of an employee, after his services have become unsatisfactory, operates, in general, as a waiver of breach of performance, and entitles the employee to his wages or salary for the period; but it does not afford conclusive evidence that the employer has completely condoned the offense, for he has a right to take into consideration the signifi- cance of a series of offenses in determining competence. An employee once wrongfully discharged cannot later be ordered to return to work and, faihng to do so, be legally discharged for this as a breach of performance. There can be but one discharge under one contract. Collective bargaining contracts. — The following headings and specimen clauses are presented to show the character of the agreements which are more and more frequently being entered into between employers, or organizations of employers, and organizations of employees. They may serve as a guide in drawing up agreements where collective bargaining takes place. 1. Definitions as to the nature of work or the standards of craftsmanship: Such definitions are introduced into agree- ments, either for the purpose of reserving certain kinds of work to men of a given trade, or to classify work with reference to wages, or to limit and define the application of certain types of equipment or of certain methods of doing work. Definition of a craft: "All pointing on stone and brick walls Digitized by Microsoft® 202 ADMINISTRATION OF INDUSTRIAL ENTERPRISES done with the trowel, and floating plastering, shall be done by masons, and all stonework, whether laid up dry or in mortar, shall be considered mason work, and shall be done by masons. It is agreed that brick floors, laid in sand and then grouted, can be laid by any one the contractor may deem fit; but brick floors laid in cement mortar is mason's work, and must be done by masons." Mason Contr's Asso. of Rochester, N.Y., and Bricklayers', Plasterers', and Stonemasons' Union, 1910. Definition of a craft: "Boilermaker's work is defined as fol- lows: cutting apart, marking off, laying out, and building work pertaining to steam, water, air, and oiltight sheet and plate work from number sixteen gauge iron or steel and upward; boiler inspection and testing, flanging, patching, riveting, chipping, caulking, and tube work." Boston and Maine R.R., and Boilermakers, 1908. Coimtry work: "Coimtry work means work performed by a worker which necessitates his lodging elsewhere than at his usual place of residence." [Some usual provisions of country work contracts are: the worker to be conveyed to work, or have his travelling expenses paid once going and returning during the continuance of the work, time occupied in travelling to be paid for at ordinary rates, and workers to be paid an additional sum of per week, or in lieu thereof, receive board and lodging free.] — New Zealand clause. Suburban work: "Suburban work means work performed by a worker at a distance of over two miles from his employer's place of business, but which does not come within the definition of country work. If the distance required to be travelled in order to reach the place be more than two miles from his em- ployer's place of business, workmen shall be paid at the ordinary rate of wages for the time occupied in proceeding to the work, for the excess of such distance, reckoning the time taken at Digitized by Microsoft® THE EMPLOYMENT OF LABOR 203 the rate of three miles an hour. If conveyance is needed it is to be furnished or fares paid." — New Zealand clause. 2. Policy of Employment: Various stipulations are to be found, such as for a closed shop, for a closed trade, for the preference of union men when competent union men are avail- able, and for the reservation to the employer of complete liberty in hiring and discharging. Closed shop: "If the employer shall hereafter engage a worker who is not a member of the union, and who, within one calendar month after having been engaged, fails to become and remain a member of the union, he shall dismiss such' worker, if called upon to do so by the union, provided that in such case the tmion shall provide a worker of good character, competent, and ready and wilhng to perform the work required to be done. Provided also that the rules of the union permit any person of good character, competent and employed in the trade, to become a member of the union upon payment of an entrance fee not exceeding , upon his apphcation, without ballot or other election, and so to continue upon continuing subscrip- tions not exceeding per , and to retire from the union without payment of anything in the nature of a fine or penalty." — New Zealand clause. Closed trades: "Only members of the party of the second part [the union] are entitled to do the work in the following lines, to wit: every kind of work in the brew-house, in the fermenting room, cellar, fill-out cellar, wash house, and pitch- yard, also all handling of empty or filled barrels, inside of the brewery, to drive on hoops, tending of machinery necessary to drive on kegs, cleaning pipes, whitewashing inside of the brew- ery, handling of all material necessary to the manufacture of beer and ale inside of the brewery building. Foremen and assistant foremen need not belong to the union." Sixteen Buffalo brewers and Brewers' Local Union, 1910. Digitized by Microsoft® 204 ADMINISTRATION OF INDUSTRIAL ENTERPRISES Helpers: "Helpers and laborers will not be permitted to do boiler makers' work or be advanced to the detriment of the apprentice or boiler maker." New York Cent. R.R. and Intern. Brotherhood of Boiler Makers, 1910. Helpers: "Machinists' helpers will not be allowed to mider- take or execute such work [enumerated elsewhere in the agree- ment] as requires the skill of a mechanic, and must only come in contact with such work in such a way as to render assistance to a machinist or apprentice." New York, Ontario and Western R.R. and Machinists, 1910. Promotion: "All employees in the telegraph service wiU be regarded as in line for promotion, advancement depending upon faithful discharge of duties, and capacity for increased responsibility." Erie R.R. and Telegraphers, 1910. Promotion: "In case a blacksmith leaves, or the company starts another fire, the oldest smith or helper qualified for promotion shall be given the chance; and if he proves satis- factory he shall receive twenty-five cents additional every three months, until the full amount of that fire is reached. Should the promoted man prove incompetent to do the class of work done on the fire to which he has been promoted, after a reasonable length of time, he shall be set back, and the next in hne given a chance." Boston and Maine R.R. and Blacksmiths, 1910. 3. Hours of work: Agreements relating to the hours of work specify variously, the number of hours constituting a day's work, the time of day at which work shall begin and end, the manner in which shifts shall be constituted, and the hoUday periods on which work shall be suspended or paid for at extra rates. Digitized by Microsoft® THE EMPLOYMENT OF LABOR 205 Hours and holidays: "Eight hours shall constitute a day's work, all work to be done between the hours of 8 a.m. and 5 p.m. No work shall be executed on Saturday between the hours of, 12 noon, and 5 p.m. ; all over that time shall be paid for at the rate of time and a half, except Sunday, New Year's, Washing- ton's Birthday, Memorial Day, Fourth of July, Labor Day, Thanksgiving, and Christmas, which shall be double time." Master Carpenters' Asso., Yonkers, N.Y., and Dist. Council Carpenters and Joiners, 1910. Overtime: " AU time worked above hours per day shall be considered overtime." "Overtime shall be allowed only for work done after the regular quitting time." "In calculating overtime each day shall stand by itself." "All time worked in any one day above hours, or in any one week above hours shall be considered overtime." | Shifts: "In case of necessity the employer shall have the privilege of working more than one shift of men within the twenty-four hours: straight time to be paid." Employing Plasterers' Asso. of Buffalo, and Mason Builders' Asso., 1910. The shift and wages: "If a night shift is arranged to fall chiefly between the hours of 9 p.m. and 5 a.m., work on such shift shall be paid at the rate of ." 4. Wages: The principal points in trade agreements with reference to wages are: the rate per hour, day, week, or month, the rates of overtime wages, the method of calculating wages, as by piece rates or by a bonus system, the wages of apprentices and under-rate workers and part-time workers, the wages of temporary work, the wages of spoiled work, the manner of setting new rates, and the time and manner of making pajmaents. Overtime wages: "Overtime shall be paid at the rate of time and one-half." "All overtime up to o'clock p.m. shall be paid for at the rate of , after that at the rate of Digitized by Microsoft® it (( it ct IC tl (( tl it 206 ADMINISTRATION OF INDUSTRIAL ENTERPRISES Apprentices' wages: "Scale of discounts for apprentice mould makers: First year 33| % discoimt from full list, Second year 25 " Third year 20 " Fourth year 15 " Fifth year 15 " U. S. Potters' Asso. and Nat'l. Brotherhood of Operative Potters, 1909. Wages of temporary work: "Any man taking temporarily the place of another for a time exceeding one day, shall receive the pay of same during such incumbency, but such pay shall not be less than he is regularly receiving." Brewers' Ex., Rochester, N.Y., and Five local unions, 1910. Wages of transfer work: "A man placed on a higher rated fire, machine, or hammer for one week or longer will receive the rate of such higher rated fire, machine, or hammer. Day workers placed on a lower rated fire, machine, or hammer will be paid their regular rates, unless the change is permanent on account of employee being incapacitated for his former work." American Locomotive Co., and Intern. Brotherhood of Blacksmiths and Helpers, 1910. Wages of spoiled work: "Workmen spoihng work through negligence or other culpable error shall lose remuneration for the time put upon the piece. Employees shall not be obhged to lose the value of the time expended by them upon material which, through no fault of theirs, is discovered to be defective after they shall have worked upon it. Employees charged with the value of spoiled work shall receive credit for the value which the material involved may have for other purposes." — Rock Island Arsenal. Digitized by Microsoft® THE EMPLOYMENT OF LABOR 207 Setting new rates: "New work will be priced within a reason- able time, and must be priced before 25 % of the total number of pieces are completed. The foreman will, if necessary, make a special allowance equivalent to the basic piece work rate to compensate the workman for any loss that he may sustain in starting a new job.' American Locomotive Co., and Internal. Brotherhood of Blacksmiths and Helpers, 1910. Manner of paying: "Wages shall be paid weekly and be ready for dehvery at the shop or at the job at which the men shall respectively be at work, at 5 p. m. on pay day, and half holidays at 12 noon." "Wages shall be placed in sealed envelopes, having endorsed thereon the name of the wage earner, the number of hours represented, the date of payment, and the amount enclosed." Elec. Contrs. of Rochester, N. Y., and Local Union of Internal. Brotherhood of Elec. Workers, 1910. 5. Apprentices: With reference to apprentices, the matters to be settled are, the mmaber to be permitted, the rate of wages to be paid [see Wages], the length of the apprenticeship term, and the class of work apprentices shall be allowed to do. Number: "To a contractor working on an average the previous year two masons, one apprentice; five masons, two apprentices; and for every additional ten masons, one apprentice." Mason Contr's Asso. of Rochester, N.Y., and Bricklayers', Plasterers', and Stonemasons' Union, 1910. Ehgibihty: "The sons of the employers shall be exempt from the terms of this provision." "Graduates of colleges, univer- sities, or technical schools of collegiate rank may be employed as apprentices though exceeding twenty-one years of age." Candidates: "Candidates for apprenticeship may be em- Digitized by Microsoft® D. Management: Dome oi tiie piouieius ui mauageiueuu 'hich are most likely to require determination in collective argaining are: whether or not "imfair" material is to be ebarred, whether or not restrictions are to be placed on out- ut or upon the use of machinery, what the status of the fore- lan is to be, and what privileges are to be accorded to imion fficers at the works. No restrictions: "Subject to the special provisions of this greement, the employers shall retain and have full power to lanage and control their own business and the conduct of tieir employees in connection therewith, and to make reason- ble rules and regulations not inconsistent with the provisions f this agreement relating to the management thereof, and to be hiring, conduct, duties, and dismissal of persons in their mployment." — New Zealand clause. No restrictions on materials: "No restrictions shall be nforced as to union or non-imion made material, except that irison-made material shall not be used." Restricted materials: "The company agrees to provide only nion materials to be worked upon in the following cases, , xcept that in case union material shall be unavailable, non- nion material may be provided upon proof of the fact." No restrictions on work and machinery: "No restrictions ball be placed upon the amount of work a man shall perform uring working hours, nor shall restrictions be placed upon the istallation of machinery or the work the same shall do." Restricted machinery: "The use of the long stroke pneu- latic riveting hammer shall be aboUshed on stay-bolts, and uch hammer where used shall always be manned by two boiler- lakers. All overhead work will be aboUshed with the long broke hammer." New York Cent, and Hudson River R.R., and Intemat. Brotherhood of Boilermakers, 1900. Digitized by Microsoft® THE EMPLOYMENT OF LABOR 209 Status of foremen: "The foremen shall in all matters be the agents of the employer solely." "If a foreman be a member of a imion he shall not be subject to the rules of his union, nor shall any fine be assessed upon him by his imion, while he is acting as foreman." Access for union officers : ''The company agrees that the busi- ness agent of the union shall have access to the works at all times during the working hours, but shall not be allowed to interfere with, give orders to, or delay the men on the work during said hours." 7. Arhitration: A prime purpose of collective bargaining contracts is to avoid strikes and lockouts. An essential part of such contracts has to do, therefore, with the procedure to be followed in case of disagreements. Arbitration: "All disagreements arising between the parties hereto, shall be referred by either party for settlement, to a board of three arbitrators, one selected by each of the parties to the controversy, and the third by the two so selected. Decisions of the Board of T^bitration shall be final and binding on all parties to the controversy." Elec. Contrs., Rochester, N.Y., and Local Union of Internat. Brotherhood of Elec. Workers, 1910. Sympathetic strikes: "There shall be no sympathetic strike for any cause whatsoever during the life of this agreement." Mason Builders' Asso., and Employing Plasterers' Asso. of Buffalo, N.Y., and Plasterers' Union, 1910. Strikes: "It is further mutually covenanted and agreed that during the continuance of this agreement there shall not be any strikes whatsoever or lockouts declared or permitted by either party hereto, except in sympathy with local trades, and in conformity with Section 4, Article 4, of the Constitution Digitized by Microsoft® 210 ADMINISTRATION OF INDUSTRIAL ENTERPRISES of the I. B. E. W., of the present date, but that all controversies shall be submitted to arbitration." Elec. Contrs., Rochester, N.Y., and Local Union of I. B. E. W., 1910. 8. Outside work: Clauses with reference to outside work are always prohibitive. No outside work on the premises: "While on the premises, no employee shall engage in any other than the employer's business." No outside work after hours: "No , while in employ- ment, shall do or assist in doing any work, save for his employer, for payment, profit, or reward, after ordinary working hours, or on Sundays or hoUdays." 9. Layoffs, discharges, and clearance letters: Clauses on these subjects aim to avoid sudden or sweeping layoffs, to estabhsh the right to notice before the termination of the labor contract, and to provide employees with written evidence of an honorable discharge. Layoffs: "Should it be necessary to reduce time, the working time to be reduced to 8 hours; if further reduction is neces- sary, to 7 hours; if still further reduction is necessary, to be divided equally among the men as far as practicable." American Locomotive Co., and Intemat. Brotherhood of Blacksmiths and Helpers, 1910. Notice: "Any member holding a regular place, and desiring to quit work, must give notice to the manufactin-er, and then work five consecutive days afterward in his regular place. Manufacturers desiring to discharge members must give them the same notice with the same rights." Glass Bottle Blowers' Natl. Agreement, 1910. Clearance or service letter: "Men shall, if they so desire, upon leaving the service, be given a letter stating the nature Digitized by Microsoft® THE EMPLOYMENT OF LABOR 211 and time of service, and reason for leaving the same. Said letter to be given within ten days." Boston and Maine R.R., and Conductors and Trainmen, 1910. 10. Renewal of agreement: In providing for the renewal of agreements, collective bargaining contracts often prescribe in detail the time and maimer in which negotiations with reference to changes shall pass back and forth between the two contract- ing parties. Automatic renewal is usually provided for, when no changes are proposed by either party. Automatic renewal: "This agreement shall be operative for years from , and if no notice in writing of altera- tion or change shall be made by either party on or before . Then it shall be deemed extended for the further period of y^^i'S- Eke. Conirs., Rochester, N.Y., and Internal. Brotherhood of Elec. Workers, 1910. BIBLIOGRAPHY Clark, C. D.: The Law of the Employment of Labor, N. Y., 1911. Worman, H. A.: Recruitmg the Working Force, Factory, Dec. 1907 to Jan. 1909 Incl. Gantt, H. L. : Training Workmen in Habits of Industry and Cooperation, Trans, of Am. Soc. of Mech. Eng., Vol. 30, 1908, No. 1221, pp. 1037-1063. Carpenter, C. U.: The Workmg of a Labor Department in Industrial EstabUshments, Engineering Mag., Apr. 1903, Vol. 25, pp. 1-9. Commons, John R.: Labor and Administration, N. Y., 1913. Blackford, Katherine M., and Newcomb, Arthur: The Job, The Man, and The Boss, Garden City, N. Y., 1914. Munsterberg, Hugo: Psychology and Industrial Efficiency, Boston, 1913. Scott, W. D.: Increasing Human Efficiency in Business, N. Y., 1911. Digitized by Microsoft® CHAPTER XI FATIGUE Labor, in the economic sense, may be defined as the exer- tion of man's physical and mental powers in the production of goods and service. When we consider the results of labor we say that, if one man in a day produces 100 units of goods, and another 200 units, the latter has performed twice as much labor as the former. Physiologically considered, labor is an activity which destroys tissue cells and produces poisonous waste matter in the system. Considering the effect of the process upon the laborer, the man with 200 units of product may have destroyed four times as many tissue cells as the man with 100 units if his greater output is prunarUy the result of greater effort. On the other hand, the more productive worker may not have destroyed as many cells as the other if his large product is chiefly the sign of greater talent and facility. The law of increase of the physiological cost of labor diverges widely from the law of increase of economic results. Fatigue is not proportional to results but to the energy exerted. Much of this energy may be wasted. When physical processes are not guided by ade- quate mental conceptions, roundabout and awkward move- ments result which produce high fatigue per unit of product. A process which is imperfectly understood, at which the worker struggles mentally, and over which he worries as he works, will mean much fatigue. In all work, whether mental or physical, native aptitude, training, and the facility of habit are highly important as means of reducing fatigue. Of purely mental calculations. Professor Thorndike says, "Greater achievement 212 Digitized by Microsoft® FATIGUE 213 per hour means less, and much less, fatigue per hour." ^ A woolen manufacturer reporting to the Tariff Board on the causes of the difference of output of weavers said: "The good weaver never seems to be doing anything; the poor weaver always appears to be hard at work. The good weaver is quietly on the alert for things to happen; the poor weaver is always fussing around to catch up after they happen; conse- quently the good weaver not only produces more work but better work than the poor one." ^ Another manufacturer said: "It is not a question of quick motions. One of the best weavers we have is a man of very slow, almost sluggish motions. One of the poorest we ever had was a nervous, quick-motioned man. The first made every move count; the second made three unnecessary moves to one that was useful. We beheve the same types will be found anywhere in any hne of work." ^ Effort and performance. — It has been found that, as the work of an individual proceeds, there is, at the beginning, a brief introductory period of timing-up, during which effort becomes increasingly easy and agreeable, while production increases. Thereafter production mounts more slowly toward the maximum, without material change of sensation. A period of some duration then occurs in which conditions are fairly uniform. Dechne at first proceeds slowly, and then more and more rapidly, as pleasure fades, and effort, strain, and finally pain, make their appearance in consciousness. At first increasing slowly, these imcomfortable sensations intensify themselves more and more rapidly until, at length, the essence of the task becomes largely the putting forth of the energy of will required to combat them. When we say that a man is "working on his nerve," we recognize that his danger is one of nervous rather than muscular disorganization. At last, effort becomes intolerable, exhaustion is complete, and work ceases. ' Edw. L. Thorndike, Mental Fatigue, Journ. of Ed. Psych., Vol. 2, p. 69. 2 Report of the Tariff Board on Schedule K, Washington, D. C, 1912, Vol. 4, p. 1074. 3 Ibid., p. 1073. Digitized by Microsoft® 214 ADMINISTRATION OF INDUSTRIAL ENTERPRISES Recovery. — From moderate fatigue, recovery is rapid and complete, the replacement being with stronger tissue, so that power is increased by use. From great fatigue, recovery is slow and, as age increases, less and less complete. The con- tinuance of labor, after strain makes its appearance, causes a destruction of muscular and brain cells which increases more rapidly than output, and so disproportionally lengthens the period required for recuperation. Wholesome fatigue. — All degrees of fatigue are by no means evil. The world is far from the point where fatigue, even pronounced fatigue, can be entirely banished from indus- try. And if it were at such a point, it would signify that the working classes had come at last into the same pHght as those aristocratic families of whom Galsworthy speaks in The Patri- cian, who are "compelled to devise adventure lest they lose behef in their own strength." Many people are mentally and muscularly flabby, and need the quickening influence of vigor- ous effort to improve the physical metaboUsm, to act as an alterative to the tissues, and to break up the disintegrating habit of mind wandering. By persistence in the affirmation of one's purpose, and by bravery in seK-discipline, one may discover that there is a great difference between mere apathy or ennui and real fatigue. One may find that minor degrees of fatigue can be put to flight by concentration of attention and enthusiasm. And when true fatigue is attained, if it is properly limited, it will be found to have its value in the pur- chase of rest, content, self-respect, and a later increase of power. Ex-President Ehot has said, "There is pleasure in exertion, even when it is pushed to the point of fatigue, as many a sportsman knows; and this pleasure is in good measure independent of the attainment of any practical end. There is pleasure in mere struggle, so it be not hopeless, and in over- coming resistance, obstacles, and hardships." ^ ' Chas. W. Eliot, The Durable Satisfactions of Life, N. Y., 1910, pp. 33-34. Digitized by Microsoft® FATIGUE 215 Overstrain. — Passing beyond that reasonable fatigue which acts as a moral and physical therapeutic agency, it must be recognized that there is a point in labor where the exertion becomes too costly for the results achieved — too costly for the worker, too costly for the employer, too costly for society. This may be called the point of overstrain. Treves of Turin has defined overstrain as "Work done in a state of exertion where there is a more or less marked and persistent disproportion between the usefulness of the work in itself, and in the worker's estimate, on the one hand; and the amount of energy and will power expended on it, on the other hand." ' Remembering that it is uneconomic to sacrifice a greater good for a lesser one, it must be a rule of economics that labor should cease at the point where society begins to suffer a greater loss through the breakdown of the laborer than the gain resulting from the product of his exertion. Incomplete recovery. — Recuperation is a process extending through time. The point of quitting must, therefore, depend upon the period which can be devoted to recovery. If the worker is so fatigued in any task period that at the beginning of the next period he has not fully recovered, a deficit is pro- duced which is compounded from period to period. Such a schedule can only be justified by the immediate prospect of a longer recuperation interval, which will restore the equilibrium. We compound fatigue from task to task, and diminish power throughout the working day as shown in Figure 30. And we permit this incomplete recovery because of the near prospect of the overnight rest. Again, we compound fatigue more or less commonly from day to day throughout the week in view of the week-end recuperation. (See Figure 31.) Saturday night dissipation, and Sunday stupor or ill temper, are signs that the schedule of the worker's week unduly lowers his resistance. It is safer and more profitable for all concerned ' Ennudung duroh Berufsarbeit, Fourteenth Intern. Cong, of Hygiene and Demography. Digitized by Microsoft® 216 ADMINISTRATION OF INDUSTRIAL ENTERPRISES to limit the exhaustion of the worker to that from which he will be entirely recovered by the begiiming of work the next morning. To compound fatigue for periods longer than a ft 9 10 11 12 1 2 3 4 -^ ^ ^^-^ ^ Fig. 30. CoMPOTJNDiNG OF Fatigub Thkotjghotjt the Work Day week, counting for recuperation upon the annual vacation, or some future slack season, is highly dangerous. It is to rim the risk of being caught ia the ominous chain of events, the Moa Tu. Wed. Th. Fri. Sat Sun. \y V" v/ \^ \^ ^ ^ Fig. 31. The Compounding op Fatigue throughout the Week elements of which are overexhaustion, lowered resistance, specific disease, and death. Signs of overstrain. — Are there any signs by which we may determine, for practical purposes, when the limits of whole- some fatigue are being exceeded in any specific case? In the identification of pronounced temporary physical and nervous exhaustion there is no great difficulty. The muscular strength is diminished, the eyelids and facial muscles are relaxed, focus- ing of the eyes is difficult, tactile sensibiUty is diminished, the enunciation is poor or incoherent, reaction time or the period between sense impression and response is increased, and all the movements are awkward and inadequate. The Digitized by Microsoft® FATIGUE 217 attention wanders, there is partial loss of memory, standards are relaxed, and cruder methods long outgrown reappear.^ With blimdering work there is an increase of accidents,^ while indifference, which testifies to mental repose already begim, ' Hartness says, very aptly, "It is not well to try any new thought on ,a physically tired man." And he illustrates the progressive deterioration of methods incident to growing fatigue, as follows: "Suppose we take two men exactly aUke in all respects, with exactly the same knowledge of work to be done, and let them together undertake to dig a ditch, or repair or adjust an intricate machine, or any other kind of work. Let one of the men get in an awkward position to shovel earth or pull a wrench and become a trifle fatigued, either by the physical strain or the worry of the work, and let the other take a less strenuous part in the undertaking. We will find that one has been changed into a progressive and the other into a conservative. The one who is tired from the strenuous part of the work cannot see why the other should suggest digging around a boulder instead of lifting it out of the ditch bodily, or why it may not be necessary to dis- mantle the whole machine in order to discover the fault. He cannot tolerate any suggestion of a new method of working. It is actually easier for him to do the work by the more laborious but 'habit' method." — Human Factor in Works Management, pp. 50-51. ^ The accidents reported in Illinois in one year to the State Factory Inspector, are given by Bogardus as follows: Hour Number 7-7:59 79 8- 8: 59 150 9- 9: 59 193 10-10:59 246 11-11:59 257 12-12:59 49 1-1:59 Ill 2- 2: 59 156 3-3:59 227 4- 4: 59 260 5-5:59 145 When it is remembered that the small number of accidents reported between 12 and 12 : 59, and between 5 and 5 : 59, is caused by the small number of persons employed at those hours, the effect of fatigue is apparent. — E. S. Bogardus, The Relation of Fatigue to Industrial Accidents, Am. Joum. of Sociology, Oct. 1911, p. 512. Digitized by Microsoft® 218 ADMINISTRATION OF INDUSTRIAL ENTERPRISES or bad temper and a feverish pace, which indicate toxic irrita- tion, reveal the abnormal state of affairs. The signs of accmnulated fatigue are more difficult to recog- nize, because they have to do largely with nervous exhaustion, because they creep on gradually, and because they may involve an entire industrial group in a collective drift away from normal. Neurasthenia betrays itself chiefly by nervous irritabihty and the unusually prompt appearance of exhaustion following effort. To these signs may be added, as occasional indica- tions, disorders of the special senses, tremor of the fingers when held in tension, a drooping eyehd, palpitation of the heart, and nervous dyspepsia. Speed. — The fatigue caused in accomplishing a given physical effect is a function of the speed of performance. This may be seen in the difference between the result of walking a block and of running a block. It is not a simple fimction, however, for exceedingly slow speeds involve a large expendi- ture of effort for the result achieved, because of the energy which is absorbed in maintaining a posture. In general, as speed increases fatigue is more than proportionally increased. The speed standard which is involved in the ordinary labor contract is an extremely vague conception expressed by the phrase "a fair honest pace." The actual pace which results from the equihbrium estabhshed between the employer's fore- manizing and the employee's soldiering differs from shop to shop, and is sometimes spoken of as "the habit of the shop." Ideally this pace should be full of snap, and expressive of healthy energy, bringing with the accomplishment a glow, and preparing the way for true repose. It should be enough of a trial of powers to hold the attention from vague wandering, and to stimulate the mind to conceive better methods. It should be such that the worker's conscience can be clear, and that he can spurn the humiliation of speeding up under the eye of the boss, and of soldiering when his back is turned. Only by such a pace can men take their talents out of the napkin, Digitized by Microsoft® FATIGUE 219 and obtain the "usury," which is increased strength derived from use. On the other hand, the proper pace is entirely different from the fastest speed in which a task can be done. The latter is of interest in college games, but is not apphcable in industry, except in such rare emergencies as fighting a fire or a flood. We have just defined the maximum economic speed in terms of the overnight recuperative process. It may be defined in terms of maximum life performance. Mr. F. W. Taylor has said, "It must be distinctly understood that, in referring to the possibihties of a first-class man, the writer does not mean what he can do when on a spurt, or when he is overtaxing himseh, but what a good man can keep up for a long term of years without injmy to his health, and become happier and thrive under." ' Colomb, the physicist of Metz, has given a rule, albeit somewhat vague. He says the speed under load should not exceed one-third of the maximimi speed of move- ments without load. All work-speed standards are subject to an indefinite deduction in view of the energy it is fair for a worker to reserve for his life interests outside of working hours. In Figure 32, an attempt is made to characterize various speeds of performance in terms of pleasure and pain. The chart is offered merely as a general scheme of relationships. Very slow speeds are irksome (see the left-hand portion of the chart). Extremely fast speeds involve painful stress (see the right-hand portion of the chart). There is a middle ground of speed at which work may be long continued with pleasure. If on this graphic base, representing speed in relation to sensation, we indicate the different paces, it seems fair to say that the pace of soldiering, "A," is painful to a healthy worker, who is adequately adapted to his work by talent and training, and who possesses normal ambition. The average or "good honest " pace, "B," is not unpleasant, but it does not possess the thrill ' Hearings before the H. of R. Sp. Com. on The Taylor and Other Systems of Shop Management, Washington, D. C, 1912, II, p. 928. Digitized by Microsoft® 220 ADMINISTRATION OF INDUSTRIAL ENTERPRISES of first-class achievement. The optimum pace, "C," may be identified as practically the "standard " pace aimed at by scientific management. With these economic paces, the maxi- mum possible pace, "D," which characterizes the brief spurts of effort of competitive athletics, has nothing whatever to do. Pain Pleasure Speed of Performance A= Pace of soldiering B= Good honest days work C= Standard pace of scientific management D= Maximum pace of aftletics Kg. 32. The Paces of Working Stress. — Speed disintegrates itself into stress and fre- quency. By stress is here meant, not overstrain or the con- sciousness of unwholesome fatigue, but simply the degree of intensity of effort. The German economist Herkner has described the safe physiological limits of stress as follows: "Energetic muscular work makes extra work for the heart, lungs, and digestion, that is easily estimated. If, for instance, the pulse rate exceeds 50-60 per cent of its rate when at rest — if it is over 140, and if after 10 minutes' rest it has not yet fallen to normal, we have before us an injurious degree of fatigue. Respiration should not exceed the rate existing in a state of Digitized by Microsoft® FATIGUE 221 rest by more than 75 per cent, and after a fifteen minutes' pause for rest it should not remain higher than 30 per cent above normal. Elevation of the body temperature to 39° or 40° centigrade (Fahrenheit 103°-104°) is unquestionably very harmful." ^ Intermittency. — The physicist Maschek has proposed the rule that the time occupied in strenuous endeavor should not greatly exceed one-third of the twenty-four hours. This looks suspiciously hke our old friend, "Eight hours for work, eight hours for play, and eight hours for rest." At all events, it is of Uttle use, for it does not explain what continuity of exer- tion is contemplated during the eight hours; nor does the word "strenuous " give an accurate idea as to stress. Tables have been prepared by some of the leaders of scientific management showing what proportion of the working day should be under load, for different kinds of labor, but these tables have not yet been made pubhc. Mr. Taylor tells us in The Principles of Scientific Management, "It is possible for the workman to be under load for only a definite percentage of the day. For example, when pig iron is being handled (each pig weighing 92 pounds), a first-class workman can only be under load 43 per cent of the day. He must be entirely free from load during 57 per cent of the day. And, as the load becomes lighter, the percentage of the day in which the man can remain under load increases. So that, if the workman is handling a half-pig, weighing 46 pounds, he can then be under load 58 per cent of the day, and only has to rest during 42 per cent. As the weight grows lighter, the man can remain under load during a larger and larger percentage of the day." ^ When a high-grade performance is aimed at, there must be careful control of the factor of intermittency, or of the schedule of work and rest periods, if the danger of overfatigue is to be avoided. The operation of the schedule must be close enough > Article Arbeitszeit, in Conrad's Handworterbuch der Staatswissen- schaften, Second Edition. ' Pages 57-58. Digitized by Microsoft® 222 ADMINISTRATION OF INDUSTRIAL ENTERPRISES to check the worker on the minute from unduly prolonging his exertion. To illustrate the fineness of control already being practised in some estabhshments, a couple of instances may be given. Mr. C. E. Knoeppel started with workmen who, at their own gait, had been producing 16 pieces per hour. By estabhshing a 25 minute working period and a 5 minute rest period, he. obtained 18 pieces. By changing to 17 minutes of work and 3 minutes of rest the output rose to 22 pieces per hour. Finally, by arranging a 10 minute work period and a 2 minute rest period, production became 25 pieces.'^ In another case where a record of driving 1,600 rivets per day was obtained, the previous performance having been 600 per day, Mr. H. F. Stimpson established rest periods of 2 minutes between each 10 rivets, thus devoting 320 minutes, or 5 hours and 20 minutes out of the 10 hour day to rest, and employing a schedule of If minutes of work and 2 minutes of rest.^ Administration and fatigue. — As the laws of fatigue become more accurately established through scientific investigation, industrial managers wiU be held to closer account by public opinion. What is already known is sufficient to demonstrate the fact that the regulation of the pace is too comphcated a matter to be left in the hands of the operative. Speed, stress, and intermittence are compounded in infinite variety in differ- ent kinds of work. If high records of production are to be attained with safety, these variables must be under scientific control. Pace-making has always be.en recognized as an important factor in athletics, where brief tests are made with contestants who are in the elastic period of youth. It is much more important when the object is to determine the stroke of the nation's industry, and to set a pace which shall be whole- some as the habit of a lifetime. The diflSculty of detecting the signs of accumulated fatigue ' The Psychology and Ethics of Wage Payment, p. 9. ' Hearings before the H. of R. Sp. Com. on The Taylor and Other Systems of Shop Management, Washington, D. C, 1912, I, pp. 663-664. Digitized by Microsoft® FATIGUE 223 at an early stage makes advisable the establishment of two policies. The first is that the task should be kept well within the limits of safety, just as in the use of machinery the stresses employed are kept well within the elastic limit of materials. The second policy is that, just as in engineermg practice where it is impossible to observe the effect of repeated stresses upon equipment such as the hooks of cranes or the Hnks of hoisting chains the parts are periodically annealed to restore their physical properties, so workers to whom the first-class-man standard is apphed should be kept in physical tone and nervous poise by frequent vacations, and by the provision of adequate means of daily recreation. Pace-making as a managerial function. — The laborer knows his feelings, no doubt, but he often does not know what they signify with respect to fatigue, any more than he does with reference to specific disease. He can no more expect to attain a high performance at his own pace with safety, than an ama- tein- athlete can expect, without coaching, to pace himself correctly for a mile run. Unregulated piece work is known to be a fertile cause of physical exhaustion and neurasthenia among certain groups of wage earners. Under good manage- ment, exceptional performance will only be attempted after the conditions of the task have been subject to the minute analysis of motion study and time study, after the proposed exertion has been carefully figured on a horse-power basis by competent engineers, and after the operatives have been selected on the basis of fitness for the task. The workman should be taught the exact rhythm or sequence of work and rest periods, for his own safety. Excess performance should be investigated even more promptly and thoroughly than defi- cit performance, in order to prevent the injury of valuable men. When we say that pace-making is a managerial function we do not intend at all to say that it is a capitalistic privilege. There is a distinction. Like many other supervisory functions pace- Digitized by Microsoft® 224 ADMINISTRATION OF INDUSTRIAL ENTERPRISES making is a part of that newly established art of administra- tion which, if it is ever to become a complete success, must be in the hands of a profession with distinctive professional ideals standing between labor and capital, and aiming to combine the factors of production in a just balance of interests. This art of administration is something more profound than the current art of getting rich or of earning big dividends on capital stock. Fatigue and the design of equipment. — So long as adminis- trators have created the conditions vmder which it has been more troublesome and more dangerous and less profitable for the workman to call attention to the conditions which inter- fere with production than to retard the pace by slipping in secret recuperation periods throughout the day, just so long soldiering has served to hide from the management a world of badly planned processes. Likewise, soldiering has covered with a mantle of secrecy the bad design of machinery. If a wrongly placed lever has called for more fatigue than the laborer could regularly absorb at the pace which the demonstrator used for a brief test, there has been the opportunity of interposing unnecessary stoppages when the head of the boss was turned. Thus the machine has continued to seem the acme of perfec- tion to its builders although, for mysterious reasons, the users have never achieved the expected results. It is quite possible for the minds of operatives to be full of the knowledge of defec- tive processes and imperfect equipment, but for the manage- ment never to get access to this stock of knowledge, because it has never devised a plan of administration and a system of rewards which made frankness safe between management and men with reference to the factor of fatigue. Pace-making must be scientific. — To guess at the proper pace will no longer do. It has been tried ; and when the attempt has been made to overdrive, the response of the workman has been soldiering; a deceit which has spread in the ranks like an infectious disease, to the immense impoverishment of Digitized by Microsoft® FATIGUE 225 all factors in industry.^ The natural response to an unreason- able task is feigned labor. Stupid managers have argued that, since day wages are calculated for a continuous stretch of time, labor should be continuous throughout the day. But all human energy is intermittent, and rest periods have been imperative. The laborer has been obliged to get them by deceit. When' management becomes scientific we may hope to get rid of this deception; for soldiering is a miserable hybrid thing, neither work nor rest, and without merit, except as a weapon of warfare, either in the world of work or in that of recreation. When a man works he should accomplish results commensurate with the value of his time. When he rests he should relax tired muscles, and cease the strain of attending, and take 100 per cent rest. BIBLIOGRAPHY Goldmark, Josephine C. : Fatigue and Efficiency, N. Y., 1912. Lee, F. S.: Fatigue, Philadelphia, 1906. Mosso, A.: Fatigue, Trans, by M. and W. B. Drummond, N. Y., 1904. Bogaidus, E. S.: The Relation of Fatigue to Industrial Accidents, Am. Journ. of Sociology, Sept., Oct., and Nov. 1911, Vol. 17, pp. 20&-222, 351-374, 512-539. Gilbreth, Frank B.: Fatigue Study, New York, 1916. ' For some descriptions of the state of affairs see Hearings of the H. of R. Sp. Com. on The Taylor and Other Systems of Shop Management, Washington, D. C, 1912, 1, pp. 82-83; II, pp. 843, 1107; III, p. 1266. Digitized by Microsoft® CHAPTER XII THE MEASUREMENT OF WAGE FACTORS The wage problem is the endeavor of employers and employees to estabUsh a ratio between money and services, and by so doing bring the value scale and the effort scale into connection with each other. A part of the difficulty of doing this Ues in the lack of ade- quate information in the hands of aU parties interested, as to the general conditions which at any time determine the relative scarcity or plethora of human productive power in any market. Among these conditions are the demand for commodities, production costs taken in relation with prices to determine profits, the supply of capital available for investment, the supply of managerial abihty, the openness of the field of enterprise, and the soundness of conditions on the money market and the security market. Some conditions on the side of labor supply are the number of operatives who possess the talent and train- ing necessary for the work under consideration, the rate of inflow of immigration, the effect of educational agencies, and the opportunities for self-employment. Until information is more intelligently gathered and classified on these matters than at present, the labor market is bound to present a great divergence of opinion as to the value of labor, and consequently to involve a constant turmoil of higghng and bargaining in determining the exact price, between these wide limits, at which purchase and sale transactions will take place. There is still another reason why the labor market achieves only a bungUng approximation to a true equiUbrimn, and this 226 Digitized by Microsoft® THE MEASUREMENT OF WAGE FACTORS 227 is that in any specific case the exact labor capacity offered is uncertain, and the nature of the task which the employer will present is equally uncertain. Of the laborer the age, sex, and nationahty, the last employer, and a fragment of the experience is known. The constitutional vigor and state of health some employers are now determining. But there is Uttle knowledge as to neatness, accuracy, dexterity, speed, and dependability; as to education, general and vocational, and experience in the craft; as to outside causes of worry; and as to originahty, loyalty, and the other qualities which fit the possessor for higher positions. On the other hand, there is the utmost variety in the nature of tasks: and employers are only beginning to formulate the reqxiirements necessary for success in various kinds of work. Equally great is the variety of conditions which surrounds the worker while rendering his service. The employer cannot intelligently define the stress, speed, and intermit- tency of effort expected, nor the responsibility and nervous tension which will rest upon the worker. The comfort or dis- comfort of the working quarters, the foremanizing methods, the pohcy of promotion, and the permanency of the job are not under close control. Everywhere there is lack of accurate calculation of these essential factors, and lack of standardization of them. With such a mass of indeterminate elements the wage-setting process can hardly be other than a wrangle, hke that of a coolie buying a cabbage in a Chinese market, or a diplomatic game like the purchase of a rug in an Oriental bazaar. Because of such conditions great inequaUties in wage rates exist without adequate reason; neither party to a wage transaction can be sure it has received justice, there is much suspicion, relationships are strained, and much energy is di- verted from production to carry on a warfare both secret and outspoken. The application of science. — In the interest of a fair wage it is greatly to be desired that science should be apphed to the measurement of these indeterminate or crudely calculated Digitized by Microsoft® 228 ADMINISTRATION OF INDUSTRIAL ENTERPRISES factors of the labor problem. Every element which can be reduced to measurement, and every functional relation which can be defined with clearness, serves by so much to reduce the tangled mass, and bring the wage level to the point where it accurately balances supply and demand. A wage based upon measurements will respond chiefly to the permanent conditions and general tendencies, and will be little disturbed by the mere strategy of bargaining. Such a wage will be relatively stable, for the variations of fundamental conditions are less than the fluctuations of ignorant opinion as to those conditions. It is certainly to the laborer's interest to get the labor-valuing process into the hands of persons of scientific temper, and get scientific agencies apphed to the calculation of wages. It may be responded that the laborer hopes to estabhsh a process of collective bargaining. To this it can be answered that col- lective bargaining is mass action. It suffers from the hmita- tion of democracy in that it can only act well upon simple issues. Any scientific process which will standardize labor conditions, and will dress away a host of collateral issues by giving them indisputably fair measurement, and will thus leave clear the central point of the wage question, will fit that question to be acted upon by the slow and cumbersome processes of collective action. It is apparent that the jealousy existing between capital and labor offers an obstruction to the progress of the scientific study of the factors involved in fixing the price of labor or in determining the efiiciency of labor. It is greatly to be desired that non-partisan agencies should be created to carry forward this line of research. The laboratories of engineering schools might take part; the aid of The Federal Bureau of Standards might be invoked. As to the influence which the public conscience can exert upon the wage levels, we must remember that only clear ideas propagate themselves easily from mind to mind. Any stand- ardization of elements which will make it possible to talce the Digitized by Microsoft® THE MEASUREMENT OF WAGE FACTORS 229 labor problem to pieces, and decide one element of it at a time, will make for a more intelligent and forceful public opinion. Standardization of conditions. — The first step, then, toward a rational wage is the exact definition of the conditions under which labor is to be performed. Definition can only be exact when conditions are under control, that is to say, are standard- ized. The process of standardization, described elsewhere in this book, plays the same part as an aid to economic analysis that laboratory control does to investigation in the experimental sciences. Standardization of the laborer. — The next step toward a scientific wage is the standardization of the laborer. The individualization of labor records by the better class of employ- ers is now providing a means of studjdng the performance of employees in sufficient detail to lay bare the conditions essential to efiiciency. The invention of motion study and time study provides industry at last with an instrument of precision com- parable with the microscope in its relation to the biological sciences. And now vocational education and vocational guid- ance, laying hold of various physiological and psychological tests, promise to give to employees, at the threshold of indus- trial fife, a wiser guidance than has heretofore been possible. In so far as this provides a cleaner grouping of men into classes according to talent, it will make possible greater definiteness in standards of competency. These changes will inaugurate within industrial estabhshments a sifting process, the object of which will be to shake incompetents down and raise the talented up, until each operative finds the level upon which he is a first-class man. The first-class-man standard. — The new ideal of work- manship is being expressed as the standard of "the first-class man." To some persons this suggests a standard based upon a pace-maker; but in reahty it is the only plan by which the influence of the pace-maker can be eliminated. If ten persons be chosen at random for a quarter-mile race, the records will Digitized by Microsoft® 230 ADMINISTRATION OF INDUSTRIAL ENTERPRISES involve a great spread of performance, and the better men will shame the poorer ones. Such a record may be represented by Figure 33. Average Fig. 33. Rbcobd op the Performance op Unseuicted Individuals But if ten men be carefully selected, and given adequate train- ing, their performance will differ by but a few seconds, so that the average performance will gain in significance as the figure which adequately sums up the record. This may be illus- trated by Figure 34. Average Fig. 34. Record of the Performance op Selected Individuals Digitized by Microsoft® THE MEASUREMENT OF WAGE FACTORS 231 By the comparison of the two diagrams it can be seen that the performance of the exceptionally fast man is much less signifi- cant in the second case than in the first. In mixed and untrained ranks, the first-class man is a thoroughbred among misfits. In the hands of a drive management he may be made a destructive instrument by spurring others to efforts which are dangerous for them, because of their lack of training or aptitude. But if the standard of selection is that each man must be a first-class man for his place, the influence of the pace- maker at once disappears. He is among his equals, and his lead is reduced to a neghgible quantity; if not neghgible in sport where but one is victor, and the record is the chief thing, at least neghgible in economics, where the aggregate output is the important factor. To an intelhgent management the significance of the exceptional man is not at all with reference to pace, but entirely with reference to superiority of method. The exceptional man as a pace-maker is a destroyer; but as a teacher he becomes a helpful leader. Standardization of the rate of performance. — When the conditions of labor have been standardized, and workmen of adequate native powers and sufficient training have been installed, the third step in the scientific determination of the wage rate is to fix the proper pace or rate of performance. If we have to do with distinct units of work, such as the machin- ing of a casting, the rate will be expressed as a task time; but if work proceeds without distinct subdivisions into tasks, as in calking a ship, or in transcribing dictation onto a type- writer, the rate will be stated in terms of quantity per hour or per day, as 350 feet of calking per day, or 100 square inches of typewritten work per hour. What the workman knows. — Where shall information as to the proper rate of performance be obtained? From the workman, who has, perhaps, spent ten or twenty years at his trade? The suggestion soimds reasonable. Let us see. At the Watertown Arsenal, when scientific methods were being Digitized by Microsoft® 232 ADMINISTRATION OF INDUSTRIAL ENTERPRISES introduced, the time-study expert set 24 minutes as the proper time for a certain job, and 40 minutes as the time at which the bonus should begin. There was a great protest in the moulding room. As a concession, the bonus time was changed to 50 minutes, or the average time the moulders had been taking for the job. So long as the foundry gang could control the situation 50 minutes, quite exactly, was always taken for the job. But when, at length, a new man came into the shop, it was found that 20 minutes was ample time for him. Thereafter, all the moulders did the job in 20 minutes without difficulty. ' At the Rock Island Arsenal, Lieut.-Col. F. E. Hobbs relates the case of an employee who fabricated 5 pieces of a certain article in 24 hours, when a piece-rate was being fixed. Not long after- wards the same man was producing 5 pieces in 16| hours. Nevertheless, when a proper system of management was established, eight different employees working at various times on the same article, were able to average 400 pieces in 14 hours.^ Maj . D. M. King, of the same Arsenal, reports the case of a man on day work who filed from 15 to 17 pieces per day, but who, on piece work, turned out regularly from 45 to 47 pieces daily. At the Mare Island Navy Yard, Mr. H. A. Evans, U. S. Naval Constructor, found the calkers doing from 80 to 100 feet per day. After a piece-work figure was set, the men were able, with perfect ease, to do from 380 to 400 feet per day.' These illustrations, which might be multipUed indefinitely, show how little is known by the workman as to the possibilities of industry. An unorganized shop has as many opinions as to what constitutes a fair pace as there are workmen. An organized shop has one opinion, and that is that there should be solidarity of action in defending the chosen pace. Mr. Taylor has said, " It is the rarest possible case that either the > Hearings before the H. of R. Sp. Com. on The Taylor and Other Systems of Shop Management, Washington, D. C, 1912, III, p. 1266. » Ibid., II, p. 843. » Ibid., Ill, p. 1867. Digitized by Microsoft® THE MEASUREMENT OF WAGE FACTORS 233 management or the men know what a really first-class man is capable of doing if he goes at it with the best implement, with proper apphances, and with determination and a will to do everything that he can do. What I maintain, and feel abso- lutely sm'e of, is that the full and proper solution of the wages question — as to which system shall be employed, and the amount of compensation to be paid — Ues in a study of how much each man should do, or could do, or ought to do. It is this study, this accurate study of how long he ought to take to do a job of work, which is of so much greater importance than the adoption of any one system of paying men that the latter sinks almost out of sight, or ought to sink out of sight. I wish to repeat that, with the knowledge of how long a job should take, even the day-work plan of paying, which is perhaps, in many cases, the least satisfactory, will produce much larger re- sults than will any of the other systems without this knowledge." Time study. — The standard method of determining the proper time for a task is called time study. The first step in time study consists in the accurate measurement, with proper instruments of precision, of the times required for the perform- ance of the elementary human movements of which any job is composed. Time study does not concern itself with machine speeds; those are controlled by engineering calculations. It has to do with human movements, or handling times. Nor does it concern itself at first with the total elapsed time of any completed job. Although the ultimate object is a figure representing the proper total time for a task, the method of getting it is not to record the beginning and ending times of a series of acts, as a judge at a race-track would do. If we measure a series en bloc we get a time which cannot be compared with that of any other series imless that series is composed of identical imits. If there are differences between two series, and we attempt to allow for them, we find ourselves at once considering component elements, and trying to calculate the effect of the presence or absence of certain elements. But Digitized by Microsoft® 234 ADMINISTRATION OF INDUSTRIAL ENTERPRISES we can only successfully allow for differences in elements after having studied the times of elements. Tasks are infinite in variety, but the elementary movements of which they are composed are comparatively few in number. If we attempt the direct measurement of complete tasks our judgment wiU be lost in infinite variety; but if we observe the times of the elements, the small nvunber of typical movements makes it possible to attain sound judgment. It is because workmen measure only total elapsed time that, even though they may have been engaged for a lifetime upon a certain class of work, they rarely arrive at an intelligent knowledge of how long a task should take imder altered conditions. The time-study expert, on the other hand, can quickly analyze work which is unfamiliar to him, just as a chemist can analyze a substance which he has never seen before. In this difference of power is illustrated the importance of the first step in the scientific method, which was described in Chapter I.^ A sufficient series of measurements of each elementary oper- ation must be taken to make possible a sound opinion as to what the best time is. On this point, Mr. Dwight V. Merrick, who is an experienced time-study expert, says, "If the elemen- tary operations require a reasonably long time and the work is being done at a uniform rate, a few complete observations will sufiice. On the other hand, if the elementary operations are very short and from any cause successive pieces are not produced at a uniform rate, a great many observations may be required.^ An observation sheet containing elementary times, the minimum task time, and the standard or bonus time, is here reproduced. Composition of the minimum time. — Giving attention to the composition of the observation sheet, we find that on the ' Pages 5 and 6. ^ Making Instruction Cards from Time Studies, Iron Age, March 11, 1915, p. 561. Digitized by Microsoft® THE MEASUREMENT OF WAGE FACTORS Wage Factors 235 OBSERVATION SHEET Observer's name Workman's name Piece . Detail of Observation Individual Times (In minutes and hundredths) 1 2 3 4 5 .04 .03 .05 .05 .06 .03 .05 .03 .04 .05 .10 .08 .11 .14 .12 .04 .07 .04 .03 .05 .06 .02 .03 .04 .03 .20 .14 .22 .21 .19 .07 .13 .05 .07 .08 .29 .26 .24 .24 .17 .13 .15 .15 .08 .08 .08 .07 .09 .09 .13 .09 .12 .11 .12 .16 .03 .02 .03 .03 .04 .09 .06 .03 .08 .09 .08 .08 .09 .12 .13 .08 .10 .13 .11 .09 .07 .08 .02 .09 .10 .18 .17 .18 .18 .19 .12 .12 .14 .13 .10 .30 .25 .25 .20 .25 .12 .18 .20 .20 .17 .10 .10 .15 .16 .11 .15 .15 .06 .09 .10 .60 .58 .63 .62 .65 .30 .29 .29 .30 .28 .20 .20 .20 .21 .23 .12 .15 .12 .11 .12 .18 .25 .29 .28 .30 Mini- mum times Put board in place Place pattern on board Place drag in position Sprinkle parting on pattern Shovel on facing sand Ram Fill drag with backing sand Ram Strike off Place bottom board Roll drag over Remove board Sprinkle parting on pattern Place cope in position Place gates Shovel in facing sand Ram Fill cope with backing sand Ram Strike off Draw gate Remove cope Draw pattern Patch mould Open gate Close mould Remove to floor and remove flask .03 .08 .03 .02 .14 .05 .17 .08 .07 .09 .02 .03 .08 .08 .02 .14 .10 .20 .12 .10 .06 .68 .28 .20 .11 .18 Total minimum time Allowance (60 per cent) Time it should take to set one mould To earn premium, work must be done in time and ? or . 3.09 1.85 4.94 8.23 Sample of a Time Study Sheet Digitized by Microsoft® 236 ADMINISTRATION OF INDUSTRIAL ENTERPRISES different occasions when the workman did the task he took for the operation entitled "Put board in place" the following fractions of a minute, .04, .03, .05, .05, .06, respectively. The record chosen for the minimum task time is the lowest one or .03. In Hne 2, Ukewise, we find that the records are .03, .05, .03, .04, .05, and that the element taken for the minimum task time is .03. These minimum times for each element are added together to form the minimvun task time for the job as a whole. It may be asked why the lowest record is taken rather than some other record. For any series of measm-ements there are several figures, any one of which may be chosen to represent the series. We can take the median time, or the time which will divide the series into two parts, a higher and a lower, each containing an equal number of observations. And we might justify ourselves in this on the groimd that each individual case makes its contribution toward the discovery of the proper time. Or we can take the mode of the series, that is to say, the record which appears most frequently; and do so on the theory that the record found most often represents the normal equihbrium into which the usual, permanent, and legitimate factors of the case tend to fall. Still another possible choice is the average time, or the time which will be given if the sum of times of the series be divided by the niunber of the observa- tions. Such a figure is more complex than the others as it gives weight to the number of instances, and also to the quanti- tative variation. The time which is usually chosen by efficiency experts is the minimum time. This figure is assumed to represent a capable man working under the best conditions; a state of things proper to hold up as the ideal. By taking the lowest records a great advantage in method is attained, namely, that one question is taken up for decision at a time. The lowest time is assumed to be pure, net performance; as simple and homogeneous a thing as is available, and a measurement as free as possible from indefinite elements representing rest, Digitized by Microsoft® THE MEASUREMENT OF WAGE FACTORS 237 incompetency, unavoidable interruptions, etc. If we begin with such a time, we can then, in proper turn, consider the making of allowance for all the retarding causes which prevent the attainment of the minimum. Allowance. — Allowance is added to the minimum task time to produce the standard or proper task time. In the allowance it is intended to take care of rest periods, and the personal requirements of the employee, imavoidable variations in the quality of materials or in the condition of equipment, time lost in changing tools, time required to change from one type of work process to another, the moving of raw and com- pleted stock (if such work is not done for the operative by move men), the lower performance of the later hours of the day, and the fact that all the men who wiU be retained as satis- factory for a job are not equal to the best man. In short, allowance is intended to cover all immeasurable and unstand- ardizable elements of performance which influence the time. It is a Imnp sum to cover all time-influencing factors which it is not yet possible to submit to scientific measurement. It is, therefore, the most difficult item to determine in the whole process of time setting. The amount of the allowance should differ with the nature of the work, with the rest intervals necessary, and with the degree of control attained over power, equipment, tools, etc. At the Tabor Manufacturing Company in Philadelphia, the allowance on handling time varies from 30 to 80 per cent. Mr. Taylor, who aimed at high performance, and desired only the best men, and who determined task times with great care, found an allowance of from 20 to 27 per cent satisfactory. Time study and soldiering. — By the use of motion study and time study soldiering can be detected and measured. Soldiering is composed either of false motions, or of retards on certain processes, or of idle periods inserted at definite points, or of a more or less uniform slowing down of all move- ments. False motions can be detected by motion study, Digitized by Microsoft® 238 ADMINISTRATION OF INDUSTRIAL ENTERPRISES which examines the purpose and value of each element in the process. Idle periods, and retards located at specific points, are revealed by a comparison of the times taken by the same operator on different occasions, since voluntary retards can seldom be inserted twice alike. Attempts at imiform retarda- tion are at once revealed by the comparison of the elementary times of different men. The records of motion study and time study. — The statistics of elementary studies form an objective and permanent record available for reference and appeal. As Mr. Holhs Godfrey has said, "When a task has been studied, and set down, there is a written statement of fact, scientifically determined, which is fair, both to employer and to employee, if it has been scien- tifically done. Such a recorded task serves as a basis for fair deahng on both sides. In an imknown and unrecorded task you leave altogether too much power in the hands of one party or the other, commonly in the hands of the employer. With a scientifically studied and determined task, which has been recorded, both sides meet on an equal plane." ^ When to the specifications of the task are added records of the individual performance of the worlcman, there is produced something to which the employee can refer in appeal against arbitrary dis- charge, or the spleen of any individual official. In case of a shut-down, a capable man has, in such records, specific proof, accurate and convincing, as to his capacity, and as to the result he can guarantee to another employer. Opposition to time study. — The making of time studies has been vigorously opposed by the representatives of organized labor. It is urged that the only man who is in a position to say how long a job should take, or what are the necessary or unnecessary elements of it, is the man who has gained experi- ence by doing the job. This statement appears to carry force, for every one realizes that expertness grows out of first-hand • Hearings before the H. of R. Sp. Com. on the Taylor and Other Systems of Shop Management, Washington, D. C, 1912, III, p. 1841. Digitized by Microsoft® THE MEASUREMENT OF WAGE FACTORS 239 contact with the conditions of one's problem. But there are here two kinds of experience., The operative is engaged in performance: time setting is an entirely different matter, and one possessing principles and a technique of its own of suffi- cient distinctness and complexity to demand the attention of an expert. The objection is an instance of the fallacy of "ambigu- ous middle," involving two meanings of the word "experience." It is, in effect, the assertion that the man engaged in routine performance is equipped by that experience for the adminis- trative functions which control that performance. If we admit such an idea as this we should have to argue that the farmer who has "experience " with the soil in plowing it xmderstands soil analysis better than the soil chemist, that the mechanic who has "experience " with a casting by machining it knows the problem of design of the mechanism of which the casting is a part better than the engineer, that the man who "experi- ences " pain understands the meaning of his symptoms better than the physician. A second objection is that when a time-study expert stands by an operative with a stop-watch, and records his every move- ment or pause, the process is humiliating — in fact a kind of slavery — and is a proceeding which implies distrust. By way of explanation, it should be said that, after a sufficient record of elementary times has been made in a plant, there is very little time study required, because total times are com- piled from the records of the elements. If a new job appears the only time study required is with reference to the new ele- ments which it may contain: no attention needs to be given to the elements which are common to other jobs and which have been already measured. As for the sense of humihation, it must be said that this is something depending entirely upon the purpose or ultimate aim, rather than upon the process. The college student is not humiliated by the questions of the instructor; the injured man is not humihated by the operations of the surgeon. And Digitized by Microsoft® 240 ADMINISTRATION OF INDUSTRIAL ENTERPRISES this is so because the purpose in each of these eases is a benef- icent one. Humihation springs from reduction of condition, or the manifestation of disesteem; but time study aims at improvement of process, higher wages, and general welfare. It proclaims that a new fine art exists in each of the crafts; and afiirms the worker's abUity to achieve a better record. If the purpose of a management is to share the results of greater efficiency in a just manner with its men, humihation should vanish as this purpose becomes imderstood in the ranks. If the purpose is not fair, the fault hes, not in the process, but in the ultimate aim. A third objection is that time study puts a strain upon opera- tives, and produces nervousness. This is partly answered by what has gone before. In so far as there is nervous strain in a force of men which understands and approves the purpose of attaining higher efficiency, it may either signify that the new regime is not being installed tactfully and inteUigently, or that certain individual workmen are hypersensitive. It must be remembered, however, that stress and effort are an inevitable price exacted by nature for all high excellence. This is not something to complain of, if the achievement is worth while; but it is something for an administration to deal with accord- ing to the laws of fatigue. There is ground for suspicion that the objection to time study is merely a matter of tactics, and that the true ground of opposi- tion of organized labor to scientific management is its aim of paying men according to individual performance. This prin- ciple of remuneration is in opposition to the vmion procedure of estabhshing a single rate of wages for a trade in a locality. The pohcy of uniting on a single rate has advantages as a campaign measure, for it sinks individual interests and promotes solidarity of action. It has the misfortune, however, to oppose the introduction of scientific agencies for measuring the value of labor, to oppose the process of differentiation and specializa- tion which is an element in all progress, and to repudiate the Digitized by Microsoft® THE MEASUREMENT OF WAGE FACTORS 241 principle that each man should be rewarded according to his performance, — a principle everywhere dominant in nature and one to which all the professions and occupations are subject, except organized labor and monopoUstic management, — a principle which is especially vital in a country depending upon a regime of individual initiative. BIBLIOGRAPHY See the close of Ch. XIV. Digitized by Microsoft® CHAPTER XIII THE OLDER WAGE SYSTEMS Day Wages, Piece Rates, Profit Sharing, and the Sliding Scale From the point of view of modern methods of administra- tion, we may divide the systems used for calculating wages into three classes: (a) those which antedate the modern move- ment, including the day wage, the piece rate, profit sharing, and the shding scale; (6) the bonus systems which do not require standardized conditions nor scientific time setting, represented by the Halsey system in this country and the Rowan system in Great Britain; (c) those bonus systems in which thoroughly controlled conditions and accurate time setting is a cardinal point, embracing the Taylor differential piece rate, the Gantt task and bonus system, and the Emerson eflBiciency wage. The day rate. — The oldest of the wage systems is the one which offers the workman a given sum for a fixed period of his time. The rate may be quoted as so much per hour, day, or week. The limits of a given rate are, at the bottom, the point of inefficiency which brings discharge, and at the top, the point of excellence which is rewarded by promotion. Within these limits, the day rate pays exclusively for the workman's time, taking no account of the quaUty or quantity of work done. So long, therefore, as the workman remains safely within the limits, he is in a passive state, except as he may be energized by the dictates of conscience, or by loyalty to his employer, or by the praise or blame of the foreman. On the 242 Digitized by Microsoft® THE OLDER WAGE SYSTEMS 243 other hand, the employer is awakened to activity by this system of payment. Any additional productive effort which he is able to secure from his force by means of the careful selection of individuals, the division of labor, the introducton of machin- ery, or by drive tactics of foremanizing, is clear gain to him. Any slowing down of the pace creates a loss which he al6ne must bear. The chart of the day rate. — In designing a chart to illus- trate the effect of an increase or decrease in the rate of produc- Fig. 35. Wages and Costs undek the Day Rate Wages per day. Direct-labor cost per job or per piece. tion under the various wage systems, it is to be remembered that there are two things of primary importance. The chief stimulus which moves the employee to exert himself is the amount of wages it is possible to earn in a day. The chief object of the employer is to lessen the direct labor cost per job or per unit of product. The series of charts here introduced illustrate for each wage system the effect of the accomplish- ment of the task in different lengths of time upon these two things — the total earnings of the day, and the unit cost for direct labor. Advantages. — I. The day-wage system adjusts itself fairly well to the reaUties of the financial position of the employee. Workmen who, by reason of the trade they follow or the type of work they perform, find themselves in a given social class, Digitized by Microsoft® 244 ADMINISTRATION OF INDUSTRIAL ENTERPRISES tend to live in a similar way, and to incur like expenditures as consumers. Within any particular group having a common standard of life there exist considerable differences of individual producing capacity; but in so far as the individual workers or their families are contented with the class they are in, they will be more anxious that the wage should be sufficient to keep them in the class, than that it should exactly measure individual productive effort. Where discontent becomes prev- alent, it is hkely to be the result of the work of organizations whose scope conforms to some one of the divisions of the wage- earning class, and to consist in the conviction that wages should be raised for the class generally, rather than that talented individuals in the class should be given remuneration above the rest. In so far, therefore, as the wage earner is content to retain the standard of life of his class, he is satisfied with wages which meet the requirements of this class standard, regardless, within considerable limits, of the energy and ability he may have to put into his work. So long as there is no question of change of class, expenses appear to be chiefly a function of time — such and such bills to be met each week or month. The wages to cover these expenses will then appear, hkewise, to be chiefly a function of time — so much per day or per week. II. The day rate favors careful work, for it permits the workman to express his ideals of craftsmanship and his pleasure in a perfect product, without loss to himself. The man who builds a house by the day, instead of by the contract, never fails to mention the fact when he offers the house for sale. Even excessive care as to the quahty of work will not be dis- tasteful to the day worker and his companions, for it will be recognized that this is one form of "nursing the job." III. The trade unions favor the day rate, because it creates a soUdarity of interest within each wage group. Exceptional men endeavor to raise the standard wage as the only means of improving their own condition. The average man is satisfied Digitized by Microsoft® THE OLDER WAGE SYSTEMS 245 with a wage which is fair for him. Those who are below the average give their ardent support to the standard, for it is a means of rewarding them beyond their desert. IV. The calculations involved in this method of paying are simple. The payroll can be made up, class by class, directly from the attendance record. V. If it is desired to make day wages respond with a reason- able degree of flexibihty to iadividual performance, it can be done by, breaking up the traditional craft groups into a suffi- cient number of wage classes, each class being given a different rate of pay. There will thus be created a promotion and demo- tion scale, up and down which men may be moved according to their value. VI. By dividing each kind of work into short and clear-cut tasks production may be stimulated, and even, perhaps, stand- ardized for a time, if the performance aimed at is commen- surate with the wages paid. And this will follow because the time of the completion of a task is an advantageous juncture for raising the question of efficiency, so that, if such junctures are made clear and frequent, thoughts of promotion or discharge and of self-testing will be potent in the employee's mind. Disadvantages. — I. The principal objection to the day- rate system is that it represses the superior man. Mr. F. W. Taylor has said, "The effect of this system is distinctly demorahzing and levelling; even the ambitious men soon con- clude that since there is no profit to them in working hard, the best thing for them to do is to work just as little as they can and still keep their position. And under these conditions the invariable tendency is to drag them all down even below the level of the medium." ' Thus latent talent tends either to hide itself, and so not secure the necessary training and author- ity to render greater service, or else it finds vent in antagonistic forms of activity. ' F. W. Taylor, A Piece-Rate System, Trans, of Am. Soo. of Meoh. Eng., June 1895, Vol. 16, No. 647, p. 861. Digitized by Microsoft® 246 ADMINISTRATION OF INDUSTRIAL ENTERPRISES II. It is, of course, no argument against the day-wage sys- tem to say that it forces the best men into the unions; for the better the leaders of the labor organizations are, the better the poUcies will be. But a system which produces in excep- tional men a sense of personal injury is sowing dragon's teeth. If the employer's wage pohcy teaches the men that adminis- trative necessity requires the underpaying of exceptional men for the sake of the convenience of applying a standard wage, it prepares the way for the imion argument that the strategy of the labor campaign necessitates applying the standard wage to men who are below the average. III. The flexibihty which is to be obtained under the day- rate system by the creation of numerous wage classes (point V above) is more theoretical than practical. Speaking from a long practical experience, Mr. H. L. Gantt says, "The employer usually pays but one rate of wages to one class of workmen, because, as a rule, he has no means of gauging the amount of work each man does. It is exceedingly difficult to keep an exact record of what each of a number of men does each day; and even if he had such records, the difficulty of comparing them would be very great, unless the work done by each man was of the same nature, and done under the same conditions. The result is that he keeps no individual records, but usually treats all workmen of a class as equals, and pays them the same wage. There may be 20 per cent who are very much more efficient than the rest, but he has no way of distinguishing them from the others with any degree of certainty; hence he declines to increase any wages, or makes the diJEference in wages insignificant as compared to the difference in efficiency." ^ IV. The standardization of performance (point VI above) cannot be made self-enforcing when the day rate is used. The only vis a tergo to keep the men above ordinary perform- ance is the energy and attention of the management. The essence of this defect, in so far as the wage plan is concerned, > Work, Wages, and Profits, N. Y., 1910, p. 52. Digitized by Microsoft® THE OLDER WAGE SYSTEMS 247 is the lack of an adequately graduated scale of rewards and penalties suitable for creating a smoothly operating adjust- ment between effort and reward. Such rewards and penalties as exist are too extreme for frequent appHcation. Promotion is looked upon by the employer as a more or less permanent commitment to higher wages. Demotion is more disgrace than most workmen will endm-e, especially if it involves drop- ping a man out of a class which is recognized as such among the operatives. Discharge is expensive and demoralizing. V. Since the pace at which the management can drive the men is a variable one, the wages become an uncertain element of cost. Piece rates. — The second of the long-standing plans of paying labor is to set a price upon a job or a unit of product, and pay that sum regardless (within promotion and demotion limits) of the time taken to accomplish the work. As piece rates have originated in the majority of cases in a process of changing over from day rates, it has been natural, in setting them, to take into account the previous day-wage standards, and the previous rates of performance. In most cases rates have been fixed at such a point that an average performance would yield the current wages of the trade. Even with a standard as low as this, the employer has been ensured a saving, because workmen who are below the average in output are paid less than the previous day wage. In some cases the rates have been based upon the idea of a "fair" or a "good honest " day's work, and the time of a single selected man, or the average time of a niunber of selected men, has been taken to represent this conception. There is still in this standard an indirect recognition of the current day wage, and of the prevaihng pace of working. A piece rate must rest upon a judgment as to proper working times and proper daily earnings. The straight piece-work system provides, however, no regular and normal means of revising either of these judgments, and so provides no normal method of changing the rate. Digitized by Microsoft® 248 ADMINISTRATION OF INDUSTRIAL ENTERPRISES Under piece work the employee makes all the gain or loss of his own time. If he shortens the time used, or if any improvement introduced by the employer shortens the time, Fig. 36. Wages and Costs under Piece Rates Wages per day. Direct-labor costs per piece or job. A = Standard time 8 hours. B = Standard time 6 hours. C = Standard time 4 hours. he receives no less for the job finished, and he gains time in which to make extra earnings at the same rate. If he takes a long period, his remuneration may fall below day wages without Digitized by Microsoft® THE OLDER WAGE SYSTEMS 249 check. By this the workman is put under responsibility, and stimulated to take the initiative- He is aroused to demand materials free from defect. He becomes impatient with the delays of service departments, and outspoken in demmciation of breakdowns. There is thus a tendency for managerial duties to pass over from the employer to the employee, and for shop administration to drift along in the wake of the force. The extra earnings made by men under the piece-rate system may, therefore, be looked upon as partly the addition of the wages of management to the wages of labor. One of the factors of unit cost not shown in Figure 36 requires a word of explanation. While the employee makes all the gain or loss of his own time, the employer gains by rapid per- formance from the fact that the factory burden to be charged to each piece or job is decreased. On the basis of cost and capitahzation data of the Census of 1910, with the addition of certain reasonable assumptions,^ it may be said that unit manufacturing costs will decUne under piece work approxi- mately as follows: Time taken, 8 hours (standard) Percentage of cost, 100. " " 6 " " " " 95 " " A " It <( (( qrv " " 2 " " " " Qfi Ihour " " " 82.5 Employers favor piece rates where soldiering is difficult to detect, as in moulding; where speed is unusually important, as in railroad repair shops; where work is done away from the employer's place of business, as among the glove makers of ' Invested capital to yield 8 per cent; salaries to be increased at 6 hours by 5 per cent, at 4 hours by 10 per cent, at 2 hours by 20 per cent, and at 1 hour by 25 per cent; depreciation on buildings 3 per cent; depre- ciation on machinery, tools, and equipment to be at 8 hours 5 per cent, at 6 hours 6 per cent, at 4 hours 7.5 per cent, at 2 hours 9 per cent, and at 1 hour 10 per cent. Digitized by Microsoft® 250 ADMINISTRATION OF INDUSTRIAL ENTERPRISES Gloversville, N. Y.; and where the distinctness of tasks favors the calculation of a job price, as in the collar factories of Troy, N. Y., and the hat factories of Danbury, Conn. Advantages. — I. The chief advantage of this system is that the reserve productive power of those persons capable of better than the average performance is given a market. An outlet is provided for it, and it becomes free to assert itself to the advantage of the possessor. If the day wage accommodates itself to the reqxiirements of those employees who are satis- fied with their standard of hfe and their status generally, the piece-rate system attracts those who are dissatisfied and wish to apply their energies to raise themselves into a higher eco- nomic class. As the talented draw ahead of the average under this system, emulation permeates down the line and awakens the energies of all. Not only is output increased, but methods are overhauled, for the thought of the worker is set loose as well as his hand. The U. S. Bureau of Labor has estimated the usual increase in production, when piece rates are intro- duced, at 25 per cent.' II. The records of increased performance constitute the chief argument which is being prepared for the shortening of the labor day. To reduce the hours from 10 to 8, and maintain output, would require an increase in the rate of production of 25 per cent. The response recorded by the Bureau of Labor shows that such an increase can be attained on the average, where the inducement is offered. ^ III. The direct labor cost per unit of product or per job becomes a fixed amount, rehable for use in cost calculations of a preliminary or prospective character. Disadvantages. — I. The plan of giving to the wage earner all the saving in the time of production to be made in an estab- Ushment from and after a certain date, is bound eventually to break down and require revision. Such a revision may be forced quickly by an unexpected spurt of workmen. If they ' Eleventh Special Report, Washington, 1904, p. 17. Digitized by Microsoft® THE OLDER WAGE SYSTEMS 251 easily attain a high rate of performance, and thereby reveal how far below the best — indeed, how unworthy and absurd — was the "average " or "fair " performance used as the initial basis of calculation, the employer will beheve that he has trapped himself. When, imder such conditions, the workmen get wages far above the customary incomes of men of equal abiUty, general opinion will condemn the rates as unneces- sary, and as unfair. But if revision of the rate is not compelled by the workman's response, the general evolution of methods of production, including the introduction of improved machin- ery and superior processes of working, will eventually bring it about. Under average conditions, with piece work, about 88 per cent of the benefit of aU improvements affectiag the rate of production accrues to labor, and 12 per cent to manage- ment. The strike of 1892, at the plants of the Carnegie Steel Company, was due to the cutting of obsolete piece rates. Before this strike was called, some of the laborers were getting larger wages than the superintendents, owing to improved appUances which had greatly increased production since the rates were first set. As Mr. Halsey says, "Cutting the piece price is simply killing the goose that lays the golden egg. Never- theless, the goose must be killed. Without it the employer will continue to pay extravagantly for his work; with it he will stifle the rising ambition of his men." ^ Although the rates have to be cut, the act of cutting them is looked upon as a declaration of war. The employees con- sider it the violation of an agreement. The conclusion in many cases is that the management introduced the first rates as a bait to induce the men to reveal how much they could do, while the second rates constitute the springing of the trap which is designed to hold the men for the new standards of working, while not allowing wages to exceed a certain moderate excess over day wages. The response of the workman to such ' P. A. Halsey, The Premium Plan of Paying for Labor, Am. Soc. of Meoh. Eng. Trans., Vol. 12 (1891), p. 756. Digitized by Microsoft® 252 ADMINISTRATION OF INDUSTRIAL ENTERPRISES a policy is to oppose the introduction of piece rates, but where they are estabhshed, to soldier as much as possible while the rates are being set, in order to get a long time base, and then to control the pace so that the wages earned wiU never rise above the point which is thought to be the maximum the employer will allow. At that rate performance is pegged, and held, against all efforts of the management to increase it further. The piece-work system, after such a series of events, settles down into an antagonism of interest between manage- ment and men, which is as clearly defined and enduring as any contest of poHcy possible imder day rates. II. High speeds are hard on machinery and equipment, especially where the machine speeds are not scientifically set, and where the mechanical conditions are not kept under competent control. III. By analogy, high rates of performance are hard on the men. As was pointed out in the discussion of fatigue, high performance may be costly in hmnan energy, unless the man- agement possesses the abihty to enforce standards conform- able to the laws of fatigue. AU extreme exponents are dangerous in the hands of ordinary management. IV. The tendency of piece rates is toward volume at the expense of quality, since the wage follows the tally of pieces finished. V. Straight piece work does not guarantee day wages. The discouragement of low earnings, therefore, besets the learner. Department bonuses. — A group bonus has been devised by Cadbury Brothers Ltd. of Bourneville, England. A bonus is given on the output of a department, the fund being divided into shares. This gives an inducement to the employees to keep the number of workers in the department down to the lowest point, since any increase in the number diminishes each individual share, by increasing the number of shares. The wages and bonuses are so adjusted by Cadbury Brothers Ltd., that a good department will usually receive 75 per cent Digitized by Microsoft® THE OLDER WAGE SYSTEMS 253 of its remuneration in time wages, and 25 per cent in bonuses.^ Profit sharing. — Profit sharing is not a complete system of wage payment, but an adjunct which may be added to any of the fundamental plans which do not sufficiently awaken the energies of the employees. The usual plan of profit shar- ing is to calculate the profits of an establishment for a fiscal period — either a year or a half-year — and to pay a fixed proportion of them to the employees in the form of a percent- age added to wages. Profits may be defined, for the purpose of this distribution, as that portion of gross earnings which remains after the usual operating expenses have been deducted, and after interest on borrowed money and a reasonable remun- eration on the proprietor's capital has been taken out. This sum is divided between the proprietors and the employees. The division may be into equal parts — dollar for dollar — or it may be in such a proportion as to give the same percent- age of dividend on the capital and on the total simi paid out in wages during the period. The latter plan would divide the fimd, in the average case, in the ratio of 4 to 1. Still a different system is to calculate separately the profit made on each job, and assign a fixed percentage of it to the men engaged on that job. When the total share to be received by labor has been de- cided upon, the next step is to distribute it to the individual workman. This individual distribution is almost always on the basis of the wages earned. It is very common, however, to exclude from participation those persons who have been employed for less than a year.' The remainder of the employees may be grouped somewhat into classes, in such a way that the dividend is greatest for those of longest term of service. The bonus so calculated may be paid out in cash, or it may be credited on the books of the company in payment for stock ' Edw. Cadbxiry, Experiments in Industrial Organization, N. Y., 1912, pp. 144^145. Digitized by Microsoft® 254 ADMINISTRATION OF INDUSTRIAL ENTERPRISES which is to be issued when fully paid, or it may be placed in a fund to provide old-age pensions or some other form of deferred benefit. The experience of the leading profit-sharing concerns in this country seems to indicate that the plan is only successful when coupled with a stock-sharing or stock-piu-chasing arrangement. The Proctor and Gamble Company in 1903 abandoned the cash distribution of profits to employees, and instituted a plan which makes profit sharing an element in a stock-pur- chasing plan. Any employee of that corporation may sub- scribe for an amount of stock equal at its market value to his annual wages or salary. He must pay 2| per cent down and 4 per cent annually thereafter for his stock; the corporation aids him, however, by advancing him the unpaid portion of his shares at 3 per cent, and by crediting him annually for the first five years with 12 per cent of his yearly wages, for the second five years with 15 per cent of his wages, and thereafter with 18 per cent. After 5 years of stock owning the employee's stock-purchasing power is increased 25 per cent, after 10 years 50 per cent, while every increase in wages brings a propor- tional increase of stock-purchasing power. Profit sharing does not choose as a basis for the distribution of the extra gains any measure of the individual efliciency of persons. It passes by such individual records and fixes upon an item — profits — which expresses the prosperity of the business as a whole. In so doing it aims at team work, and the creation of a general spirit of loyalty, rather than at excep- tional individual achievements. The decisive point of the plan, economically speaking, is the q[uestion whether or not the response made by the employees in the form of greater care and energy and regularity in work, will make up for the extra share divided out to them, so that the dividend received by capital will not be diminished, but may even be increased. Similar plans. — It is to be noticed that profit sharing involves a measure of joint risk taking. It is, therefore, Digitized by Microsoft® THE OLDER WAGE SYSTEMS 255 distinct from any plan for distributing a bonus to employees in the form of a fixed percentage added to the wages, and given regardless of the profits earned by the employer. It is also distinct from the plan of the Ford Motor Company of Detroit of giving a high wage to those employees who attain certain moral and economic standards. Of the Ford plan, Mr. Boyd Fisher, Vice-President of the Detroit* Executives' Club, has said, ''The Ford plan is not true profit sharing, because what the workers receive is proportional neither to the extent of the profits of the business, nor to their contribution of individual efficiency. Higher wages are given solely upon condition that the worker adopt a proper standard of Hving, an object that has never before been introduced into profit sharing, and an object that makes the Ford plan a totally different scheme." ^ Advantages. — I. Profit sharing encourages the negative virtues. It does not very greatly arouse the positive ones. It removes obstructions without stimulating individuals to strenuousness. It makes, therefore, for such results as the economy of materials, the better care of tools, and sound, honest workmanship. A steady condition of moderate indus- try is rather feebly promoted. Idlers who, under this system, are steaUng from their fellows as well as from the management, become unpopular. In general, a willing and teachable atti- tude of mind comes to prevail, which produces a sound pubhc opinion or "habit of the shop." II. If the ultimate desire of men employed under profit sharing still remains personal gain, the method of attaining it is made more social than imder any of the other wage plans. There is set up a joint aim for management and men, which emphasizes solidarity of interest. The employee is given a glimpse of the proprietor's problems, and a share in them which may somewhat modify his mental attitude. III. The pecuniary benefits of profit sharing are indiscrimi- nately distributed, descending, as does the rain, upon the just 1 The Detroiter, Jan. 25, 1915. Digitized by Microsoft® 256 ADMINISTRATION OF INDUSTRIAL ENTERPRISES and unjust alike. And so the plan is suited for situations where individual contributions cannot be accurately measured. This suggests that profit sharing is a plan which ought to be more at home among salaried men than among wage earners. Disadvantages. — I. The plan is only appropriate for established and successful businesses which can reasonably anticipate regular profits. II. The process of calculating the profits aboimds in account- ing intricacies and arbitrary determinations so that, if the original spirit which inaugurated the system chances to wane, there are opportunities for disguising the earnings. "The workmen have no means of knowing," says Halsey, "if the agreement is carried out. With their exaggerated ideas of the profits of business, the results must be in many cases dis- appointingly small; and they will doubt the honesty of the division. What is to be done in such a case? Invite the work- men to appoint a committee to examine the books, and report? Most employers will demur at this, and yet without it the employees can have no assurance of good faith; and were it done, what good could result? How many workmen's com- mittees are there who are sufficiently versed in modern accounts to form any idea of the proceeds of the year's business from an examination of the books? In this light the profit-sharing plan is seen to be an agreement between two parties, the first of whom has every temptation and opportunity to cheat the second, while the second has no means of knowing if he has been cheated, and no redress in any case." ^ III. It is an arbitrary arrangement to couple any part of the income of the workman with the fluctuation of business conditions over which he has no personal control. Profits in a business are due, not only to the capacity of the shop employee or office clerk, but to the supply of capital, the fluctuations of the market, the advantages or disadvantages of the location, ' Trans. Am. Soo. Mech. Eng., Vol. 12 (1891), p. 758. Digitized by Microsoft® THE OLDER WAGE SYSTEMS 257 the judgment used in extending credit, and the choice of suit- able patterns and qualities of goods to make. IV. It is an axiom that speculation is unsuited for small investors. Business profits are speculative; and the profit sharer usually has not the financial reserve to enable him to average out fluctuations, and preserve his habits of consump- tion undisturbed. In his case income and expenditure are direct-connected, so that irregular income tends to derange the entire economic Ufe. V. The profits of this system are too small, too long post- poned, and too little influenced by the effort of an individual to make them an effective motive with the average laborer. "The average workman," says Mr. Taylor, "in order to maintain a rapid pace, should be given the opportunity of measuring his performance against the task set him at fre- quent intervals. Many men are incapable of looking very far ahead, but if they see a definite opportunity of earning so many cents by working hard for so many minutes, they will avail themselves of it." ^ VI. The dividends imder profit sharing come to be looked upon as a matter of custom and as a right. It is difficult to keep ahve the sense of obligation to put forth effort in coopera- tion with the management to create these extra profits. The lack of any close connection between individual exertion and reward makes the stimulus to extra effort small. The capac- ity to feel wronged if dividends are withdrawn persists how- ever in undiminished strength. VII. There is no new way opened by which exceptional individuals can cash in their reserve talents to their own per- sonal advantage. VIII. In spite of the sohdarity at which profit sharing aims, it is opposed by trades unions. The distinction in kinds of sohdarity is elucidated by Professor Taussig: "Trade union- ism looks to a horizontal division; all the employees in a trade, 1 F. W. Taylor, Shop Management, N. Y., 1911, p. 84. Digitized by Microsoft® 258 ADMINISTRATION OF INDUSTRIAL ENTERPRISES scattered in various establishments, are to be united in com- mon action against all the employers. Profit sharing looks to a vertical division; the employer and employees of the single estabUshment are to be imited, working together for the common welfare of their compact group, sharing the gams and perhaps the losses. . . . The unions are opposed to profit sharing, or at least suspicious of it, because it tends to make the workman interested chiefly in the weKare of his immediate fellow-employees, not in that of all workmen of the trade or locaUty." 1 To the unions, profit sharing is a scheme for giving to the workmen something they have rightly earned, and making it appear as a gift. To them it is often an advertis- ing feature. Profit sharing for salaried employees. — Work which is paid for by salaries is usually very much less a function of time than that which is paid for by wages. The efficiency of the salaried worker is revealed only when considerable periods of time are taken into account. It is customary, therefore, to calculate salaries in terms of a month or a year instead of in terms of days or weeks. The service paid for by salaries is not capable of as exact measurements, in terms of money, as are wage services, so that the remuneration takes the form of a round number, while increases in it are made by ma- terial but infrequent advances from one round number to another. The staff employee contributes an indefinite share to the final result. Much must be trusted to his abihty to work for a distant objective and to feel enthusiasm for an impersonal project. American practice is in the direction of paying ad- ministrators high salaries rather than a share of profits. For wage earners it appears to be tending somewhat toward gain- sharing arrangements. It would seem more logical to stimu- late staff employees and responsible officers by a share of ' F. W. Taussig, Principles of Economics, N. Y., 1911, Vol, II, pp. 303-304. Digitized by Microsoft® THE OLDER WAGE SYSTEMS 259 profits than to make such an offer to wage earners, whose responsibiUty is more completely bounded by the terms of the specific tasks. The basis of salaries is, and must continue to be, a stipend to insure to the individual the standard of life of his class, and so relieve his mind from financial worries. But, if an addition could be made to this basis, which would vary as the larger problems of the business were well or ill solved, the arrangement would seem to be justified as a recog- nition of the essential partnership which men of managerial responsibihty sustain to capital, arising out of the discretion- ary element in the duties performed. Carnegie's plan. — One of the greatest successes ever achieved with profit sharing in American industry was made by Andrew Carnegie in the development of junior executives. The plan, stated in the words of its author, was as follows: "Speaking from experience, we had not gone very far in manu- facturing before discovering that perfect management in every department was needed, and that this depended upon the men in charge. Thus began the practice of interesting the young geniuses around us, as they proved their ability to achieve unusual results — the source of big dividends. These received small percentages in the firm, which were credited to them at the actual cash invested, no charge being made for good-will. "Upon this they were charged interest, and the surplus earned each year beyond this was credited to their account. By the terms of the agreement three-quarters of their colleagues had the right to cancel it, paying the party the sum then to his credit. This provision was meant to meet possible extreme cases of incompatibiUty of temper, or if the recipient should prove incapable of development, or of enduring prosperity. At death the interest reverted to the firm at book value. The young men were not permitted to assurne any financial obliga- tion, and not until their share was fully paid by the profits, and there was no further Habihty upon it, was it transferred Digitized by Microsoft® 260 ADMINISTRATION OF INDUSTRIAL ENTERPRISES to them. Thus thoughts of possible loss never prevented concentration upon their daily duties. They were not absorbed in the daily quotations, for the shares were not upon the stock exchange or transferable. This pohcy resulted in making some forty-odd young partners, a number which was increased at the beginning of each year." '■ The Bethlehem Company. — The Carnegie traditions are perpetuated, in somewhat altered form, in the bonuses appUed to the executives of the Bethlehem Company. There is no single comprehensive plan followed in this establishment, but the endeavor is made to discover for each department some record which will indicate the efficiency, and make a portion of the remuneration of officers, heads of departments, super- intendents, salesmen, or workmen vary as the efficiency- index varies. Thus, in a manufacturing department, bonuses may depend upon the amount by which actual conversion costs fall below some set figure; salesmen may be rewarded proportionally to the profits reahzed on particular orders booked by them; in contract work those responsible for speed will divide the time bonuses earned; in other cases bonuses may vary inversely with the demurrage paid to railroads, or directly with the value of waste materials recovered and sold. It is understood that the president of the Bethlehem Company has a nominal salary of $10,000 but receives a variety of bonuses, the total of which in 1914 amounted to $300,000. The Sliding Scale. — A sliding scale is a piece-rate plan of paying labor, resulting from collective bargaining, and so adjusting wages that they will rise and fall with the selhng price of the materials worked upon. The result of coupling wages and prices together is to bring about a crude sort of profit sharing and loss sharing. A characteristic scale is as follows: 1 Andrew Carnegie, The Organization of Manufacturing Industries, (The Making of America,) Edited by Robt. J. La Follette, Vol. Ill, pp. 273-274. Digitized by Microsoft® THE OLDER WAGE SYSTEMS 261 PuddUng Schedule per ton of 2240 lbs. (For boiling pig iron to make wrought iron) When the Price of Bar Iron is $5 . 00 1 cent per pound 5.00 1.1 cents " " 5.00 1.2 5.25 1.3 5.50 1.4 5.75 1.5 6.00 1.6 6.25 1.7 6.50 1.8 6.75 1.9 7.00 2. The thought which underhes the plan is that employers should pay well when prices are high, but that, in periods of low prices, employees can better afford to take low wages than have the plants shut down. By adopting an automatic arrangement which makes wages a function of something which is accepted as an index of the employer's ability to pay, the transition from higher to lower levels can be accomplished without strikes, and that from lower to higher wages without lockouts. The first sUding scale was introduced in England in the iron and steel trade, through the efforts of G. B. Thorneycroft of Wolverhampton, in 1840. In the latter part of the nineteenth century the plan attained considerable extension in the coal and iron trades of Great Britain, but it has now been entirely abandoned in so far as the coal trade is concerned. On the Continent the system has never been introduced. The first American sliding scale was adopted in 1865, through the influ- ence of the Sons of Vulcan, and for the purpose of regulating the wages paid for boiling pig iron. Since that time the sys- tem has gradually gained for itself a permanent footing in the basic processes of working iron and steel. Digitized by Microsoft® 262 ADMINISTRATION OF INDUSTRIAL ENTERPRISES The problem of adopting a sliding scale is, first of all, one of choosing a price base. It is essential to the proper working of the plan that there be some commodity which will serve as a barometer of the financial condition of the industry, as coal of the coal mining industry, pig iron of the blast furnace indus- try, or billet steel of the steel industry. It is desirable that the product be simple, or at least strictly standardized; be sold upon a highly perfected market, so that individual sale trans- actions will conform closely to a ruling price, and that sales take place freely without the intervention of expensive and high-pressure selling campaigns. The second problem is to determine a minimum wage rate and equate it with the minimum price, and to carry this mini- mum wage unaltered up the price scale, until a point is reached where it is agreed that the employer can pay more than a minimum. Third, above this point a scheme of progression must be worked out which will cause wages to rise with prices to an extent which, on the one hand, will be sufficient to satisfy the unions and lead them to carry out their agreements, but which, on the other hand, will allow profits to increase more rapidly than wages, so that employers will have no inducement to refuse the advances. A wage scale which advances 2 per cent for each 3 to 5 per cent of advance in prices is about the usual thing. As for the administration of a sliding scale, the practice in the United States is for manufacturers, at bi- monthly intervals, to communicate to committees of the unions sworn statements of the prices received during the preceding two months. In case of dispute as to facts, access to the employer's books is permitted. Upon the basis of the ascertained prices, wages are fixed for the succeeding two months. Advantages. — The English Royal Labor Commission of 1894 advanced the following points: "The advantages claimed for this system are (1) that it obviates disputes about wages, at any rate, during fixed periods; (2) that it promotes a feel- Digitized by Microsoft® THE OLDER WAGE SYSTEMS 263 ing of copartnership and common interest between employers and employed; (3) that it enables employers to calculate what will be the cost of production, in wages, for some time ahead, and therefore to enter into long contracts with some feeling of security; (4) that it causes alterations in the rates of wages to take place gradually and by a series of small steps, instead of suddenly and at a bound." ^ Disadvantages. — I. An annually revised scale provides recurring periods of uncertainty. The difficulty of this has been reduced as far as possible by the non-interruption clause introduced since 1901-1902 into contracts between the Amal- gamated Association and the employers. The scale year ends June 14. The new scale is to be presented to employers not later than May 1. An adjustment period extends from May 1 to Jime 15, followed by a conciUation period from June 15 to July 1. No shut-down or strike is to take place until after July 1. II. It is inevitable that there should be a speculative ele- ment introduced into wages by hitching them to some com- modity price. The significance of a sUding scale to each of the parties in the contract depends upon which way that party expects it to slide. If a base rate is set low in anticipation of higher prices, but a season of low prices ensues, there will be suffering among employees. If a scale is set high in depressed times, and a war boom follows, the wages may mount to levels which try the patience of employers. III. Dissatisfaction has sometimes arisen from the fact that, for a time after current prices have become high, mills still continue to work on contracts previously entered upon at lower prices. This is not completely offset by high-priced contracts holding over into periods of low current prices, for cancellation of contracts is freely practised at such times. A remedy was introduced into the South Wales coUiery agree- ments after 1892, providing that no contract should be taken 1 Final Report, Sees. 109-115. Digitized by Microsoft® 264 ADMINISTRATION OF INDUSTRIAL ENTERPRISES into account as determining prices for more than six successive audits of two months each. IV. No matter how fair an adjustment is given to a sKding scale, industrial changes will, at length, make it out of date, and compel its revision. The general drift of prices, the increase in the cost of some influential raw material, the introduction of new equipment or improved processes, the fluctuation of the labor market, the rise in the cost of living, or the competi- tion of new districts, are but a few of the things which make new equations necessary. In 1865 the boiling scale began at $4.00 per ton, when wrought iron sold at 2j cents per pound; in 1905-6 this scale began at $5.00 when wrought iron sold at 1 cent per pound. BIBLIOGRAPHY See the close of Ch. XIV. Digitized by Microsoft® CHAPTER XIV THE NEWER WAGE SYSTEMS The Halsey, Rowan, Taylor, Gantt, AND Emeeson Systems The Halsey premium system. — This system of wage pay- ment is named after F. A. Halsey, being devifeed by him while he was Superintendent of the Rand Drill Company of Sher- brooke, Canada. The idea of it, expressed in a sentence, is to ascertain the average previous times of doing jobs, and to offer the workmen an agreed percentage of the wages of any portion of this time they may save, in addition to their regular hourly or daily rate for the time taken. The author of the plan says of his time base, "Time is deter- mined from previous experience." ^ In practice, the average of previous times is taken. He explains that the aim is to be liberal with the time rather than with the premium. It is usual to guarantee that when the time limits are once set for jobs they will not be reduced, unless the method of doing the work is changed. Day wages are guaranteed to those who fail to reach the standard. To workmen who finish their tasks in less than the allotted time, there is paid, in addition to the hourly wages for the time worked, a proportion of from -^ to | of the wages of the time saved. Mr. Halsey indicates that the 50 per cent bonus may be paid if the task is a difficult one which has been scientifically set, but that 33 1 per cent is enough when the records of past ' The Premium Plan of Paying for Labor, Am. Soc. of Mech. Eng. Trans., Vol. 12 (1891), p. 769. 265 Digitized by Microsoft® 266 ADMINISTRATION OF INDUSTRIAL ENTERPRISES day work or piece work are used. If, then, a workman who is on an hourly rate of 25 cents has an 8 hour task given to him, and completes it in 6 hours, and the bonus is f of the saved time, he will receive — 6 X $0 . 25 = $1 . 50, the hourly rate, and i X $0 . 50 = .167, the bonus. Total = $1 . 667, which is at the rate of S0.278 per hour, or $2.22 per day. The premium is calculated on each job separately, so that failure on one job does not sacrifice the premium earned on another. Shop conditions are not disturbed. The accep- tance of the plan is voluntary with each workman. Regular wages are paid, and the bonuses earned are put in separate envelopes and placed at the disposal of any workmen who will take them. It is rather difficult for labor organizations to find a grievance in a plan which guarantees previous rates of wages, sets previous rates of work as the time base, and merely offers an extra remuneration for extra effort. The plan differs from day wages in that workmen get extra pay for extra product, and from piece wotk in that the rate of pay per piece decreases as the amount finished in a given time increases. It has been said that this plan was originated in 1886 by Mr. Henry R. Towne, President of the Yale and Towne Manufacturing Company. The Towne plan divides an estab- lishment into departments and, having determined certain items of prime cost in each department, gives to the men a share in any gain they can make by reducing the labor time, decreas- ing material waste, or otherwise. The Halsey plan considers time rather than labor cost, carries the bonus calculation down to the separate jobs, and distributes the bonus on the basis of individual performance. Advantages. — ^I. The Halsey plan is easy to introduce. It requires no preliminary studies, other than to calculate previous average times, and it calls for no reorganization or Digitized by Microsoft® THE NEWER WAGE SYSTEMS 267 new agencies other than those required to collect the times of current jobs. It adjusts itself to unstandardized conditions and to the ordinary processes of administration. * JO. 700 goo 5«o 400 300 200 100 Hours 12 3 4 5 6 7' goo yoo goo 500 400 300 200 |00 \ 6.6? •J A J ?" ^ 8.67 2.40 2.22 2.10 Cost gerEi ceOTJ L33 I.SO 1.67 1.83 .67 .83 1.00 i 2 3 „4 5 6 7 t Hours Fig. 37. Wages and Costs under the Halsby Pbemiitm Plan Wages per day. Direct-labor costs per piece or job. Standard time 8 hours (previous average time) Bonus one-third of saved time. II. A chief merit urged for the plan is that, by dividing the profit of saved time between management and men, it makes for the permanence of the bonus rate. If an unduly hberal Digitized by Microsoft® 268 ADMINISTRATION OF INDUSTRIAL ENTERPRISES time base be fixed for a job, and if as a consequence a workman makes a great saving in time, only a portion of the saving is given to the workman: an arrangement which prevents wages from being forced up to such high figures as to exhaust the patience of the employer. III. The psychology of the plan is adroit. If an employee is able to complete in 8 hours ten jobs of a standard time of one hour each, it is obviously the same thing, financially, to offer him 25 cents an hour and f of his saved time, as to offer him 25 cents each for the first eight jobs finished in a day, and 84- cents for each additional job. The psychology of the two propositions is, however, quite different. To save time seems to a workman a process of conservation, a demonstration of his abiUty, and an achievement in harmony with the hurrying ideals of American life; to produce a greater output seems more like overworking, and glutting the market, and giving his employer something without adequate return. Disadvantages. — I. If there is not the same motive for soldiering under this plan as imder the day rate, there is a greater temptation to it than under piece rates, for under piece rates the workman receives aU of the wages of saved time. The unstandardized conditions which the system is based upon, and which it permits to continue imdisturbed, give opportunity for this soldiering to be successfully done. II. Administratively viewed, the poUcy is one of "putting it up to " the workman. It is, therefore, fundamentally a policy of drift. III. If the splitting of the saved time ensures the perma- nence of the rate, it does so at the cost of depriving the work- man of a complete energizer. Taking the conditions assumed in the charts, the increase in daily pay offered for reducing the time the first eighth, that is from 8 to 7 hours, is 10 cents under the Halsey plan, and 32.5 cents under piece rates, a difference of 22.5 cents. The reward of reducing the time the much more difficult eighth from 4 to 3 hours, is 44 cents under the Digitized by Microsoft® THE NEWER WAGE SYSTEMS 269 Halsey system, and $1.33 under piece work, a difference of 89 cents. IV. The fairness of the plan of dividing the profit of saved time between management and men has been called in ques- tion. Mr. Harrington Emerson has said, "If there are no improvements by the employer, there is no reason why the employee should not get in full the increased result due to his greater diligence and skill, but if improvement is due to the employer's better equipment there is no justice iii giving the employee any part of it." '^ It is only when improvements are made by both parties to the contract in something Uke the proportions in which the wages of saved time are shared that any scheme of division is soimd. V. The workmen can beat the game by spurting on certain jobs to capture a premium, and soldiering on other jobs to rest up, under the protection of the guarantee of day wages. The Rowan premium plan. — A somewhat different pre- mium system for sharing saved time has been devised by Mr. James Rowan of David Rowan and Sons, Glasgow, Scotland. This system, Uke that of Halsey, leaves previous conditions of operation and management imdistiurbed. Standard times are based on experience. Day wages are guaranteed to those who fail to reach the standard. Like the Halsey system also, the chief aim of the Rowan plan is to insure the permanence of the premium rate, by limiting the earnings a workman can make by unusual saving in time. Under this plan if a workman reduces the time by a certain percentage, he gets an equal percentage of increase in his hourly rate. If the time is cut 25 per cent, the wages are increased 25 per cent. If a workman whose rate is 25 cents per hour finishes an 8 hour job in 6 hours, saving 25 per cent of the time, he receives the hourly rate for 6 hours or $1.50, plus 25 per cent or $0,375, making the job rate $1,875, and the time rate $0.3125 per hour, or $2.50 per day of 8 hours. 1 Discussion in Trans, of Am. Soc. of Mech. Eng., Vol. 25' (1903), p. 78. Digitized by Microsoft® 270 ADMINISTRATION OF INDUSTRIAL ENTERPRISES If the time is cut 50 per cent, the wages are increased 50 per cent, etc. A formula for the wage has been constructed as follows: Wages of Wage = Wages of time used + time saved Wages of Wages of time used time set This formula is useful only to elucidate one point, namely, that the largest earning it is possible for the employee to make is double the guaranteed wage. And this earning is theoretical, for it is the rate of pay when an infinitesimal of time is taken. In the formula, the expression — Wages of Wages of Wages of time saved , , time set time used — — may be stated as — : ;; Wages 01 Wages of time set time set Wages of As the time used decreases, this fraction tends toward Wages of time set or unity. Thus the formula at its most favorable point becomes, Wages = Wages of time used + 1 Wages of 1 time used which is Wages = ^^^^® °^ + ^""^^^ °^ time used time used or twice the hourly rate for the time taken. The fluctuation of the premium may be seen best by putting the wage elements into the form of a proportion: Wages of _ Wages of Wages of time set ' time saved " ' time used " ^®™'"™ In the case of a job of 8 hours standard time, and a 25 cent guaranteed hourly rate, the premium for performance in dif- ferent times becomes, Digitized by Microsoft® THE NEWER WAGE SYSTEMS 271 Wages of Wages of Wages of Time time set time saved time used PremiiiTTi 8 hours $2.00 $0.00 $2.00 $0.00 7 " . 2.00 0.25 1.75 0.21875 6 " . 2.00 0.50 1.50 0.375 5 " . 2.00 0.75 1.25 0.46875 4 " . 2.00 1.00 1.00 0.50 3 " . 2.00 1.25 0.75 0.46875 2 " 2.00 1.50 0.50 0.375 1 " 2.00 1.75 0.25 0.21875 " 2.00 2.00 0.00 0.00 The remuneration is self-limiting for, as the percentage of the standard time saved increases, the base — the wages of used time — to which this percentage is apphed, in calculating the premimn, decreases. The plan is more hberal than the Halsey system in rewarding improvements up to f time econ- omy. From that point on it is less hberal. Inasmuch as the improvement of pace achieved by the unaided efforts of the workmen, imder various bonus and premium plans, will seldom exceed -| or -|) this system is, in practice, more hberal than the Halsey system. On the other hand, the self-hmiting operation of the premium calculation so reduces the reward for excep- tional performance that workmen are not hkely to exert them- selves greatly. Mr. Barth has called attention to this defect as follows: "The Rowan plan cannot be very successful in inducing a workman to give away the time in which he can do a piece of work, when the time allowance for this is excessive; for it is then so easy for him to earn a substantial increase over his day wages by only moderate exertions that the shghtly higher relative increase that further exertions would net him will not appear to be worth his while." ^ If, as it is claimed, ' Testimony of Carl G. Barth in Hearings before the H. of R. Sp. Com. on The Taylor and Other Systems of Shop Management, Washington, D. C, 1912, III, p. 1575. Digitized by Microsoft® 272 ADMINISTRATION OF INDUSTRIAL ENTERPRISES this feature protects the employer from having to pay extraor- dinary wages, it is hard to see how he gets any advantage from the protection. * goo 70. goo 500 400 300 Honrs 12 3 4 5 6 7 goo yoo goo 500 300 2" 100 ■2 ■i s in 2J5 3.50 3.25 3.00 -cr**^ ^^ ^ 230 2.25 4"" 100 n~si r^ 1.50 1.78 L88 L97 |0I .47 .88 1 2 : Hours r \ I Fig. 38. Wages and Costs under the Rowan System Wages per day. Direct-labor costs per piece or job. Standard time 8 hours. Per cent of time saved equals per cent of the bonus. Since the Rowan plan is so similar to the Halsey system, it will not be necessary to Ust separately the advantages and disadvantages of it. The plan has not yet been installed in any American establishment. Digitized by Microsoft® THE NEWER WAGE SYSTEMS 273 Premium systems with task times scientifically set. — In passing to the consideration of the systems of Taylor, Gantt, and Emerson, it is important to observe that we leave behind those wage plans which are contented with ordinary manage- ment, and average employees, and with the attitude of putting the question of improvement of methods up to the workmen. "The great defect common to all the ordinary systems of man- agement," said Taylor, "is that their starting-point, their very foundation, rests upon ignorance and deceit, and that through- out their whole course, in the one element which is most vital, both to employer and workman, namely, the speed at which work is done, they, are allowed to drift instead of being intelli- gently directed and controlled." ^ From such plans we pass now to a group of systems which aim to vigorously control all conditions, to set the task with scientific accuracy, to make the task difficult enough to be worthy of a first-class man, and to offer a generous reward for successful performance, with- holding from the laborer no portion of the advantage he earns by reducing his time. \/ The Taylor differential piece-rate system. — The author of this system was Frederick W. Taylor, the principal originator and the leading .exponent of scientific management. The plan was first apphed practically in the works of the Midvale Steel Company at Philadelphia in 1884. The basic principles of the system are thus set forth by their author: (a) A large and clearly defined daily task for each man. (b) Standardized conditions and appliances to make per- formance, in the time allotted, regularly possible for a first-class man. (c) High pay for success. (rf) Loss in wages, and eventual discharge, for failure. The preliminary requirements for the successful introduc- tion of the differential piece rate are strictly standardized shop 1 F. W. Taylor, Shop Management, N. Y., 1911, p. 45. Digitized by Microsoft® 274 ADMINISTRATION OF INDUSTRIAL ENTERPRISES conditions, and a reenforced shop administration able to give the workmen personal explanations and demonstrations, complete written instructions, and unusually perfect service aids of all sorts. The standard time of each job is set with great care, on the basis of motion and time studies. The time allowance is adjusted to make the task a difl&cult one, expressing about all that a first-class man, who is well instructed in his work, should be asked to do regularly. The task standard will depend upon the state of the labor market and the possibihty of secur- ing the quaUty of men desired. The aim is to be Hberal with the premium rather than with the time base. Taylor sets out to pay exceptional men roundly for exceptional work; whereas Halsey and Rowan aim to coax ordinary men along a moderate course of improvement. Since so much care is used in setting the time base, and so much administrative effort is devoted to keeping all the condi- tions such that there will be no cause outside of the workman's own voUtion why he should not accomplish his task, it is logical that the rate of pay should be so adjusted as to strongly stimu- late the workman to do his part. This stimulus is produced by using two piece rates. For those who fall below the stand- ard in quantity or quahty of work, a piece ratQ is fixed which is so low that the workman will earn less than day wages and so,' after attempting to reach the standard but failing, wiU quit and go elsewhere. For those who succeed, a very high rate of pay — from 30 to 100 per cent higher than the average of the trade ' — is fixed. This attracts the superior men, stimu- lates them to do their best, and pays them more than they can earn elsewhere. • "The exact percentage by which the wages must be increased in order to make first-class men work to their maximum is not a subject to be theorized over, settled by boards of directors sitting in solemn conclave, nor voted upon by trades unions. It is a fact inherent in human nature and has only been determined through the slow and difficult process of trial and error." — F. W. Taylor, Shop Management, N. Y., 1911, p. 25. Digitized by Microsoft® THE NEWER WAGE SYSTEMS 275 The plan differs from straight piece work by using two rates, a lower one for unsatisfactory work, a higher one for satisfac- tory work. Like piece work, however, it gives the work- * goo 700 goo 500 d,00 Hours 12 3 4 5 6'; ' goo Yoo goo 500 400 300 JOO .50 jOO I »« \ \ > l V ^/. ^ t 300 200 .50 |0. \ \ 2.40 7 Costp< )r piece or job 1.60^ 1.33 1.14 1 2 : i Ho 5 6 7 ( UTS Fig. 39. Taylor Ditpekential Pibce-Ratii System Wages per day. Direct-labor cost per piece or job Standard time 5 hours. Piece rates $1.00 and $1.50. man all the wages of the time he is able to save. Mr. Taylor scorned the idea of taking from the worker any part of his wages of saved time. The employer should be content with the low overhead charge of the fast pace. Digitized by Microsoft® 276 ADMINISTRATION OF INDUSTRIAL ENTERPRISES The rate having once been set should never be cut. The time base is to be revised whenever the conditions of produc- tion furnished by the management are altered in such a way that the task set is virtually a different one. It will be observed from the chart that the workman who just fails to reach the standard receives $1.60 per day, while the pay for attaining the standard is S2.40. At the division line between satisfactory and unsatisfactory performance the contrast in remimeration is marked. There is thus set up a vigorous culling action, which attracts the attention of the management strongly to those employees who are not earning the bonus. Of this feature Mr. Taylor said, "It automatically selects and attracts the best men for each class of work, and it develops many first-class men who would otherwise remain slow and inaccurate, while at the same time it discourages and sifts out men who are in- curably lazy or inferior." ^ Rewards are to be calculated on the basis of a period of time, say a day or a week, so that sustained performance is required. Failm-e on one job will offset success attained on another. Advantages. — I. There is in this system the stimulus of high standards. Of the management there is demanded com- plete mastery of conditions, and the abihty to set a definite task; of the workman there is required a performance which demonstrates him to be a first-class man of his trade. II. The functions of manageifaent and of performance are clearly distinguished. The management sets the conditions, and in that setting determines its profits; the men put forth their efforts as operatives, receiving all the wages of gained time. Disadvantages. — I. The cuUing action at the point of achieving the task is so severe that the definition and measure- ment of the task, and the control of each of the conditions set ' F. W. Taylor, A Piece-Rate System, Proo. Am. Soc. of Mech. Eng., Vol. 16 (1895), No. 647, p. 858. Digitized by Microsoft® THE NEWER WAGE SYSTEMS 277 for the workman, must be attended to with great care to avoid coinplaint and a sense of injustice. This point Mr. Taylor recognized, for he said, "When the work is of such variety that each day presents an entirely new task, the pressure of the differential rate is sometimes too severe. The chances of failing to quite reach the task are greater in this class of work than in routine work; and in many such cases it is better, ow- ing to the increased difficulties, that the workman should feel sure at least of his regular day's rate which is secured him by Mr. Gantt's system in case he falls short of the full task." ' II. Because of its exacting nature the system has a limited range of applicabihty in industry. It can succeed only where first-class operatives work under conditions controlled by scientific management. The author of the plan very candidly recognized these requirements. He never recommended the plan as one suitable for application to all types of work through- out an estabHshment. To him each of the major plans of wage payment had its pecuUar advantages, and its special field of apphcation, provided always that a definite task could be assigned. "It is clear," he says, "that in carrying out the task idea, after the required knowledge has been obtained through a study of uiiit times, each of the four systems, (a) day work, (6) straight piece work, (c) task work with a bonus, and (d) differential piece work, has its special field of useful- ness, and that in every large establishment doing a variety of work all four of these plans can and should be used at the same time." " In the establishments with which Mr. Taylor was connected three or four wage systems were maintained side by side. It is to be noted, however, that the basic plan of a differ- ential piece rate possesses great inherent fiexibility. The larger the number of determinative elements there are entering into the fixing of a wage, the more flexibiHty a plan possesses, since each element may be taken at a higher or lower point, or 1 Shop Management, N. Y., 1911, pp. 78-79. = Ibid., p. 80. Digitized by Microsoft® 278 ADMINISTRATION OF INDUSTRIAL ENTERPRISES may be given a greater or less degree of weight and inclusive- ness. In the day-rate plan, for example, we can distinguish a certain rate of pay offered for time, a certain range of talent or performance included within the wage class, and a certain liberality or the reverse in making promotions into and out of the class. There are also the efforts of the administration to improve the working conditions, and the pressure exerted upon the men by foremanizing methods. The Taylor differ- ential piece rate possesses all but the first of these elements, and in the place of this single rate based upon time, it has two rates based upon output. The basic plan of a differential piece rate permits of the use of three or four rates, or even more. And it permits of a greater or less spread between them, so as to increase or decrease at will the culling action at each transitional point. The Gantt system. — The system sometimes described as "task work with a bonus " was devised by Mr. H. L. Gantt, while associated with Mr. F. W. Taylor at the works of the Bethlehem Steel Company. It is based on the Taylor differ- ential piece-rate system and is, as Mr. Gantt says, "As far as possible removed from the old-fashioned method of fixing piece rates from records of the total time it has taken to do a job." ^ Upon the basis of strictly standardized shop conditions Mr. Gantt sets a definite daily task which represents a first- class performance. "If a man follows his instructions, and accomphshes all the work laid out for him, as constituting his proper task for the day, he is paid a definite bonus in addition to the day rate which he always gets. If, however, at the end of the day, he has failed to accomplish all of the work laid out, he does not get his bonus, but simply his day rate." ^ The pay of those who attain or excel the standard consists, then, of the day rate for the time allowed as standard for the task accomphshed, plus an agreed percentage — anywhere from ' A Bonus System for Rewaxding Labor, Trans. Am. Soc. of Mech. Eng., Vol. 23 (1901), p. 373. ' Ibid., p. 342. Digitized by Microsoft® THE NEWER WAGE SYSTEMS 279 20 to 50 per cent — of that time calculated at the day rate, added as a bonus. Let us assume a case where the day rate is 25 cents per hour, and the bonus is 20 per cent of the stand- ard time. If a workman completed a 5 hour job in 6 hours, he would receive the day rate for 6 hours, or $1.50 for the job, which is at the rate of $2.00 per day. If he did the work in 5 hours he would receive the day rate for 5 hours, pljis 20 per cent of 5 hours, or a total wage of G^hours, or $1.50 for the job, which is at the rate of |g^40_for the day. If he did the work in 4 hours he would still receive the day rate for 5 hours, plus 20 per cent of 5 hours, or the hourly rate for 6 hours, making $1.50 for the job, or at the rate of $3.00 per day. The system is obviously a day wage for sub-standard workers, and a piece rate for men who are standard or better. The difference between the Taylor and Gantt systems is that for* sub-standard workers the Gantt system guarantees day wages, while the Taylor system does not; and that for workers who are standard or better the Taylor system pays by the piece, while the Gantt system pays in terms of time calculated at day-wage rates. Mr. Gantt considers the guarantee of the day wage essential, because it reassures a labor force and faciUtates the transfer of a shop onto scientifically set piece rates. He says, "When it is reahzed that proper piece work will, in many cases, pro- duce at least three or four times as large an output as ordinary day work, the difficulties of putting directly on piece work men who have been accustomed to doing work in their own way and in their own time would seem to be, and generally is, extremely difficult. While the men who are on day work usually realize that they are not doing all they can do, when they are told that it is possible to do three or four times as much as they are doing they simply do not believe it, and it is very difficult to make them accept, as just, a piece rate founded on this basis; but a reward in addition to their day rate con- stantly held before them will finally be striven for by some one, and when one has obtained it others will try for it. In Digitized by Microsoft® 280 ADMINISTRATION OF INDUSTRIAL ENTERPRISES other words, if the instruction card is made out, and a substan- tial bonus offered, time will do the rest." ' $ Hours 2 3 4 5 6 7 * goo 700 goo 500 ^00 300 200 50 |00 0"" 700 goo 5"" 400 300 200 50 |00 \ \ » V 1-0 N J N ^t vj" Z.40 Cost I erniet eorjo 1) 1.25 I 2 3 „4 5 6 7 J Hours I Fig. 40. Wages and Costs under the Gantt Bonus Plan Wages per day. Direct-labor costs per piece or job. Standard time 5 hours. Day rate 25 cents per hour. Bonus 20 per cent of standard time. As Mr. Gantt pays a hberal bonus for satisfactory perform- ance, there is a culUng action just at the point of attainmg the • A Bonus System for Rewarding Labor, Trans. Am. Soc of Mech Eng., Vol, 23 (1901), p. 343. Digitized by Microsoft® THE NEWER WAGE SYSTEMS 281 standard, though it is not as severe as under the Taylor sys- tem. To prevent hardship, however, Mr. Gantt provides that only those who are properly instructed, and likely to succeed, shall be allowed to try for the bonus. The workmen who remain on day wages are looked upon as overpaid during a temporary apprenticeship, pending their attainment of the standard. As the guarantee of day wages weakens the cull- ing action and reduces the strength of the motive for at- taining the standard, Mr. Gantt employs various agencies to bring a shop up to the standard. To arouse the foremen to assist heartily, a bonus is paid them proportional to the number of their men who attain standard; and there is be- sides an extra remuneration when a shop is composed entirely of bonus workmen. It is to be noticed that this bonus: is upon the proportion of the men who succeed in attaining standard, and not upon the earnings of the men. The fore- men are encouraged to aid the men to get into the bonus class, but not to drive them beyond what the management has set as a fair day's work. A bonus society is sometimes organized among standard workers, to confirm them in well doing by means of social distinction. For those whose efforts demonstrate their unfitness, transfers to other kinds of work are arranged. The Emerson efficiency wage. — The system devised by Mr. Harrington Emerson is like the Taylor and Gantt systems in that shop conditions are thoroughly standardized, that the tasks are carefully set by time studies, and that these tasks constitute, when performed in standard time, about all that a first-class man should do. It further resembles them in that the worker is paid for all the time he saves above the standard, and that the assistance of counselors and production experts is provided for the workers. It agrees with the Gantt system in guaranteeing day wages as long as a man is retained, regardless of performance. The distinctive feature of the plan is the gradual nature of the transition effected from the day rate to the piece rate as performance improves. Digitized by Microsoft® 282 ADMINISTRATION OF INDUSTRIAL ENTERPRISES Remuneration is on the basis of efficiency. A workman's efficiency is the ratio between the time set and the time he has taken; that is to say, between the standard hours of his finished jobs and the clock hoiu-s he has consumed. If in a month a man finishes jobs having a total standard time of 180 hours, and has worked 240 hours, his efficiency is -IItj or |, or 75 per cent. If he has in 240 hours finished jobs the standard times -Time taken per job or piece Tone saved (Pieje'raes) -(-D ly wages Time used Fig. 41. Composition op the Emerson Efficiency Wage Plan of which total 300 hours, his efficiency is YT^y or f , or 125 per cent. The accompUshment of the task in standard time is 100 per cent efficiency. For men who are 100 per cent efficient, the wage is the rate for the allowed time (which in this case is the same as the time used) plus 20 per cent of the time used. The bonus begins at 66.7 per cent efficiency. For slower per- formance than this day wages only are paid. A man who cannot attain 80 per cent efficiency is deemed to be engaged on the wrong kind of work, and is changed as soon as oppor- tunity permits. Between 66.7 per cent and 100 per cent effi- Digitized by Microsoft® THE NEWER WAGE SYSTEMS 283 ciency the worker receives, in addition to his day wages, a percentage bonus calculated on the wages of the time used, which increases gradually to 20 per cent as an efficiency of 100 per cent is approached. These bonuses of the approach to the standard are calculated from the positions of a certain para- bohc curve connecting the day-wage line at 66.7 per cent effi- ciency with the point of 120 per cent of day wages which is the remimeration for 100 per cent efficiency. To better reveal the construction of the Emerson wage we insert a special chart showing the change which takes place in remuneration as a given job is done in different times. The simpUfied bonus table which is used in practice, for cal- culating the parabola values, groups the efficiency percentages upon whole numbers of bonus percentage. Simplified Bonus Table Percentage of Percentage Percentage of Percentage Efficiency of Bonus Efficiency of Bonus 67.00 to 71.09 0.25 89.40 to 90.49 10. 71.10 " 73.09 0.5 90.50 " 91.49 11. 73.10 " 75.69 1. 91.50 " 92.49 12. 75.70 " 78.29 2. 92.50 " 93.49 13. 78.30 " 80.39 3. 93.50 " 94.49 14. 80.40 " 82.29 4. 94.50 " 95.49 15. 82.30 " 83.89 5. 95.50 " 96.49 16. 83.90 " 85.39 6. 96.50 " 97.49 17. 85.40 " 86.79 7. 97.50 " 98.49 18. 86.80 " 88.09 8. 98.50 " 99.49 19. 88.10 " 89.39 9. 99.50 and over 20. It will be noticed that above 90 per cent efficiency the bonus increases one per cent for each increase of one per cent in efficiency, until 100 per cent is reached. For all eflSciencies above 100 per cent the workman receives the wages of the time Digitized by Microsoft® 284 ADMINISTRATION OF INDUSTRIAL ENTERPRISES worked and of the time saved — that is to say piece rates — plus 20 per cent of the wages of the time worked. To summarize: Efficiencies 66.7 per cent and less receive time worked. Efficiencies 67 per cent to 100 per cent receive the time worked plus parabola bonuses. Efficiencies 100 per cent and over receive time worked plus time saved plus 20 per cent of time worked. Advantages. — I. The gradual increase of the bonus above day wages from 66.7 per cent to 100 per cent efficiency, and the gradual decrease of the bonus beyond 100 per cent down to piece rates, makes an easy transition from the day rate to the piece rate. The learner is encouraged to strive and to learn by gradually increasing rates of remuneration. In comparison with the Taylor and Gantt systems, the philosophy of this system is less that of culling for native capacity, and more that of bringing men up to the standard by persistent effort, patient instruction, and growing reward. Those who fail to reach the standard are not discouraged by being thrown back upon the flat day rate. "It is discouraging to workmen," says Mr. Emerson, "to expert, and to employer to be wrecked in full flight by hard iron from the foundry, by variable speed in the engine, by broken belt on main shaft, by any unforeseen and unforeseeable delay, and in such cases the curve back to day rate prevents much trouble." ^ II. Since there is not at any point a great drop in remu- neration, by reason of barely faiUng to attain some specific standard of performance, the question of the exact degree of liberahty employed in setting the time base, and the matter of the accuracy used in measuring those jobs which are on the edge of the standard, is not of so great importance as in shops with the Taylor or Gantt systems. 1 Trans, of Am. Soc. of Mech. Eng., Vol. 25 (1903), p. 81. Digitized by Microsoft® THE NEWER WAGE SYSTEMS 285 III. The percentage of efficiency is not calculated in prac- tice for each job, but for a period of from two weeks to a month. While day wages are paid weekly, the bonus may be calculated * goo 700 goo 500 100 Hours 1 2 3 4 5. ( i 7 700 goo goo 400 300 200 ,00 V ID l\ \ \ \t 1 K 1 * 300 200 100 \ \ ?^n 2.40 Z.10 2.01 Cos per pi see or oil 1.S8 L76 riir- 1.30 us .40 1.4S 1.50 » 2 3 4 5 6 7 « Hours Fig. 42. Wages and Costs under the Emerson Epficibnct Plan Wages per day. Direct-labor cost per day or job. Standard time 6 hours. Day rate 25 cents per hour. and distributed every other week or every month. This saves pay-roll expense. It also prevents the workman from beating the system by resting upon day wages after a raid on the Digitized by Microsoft® 286 ADMINISTRATION OF INDUSTRIAL ENTERPRISES premium. It causes a shop to be somewhat less on edge with reference to the attainment of the exact standard on each job. Accurate labor costs are, of course, distributed to each job by the cost keepers. The law of labor response to variation of wage. — The systems to which consideration has been given are attempts to pass from ordinary wage levels to higher levels which will bal- ance the labor market for extra-normal performance. It may very well be that experiments wiU eventually show that definite relations tend to exist, for any given time and place, between the price of an ordinary day's work and the price of various degrees of extra service. Mr. Taylor has said, "The writer has found, after making many mistakes above and below the proper mark, that to get the maximum output for ordinary shop work requiring neither especial brains, very close appHcation, " skill, nor extra hard work, such, for instance, as the more ordinary kinds of routine machine shop work, it is necessary to pay about 30 per cent more than the average. For ordinary day labor requiring Httle brains or special skill, but calling for strength, severe bodily exertion, and fatigue, it is necessary to pay from 50 per cent to 60 per cent above the average. For work requiring special skill or brains, coupled with close appli- cation, but without severe bodily exertion, such as the more difficult and dehcate machinist's work, from 70 per cent to 80 per cent beyond the average. And for work requiring skill, brains, close appUcation, strength, and severe bodily exertion, such, for instance, as that involved in operating a well-run steam hammer doing miscellaneous work, from 80 per cent to 100 per cent beyond the average." ^ On the same point Mr. Emerson gives us somewhat different details. "We find," he says, "we can double a 40 per cent efficiency by paying a bonus of 3.25 per cent, that we can double a 45 per cent efficiency by paying a bonus of 10 per cent, that we can double a 50 per cent efficiency by paying a bonus of ' Shop Management, N. Y., 1911, p. 26. Digitized by Microsoft® THE NEWER WAGE SYSTEMS 287 20 per cent, and that we can double a 60 per cent efficiency by paying a bonus of 40 per cent." ^ The question of distributive justice. — The various wage systems which have been reviewed reveal two chief purposes: (a) to offer an increase of wages to the emplpyee in exchange for a better performance and (6) to reduce costs to the employer as the reward for better management. Since an increase in efEciency produces an extra sum of profit, it is easy to get the idea that the problem of devising a satisfactory wage plan is the problem of making some equitable division of this profit. Mr. J. M. Dodge has said — and claimed the endorsement of Mr. F. W. Taylor in saying it ^ — that the aim of the leaders of scientific management has been so to divide between wages and profits any gain which may be made in earnings that the previously existing proportions between these two shares shall remain imdisturbed. If we are entitled to interpret this state- ment strictly, the meaning of it is that, if wages have been $100,000 and profits $20,000, and if net earnings are increased by $50,000, the added sum should be divided $41,667 to wages and $8,333 to profits; that is to say, each should be increased by 41 f per cent. This may appear to be a neutral position with reference to the conflicting claims of labor and capital, but in reality it is not so, unless the fair market values of the sacri- fices made by the men and the management in attaining the increased profit happen to fall into the proportion which pre- viously existed between wages and profits. It should be under- stood that the bonus and premium and differential piece-rate plans of paying wages are not attenipts to put upon the worker any portion of the hazard of the uncertain relation between costs and prices, and so inaugurate a new form of profit shar- ing. They are simply efforts to find a workable relation 1 Harrington Emerson, A Comparative Study of Wage and Bonus Sys- tems, N. Y., The Emerson Co., 1912, p. 36. See further, H. L. Gautt, Work, Wages, and Profits, N. Y., 1910, pp. 39-40. ^ Compare page 274, note. Digitized by Microsoft® 288 ADMINISTRATION OF INDUSTRIAL ENTERPRISES between the current wages which pay for ordinary efforts, and the extra remuneration which will adequately pay for extra labor service. The true problem of wages under scientific management, or under any other type of management, is not to divide a profit, but to find the levels of remuneration which will ensure the necessary cooperation of operatives and staff workers, while yet offering to capital sufficient interest and profits to ensure its cooperation. If there is any surplus beyond these require- ments it will be left with the entrepreneur or final risk-taker, pending such an increase of competition between entrepre- neurs as will hand it over to the pubhc, in the form of lower prices. There is no logical process, nor abstract principle, nor fixed relation of wages to profits, available for determining what fair wages or workable wage levels are. Experiment with supply and demand is the sole original source of infor- mation in an industrial society organized under the system of free competition. Enough must be paid the laborers to ensure the necessary response in numbers, in native talent, in energy, and in hearty cooperation. All that administrative effort can do is to make more definite the terms of the wage problem by dispensing with all ambiguities as to the condi- tions, as to the talent required, and as to the natiu-e of the task; and thus by disposiag of all collateral issues, facilitate the focusing of supply and demand upon the crux of the question, namely, the relative value of a unit of muscular and nervous energy expended in labor, in comparison with a unit of man- agerial brain power, and a unit of self-denial and nervous tension involved in saving and risking capital. The wages of contentment. — The basic conception of a scientific wage is fairness. The concept of what is fair blos- soms out of that which is usual, current, and customary. It is a growth fed by innumerable experiences in social adjustment too complex for logical analysis to follow, and being constantly corrected by allowances for the new productive power acquired Digitized by Microsoft® THE NEWER WAGE SYSTHMS 289 by industry. The idea of a fair wage is not a sharp definition but a general impression. The general range is sensed; the exact pomt is never discovered. It is the recognition of a tendency to which individual cases conform but approximately. The practical test of fairness is contentment; contentment of wage earners, of capitalists, of managers, and of the general pubUc. The value of contentment as a test of equilibrium has been emphasized again and again by the advocates of scientific management as they have pointed out how indis- pensable is the hearty cooperation of the employee. The very delicacy of the instrumentaUties and the exactness of the coordination involved in attaining new levels of efficiency in industry constitute increasing hostages to the laborer, ensuring to him fair treatment. To pay less than is felt to be fair means that, while the muscle may fimction, the mind will be alienated, and the spirit will fail. To pay more means to make a gift, a thing which may be desirable enough in itself, but which cannot be looked upon as a permanent feature of any administrative system subject to competition, except in so far as gifts take the form of welfare featmres and ideaUstic experiments which elevate the conception of what is decent and proper in industry, and so finally raise the entire plane of competition. Apart from this reaction of those exceptional cases which mark the frontier of upward striving, upon the general custom, competition between producers will at last give whatever residual advantage may remain, after the fac- tors of production have asserted themselves normally, to the consuming pubhc in the form of lower prices. The consuming public is, however, chiefly composed of the laboring classes. BIBLIOGRAPHY Going, Chas. B.: Principles of Industrial Engineering, N. Y., 1911. Ch. VII, The Primary Wage Systems; Ch. VIII, Labor: Philosophies of Management. KimbaU, D. S.: Principles of Industrial Organization, N. Y., 1913. Ch. XI, The Compensation of Labor. Digitized by Microsoft® 290 ADMINISTRATION OF INDUSTRIAL ENTERPRISES Ennis, Wm. D.: Works Management, N. Y., 1911. Ch. IV, Labor. Gantt, H. L.: Work, Wages, and Profits, N. Y., 1910. A Comparative Study of Wage and Bonus Systems, The Emerson Com- pany, N. Y., 1912. Kershaw, J. B. C: Copartnership and Profit Sharing as a Solution for the Wages Problem, Engineering Mag., Sept. 1912. Bender, Carl: Systems of Wages and Their Influence on Efficiency, Engi- neering Mag., Dec. 1908. United States Commissioner of Labor, Regulation and Restriction of Output, Washington, D. C, 1904. National Civic Federation, Welfare Dept., Profit Sharing by American Employers, N. Y., 1916. Transactions of the American Society of Mechanical Engineers: Kent, Wm.: A Problem in Profit Sharing, 1887, No. 256. Towne, H. R.: Gain Sharing, 1889, No. 341. Halsey, F. A.: The Premium Plan for Paying for Labor, 1891, No. 449. Taylor, F. W.: A Piece-rate System, 1895, No. 647. Gantt, H. L.: A Bonus System for Rewarding Labor, 1902, No. 928. Richards, Frank: Gift Propositions for Paying Workers, 1903, No. 965. Taylor, F. W.: Shop Management, 1903, No. 1003. Richards, Frank: Is Anything the Matter with Piece Work? 1904, No. 1012. Digitized by Microsoft® CHAPTER XV WELFARE WORK Welfare work and betterment work are two titles used to designate the voluntary efforts of employers to improve the condition of their employees. It has to do with benefits which are over and above what the law requires or the necessities of competition exact. Origins. — In. so far as welfare work can be traced to a defi- nite origin, it may be said to have had its rise in the ingenious and successful efforts made by Robert Owen, in the first quarter of the nineteenth century, to improve the conditions of his employees in the cotton mills of New Lanark, Scotland. By way of doing honor to the extraordinary energy of this pionee'r in the evolution of the modern type of industrial management let us quote a couple of paragraphs indicating his philosophy and his achievements. "He tells, in his autobiography, with what enormous diffi- culties he had to cope when he purchased the property. Women and children were employed under conditions which debased both mind and morals; drunkenness and ignorance, filth and immorality, were the characteristics of the population. Owen beheved, however, in the omnipotent, effect of circum- stance in molding character. He, therefore, set himself to work out reform on this principle. "Dnmkenness was discountenanced by the introduction of resorts where the workmen could find both pleasure and profit; immorality was checked by informal lectures setting forth its practical evils; the employment of young children was 291 Digitized by Microsoft® 292 ADMINISTRATION OF INDUSTRIAL ENTERPRISES discontinued; the homes of the people were materially im- proved; good, honest provisions were supplied at cost price; children's schools were started; and insurance fimds against old age and iUness were not forgotten." * The influence of the modem executive. — More broadly considered, the movement among employers to improve the conditions of their workmen, by their own efforts, and without calling upon the state for interfering legislation, owes its begin- ning to no one man. It is the revolt of men of affairs, with somewhat better education in physiology and psychology than their predecessors, against the narrow utihtarianism which characterized the early development of the factory system. It marks the passing of estabhshments from the control of the harsh men of combative type who fought their way up from the ranks into administrative circles too late to learn the art, into the hands of men trained for administration, capable of broad views, and understanding their responsibihties. It is the natural endeavor of executives, who know something of soci- ology, and desire to be something besides money makers, to as- sist those within reach of their influence to attain good health and efficiency, and to enjoy beautiful things and experience hu- man fellowship. The movement is eminently practical in its origin: it is a business man's affair, owing httle to professional reformers, being entirely distinct from charity and penology, and allowing small influence to broad theories and sentimentahty. On its lowest plane, welfare work is the act of conforming to the laws of productive efficiency in some unconunon way, which not only pays the employer in profits, but which makes work and the working environment seem more attractive to the wage earner. In this sense, it may be conforming to some rule of health, or observmg some law of attention and interest or of fatigue, or drawing upon some subtle spring of loyalty and enthusiasm. Just now, in America, one object of the movement is to » The Encyclopedia of Social Reform, N. Y., 1908, p. 859. Digitized by Microsoft® WELFARE WORK 293 undo the work which "big business " has done in separating men from each other in work and rank and interests and stand- ards of life, and to do so by reasonably systematic and persist- ent efforts to get together. A phase of general progress. — As the per capita pro- duction of wealth of the coimtry increases, the conditions of life of the people can be improved. We can enjoy better homes and schools, better food and clothing, better reading and recreation, because there are more of the good things of life available. It is reasonable that, as other classes elabo- rate the arts of living, the working classes should rise in the scale of comfort as well. And since these classes spend so large a part of their waking hours in work places, it is natural that this advancement should show not only in the family life, but in a progressive improvement of the conditions of the working day. The general movement is at first a thing of sporadic signs — an experiment in one plant, a new feature in another — but becoming more frequent and more consistent in type. In their initial stage these improvements in comfort seem to be non-economic, or at least extra-competitive, in character. They are viewed with suspicion as philanthropies, although strenuously defended as "good business " by their sponsors. It is not observed that they are the advance heralds of a new equiUbrium between production and consiunption. It is only when the experiments multiply, and persist along certain lines, and the new comforts become generally disseminated, and are more and more forced upon backward employers as a part of the plane of competition — that is to say, as some- thing expected as customary or standard — that we are able to recognize them as legitimate signs of the nation's increasing wealth and comfort. The geography of the movement. — The chief development of welfare work has been in France, Belgium, Holland, Switzer- land, and the United States. The movement is not prominent Digitized by Microsoft® 294 ADMINISTRATION OF INDUSTRIAL ENTERPRISES in England, although there are in that country such splendid examples of it as Lever Brothers Ltd. of Port Sunlight, and Cadbury Brothers Ltd. of Boumeville; and although there is also in England the "garden city movement," which is strongly influencing popular conceptions of comfort. The reason for this lack in England is that the extreme conservatism of the Enghsh employing classes has forced the amelioration of the conditions of the wage earners to come chiefly as the result of industrial warfare, carried on by the trades imions. Nor has welfare work been extensively carried on in Germany, in spite of such exceptions as the Krupps. And this is to be accounted for by the aU-embracing influence of state-socialism, which causes reforms to come chiefly through the force of law and by the action of governmental agencies. In America, the land of private enterprise, welfare work has found its most congenial home. Here there are ample resources, a favoring theory of democratic equality, a strenuous habit of putting projects through to the limit, a daring idealism among business men, and a well educated pubhc opinion. Welfare work may be looked upon as the typical American way of making socio- economic adjustments between the industrial classes, and of discouraging the importation of European trade warfare and European state-initiative. What it comprises. — With reference to the physical con- ditions of the wage earners, weKare work includes such things as good air and hght, lockers for clothing, dressing rooms, baths, the provision of wholesome food for the midday meal, rest rooms for women, medical examinations, first aid to the injured, free hospital beds, visiting nurses, opportunities for organized athletics, and" vacations with pay. Under the head of eco- nomic agencies it includes such things as shop schools, technical lectures, and the circulation of technical Hterature; prizes and bonuses for suggestions, and for length and regularity of service; sickness, accident, and old-age pensions; improved housing facihties, and agencies for the promotion of thrift. Digitized by Microsoft® WELFARE WORK 295 Upon general moral and social conditions it exerts an influence, not only through the above-mentioned channels, but by means of amusement facihties, such as concerts and entertainments; by clubs and societies; through the influence of a social secre- tary; through the precautionary exclusion of undesirable per- sons; and through the agency of artistic sm-roundings, not only within doors, but as the result of the landscaping of the factory grounds. With so wide a range of optional directions in which effort can express itself, welfare work may be adapted to local con- ditions, to any scale of expenditure, and to the peculiar talents and interests of employers and employed. This variety, however, has interfered with the recognition of underlying principles, and has made difficult the communication of the wisdom of experience from one estabhshment to another. As a result of this, the period of experimentation of the movement as a whole has been imduly prolonged. Let us choose for brief consideration, the following items: 1, factory hygiene; 2, housing; 3, education; 4, club activities; 5, the beautification of the industrial environment. Factory hygiene and preventive medicine. — The recent popularity of the ideal of Mens sana in corpore sano may, per- haps, be partly due to the vogue of college athletics. It is certainly due in part to the increased activity of the medical profession in spreading knowledge concerning pubhc health. By reason of the evolution of the building trades, and the invention of improved systems of heating, Kghting, and ventila- tion, it has become possible to do what was once impossible, in the matter of providing for the physical comfort of employees. Better quarters are now within reach without' increase in cubic-foot cost. And since man-hour rates have increased, the law of profit has become more nearly the law of health. Dressing rooms. — Toilet rooms, dressing rooms, and lockers enable a force to keep clean and to wear dry clothes. A funda- mental manifestation of self-respect is cleanhness of body and Digitized by Microsoft® 296 ADMINISTRATION OF INDUSTRIAL ENTERPRISES neatness of dress. Self-respect is a valuable characteristic in an employee, for it sets a limit of decency and fairness below which his actions will not be allowed to go, because they would not be worthy of himself. It is no longer customary for shop employees, above the grade of unskilled labor, to go and come on the street in work clothes; dressing rooms, lockers, and dry- ing racks have, therefore, become indispensable, if a superior personnel is to be secured. This is not simply a manifesta- tion of pride; it is an inteUigent differentiation between the cut and materials of working clothes and street clothes. Rest rooms. — A rest room or parlor for women, and a read- ing room or game room for men, are useful installations to permit the employees to pass the rest portion of the noon hour imder cover in bad weather, but outside of the work rooms while those are being ventilated. Such facilities give a touch of home to a plant. They are especially valuable for women, who lack the endurance and regularity of health of men, and who are more subject than men to dizziness, fainting spells, and temporary collapse from fatigue. If women have less dependable health than men, they recover more readily from shght illnesses than do men, if prompt attention is given to their condition. Baths. — The installation of shower baths is becoming the accepted thing in estabUshments where the occupation is uncleanly, as in cotton and woolen manufacture, the sorting of rags for paper stock, stone cutting, the grinding and poUsh- ing of metals, the handling of wool or hair, and hide cleaning. It is even more important in chemical works where poisonous dust and fmnes are generated, or in any manufacture where lead enters as a component, as in the making of paint, pottery, and plumbing supphes, or the manufacture of cut glass. The Walker and Pratt Company of Boston provides a daily shower bath for foundrymen, and the Lowe Brothers Company of Dayton does the same for color workers. The Sherwin- Williams Paint Company of Cleveland requires a daily shower Digitized by Microsoft® WELFARE WORK 297 bath for the men in the dry-color department, and provides daily a clean suit of underwear which the men wear during the day, changing into their own clothes before leaving the estab- lishment. Previous to the adoption of this rule, 20 per cent of this force was ill, and the average service in the department was but one and one-half months. Since the new arrange- ments have been in force, illness from lead poisoning and. kin- dred diseases has become practically neghgible, although the personnel of the department is now permanent. A portion of the rules posted in the works of The National Lead Company is as foUows: 1. RESPraATOBS must always be worn where there is dust. Keep THEM CLEAN. Shave frequently so that respirator fits snugly. 2. Washing. Before eating and before leaving factory at night, em- ployees must thoroughly scrub their hands, clean their finger nails, and brush their teeth. 3. Clothes. Employees must make a complete change of clothing, including hat and shoes, upon coming to work and again at the close of the day's work. Working-clothes must not be wobn outside the FACTOBT GROUNDS. 4. Baths shall be taken daily (on Company's time) before changing into street-clothes. 5. Complaints. The company furnishes, free of charge, respirators, sponges, tooth and nail brushes, soap, towels, and individual lockers, and has equipped the Plant with bathing facilities and sanitary devices. Any failure to furnish above supplies and any defect in the operation or sanitary condition of the machinery or equipment of the factory observed by any employee shall be called at once to the attention of the foreman in charge, and if not remedied in 24 hours, complaint SHALL BE made DIRECTLY TO THE SUPERINTENDENT. 6. Company's Doctor. Employees shall report to the Company's Doctor every ailment, no matter how slight, as soon as discovered, and shall be present at the weekly examination. The Company's Doctor will attend to employees for all ailments without charge." Physical examinations. — The health problem is being attacked not only by means of plant hygiene and sanitary appliances, but by precautionary examinations, visiting nurses, and hospital facilities. The practice of making a thorough Digitized by Microsoft® 298 ADMINISTRATION OF INDUSTRIAL ENTERPRISES physical examination of applicants by a physician is growing rapidly, as a result of the enactment of state employer's ha- biUty laws; the object being to avoid the risk which would be incurred by employing those who are physically vmfit for their work. The results to be expected from such examinations may be illustrated by some records of Sears, Roebuck and Com- pany of Chicago.^ Out of 666 appUcants in a certain period, 85 were rejected for the following reasons: Anemia and chlorosis 12 Venereal disease 7 Active tuberculosis 11 Hernia 4 Suspicion of tuberculosis ... 10 Tubercular glands of neck . . 2 Physical defects 10 Epilepsy 2 Bright's disease 9 Diphtheria 1 Sick, no definite diagnosis . . 9 Cirrhosis of Uver ._! Heart trouble 7 Total .85 It is not to be understood that Sears, Roebuck and Company reject every apphcant foimd to be physically imperfect. The poUcy is explained by Dr. Mock as follows: "We reject only those people who have some diseased condition which might be spread to the other employees if they were allowed to work among them, or those whose diseased condition is so serious that it would be very dangerous to themselves if they were allowed to work. Those with ailments which would not be detrimental to their fellow employees, and which would not be made worse by work are given positions. Suitable work is chosen for them to comply with their physical condition." The manner in which physical examinations serve to safe- guard the health of undiseased employees may be illustrated by the experience of the same company with tuberculosis. In 1909, with one doctor employed, 800 examinations were made. No tuberculosis was discovered among applicants for work, ' H. E. Mock, An Efficient System of Medical Examination of Em- ployees, Trans, of 10th Annual Meeting of Nat'l Asso. for the Study and Prevention of Tuberculosis, N. Y., 1915. Digitized by Microsoft® WELFARE WORK 299 for applicants were not examined. Of the 45 cases which developed that year m the force, only 11 per cent were detected in first year employees. In 1914, with six doctors employed, 12,380 exanunations were made of which approxi- mately 5,600 were of applicants for work. In this year 40 cases of tuberculosis were foimd among the appHcants, and 115 cases developed among a very greatly increased number of employees. Of these 115 cases, 29.6 per cent were detected in those who had worked less than twelve months; an accom- pUshment due to the system of putting apphcants with sus- picious findings upon a "watch " Ust. This company keeps a constant lookout for those who are falling below par physically, and extends aid to them in a variety of ways. The visiting nurse. — The employment of a visiting nurse is the recognition of two facts: first, that the nurse, previously considered as a curative agency only, is being used as an edu- cational and preventive agency; second, that the efficiency of an employee may be quite as much reduced by wrong condi- tions in the home as in the factory. "A man who sits up night after night nursing a tuberculous wife or helping to care for children with croup has an increased disposition to error of judgment; he is not a safe man to run an engine." '■ Hospital facilities.^ — In the dangerous trades a necessary provision is a suitable place for giving care to those who are ' Dr. C. A. Lauffer, Standardized First Aid, Second Annual Rep. of Nat'l Asso. of Corporation Schools, 1914, p. 621. ^ Some establishmenta maintaining emergency rooms or shop hospitals are — American Locomotive Company, Schenectady, N. Y., and elsewhere. Brighton Mills, Passaic, N. J. Burroughs Adding Machine Company, Detroit, Mich. Carnegie Steel Company, Homestead, Pa. Consolidated Gas Company of New York, New York City, N. Y. Curtis Publishing Company, Philadelphia, Pa. General Electric Company, Schenectady, N. Y. National Cash Register Company, Dayton, O. Digitized by Microsoft® 300 ADMINISTRATION OF INDUSTRIAL ENTERPRISES injured. The minimum accommodation is an emergency room for inmiediate recuperation, equipped with facHities for extend- ing first aid. EstabUshments of size, in engineering lines, find it necessary to enlarge their quarters into a miniature hospital; while the largest employing concerns have found it necessary to equip institutions of standard size, when there are no pubhc hospitals in the locaUty. The Colorado Fuel and Iron Company operates at Pueblo, Colorado, the Minnequa Hospital, which Doctor Lorenz of Vienna, on his visit to this country in October 1902, pronoimced the finest hospital he had seen in America. This institution accommodates 216 patients. The original cost was $350,000. Many additions have been made to it. It is located in thir- teen acres of landscaped groimds. This company maintains a number of retaining stations at various points, for the tem- porary care of patients until they can be transferred to the hospital. The need for such equipment can be seen from the fact that for the five years, 1910-1914 inclusive, the cases treated annually have averaged 98,474. The midday meal.' — The growth of cities is tending con- stantly to enlarge the area from which the individuals of an National Cloak and Suit Company, New York City, N. Y. New York Edison Company, New York City, N. Y. Sears, Roebuck and Company, Chicago, 111. Travelers' Insurance Company, Hartford, Conn. Western Electric Company, Chicago, 111. Westinghouse Electric and Manufacturing Company, E. Pittsburg, Pa. Yale and Towne Manufacturing Company, Stamford, Conn. ' Some concerns operating a lunch room for workmen or working women are as follows — American Locomotive Company, at Schenectady, N. Y., Richmond, Va., and Montreal, Canada. Burroughs Adding Machine Company, Detroit, Mich. Carnegie Steel Company, Homestead, Pa. Curtis Publishing Company, Philadelphia, Pa. Ferris Brothers Company, Newark, N. J. H. J. Heinz Company, Pittsburg, Pa. Digitized by Microsoft® WELFARE WORK 301 establishment are recruited and so to lengthen the average distance between home and place of work. When a large proportion of the employees of a plant are reduced to the alter- native of depending upon a lunch box, or a nearby restaurant, or a saloon, or of taking two long rapid walks, home and back, or of paying out two street-car fares, the juncture is created for considering the operation of a private dining-room. The midday meal is the critical one of the day, from the point of view of efficiency, for it is received into the stomach when the body is in a state of partial exhaustion, and is promptly fol- lowed by mental and physical exertion which draws the blood away from the digestive organs. It is worth while for an employer to see that this meal is composed of digestible and appetizing food, and is served at a place which will allow as large a portion of the noon hour to be spent in rest and recreation as possible. The price problem is somewhat difficult. Food should not be given gratis; but the prices must be kept close to cost. With a reasonable number of patrons it is not hard to serve a good meal for 15 cents. While office employees will pay this price, the patronage of the operative force, which is the Larkin Company, Buffalo, N. Y. Ludlow Manufacturing Associates, Ludlow, Mass. National Cash Register Co., Dayton, O. National Cloak and Suit Co., New York City, N. Y. National Harvester Company, Chicago, 111., and elsewhere. National Lamp Works, in eighteen factories. New York Edison Company, New York City, N. Y. Packard Motor Car Company, Detroit, Mich. Sherwin-Williams Paint Company, Newark, N. J. The Shredded Wheat Company, Niagara Falls, N. Y. L. C. Smith and Brother, Syracuse, N. Y. Solvay Process Company, Solvay, N. Y. Thomas Q. Plant Company, Boston, Mass. United Shoe Machinery Company, Beverly, Mass. Western Electric Company, Chicago, 111. Weston Electrical Instrument Company, Newark, N. J. Digitized by Microsoft® 302 ADMINISTRATION OF INDUSTRIAL ENTERPRISES important one to cater to, falls off rapidly when 10 cents is passed. Those who hve at home feel that food brought in a box or pail costs them very little; while those who hve in boarding houses find that they can get httle or no reduction for not carrjdng a lunch. That an appetizing meal can be served for ten cents is proved from the experience of the Rufus F. Dawes Hotel of Chicago. This institution has the following bill of fare: Meat hash and beans 3 cents Coffee with milk and sugar 2 RoU 1 Macaroni and bread 3 Mutton stew and bread .... 3 Soup with bread 2 Doughnut 1 Baked beans and bread 3 Pie, all varieties 3 In the year 1914 the hotel served 59,219 meals at an average price of $0.06288, and an average cost for labor and materials of $0.05976. Making a reasonable allowance for depreciation of equipment, the cost per meal was approximately $.06551. The best poHcy for a factory restaurant seems to be to price individual dishes separately; to estabUsh the custom that employees may bring their lunch boxes into the room; to specialize on coffee at 1 or 2 cents per cup, and soup at 3 or 4 cents per bowl, as a supplement to the solid food of the lunch box; and to make arrangements to heat or refrigerate gratis any food brought to the plant by the employees. Where a force consists chiefly of mechanics, receiving good pay, the price difficulty is diminished. The Continental Motor Company of Detroit, with 2,500 men, serves daily as many as their restaurant will acconuno- date. Of the patrons about 800 take the entire noon meal, while 400 carry their own lunch, and supplement it by a hot Digitized by Microsoft® WELFARE WORK 303 beverage and, perhaps, a dish or two chosen from the bill of fare. The company furnishes the space, gas, heat, and hght free, allowing a caterer a small profit, and fixing the prices charged. The prices are as follows : soup 5 cents, meats 7 cents, vegetables 3 cents, pastry and fruits 5 cents, bread and rolls with butter 3 cents, tea, coffee, and milk 3 cents. The aver- age order costs 15 cents. The office force dines a half hour earlier than the shop force. The Jeffrey Manufacturing Company of Columbus, Ohio, has had success with a wide range of cooperatively managed welfare undertakings. With reference to the restam-ant, and certain other enterprises closely connected with it, Mr. W. A. Grieves, Supervisor of Welfare for the company, says: "Many of our men, about five years ago, beheved that we ought to have a restaurant. A meeting was held and committees appointed. The result was a small inexpensive lunch counter in one of our shops. It was well patronized, and in a few months was moved to larger quarters. We have now moved three different times to larger quarters, and have a thoroughly equipped restaurant, where we serve an average of six hun- dred daily, and we are planning to double this capacity in the very near future. "While we sell everything at three cents, with the excep- tion of meat, which is four cents, we have been able to save sufficient to pay for our equipment, valued at 18,000, the money for which was advanced, without interest, by the company. The food is the very highest in quahty and wholesomeness; and for fifteen to twenty cents a splendid limch, yes, even a good-sized meal, can be secured. So popular has this res- taiu-ant become, we could have tripled the nmnber of employees using it if they could be accommodated. "Beheving there were possibilities in cooperative bujdng, we started to sell such articles as sugar, coffee, flour, tobacco, etc., in a small way in our restaurant. This was about three years ago. During this period the plan has grown into a good- Digitized by Microsoft® 304 ADMINISTRATION OF INDUSTRIAL ENTERPRISES sized cooperative store, in which we are doing ten to twelve thousand dollars of business each month. We handle all kinds of groceries, meats, boots, shoes, rough clothing, etc. We have handled this year, through the store, about thirty- five car loads of coal, twenty car loads of potatoes, and five car loads of apples, all at a large saving in money to employees. We have our own coal wagons, auto deUvery trucks, and wagons. "Two years ago we started our own bakery in a small way, but now have an oven capacity of three thousand loaves of bread per day, with a thorough pastry and bread mixing equip- ment. Everything used in our restaurant is baked in our bakery. The bread is sold at four cents for a loaf two oimces larger than the usual size. We have a lard rendering plant in which we make all our own lard. This is sold at from five to six cents less per pound than it can be secured at other stores. We have estabhshed our own dairy farm, from which we have fresh morning milk for lunch each day. We have, also, our own ice cream factory, and during the s umm er months sell a large-sized dish of ice cream — made of cream from the farm — for three cents. "All this work is fostered and encouraged by the company, but the management and organization is carried on entirely by committees of shop men. The company advanced us the money to get started, but we have paid almost aU of it back." ^ The prices at the Jeffrey restaurant are: meats 4 cents, vegetables 3 cents, bread and butter 2 cents, desserts 3 cents, beverages 3 cents. The National Biscuit Company serves in its New York plant a dinner consisting of hot meat, potatoes, bread and butter and coffee or tea for eleven cents. Housing.^ — It seems to many persons a considerable de- parture from ordinary business enterprise for an employer to 1 W. A. Grieves, The Handling of Men, Detroit, 1915, pp. 12-13. " Some of the companies which provide housing accommodations are — American Viscose Company, Marcus Hook, Pa. Bethlehem Steel Company, Bethlehem, Pa. Digitized by Microsoft® WELFARE WORK 305 invest money in housing accommodations for his employees. It is not that any one doubts the connection between the mate- rial conditions of the workman's home and his health, thrift, and morals; but that industry has so completely withdrawn from the household that we think of these two institutions as completely divorced and existing at opposite ends .of the economic scale. The advantages of operating in real estate on a large scale are, ability to plot land correctly, the saving of unearned increment on land, control of nuisances, the providing of correctly designed floor plans and adequate specifications, a much reduced cost of building, and a great increase in the convenience, beauty, and attractiveness of a locality, with Uttle or no increase in outlay. Some of the dangers to be avoided are, a barracks-Uke effect, undue intermeddling with the employees' outside life, and the growth of an attitude on the part of under-officers that what is done for the em- ployee outside may offset — and so perpetuate — administrative deficiencies inside. Cheney Brothers, South Manchester, Conn. Dwight Manufacturing Company, Alabama City, Ala. H. C. Frick Coke and Coal Company, at many points in southwestern Pennsylvania. John A. Roebling's Sons Company, RoebUng, N. J. Joseph Bancroft and Sons Company, Wilmington, Del. Ludlow Manufacturing Associates, Ludlow, Mass. Maryland Steel Company, Sparrows Point, Md. Monaghan Mills, Greenville, S. C. Nelson Valve Company, Wjmdmore, Pa. Peacedale Manufactinring Company, Peaoedale, R. I. Pennsylvania Railroad Company, Enola, Pa. Plymouth Cordage Company, Plymouth, Mass. S. D. Warren and Company (Cumberland Mills), Westbrook, Me. Westinghouse Air Brake Company, Wilmerding, Pa. Whitin Machine Works, Whitinsville, Mass. Willimantic Linen Company, Willimantic, Conn. Wiscasset Mill, Albemarle, Ga. Digitized by Microsoft® 306 ADMINISTRATION OF INDUSTRIAL ENTERPRISES A village problem. — Housing is chiefly a village enterprise. If a manufacturing plant is built in the open country, or in a small village, local capital and enterprise may not be adequate, and outside capital may be disinclined to invest in an enter- prise depending upon a single corporation. Again, a manu- facturer who has developed an industry requiring skilled labor, in a village, may find that the superior workmen and the more ambitious famiUes are being attracted away by the lure of the large city, so that it is necessary to develop a counterbalancing attraction in the village life. As the art of city planning de- velops, and the "garden city" movement extends itself, it is becoming evident that the village can successfully develop such attractions, and can hold people of good taste and general inteUigence. Houses to rent. — The practice of renting houses may be illustrated by the Pelzer Manufacturing Company of Pelzer, S. C, which owns all the land about the mills, and controls the unincorporated town of Pelzer. At Ludlow, Mass., the Ludlow Manufacturing Associates have built most of the houses, and constructed the streets and schools and churches. The Colorado Fuel and Iron Company, at many of its camps found only adobe huts and shacks and tents used as dwellings. It was obUged to build houses, and teach the foreign-born women and neglected children the rudiments of the domestic arts, in order to bring hving conditions to a decent standard. Its rental rate is $2.00 per room per month. At Hopedale, Mass., The Draper Company employs practically all of the working population. It has built beautiful houses for its employees, and transformed the setting into a landscaped park. After the tract of land was purchased, the company had it laid out by a landscape architect. Macadam streets were then built, and all improvements put in. The plans for the houses were secured from several leading architects, to obtain variety of style, and yet allow of buildings or apartments of approximately equal size. The houses are provided with Digitized by Microsoft® WELFARE WORK 307 hardwood floors, cement cellars, and modern plumbing. The company keeps the buildings in repair, and insists upon the tenants keeping the grounds in presentable condition. The rents are from $3.00 to $3.50 per week. As the cost was $2,250 per tenement, and much more than this for the recently built houses, there is httle direct profit to the company, after water rates, insurance, repairs, and depreciation are covered. There is, however, probably no other body of wage earners in the United States who Hve in equally beautiful surroundings. The rental policy appears to be indicated for two sharply contrasted cases: first, where accommodations must be pro- vided for a shifting force, representing the wage-earning ele- ment of a low-grade population, without sufiicient thrift or resource to aspire to home ownership; second, where a very high grade population is to be accommodated, so that central management of real estate plotting and domestic architecture is resorted to as a means of obtaining the aesthetic charms of a rus in urbe. Houses to sell. — The building of houses to sell fits the intermediate case. It has the advantage of stimulating home ownership, of contributing strongly to stabiUty of force, and of providing the individual family with a better planned house and better structm-al values than can be gotten when houses are built one by one, through contractors. Employees are also protected from loan sharks, bad-title frauds, and the high interest rates of most instalment plans. The N. 0. Nelson Manufactming Company of Leclaire, 111., builds houses on plans agreed upon between the firm and the employees. It charges for them the cost of the material and labor, and a percentage of profit equal to the average earned by the busi- ness as a whole. Of this plan the United States Bureau of Labor says: "As the firm has its own planing mill and wood- working force, the net cost of a house to the purchaser is con- siderably less than if bought in the usual way. Payments are made monthly, the amounts varying from $12 to $20, accord- Digitized by Microsoft® 308 ADMINISTRATION OF INDUSTRIAL ENTERPRISES ing to the price of the house, the wages of the buyer, and the size of his family. ... In the event the purchaser desires to remove and dispose of his property, the company voluntarily refimds the amount paid for the house, after deducting there- from rent for the time occupied." ^ The boarding house problem. — In rare instances employers have attacked the problem of the hving conditions of single employees. If a manufacturer in a small place requires more single men or women than the population of the locahty affords, and if the wages he can afford to offer are not Sufficient to attract young people from nearby towns, where they hve at home cheaply with their parents, he may be forced to take steps to improve the purchasing power of his wages, by reduc- ing the local price of board and rooms, or by raising the stand- ards of boarding house comfort. Unmarried wage earners away from home must, as a rule, hve as boarders in the families of the less thrifty workmen, occupying unheated, desolate little rooms, and being deprived of adequate facilities for enter- taining friends or enjoying home recreations. The Waltham Watch Company of Waltham, Mass., operates a large girls' club or rooming and boarding house, where women employees can secure accommodations at a very moderate price. The same company controls a men's boarding house with sUghtly higher rates. Care is taken to avoid giving the impression that the company desires its employees to hve in these houses. The accommodations are sufficient for a part of the unmarried force only. What has been done serves, however, to regulate private rates and to elevate standards of comfort. Education. — The types of educational work which employ- ers do most frequently may be enumerated as follows: (1) ele- mentary schooling for adults whose education has been entirely neglected, (2) continuation of schoohng for youths who have dropped out of the pubhc schools at an early age to contribute ' G. W. W. Hanger, Housing of the Working People in the United States by Employers, Bull, of Bureau of Labor, Sept. 1904, p. 1215. Digitized by Microsoft® WELFARE WORK 309 to the family earnings, (3) vocational training as a substitute or supplement for apprenticeship and, (4) the provision of miscellaneous opportunities to improve the intellectual activity of the force as a whole. Elementary schooling. — The American pubUc school sys- tem leaves httle occasion for employers to participate in elemen- tary education, except in the South, in the interest of mountain whites, and in the North, for the communication of the three R's to adult immigrants. The Pelzer Manufacturing Com- pany of Pelzer, S. C, supports a large elementary school of over 700 pupils, which runs for nine months in the year. It also supports a kindergarten in a separate building, with an enrolment of 150 children. Both of these schools are free. As a condition of employment with the Pelzer Company every parent is required to sign a statement agreeing to send all members of the family between the ages of 5 and 12 to school regularly, health permitting. The reason for this is that, until 1915, there was no compulsory school law in South Caro- lina. The practice is stiU continued, since the new law is ineffectual, its operation being left to the vote of each school district, and no provision being made for a truant officer. Every child who attends the company's school for a month without absences is given 10 cents. When this mill town was opened, 75 per cent of the adidts were ilKterates; the proportion has now been reduced to between 15 and 20 per cent. An illustration of the problem of educating the immigrant may be seen in the Ford Motor Company's plant at Detroit, where many elementary classes are being instructed by volun- teer and unpaid teachers from the force. Out of the 30,000 employees of the home plant, about 80 per cent are of foreign birth. The leading foreign nationahties are, in the order named, the PoUsh, Russian, Austrian, Itahan, Himgarian, Roumanian, German, and Jewish. Continuation schools. — The school plan operated for some years by the N. 0. Nelson Company of Leclaire, 111., was Digitized by Microsoft® 310 ADMINISTRATION OF INDUSTRIAL ENTERPRISES unique. At 12 years of age the boys in the neighborhood were admitted to the school and shop. They were obliged to devote one hour per day to work in the company's factory, or on its farm. For this work they were paid. The remainder of the day was spent in school. As the age increased the amount of work required increased and the study period decreased imtil, at the eighteenth year, the boys graduated from school. A special class was provided for boys 16 years of age or older, who were admitted from outside locahties. Such boys could get half-day schoohng, and were required to work for the company the other half day. In return for this work the company paid the expenses of board, lodging, and schooling. The plan was abandoned for the reason thus given by Mr. Nelson: "My design was to educate young men, in the shops and on the farm, to make a Uving by manual labor, and at the same time give them as much school education as they would take. We found that nearly all who came to the school did so with a view to getting a hterary education, for the purpose of getting away from manual work." Apprenticeship schools.^ — With the decline of apprentice- ship, caused by the subdivision of the trades and the more 1 Most of the great railways have, since 1905, established apprentice- ship schools at points where shops are located. Among manufacturing concerns having shop schools mention may be made of — The American Locomotive Company, with schools at 7 points. Brown-Sharpe Manufacturing Company, Providence, R. I. Cadillac Motor Car Co., Detroit, Mich. Consohdated Gas Company, New York City, N. Y. Fore River Shipbuilding Company, Quincy, Mass. General Electric Company, at West Lynn, Mass., and at Schenectady, N. Y. R. Hoe and Company, New York City, N. Y., with a school established in 1872. International Harvester Company, Chicago, 111. Packard Motor Car Company, Detroit, Mich. Solvay Process Company, Solvay, N. Y. United Shoe Machinery Company, Beverly, Mass. Digitized by Microsoft® WELFARE WORK 311 exacting schedules of power-driven manufacturing, some of the larger employing concerns have turned to school methods of instruction, as a means of maintaining standards of craftsman- ship. Shop schools are conducted at the plant, usually during business hom-s, the time spent by the pupil in study being paid for at the same rate as other working hours. Sessions occupy on the average 3 or 4 hours per week; the courses extend over a period of from 2 to 4 years. The instructor is commonly selected from the force, and devotes but a portion of his time to teaching. The studies, which generally presuppose seventh grade attainments, relate closely to the shop craft or office work toward which the student is directing himself. The subjects most frequently chosen are English, mathematics, mechanical drawing, and shop processes. Text books and writ- ten examinations are not unusual. The pupil is usually bound by an agreement or indenture with reference to the term of employment. Miscellaneous intellectual opportunities. — A great variety of educational or inspirational activities may be discovered by reviewing what progressive employers are doing. While these efforts are not sufficiently systematic to deserve the name of schooHng, they yet serve to awaken and intensify the mental activity of employees, to reveal the hidden arts or points of superior technique connected with the day's work, or to reveal standards which will elevate the general manner of hving. Among the means employed may be mentioned, noon shop Western Electric Company, Chicago, III. Westinghouse Electric and Manufacturing Company, E. Pittsburg, Pa. Yale and Towne Manufacturing Company, Stamford, Conn. Office schools are conducted by the — Burroughs Adding Machine Company, Detroit, Mich. Curtis Publishing Company, Philadelphia, Pa. Equitable Life Insurance Company, New York City, N. Y. National City Bank, New York City, N. Y. National Cloak and Suit Company, New York City, N. Y. National Surety Company, New York City, N. Y. Digitized by Microsoft® 312 ADMINISTRATION OF INDUSTRIAL ENTERPRISES talks, educational moving-picture films, circulating and refer- ence libraries, study clubs, an employees' magazine, and educar tional trips to other establishments. Clubs.^ — Social advantages are distributed with extreme unevenness in any community. A few persons are blessed, and even over-blessed, while the majority lead Hves which are starved from lack of variety of human association. The size of modern communities has become such as to bring about a regional separation of the classes. The mobihty of labor is constantly breaking up neighborhood ties. The church is no longer, as once, the social center for all classes. The only point at which the gifted and non-gifted are brought into perma- nent contact is within business organizations. Here there are those with leisure, means, friends, and administrative ability who are quahfied for social leadership: and here also are those who lead monotonous and lonesome lives. This contact creates an opportunity and a social duty. By a Httle organization, • Among the firms which have built club houses for their employees are — The Boston Edison Company. Brooklyn Rapid Transit Company, Brooklyn, N. Y. Conmionwealth Steel Company, St. Louis, Mo. Rowland Croft Sons and Company, Camden, N. J. Illinois Steel Company, Johet, 111. International Harvester Company, Chicago, 111. Maryland Steel' Company, Sparrows Point, Md. National Cash Register Company, Dayton, O. New York Edison Company, New York, N.Y. New York Telephone Company, New York, N.Y. Peacedale Manufacturing Company, Peacedale, R. I. Plymouth Cordage Company, Plymouth, Mass. The Pocasset Worsted Company, Providence, R. I. Solvay Process Company, Solvay, N. Y. United Shoe Machinery Company, Beverly, Mass. Vermont Marble Company, Proctor, Vt. Weston Electrical Instrument Company, Newark, N. J. J. H. WiUiams Company, Brooklyn, N. Y. Witherbee Sherman Company, Mineville, N. Y. Digitized by Microsoft® WELFARE WORK 313 the pleasures of human companionship may be made a trans- forming power in many Hves. The purpose of an employees' club is to exploit the social resources going to waste in an industrial group, by the forma- tion of recreation groups, such as vacation clubs, athletic clubs, dancing classes, and dinner clubs; by the formation of joint- consimiption groups large enough to purchase entertainment on a reasonable basis; and in all ways which will enlarge the variety of helpful interchange of thought and impulse between individuals. A club, by the formality of election of its members, creates an atmosphere of selectness and sohdarity which promotes acquaintance and mutual confidence. By its dues it banishes the thought of patronage. By its election of its own officers, and its self-government under a constitution and by-laws, it suggests democracy, responsibility, and independence from out- side dictation. By the ease with which a variety of functions can be carried on through various committees, it is fitted to be the comprehensive agency which binds the various non- productive activities of an establishment into an organic whole. The chief function of employers in connection with employees' clubs is to provide the quarters. An unused corner of a shop may be fitted up as a game room and place for committee meetings. An attic floor, or a portion of a warehouse, some- what remodelled, may be used at noon for a lunch room, and in the evening be converted into a hall for lectures, concerts, amateur theatricals, dances, dinners, and social gathering. An independent building serves to give an organization a more tangible and distinctive existence. If to a club house there is attached a recreation field, those who prefer indoor amuse- ments can count on the cooperation of those who love outdoor sports, so that the activities of the society need not go into a decline during the summer months. Difficulties. — The Eagle and Phoenix Club of Columbus, Georgia, was maintained for some years by the Eagle and Digitized by Microsoft® 314 ADMINISTRATION OF INDUSTRIAL ENTERPRISES Phoenix textile mills of that city; the membership being con- fined to employees. The club occupied a house provided by the mills. Dues were 15 cents per month. The money so obtained was used exclusively for entertainments. These were held weekly and consisted chiefly of dances and suppers to which the women relatives of the members were invited. There was, also, a lyceum course of lectures in the winter, to which admission was by ticket, each member having three tickets. There was a hbrary, and there were study classes in English, mathematics, and elementary branches. Music lessons and dancing lessons were also given. A gjonnasium, with free baths, was in charge of a physical director. Any deficit which occurred was made up by the company. The patronage of this club declined after a few years, until the pro- ject had to be abandoned. The cause of failure, as given by Mr. J. D. Massey, Treasurer of the company, was that there did not at the time exist a sufficiently high level of primary education among the employees to enable them to appreciate the facihties offered them. It is hoped that the excellent public schools of Columbus will, in a few years, so change the condi- tions that a club enterprise may again be inaugurated. The difficulty of making even an elaborate equipment ensure success may be illustrated by the efforts of the Celluloid Com- pany of Newark, N. J., on behalf of the Celluloid Club. In 1889, the company built for this club a fine three-story home, at a cost of $40,000. The basement of the building contains 4 slate bowUng alleys, a pair of rifle ranges, a game room, lockers, and boiler room. On the first floor are hall, reception room, bilUard room, cloak and bath rooms, lavatories, business office, caf6, and kitchen. On the second floor are the reading room and library, ladies' reception room, and card room, besides officers' quarters and committee rooms. The entire third floor is taken up by an auditorium having a seating capacity of 500 people, and equipped with stage and dressing rooms. The members of this club pay no dues whatever, the com- Digitized by Microsoft® WELFARE WORK 315 pany furnishing and maintaining the building. At noon the caf6 serves a luncheon at cost to members. Once a month there is a general entertainment or dance. A variety of activ- ities is promoted, the most successful of which are a savings and loan department, and an insurance department. This club, which was very popular in its earher years, has been recently somewhat neglected by the employees. One reason assigned for this is that the club house is not at the works, and consequently is not convenient for use at the noon recess. Another reason may exist in the general conception of the institution, which is that of a business man's club. The traditional conception of a club based on the habits of the "club man " is a delusion and a snare in the planning of employees' clubs. By following it, equipment may be so elaborated that people accustomed to simple things feel un- at-home. The emphasis which this ideal places upon drinking and lounging does not accord with the wage earner's philosophy of life. Finally, a man's club neglects the family, the leaven- ing of which with a new life is the chief opportunity of an employees' club. Acquaintance. — The activities of a club reveal men and women to each other in a way entirely different from the routine of business. By bringing out something besides the work side of character they provide a better basis for coope- ration, even in business. They serve to bring together officers and employees, and to cut across department Unes. Recreation. — The recreation most appreciated by young women is dancing for indoors, and tennis for outdoors; that most in favor with men is bilUards for indoors, and baseball for outdoors. All of these recreations require expense and so organization. The effectiveness of recreation as a form of recuperation lies in its power to divert attention to fresh muscu- lar and nervous centers, and to suspend the motor and sensory activities which have to do with fatigued muscles. For brain workers, its value lies in its power to excite fresh centres in the Digitized by Microsoft® 316 ADMINISTRATION OF INDUSTRIAL ENTERPRISES brain, and so wholly divert conscious and mental activity, and partially divert subconscious activity, from fatigued areas. In this scientific age we are suspicious of the wholesomeness of natural impulses unless a scientist steps from his laboratory with proof of utility. Let us, therefore, quote a prime author- ity. "A prolonged flow of happy feelings," says Geo. J. Ro- manes, "does more to brace up the system for work than any other influence operating for a similar length of time." As Dr. Lauffer says, "We may use an area of the brain smaller than a silver dollar in our usual vocations; to get rested we need avocations, so as to employ a larger areia of the brain cortex. We overheat one set of wires, so to speak; we rest up, not only by allowing those wires to cool, but by heating another set, which more completely diverts the attention from the cooling set." ' The warfare with drink and vice. — The club, being a chief means by which recreation can be secured, without paternal- ism and imdue intermeddhng, is a competitor of the saloon and pubUc dance hall. The welfare department of the Colorado Fuel and Iron Company has had to deal with the characteristic population and habits of mining towns. It has for years waged an unrelenting warfare against the saloon, using all conceivable agencies, such as soft-drink clubs, restricted wet clubs, reform saloons, and regulated saloons. Its nearest approximation to success was, perhaps, with the Coalbasin Club. This organ- ization was well housed in a club house, provided with the usual sanitary and amusement featm-es. It sold soft drinks at low rates. It also sold Uquors, but under the restrictions that they must be pure, that they must be sold at a good profit, that the bar must not be located in or close to the lounging room, and that the club rule of no treating must be strictly enforced. Development of initiative. — A club offers to its members a chance to exercise their own initiative; hence it gives the vigor of freedom in action, and the pride of ownership in accom- • Dr. C. A. Lauffer, Standardized First Aid, Rep. of Second Convention of Nat'l Asso. of Corporation Schools, 1914, p. 620. Digitized by Microsoft® WELFARE WORK 317 plishments. After an extensive experience with welfare work, the National Cash Register Company of Dayton, Ohio, found it advisable to abandon most forms of office-directed enterprise, and place responsibility in the hands of two clubs, the Men's Welfare League, and the Woman's Century Club. When Senator Proctor of Vermont dedicated a $30,000 club building to the men of the Vermont Marble Company, he said, "Men prefer to care for themselves, and spend their own money — the money they have earned — in their own way. Give them a good chance to do this wisely and properly for their own moral, inteUeetual, social, and physical welfare, and this is the great- est help the employer can render them." Beauty in the industrial environment.^ — Art has often been looked upon as something expensive, appropriate to adorn a wealthy man's home. It has been treated as an esoteric mys- * Among the many manufacturing concerns which are eminent for the beauty of their structures are — The American Colortype Company, Newark, N. J. American Electric Heater Company, Detroit, Mich. H. Black and Company, Cleveland, O. Brewster and Company, New York City, N. Y. R. Donnelly and Sons Company, New York City, N. Y. Ford Motor Company, Detroit, Mich. Ginn Publishing Company, Cambridge, Mass. Hersey Manufacturiag Company, Boston, Mass. W. M. Hoyt and Company, Chicago, lU. Hudson Motor Company, Detroit, Mich. Lever Brothers, Cambridge, Mass. National Biscuit Company, in several cities. Some of the firms which have attained beauty of grounds are — The Dennison Manufacturing Company, S. Framingham, Mass. Gorham Manufacturing Company, Providence, R. I. National Cash Register Company, Dayton, O. Plymouth Cordage Company, Plymouth, Mass. Sears, Roebuck and Company, Chicago, 111. Walker Pratt Company, E. Watertown, Mass. Walter Baker Company, Milton Lower Mills, Mass. Doubleday, Page and Company, Garden City, L. I., N. Y. Digitized by Microsoft® 318 ADMINISTRATION OF INDUSTRIAL ENTERPRISES tery or secret doctrine to be concealed in libraries and galleries, and revealed only to those with long hair and strange manners. But we are slowly beginning to learn by experience what we might have learned quickly had we read how people treated it in Athens, Florence, and Antwerp, namely, that art is to embel- hsh the environment of daily life, and give worthy expression to the things we held most dear. It is something to surround ourselves with for the pure enjoyment of it, and to use for the utihty's sake. Psychology is teaching us that artistic things are restful, working a magic of nervous economy through the sense of fitness they produce. Surely that is utihtarian which produces much pleasure at little cost. A beautiful building may give a minute's pleasure each day to 50,000 passers in the street, and so produce from 800 to 1,000 solid hours of human happiness for every 24 hours it stands. An outfit of window boxes, gay with flowers through- out a summer, may transform a gray, gaunt factory into a place that seems hke home for a couple of himdred women employees, and do this for an outlay of a few doUars. If this cheap util- ity, and this tonic of pleasure is to be enjoyed by the majority of persons, it must come to them by snatches in the hours of work. If art is to be made democratic in a country where industry prevails, it must transform the industrial environ- ment. The place for beautiful things is where they will be seen. A rich stained glass window glowing in the afternoon sun in the end of some great erecting shop is a hundred-fold more useful than locked away in the nave of a silent church. And more appropriate, for it can only "glorify God " by re- freshing the hinnan spirit. "As we journey through life, let us five by the way." Responding to such thoughts as these, we find American employers, like the Kodak Company, planting vines to cover the brick walls of their buildings, the National Cash Register Company employing an expert to landscape their grounds, the H. J. Heinze and Company putting beautiful windows on their Digitized by Microsoft® WELFARE WORK 319 stairways and hanging paintings on their walls, and the Inter- national Harvester Company providing band concerts at noon for their employees. When it is observed that, in our great cities, the banks and office buildiags are borrowing from the classical temples, and that the larger stores are ornamenting their departments like galleries of art, it seems not impossible that a renaissance of art may develop imder the patronage of industry in this "land of boundless possibihties." Landscape gardening. — A great impulse toward the intro- duction of art into daily life has come through the arrival of the most inexpensive and democratic of all arts, namely, landscape gardening. This art escaped some years ago from our ceme- teries into our pubUc parks, converting them from bare mead- ows and raw woodlands into gardens beautiful with flowers and foimtains and bathing pools and boating lagoons and play grounds. It is now being taken to the homes of the people, and there simplified to frame in the lawns with shrubbery borders and hide unsightly objects. As the home grounds take on a more attractive appearance, people are being coaxed out of their houses into sim parlors and hving porches and pergolas, and are learning to unite the indoor and outdoor divisions of the home life into a new miity, through a recrea- tion which combines art with nature, and aims to paint land- scapes in real materials. Is there any reason why the streets and homes and parks of the American city should be made beautiful, but the buildings and grounds where the workers of the community spend their days should remain ugly? "Life without industry," said Ruskin, "is guilt; industry without art is brutahty." As a result of the competition of American cities for population and new industries, it has at last been noticed that the railway lines, from which the travelHng pubhc views a city, are usually bor- ered with industrial estabhshments so that, if these buildings are ugly, and their groxmds neglected, the impression goes out that the conununity is poor and its people lacking in education. Digitized by Microsoft® 320 ADMINISTRATION OF INDUSTRIAL ENTERPRISES Art and expense. — The beautification movement is not one which calls for great expenditm'e. The prerequisites of beauty are cleanness and appropriateness. Factory rooms may be made attractive by painting the walls and ceHings with cheer- ful tints, and by decorating with simple stencil patterns or with large lithographic, or even poster, reproductions of works of art in colors. The beauty of a building consists rather in the proportions of the larger masses, and the rhythm and bal- ance of the individual parts, and in the color harmony of the materials used, than in any specific ornamentation. For ornamentation, indeed, nothing excels vine-covered walls and window boxes. The grounds about factory buildings and the fences enclosing them exercise an important determining influence upon general appearance. If the inside walks and drives are skilfuUy laid out, and yard storage is made compact and systematic, it will be possible to put considerable areas into lawn, redeeming them from dust and the heat and glare of svmshine reflected from bare earth. It is the function of shrubbery to emphasize unity and privacy by raising a wall of green at the property boundaries, and by softening the harsh angle made where building walls spring from the earth. Tree planting will serve to screen dis- agreeable objects, and give the effect of varied topography. Flowers, if used with the greatest economy, will be massed at gateways and doorways, where the beauty of individual plants may be appreciated, or will be distributed here and there as narrow bands in front of shrubbery borders, to form a ribbon of contrasting color across the landscape picture. Policies. — The following propositions with reference to welfare work appear to be warranted by experience: 1. Wages must be equal to those paid elsewhere for equal service. It is unwise to make such a lavish expenditure as to generate the thought that, if the employer can afford to do so much, he might raise wages. 2. One thing should be undertaken at a time, and that the Digitized by Microsoft® WELFARE WORK 321 most essential thing. The way for each move should be care- fully paved, so that the intent of the management will be understood. The development of enterprises should not be allowed to outrun the power of readjustment and response of the employees, upon which depends the utihzation of the opportunities provided. 3. As rapidly as possible, managerial responsibility should be transferred to the employees. We never prize what others do for us as we prize what we have achieved for ourselves. The diplomatic r61e of the employer is to be the power behind the throne. 4. Physical conditions wiU demand attention before school- ing or art. Tired, dirty, and imperfectly nourished bodies do not respond well to books and lectures and the play instinct. 5. Home conditions and the outside life must finally be brought into harmony with the hfe it is hoped to create at the works, otherwise the one will continually undo the achieve- ments of the other. 6. No conditions should be allowed to develop, under the guise of welfare work, which will destroy the disciphne and efficiency essential to provide the financial wherewithal. Difficulties. — It is not easy to make a success of welfare work. There are many projects to choose from, and innumer- able ways of proceeding. There are many kinds of people and there is an infinite variety of local condition. There will inevitably be some embarrassment for employer and employed in finding a footing in matters where orders are out of the question. Workmen have well defined opinions about the conduct of their hves; and into contact with these opinions any plans which go beyond customary industrial practices are bound to come. It is natural that there should be a heritage of suspicion descended from the time when employers planned entirely for their own profit. It is natural, also, that trades unions should be cold toward benefits which the employer has the power to withdraw at a moment's notice. Digitized by Microsoft® 322 ADMINISTRATION OF INDUSTRIAL ENTERPRISES Conclusion. — It is the normal method of progress that the refinements of life should first be enjoyed by the few, then extended to many as a favor, and at length demanded by all as a right. Welfare work is the begin n i n g of a new form of competition between employers, which is addressed to their employees, and is concerned not so much with direct wages as with the indirect wages of the character of the environment which makes the Ufe at work attractive or the reverse. This competition is now sufficiently developed so that the standard forms of welfare work exert an influence in attracting superior employees, assuring greater permanence of force, and creating a spirit which brings better service. Beyond the limits of competitive calculation welfare work pays, for the simple reason that it is agreeable to be surrounded by fit and beautiful things, and to spend the working hours of life among friends. The field of welfare work presents an opportunity of leadership for a man of culture or of unusual dynamic power, in matters which lie beyond the minimum of decency which competition forces out of the ruck of capitahsts. It is an effort to bring production and consumption into more intimate contact; an effort which is justified by the observa- tion made by all men of penetration, namely, that a large part of the really fine opportunities for spending grow out of the association of men together in producing. In the past many men have taken wealth out of industry, leaving behind ugly factories and miserable workers, and have spent their means in fields where they were amateurs, doing many fine things and many foohsh things in art and charity and education. There are now men who are determined to see what can be done in perfecting and beautifying the life in industry itself. Digitized by Microsoft® WELFARE WORK 323 BIBLIOGRAPHY Tolman, W. H., and KendaU, L. B.: Safety, N. Y., 1913. Price, Geo. M.: The Modem Factory: Safety, Sanitation, and Welfare, N. Y., 1914. Ch. IV, Factory Accidents and Safety; Ch. VII, Employ- ers' Welfare Work. The United States Commissioner of Labor: Workmen's Insurance and Benefit Funds in the United States, Washington D. C, 1909. Tohnan, Wm. H.: Social Engineering, N. Y., 1909. Henderson, C. R.: Citizens in Industry, N. Y., 1916. Shuey, Edw. L.: Factory People and Their Employers, N. Y., 1900. Hanger, G. W. W.: Housing of the Working People in the United States by Employers, BuUetin of U. S. Bureau of Labor, Sept. 1901, No. 54, pp. 1191-1243. Stevens, Geo. A., and Hatch, L. W.: Employers' Welfare Institutions, Part IV of Report of N. Y. Comr. of Labor, Albany, N. Y., 1903, pp. 225-329. Jones, Lloyd: The Life, Times, and Labours of Robert Owen, N. Y., 1892. Otey, Ehzabeth L.: Employers' Welfare Work, Bulletin No. 123 of U. S. Bureau of Labor, Washington, D. C, 1913. Jacobs, H. W.: Betterment Briefs, N. Y., 1909. Ch. on The Square Deal to the Railway Employee, pp. 233-262, originally published in The Engineering Magazine, June 1907. Cabot, Dr. Rich. C: What Men Live By, Boston, 1914. Part II, Play, including Chs. X to XIX. United States Commissioner of Labor: Report on Industrial Education, Washington, D. C, 1911. Ford, Henry: The Henry Ford Book: Help the Other Fellow, Boston, 1915. Digitized by Microsoft® CHAPTER XVI OFFICE DEPARTMENTS The nerve centre. — It is necessary to form a corps of per- sonal assistants about the chief administrators, and to provide equipment of a special character, so that the nervous energy of the leaders — the most precious thing in an organization — may be conserved and utilized in an efficient manner. The office corps has laid upon it the duty of anticipating the needs of the executives for detailed information, and of apply- ing to minor and routine matters the principles which have been estabUshed by general orders or confirmed by the force of custom. It is the chief function of the office staff to deal with records; producing and reproducing them, sending and receiving them, and inspecting and filing them. Some of these records will have for their purpose to give direction to shop and field activities, others wiU form a part of the system of accounts used for compiling an exact record of values, and still others will chronicle the relations of the organization with the outside world, as estabhshed by contracts, correspondence, and interviews. In handUng these records, the office acts the part of a nervous system of an organism. Its labors are not "unproductive " any more than the work of the spinal cord and the motor and sensory nervous system, which connect the brain and the muscular fibres of the body, is unproductive. Personnel. — In ordinary practice the number of persons in the office force will average about one to twenty of the shop or field force. The payroll will be in the neighborhood of $1.00 to $10.00 of the other departments. The clerical force may be 324 Digitized by Microsoft® OFFICE DEPARTMENTS 325 said to surround the leading executives like a cloud. If it is not composed of well chosen persons, it may form a screen, hiding the leader from his operatives, and misinterpreting him to them by irritating acts of arbitrariness and red tape per- formed in his name. Not every one who makes an exceptionally good record in shop or field work can succeed in the atmosphere of an office, and so pass successfully by way of bureau work to the higher executive positions. Nor is the born leader, who fives in a world of large ideas, and who succeeds chiefly by communi- cating his enthusiasm to others, a person necessarily fitted to organize the details of an office. There is a special technique in office work; and there are certain temperaments which best adjust themselves to it. For the ideal chief clerk there is re- quired tact without servifity, patience and accuracy in matters of routine without lack of general comprehension, and the power of organizing details into a system, without that fanati- cal insistence upon form which often accompanies system and which leads to red tape. Misuse of the clerical staff. — Those who stand near to overloaded executives are very apt to fall heir to neglected duties. A careless administrator may easily fall into the habit of aUowing a clerk to sign his name to letters he has not passed upon, thus in effect creating an understudy without sufiiciently considering the step. Such a practice is likely to lead eventu- ally, at some time when the officer is absent from his post, to the ridiculous situation of high-grade field officers or de- partment heads taking their orders from a clerk or private stenographer. In this way the slovenly habit of delegating au- thority on the basis of mere proximity may encroach upon the principle of delegating it on the basis of competence. One of the problems of office administration, therefore, is to pre- vent the wedging in between high executives of some person of mere clerical rank, whose proper function is not adminis- tration but record keeping. Digitized by Microsoft® 326 ADMINISTRATION OF INDUSTRIAL ENTERPRISES Office versus field. — An ofl&ce is engaged in handling ideas. It deals with representations of things rather than with the things themselves — with ideas stripped of their proper sense- impressing embodiments, and only very faintly materialized by their written records. A problem of office work is, therefore, to render vivid to the bm-eaucratic mind the real consequences of office shortcomings, as those consequences develop at a dis- tance and a later time, in the shops, or the sales agencies, or elsewhere in the field work. There are needed means of impres- sing the clerical mind with the tediousness to outdoor men of filling out elaborate reports, or with the exasperation of tech- nical experts at orders which are out of touch with the situation. A clerk may make a careless omission from an order, and the error will seem a small thing on paper, imless he is able to real- ize that it may translate itself into tons of materials shipped to the wrong station, or a gang of men idle for lack of some es- sential piece of apparatus, or long lines of teams waiting while foremen dispute as to the meaning of ambiguous terms. Unless the work of the office and the field can be kept in sensitive adjustment, the law of the primary productive process may be made to give way to some petty rule — or error — of record making, and thus the tail be allowed to wag the dog. If a preliminary field training can be provided for office can- didates, or a tour of duty can be arranged to make field and office work alternate seasonably, or if a system of conferences can be arranged to bring office men and shop men into inti- mate association, records can be given a vivid and pungent significance for the office force. The problem of attention. — In the shops and in field work, where productive processes of a physical nature are going on, the progress of work is accompanied by the movement of cer- tain objects, and by a characteristic succession of sounds. In the successive stages of a task the workman's body assumes different postures and his hands come in contact with different objects. A varied stream of sense impressions, therefore, Digitized by Microsoft® OFFICE DEPARTMENTS 327 pours in upon the workman's brain, and assists him to keep his mind fixed upon his task. And if his attention wanders, a change in some one of the physical conditions presently recalls it, and gives to the returning thought a prompt grasp of the state of affairs. The labor of office work, on the other hand, must be carried on without these powerful aids to attention. It deals with a flow of ideas more or less completely embalmed in a monoto- nous collection of written or printed papers. The accompany- ing physical process is an exceedingly subordinate matter: it is imiform and deadening, and lacks that dramatic and atten- tion-arresting character which physical labor possesses. Most of the sense stimuh received by office workers from sounds and moving objects tend rather to draw the attention away from the task, than concentrate upon it. To hold the atten- tion against the pull of interest requires an effort of will. Such an act of attending is not involuntary but voluntary; it is highly exhaustive of nervous energy. Under ordinary con- ditions the ofiice man is quite as much exhausted by what he restrains himself from doing, as by the useful labor he accomplishes. Special effort should be made to defend ofiice workers against distractions. This may be done by suppressing useless noises, by shutting out the sight of moving objects, by eliminating glare, and by making constrained positions of the body unneces- sary. The various by-paths down which attention might wander as a truant must be closed. Much also can be done, in a positive way, to make concentration easy by giving instruction in the psychology of attention, by increasing the significance of work, and by giving appropriate physical expression to tasks. Noise. — The problem of noise is growing in importance. The increase of city congestion, the greater number and speed of vehicles, the paving of roadways with hard resoimding sub- stances, and the walUng-in of the streets with lofty buildings whose fronts reflect sound as do the sides of a canon, have con- Digitized by Microsoft® 328 ADMINISTRATION OF INDUSTRIAL ENTERPRISES spired in recent years to make conditions in ofl&ce sections dis- tinctly less favorable to mental concentration. The inside conditions have also grown worse. As Dean W. C. Sabin of Harvard University, the leading American expert on acoustics, has said, "The whole development of building construction and building materials, during the past twenty-five years, has been in the direction of poor acoustics and more and more noisy offices. Recent efforts at fire-proof construction have resulted in the use of harder and harder wall surfaces, with consequent increase in reverberation. The plaster, too, is usually apphed directly to the tile or brick waUs, and is much heavier and denser than the old hair-lime-mortar plaster. As a result we have exceedingly noisy rooms." Among the remedies for noise are, heavy building con- struction, tight windows (forced ventilation being used), floor coverings of rubber or cork or carpet, and soimd-absorbing coverings for walls and cefling. Dean Sabin has shown that a layer of hair felt 1| inches thick, placed on walls and ceil- ing, will absorb about J of the sound of lower C reflected against it, about ^ of the sound of middle C, and over f of higher C. The nature of attention. — Every mental worker should be instructed in the nature of attention, so that he can analyze himself, and can learn to take the necessary precautions to protect himself against his own weaknesses. He should be trained to the habit of closely pursuing the heart of a matter, by asking himself repeatedly: "What has already been done?" "What is the next step? " Bacon said in his Essay on Des- patch, "Iterations are commonly loss of time. But there is no such gain of time as to iterate often the state of the question." The significance of the task. — The strain of controlling the attention is lessened by anything which enlarges our under- standing of the general value of the work we are doing, or which confirms our belief in the personal profit of it to us. Office work can be illuminated with significance to the employee Digitized by Microsoft® OFFICE DEPARTMENTS 329 by relating it to other things, showing how it controls the shop and field processes, how it records and judges them, and how it searches out the signs of their efficiency or ineffi- ciency. Interest may also be awakened by relating the present with the future. Anything which leads to a clearer perception of the connection between one's present work and one's future weKare, or which reveals the way in which one's individual accomplishments unite with the labor of others to form a result which is great enough to awaken pride and devotion, will com- mand the attention. Finally, all true labor can be invested with interest by being related to the worker's own personaUty as a test of himself, as an emulation with others, as a form of self-expression, or as a contribution which makes one a force in the world-wide struggle for technical efficiency, artistic form, or moral achievement. Drudgery is work done when the mind is shut in by ignorance. It is the duty of manage- ment to strike off the shackles of this drudgery, by revealing the things which are worth while in the work. Arrangement of office departments. — The first step in determining the space required for office departments is to ascertain by methods analogous with those used by scientific management in the shop, how much an employee should be expected to do in a day. The experience of office managers now indicates in a general way what this is. It is held, for example, that in an hom* 200 letters can be opened and read sufficiently to determine the department to which they should be referred, that 200 orders of five items each can be entered in an order register, that 100 square inches of typewritten work can be accomplished by a $10.00 per week girl, and that 2,800 items can be handled on an adding machine. The next step is to determine the various kinds of work which will have to be performed, and the amoimt of each, thus giving a criterion as to the number of persons required. The third step is to calculate the space requirements; the general rule being that office space runs about 100 square feet of floor per Digitized by Microsoft® 330 ADMINISTRATION OF INDUSTRIAL ENTERPRISES employee, including the allowance which must be made for aisles and furniture. Spacial units. — The usual space elements of office depart- ments are, the general files, the vaults, the correspondence department, the accounting department, a series of private offices for chief executives, and the reception and aisle spaces. If we assume that an office is to occupy the corner of a building, with Ught from two adjacent sides, a natural order of procedure in making locations wiU be as foUows: 1. To place the files in the centre, on the theory that the most used thing should be at the most accessible point. 2. To devote the hght of one side to private offices. 3. To give the locations nearest the hght on the remaining side to the accounting and correspondence departments, the latter department being placed farthest from the centre on account of the noise of the machines. 4. To place the vault in the poorest lighted area. 5. To locate the reception space on an interior side next the hallways. Visitors tarry in this space but a short time, and while in it are not engaged in eye-straining work. 6. To determine the necessary passage ways, and the nature of the raihngs and partitions to be used. A generahzed scheme of office arrangement is illustrated in Figure 43, the areas artificially Ughted during the day being indicated by shading. Equipment. — On analogy with the revolution of shop proc- esses brought about by the introduction of the factory sys- tem, there has come as a belated movement, a revolution of the mechanical element of office work. So far has this pro- ceeded that it is now even difficult to reconstruct in imagina- tion the office of a generation ago. Small dirty windows and smoky lamps then permitted but poor hght. Cramped quar- ters and the absence of any intentional system of ventilation kept the clerks anemic. High tables and desks were provided at which workers stooped over ponderous volumes; when Digitized by Microsoft® OFFICE DEPARTMENTS 331 sitting was possible, the only facilities provided were stools without backs. All records were spread in longhand with quills or steel pens. Each copy cost as much to make as an original. The permanent records were preserved on the pages Fig. 43. A Plan of Office Aeranqements The shaded area will require artificial illumination throughout the day. of unwieldy volumes, while temporary ones were scribbled upon the backs of envelopes and other scraps of paper, or found their way into a variety of odd-sized books. Every- where there was lack of system and standardization, so that piles of confused documents covered the tables, and filled the drawers, and bulged from the pigeon-holes of desks and cabi- Digitized by Microsoft® 332 ADMINISTRATION OF INDUSTRIAL ENTERPRISES nets. The members of the office force were repressed by bemg often reminded that they were unproductive laborers — a source of expense and not of revenue, and so a kind of necessary evil. The ideals which have brought into existence modem con- ditions are: Health giving surroundings — space, air, quiet. All mechanical work to be performed by mechanism. A complete and systematic documentary record of important matters. A strict rule of "A place for everything, and everything in its place." Standardization or interchangeability of parts in record keep- ing, on analogy with interchangeability of parts in machine construction. Stenographic and phonographic records. — The first inven- tion to definitely start the reform of office work was a more speedy method of recording the spoken word. The Phonetic or Pitman system of shorthand began to have general signifi- cance in England after 1840. One system only should be allowed in an office, so that stenographers can read each other's notes. Phonographic dictation claims the advantage of per- mitting all the executives to give their records in the first hours of the morning when the maU is being considered, whUe the transcribers can distribute their work on an even schedule throughout the day. The dictation can be at any desired speed. A source of error is eliminated by making the inter- mediate record between dictator and typewriter automatic. The President's Commission on Economy and Efficiency of the Federal Government calculated the average cost of letters by the two systems of dictation to be, for the stenographic 4.3 cents each, for the phonographic 2.7 cents each. Reproduction of records. — The first practical typewriter was shown at the Centennial Exposition at Philadelphia in 1876. The introduction of machines into offices proved, at Digitized by Microsoft® OFFICE DEPARTMENTS 333 first, to be very slow work, because satisfactory operators could only be secured through a prolonged course of training. The duplicate copy or carbon made on the typewriter has done away with the old methods of copying writings, introduced into this country from England by Thomas Jefferson, and involving the use of copy-book and press. Paragraph dictation. — There is great economy of time and mental effort in constructing a series of ideal paragraphs covering certain subjects which it is found necessary to treat frequently in correspondence. These paragraphs may be desig- nated by mnemonic symbols, and when so identified, can be used in dictation, interspersed with original matter, by simply radicating at the proper points the names or numbers of the paragraphs desired. Such standard paragraphs serve as a sort of intermediate resource between personal dictation and "form letters." Several paragraphs may be prepared expressing the same idea, so that distinctions as to fulness and tone can be made. Report blanks. — The value of permanent records is obvious; the value of uniformity in reporting the same matters in similar cases is also obvious. Forms exert an important influence in the direction of securing uniform reports. By setting aside specific spaces for specific facts there are created reminders which win stand as blocks of blank white paper staring at the reporter until they are filled. If a report form is prepared and printed in advance, the writing required of the reporter may be reduced to a minimum by printing all the permanent parts of the record. By this means the practical range of report writing may be much extended into shop and field. Furthermore, printed reports may be made so compact and legible, and so portable, that the facts they contain are given greatly increased time and space utiUty. Unit records. — The first system of tmit records to come into general use was the card catalog of library science. This form of catalog was first used extensively in American public Digitized by Microsoft® 334 ADMINISTRATION OF INDUSTRIAL ENTERPRISES libraries. The system of unit records, now having so many apphcations in business offices, has the advantage of permitting the concurrent use of various portions of the record — the different drawers, for example — by a number of people. It facihtates the introduction of iiew records, and the removal of obsolete matter, without interrupting the use of the live material. By the utilization of various systems of indexing — alphabetical, topical, chronological, and geographical — facts may be made almost instantly accessible, whatever the Data which controls the fihng Data for sub-classification. Summaries and digests for quick refei^ Body of the Repoht: This area to be more or leas definitely broken up into ap- propriate rectangular areas which, as blanks, will remind the reporter of each element required in his report, and which, as records, will ensure speed in the use of the form, by providing a uniform location for each class of information. Resebve Space: For suggestions, exceptional facts, matters difficult to classify above, or any pertinent additional data not planned for in the original layout. Fig. 44. General Latotjt op a Unit Record angle of approach. By the use of dupUcate records and cross references, as many avenues of approach to the records may be opened as are desired. The layout of a unit record. — The allotment of space in the planning of a unit record can only be indicated in a general way. The main subdivisions will usually consist of (a), a small upper left-hand space which controls the fiUng; (6), the remainder of the top space used for sub-classification, or for digests and summaries for quick reference; (c), the body of the report occupying the central space and (d), a blank space at the bottom for the entry of facts of an exceptional character, and for things left out by mistake in the original design of the form. Digitized by Microsoft® OFFICE DEPARTMENTS 335 In designing forms which are to be filled out on the type- writer, care should be taken to conform to the mechanism of the machine. In transverse arrangement, the beginning points of all matter to be filled in by machine should be at the same distance from the left edge of the form, or at as few different distances as possible.^ The beginning points can then be found with the automatic stop of the machine. The vertical arrangement should be controlled by the line- spacing of the machine, so that work can proceed down the form from line to Une, by simply rotating the platen. oM' Dated TV Ship to^ Wanted_ Protnised r ORDER Dated, Address W&nted Ship to Fig. 45. Aekangement for a Ttpewbittbn Form The arrow shows the number of different positions which must be found TOth the typewriter. Unit records should conform to the sizes of paper adopted by the stationery trade as standard. Accurately-sized paper, cartons, trays, binders, drawers, and cabinets will then always be procurable promptly, and at moderate cost. The forms for field records, which are to be carried about in coat or hip pockets, and subjected to hard usage, should be compact and of tough stock, and should be protected by convenient containers, the covers of which will provide a firm writing surface. Unit holders. — When records are filed in cabinets composed of an assembly of interchangeable units, it is possible to add to ' St. G. A. Bonaventure, Economy in Records, System, Feb. 1915, pp. 200-203. Digitized by Microsoft® 336 ADMINISTRATION OF INDUSTRIAL ENTERPRISES or subtract from the width or height of the cases, to make room for growth by the addition of a imit at a time, and to take down or build up the files as may be reqtiired by changes of office arrangement or location. The telephone. — A revolutionizer of office work worthy to stand in the same rank with the typewriter is the telephone. As the typewriter has superseded the amanuensis, so the tele- phone has superseded the errand boy. As the telephone is not yet supplemented by a mechanism for recording conversa- tions, it is judicious practice to exchange written confirmations of oral agreements. In long-distance work the peculiar advan- tage of the telephone over the telegraph, or even the letter, is that it gives to each party an opportunity to adjust his mental attitude from instant to instant according to the words and intonations, and even the hesitations, of the other party. Computing machines. — Ex-President Eliot has said that no person should be obHged to do work which can be as well done by a machine. Industry has abeady entered upon an era of economy of mental effort through the use of computing ma- chines. The substitution of mechanical action for human toil in the petty computations of addition, subtraction, multiplica- tion, and division will not only save time and cost in one element of office work but will open office positions to a class of persons previously debarred by lack of talent for rapid and accurate calculation. The office desk. — The clerk's desk is as ubiquitous as the operative's machine, but unhke it has passed through a series of misconceptions. At various times in the past the office desk has been looked upon as a piece of ornamental furniture, as a warehouse for storing records, and as a safe or closet for locking up "matters pending" from the eyes of others. It is primarily none of these things, but a modified work bench, to facihtate the onward movement of documents rather than their storage or seclusion. A few years ago desks abounded in drawers and pigeon-holes which yawned on all sides to swallow up documents Digitized by Microsoft® OFFICE DEPARTMENTS 337 and facilitate their delay. And these desks were barricaded on all sides with partitions raised above the working plane in such a manner as to screen the occupant from general super- vision. The introduction of filing cases and of efficient filing systems has drawn most of the records out of private desks, and concentrated them where they are accessible to all. The desk is now solely to expedite ciu-rent business: to pigeon-hole a thing has become equivalent to neglecting it. Schedules. — As scientific management prescribes a schedule of operations for workmen and machines in the shops, and a routing system determines the travels of travelling salesmen from city to city, so an office system must plan an order of events for office workers. Where certain tasks have to be per- formed at regularly recurrent intervals, a working chart may be prepared. Such a chart may indicate to the cashier the day of the month on which certain classes of accoimts are to be paid, to the bookkeeper when certain posting is to be done, and to the clerks when given collection documents are to be sent out. Standard instructions. — The job sheets of the shops being out of the question for office work, instructions for the clerical force will usually consist of a body of standard and permanent orders. These may be gathered into a book of rules, similar to the manual used for instructing the sales force. A book of rules will give information on such matters as the prescribed hoiurs of work, the method of reporting time, the order in which vacations are taken, permits for absence, the folders and packets which are to be used in desk work, rules of granunar and rhet- oric for correspondence, the method of routing letters from department to department, the method of confirming and recording inter-departmental commimications, and the manner of handling the docimients of matters pending. Motion study. — ^Mr. Frank B. Gilbreth has applied his skill in motion study to office work. As "eye-saving " devices he recommends ^ different colors of paper for documents with 1 Third Biennial Report of the American Public Works Asso. Digitized by Microsoft® 338 ADMINISTRATION OF INDUSTRIAL ENTERPRISES different destinations, the use of identifying initials on the corners of documents, and when several documents are to be brought together, the printing of the full hst of related docu- ments on each sheet. As "hand-and-foot saving" devices he recommends the printing of as much of each form as possible, the free use of self-iaking rubber stamps, and the arrangement of files and furnitiu'e in such a way as to save travel. BIBLIOGRAPHY Schulze, J. W.: The American Office: Its Organization, Management and Records, N. Y., 1913. Stanger, W. A. : How to Arrange the Office, System, Apr. 1911, pp. 371-377. Seward, Geo. H. : Mechanical Aids in Factory Office Economy, Engineering Magazine, July 1904, pp. 605-625. WooUey, E. M.: Scientific Management in the Office, System, July- Sept. 1911. Nicholson. J. L. : Factory Organization and Costs, N. Y., 1909. Chs. 41 to 44 incl. and Chs. 47 and 48. Woolley, E. M.: The Business Man's Desk, System, Mch. 1912, pp. 304r- 311. Scott, W. D.; Increasing Hvmian Efficiency in Business: A Contribution to the Psychology of Business, N. Y., 1911: Ch. IV, Concentration. Casey, D. V.: Muffling Office Noises, System, Mch. 1914. An account of the researches in acoustics of Dean W. C. Sabin of Harvard Univ. Banning, KendaU: More Work and Fewer Mistakes, System, Oct. 1913. Describing the methods used in the office departments of the Curtis PubUshing Company of Philadelphia. Clark, Niel M. : Letters with Less Dictation, System, May 1914, pp. 533- 537. Describing the system of paragraph dictation and giving a variety of sample paragraphs. Digitized by Microsoft® CHAPTER XVII PURCHASING AND STORES DEPARTMENTS The Census of 1900 informed us that nearly two-thirds of the cost of manufacturing, and over one-half of the gross income of manufacturing institutions were expended for materials, raw or partly manufactured. These large proportions make it plain why system and science should be applied in handling materials. The handling of materials involves the functions of purchasing, receiving, testing, warehousing, and issuing for manufacture, or shipping to customers. These fimctions are distinct from manufacturing and selhng operations, and deserve separate administrative agencies. A subdivision may be made between a purchasing, a stores, and a shipping department, where the size of a business is sufficient to warrant it. Purchasing Administrative relations. — The purchasing of materials and supplies in a small business is likely to be handled by a general executive, who has many other things to look after. In a single-line industry, such as the manufacture of paper or flour or staple textiles, where the variety of materials to be bought is small, and where manufacturing operations are sufficiently routine to occupy only a portion of the executive's time, the same arrangement may exist. Even in very large concerns, like the leading railways, we find certain classes of purchases, such as of cars, rails, and locomotives, reserved for higher officials. In this case the reason is that the contracts are of such size as to raise problems of financing which must have the attention of headquarters. 339 Digitized by Microsoft® 340 ADMINISTRATION OF INDUSTRIAL ENTERPRISES In general, however, the work of piirchasing should be en- trusted to an oflacer who can speciaHze upon it. This is espe- cially desirable where the labor problems and the mechanical problems are sufficiently engrossing to fully occupy the officers in charge of them, where a wide variety of materials has to be assembled, where the intrinsic value of materials is high or the proportion of finished product represented by materials is large, where an vmusually long forecast of future require- ments is essential, or where good buying is chiefly a matter of mercantile skill and knowledge of the state of the markets. As the market system of grading becomes more complex, through the recognition of sub-grades, and the multiplication of private brands, and as "over nm " and "average run" of quaUty disappear and "skin grades" take their place, buying becomes more of an art. The piu-chasing officer has come in with the architect who designs buildings, the engineer who specifies machinery, and the employment officer who selects men. As sales managers elaborate their plans and lay hold of psychology, they must be met in the customers' organizations by purchasing officers who are able to hold their own with technology. Opposing argtunents. — There are various arguments used to oppose the creation of a purchasing department. One proprietor, for example, asserts that he never has any trouble in buying things, but only in seUing them. If other proprietors were no more sensible than he, and did not put buying upon a more efficient basis, he would not have so much trouble in sell- ing. It is equally to the point to say that the difficulties which a manufacturer encounters m selling may be due to the fact that his products are rendered unreliable by the use of improper materials, or are too expensive from amateurish buying or waste in the processes. There is also the argiiment that a purchasing department will increase the cost of materials. This point, which has its weight, of course, for businesses of small size, is not infrequently advanced for cases where there Digitized by Microsoft® PURCHASING AND STORES DEPARTMENTS 341 is sufficient business to keep such a department profitably occupied. In such a case, the argument is on a plane with saying that an engineer increases the cost of power, an account- ant the expenditure of funds, and a trained administrator the cost of administration. There is ih this country, says Ex- President Ehot, a general habit of undervaluing the work of the expert. The principle of the division of labor, which is so universally understood with reference to manual operations, cannot be followed by many minds in its appUcation to the work of service departments or the performance of administra- tive fimctions. There is another answer to the objection. To create a purchasing department does not originate any new fimctions without which a concern was previously able to get along. Pm"chasing has to be done whether there is a purchas- ing officer or not: a stock must be carried whether it is in a stock room or hidden away in the corners of the shops by the foremen; inspection has to be done either in advance, or with humiliation after an angry customer has returned defective goods. To organize a special department simply takes a group of responsibihties, which previously have been scattered around to annoy officers who are primarily interested in other things, and concentrates them upon a man who is specially fitted for the work, and who can gain expertness by continuous appHca- tion to one thing. A third objection is that of the foreman who says that a purchasing officer cuts you down on quantity, delays things, and finally gives you something different from what you had asked for. This is an objection to an inefficient purchasing plan. When properly organized the purchasing department ex- ercises no control over either the quantities or qualities called for by authorized requisitions. If the purchasing officer dis- covers that unnecessary quantities or quaUties are being used he has to estabUsh the fact with the general superintendent. Any change in the materials specified for jobs will be on the orders of the latter. As for delay, experience shows that the Digitized by Microsoft® 342 ADMINISTRATION OF INDUSTRIAL ENTERPRISES chief way of avoiding it is to concentrate responsibility on one person. Functions. — It is not an uncommon thing to find that a clerk of pm-ely office experience has been installed as purchasing agent, because it has been observed that a purchasing agent has an office, keeps records, handles correspondence, and ad- ministers an office process. The real work of a purchasing officer is to mediate between an outside market, ruled by conmiercial forces, and the shops of his company, ruled by technical considerations. He aims to serve the shops promptly with the materials wanted, at minimum cost, and yet buy in commercial lots and insert the minimmn of price-increasing specifications into his buying contracts. He equates between a set of fluctuating price scales and a set of subtle quaUty scales. To take the best advantage of prices he needs to be an expert in quotations, discounts, datings, freights, packing, the repu- tations of suppliers, and the legal habihties of the sale contract. To understand the quaUty scale he needs to know his company's products thoroughly. The clerical work he supervises is the smallest part of his troubles. Limits of authority. — It is well to clearly define the field of the purchasing officer. Some of the restrictions which may be desirable in particular cases are: 1. Purchases to be made only on the requisition of the stores department, or of designated officers of the manufacturing and engineering departments. 2. Requisitions to be made only on the authorized forms suppUed for the purpose, and to be signed by the proper officers. 3. Purchases to be regulated in such a manner as to main- tain the supply of each article within the maximum and minimum stock limits set for it. 4. Various limits may be placed upon the amount of indi- vidual purchases or upon the rate of purchasing, such as (a), purchases not to exceed three (or six) months' average con- sumption; (6), total purchases in any one month not to exceed Digitized by Microsoft® PURCHASING AND STORES DEPARTMENTS 343 ■ dollars; (c), no single purchases to be made exceeding dollars, except with the approval of the general manager; (d), the purchase of designated articles or classes of articles, such as cars or locomotives in railway practice, to be reserved to higher officials. Such limitations avoid the creation of un- usual current UabiHties without the knowledge of the officers who will be responsible for making the necessary financial arrangements. 5. In the case of certain classes of articles the purchasing officer may be instructed to secure competitive bids, and to make purchases only of the lowest bidder. Equipment. — Equipment may be inferred from functions. First of all, the purchasing officer should be provided with information concerning supplying concerns. 1. He should have a Ust of manufacturers and dealers sup- plying the articles regularly used, and of ehgible bidders pre- pared to make any special products which may be required. This information should include the location of the plant and sales offices, the names of the officers to be dealt with, freight rates, average time taken in shipment, whether orders can be filled from stock or are to be manufactured, time required to manufacture, maximtun size of orders which can be handled, general reputation as to honesty, promptness, and technical competence. 2. A file of catalogs of supplying houses should be collected. These may be arranged alphabetically according to firm name, with a cross-reference catalog according to articles; or they may be classed according to articles, with a cross-reference catalog of firms. 3. A record of prices paid should be kept, including all quo- tations, discoxmts, and datings offered, with careful notation of the authority for the information. The purchasing agent will need a number of records with reference to the shops of his own concern: 4. The amounts of leading materials consumed should be Digitized by Microsoft® 344 ADMINISTRATION OF INDUSTRIAL ENTERPRISES tabiilated per month and year for some time past, to indicate how long a given lot will last. Knowledge of any special re- quirements of the near future should be communicated to the purchasing officer in due time from the estimating depart- ment, or whatever authorities have the advance schedule in charge. 5. A record of the experience of the manufacturing depart- ments with previous stock should be kept, so that there shall be no reorder of defective materials. All defects reported, and all percentages of waste, should be tabulated against batches of materials, and against the suppljdng firms. 6. If tests have been made of samples of vmtried materials, the record of these tests shoidd be suppUed to the purchasing officer. With reference to the transactions of his own office, the pur- chasing officer should know: 7. What the size of the usual previous order has been. 8. What prices have been paid previously. 9. What delay in dehvery, what shortage, or what depart- ure from specifications has been experienced in dealing with certain concerns. The act of purchase. — Purchasing involves the making of an original requisition, the placing of the order, the following up of the order until delivery is secured, the checking-in of merchandise as complete at the receiving office, the forwarding of the bill to the accounting department for payment, and the final payment. Requisitions. — Mr. D. S. Kimball says: "The demand for materials grows naturally out of the needs of the business and cannot, therefore, originate with the purchasing agent. In a shop devoted to general repairs, the requisitions for materials would, most naturally, originate with the foremen in charge of work, since they will know better than any one else what is needed. In a shop building new work to order only, such as an engine works, these material requisitions for direct material Digitized by Microsoft® PURCHASING AND STORES DEPARTMENTS 345 would originate in the engineering department, though they might pass through the storekeeper's hands before going to the purchasing agent in order to check off material on hsCnd. In a shop manufacturing standardized articles, as knives, watches, etc., the materia! requisition would naturally originate in the stores department, which is the reservoir that feeds the factory, and here also would originate, always, the requisitions for all indirect and expense material. In a shop doing all three of these classes of production, therefore, material requisition might originate from several sources; and just as it is neces- sary to centrahze the authority and responsibility of the pur- chases based on these material requisitions, so it is absolutely necessary to fix definitely the authority and responsibility of originating these requisitions." ^ Requisitions which cannot be filled within a reasonable time should be returned to the maker, accompanied by information as to when the mate- rial wUl be available. This will leave the way open for the resubmission of the requisition under the condition of delayed deUvery, or the specifying of some other material, or the aban- donment of the project entirely. The order .^ — The order is a legal contract and should be drawn with care. Its major parts are, the names of the parties involved, the description of the goods, the statement of the price with all terms affecting it, and the specification of the time and place of delivery. Where large affairs are involved it is convenient to prepare a model contract, elaborate it until all essential conditions are covered and the language has been made exact, submit it to a competent attorney for revision, and adopt it as the standard to be used in all cases where spe- cial conditions do not preclude. The clauses of such a contract should include — 1. A definition of the merchandise involved. ' Dexter S. Kimball, Principles of Industrial Organization, N. Y., 1913, p. 202. 2 Compare Chapter XVIII, Selling, p. 367. Digitized by Microsoft® 346 ADMINISTRATION OF INDUSTRIAL ENTERPRISES 2. The statement of allowable variations in quality, quan- tity, or dimensions. 3. D5te (or date limits) of shipment or dehvery. Dates of, or rates per week or month of, shipments or dehveries. 4. An exact statement as to when title passes. 6. Price, with a statement of discounts and of the time and manner of payment. 6. Rights of assignment or cancellation agreed upon. Cir- cumstances under which instalments are to be treated as separate contracts. 7. Definition of any imusual or ambiguous terms and a waiver of rights due to misunderstanding of the terms of the contract. To illustrate, "immediate" shipment may be de- fined as within twenty-f oiu- hours of the receipt of the order, "prompt " as within three days, and "in a reasonable time" as within ten days. 8. An enumeration of the dociunents composing the con- tract. Statements made in designated letters or pubUcations may be referred to as express warranties. 9. The description of any special method to be followed in settling disputes. No provision aiming to deprive either party of its final appeal to the courts should be introduced, for such clauses involve the attempt to oust the courts from their juris- diction, and hence are null and void. Specifications. — The quality of anything purchased may be determined, roughly, as an inference from the price. To trust to this uncertain relation is to buy on price. Again, the qual- ity may be judged from the seller's reputation. To rely upon this is to buy upon reputation. The only way in which close buying can be done is to frame an exact conception of the thing wanted, on the basis of a knowledge of the action of materials in the process of manufactuer and of their effect upon the quaUty of the finished product. To make such exact knowledge control the buying process is to buy on specification. Specifi- cations may originate with either the seller or the buyer. Digitized by Microsoft® PURCHASING AND STORES DEPARTMENTS 347 The usual custom of the past has been for the seller to specify what he had; the growing practice of the present is for the buyer to set forth in detail what he wants. Seller's specifications. — Seller's specifications are the des- criptions found in catalogs and letters and advertisements, and in the commimications of authorized agents. The law con- siders these to be a part of the contract of sale as express war- ranties, provided they have exerted a material influence as inducements with the buyer. It is particularly to be noticed, however, that no affirmation of mere opinion on the part of the seller, such as that he beheves the goods will wear well, or that he expects their price to iacrease, constitutes a warranty. Some allowance is also made by the courts for mere puffery, or deal- er's talk, such as that the goods are the best in the world, or that they are worth ten times the price. If a sample is offered by the seller under conditions which imply that it is intended to be representative, it partakes of the nature of a description, and creates the implied warranty that the bulk of the goods furnished will conform to the sample. If the seller is a manu- facturer, and so presumbly possessed of an intimate knowledge of the nature of the sample offered, there is a further implied warranty that the goods furnished shall be merchantable, that is to say, passable as representative of the kind of merchandise which passes current under the given designation; and that they are free from such defects as are not discoverable by a reasonable examination of the sample. If, however, the buyer has ample opportunity and talent to discover the defects of the sample, and there is no fraud involved in the transaction, the rule of caveat emptor applies. Buyer's specifications. — To avoid the uncertainties of inter- pretation and of legal HabiUty involved in seller's samples and trade descriptions and advertising, the practice is growing among large concerns of buying materials and supphes on the basis of specifications prepared by themselves. These are drawn up by the purchasing department, working in conjunc- Digitized by Microsoft® 348 ADMINISTRATION OF INDUSTRIAL ENTERPRISER tion with the testing laboratories and the shops, and are referred to in the order as forming a part of the contract. The seller is bound by the impHed warranty that the goods supplied are of the kind described, or will answer the purposes indicated by the buyer. A couple of examples will best convey an idea of the degree of precision which good practice now attains. The first description relates to foundry pig iron as bought by a western manufacturer of agricultural implements. "Under these specifications we desire a good clean iron, as free as possible from dross, kish, oxide, sand, etc. . . . "All grades of pig iron will be bought strictly by analysis, and must conform to the following specified per cents: Per cent SiHcon must not be less than 2 . 50 Sulphm- must not exceed . 03 Phosphorus must not exceed . 60 Manganese must not exceed 0.50 Total carbon, not specified. "The carbons will usually be between 3 and 4.50 per cent, in this grade. "Any car of No. 1 foundry pig which shows on analysis less than 2.40 per cent of sihcon or more than 0.035 per cent of sulphur will be rejected. "When a car of pig iron is received it will immediately be sampled by an experienced man (professional sampler), who will select a certain number of pigs from different parts of the car which, according to his judgment, shall represent the average quality of the iron. These pigs will be broken, and drillings taken from the face of the fracture will be sent to the laboratory for a chemical analysis. The analysis will decide the acceptance or rejection of the iron. "Rejected cars will be held subject to the shipper's orders. "In case of dispute the furnace or the seller diall have the Digitized by Microsoft® PURCHASING AND STORES DEPARTMENTS 349 right to resample the iron in conjunction with the buyer, each to select five pigs. Drillings from the ten pigs, after being well mixed, will be divided into three different samples, one lot to be analyzed by the furnace, one by our laboratory, and one by a disinterested chemist, agreed upon by the parties in dispute. The two analyses nearest ahke will be accepted as the proper chemical composition of the iron. "In all chemical work relating to pig or cast iron it is under- stood that the standardized drillings furnished by the American Foundrymen's Association are to be used as standards." These paragraphs in the original contract are followed by a statement of the chemical methods used in the laboratory, so that suppliers may anticipate results by making their analyses in the same manner as the buyer wiU make them upon dehvery. The second illustration reproduces the specifications of the United States Navy Department for toilet soap: "To be miUed, neutral, soda soap, made from clean, whole- some fat, and as free as possible from water, rosin, and mineral, starchy, or foreign material. Analysis must show not more than three-tenths of 1 per cent of mineral matter, three-tenths of 1 per cent of carbonated alkah, calculated as carbonate of soda (NazOOs), one-half of a per cent uncombined alkali, cal- culated as caustic soda (NaOH), one per cent conamon salt, or 14 per cent of water. A cylinder of soap, seven-eighths of an inch in diameter and 1 inch high, cut from a cake, must sus- tain a weight of 15 pounds for five minutes without crushing or cpmpressing more than one-sixteenth of an inch. Soap will be rejected if made so largely of cocoanut oil, pahn oil, or other fat of characteristic smell that the pecuhar odor remains on the hands after using. To be perfumed with the character- istic odor of lavender, perfume to add not more than 5 cents per pound to the cost of the soap. "Cakes to be oval, to weigh about 4 ounces; color, light brown. Each cake to be wrapped in soft paper; to be packed in neat paper boxes, three cakes in a box. Digitized by Microsoft® 350 ADMINISTRATION OF INDUSTRIAL ENTERPRISES, "The soap will be bought by the pound. "For inspection, one cake, taken at random, will be exam- ined, and the lot will be accepted or rejected on this sample cake. "The weight of the soap to be paid for will be determined by the amount of combined alkaU or its equivalent in the lot; this to be found by multiplying the weight in grains of com- bined alkaU in the sample cake by the number of cakes, then dividing this product by 630, the number of grains of combined alkaU assumed as a standard poimd of soap." Specifications should embody a clear and concise description of what is wanted. If there is more than one possible meaning, the suppher must allow in his bid for the meaning most vuifavor- able to himself. The specifications should explain the manner in which samples will be drawn and laboratory tests conducted, should indicate what may be done in case of dispute, and should state what disposition will be made of rejected material. Un- reasonable conditions should not be imposed, for unreasonable- ness operates as a legal defense for non-performance. No specification shoilld be introduced which it is not intended to enforce, for every restriction narrows the market and, being taken into account by the seller in safeguarding himself, increases the cost. When specifications are inapplicable. — Modem scientific specifications cannot be used: (a), where materials are wanted which pass through the hands of a produce exchange, such as the New York Cotton Exchange or the Chicago Board of Trade, on which grading is done exclusively according to the rules of the organization; (b), where unfabricated materials, such as wild rubber gathered by the natives of the Amazon valley, originate with a large number of small producers who are not under control; (c), where materials come from a distance, passing through the hands of many intermediary traders, as is the case with European manufactures generally, so that the buyer's requirements cannot be referred back from hand to Digitized by Microsoft® PURCHASING AND STORES DEPARTMENTS 351 hand to the sources of supply; (d), where materials are controlled by a monopoly or are produced by a secret process. The general effect of buying imder scientific specifications is to raise the standards of both buyers and sellers. The buyer must live up to his specifications or lose by their use; the sup- plier must command sufficient knowledge to know whether or not his product will pass the buyer's tests. One of Andrew Carnegie's four rules for manufacturers is, "Subject all prod- ucts to more rigid tests than purchasers reqviire. A reputa- tion for producing the best is a sure foundation upon which to build." The size of the average order. — Some of the attractions which move pin-chasing agents to place large orders are, the insurance which an ample stock gives that factory operations win not be suspended by raiboad strikes or other interruptions of supply; the economy of large orders in the matter of freight, cartage, and receiving expenses; a favorable aspect of the market which seems to recommend the accumulation of a stock in an- ticipation of futin^e requirements, and quantity prices. Toward small and frequent orders the inducements are, a smaller invest- ment in stock, less opportunity for physical deterioration and for obsolescence of blass or design, decreased hazard of loading up at top prices or of entering dull seasons with heavy stocks, the possibihty of seciu-ing quantity prices on the basis of annual patronage rather than of individual orders, and a more even dis- tribution of bills payable. . Standardization. — The utmost advantage of buying on a large scale, consistent with fight stocks and rapid turn-over, is only obtainable by standardizing consumption upon a few articles. An estabUshment without scientific purchasing is almost certain to show, in each class of stock, a variety of qual- ities, designs, and makes, representing the diverse opinions of different foremen and department heads, but intended to answer substantially the same purpose. The stream of stock Digitized by Microsoft® 352 ADMINISTRATION OF INDUSTRIAL ENTERPRISES change flows slowly through a wide variety of types, just as a river flows slowly through a multitude of bayous: it is possible to place small orders, and yet have a store room choked with stock. To attain the opposite condition of heavy orders and a light stock, there must be concentration of demand upon a few things. The process of throwing out imnecessary variant types of stores must rest upon a thorough examination of shop requirements.. It is Ukely to involve some remodelling of operations, possibly also some redesigning of finished prod- ucts. When the best has at length been chosen, usage must be standardized, that is to say, individual cases must be made to conform to the rule. Promptness. — A shop which is ready for a material is not satisfied with the assurance that it has been ordered. Results mean the materials at hand when wanted. Promptness is the chief means of preventing foremen from accumulating private reserves. Of supply departments which are slow and stingy Mr. H. C. Pierce has said, "Their idea was that by delay and obstruction some other arrangement would be made, and the material would not be needed at all. For that reason, departments that had work to do did not have confidence in getting what they wanted, and consequently laid in large stocks and made provision simply because they knew by experi- ence they never could get anything when they wanted it. This led to enormous losses in the way of material deteriorating and becoming obsolete." ^ The schedule of deliveries. — The larger the patronage controlled by a purchasing officer, and the more the supplying houses are impressed by the efficiency of the buying depart- ment, the more exacting it is possible for the buyer to be in the matter of the schedule of the time and place of dehveries. An accurate schedule, which brings in materials at the times when they are wanted for use, manifestly decreases the expense for stock, and stock-room operation. It is a matter of common 1 H. C. Pierce, The Supply Department, N. Y., 1911, p. 110. Digitized by Microsoft® PURCHASING AND STORES DEPARTMENTS 353 report that certain large automobile manufacturers in Detroit are able to specify not merely the day of shipment, but the day and hour of delivery at the plant, and the warehouse door at which materials must be presented. Hedging. — The fluctuation of the prices of raw materials is a hazard for the purchasing officer and his employer which is unusually intense on the nervous and semi-isolated markets of the United States. In those lines of manufacturing where there is used a large amount of any material which is subject to organized and speculative trading, the fluctuations of the prices of raw materials may cause the profits of the business to depend in a large degree upon the skill of the buyer. The possibiUties of loss and gain may be illustrated by tabulating the annual maximum and minimum prices of two or three basic commodities. Middling Upland Spot Cotton on the N. Y. Cotton Exchange (Cents per pound) Year Maximum Minimum 1909-1910 19.75 12.40 1910-1911 16.15 11.60 1911-1912 13.40 9.20 1912-1913 13.40 10.75 1913-1914 14.50 12.30 Local No. 2 Foundry Pig Iron at Chicago (Average monthly prices per ton of 2240 lbs.) Year Maximum Minimum 1910 $19.00 116.00 1911 15.50 14.00 1912 18.00 14.00 1913 17.90 14.60 1914 14.25 12.56 Digitized by Microsoft® 354 ADMINISTRATION OF INDUSTRIAL ENTERPRISES Number 2 Cash Wheat at Chicago (Cents per bushel) Year Maxiimun Mi n i m um 1910 127.50 89.50 1911 101.00 83.25 1912 120.00 93.375 1913 115.40 84.00 1914 123.50 77.75 An experienced mill buyer of cotton has said: "As a general rule, it is more disastrous to buy at too high a price than to fail to buy at a low price, because if cotton advances, in normal conditions of the market, goods will advance in proportion, but if cotton declines after you have bought, the market for goods is apt to decline also, leaving you to take a loss on your high- priced cotton." ' This is equivalent to saying that it is worse to make an actual loss than to miss a possible profit. If, in the case of a fluctuating commodity, there is an organ- ized market for future trading, the buyer may eliminate the greater part of his risk, and insure to his concern the -normal profits of converting, by means of hedging transactions. The hedging operation wiU take one of two forms, according as it is to offset a long interest (the interest created by owning a com- modity) or a short interest (the interest created by engaging to deliver a commodity, or its manufactured derivatives, without owning it). If a mill possesses a stock of raw material and has not contracted for the sale of the corresponding product, the ap- propriate hedging transaction will be to sell on the Exchange an equal amount of that material for deUvery at approximately the date or dates when the stock or its product will be sold. If then, in the interval while thus protected, the price of the mate- rial falls there will be a loss on the stock held, but an equivalent gain on the future transaction, because the material required ' J. R. MacCoU, The Business Side of Cotton Manufacturing, Trans. N. Eng. Cotton Mtrs. Asso., No. 77, Sept. 1904. Digitized by Microsoft® PURCHASING AND STORES DEPARTMENTS 355 to fill it can be purchased at correspondingly less than the price which the contract calls for. If the price rises, the gain on stock will be offset by an equal loss on the future transaction. In case a mill contracts for the sale of its output in advance of the purchase of the necessary raw materials, the proper hedging transaction is to enter into future contracts upon the Exchange to receive the respective amount of basic material, at the period when it is expected to buy the actual suppUes for manufacture. Future contracts are usually closed without actual receipt or dehvery of commodities; and this is done by selhng them just prior to maturity to brokers for ring settlement or mutual cancellation. While dealings in futures offer considerable relief, they do not provide a perfect means of extinguishing risk, for the advances and declines of futures do not exactly correspond to the advances and declines of the spot prices of the same mate- rials; still less perfectly do they correspond to the fluctuations of the manufactured derivatives of those materials. Honesty. — Honesty must be a mihtant virtue with the purchasing officer. This is so because he has in his hands a patronage for which outsiders are in active competition, and because the results of private advantage can only be made apparent by cost accounting, a branch of accounting which is much less conclusive in its results than that employed for keep- ing track of cash. To delegate to another the power of pur- chasing suppHes is to furnish money — the measurement of which is exact enough — but to hold for quahty in commodities, the measurement of which has as yet been made exact only in the case of a few materials. The problem of answerabihty in that form of delegated authority where the quahty scale covers the value scale from direct access is an ancient one. Kiphng says, "Who shall doubt the secret hid Under Cheop's pyramid Is that the contractor did Digitized by Microsoft® 356 ADMINISTRATION OF INDUSTRIAL ENTERPRISES Cheops out of several millions; Or that Joseph's sudden rise To Controller of Supphes Was a fraud of monstrous size On King Pharaoh's swart civilians." The risk entitles the purchasing officer to every moral safe- guard his employer can throw around him. To leave him with- out the checks of an efficient system of supervision is not so much to trust him as to abandon him in a moral contest. Some precautionary measm-es are as follows: 1. The first step is to select a man of sound training and good general ideas as to the methods and objects of life, and one possessed of sufficient moral courage to hold facts persist- ently in mind when they are personally disagreeable. It is well if such a man has formed the habit of making sharp and final decisions with reasonable promptness. 2. The second safeguard is to dignify the man and his func- tion. The conception that we find others entertaining of us and of om: work is a mighty force in developing a corresponding dignity of character within us. 3. A special case of this poHcy is to concentrate buying in the hands of one or more of the proprietors or high officers. Such persons, it may be argued, will have so great interests at stake on the side of efficiency that small speculations will have no attractions. Furthermore, the position of the buyer will exer- cise an influence to restrain overanxious or dishonest agents from making improper advances. WTien, however, graft develops in high places it is difficult to uncover, for subordi- nates who may know what is going on will feel that to re- veal the truth is equivalent to asking for a discharge. 4. The idea should be definitely estabfished in the purchas- ing department that any gifts or attentions which have as their effect to cause an officer to feel a sense of obUgation to suppliers or their friends are improper, whether the person Digitized by Microsoft® PURCHASING AND STORES DEPARTMENTS 357 bestowing them had in mind such an influence or not. A judgment which is hampered in the execution of a trustee- ship by a sense of friendly obhgation is not in normal poise." The first steps toward corruptiog a buyer may be small and indirect: mere signs of convivial disposition or of a real per- sonal liking. The danger of these steps hes in the fact that they lead a httle distance along a scale of compromises the gradations of which are so infinitesimal, from step to step, that, once entered upon, it is difficult to find a point at which a decided stand may be taken, without appearing to be unreason- able or unfriendly. 5. A fundamental poUcy in dealing with any derelictions which are a part of a cumulative series is early and thorough- going remedial action. Dishonest acts undoubtedly tend to become part of a cumulative series, for if undetected and unpunished, they appear to justify themselves. The doer gains confidence in his skill, while he loses skill in other means of self-advancement. He revolts less at what becomes increas- ingly familiar. And the gains serve to finance habits of life which are physically agreeable and involve a social commit- ment. 6. The buying department should be entirely separate from the manufacturing departments. There will thus be created a system of checks and balances. Officers in charge of manu- facturing and selling who are made to feel that the records of their departments are not satisfactory, and who know that the cause is poor material, are likely to defend themselves by put- ting the blame where it belongs. For a similar reason buying may be separated from receiving, testing, and inspecting. The more independent officials there are engaged in the different phases of a matter, the more pubhcity there will be, and the less likeUhood there will be of collusion. 7. For certain classes of buying the rule may be estabhshed that bids must be secured from two or more parties, and the order placed with the lowest bidder, except where the consent of Digitized by Microsoft® 358 ADMINISTRATION OF INDUSTRIAL ENTERPRISES designated superior officers is secured. The documents of the bidding should then be treated as permanent records; while •audits and tabulations of bids and purchases can be made from time to time for the information of supervising officers. 8. A powerful deterrent to fraud is the compilation of the performance of materials, both in the shops and in the hands of consumers, to show the record both by batches and by firms of origin. If high waste percentages and large rejections in manufacture or frequent returns by customers characterize the materials furnished by certain supplying concerns, the persistent patronage of those concerns wiU require explanation. 9. It is g, help in preventing the offer of secret commissions by selUng agents, if there is in existence a law Uke that of New York State, making proof of the offer of a bribe operate to discharge the indebtedness due for the merchandise purchased in connection with the bribe. The Stokes Department The need. — In establishments where any considerable variety of materials is used, if a stores ^ department is not pro- vided there exists a condition of individual self-help. The foremen, ignorant of the exact amoimts of material required for jobs, order excess quantities, to be on the safe side. Every foreman or department head who remembers previous delays, or who looks ahead to protect his men from lay-off in a dull time, will try to accumulate a secret reserve, and run a httle warehouse of his own in some corner. Such a system of pri- vate stores will involve much dupHcation, for the sum of the reserves of any one material in a series of separate lots will be more than would be needed if the lots were pooled. The in- dividual requirements are not permitted to average themselves out in a more uniform and predictable rate of aggregate use. • It is convenient to use the word "stores" to designate raw materials and supplies, while the word "stock" is applied to parts and finished articles. Digitized by Microsoft® PURCHASING AND STORES DEPARTMENTS 359 Unsystematized supplies mean capital not earning interest, but subject to physical deterioration and obsolescence. Mr. F. A. Parkhurst recalls one case, "Where a 10 ton lot of large rivets was discovered while operations were under way to inventory and centrahze all stock. These rivets were in the original kegs which had never been opened, and were buried under hundreds of empty kegs and boxes in an old shed sup- posed to contain nothing but old packages. They had been overlooked and had lain for a year or two while new lots were being bought periodically. In another case a thousand pounds of copper was found lying back of an old shed; and still another example of the need of a stores record was the finding of certain machine parts worth thousands of dollars. These parts were more or less standard and were continually being used, but had accximulated in odd lots and at odd times and some of them particularly were found in odd places, while apparently no one knew they were in existence. After they were duly recorded and placed in stock, it took nearly three years to dis- pose of them." ^ He adds, "A dollar saved either in material or labor, or both, is a dollar profit — all profit — worth six to ten times a like amount of new business." In spite of excess material, an imsystematic condition will involve much delay in waiting for required things, for no com- prehensive agency exists to see that the assortment is complete. A need in one department is not met by an unknown supply in another. Energetic department heads will prefer to order new material rather than hunt outside of their department, or will take materials too good for the job in the absence of the things which economy would dictate. If inadequate handUng of raw stores causes xmbalanced sup- plies and the expenditure of labor without corresponding product, the inadequate control of finished stocks leads in Hke manner to the production of goods not needed. The foreman ' F. A. Parkhurst. Applied Methods of Scientific Management, N. Y., 1912, pp. 90-91. Digitized by Microsoft® 360 ADMINISTRATION OF INDUSTRIAL ENTERPRISES who secretes a reserve of stores to protect his men from lay- off turns out finished products without authorization, and throws the stock out of balance. The absence of a stores sys- tem hides spoiled work, for the workman can get a new piece of material to take the place of the spoUed one without creating a record. Ftmctions. — A stores system, for a manufacturing establish- ment, is such an orderly administration of the values locked up in materials during the making process, as the stock system of a wholesale or retail store is for corresponding values during the distributive process. The system which comprises requisi- tions, shop orders, store room, and a continuous invoice is for materials an analogy with the system composed of the bill, the receipt, the safe, and the cash account used for handling money. Raw materials and manufactured stocks are more Uable to waste and theft than land, buildings, and fixtures, because they are movables. They are more in danger than movable equipment not only because adapted to more uses, but because the replacement of equipment is an exceptional act which calls attention to the cause, while materials are a current asset, the constant arrival and departure of which hides losses. If materials are in less danger of theft than money, because less concentrated in value, less universal in appeal, and less easily exchanged, they are, on the other hand, more Hable to incom- plete deUvery, to physical deterioration, to waste in the con- verting process, and to obsolesence. The analogy with money is closer than it is with buildings and equipment; the system employed for administration should reflect this similarity. Definite and concentrated location. — Administration is, in a sense, a function of space: distance wears down energy, and distribution taxes memory. The finer the control aimed at, the more definite and concentrated in their location should be the agencies controlled. Concentrated location of materials permits special equipment, gives easy receipt and issue, lowers warehouse expense, and permits more efficient guarding. Raw Digitized by Microsoft® PURCHASING AND STORES DEPARTMENTS 361 materials will naturally be located next to the initial stages of manufacture, while finished stock will be carried next to the shipping department. The location of sub-stores is a ques- tion of trucking economics. Classification. — The accessibiUty of the units of any col- lection depends chiefly upon classification. The basis of classi- fication should be the dominant logical relationship into which the parts fall in the estabhshment. In a manufactory whose product is a composite of parts, the dominant logical relation- ship is usually the relation of the parts in the unit of finished product. The classification should be composed of distinc- tions which are sharp and definite, leaving no vague middle ground. A distinction must be appUcable to every unit in the class which the distinction aims to subdivide. The class and sub-class designations must be the only names permitted for the articles. And, finally, the classification introduced into stores, stocks, accounts, and operations should be coordinate; that is, one dominant scheme of analysis should govern throughout. Mnemonic system. — The pioneer estabhshment to sys- tematize the classification of a large number of different articles was the pubhc hbrary. From that source stores departments have borrowed the idea of an arbitrary classificatory scheme or mnemonic system. It is a great convenience to have a sys- tem of conventional or arbitrary signs which, because of their arbitrariness, can be given an exact meaning entirely free from any customary or popular significance, and by which any article may be absolutely identified with the utmost brevity, while yet, through the composition of the symbol itself, all desired matters with reference to class and sub-class are indicated. The ideal system should be built up from a small number of basic symbols — usually letters and figures — each step in the combination being left open so that new classes of articles can be provided with designations without altering the system or disturbing the designation of articles already in use. Systems Digitized by Microsoft® 362 ADMINISTRATION OF INDUSTRIAL ENTERPRISES of classification based upon correct principles have been intro- duced into industrial establishments in connection with scien- tific management. While mnemonic symbols may strike an outsider as cryptic, it is vastly easier for those who use them to learn the few elementary symbols, and the simple' system of combining them, than to struggle with the perpetual misunder- standings inevitable with the use of general descriptive phrases or rapidly shifting trade terms. A system of requisitions. — All disbursements of stores or stock should be upon the authority of written requisitions. When the requisitions which have been honored are classified according to classes of stock, and to this record is coupled a similarly classified account of the last invoice, and of all pur- chases made since the invoice was taken, it is possible to main- tain a continuous invoice, telling how much of each article is on hand, and the value of such remainders.' The classifica- tion of requisitions according to job numbers will make it cer- tain that all material used has been charged, either to its job, or to the proper class of expense. Standard purchasing schedule. — From the records of requi- sitions there can be ascertained the rate of use or outflow of each kind of stores. As the inflow or purchasing is intermit- tent, there can be estabUshed, on the basis of a given size of order, a schedule of the required frequency of purchases. The purchasing schedule will be adjusted between the necessity of maintaining the minimum stock sufficient to meet require- ments, and the desirabiUty of ordering in commercial quantities. The purchasing schedule can be made to operate automatically on the prompting of the stores department if for each class of stores there is fixed the maximum and minimum amounts to be 1 Stores accounts may be arranged on the foUowing formula: (Amount received) - (Amount issued) = Amount on hand; or they may be arranged to show for each class: ( Raw materials + stock in process + finished stock) - (Amount required to meet promised deliveries and sales orders) = Balance. Digitized by Microsoft® PURCHASING AND STORES DEPARTMENTS 363 carried. When the minimum is reached the stores department notifies the purchasing officer, who in turn places an order of such size that when the incoming amount is added to the balance on hand, the total will not exceed the maximum limit. The schedule of shop orders. — Just as a requisition sys- tem for stores permits the working out of a rational schedule of purchases, to the end that the schedule of manufacturing oper- ations in the shop may be free from disturbance caused by the delay of materials, so a record of shipments of finished products from stock, together with an estimate of quantities required to fiU orders on hand, when brought into relation with a statement of stock on hand and the requisitions of parts for assembly, permits the arrangement of an advance schedule of jobs in the manufacturing departments, which can be carried through free from the interruptions of rush orders. Economy demands that work be put through the shops in adequate lots, and that jobs be allowed to foUow one another in orderly succession, so that the various departments can be kept full of work under even pressure. Mr. F. A. Parkhurst says, "Where but twenty pieces of a kind are used in a year, it is obviously cheaper to make them in lots of eight or ten for stock at a reduction in cost and carry them through a period of two to six months than to rush even one through, perhaps having the work done expen- sively by an inferior man, and usually breaking up the time of some other job. In many cases the labor cost on parts can be reduced 80 per cent by the change in methods even when deal- ing with small quantities of eight or ten pieces. Even such small lots give satisfactory results when methods, tools, time studies, and determination of bonus are carefully planned, showing an immense saving in cost to the firm, to say nothing of the delay which is avoided. The interest on the value of the stock tied up for two or four months is practically neghgible when considering the other savings mentioned." ^ Elasticity, or allowance for change of program, is required at 1 Applied Principles of Scientific Management, pp. 94^95. Digitized by Microsoft® 364 ADMINISTRATION OF INDUSTRIAL ENTERPRISES some point in every chain of functions. If the manufacturing departments are, at one time, being held up for lack of supplies, and at another time are thown into confusion by a rush order, which side-tracks the regular work, it is obvious that these departments are being used as the elastic member to take up the slack and tension between the incoming stores and the outgoing stocks. This is a costly error. The very idea of a stock or store is a reserve for contingencies. The schedule of manufacturing operations should be protected from the shock of the irregularities of external business relations by adequate buffers of stock at the entrance and exit ends. At the raw- material end, stores serve to even out the irregularities of supplier's dehveries: at the finished-product end, stocks meet the fluctuations of consimiers' demand. Protected by these two reserves, the schedule of manufacturing operations is per- mitted to attain the efficiency of continuous operation and mass production. BIBLIOGRAPHY Dudley, C. B. : The MaJdng of Specifications, Proc. of Am. Soc. for Test- ing Materials, 1903. Also in Iron Age, July 9, 1903, pp. 29-32. Dudley, C. B.: The Enforcement of Specifications, Proc. of Am. Soc. for Testing Materials, 1907. Pearce, H. C: The Supply Department, N. Y., 1911. Clapp, H. L.: A Manufacturer's Purchasing System, System, Sept. 1904, pp. 227-230. Parkhurst, F. A.: Applied Methods of Scientific Management, N. Y., 1912. Ch. V, Importance of a Modern System of Stores. Kimball, D, S.: Principles of Industrial Organization, N. Y., 1913. Ch. XII, The Purchasing, Storing, and Inspection of Materials. Jacobs, H. W.: Betterment Briefs, N. Y., 1909. Ch. on The Relation Between the Mechanical and Stores Departments, pp. 171-183. Ennis, Wm. D.: Works Management, N. Y., 1911. Ch. V, Material. Webner, F. E.: Factory Costs, N. Y., 1911, Part II, Chs. V, VI, and VII. Twyford, H. B.: Purchasmg: Its Economic Aspects and Proper Methods, N. Y., 1915. Rindsfoos, C. S.; Purchasing, N. Y., 1916. Digitized by Microsoft® CHAPTER XVII SELLING We speak of a merchant as a middleman. Certainly, if it is a man's business to be a middleman, he should know the condition of the men on either side of him, between whom he is attempting to serve as a connecting link. A sales depart- ment is a middle department standing between the producing shops on the one side, and trade buyers and consumers on the other. The basic rule of efficiency in selhng is to know thoroughly the properties of goods and the needs of people. The reason why this rule is not universally accepted is that it is possible to make a brief record which appears hke suc- cess by cutting prices, or by appljdng the arts of salesman- ship and advertising to goods without distinctive merit of design or the attraction of low price. Misfit sales do not main- tain themselves, however, for each of such sales installs in the possession of the buyer an article which begins at once to edu- cate him as to the error he made in acquiring it, and which re- emphasizes the point steadily and concretely as long as it exists. Intelligently directed sales campaigns aim, therefore, at selhng service or satisfaction, by which alone permanent trade connections can be formed. A single sale is a touch-and- go economic relation; and is exceedingly liable to abuse. The bane of the selling world is that there are so many persons in it whose interest, and therefore whose analysis, reaches only a httle way into the future. It means nothing to such oppor- tunists to say that the merchant must make fundamental studies of the world of wants and of the world of goods, and 365 Digitized by Microsoft® 366 ADMINISTRATION OF INDUSTRIAL ENTERPRISES must govern himself by principles which work out in the long run, if he would be a master of his art, and would establish any great and lasting enterprise as an intermediary between the two. The functions. — The functions of a selling department may be specified somewhat more in detail as follows: With refer- ence to the contract of sale, it will be necessary to determine what warranties shall be given, when title is to pass, and what tolerance as to quantity, quaUty, or time of delivery is to be specified. An office plan will be needed for handling the various documents connected with sales. There will be the question of fixing standard prices, bulk prices, and differential prices; and the defining of the terms of dehvery and of payment. The selHng department should have much to say about the merchandise which the shops make, especially as to finish and the style of packaging. It wiU control such active agencies of sale as travelling salesmen, branch agencies, retail stores, and the advertising campaign. In its relation to dealers it will form a poUcy upon such questions as who shall be ehgible to pur- chase on given terms, whether exclusive territory shaU be granted, whether efforts shall be made to control the price of resale, what attitude is to be taken toward cancellation of orders and the unjustifiable return of goods, and what education and stimulus shall be provided for dealers. Administrative relationships. — Manufacturing and selKng are two entirely different businesses. The sales manager should be coordinate with the works manager, and under the super- vision of the general manager. Close contact between the sell- ing and making ends of a business should be maintained, in order that defects in the product, revealed by customer's cor- respondence, or reported by dealers to the salesmen, may be transmitted to those who are responsible for quality and design. The selUng department should be informed of the quahties of raw material used, the processes employed, and any features of design which are considered unique, to the end that the sales- Digitized by Microsoft® SELLING 367 men may be trained to detect the exact conditions under which the company's product will give satisfaction, and that the advertising can be written with freshness and convincing point. Contract of sale.^ — An explicit memorandum of sale is important to the seller as a means of reducing cancellations, disputes at settlement, and bad debts. To the buyer it is important when claims are to be made. If merchandise re- mains in the possession of the seller after title has passed, a written memorandum is useful in proving title as against creditors or subsequent bona fide purchasers. Some of the problems which arise in drawing up standard sales contracts may be suggested by reproducing clauses from some uniform sales contracts, which have been employed with success in certain lines of trade. Contingencies: "This contract subject to conditions over which the seller has no control; such as strikes, lockouts, boy- cotts, fire and flood, and restraining acts of the State in con- nection with pubUc health or war." Delayed shipment: "The seller, under the terms of this contract, ghall have no less than fdurteen (14) days from receipt of shipping instructions, to satisfy same and make shipments. Failure on the part of the seller to complete shipments within primary contract time, or within fourteen (14) days from receipt of shipping instructions (imless prevented by conditions beyond his control) shall entitle the buyer (a) to cancel such specified portion, and collect from the seller the difference in value of such portion between date of purchase and date of cancellation, or (6) to continue the life of said contract at credit of five (6) cents per barrel for flour, and twenty-five (25) cents per ton for feed for each thirty (30) days' period or fractional part thereof, beyond the limit of primary contract shipment, or said fourteen (14) day period; it being agreed ' Compare Chapter XVII, Purchasing and Stores Departments, pp. 345-346. Digitized by Microsoft® 368 ADMINISTRATION OF INDUSTRIAL ENTERPRISES that unless notice to the contrary is served on seller, clause (6) of this paragraph will govern." j^.^^^, ^^^^^^ Federation. Delayed shipment instructions: "Unless otherwise specified, time of shipment is to be within sixty (60) days from date of contract. Goods not ordered out within sixty (60) days from date of contract, or within contract shipment period, are, with- out notice to buyer, subject to the following carrying charges: "Flour: Five (5) cents per barrel for every thirty (30) days, or fractional part thereof. "Feed: Twenty-five (25) cents per ton for every' thirty (30) days, or fractional part thereof. "Such carrying charges become due and payable at the begin- ning of each thirty (30) days' period after the termination of the time of contract shipment, the buyer hereby agreeing to pay the same. The life of this contract, however, shall in no case be thereby extended for more than sixty (60) days. "Failure on part of the buyer to order out purchase before expiration of extended contract period gives the seller the right to cancel the contract, or unshipped portion of the same, and to collect from buyer, on unshipped portion, the differ- ence between market value of the same at date of sale and date of termination, with all accrued carrying and all selling charges." Millers' National Federation. Allowable variations: "If the production of the seller shall be curtailed during the time above named, by strikes, lockouts, or unavoidable casualties, the dehveries shall be made and accepted in proportion to the production." Nat'l Asso. of Cotton Mfrs., and Am. Cotton Mfrs. Asso.^ "Shipments which vary within 5 per cent of the amount speci- fied in this contract shall be accepted in discharge of the same, and be paid for pro rata." ' This contract also contains detailed provisions as to allowable varia- tions of width, warp count, fiUing count, and weight. Digitized by Microsoft® SELLING 369 Separable instalments: "When contract calls for delivery in instalments, the buyer cannot cancel the contract for any default in any one or more instalments not amoimting to a sub- stantial breach of contract, but may cancel or replace at seller's expense any deUvery that is delayed." Nat'l Asso. of Cotton Mfrs., and Am. Cotton Mfrs. Asso. Passage of the title: "Unless otherwise specified, the title to goods sold passes to the buyer (subject to the right of stop- page in transitu) : (a) "Upon dehvery F.O.B. to carrier, consigned to buyer, and thereafter goods are at buyer's risk. (6) "Upon arrival of goods at destination and dehvery to buyer of bill of lading or of goods, in the case of goods to be dehvered F.O.B. elsewhere than to carrier. (c) "Upon deUvery of endorsed bill of lading or of goods, in case of goods consigned to seller's order. (d) "Upon the separation of the goods and holding subject to buyer's order (the invoice to follow by due course of mail), in the case of goods to be held or if buyer fails to give shipping instructions." Nat'l Asso. of Cotton Mfrs., and Am. Cotton Mfrs. Asso. Price and quantity. — The adjustment of the price to the quantity involved in the order raises the important question whether the principle of giving quantity prices is to be followed, that is to say, whether or not lower prices will be given for large orders. Large dealers favor quantity prices. Small ones favor prices fixed on the basis of the class or status of the dealer, and so made to apply equally to all in the class — as to all jobbers or all retailers — regardless of the size of the order. A minor question has to do with package differentials. The disregard of this adjustment sometimes gives to market quo- Digitized by Microsoft® (( ti 370 ADMINISTRATION OF INDUSTRIAL ENTERPRISES tations a degree of indefiniteness. The differential scale of the Millers' National Federation is as follows: Bulk 20 cents per bbl. less than basis Paper 10 1401b. jute 10 " Cotton sacks, 96 lbs., 48 lbs., and 24 lbs., Basis -jV bbl- cotton 15 cents per bbl. over basis Wood 15 " " " " " i bbl. wood 45 " " " " " Price and classified lists. — To whom shall sales be made? To dealers only? There are many classes of dealers. Goods flow up hill in price, moving from one dealer to another, in response to the attraction of a prospective trading profit. Broadly speaking, there are three price levels: manufacturer's, wholesaler's, and retailer's. If sales are made without estab- Hshing differentials to safeguard customary profits, the eco- nomic impulse is destroyed for all the dealers who are primary to the one suppUed. Such goods will cease to move normally, unless they are so strongly intrenched in pubhc favor that they must be handled by dealers as an accommodation, to complete trade assortments. To apply differential prices accurately is a difficult matter, and calls for the careful compilation of classified fists of dealers, so that each dealer will be quoted only those terms which are appropriate for his class. Let us say that it is decided to sell to wholesalers at given prices. What constitutes a wholesaler? Is a department store which prints on its letter head "Whole- sale and Retail," but develops no wholesale business outside of that which comes voluntarily as local acconamodation, a whole- s£Lle house? Is a southern retailer, who in ante-bellum times got wholesale terms, entitled to those terms now? If manu- facturers are to be given wholesale terms, is a bicycle repair shop to be considered a manufacturer, when much larger sales Digitized by Microsoft® SELLING 371 are made at retail to the hardware store around the corner? If hotels are to be given wholesale terms, is a restaurant a hotel; and what shall be done with the boarding-house trade? Shall goods be sold on the same basis to dealers who handle them as side lines as to those for whom they constitute a main Hne? The point, of this is that side lines are often handled at less profit than is required of the main lines, so that the use of a firm's goods as side lines may injure the distribution through the main channel. Guarantee of prices. — In businesses of a seasonal nature it is a great advantage to a manufacturer if he can induce his customers to place orders considerably in advance of the time when the goods will be wanted. To the buyer the placing of such advance orders means the assumption of the risk that prices wiU decline after the goods are bought, but before they have come into his possession. To protect customers against this contingency, manufacturers are sometimes asked to guar- antee prices. This means to agree to accept the price which is current on the deUvery date. A difficulty inherent in all such agreements is that no ready means is at hand for determining what constitutes the current price. Does a single low offer, made perhaps by a rival from motives of revenge, estabHsh a current price? In some cases the quotations of a produce exchange, or of some price board, can be utiHzed, as a basis to which an agreed converting profit is to be added. The guaran- tee of prices by a manufacturer to a dealer, especially to a jobber or to the buyer of a large department store or mail- order house, is a violation of the principle of the division of labor, for it sets one who is primarily engaged with machinery and the processes of manufacture at the task of calculating the changes of supply and demand for one who is a student of prices and a market expert. It would seem that the more cor- rect solution of the problem of seasonal manufacture is to take advance orders at lower prices, as is often done by discounting i,t an attractive rate for prepayment. Digitized by Microsoft® 372 ADMINISTRATION OF INDUSTRIAL ENTERPRISES Control of the prices of resale. — In recent years retaU com- petition has often taken the form of selling nationally adver- tised articles as leaders at reduced prices. Such use makes the articles unprofitable to dealers, and operates to cause them to be dropped. Manufacturers have, therefore, been aroused to protect their products by controlling the prices at which the dealers sell. State statutes and state court decisions run m contrary directions with reference to the legaUty of such attempts. The United States Supreme Court has declared null and void all efforts to encumber a chattel with price restric- tions, in interstate trade, after such a chattel has passed into the hands of independent dealers. A manufacturer can, of course, control the prices charged by dealers who are his bona fide agents, acting under the law of principal and agent in their relations with him, and not under that of contract of sale. Agencies. — In certain lines of staple product a manufac- turer can distribute through commission merchants, or through controlled but separately incorporated sales agencies, and in so doing reduce his selling functions to a minimum. The relations of the parties under such a system will be governed by the terms of a comprehensive agency contract of several years' duration. The adjustments required between the manu- facturer and his distributors will be chiefly of an accoimting and auditing nature; except that some sort of a campaign of pubhcity may be carried on to make the estabUshment known to the public, and to prevent the maker from becoming help- less in the hands of his distributors. If the marketing is done through controlled agencies, it will be found convenient to have them separately incorporated, not only because special charter powers, not possessed by the manufacturing corpora- tion, may be needed, and because state Ucense fees and taxes are thereby lessened, but also because the control of existing distributive businesses is more easily acquired if a capital inter- est can be retained by the former owners, while good-will is best conserved by leaving the existing firm names undisturbed. Digitized by Microsoft® SELLING 373 Travelling salesmen. — The system of selling through travel- ling salesmen was developed in this country after the Civil War, when the problem of marketing the products of the new American factories which had sprung up during the war, and in response to a high tariff, had become acute; and when the old importing houses and commission agents could no longer maintain their autocratic attitude of expecting customers to come to them. The first men chosen as travelling representa- tives were ignorant of merchandise and of the needs of dealers and consumers; they trusted to the prestige of expansive man- ners and loud dress, and to the ingratiating influence of cigars and drinks. They were foimd to be expensive and inefficient. Their places were gradually taken by quiet men who aimed to deserve the confidence of buyers by knowledge, good judgment, and character. The deathblow was given to the earlier type of salesman by the ridicule contained in Lorimer's "Letters from a Self-Made Merchant to His Son." i The inefficiencies of salesmen (apart from native talent) spring from the attempt to sell things as different from what they are, owing to ignorance of commodities; second, from the attempt to sell people things they do not need, either because of ignorance of the customer's circumstances, or from the dehberate purpose of overloading the customer; and, third, from lack of conviction and courage, caused by an imaginary conception that rival goods are better than the ones offered — an impression which is often founded on ignorance of other goods. Mr. James Hartness, one of the foremost designers of the American machine-tool trade, has pointed out that dis- satisfaction with a well-seasoned design is, in large part, due to an imaginary conception of the superiority of rival designs; a superiority which disappears on intimate acquaintance.^ ' Geo. H. Lorimer, Letters from a Self-made Merchant to His Son, Boston, 1902. ' Human Factor in Works Management, N. Y., 1912, pp. 138, 144, 149. Digitized by Microsoft® 374 ADMINISTRATION OF INDUSTRIAL ENTERPRISES Administration. — ^The old method of recruiting a sales force was to assume that salesmen were born and not made, and to try by perpetual hiring and firing to select the geniuses. The new method is to use much greater care in selection, but supplement natural talent by systematic training. The old method of supervision was to divide the territory, pay satis- factory salaries, and leave the men to work out their own sal- vation. The new system is to control the order in which the men travel their routes, fix the prices and terms to be offered, pave the way for calls upon customers by literature sent in advance, keep in almost daily stimulating touch with the men, and make them feel that their records are constantly watched, and that they will be advanced in proportion to their abihty to earn profits. Assignment of territory. — In the assignment of territory to salesmen the principal considerations are: (1) to cover the entire area within which there is relative competitive advan- tage; (2) to organize the territory of each salesman as com- pactly as possible, to save time and travelling expense; (3) to make the routes of the different men as nearly equal in trade possibihties as may be, so that a comparison of individual sales will serve as an index of efficiency; (4) to make each route of such size that a salesman must thoroughly canvass the trade to make satisfactory total sales, that the salesman can get around to each point on his circuit as frequently as is deemed necessary, and that the total sales shall be sufficient to keep the salesman's salary and expenses within a certain per- centage of the net sales or gross profits. Manufacturer's salesmen may be contented with two trips a year, with extras between as conditions require; the representatives of whole- salers visit their towns at least once each month, while, in the parts of the country where the competition is active, an interval of more than two weeks between calls is considered unsafe. (5) The utmost advantage should be taken of the per- sonal characteristics and experience of salesmen, and of the Digitized by Microsoft® SELLING 375 acquaintance they may have with the dealers of a given territory. The area covered by a manufacturer's salesman may vary from a great city or a single state to five or six states. A wholesaler's representative may have a region containing from 20 to 40 good- sized towns which are to be visited on each round, together with a number of smaller places to be visited occasionally. Revision of territory. — If a body of salesmen be left to themselves for some time in travelhng their territory, it will be found that many locahties cease to be visited, and that many merchants in places visited are no longer called upon. There are various reasons to account for this. A salesman will usually develop only such trade in a territory as he thinks he can take care of. He will prefer to skim the cream of a large region, by making the more convenient towns, and by calling upon the larger or more friendly dealers, than to work a smaller territory more intensively. Mr. Masters has explained the process of deterioration which goes on in salesmen's work as follows: "The older houses who retain their men for long periods have at times a serious condi- tion of affairs confronting them. They find their territory nar- rowing, and when they lose a customer in any given field or city it is difficult for their salesmen to make satisfactory arrange- ments with another firm. The old salesman has grown into a groove, contenting himself with visiting his regular trade and neglecting to keep in touch with other concerns, until he is at a disadvantage when any change occurs in his territory. Then, it is impossible for a salesman to please every one. He meets with discourtesy from an occasional boorish buyer, or shows some disagreeable traits himself and a coolness results which leads the salesman to pass by that particular house. The stress of competition between his customer and the other firms of the town may oblige him to confine his attention to one firm until by long association he becomes locally identified with his customer and he is persona non grata with the other dealers. Digitized by Microsoft® 376 ADMINISTRATION OF INDUSTRIAL ENTERPRISES A desire to cover his route quickly, or a settled routine which has by time been converted into a habit, leads him into a beaten path from which he never strays, and the increased opportunities for an extended trade mean nothing to him." ^ To correct such a condition, a series of "rider routes " may be superimposed upon the older routes, including only the towns and the merchants not visited by the older salesman; or the routes may be somewhat shifted to create new territory between them. The rearrangement of salesman's territory, after things have drifted for many years, is both disagreeable and dangerous. It is much better to avoid the necessity for it by estabhshing a competent system of control, and keeping conditions up to the mark from the first. Routing control. — A sales manager should organize a sys- tem by means of which he knows approximately where his salesmen are at all times. To do this the localities at which visits are to be made by the salesmen must be determined by the house, the order in which these locahties are to be visited must be fixed, and the date of the visits must be set within a day or two. A salesman, when on the road, must then keep his chief informed of his location, by a daily report, and must state where he is to be for the next few days. One of the devices for handUng a routing system in the main office is called the map and tack method. It originated in military administration. Colonel Vach^e ^ thus describes Napoleon's methods: "On campaign, on the eve of battle, night was specially devoted to his intellectual work. Having generally retired to rest about eight o'clock, after dinner, he rose at the moment the reports on the reconnaissances reached imperial headquarters, that is, about one or two in the morning. Becler d'Albe had spread out for him on a large table, in the room which served as a study, the best map of the seat of the war. On this map, set very accurately to the compass, and ' The Iron Age, June 4, 1903. * Napoleon at Work, London, 1914, p. 10. Digitized by Microsoft® SELLING 377 surrounded by twenty or thirty candles, were marked with pins with coloured heads the varioils positions of the army corps and, as fast as they were known, those of the enemy. It was on this that he worked, moving his compasses, open to the scale of six to seven leagues — a march — here and there. Before the night was over he had made up his mind, and dic- tated and despatched his orders, which the troops carried out at break of day." As the modern captain of sales uses this device in the con- trol of the marches of his salesmen, the map and tack outfit consists of a series of maps, movmted upon the soft wood bot- toms of shallow drawers, and assembled in a case. The tacks are covered with different colored cloths, each salesman having a color. The territory assigned to a salesman is then marked out on the map, and the towns to be visited are designated by colored tacks, and coimected with a thread of the same color, to show in what order they are reached. The location of the salesman at any time is represented by a large, flat-topped, paper-covered tack upon which the salesman's name is written. As he moves from place to place, the name tack is moved to the corresponding positions. Tacks of various shapes and colors, or bearing upon their heads various words or symbols, may be used to designate towns in which new customers are to be called upon, or in which collections are to be made, or in which grievances are to be adjusted. Whenever any of these matters arise a tack of the proper sort is placed at the appro- priate town, and left there until the approach of the name tack on the route gives warning that it is time to send the salesman special instructions. The map and tack system brings out very clearly such matters as the towns visited and those not visited, the location of the salesman at any time, the next mailing point, and the towns in which the salesman is to be asked to do some special duty. It reveals in graphic form whether the routes are compact or not, and whether or not the towns are taken in the most convenient order. Digitized by Microsoft® 378 ADMINISTRATION OF INDUSTRIAL ENTERPRISES Records and reports. — As a supplement to the equipment above described, the sales manager should maintain in his office a system of card catalogs giving information about cities and customers. The arrangement of cards should be by states, by cities alphabetically arranged under states, and by firms alphabetically arranged imder cities. Separate town and customer cards should be provided. The town cards should show name, state, county, population, railways, freight rates, shipping instructions, express companies, banks, collection attorney, remarks as to any special characteristics of the place as a market, and the name of the salesman covering the local- ity. Customers' cards should include, among other things, the customer's firm name and address, the various hnes of goods carried, the lines bought of the house, credit rating, credit limit, advertising matter sent, the salesman concerned, and a record of purchases by months for several years back. If the office records are to possess value they must be kept revised strictly to date. Voluminous reporting is a provoking tax upon the salesman's time and energy. The facts asked for should be cut down to essentials, so that a strict pohcy of insisting upon them will be accepted as reasonable. It is chiefly through the reports of his travelling representatives that the sales manager can keep pace with the development of his territory, can learn what lines are unprofitable and why, and can ascertain what territory belongs normally to another sup- plying centre. From such reports, also, the credit man can get early warning of conditions which will make desirable the curtailing of a credit or the closing of an account. Prepared report blanks are superior to letters; they save writing, and yet prevent the omission of anything essential, by providing a separate space for each class of facts. If a sales manager desires his salesmen to enter heartily into the performance of other duties than straight selhng, he must devise a system of remuner- ation which makes excellence in those other duties count in determining the wages and in the final rating of the individual Digitized by Microsoft® SELLING 379 as to efficiency. In other words, the rating must not be based on net sales alone, but must be a composite or "point " system, in which each kind of work required is given its relative weight. If it is important that the salesman should keep the house informed, it is equally essential that the sales manager should keep his salesmen posted. There are two matters which always require the latest possible data, namely, prices and credit conditions. Under the routing system, the home office always knows where to address mail or telegrams to the sales- men. Credit information concerning every customer in each place to be visited before the salesman again receives mail should be compiled upon town credit cards and mailed to him as late as can safely be done to reach destination in time. On these cards each customer's account should be entered up to date, the remaining credit allowance being shown, and instruc- tions with reference to selling or collecting being embodied in the sheet, in secret symbols, on the authority of the credit man. Cooperation with the salesman. — The distant sales repre- sentative of a house meets all the criticisms and uncompli- mentary comparisons of his house, which the defects in its methods produce, or which competition engenders; and he meets them alone. He needs support from those who are stronger than he, or who are not so severely tried, or who have the advantage of working in close association with each other. The salesman's remuneration should be adjusted to perform- ance, either through the use of a commission added to salary, or by a system of frequent promotions which gives prompt recog- nition to increased earning power. The salesmen should be furnished with frequent, clear, and emphatic proofs of the fairness of the prices asked, of the soundness of the merchandise offered, and, of the integrity of the business poUcy of the firm. The aim of these things is to produce an unshakable conviction in the salesman's mind that he does not fear competition, and that he is conferring a benefit upon his customers quite as much as receiving one at their Digitized by Microsoft® 380 ADMINISTRATION OF INDUSTRIAL ENTERPRISES hands. Through a constant, tactful, friendly, and invigorating correspondence, there should be made vivid in the traveller's mind the spiritual presence of those with whom he is associated in interest. By prizes, bonuses, honorable mention, and otherwise, emulation may be given interesting and varied aspects, and can be broken up into "heats " which reheve tedium, and be made to end in attractive climaxes which socialize the effort and add to the other rewards that one which is dearest to the sensitive nature, namely recognition. Care should be taken, in making all personal comparisons, not to create the impression that the force of salesmen is definitely and irrevocably sifted into the classes of good, bad, and indifferent. Definitive classi- fication is the death of emulation. It discourages those at the bottom; it makes those at the top too well satisfied with them- selves. One of the greatest salesmen ^ in America has said, "The best way I know of keeping a seUing organization up to the highest mark of efficiency is to get all of the men together once a year in a confidential convention, for a heart-to-heart talk." By means of a convention, the salesmen become acquainted with the officers of the company, and with each other; they have an opportunity to study the merchandise carried by the house, article by article; they exchange experiences with each other which reveal the real nature of difficulties misconceived, and the real superiority of the best methods; and they develop an esprit de corps which warms their work with a touch of sentiment. Miscellaneous methods of distribution. — It will be the function of the selhng department to devise and administer any unusual or temporary selling methods which may be required, such as a mail-order system for introducing goods until sufficient trade can be generated to attract the attention of dealers; a chain store method, if merchandise is of a character 1 Mr. Charles MiUer, Pres. of the Galena Signal Oil Company. Digitized by Microsoft® SELLING 381 to stand by itself as a separate stock; a bid and contract sys- tem for dealing with equipment orders, or for suppljdng the Federal, State, or local governments; and an auction or lump sum method for clearing out seconds, mill ends, or merchandise of obsolete pattern. BIBLIOGRAPHY Hoyt, Chas. W.: Scientific Sales Management; A Practical Application of the Principles of Scientific Management to Selling, New Haven, Conn., 1912. Rogers, Edw. S.: Good-Will,. Trade Marks, and Unfair Trading, N. Y., 1914. Fernley, Thos. A.: Price Maintenance, Phila., 1912. Stevens, Wm. S.: Unfair Competition, N. Y., 1914. Reprinted from The Pol. Sc. Quart., Vol. 30, No. 2, June 1914, and No. 3, Sept. 1914. Knoop, Douglas: American Business Enterprise, Manchester, Eng., 1907. Masters, Samuel: The Traveling Salesman: His Methods and Control, Iron Age, 1903. Twenty-six articles between Jan. 15 and Aug. 27. Holman, W. C: A 5000 Brain-Power Organization, System, Aug.-Dec. 1904. Describing the selling system of the National Cash Register Co. of Dayton, Ohio. Clendenin, Wm. : System Against System, System, Feb. 1905, pp. 132-147. Describing the selling system of the United Cigar Stores Co. Lennen, Philip W.: The Autocrat of Business, System, June and July 1906. Describing manufacturers' methods of creating demand. Manners, 0. N.: The Retailer's Selling Partner, System, June, July, and Aug. 1907. Explaining the assistance given to dealers by manufac- ttirers. Brown, F. H.: Exclusive Territory and Protection Therein, Iron Age, Oct. 4, 1906, p. 873. Brandeis, Louis D.: Business, A Profession, Boston, 1914. Ch. on Com- petition That Kills, pp. 236-254. Report of the Special Committee on Maintenance of Resale Prices, Cham- ber of Commerce of the United States, Washington, D. C, 1916. Digitized by Microsoft® CHAPTER XIX ADVERTISING Advertising is a sort of machine-made, mass-production method of selling, which supplements the voice and personal- ity of the individual salesman, much as in manufacturing the machine supplements the hand of the craftsman. The cost of bringing an appeal to an individual by advertising has been estimated at from t^ to -j^^ of the amoimt required to estab- Hsh contact by personal visits. Advertising can, therefore, be spread broadcast as a drag-net, while salesmanship must be reserved for specially remimerative territory. It is by adver- tising that the maker of goods can to some extent reestabUsh that touch with consumers which was lost at the advent of the factory system. The relative influence of the manufacturer in the economic world, in comparison with the middleman, has been increased by it. The moral effect of advertising upon the one who issues it is that of being definitely conunitted, of having taken a stand of a pubhc nature, of having invited the judgment of many, and of having conceived and written of ideals — ideals of healthfulness, cleanliness, safety, and econ- omy. Upon the general pubhc there can be no doubt but that the constant sight of announcements of high quaJities in goods, and the constant reading of protestations of social service as the motive of business action, exerts an influence in the direc- tion of elevating the standards of taste and of conduct. It is to be feared, however, that the constant drawing of the public thought to the consideration of goods, and to the^carnal satis- factions involved in the use of goods, exercises a materiaUzing 382 Digitized by Microsoft® ADVERTISING 383 influence, and propagates the error that happiness lies chiefly in the possession of things. Waste. — The amount spent in advertising in the United States annually has been variously estimated, by those con- cerned in supervising the expenditure, at between 600 milUon and 1,000 million dollars. There is no secret made by adver- tising experts of the enormous waste involved in this depart- ment of business effort. A recent text on advertising explains as follows: "Consider the case of a pubhcation with 100,000 readers producing 3,000 repHes and 300 sales. Such a result is a remarkable one viewed from the general average of prac- ' tice, and yet it represents only three-tenths per cent efficiency of orders. The revenue efiiciency might be less than the amount mentioned if the article in question was low priced and the orders represented small amounts." ^ The waste is from indiscriminateness — indiscriminateness in the choice of goods to make, in the choice of facts to present, in the choice of mediums to carry the message, a'hd so in the choice of local- ities and times and individual consumers. Besides the waste of labor and material agencies, advertising involves a waste of the nervous energy of the pubhc. It demands perception and an act of judgment from the majority of street-car patrons, to discover the few who want Spearmint gum. It flashes a daz- zhng array of electric hghts before the eyes of the thousands who pass on a great city highway, to sift out a couple of hun- dred patrons for a rathskeller. In spite of a wastefulness hke that of insensate nature, which showers down ten thousand acorns to secure a single oak sprout, or which spawns a million eggs to bring into being a single herring, advertising has es- tabhshed itself as part of the machinery of competition which is indispensable for the time being in many branches of indus- try. The individual advertiser may realize the waste, but he prefers it to economic extinction. He is hke a poor swimmer ' Tipper, Hollingworth, Hotohkisa and Paxsons, Advertising, N. Y., 1916, pp. 10-11. Digitized by Microsoft® 384 ADMINISTRATION OF INDUSTRIAL ENTERPRISES who has had little training and loses three-fourths of the energy- he puts forth, but who nevertheless prefers to continue to thrash the water rather than be drowned. Administrative relations. — The advertising department should be a section of the selling department, the advertising manager working imder the general supervision of the sales manager. Such a relationship recognizes the fact that adver- tising is one among a number of agencies of selling; and that it can only reach its highest efficiency when adjusted to work „ ^ Dealer v. ^^ N^^^ Umkc\mx\ IConsumer Consumer Consimier ^ — Advertising ^ ^ — — ^ Fig. 46. The Place of Advertising in the Distributive Chain harmoniously with the other agencies, in a general plan. It is the function of advertising to spread its message far and wide; to knock at many minds in the hope of entering a few, and of rousing them to write for catalogs, and so get themselves classed as prospective purchasers. But such effort is lost if the catalog is defective or the follow-up weak or offensive. Advertising opens the case, and presents the general facts, pre- paring the way for the salesman, who is to go into details with a personally adapted appeal, and "close." But such a case will be lost if the salesman is a grocery clerk who has not the goods in stock, and has never heard of them, but with ready wit pre- sents a substitute. While it is customary for the manufacturer to carry on his relations with dealers by means of salesmen, the function of advertising is to appeal to consumers, and to induce consumers to apply to the dealers, in the hope that such appU- Digitized by Microsoft® ADVERTISING 385 cation will stimulate dealers to buy, and thus close the circuit and start circulation. But circulation depends on abihty to bring the goods and the demand to the dealer at the same time. Functions. — The functions of an advertising manager may be listed as follows: 1. Assist in the choice of an advertising agency. 2. Assist in the choice of a trade mark and a package, and ia the determination of all the mercantile characteristics of the product. 3. Take part in preliminary studies necessary to secure the information on which the advertising campaign wiU be based. 4. Plan the initial distribution of goods. 5. Recommend the amount of the advertising appropriation. 6. Assist in the choice of advertising mediums. 7. Determine the size, position, and frequency of insertions. 8. Assist in the construction of the advertising Uterature. 9. Institute a system of records to deduce valuable results from the experience gained. Agencies. — In many cases an advertising agency will be called upon to assist the advertising department of an individual business. Agencies have the advantage of special equipment and experience. They can estimate with some degree of accuracy the cost, length, and general character of campaigns which will yield the best results in any particular case. They have had experience as to the appeal of different kinds of copy. They can buy space with discrimination, for they know what results each medium has accomphshed in previous campaigns of a similar sort. They can check up insertions and bill board displays cheaper than individual advertisers can do it. The advertising manager who works with an agency will find among his functions that of obtaining copy which is stamped with the individuahty of his house or product, rather than with that of the agency. It may be his duty to see that campaigns are not prepared too long in advance and put through Digitized by Microsoft® 386 ADMINISTRATION OF INDUSTRIAL ENTERPRISES in a routine manner, but are kept revised in accordance with developments. He may find it necessary to exert an influence to see that the appropriation is spent carefully in special medi- ums, rather than distributed in an easier manner in large sums with prominent pubhcations. Preliminary studies. — Advertising aims to commit the producer, educate the consumer, supplement the salesman, convert the dealer, and eliminate the competitor. Chiefly, it is a hnk between producer and consmner; as such it can only be efiicient when based upon a knowledge of products and of human needs. The expense of modern advertising campaigns, the necessity of continuing effort when a campaign is once begun, if the buds of inclination started by each appeal are to be ripened into actual demand by succeeding appeals; the fixity of design, trade mark, warranties, prices, and distributive agencies essential if the advertising is to be specific, and is to build up a system of distribution; — all these are circumstances which emphasize the need of making a careful preliminary preparation for a campaign. One of the best known adver- tising agencies has said, "Most of the failures in advertising come from guessing at things which could just as well be proved. We find out if an article can carry a precinct before attempting to carry the country. "A house-to-house canvass develops selling argimaents quicker than anything else. One has no idea how many theories are upset by facts until he meets his prospective trade. "One of our ablest salesmen-in-print spent $1,000 worth of time, on one account, in tramping from farm to farm. He was learning what arguments would induce a farmer to put in acetylene gas. The advertising in question,, ever since, has been founded on that information. "To settle one point in one line of argument we sent out letters to 12,000 physicians. Before starting the advertising of Quaker Oats we spent three months on investigations, employing 130 men." Digitized by Microsoft® ADVERTISING 387 Choice of mediums. — Among the various mediums by which the advertiser can reach the consuming pubhc, or the dealer, may be mentioned form letters, booklets, magazines, trade papers, house organs, catalogs, newspapers, and bill boards, not to speak of electric signs, window displays, and samples. These means are capable of classification in various ways: as national or local, of general appeal or class appeal, paid for by the consumer or thrust upon hkn. Form letters, because of the small expense connected with them, may be used as a means of exploring a field and of secur- ing information for the guidance of the major campaign. One successful concern uses form letters in batches of 500 to ascer- tain what classes of persons are their natural patrons. A batch will be sent to ofiicers of a certain rank, as to presidents of banks, another wiU be sent to cashiers, a third to tellers, and so on; one batch will be sent to general managers of manu- facturing corporations, another to sales managers, etc. The results of these appeals are tabulated, reduced to percentages, and compared. The same firm sends out letters at different seasons of the year. From such tests it has discovered that the profitable months for it are February, March, April, and September, October, and November; but especially March and September, with emphasis upon the latter month. Again, batches of letters of different composition and embodying different arguments have been sent out, as a result of which it has been possible to select the stronger forms of appeal and to eliminate the weaker ones. A booklet is a printed letter elaborated as much as possible, without causing it to be separated from the first class mail. It provides more detail than a letter; but retains the informal and personal tone. It offers less information than a catalog; but hke the catalog uses illustrations, and in some cases groups the subject-matter according to articles offered. It trusts much to artistic covers, and to the inclusion of disinterested information, to save it from the waste basket. In its appeal Digitized by Microsoft® 388 ADMINISTRATION OF INDUSTRIAL ENTERPRISES to art it resembles the calendar, which is a Uttle poster; in its incorporation of general information it treads in the steps of the ancient almanac. Booklets are now occasionally boxmd, since it has been discovered that a man will hesitate to consign a boimd book to the waste basket. Magazine advertising aims to give wide pubhcity to a firm's name and trade mark; and to create prestige for a product by the impression of extensive and permanent connections and respectable company. The dominant motives are, like those of the magazine itself, education and entertainment; a consid- erable degree of leisure, wealth, and refinement are assumed in the reader. Since the appeal is so widely scattered geographi- cally, it is difficult to secure adequate distribution of goods in the hands of dealers. The advertisements, therefore, often contain arrangements for taking care of mail orders. The more usual plan is to bid for inquiries, stimulating these by the offer of samples or free booklets. The object of inviting inquiries is to secure letters which can be laid before dealers in the places of origin, as proof of the existence of a demand. When an ade- quate distribution of merchandise is finally made to dealers, consumers are referred to the local stores, and direct sales, or even inquiries, are no longer encouraged. Trade papers are dominated by a professional or vocational interest. The audience is usually small but select, technically well informed, in earnest, infiuential, and marked by certain professional characteristics. The nature of the appeal to such an audience must be informational on the highest plane of accu- racy as to facts. The trade paper assumes an important place in the distribution of those commodities which are bought on the advice of a dealer or professional expert. It is important for articles of intricate construction, and for things which must be installed by persons of experience. A house organ may be described as a succession of booklets issued periodically in magazine or trade paper form, and sent to a permanent mailing fist without subscription. It possesses Digitized by Microsoft® ADVERTISING 389 the advantage over the booklet of dignity, continuity, and economy in cost of printing and maihng. Following the model of a magazine, a house organ may contain a wide range of matter, such as news of the factory departments, helps for deal- ers, trade news, ginger talks, and humorous items. It thus provides a broad common ground upon which advertiser, dealer, and consimier may stand and get acquainted. The house organ is beyond the means of small concerns. It is exacting as to quaUty, and as to the regularity of issue. Its chief weakness is that it is laid upon a busy man's desk during his working hours. A catalog aims to supply all information needed to place an order. Because of its expense it is usually to be distributed only to those who manifest a serious interest, either by making an inquiry for it, or by sending for a booklet, by purchasing an article, or otherwise. Newspaper advertising belongs, in general, to dealers. A manufacturer may use it locally, however, to precipitate the uncrystallized good-will created by general advertising, in the form of a demand with the local dealer. The dominant idea of the newspaper is news. A paper a day old is dead. The reading is hm-ried. Advertisements must be striking, informal, and timely: a brief appeal for prompt action. The medium suffers from the heterogeneous character of its audience and, fre- quently, from the lack of censorship of the advertising columns. The bill board, though endeavoring to trace its hneage back to the ancient and aristocratic tavern sign, was, in reahty, bom of the needs of the plebeian American circus. It received some refining influences in its early years at the hands of the theatre; but it has finally arrived at maturity as the chief agency of outdoor pubHcity, through being a "tax-payer " able to pay the carrying charges of unimproved real estate, and by reason of the standardization wrought by national associa- tions of bill posters. A poster is, at most, a picture in colors, with an epigram; reduced to its lowest terms it is a name or a symbol printed Digitized by Microsoft® 390 ADMINISTRATION OF INDUSTRIAL ENTERPRISES large. Seen but for a moment, it must convey its message in a flash. Its audience is the average population of the street: the appeal is indiscriminate. It possesses many defects: among others that it demands attention from people who are occupied with making their way along the street and in avoiding passen- gers and vehicles. No two positions have the same value. It cannot be keyed. It is difficult to check up showings. The paper is easily defaced and is expensive to replace. Further- more, there is an increasing section of the pubUc which regards the bill board as the chief defacement of American cities. George Fitch has said, "The bill board not only reaches out and attracts the passer-by's attention, but it lams him with a club if he happens to be a man of good taste." Advertising and the laws of attention. — The steps through which the advertiser attempts to lead the prospective purchaser are, a state of attention, an awakened interest, a memory im- pressed, and a determination formed to buy. The prehistoric struggle of the hmnan race for survival has led to the production of a type of beings who give prompt attention to large objects, to objects the nature of which is not understood, to moving objects and those possessing the appearance of hfe, to objects of bright color, to sudden appearances and disappearances, to the first and last members of a series of similar objects and, in gen- eral, to all those things which contain a threat of injury or a promise of well being. There is in modern civihzed life an intense competition of objects and ideas to become the subjects of attention; but the field of consciousness is very narrow, concerning itself with the things which are most comprehensible to us and which seem to us to be of most value. Of those things which are intentionally noted, and which can be recog- nized at a later time, but a small proportion acquire a tendency to be voluntarily recalled. The earhest advertisers had the advantage of novelty: the field around them was silent. As rivals appeared and competi- tion for attention increased, novelty became more difficult to Digitized by Microsoft® ADVERTISING 391 , attain and a hunt for it began. This hvint has now become a strenuous breakneck race, with the pubUc growing more and more blas6. Each new effect has its brief period of freshness, and then swiftly vanishes into the background of the common- place. To travel down the principal street of a large city, or to look over the advertising pages of a magazine, is much like watching a football bleacher filled with yelling and gesticulating people, all intent upon attracting attention. It is not strange, therefore, that many of the devices used by advertisers to attract notice to themselves are strained, bizarre, and in ill accord with the sober merits of flour, shoes, soap, and breakfast foods. Long ago, we were softly appealed to by Millais' flaxen-haired boy blowing soap bubbles. Later; we enjoyed the gentle pun of the young lady of flower-Uke beauty, who held a big bag in her arms, and spoke of the flour of the family. But when now we see health pictured as an angel of mercy descending to reheve an invalid, but learn that the real message concerns a patent medicine; or we are shown an aged scientist toiling in his laboratory, but the subject proves to be merely the quaUties of one of the inniunerable brands of smoking tobacco; or we behold a prize fighter in the act of dehvering a smashing blow, only to be told that a certain brand of canned soups will knock out indigestion, om* principal feeling, if we pass beyond apathy, is one of disgust. The warfare on the consumer's steps is getting so obstreperous that there is needed a staff of economic detectives to stand between the consmner and the array of advertisers which is besetting him. The question is an open one whether this protection can best be assured by giving back to the merchant some of his old-time functions as the counselor and next-friend of the consumer, or whether it will come by evolving a new form of advertising censorship, carried out by pubUshers, equipped with scientific laboratories and investi- gating experts. Advertising and interest. — Attention once secured, the adver- tiser's next object is to awaken interest. The process is the Digitized by Microsoft® 392 ADMINISTRATION OF INDUSTRIAL ENTERPRISES simple but by no means easy one of holding the attention. That which retains attention must possess parts of sufficient complexity to invite renewed inspection; and must reward study by revealing new points of significance. A rational pro- gression must be opened to the thought, and one which facili- tates advance toward the goal-idea with which the mind of the beholder presently becomes possessed. Things interest us which are concrete and objective, and which mirror for us the world of the senses, rather than that of general concepts. Our interest is aroused when things reveal associations among themselves; and more so when they knit themselves onto our previous stock of knowledge, and reveal a new significance in old facts. Especially do things interest us which concern ourselves. A table of the strength of appeal has been constructed by Mr. H. L. HoUingworthji on the basis of laboratory experi- ments, as follows: Appeal Strength Appeal Strength Healthf ulness 92 Imitation 50 Cleanliness 92 Elegance 48 Scientific construction 88 Courtesy 48 Time saved 84 Economy 48 Appetizing 82 Affirmation 42 Efficiency 82 Sport 42 Safety 80 Hospitahty 42 Durability 78 Avoid substitutes 32 Quality 72 Clan feehng 18 Modernity 72 Nobby, etc 16 Family affection 70 Recommendation 14 Reputation of firm 58 Social superiority 12 Guarantee 58 Imported 10 Sympathy. . . 54 Beautifying 10 Medicinal 50 > Tipper, Hollingworth, Hotohkiss and Parsons, Advertising, N. Y 1915, p. 85. Digitized by Microsoft® ADVERTISING 393 People are moved by pertinent truth, associated with per- tinent emotional values. Indefiniteness of conception, or weak- ness in the association of the parts of a composite impression is fatal. Clearness, mastery, and veracity are characteristics which possess never-failing power to arrest the attention. To arouse interest is not primarily a literary process of dressing ideas in appropriate language: it is chiefly a matter of choos- ing the right ideas, and of bringing them out in the right order. Skill in this depends upon insight: and of insight we can only say, it is talent working with adequate knowledge of a subject. Successful advertising men are not, to any consid- erable extent, the products of Uterary training. Many of them are former newspaper men who, in their apprenticeship, learned to get at facts, and to choose from the multitude of facts those few things vital for a given purpose. It is marvellous how much a master of a subject can compress into a few sentences, and yet preserve an air of ease and freedom as if there were space to spare. Few things are more fatal to interest than the suspicion of exaggeration. Whoever looks at an American raUroad map, with its impossible straight lines, except for the purpose of amusement? The C. W. Hunt Company of West New Brighton, N. Y., manufacturers of machinery for handling coal and ore, say in the preface to one of their catalogs, "Readers of this and other catalogs and advertisements issued by the company are requested to bear in mind the fact that rhetorical expressions and superlative adjectives are rigidly excluded therefrom. It is our intention that every statement shall not only be correct in a business sense, but shall also be accurate in an engineering sense. When materials are mentioned, they will be desig- nated by their correct engineering terms, and not by fancy, obscure, or semi-misleading names." How refreshing! How excellent their products must be, to permit of such restraint! Restraint refreshes interest, for it is a sign of strength held in reserve; and strength always attracts attention, for it contains the promise of future interesting revelations of itself. Digitized by Microsoft® 394 ADMINISTRATION OF INDUSTRIAL ENTERPRISES Advertising and memory. — When attention and interest are assured, memory will be impressed in the degree that the matter put before the person agrees with his type of mental imagery. Memory is, in part, a fimction of the sharpness and vividness of the original impression; a matter which depends not only upon the material presented, but upon the occasion, the preparedness of the subject's mind, and the length of the observation. It depends also upon the frequency with which the impression is renewed. This is not the same as saying that it depends upon the frequency with which an advertisement is presented to the consumer. Attention soon passes over that which does not imfold new significance. The frequency which coimts is that of the intentional apprehension; not of the approach, nor even of mere passive recognition. There is in advertising much stupid repetition which overlooks this point, and proceeds on the assumption that if a trade mark can be shown often enough to a reader, or an electric sign can be flashed frequently enough before the passer-by on the street, his trade must come as a mere matter of physics. The fallacy of this is illustrated by the psychologist Meu- mann, who said, "I made systematic inquiries of a number of students as to whether they could describe the wall-paper of the rooms in which they studied; whether they could describe the dishes which they used every day at table; how many steps they ascended daily in the university stairways; whether they could name the buildings which they passed every day; whether they could describe or sketch the most striking church spires of the city; whether they could sketch the outHne of mountain-peaks which they have seen often and attentively; whether the four upon their watch dials is indicated by four I's or by IV, and the like. To all questions of this sort one obtains exceedingly uncertain or even erroneous answers. Remembrances of every-day experiences are frequently so un- certain that the student becomes vexed and wishes to discon- tinue the experiment. Digitized by Microsoft® ADVERTISING 395 "These and similar observations prove that memory fails to retain many impressions that come to us countless times during our lives. They prove further that it is not the mere repetition of inipressions as such which constitutes imprinting, and makes it possible for us to reproduce, especially to reproduce freely; on the contrary we find that, as a rule, we remember only what we have apprehended attentively and with the intention of remembering it." ^ Memory is also a function of the number and strength of the associations which are estabhshed betweenan idea and other ideas in the mind; by virtue of which when any of the related concepts emerge into consciousness, the particular idea is drawn up also. We remember best those things which are easily classi- fied and for which we can find an adequate word-symbol to serve as a name. In proceeding from one idea to another, in the act of recaUing, we advance more easily from particular instances to general categories than in the reverse direction. We think more often of soap when "Ivory " is mentioned, than of "Ivory" when soap occurs to mind. Those things which present themselves to us as parts of a simple sequence, or as steps in a logical chain we recall most easily in the order in which they are learned: A, B, C, D, E, rather than E, D, C, B, A. Since the typical consumer's sequence is first the need and then the commodity, it is, as Mr. Holhngworth^ has pointed out, more effective to advertise, "The best Christmas gift is a Copley print," than to advertise, "A Copley print forms the best of Christmas gifts." Disagreeable associations are to be avoided. The disparage- ment of rival products is inefficient advertising, inasmuch as it causes defects to be recalled along with the advertised article, and leads to the conviction in the reader's mind that the class of ' E. Meumann, The Psychology of Learning, N. Y., 1913, Trans! by J. W. Baird, pp. 315-316. * H. L. HolKngworth, Advertising and Selling; The Principles of Appeal and Response, N. Y., 1913, pp. 192-196. Digitized by Microsoft® 396 ADMINISTRATION OP INDUSTRIAL ENTERPRISES articles in question is unreliable. One advertising expert has declared that as the result of the publicity of the Schlitz Brewing Company, he could not think of beer without thinking of "that skunky flavor." As a rule this law of association is well ob- served. None of the canned-beef concerns have exploited ia their advertisements the fact that they supphed the United States Government during the Spanish War! BIBLIOGRAPHY HoUingworth, H. L.: Advertising and Selling: The Principles of Appeal and Response, N. Y., 1913. Scott, W. D.: The Psychology of Advertising, Boston, 1908. Scott, W. D.: Influencing Men in Business, N. Y., 1911. Tipper, H., HoUingworth, H. L., Hotchkiss, G. B., and Parsons, F. A.: Advertising: Its Principles and Practice, N. Y., 1915. Wadsworth, G. B.: Principles and Practice of Advertising, N. Y., 1913. Hess, H. W.: Productive Advertising, Philadelphia, Pa., 1915. Calkins, E. E. : The Business of Advertising, N. Y., 1915. Cherington, Paul T.: Advertising as a Business Force, N. Y., 1913. Parsons, F. A.: Principles of Advertising Arrangement, N. Y., 1912. Calvin, S. I.: The Mistakes of Advertisers, The Independent, Sept. 5, 1912, Vol. 73, pp. 626-532. Digitized by Microsoft® CHAPTER XX THE TRAFFIC DEPARTMENT Administrative relations. — The traffic department should be a division of the sales department, the traffic manager being under the general supervision of the sales manager. In defense of such an arrangement it may be said that the delivery of merchandise to a carrier is an act more closely connected with selling than with manufacturing. Goods are shipped, where, when, and in the quantities ordered by the selling department. The cost of deUvery is often absorbed as a part of the selling price, and so becomes an item the limits of which must be con- trolled by the same factors which control the general process of price setting. The selhng department finds its field determined, in part, by the speed and cost of shipment. Errors in ship- ment, or delays, bring complaints to the sales department for adjustment, and may even require the sending out of dupUcate merchandise. The traffic department should furnish to all buying officers on request, information as to the length of time required to seciu-e supphes from designated places, and as to the relative freight rates from rival supplying points. It will ship merchan- dise on order bills of lading, when instructed to do so by the credit department; and on the motion of the credit man it will exercise the right of stoppage in transitu. Freight rates. — It is the chief business of a traffic depart- ment to compile information as to the rates of freight applying to the merchandise made or handled by the house, within the territory which constitutes the field of operations. The chief 397 Digitized by Microsoft® 398 ADMINISTRATION OF INDUSTRIAL ENTERPRISES factors which enter into the determination of freight rates are: (1) the value of the service to the shipper (a sum which may be measured roughly by the difference between the value of the merchandise at the initial point and the value of similar mer- chandise at the point of destination) ; (2) the cost of performing the service, including not only an indefinite share of the joint costs of carrying on the freight service of the carrier as a whole, but any special costs such as those for special cars, special switching, prolonged use of terminal space, the labor of tend- ing, as in taking care of cattle, and the risk of loss, such as the hability of fruit spoiling, etc.; (3) competition with other car- riers; (4) protection of vested interests; and (5) compKance with the requirements of law. The first step taken by the railways in determining freight rates is to group the many thousands of articles which may offer themselves for transportation into a few classes, so that a correspondingly small number of class rates will provide a deter- mination of the charge to be made in any individual case. The railroads of each great region are united in the support of classification committees. There are three classifications: Official, Southern, and Western. The Official classification, which covers the territory north of the Ohio and Potomac rivers, and east of the Mississippi River, Lake Michigan, and a line connecting Chicago and St. Louis, contains six numbered classes, together with six multiples of first class, as well as rule 25 which fixes a rate 15 per cent below second, and rule 26 which fixes a rate 20 per cent less than third, and rule 28 which lies midway between third and fourth. The Southern classifi- cation includes the region south of the Ohio and Potomac rivers and east of the Mississippi River. It consists of six numbered and seven lettered classes together with four multiples of first class. The Western classification, which covers the region west of Official and Southern territory, contains five mmibered and five lettered classes and six multiples of first class. The classi- fication of an article depends not only upon its nature but upon Digitized by Microsoft® THE TRAFFIC DEPARTMENT 399 the method of packing, crating, and boxing used, and upon whether or not the shipment is a carload or less. Classification committees influence rates, not only by assigning articles to classes, but by fixing the allowable minimum carloads, by determining the status of mixed carloads, by prescribing the regulations for handhng bulk freight, by fixing private car mileage allowances, and by determining the precise nature of the various stipulations contained in the uniform bill of lading. The classification being completed, the next step in rate mak- ing is for the individual roads to fix the rates to be charged for moving the different classes of freight between the stations on their lines. They also enter into joint rate agreements with each other on through business. A railroad may withdraw an article from its class and provide for it a special or commodity rate. This power has been exercised so freely that there are in existence himdreds of thousands of such special rates. As a rule commodity rates are lower than the class rates: they are apphed chiefly to low-grade materials which are moved in large quantities. Local and non-competitive freight rates are, in general, either straight mileage tariffs, or tariffs in which the charges in- crease with the mileage but not proportionally. Through rates are competitive adjustments between markets and between rival carriers. The initial through rates, which fix the bases for all others, are those between the great cities, and those which are estabUshed where the competition of ocean, lake, canal, or river carriers sets a definite maximum to rail charges. The determination of initial or base rates results in the estab- lishment of certain places as basing points. Nearby points, or points highly competitive with the basing points, tend to take this base rate, and so to become common points with the basing point. The rates for other localities within the influence of the basing point, but so far removed, or so unimportant, that com- petition does not bring about a parity, will usually be adjusted Digitized by Microsoft® 400 ADMINISTRATION OF INDUSTRIAL ENTERPRISES either as a percentage more or less than the base, or as an arbi- trary sum or fixed differential more or less than the base rate. In Official territory the foundation on which all other deter- minations are based is the rate between New York City and Chicago. Direct railway routes are made fuU rate or standard: the round-about ones, and the lake, ocean, and canal combina- tions are lower differential routes. The chief inland cities be- tween New York and Chicago take rates composed by adding to a fixed terminal charge a mileage charge proportional to the distance. Such rates are represented in practice as a percentage of the through rate, and are apphed, finally, throughout narrow concentric zones embracing a series of north and south points. Pittsburg takes 60 per cent of the Chicago-New York rate, Cleveland takes 71 per cent, Detroit 78 per cent, and Indianapo- lis 93 per cent. The even Chicago rate, or 100 per cent, applies to a zone passing southeasterly through Indiana to Louisville. Beyond this zone, as far west as the Mississippi River, locahties are charged a percentage above the base. The St. Loms rate is 116 per cent of the Chicago rate. The Atlantic ports are balanced in their relations to each other by carefully measured fixed differentials: Baltimore and Philadelphia being given a few cents per 100 pounds advantage over New York. The port differentials, in turn, condition rates west from and east to nearby places: the Philadelphia rate applies to Wilkesbarre; the Baltimore rate appUes to Altoona, Newport News, Norfolk, and to the chief inland cities of Virginia. New England is charged on eastbound shipments, originating west of Buffalo, Pittsburg, and Wheeling, a few cents over the New York rate, this rate being blanketed to all New England points. For ship- ments out of New England to Cleveland or beyond, the New York rate is charged. In southern territory, rail rates along the Atlantic seaboard are dominated by the charges of ocean carriers. All-rail charges between northern and southern ports are a sUght advance over water rates, representing the advantage of greater speed. Digitized by Microsoft® THE TRAFFIC DEPARTMENT 401 Rail-and-water rates are lower than all-rail rates for the region east of Knoxville, Chattanooga, Meridian, Montgomery, and Pensacola. The controlling base in the eastern South is the rate between Atlanta and the North. All northern ports have the same sea-and-raH rates to that city, while Atlanta rates are extended to the chief cities of western Georgia. The all-rail base in the eastern South is the rate from Baltimore to Atlanta. In the North this is built upon by giving to the eastern seaboard cities fixed differentials above the Baltimore rate, and by con- structing back of each port a small common-point territory. In the South a few cities are made common points with Atlanta, while other important cities are given a differential either over or imder the Atlanta rate. In bringing the Northwest and the eastern South into relation, the first step is to equalize competition between the East and West. This is done by making the rate from all Ohio River crossings to Atlanta the same as the Baltimore-Atlanta rate. Cities north of the river add to the Ohio River rate the lowest local rate to the river, no matter which crossing the freight actually uses. St. Louis has the river rate plus a differential, while Memphis subtracts a differential from it. The central South takes rates from the Northwest which are differentials lower than the Atlanta rate. Freight moving into the North- west from the South is composed chiefly of a few products, and is controlled by commodity tariffs. Local rates in the South are, for short distances, mileage tariffs. If the distances are considerable, or if there is competition, a basing-point system is used; that is to say, the rates are found by taking the com- bination to and beyond the last intervening important point, or to and back from the next basing point beyond, whichever may be the lower. North and south movements near the Mis- sissippi River are calculated with reference to the Cairo-New Orleans charge, which is set low enough to discourage river traffic in everything except such low-grade freights as coal and lumber. Northern cities are charged fixed differentials over Digitized by Microsoft® 402 ADMINISTRATION OF INDUSTRIAL ENTERPRISES this rate: intermediate points along the river are grouped into large common-point territories. Texas internal rates are modified distance tariffs up to about 200 miles, beyond which they become flat rates, regardless of distance. For connections with the outside world a large part of that state is a common-point territory. Into and out of this region Gulf-and-sea rates from the East, via Texas ports, and all-rail rates via St. Louis, are adjusted upon a competitive basis. The St. Louis rate is then extended to a few competitors like Kansas City; while cities like LouisviUe, Cincinnati, and Chi- cago add a differential, and those like Memphis and New Orleans take one off. East and west movements beyond Chicago are controlled by adjustments between the Mississippi and Missouri rivers. The main traffic points on the Missouri River from Kansas City to Omaha are made conunon points. To them Mississippi River rates from St. Louis to Dubuque inclusive are equal. From middle western cities to the Missouri River points, the rates are a differential over the inter-river base, and are the same amount whichever river crossing is used. From the far East to the Missouri River the rates are the same via St. Louis and Chicago. The Chicago-Missouri River rate is extended by giving it to Cairo as far north as St. Joseph, and to Minneapohs and St. Paul as far south as Nebraska City. Rates to the East from the states of the middle and northern plains are so adjusted as to secure a practical equality of charge whichever eastern route is used. Colorado rates are based on Denver. To this city the Atlan- tic-Gulf water-and-rail rates are a small differential less than the all-rail rates through Chicago and St. Louis. Denver rates are shared by Colorado Springs, Pueblo, and Trinidad. Other points take a Denver and local charge, as does the territory lying between the Colorado common points and the Utah common points. The next section of the traffic trunk extends from Denver Digitized by Microsoft® THE TRAFFIC DEPARTMENT 403 to Salt Lake City. For shipments from the Missouri River or from further east, the charge to Utah is less than the Denver rate plus the local charge to destination. This arrangement is made to permit Utah points to compete in the territory lying between them and Colorado points. The leading cities of Utah from Spanish Fork to Ogden are common points with Salt Lake City. In this section of the United States it becomes necessary to adjust the rates from New York via Panama and eastward from San Francisco, with the all-rail rates west. The Utah general adjustments are extended to Montana com- mon points. Montana points take the same rate from the East by way of Chicago or St. Louis. They also receive merchandise from Denver or Salt Lake City on a parity. Rates from the eastern part of the United States into western inter-mountain territory add a greater or less percentage to transcontinental rates, depending upon the district of origin. Territory west of the Mississippi River is zone 1 ; thence east to a line passing through Chicago is zone 2; thence east to Buffalo and Pittsburg is zone 3; east of these localities, but short of the coast, is zone 4; while the coast is zone 5. From zone 1 the shorter haul may not be charged more than the longer one; from zone 2 it may be 7 per cent higher; from zone 3 it may be 15 per cent higher; and from zones 4 and 5 it may be 23 per cent higher. To and from the Southwest charges are based on Santa Fe and Albuquerque, to which points the all-rail rate from the East is made equal to the combination of vessel freight to Galveston, plus the rail rate inland. Points west of these cities in New Mexico and Arizona take the Albuquerque through rate plus the local rate to destination. Transcontinental tariffs are fixed in competition with ocean carriers. In the case of westbound through shipments, the Pacific coast cities are common points, and the rates to them are practically the same from any major point east of the Rocky Mountains for the higher classes, from any point east of the Digitized by Microsoft® 404 ADMINISTRATION OF INDUSTRIAL ENTERPRISES Missouri River for the lower classes, and from any point east of the Mississippi River for commodity rates. Eastbound trans- continental rates generally advance at Colorado-Montana points, and again a Httle east of the Missouri River, while a third advance takes place a Httle east of the Mississippi River, and a final one when Lake Michigan or the eastern boimdary of lUinois is passed. Most of the eastbound freight, however, is composed of a few commodities such as lumber and fruit, and is moved at special rates which blanket the eastern por- tion of the country. The general effect of the American rate system is to favor large cities at the expense of small ones; to favor locahties in which much of a given kind of freight originates in com- parison with locahties with a wider range of production; to favor certain articles which move at commodity rates at the expense of other things which are charged according to their class; and to favor shippers who possess such facilities as switches, switching engines, and short private lines, or private freight cars, in comparison with those who use the agencies provided by the carriers. It is, of course, the particular business of a traffic manager employed by a private shipper to secure such knowledge of freight rates as applies particularly to the individual business. The rates may, for example, be tabulated by classes to various destinations, as illustrated by the subjoined comparison of charges in cents per hundred pounds from Detroit: Change of rates. — New classifications are issued every eight or ten months, and each issue embodies hundreds of changes. The need of the shipper carefully watching the classification may be illustrated by the changes of June and July 1915. Sup- plement No. 18 of Ofiicial classification No. 42, which became effective June 2, contained changes of importance to shippers of dangerous articles, and of articles the rates of which are predicated chiefly on their value; supplement No. 20 of South- ern classification No. 40, which went into force July 12, made Digitized by Microsoft® THE TRAFFIC DEPARTMENT 405 E,a,il Rates From Detroit to — ( Classes 1 2 3 4 6 6 Cleveland 31.5 27.3 21 14.7 11.6 8.4 Toledo 20 17 13 10 8 6.5 Buffalo 37.8 32.6 24.2 16.8 13.7 10.5 Chicago 38.9 33.6 24.7 16.8 13.7 10.5 Milwaukee 45.2 38.9 28.9 20 15.8 12.6 Duluth 85.3 -72 54 38.1 31.9 25.6 Sandusky 25.2 23.1 20 13.1 9.5 7.4 Port Huron 22.1 18.9 14.7 10.5 8.4 6.8 drastic changes in many articles; supplement No. 6 of Western classification No. 53, which became effective July 15, contained changes of classification for 291 articles. Since the passing of the Elldns law of 1903 it is no longer permissible for an individual shipper to bargain secretly with a carrier for rates. It is, however, still possible for a traffic manager of an industrial corporation, either singly or in associa- tion with others in the same industry or locality, to petition the classification committees for a reduction of the class of certain articles. Such a petition should recite the pertinent facts such as the relation of bulk to weight; whether the article is crude, partly manufactured, or finished; whether it is shipped loose or packed, set up or knocked down, crated or boxed; the market values in different localities, especially at shipping and destination points; the length and direction of the haul; the time of year carried; the amount of traffic likely to offer itself; and mention of any special labor required to handle it, or any special risk of loss incurred in transit. The case for the granting of a commodity tariff, or the change of rate of such a tariff, has to be presented to the rate-making officer of the individual railroad, usually the traffic manager Digitized by Microsoft® 406 ADMINISTRATION OF INDUSTRIAL ENTERPRISES or the general freight agent. The petition should elucidate the competitive conditions controlling trade in the article concerned, indicating the producing and consuming centres, giving the freight rates at which rival producers reach essential markets, and stating the rates the petitioners require in order to reach those markets on equal terms. The power of the railways to favor a shipper is not limited to the making of a classification and the fixing of class and commodity rates. It involves a host of other matters, such as allowances for private switching, privileges of milling in transit, permits for partial unloading of carloads at intermediate points, rules as to mixed carloads, allowances of free packing material, methods of estimating weights, free storage time, special load- ing and unloading charges, and promptness or delay in furnish- ing cars. There is, consequently, a large field of effort in which the traffic manager can make himself useful to his employer, whether that employer be a private concern, or an association representing the interests of an industry or of a city. Routing. — Each railway has in operation at aU times a sys- tem of standard routings for freight moving to given destine^ tions. These routings are based upon harmony of interest between the receiving road and some connecting carrier, upon joint traffic agreements, upon experience as to promptness in the return of cars, and upon the ease or difficulty with which trains are made up and broken up at different diverting points. The routing which the initial carrier prefers will commonly give the most speedy transit, but it is not necessarily the one which will give to the shipper the lowest rate. The problem of routing a shipment to a distant important traffic centre is a difficult one, especially if the initial point is also a large railroad centre. It involves not only the choice of the initial carrier but the formation of one particular chain of carriers out of numer- ous possible ones connecting the two places. American rail- way competition has developed an almost bewildering choice of roundabout traffic combinations offering service at different Digitized by Microsoft® THE TRAFFIC DEPARTMENT 407 prices. At one time the rate on grain in carloads from St. Louis to Virginia City, Va., was 17| cents per 100 lbs., by the Official classification. At the same date it was 16 cents by the Illinois classification; but the rate from St. Louis to Louisville was then 4 cents, while the charge from that city to Virginia points by the Southern classification was 9 cents, or a total through rate of 13 cents. Mr. Stickney, President of the Chicago and Great Western Railway, teUs of a traffic manager who found 11 different rates on the same article from his station to Boston. No railroad official will furnish a shipper with a systematic appraisal of the advantages and disadvantages of the different routes open to him. No public commission has yet undertaken to furnish such a digest of information. The shipper must depend upon his own traffic department, unless there is a local traffic association available. Billing. — The classification books and the commodity rate schedules involve thousands of distinctions and definitions which determine what charge is to be made for shipments. Thus, Official classification No. 36 contains the following L.C.L. (less than carload) determinations: Glass 1st class Window glass, common, N.O.S Rule 25 ' Furniture, N.O.S Double 1st class Filing cabinets, N.O.S 1st class Desks, N.O.S IJ class Chairs, N.O.S 1| class Stationery, N.O.S 1st class Pads of paper and tablets 3d class Writing paper 3d class Agricultural implements, N.O.S Double 1st class Harrows or plows 1st class From a commodity- tariff we select the following mass of specifications as by no means unusual: 1 See p. 398. Digitized by Microsoft® 408 ADMINISTRATION OF INDUSTRIAL ENTERPRISES "Lumber." " Sash, Doors and Blinds, unglazed, or glazed with other than plate, leaded or stained glass, released; Wooden Eave Troughs, Carpenter's Mouldings, Columns (turned), solid or built up and combined wood; Cornice Brackets, Wainscoting, Hand Rails, Balusters, and similar articles for inside finishing, manufac- tured of lumber other than Walnut, Cherry, Ebony, Rosewood, Mahogany, Ligmmi Vitae, White HoUy, and Bird's Eye Maple, straight or mixed carloads, minimum weight 26,000 pounds. Note. — Glazed Sash must have glazed sm^ace protected by boards not less than f inch in thickness." In general, the railroads will charge the highest rate which the description suppUed to them will permit. Any package containing articles of more than one class will be charged at the rate of the highest classed article. A mixed carload, as a rule, takes not only the highest rate of any article in it, but exacts the highest minimum carload weight prescribed for any of the constituent articles. It is obvious that a traffic manager, who is familiar with bUhng terminology, can honestly describe his shipments in making out the bills of lading, and yet secure transportation at rates materially lower than would be assessed if the designations were vague and general. A shipment can often be divided to advantage; the high-rate articles being packed and shipped separately from those which take a lower rate. Less frequently, there is economy in combining diverse articles in one shipment, imder the rules for assessing mixed carloads. Size of shipments. — The class and commodity tariffs all contain specifications as to the minimum weight to be charged for at carload rates. These weights should, of course, be actually shipped where possible, when paid for. A few examples of minimum carload weight regulations, chosen from Official classification No. 36, will show the range: The complete utilization of car spaces sometimes depends upon the forwarding of consignments larger than a carload. Digitized by Microsoft® THE TRAFFIC DEPARTMENT 409 Article Minimum Class carload weight L.C.L. C.L. in lbs. CrSpe or crinkled paper in cases 10,000 1 2 Bananas 18,000 1 and 1| 3 Farming mills, K.D. flat 20,000 1 5 (R27)i Acetic acid, in carboys boxed . . 24,000 1 5 Acetic acid in bbls. or iron drums 36,000 3 5 Ale and beer, in bottles packed in boxes or bbls 28,000 3 5 Asphaltum, solid, in cakes, bags or bbls 40,000 4 6 Pig iron, chill 56,000 4 6 The Ford Motor Company of Detroit can ship 6 machines in a freight car, but if 10 cars are being loaded at one time for a single destination, it is possible by a rearrangement of packages to send 100 machines. Packing. — The nature of the package and the method of packing frequently exert a decisive influence upon the rate charged. A spread of one class, and sometimes more, separates shipments set up or knocked down, crated or boxed, and nested or not nested. An extract from the classification will serve to show the possiblities of economy: Article Class L.C.L. C.L. Children's carts, N.O.S.: Not crated or boxed L.C.L not taken Minimum weight 10,000 lbs. (subject to Rule 27) R 25 * Rule 27 makes the mmimum carload weight depend upon the length of the car used. « Digitized by Microsoft® 410 ADMINISTRATION OF INDUSTRIAL ENTERPRISES Crated or boxed S.U. (set up) Wheels on 3 times 1st Wheels off Double 1st K.D. (knocked down) or folded (not flat) Wheels on Double 1st Wheels off 1| K.D. flat 1 Minimum weight 10,000 lbs. (subject to Rule 27) • R 25 The importance of containers may be illustrated by the rating of one article; in this case paint: Article Class L.C.L. C.L. Paint, N.O.S., in oil In glass, packed .1 3 In buckets or kits (C.L. minimum weight 36,000 lbs.) 3 5 In cans, jacketed, loose 1 In tins cans or tin pails, loose Double 1 In sheet iron or pressed steel cans or pails, loose (C.L. minimum weight 36,000 lbs.) 3 5 In tin or sheet iron cans or pails in crates, boxes or bbls. (C.L. min- inum weight 36,000 lbs.) 3 5 In iron drums (not cans) (C.L. min- imum weight 36,000 lbs.) 4 5 In kegs, half-bbls., or bbls. (C.L. min- immn weight 36,000 lbs.) 4 5 It is estimated that freight claims amount to between 2 and 3 per cent of the value of the merchandise transported on Ameri- Digitized by Microsoft® THE TRAFFIC DEPARTMENT 411 can railroads. Of this great sum, damage accounts for between 60 and 70 per cent. The chief cause of damage is inadequate or inappropriate packing and packaging. This does not mean that the package is always too frail; much of the loss is due to parts being left loose to move about within the package. When Hght and heavy articles are put in the same package, and loosely packed without inside bracing, the heavy articles tend to perform the fimction of a hamnaer, upon the lighter ones. Many packages are made so large and heavy as to constitute a standing challenge to the freight handler to enter into a wrest- ling match with them. Any time which is saved in the processes of packing and ship- ping has the effect of bringing a supplying concern as much closer to its customers (in terms of economic distance) as ship- ments will usually advance in the hands of carriers in an equal length of time. Efficiency in these operations serves, therefore, to add to the tributary territory a broad belt at the outer margin. Every hour wasted contracts the radius of profitable operations from 12 to 20 miles: every hour gained lengthens this radius by an equal distance. Trucking. — What has been said of packing applies with equal force to trucking. Until recently, trucking has been one of the most inefficient branches of transportation. Presided over by the itinerant drayman, it has been slow, destructive, and unreliable. This situation is being changed by the intro- duction of motor trucks, which have brought into the field the scientifically trained engineer. As to the economics of the motor truck versus the horse-drawn vehicle, it may be said that, since the motor truck has a greater hourly cost than the team, but also a greater speed, when the motor is standing still it incurs a greater hourly loss than the idle team, but when the motor is in motion it attains a lower ton-mile cost than the moving team. The principle of economy is then to use motors for the longer runs and the more continuous schedules, and to reduce idle time to a minimum by adequate apparatus at load- Digitized by Microsoft® 412 ADMINISTRATION OF INDUSTRIAL ENTERPRISES ing platforms, and by the application of motion study and the rules of scheduling to all work which holds the truck in waiting. The securing of cars. — It is the duty of the traffic depart- ment to notify the railways when cars are needed for carload shipments, and to do this sufficiently in advance of require- ments so that merchandise will not be delayed. The traffic officer should be famihar with the mileage allow- ances made by the railways to owners of private cars, so that he can calculate under what conditions it will be an economy for his employer to purchase rolHng stock. It may be said, in a general way, that while the earnings now being made by the owners of private stock and tank cars are not excessive, those of the owners of refrigerator cars are very high. Fast freight service. — The traffic department should be famihar with the character of the fast freight services available on the railways patronized. Such services, variously known as "fast," "time," "preference," and "manifest " freight, or designated by some arbitrary title such as "Red Ball " (A. T. and St. F.), "Star Union " (Pa. R. R.), or "Merchants' De- spatch" (N. Y. C. Lines), offer through service at an average speed of about 20 miles per hour, as compared with the 12 miles of the ordinary freight train. The traffic department should know the schedules of such trains, the receiving and dis- charging stations served by them, the classes of freight handled (especially whether or not package freight in through or peddler cars is included), and should be famihar with any special bilhng procedure which may be required. Demurrage. — The general practice of the railroads, under the national car demurrage rules, is to grant 48 hours free time in which to load or unload a car, and 24 hours for reconsign- ment, holding for switching orders, stoppage for partial un- loading in transit, inspection, and grading. This free time is adjusted to begin approximately one-half day after the car is placed. For holding a car beyond this time a charge is made at the rate of $1.00 per day. Free time may be extended by reason Digitized by Microsoft® THE TRAFFIC DEPARTMENT 413 of Sundays and holidays, bad weather, delayed or improper notice, or other errors made by railway employees. There are many cases of car delay which are exempt from the appUcation of demurrage rules. When a shipper handles a number of cars in a month he may enter into an averaging agreement with the local demurrage bureau. The rule of averaging is as follows: "A credit of one day will be allowed for each car released within the first twenty- four hours of free time. A debit of one day will be charged for each twenty-four hours or fraction thereof that a car is detained beyond the first forty-eight hours of free time. In no case shall more than one day's credit be allowed on any one car, and in no case shall more than seven days' credits be applied in cancellation of debits accruing on any one car."' In most of the Southern states and the states lying between the Mis- sissippi River and the Rocky Mountains, demurrage rules have been established by state law. These laws as a rule establish reciprocal demurrage, and lengthen the period of free time. Under reciprocal demurrage the railroads are assessed for delay in furnishing cars or in moving them, at the same rate that the shipper is assessed for holding cars. Rebilling, reconsignment, and stoppage in transitu. — One of the functions of forwarding agents and transfer houses is to receive freight in carloads from their principals, place it in storage, and ship it as instructed in L.C.L. lots to designated consignees. By employing such agents a shipper can place reserve stocks in market centres, situated conveniently to groups of customers; and can secure the economy of carload rates part way to destination, without incurring the full expense of maintaining a system of individually owned branch agencies. A shipment can be consigned to a certain point and latep re- consigned to a point short of or beyond the original destination, providing instructions are given to the railway before the ship- ment has passed the last freight-distributing centre at which change of destination can be made. If the intermediate desti- Digitized by Microsoft® 414 ADMINISTRATION OF INDUSTRIAL ENTERPRISES nation points of a series of consignments applying to one ship- ment are on the direct route to the ultimate destination, the railroads will allow the through rate to apply, plus a charge for reconsignment. Goods shipped to a buyer on a straight bill of lading, when freight is not prepaid, are, in general, held to be the property of the consignee, while in the hands of the carrier. If, however, goods are being shipped from a seller to a buyer on credit, and during the progress of the shipment, or while the goods are still in the possession of the railway at the consignee's station, it is discovered that the buyer is a bankrupt, the seller has the right to order the carrier not to make delivery, but to hold the merchandise subject to his orders. This is called the right of stoppage in transitu. Freight claims. — The railways are liable for loss, damage, wrong dehvery, delay, and overcharge, together with interest on the sums involved. The responsibihty is limited to direct losses; that is to say, if the paper of a daily newspaper were lost, the responsibihty of the carrier would be for the value of the paper, and not for the indirect and consequential injury which might result from suspension of pubhcation. Delay beyond a reasonable time involves responsibihty where there is a discrepancy between the market value of the goods at the time actually received and the value at the time they should have been received. The responsible railway is the one issuing the bill of lading. Liability is to the consignee in the case of a straight bill of lading; to the consignor, or person to whom he endorses, in the case of an order bill of lading. When damaged or short shipments are received, the proper procedure is to accept the freight, upon the proper notation being made by the freight agent upOn the receipted biU, and then to file claim. In case of concealed damage or loss, notice should be given to the agent in writing at the earhest possible moment, and an opportunity offered him to make inspection. Claims for shortage often involve the meaning of the endorse- Digitized by Microsoft® THE TRAFFIC DEPARTMENT 415 ment "shipper's load and count" on the bill of lading. The use of this phrase does not constitute a waiver of the shipper's right to recover for shortage, but it does lay upon him the burden of proof that the quantities claimed were actually delivered to the railway. In such a case a set of business-like records made by the paickers, checkers and draymen is of great assistance. The general improvement of railway service. — The traffic men of a branch of industry, or of a locality, can exert consid- erable influence in the direction of improving railway service, particularly if they are organized. In Cleveland, a section of the Chamber of Commerce serves to bring railroad officials and industrial traffic men together, and to create an atmosphere of friendliness and reasonableness between them. There has been estabhshed, through its efforts, a system of reporting delayed shipments which has spread among the railway agents of a considerable area of country the idea that if Cleveland freight is delayed without good excuse the matter is heard from. In St. Louis the Freight Bureau of the Business Men's League handles complaints for the members of the League. It also compiles a handbook of outgoing package car service, which enables a shipper to discover at once to what points there is special service, and at what hours the various cars are moved. The Bureau prepares a monthly statement of the times actually taken by these cars in reaching destination. This publicity sharpens the ambition of the railways to maintain their pub- lished schedules; and it enables shippers to guarantee delivery dates so closely that their retail customers are encouraged to practise the system of placing light and frequent orders. BIBLIOGRAPHY Johnson, E. R., and Huebner, G. G.: Railroad Traffic and Rates, N. Y., 1911. 2 vols. Ripley, W. Z.: Railroads: Rates and Regulation, N. Y., 1913. McPherson, L. G.: Railroad Freight Rates in Relation to the Industry and Commerce of the United States, N. Y., 1909. Digitized by Microsoft® 416 ADMINISTRATION OF INDUSTRIAL ENTERPRISES Strombeck, J. F.: Freight Classification: A Study in Underlying Prin- ciples, Boston, 1912. Hammond, M. B.: Railway Rate Theories of the Interstate Commerce Commission, Quart. Joum. of Econ., Nov. 1910, Feb. and May 1911, Vol. 29, pp. 1-66, 279-336, 471-538. Deiser, Geo. F., and Johnson, F. W.: Claims, Fixing Their Values, N. Y., 1911. Publications of The Freight Claim Association, The National Industrial Traffic League, and The Railway Business Association. Digitized by Microsoft® CHAPTER XXI CREDIT AND COLLECTION Credit Commercial credit is the sale of merchandise on the promise of future payment. It rests upon confidence in the abiUty and disposition of the debtor to fulfil his obligations. To give to another person credit means to make a short-time investment in his business; to stake one's money on the location and methods and talent of a particular firm, as over against com- petitors. Credit permits men who have more property than opportunity to aid those who have more opportunity than property. It is one of the great agencies for the more general distribution of economic power. Credit is a creator of oppor- tunity, "it opens the careers to the talents," as Napoleon's merit system did. To give credit with care means to encourage honest and capable men as proprietors of business, and to dis- courage those who are dishonest or incapable; it is to be on the still hunt for men with the talent to use, conserve, and increase property. It means to encourage well-conceived and soundly managed enterprises, and to aid in the elimination of the opposite sort. To refuse credit when it should be refused is not an act of illiberality; it is the necessary correlative of an act of discriminating HberaUty which will help forward some worthy man. From the point of view of mercantile credit, the ideal credit- giving institution is not a bank but a business in the same general line of industry as the businesses to which advances are made, and prior to them in the chain of commodity distri- 417 Digitized by Microsoft® 418 ADMINISTRATION OF INDUSTRIAL ENTERPRISES bution. In such a business every aspect of the affairs having to do with the sale of goods will contribute knowledge useful in administering the credits. Furthermore, the credit-giving institution should be large enough to average risks. Administrative relations. — In a business of sufficient size to bear the elaboration, the credit man should be independent of the selling department, and coordinate in authority with the sales manager. The separation of functions involved in such an arrangement is desirable because the handling of credits and the making of collections is a matter distinct in point of view, in principles, and in technique, from the making of sales. The administrative independence thus attained for the credit department will create within a business an influence which has to do with the marketing process, but which is able to correct the extravagancies into which the optimism and push of the selling temperament occasionally lead. In businesses so small that there is not enough work to occupy a man entirely, it is not imusual to put the credit man in charge of accoimts, and even to give him the duties of cashier and treasurer. In behalf of such a combination of functions it may be said that the relation between accounts and credits is close. Most credit men are graduates of the accounting department. It seems reasonable that the man who is applying tests to dis- cover the soundness of other businesses, and who is constantly thinking of such matters as the apportionment of capital to different uses, and the adequacy of accounting systems and balance sheets, should be made the watchdog of the treasury of his own concern. The general credit policy. — The policy used in extending credit and in making collections should be harmonized with the remaining body of poUcy of the business estabUshment. An enterprise with small capital will aim at rapid circulation of its assets by offering Uberal discoimts for cash, by energetic treatment of slow accounts, and by accepting notes which can be used as collateral for loans. An industry with a marked Digitized by Microsoft® CREDIT AND COLLECTION 419 seasonal irregularity will be inclined to develop the practice of giving long terms, to induce advance ordering, while yet obli- gating customers to pay their bills as they reahze upon their stocks. An estabhshment in an out-of-the-way location wiU see that it can devise easy terms for distant territory, and so practise market equalization by means of credit as well as by absorbing excess freight charges. A national advertiser may find it profitable to make a special concession to the initial dealer in each locaUty, for the sake of obtaining numerous outlets through which to "cash in " the good-will created by his adver- tising. A new firm may attempt to neutralize the advantage of older rivals by financing dealers more scientifically, and with a more intimate and helpful credit service, than its competitors have done. A new firm wiU seek to grow with rapidly growing territory, by distributing its credit favors in young neighbor- hoods, and with new firms. Datings. — The technique of payment involves such matters as datings, interest calculations, and the mediimi of payment. A dating is an adjustment of the date of a bill so that an account will fall due some time after the merchandise covered by it has been deUvered, and will permit the taking of the cash dis- coimt at a correspondingly postponed date. The force which more than any other tends to lengthen credit terms unduly — competition aside — is the seasonal irregularity of trade. This irregularity accounts for the long terms of agricultural credits. And it accounts also for the long terms which sometimes pre- vail between manufacturers and their wholesale distributors, and between wholesalers and their retail customers, where there is in use a system of ordering merchandise in advance of seasonal demand. Discounts. — The interest calculations involved in pay- ment have to do with discoimts offered for anticipation, or for prompt payment, and with the interest charge exacted as a penalty for delay. The majority of the concerns which sell to dealers allow a discount for payment within a few days after Digitized by Microsoft® 420 ADMINISTRATION OF INDUSTRIAL ENTERPRISES the date of the bill. The most frequently employed terms are probably "2-10-30-6," which mean 2 per cent discount for cash in ten days, and interest at 6 per cent after 30 days. Prices stated in terms of time, imder such an arrangement, are as follows: Time Price to 10 days, incl Net, or 2 per cent less than the face of the biU. 11 to 30 days, incl Face of the bill. 31 days and over Face, plus interest at the rate of 6 per cent per annum. The allowance for payment in 10 days is at the rate of 73 per cent per annum: a rate which stands in marked contrast to the 6 per cent per annum designated for the overdue accoimt. The rate of the cash discount cannot be jxistified, therefore, as interest for the use of the money for the period. Credit-giving concerns are able to borrow money at a fraction of this rate; and the debtor business which is sound and well managed can borrow money with profit to discount its bills. The high rate of discounts is intended to stimulate debtors to prompt action, and so prevent accoimts from slipping into that "old " stage where they are hard to pay. In so far as the psychology of debt paying is concerned, obhgations are easiest met when incurred, for at that time the sense of contract obligation is strongest, and the value of the merchandise received is most vividly reaUzed. At that time, also, the inflation of assets caused by the receipt of new units of capital in the form of goods has not yet exerted a palpable influence toward affluent methods of finance, from which it is hard to return to the more cramped calculations of doing business on one's own capital. When the cash discount system is used, normal prices are the net prices and the discount is an extra charge made to those who are slow : a charge intended to compensate for the extra hazard and the collection-department expense their accounts involve. By Digitized by Microsoft® CREDIT AND COLLECTION 421 making this fine for slowness a heavy one, the cash-discount system serves as a convenient touchstone of debtors, classi- fying them sharply into two groups, those who are standard and competent, and those who are sub-standard and who require a careful and costly nursing process. Payment in securities. — But one point requires mention with reference to the mediiun of payment. It is not unusual for the manufactiuers of building materials or machinery used as equipment by other corporations to be approached with the proposition to take in payment the stocks or bonds of the buy- ing corporation. If such a supplier has an alliance with a financial house which is in the business of underwriting, and of distributing securities, the task of examining into the merits of such propositions can be tiu-ned over to experts, while in case the secm-ities are finally accepted, there will be at hand the organization for marketing them with the investing public. Such a combination between manufacturing and underwriting exists in the case of engineering promoters.^ Credit information. — Credit rests, as has been said, upon the debtor's ability and disposition to fulfil his financial obh- gations. It has to do, therefore, with character and with busi- ness conditions. Two things are to be judged: a man and his business. The judgment of both will involve the consideration of the prevaiUng state of business of the region and of the country. The personaUty of the applicant for credit involves an inquiry into such matters as health, age, training, talent, appUcation, economy, and fitness for the particular enterprise concerned. One-fourth of the failures are due to incompetence. It involves, also, the question of honesty — over one-tenth of the failures are due to fraud. The chief function of the credit manager is to hazard the property of his firm with the right man. It is easy to pick the present leaders of industry: the fine art of char- acter analysis is only shown in discovering talent which is yet 1 See further Chapter II, pp. 25-26. Digitized by Microsoft® 422 ADMINISTRATION OF INDUSTRIAL ENTERPRISES in embryo, and in choosing those who will be the leaders of tomorrow. The highest compliment which can be paid to a credit manager is to have many successful men say of him, "He helped me when I needed help." Such a manager has cast his bread upon the waters to good purpose. To judge the general conditions of business which effect credit advances is not only to determine in what phase of the trade cycle the country is at any time, and decide what the next phase is Ukely to be, but it is to review the prospects of a particular branch of industry, and to estimate the conditions which determine the prosperity of a locahty. Some industries are in a state of speculative overdevelopment; others are involved in a general process of integration into large units which wiU crush out many small estabUshments; still others are being rendered obsolete by mechanical invention and the evolution of new methods of mercantile distribution. Some localities are cursed by non-periodic climatic changes which bring years of crop failm-e; others are single-line manufactur- ing districts, Uable to be paralyzed by strikes, or to fall suddenly from prosperity into depression; still others are dependent upon a business of wasting assets, Hke Imnbering or mining, which will eventually work out the local supplies and move elsewhere. In reviewing the affairs of the individual debtor firm, the credit man is interested to learn the amoimt of assets, the character or distribution of the assets, the rate of turn-over or the intensity of the use of the capital, and the cost of doing business or the efficiency of this use. The total amount of the assets determines the safe Umit of total advances from all credi- tors, for the proprietor's contribution is in the nature of a margin of safety. "On the supposition," says P. R. Earling, "justified by experience, that the assets of a mercantile firm, in the event of foreclosure or assignee's sale, do not bring over 65 per cent, the limit of credit, to insure us dollar for dollar, must be fixed at 65 per cent of the inventory value of the assets. Digitized by Microsoft® CREDIT AND COLLECTION 423 If we start with $10,000 of assets, this would pay liabilities of $6,500, and this amount must be established as the limit, and in all cases this relative proportion should be maintained. The shrinkage of 35 per cent represents the capital invested, but creditors are paid in full, and this is as it should be. The man who embarks in business is supposed to risk his capital, and not ours, in the enterprise; and in case of loss or failure, we, as prudent business men, should look to it that there is sufficient margin represented by capital to provide for emer- gencies." * The most widespread and inveterate mistake made in handling assets is to fix too large a proportion of them in forms from which cash cannot be secured quickly without excessive loss. When the sales and expenses of a business can be compared with the total credit advances made to it, the proper term of the credits can be calculated. If a firm makes annual sales of $100,000 with expense of $20,000, and so has a sum of $80,000 applicable to debts, the payment of claims should proceed at the rate of $222.22 per day, if the entire amount is apphed. If the debts average $25,000 this would mean that, where an even rotation was observed, any particular account should be paid in 112 days. If then an account stands longer, the delay suggests that there is either favoritism, increase of indebtedness, or diversion of funds. Exemptions. — In scrutinizing the property of a customer with reference to its value as a margin of safety for credit advances, it must be remembered by the credit officer that the law does not consider it good poHcy to permit a debtor to be entirely stripped of his possessions and thereby handicapped in his efforts to earn a Uvelihood for himself and his dependents. Exemptions of personal property, including wearing apparel, tools of the trade, work animals, and household furniture, range under state laws from $300 to $500 in value. The home- stead exemption of home or farmstead covers values ranging in ' Whom to Trust, Chicago, 1890. Digitized by Microsoft® 424 ADMINISTRATION OF INDUSTRIAL ENTERPRISES PROPERTY STATEMENT BLANK Recommended and endorsed by the Nationai Association of Credit Men To Date 19 For the purpose of obtaining credit now and hereafter for goods purchased, I or we herewith submit to you the following statement of my or our resources and liabilities, and I or we will immediately notify you of any material change in my or our financial condition. In consideration of your granting credit to the undersigned I or we agree that in case of my or our failiu-e or insolvency, or in case I or we shall make any assignment for the benefit of creditors, bill of sale, mortgage or other transfer of my or our property, or shall have my or our stock attached, receiver appointed, or should any judgment be entered against me or us, then aU and every of the claims which you may have against me or us shall at your option become immediately due and payable, even though the term of credit has not expired. All goods hereafter purchased from you shall be taken to be purchased subject to the foregoing conditiqps as a part of the terms of sale. Active Business Assets Value of merchandise on hand at cost Dollars Cents Notes and accounts, cash value Cash in hand Cash in bank Fixtures, machinery, horses and wagons Total Active Business Assets . . — Business Liabilities Owe for merchandise, open acct., of which S is past due DoUars Cents Owe for notes for merchandise Owe bank Owe others for borrowed money. . . Owe taxes and rent Mortgages on fixtures, machinery, horses and wagons ■ — ' Digitized by Microsoft® CREDIT AND COLLECTION 425 Total Business Liabilities . . . . I I I I r Net Worth in Business , I I I I OuTsiDB Assets Total real estate, assessed valua- tion, $ Total encumbrances on real es- tate, $ -. Equity Personal property Other assets Grand Total net worth in and out of Business Full given and surname of each partner Age? Married? Possible liability of each member of firm as endorser, bondsman^etc. What portion of Real Estate described is homestead? . Have you any other debts than herein mentioned? . . . What kind of business do you conduct? Insurance on Stock? On Fixtxires, Machinery, Horses and Wagons? On Real Estate? ,. Amount of sales last year? Amount of expenses last year? What proportion of your sales is on credit? How often do you take an inventory of stock? Digitized by Microsoft® 426 ADMINISTRATION OF INDUSTRIAL ENTERPRISES Date of last inventory? If you have borrowed money in the business, state what amount is secured and in what way? Are any merchandise creditors secured in any way? Have you any judgments, judgment notes, chattel mortgages, or other liens against you, recorded or unrecorded? If so, describe Suits pending, and of what nature? . . Keep bank account with What books of account do ybu keep? If you have pledged or transferred outstanding accounts or property remaining under your control, state amount thereof and amount received, or to be received, on account of such pledge or transfer . The above statement, both printed and written, has been care- fully read by the undersigned and is a full and correct statement of my or our financial condition as of X9 Firm Signature By a member of the firm. Town State On the reverse side of this sheet is given a list of houses I or we deal with. Digitized by Microsoft® CREDIT AND COLLECTION 427 the different states from $100 to $1,500, although in a few states it amounts from $2,500 to $5,000. The homestead right is sometimes stated in terms of acres. The income exemptions, applying to wages and salaries, usually range between $30 and $60 per month. Sources of information. — The ideal source of information on which to base a credit advance is the debtor's own state- ment. The ideal statement is one including a signed schedule of assets and HabiUties. To assist the applicant for credit in preparing an acceptable statement, a property report blank has been pubhshed by the National Association of Credit Men. Applicants for credit are sometimes loth to give complete information as to their affairs. On this point the National Asso- ciation of Credit Men says, "The giver of credit is a contributor of capital, and becomes, in a certain sense, a partner of the debtor, and as such has a perfect right to complete information of the debtor's condition at all times." False pride should not be a bar to the giving of a statement, for it may be assimaed that those who ask for credit need it, and that therefore the balance sheets they present wiU not show ideal financial condi- tions. Honest persons should welcome a chance to put them- selves upon a basis which those who have much to hide cannot attain. Those who are ambitious to rise should reaUze that it is profitable to establish confidence in the minds of those who have the means to aid them. There is every reason why the relations between a credit man and the customers of his firm should be a close and candid one. The business interests involved are in natural accord, since a credit-extending house can only prosper through the prosperity of its customers. Furthermore, the credit man is the best financial doctor most business men ever have the privilege of coming into close touch with. A complete financial statement is especially desirable from those who are placing a first order, from such as have no credit rating with a mercantile agency, or who claim that their rating Digitized by Microsoft® 428 ADMINISTRATION OF INDUSTRIAL ENTERPRISES is unjust or out of date, from customers who desire to place a new order before an old one is paid for, and from those who are asking for an extension of time. The most comprehensive source of information available to the credit man, and the one next in quaUty to customers' own statements, is the ratings and reports of the mercantile agencies. Salesmen's reports are to be utiHzed chiefly as a supplement to customers' statements, and as a running fire of current conunent to keep the credit histories in the credit department revised to date. Bank reports are reUable but reticent: bank oflBcials do not desire to perform the work of mercantile agencies. Other sources of information are the reports of organizations of local credit men, commonly known as credit clearing houses; the reports of the credit bureaus of national trade associations, and the interchange of information which takes place, by courtesy, between the credit departments of different houses. The credit office. — The oflSce system of the credit department is directed to the systematic recording of items of information bearing upon the credit standing of customers, and to the rapid review of the pm-chase orders received, in the light of this information. The office procedure should be designed to bring customers' accounts to the attention of the credit man as in- falUbly as possible upon the occurrence of certain designated jimctures which are deemed dangerous. Such jimctures may be: (a) account overdue, (b) fine of credit used up, (c) rapid increase in orders above previous average, (d) an unusually large order placed by a slow-paying cus- tomer, who has recently been paying very promptly, (e) an unjust claim — as of shortage or damage — when the circumstances are not convincing; especially a repetition of such claims, if) fire under suspicious circumstances; especially a second fire, Digitized by Microsoft® CREDIT AND COLLECTION 429 (g) refusal to honor draft, (h) refusal to furnish financial statement, (i) report of unfavorable items of legal record. Collections When an account falls due it becomes not only a credit but a collection as well. The process of collection is one of the most diflBcult of business negotiations, for while it requires the appli- cation of pressure to induce debtors to perform an imwelcome act, the means used must usually be confined within hmits which preserve the busiaess connections. Tact must be blended with firmness; but since these two principles of conduct tend to fly toward opposite extremes — tact toward obsequiousness, and firmness toward harshness — the most difficult virtue to achieve in a credit department is the blending of the two. The stages of a collection. — The history of a collection may be represented as a series of steps: 1. A statement should be presented at maturity. It is cus- tomary among many classes of merchants to collect individual items into monthly statements; manufacturers, on the other hand, generally present each invoice as a separate bill. If bills are sent out promptly the impression is created that a house interprets its selling terms strictly, and expects business-Hke treatment at the hands of its customers. Promptness is every- where interpreted as evidence of decision of character; it tends to promote respect and an attitude of comphance. It is not wise to enclose advertising matter with statements, since to do so is to attract attention from the main purpose of the com- munication. 2. A statement disregarded should be promptly followed by a firm and candid follow-up. Promptness not only avoids a portion of the labor of watching accounts, and saves the interest and business profit of the funds otherwise locked up, but it allows less time for unfavorable changes to occur in the debtor's affairs. It is a mistaken analysis to assume that a customer's Digitized by Microsoft® 430 ADMINISTRATION OF INDUSTRIAL ENTERPRISES patronage is held by letting an old debt drag. Debtors who feel that they have overtaxed a creditor's generosity avoid contact, fearing a dun. They are more comfortable with a new concern where their credit is temporarily better. Debts long postponed are notoriously hard to pay. During the delay the debtor enjoys the use of the property of another, and this false situation gradually breaks down his value sense. The longer he remains in this comfortable state, the more disagreeable, and finally even imfair, it seems to him to be obliged to change. "Time adds frightfully to the risk of the deal from the credit point of view," says The Studebaker Brothers Manufacturing Company, in its instructions to its salesmen. "A dealer with limited responsibility is a better risk for reasonable credit on short time than a dealer with twice his means on long time." 3. The use of a sight draft is a recognized process of collect- ing, and one which should give no offense, provided it is known that a house makes a practice of using it regularly. To estab- lish the practice as standard, some firms insert a printed notice in their statements to the effect that delay in payment is under- stood to mean that they should draw. A draft should prefer- ably be presented through the bank with which the customer deals in his own town. It will, in such a case, be less willingly dishonored; and it wUl be in the hands of the bank most dis- posed to grant financial assistance. 4. A dishonored draft brings a collection to a critical point where thorough investigation is needed before taking fmiiher steps. Investigation may lead to any one of several com-ses of action: (a) An extension of time may be granted, coupled, if possible, with partial payment and, in some cases, by the ob- taining of security. A series of notes may be arranged to fall due at intervals. "More men," say the Studebaker Brothers, "will meet promptly three small payments with intervals of time between than the aggregate of the payments at the average time. The dealer usually must lay by money in advance to meet a considerable payment, and there is alwaj^ danger that Digitized by Microsoft® CREDIT AND COLLECTION 431 he will use this fund for some other purpose, either to make purchases which are urged upon him, or to satisfy some inter- vening creditor." (6) An account may be transferred to a collection agency if the credit department is not strong, (c) The last stage of a collection lands it either in the hands of an attorney, or in the list of bad debts charged up to profit and 5. The entrance of an attorney ends amicable relations. All collection efforts short of suit should, therefore, be made before an account is placed in the hands of an attorney. This is equiv- alent to saying that the use of an attorney in prolonged efforts at coUecton is a mistake. An attorney should demand settle- ment or security; if neither is forthcoming, suit should be begun or the matter finally dropped. Credit adjustment bureaus. — When an insolvent business is to be Uquidated for the benefit of creditors, under the pro- visions of the bankruptcy act, the procedure is, after the filing of a petition, to appoint a receiver, adjudge the debtor a bank- rupt, prepare lists of the creditors and of the debtor's assets, elect a trustee, collect the assets and convert them into cash, estabUsh proof of the debts, declare dividends, and grant a certificate of discharge to the debtor. This law is most valuable. It is responsible for the fact that the former wild scramble of creditors to get ahead of each other in filing attachments on debtors' property no longer takes place. It is responsible also for the further fact that transfers of property intended to de- fraud creditors or favor certain of them at the expense of others are largely, decreased. Nevertheless, the operations of receivers in taking temporary charge of bankrupt estates, and of trusl^ees in collecting and reducing to money the property of bankrupts, are usually performed by young attorneys who are ignorant of business methods, or by business men whose own affairs have not prospered sufficiently to fully occupy them, and hence are frequently marked by waste and delays and the use of value- destroying methods of liquidation. It is a general opinion Digitized by Microsoft® 432 ADMINISTRATION OF INDUSTRIAL ENTERPRISES among credit officers that bankruptcy proceedings result in destroying one-third of the value of the assets involved, and in paying to creditors thirty-three and one-third cents on the dollar. To avoid as much as possible of these losses and ex- penses, the members of the National Credit Men's Association have organized, in many cities, credit adjustment bureaus, which undertake to act as trustees representing creditors, and to Uquidate property in an expert manner, with the use of the most approved mercantile methods. As a general rule, these bureaus are able to distribute to creditors somewhat more than fifty cents on the dollar. Fraudulent transfers. — It is well for credit officers, who are called upon from time to time to give counsel in creditors' meetings, and even for travelling salesmen who report the business news of their territories, to possess some knowledge of the identifying marks of fraudulent transfers. The law endeav- ors to prevent transfers of property of insolvent persons, or of those soon to become insolvent, as a means of defrauding credi- tors. Transfers which are prima facie fraudulent are those with- out consideration; those with fictitious consideration; those with grossly inadequate consideration, as on unusual credit terms, or on credit to persons not financially responsible; those on promise of support (that is to say, board and lodging); those in payment of a debt and intended as a preference of one credi- tor over another; those of personal property but with retention of possession; and those made to members of the family or relatives. Further than this, transfers are revocable if the debtor's purpose can be proved to be fraudulent, and if the buyer or the third party, if a third party is involved, knew of this purpose, or had reasonable cause to know it, that is to say, was chargeable with notice. Transactions where the buyer is chargeable with notice are such as take place under circumstances which would arouse the suspicion of a reasonably careful person. Among such circumstances are, goods offered for inadequate consid- Digitized by Microsoft® CREDIT AND COLLECTION 433 eration, and stocks in trade offered for bulk sale, especially if the offer is secret or hasty or without the preparation of a proper inventory. Credit insurance. — Credit insurance is better described by the English title, "Excess bad debt insurance." It is a form of insurance offered to cover unusual losses in collection. In tak- ing out a policy the average bad debt loss of the insured firm is calculated for a period of five years last preceding. This per- centage is set down as the own or initial loss and is not covered by the insurance. Losses on accounts above this percentage which result from the insolvency of the debtor are then divided into two classes: first, those involving customers who had, at the time the credit was extended, a capital and first or second- grade credit rating in the books of an agreed mercantile agency and, second, losses on customers not having such ratings. Losses on rated customers are covered in full by the pohcy, except that the sum insured on any one account is not to exceed a specified sum. Losses on customers without ratings are partly insured, that is to say, the company purchasing the pohcy becomes co-insurer with the insurance company in' respect to such losses. Some of the advantages claimed for this form of indemnity are: (a) that a known premium replaces an unknown loss, so that an offsetting charge can be inserted in price; (6) that trial balances can show the actual value of accounts receivable; (c) that credit accounts are made a more acceptable collateral for bank loans; (d) that the maximum amount insurable for any individual accotmt can be used as the credit limit with customers without offending them. BIBLIOGRAPHY Hagerty, James E. : Mercantile Credit, N. Y., 1913. Eollman, M. M., and Others: Mercantile Credit: A Series of Practical Lectures Delivered before the Y. M. C. A. of Los Angeles, Cal., N. Y., 1914. Church, F. P. : Modem Credit Methods, Detroit, 1912. Digitized by Microsoft® 434 ADMINISTRATION OF INDUSTRIAL ENTERPRISES Zimmerman, T. J., Editor: Credits and Collections, Chicago, 1904. Prendergast, Wm. A.: Credit and Its Uses, N. Y., 1906. Lewis, E. St. Elmo: The Credit Man and His Work, Detroit, 1904. Skinner, Edw. M.: Credits, Chicago. White, R. S.: Collections, Chicago. Higinbotham, H. N.: The Making of a Merchant, 2d Ed., Chicago, 1906. The Extension of Credit, comprising Chs. IX to XII incl. The Bulletin of The National Association of Credit Men, N. Y. Digitized by Microsoft® INDEX I^THE REFERENCES ARE TO PAGES] Accidents, by hoxirs of the day, 217. Aeooimting, see Cost accounting; proprietorship accounts versus cost accounts, 183-184. Administration, improvement in the line of least resistance, 2; history of, 123-127; pioneer period, 123; inventors and engineers, 124; cap- tains of industry, 125-126 ; modern administrator, 126-128; American conditions, 128; administrator ver- sus capitalist, 129-130; new duties of, 141; administrative principles, 143-148; of cost accounts, 179-187; of power, 121; of purchasing, 339- 340; of selling, 366-367; of ad- vertising, 384-385; of traffic, 397; of credit, 418. Administrator, American types, 123- 127; American conditions, 128-130; versus capitalist, 129-130; profes- sional feeling, 130-131. Advertising, Ch. XIX, 382-396 ; waste in, 383-384; administrative rela- tions, 384r-385; functions, 385; agencies, 385-386 ; preliminary studies, 386; mediums, 387; form letters, 387; booklets, 387-388 magazines, 388; trade papers, 388 house organs, 388-389 ; catalog, 389 newspapers, 389; bill boards, 389 posters, 389-390; laws of attention, 390-391; interest, 391-393; and memory, 394-395; disagreeable as- sociations avoided, 395-396. America, conditions favorable to administrative progress, 128-130; conditions found by pioneers of scientific management, 131-132. Analogy, 6-7. Apprentices, in collective bargaining contracts, 207-208. Arbitration, in collective labor con- tracts, 209. Art in industry, 317-320. Attention, problem of, in office work, 326-329; laws of, in advertising, 390-391. Automatic sprinklers, 88-89. Bacon, on iterating the state' of the question, 328. Banks, metropolitan versus local, 42; specialized, 43. Barth, Carl G., machine speeding, 10-11; on the Rowan premium wage plan, 271. Baths in factories, 296-297; Walker and Pratt Co., 296; Sherwin- Williams Paint Co., 296; National Lead Co., 297. Beauty in the industrial environ- ment, 317-320. Belting, Taylor's rules, 116-118. Betterment, see Welfare work. Bibliography, on the new method and the new spirit, 19-20; launching, 36; location, 55-56; layout, 74; buildings and equipment, 103-105; power, 121-122; scientific man- agement, 148-149; on general principles of administration, 149; works manager, 168; cost account- ing, 187; labor, 211; fatigue, 225; newer wage systems, 289-290; welfare work, 323; office depart- ments, 338; purchasing and stores departments, 364; selling, 381; advertising, 396; traffic depart- ment, 415-416; collections, 433- 434. Boiler design, 115. Bonuses, departmental in Bourne- ville, England, 252-253. 435 Digitized by Microsoft® 436 INDEX Book of rules, for office departments, 337. Bricklaying, 8-10. Building contracts, 98-102. Buildings, 75-84; functions, 75; gen- eral executive and technical expert, 75-76; unit stresses, 77; base- ment, 77; widths and heights, 78- 79; length, 79-80; stories, 80-81; types of construction, 81; frame, 81; slow-burning, 82-83; steel frame, 83; floor construction, 82- 83; reinforced concrete, 84. Cadburt Bkos. Ltd., Boumeville, England, departmental bonuses, 252-253. Capital, in launching, 25; local, 27- 28; application of, 29-31; fixed versus circulating, 30-31; geog- raphy of interest rates, 41-42; metropolitan versus local bankers, 42. Captains of industry, 125-127. Carnegie, Andrew, on partnership, 22; profit sharing for executives, 259- 260. Celluloid Co. of Newark, N. J., Cel- luloid Club, 314-315. Church, A. H., production centres in cost accounting, 179. City measurements, 49-51. Classified lists of customers, 370-371. Clubs, in factories, 312-317; diffi- culties, 313; Eagle and Phoenix Club, 313-314; Celluloid Club, 314-315; acquaintance, 315; rec- reation, 315; warfare with drink and vice, 316; Coalbasin Club, 316; development of initiative, 316-317; National Cash Register Co., 317; Senator Proctor, 317. Coal, qualities, 106-108; specifica- tions in buying, 108; effects of transportation, 108-109; storage and handling, 109-110. Collection, use of attorney, 431; credit adjustment bureau, 431-432; fraudulent transfers, 432-433 ; credit insurance, 433. Chapter XXI, 429-434; stages of, 429-431; state- ment, 429; follow-up, 429-430; sight draft, 430; partial payments, 430. Collective labor contracts, 201-211. Colorado Fuel and Iron Co., hospi- tals, 300; warfare with drink and vice, 316. Competition, predatory, 24. Conservation, 5. Continental Motor Co. of Detroit, meals, 302-303. Cooperation, principle of, 144-145. Coordination, principle of, 144. Corporation, organization, 26; char- ter, 26-27; distinguishing capitalist from administrator, 129-130. Cost accounting, Ch. IX, 169-187; elements of cost, 169-170; direct material cost, 170-171; direct labor cost, 171—172; expense items, 172-174; systems of spreading, 174-175; expense distributed on materials, 175; on labor time, 175- 176; on labor cost, 176; on prime cost, 176; machine rates, 176-177; production centres, 177—179; con- clusion on spreading systems, 179; tabulation of spreading systems, 180; when most essential, 181; limits of elaboration, 181-182; order system, 182-183; relation to proprietorship accovmting, 183- 184; uniform cost systems, 184- 187. Credit, Ch. XXI, 417-434; adminis- trative relations, 418; general credit policy, 418-419; datings, 419; discounts, 419—421; payment in securities, 421; credit informa- tion, 421-423, 427-428; credit limit, 422-423; exemptions (home- stead laws), 423-427; property statement, 424-426; credit office system, 428-429; credit insurance, 433; information furnished by salesmen, 379. Credit Men, Nat'l Asso. of, 424- 427. Customer's contracts, analysis of, 154-155. Cycle of trade, and time for launch- ing, 32-33. Datinqs, 419. Day wages, 242-247. Deductive reasoning, 6. Digitized by Microsoft® INDEX 437 Demurrage, 413-413. Design, theoretical and practical, 161- 163; designing versus manufac- turing, 162-163; tested by use, 163; fear of rival designs, 373. Discharge, foreman deprived of power of, 195; general lay-oSf to be avoided, 195; protecting dis- charged employee, 195. Discounts, 419-421. Distribution, the next industrial problem, 5. Doctor, company's; National Lead Co., 297; Sears, Roebuck and Co., 298-299. Dodge, J. M., on distributive justice, 287. Draper Co., Hopedale, Mass., hous- ing, 306. Dressing rooms in factories, 295-296. Duffy, Frank, quoted, 140. Eagle and Phoenix Clcb, Colum- bus, Ga., 313-314. EarUng, P. R., credit limits, 422- 423. Economic geography, 45. Economizers, 115. Education, in factories, 308-312; elementary schooling, 309; con- tinuation schools, 309-310; ap- prenticeship schools, 310-311; mis- cellaneous intellectual opportuni- ties, 311-312. Eliot, Chas. W., testimonials of little value, 193; pleasure in exertion, 214. Emerson, Harrington, on waste, 3; twelve principles of efficiency, 136; on the Halsey premium plan, 269; the efficiency wage system, 281-286. Employment officer, 189-190; see Labor; employment rules, 192- 195; psychological tests, 195-198; law of labor contract, 198-201. Engineering promoters, 29. Engineers as Eidministrators, 124-125. England, why little welfare work, 293-294. Equipment, principle of coordination, 60-62. Erasmus, quoted, 142. Ethics, 18. Evans, H. A., materials charged indirectly in cost accounting, 171. Expense, in cost accounts, 172-174. Factory Btjildinos, see Buildings. Factory layout, see Layout. Factory sites, 51-52. Fatigue, Ch. XI, 212-225; effort and performance, 213; recovery, 214; wholesome fatigue, 214; overstrain, 215; incomplete recovery, 215- 216; signs of overstrain, 216-218; speed, 218-220; paces of working, 219-220; stress, 220-221; inter- mittency, 221-222; administration of fatigue, 222-224; and design of equipment, 224; soldiering, 224r-225. Filene's (Wm.) Sons Co., Boston, departmental discharge, 195. Fire hazard, slow-burning construc- tion, 82-83; amount of loss, 84; German administration, 84-85; niles for safe construction, 85-88; fire escapes, 87; automatic sprink- lers, 88-89; insurance rates, 89- 92; rules for safe operation, 92. Fisher, Boyd, on the Ford wage plan, 255. Ford Motor Co., Detroit, the Ford wage plan, 255; elementary school- ing, 309; departmental discharge, 196. Foremen, deprived of discharge pow- er, 140, 195; present duties, 156- 158; functional, 158-161. Franklin, Benj., circulating capital, 31; ma.xims of thrift, 124. Freight billing, 407-408. Freight claims, 414r-415. Freight rates. Fig. 2, Distance in terms of cost, 48. American rate structure, 397-404. Freight routing, 406-407. Functional foremanship, 158-161. Furnace, requirements of combustion, 110-112; imperfect versus good furnace design, 111-112; mechani- cal stokers, 114-115; draft, 115. Gantt, H. L., machine speeding, 11; little classification of workmen by ordinary employers, 246; Gantt's wage system, 278-281. Digitized by Microsoft® 438 INDEX General superintendent, see Works manager. Germany, why little welfare work there, 294. GUbreth, F. B., bricklaying, 8-10; definition of motion study and time study, 151; motion study in office work, 337-338. Gillette and Dana, units of measure- ment, 164. Going, Ghas. B., expense distribution in cost accounting, 174-175. Grieves, W. A., factory restaurant, 303-304. Griffin, Chas. L., elements of a good design, 161-162. Ground plans of factories, 67-74. Halset, F. a., effect of cutting piece rates, 251; premitim wage system, 265-269. Hartness, James, circulating capital, 30-31; fatigue and ingenuity, 217; fear of rival designs chiefly based on ignorance, 373. Heating, temperature, 94; humidity, 94; methods, 94-95. Hedging, by purchasing officers, 353- 355. Heinze, H. J., Co., Pittsburg, Pa., art in, 318-319. History, American industrial, 1. Hollingworth, H. L., strength of various advertising appeals, 392; order of recollection, 395. Hospitals, for factories, 299-300; Colorado Fuel and Iron Co., 300. House organ, as advertising medium, 388-389. Housing, 304-308; a village problem, 306; houses to rent, 306-307; houses to sell, 307-308; boarding houses, 308. Human factor, 18. Human nature, and administration, 147-148; and cost accounts, 172. Hunt, C. W., Co., West New Brighton, N. Y.,' truthful advertising, 393. Hygiene of the factory, 295-300. Illumination, small cost, 95-96; es- sentials of good, 96; proper inten- sities, 96; distribution and diffusion, 96; glare, 97. Industry, greatest exponent of mod- ern action, 4. Information, use of within a business, 145-147. Inspection, 165-166. Inventors, 124-125. James, William, on a rational sys- tem, 7-8. Jeffrey Mfg. Co., Columbus, Ohio, meals, 303-304. Keelt, R. R., production centres in cost accounting, 178. Kimball, D. S., on purchase requisi- tions, 344-345. Kipling, dishonest purchasing, 355- 356. Kodak (Eastman) Co., Rochester, N. Y., beautification work, 318. Labor, problem in launching, 35; promotion, 147; a normal incen- tive, 147; as a cost, 172; parts of the labor problem, 188; cost of labor turn-over, 188-189; employ- ment officer, 189; promotion, 190; transfer, 190; sources of supply, 191; employment agencies, 191- 192; casual labor regulations, 192; employment rules, 192-195; trans- fer system, 195; psychology of employment, 195-198; law of the labor contract, 198-201; collective labor contracts, 201-211; fatigue, Ch. XI, 212-225; wage systems, Chs. XII and XIII, 226-290; wel- fare work, Ch. XV, 291-323. Labor contract, law of, 198-201. Labor market, inexperienced em- ployers, 35-36; geography of, 40- 41; trade schools, 41; the village supply, 41; sources of supply, 191; employment agencies, 191-192; measurement of wage factors, Ch. XII, 226-241. Landscape gardening, 319-320. Launching, Ch. II, 21-36; the criti- cal faculty, 21-22; persons in, 22; study of the market, 23-24; scale of operations, 24-25; local capi- Digitized by Microsoft® INDEX 439 ta], 27-28; fixation of capital, 30- 31; voting control, 31; best time for, 32-33; factory processes, 33; managerial staff, 35; buildings and equipment, 33—34; second-hand plant not desirable, 34; labor diffi- culties, 35. Law of the labor contract, 198-201. Layout, 57-74; and administration, 57-58; production centres, 58-59; sequences, 59-61 ; coordination, 60-61; direct sequence versus specialized shops, 63; grouping of shops, 63-64; service centres, 64- 65; segregation, 64-65; yard de- partments, 65-66; enlargement, 66, 70-74; preserving market values, 66; ground plans, 67-74. Lee, G. Stanley, quoted, 19. Location, Ch. Ill, 37-56; significance, 37; Wellington's rule, 38; materi- als, 38-39; power, 40; climate, 40; labor, 40-41; trade schools, 41; capital, 41; relations of a business to similar businesses, 42-44; time of transportation, 44 ; freight rates, 45; natural protection, 45—46; the local market, 46; available popula- tion, 46-47; estimate of tributary territory, 47; Fig. 2, Distance in terms of cost, 48; style movement, 48; city measurements, 49-51; fac- tory sites, 51; local inducements, 53-55. Lorimer, Geo. H., effect of book, 373. Ludlow Mfg. Associates, Ludlow, Mass., housing, 306. Machine rates, in cost accounting, 176-177. Machine speeding, 10-12. Mallock, W. H., quoted, 146-147. Management, a new factor in pro- duction, 3; choice of staff in launching, 35. Map and tack system, 376-377. Market, local, 46; tributary terri- tory, 47, 49. Masters, Samuel, revision of terri- tory of traveling salesmen, 375-376. Meals, at factories, 300-304; cost of, 301-303; Continental Motor Co. of Detroit, 302-303; Jeffrey Mfg. Co. of Columbus, 0., 303-304; National Biscuit Co., 304. Merrick, Dwight V., number of observations in time study, 234. Meumann, E., memory and advertis- ing, 394r-395. Miller, Chas., on salesmen's conven- tions, 380. Mnemonic system, 361-362. Mock, Dr. H. E., on physical exami- nations at Sears, Roebuck and Co., 298-299. Monopoly, consolidations, 2; intol- erant of competition, 24. Motion study, 151; bricklaying, 8- 10; of office work, 337-338. National Biscuit Co., meals, 304. National Cash Register Co., Dayton, O., club activities, 317; landscape gardening, 318. National Lead Co., sanitary rules, 297. Nelson (N. O.) Mfg. Co., Leclaire, III., housing, 307-308; continua- tion school experiment, 309-310. Nurse, visiting, 299. Office depaetments, Ch. XVI, 324- 338; personnel, 324^325; misuse of clerical staff, 325; office versus field, 326; problem of attention, 326-327; noise, 327; nature of attention, 328; significance of the task, 328-329; arrangement of, 329-331; equipment, 330-337; schedules, 337; standard instruc- tions, 337 ; motion study, 337. Office schools, list of firms supporting, 311. Orders, control of operations through, 145; written, 152-154; in cost accounting, 182-183 ; purchasing orders, 345-346; size of purchasing order, 351. Owen, Robert, pioneer in welfare work, 291-292. Pace-makeb, eliminated by selection of first-class men, 229-231. Packing and freight rates, 409-411. Paragraph dictation, 333. Parkhurst, F. A., need of a stores Digitized by Microsoft® 440 INDEX department, 359; schedule of shop orders, 363. Fartnershlp, Andrew Carnegie on, 22; legal relations of, 25-26. Pelzer Mfg. Co., Pelzer, S. C, hous- ing, 306; elementary schooling, 309. Piece rates, 247-252. Pierce, H. C, on promptness in a purchasing department, 352. Population, methods of estimating, 46. Power, problems of, 106; coal, 106- 110; requirements of combustion, 110-112; furnace design, 111-112; firing systems, 112-113; fireman's rules, 113-114; mechanical stokers, 114-115; draft, 115; boiler de- sign, 115; economizers, 115; shaft- ing losses, 116; belting rules, 116- 118; electric drive, 118-119; to buy or to produce, 119-120; and mill design, 120-121; general ad- ministration, 121. Price, guarantee of, 371; and quan- tity, 369-370; control of price of resale, 372. Proctor and Gamble Co., Ivorydale, O., profit sharing plan, 254. Production centre, layout of, 58-59; in cost accounting, 177-179; R. R. Keely on, 178; A. H. Church on, 179. J Professional pride, 17-18. Profit sharing, 253; plans similar to, 254-255; advantages, 255-256; dis- advajitages, 256-258; for salaried employees, 258-260. Promoter, types of, 28-29; syndicate managers, 29; engineering pr,o- moters, 29. Promotion, 147, 190. Property statement, in securing credit, 424-426. Purchasing, nearness to materials, 38-39 ; purchasing department, Ch. XVII, 339-358; administrative re- lations, 339-342; functions, 342; limits of authority 342-343 ; equip- ment, 343-344; requisitions, 344- 345; the order, 345-346; specifi- cations, 346-351 ; size of order, 351 ; standardization of stores, 351-362; promptness, 352; schedule of deliv- eries, 352-353; hedging, 353-355; honesty, 355—358. Purchasing officer, see Purchasing department. QUANTITT PRICES, 369-370. Railway bates, see Freight rates; see also Traffic department. Records in office work, unit system, 333-336. Redfield, W. C, points of the pres- ent movement, 136-137. Reports, 145. Research in industry, 13-14. Rest rooms, in factories, 296. Restaurant, at the factory, 300-304. Retail district, real estate analysis, 52-53. Routing, simple sequence, 59; parallel sequence, 59 ; elaborative sequence, 60; assembly sequence, 61. Rowan, James, premium wage plan, 269-272. Rufus F. Dawes Hotel of Chicago, cost of meals, 302. Ruskin, John, art and industry, 319. Schedule, 155-156; work and rest schedules, 221-222; little known as to proper rate of working, 231- 233; for office work, 337; schedule of shop orders protected by stores and stock, 363-364. Schools, in factories, 308-312. Science, greatest exponent in modern thought, 4; applications to indus- try, 4-5; a labor-saving contriv- ance, 7. Scientific management, the scientific method, 8-12 ; a new point of view, 15-16; early history, 131; condi- tions pioneers found, 131-132; conclusions confirmed, 132; creed of, 133-137; influence exerted, 137-138; objections to, 138-142. Scientific method, definition and steps of, 5; illustration, bricklaying, 8- 10; in industry misunderstood, 12; difficult to apply in industry, 12-13; mental attitude favorable to, 16- 17. Digitized by Microsoft® INDEX 441 Scott, W. D., analysis to perceive p£irts, 5-6. Sears, Roebuck and Co., results of physical examinations, 298-299. SelUng, Ch. XVIII, 365-381; func- tions, 366; administrative relations, 366-367; contract of sale, 367-369; price and quantity, 369-370; price and classified lists, 370-371; guar- antee of prices, 371; control of price of resale, 372; agencies, 372; travelling salesmen, 373-380; mis- cellaneous methods of distribution, 380-381. Service departments in cost account- ing, 173. Service industries, cost of municipal services, 49-50; developed by regional specialization, 43. Sherwin-Williams Paint Co., baths, 296. Shop orders, protected by stores and stock departments, 363-364. Sliding scale, 260-264. Soldiering, time study reveals, 237— 238; a disagreeable pace, 219-220; cause and cure, 224-225. Specification in buying, 346-351. Speed of working, see Schedule. Spirit, the new, in industry, 14-19. Standardization, 151-152; of stores, 351-352. Stores department. Oh. XVII, 358- 364; need of, 358-360; functions, 360; location, 360-361; classi- fication, 361; mnemonic system, 361-362; schedule of purchases, 363-363; schedule of shop orders, 363-364. Strikes, in collective labor contracts, 209-210. Studebaker Bros., partial payment plan, 430-^31. Syndicate managers, 29. Tabob, Leeot, depriving foremen of power to discharge, 140. Talent, laws of distribution, 194. Taussig, F. W., profit sharing and trade unionism, 257-258. Taylor, F. W., machine speeding, 10-12; scientific management a point of view, 15-16; belting rules, 116-118; standardization, 152; pos- sible hours under load, 221; on the day-wage system, 245; short tasks, 257; on premium systems without a definite task, 273; on the differential piece-rate system, 273-378; on merit of Mr. Gantt's system, 277. Time study, opposition to, 238-241; general discussion of, 233-241; composition of minimum time, 234- 237; time study observation sheet, 235; allowance, 237; time study and soldiering, 237-238; permanent records of, 238. Tolerance dimensions, 163-164. Tool room, 166; machine stripping, 166-167; tool accounting, 167. Trade mark, in the name of a spe- cialized town, 43—44. Trade papers, as advertising me- diums, 388. Traffic department, Ch. XX, 397-^16; administrative relations, 397; freight rates, 397-404; changes of freight rates, 404-406; freight routing, 406-407; freight billing, 407-408; size of shipment, 408-409; packing, 409-411; trucking, 411- 412; fast freight service, 412; de- miu:rage, 412-413; rebilling, recon- signment, and stoppage in iransitu, 413-414; freight claims, 414HH5; improvement of railway service, 415. Transportation, see Traffic; economic geography, 45; freight and loca- tion for establishment, 45; natural protection, 45-46; Fig. 2, Distance in terms of cost, 48. Travelling salesmen, 373-380; ad- ministration, 374; assignment of territory, 374-375; revision of territory, 375; routing control, 376-377; records and reports, 378-379; cooperation with the salesman, 379-380. Trucking, principles of, 62 ; economics of, 411-412. Trustee, use of, in launching, 28. Unions, recognition of, in labor con- tracts, 203. Digitized by Microsoft® 442 INDEX United Shoe Machinery Co., Fig. 16, ground plan, 70. VAOH:fiE, Coil., Napoleon's map and tack system, 376-377. Ventilation, effect on labor force, 93; good air defined, 93; temperature, 94; humidity, 94; methods, 94- 95. Vermont Marble Co., Proctor, Vt., Club, 317. Wages, in collective labor contracts, 205-207; factors in wage problem, 226-227; application of science to, 227-229; standardization of con- ditions, 229; standardization of the laborer, 229; first-class-man standard, 229-231; pace-maker eliminated, 229—231; standardized rate of performance, 231; time study, 233-241; older wage sys- tems, Ch. XIII, 242-264; day rate, 242-247; piece rates, 247- 252; departmental bonuses, 252- 253; profit sharing, 253-258; Car- negie's plan, 259-260; The Beth- lehem Company, 260; the shding scale, 260-264; newer wage sys- tems, Ch. XIV, 265-290; Halsey premium plan, 265-269; Rowan premium plan, 269-272; Taylor differential piece-rate plan, 273- 278; the Gantt wage system, 278- 281; the Emerson wage system, 281-286; labor response to varia- tion of wages, 286-287; distribu- tive justice, 287-288; wages of contentment, 288-289 ; welfare work, Ch. XV, 291-323. Waltham Watch Co. , Waltham, Mass., dormitories, 308. Waste, present practice, 3. Welfare work, Ch. XV, 291-323; origins, 291; and the modem executive, 292-293; a phase of general progress, 293 ; geography of, 293-294; what it comprises, 294- 295; factory hygiene and pre- ventive medicine, 295; dressing rooms, 295-296; rest rooms, 296; baths, 296-297; physical examina- tions, 297-299; visiting nurse, 299; hospital facilities, 299—300; mid- day meal, 300-304; housing, 304- 308; education, 308-312; clubs, 312-317; beauty in the industrial environment, 317—320; policies, 320-321; difficulties, 321; con- clusion, 322. Wellington, A. M., rule on location, 38. Wheeler, Lieut.-Col., on machine stripping, 166-167. Works manager, 150-168; duties, 150; state of the art, 150; motion study, 151; standardization, 151- 152; written orders, 152-154; schedxiles, 155—156; foremanizing methods, 156-161; design, 161- 163; standards of accuracy, 163; tolerance dimensions, 163; meas- urement of output, 164-165; in- spection, 165-166; tool room, 166-168. Wundt, classification of tempera- ments, 196-197. Digitized by Microsoft® Digitized by Microsoft® Digitized by Microsoft® Digitized by Microsoft® Digitized by Microsoft® Digitized by Microsoft® m