5fem iork ?tate (Jfallege of Agriculture JU (fnntell iHtriueratH Htbtarg Cornell University Library TS 155.W87 Organizing a factory; how a business is o 3 1924 003 598 277 ™ Cornell University Library The original of this book is in the Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924003598277 ORGANIZING A FACTORY HOW A BUSINESS IS ORGANIZED CONTROL OF PRODUCTION FACTORY DEPARTMENTS AND THEHt WORK ACCOUNTS AND COSTS A. W. SHAW COMPANY CHICAGO NEW YORK LONDON 1918 \>bl^ Copyright, 1908, by The System Company Entered at Stationers' Hall in Great Britain, 1909, by The System Company Entered according to the Act of the Parliament of Canada, in the year 1909, by the System Company at the Department of Agriculture Entered according to the Act of Parliament of the United Commonwealth of Australia in the year 1909, by The System Company Copyright in Germany. 1909, by The System Company Copyright in France, 1909, by The System Company Copyright in Mexico, 1909, by The System Company Under the Title "The Business Man's Library" — Vol. VI (Trade-mark Registered) PUBLISHER'S PREFACE American business men hold that the only way to learn to do things is to do them. This opinion has had much truth and fact to justify it, but it has been undergoing a marked transformation in the past dec- ade. For men are coming to realize that, although no one can learn to do a thing by merely being told how it is done, such precious knowledge greatly facili- tates his learning how to do it when once he gets into practical work. It affords him a strong foundation, barren and useless in itself, but a firm basis upon which to build the structure of business experience. Book learning, abstract knowledge, is like a fertilizer: it does not, of itself, produce anything, but it stimu- lates growth and advance when the live seed, practical experience, is instilled in the soil of work. There is another feature in modern commercial life which has stimulated the output of business litera- ture. Association for the accomplishment of common purposes is having an always greater impetus, and it ,has been accompanied by another kind of co-operation —the give and take of business ideas and knowledge. In other words, business men are realizing that no one man can know all ; that every man can make a profitable exchange by giving his knowledge and ex- 3 PUBLISHERS' PREFACE perience for that of others. For while he gives the knowledge of one man, and that without taking any- thing away from himself, he receives in return the ideas and information of many. The business prin- ciple, "that exchange is the best which gives both parties the largest possible profit," has been found as successful in the exchange of knowledge as of com- modities. In this fact lies the reason for this volume, in which a thoroughly experienced production man offers to other manufacturers the specific fruits of his study and experience. The subject taken up is factory organization. Be- fore the factory or works can run to advantage, before any manufacturing business, great or small, can be placed upon a correct basis, the fundamental principles of factory organization must have been applied. These fundamental principles have never before been brought together in comprehensive form so as to constitute a basis for a complete study of factory methods. In this work may be found both basic principles and time- tried, specific methods for all departments of the fac- tory, however complex. A short sketch of the working history of the author of "Organizing a Factory" will be of interest, as showing particularly that the right man was selected for this work. Mr. "Wood's technical engineering edu- cation was secured at the Boston Institute of Tech- nology. After graduation he took up at once the prac- tical side of plant operation, entering the service of the PUBLISHERS' PREFACE Westinghouse Company. Later he was connected with the Pope Manufacturing Company, the Pennsylvania Reaper Company, and in an important capacity with the International Harvester Company. With these important industrial organizations his work has never been of routine, but always of a con- structive character, to originate and plan, ~to develop and contrast — often a difficult task when some guide exists — but far more difficult when the trail has not even been blazed. Always a student of industrial organi- zation, by education and experience he was enabled to secure the broad view, the thorough training, and the adequate grasp so necessary to the factory expert. The engineering experience necessary to produce a work of the character of "Organizing a Factory" is so rarely found, and so valuable when secured, that any step in the dissemination of this knowledge is an im- portant event in the history of industrial organization and engineering. Knowing that the factory manager of the present day realizes the value of the information along this line, and always keeping in mind the ac- curacy demanded in its preparation, it is hoped that this book will not fail to be of exact service to those for whom this volume is designed. THE PUBLISHERS. PREFACE In revising and rearranging the series of articles written for "System" so that they might be published in book form, the writer has endeavored to enlarge them sufficiently to make the work complete, and to establish such a continuity and relation between them as to lead the reader on in sequence, step by step, in such a way as not only to enable but cause him to gather a compre- hensive understanding of the questions involved. The publication is not intended as a panacea for all industrial ills, but rather as an educational factor that will benefit alike both employer and employe, and possibly enable them to apply means to their own in- dividual ends that will be of mutual and material benefit. The work in no instance is hypothetical, but rather is the result of practical applications made by the writer in his every day work for the larger industrials, and is published now in book form with the hope that it will serve the purpose for which it was intended, by leading to a better administration and accounting thereof, on the part of all who may come into its possession. C. E. WOODS. CONTENTS Chapter Page I. The Necessity of System and New Methods 11 Necessities of modern accounting — Analysis of the new method — Manager and departments — The trust regime — Dearth of scientific managers. II. The Organization Elements and Authorities of an Industrial Body 21 Aims of modern industrial organization — Elements in industrial organization — Authorities for indus- trial body — Following steps of manufacture — Functions of general manager — Administration and accounting chart. III. Departmental Authorities, Duties and Respon- sibilities 29 Relation of higher authorities — General manage- ment of business — Business manager — labor and authority — Bookkeeping — labor and authority — Correspondence — labor and authority — Sales — labor and authority — Purchasing — labor and authority — Orders — labor and authority — Superintendent — labor and authority — Factory power and testing — Shop carrying — labor and authority — Experimental — labor and authority — Drafting — labor and authority — Receipts — labor and authority — Factory stores — labor and author- ity — Shipping — labor and authority — Toolroom — labor and authority — Departments — labor and authority. IV. The Accounting of Expenses and Costs 61 Commercial and manufacturing expenses — Where to charge expenses — Division of costs — productive and non-productive labor — Indicating actual expenses — Classification of labor — Distribution of expenses. V. Analysis of Different Methods of Paying Labor 70 Day labor and costs — Piece-work systems — Prema- ture adoption of piece-work — Necessity of reduc- tion — The premium plan — Its one weakness — The time limit — Differential piece-rate system — A new cost system — Time limit on day-pay basis. VJ Depreciation of Tools and Its Relation to Cost 83 Antiquated methods common — A wage for machine 9 10 CONTENTS Chapter Page tools — How to handle tables — Derivation of ex- penses chargeable — -Real age of tools — Uses of de- preciation tables — Tables show the actual cost. VII. A Complete Analysis op the Elements op a Cost System 93 Analysis to secure the skeleton — Facts concerning each part — Inventory of equipment. VIII. The Machineey of Cost Getting 101 Analysis of items, parts and operations — Accurate record — The bill of material — Bill of material and store departments — Use of time slip — Auxiliary functions of workman's slip — Total costs shown — Additional functions — Make-up of labor time sheet — Time sheet as record and pay-roll — Machine tool time sheet. IX. Labor Records and Classification 116 Applicant's first record — Fluctuations of labor — In- centives to labor. X. Perpetual Inventories 124 Necessary first steps — The rough stores ledger — Records of tools and general supplies. XI. How the Executive May Keep in Touch with the Factory 128 Value of comparative figures — Comparative labor chart— Output compared with labor — Value of the chart. XII. Reduction of Labor Costs 135 How piece-workers limit production — Learning the efficiency of labor — Wanton waste of power — Finding the leaks — Applying the leakage tests. XIII. Schedules for Recording Factory Output 146 Checking the output with requirements — How to provide repair parts — An error in output de- tected. XIV. Predetermining a Business Proposition 155 Comparison of floor space and capacity — The num- ber of men needed for maximum output. XV. Correcting a Factory Schedule 175 Figures showing a shortage of workmen— Correct schedule but poor management — Determining the cost for materials. Glossary 180 OHAPTEE I THE NECESSITY OF SYSTEM AND NEW METHODS Nowhere in the world of business at the present moment are conditions and methods changing more rapidly than in the work shop and factory itself. The application of new methods of processing, the invention of new tools, and the use of new combinations of cut- ting steels, are some of the things that in themselves are revolutionizing not only factory practice, but the character and skill of the labor employed; which re- sults in a tendency toward a vast increase in output per capita. These things are in turn all forcing new methods and ways into industrial administration. Factories today are being run less and less by the authority of experience only, and more and more by the authority of figures and facts. The superintendent and manager of long experience and intuitive knowledge only is forced to make room for the younger man, of less experience, perhaps, but who modernizes his work by the jurisdiction of figures alone. And the modern accountant in all this combina- tion is no longer simply the recorder of generalities, but a scientific organizer who purposes his work as much for organization and administration as he does for ac- counting. Ordinary book accounting as of old no longer fills the need, for book accounts do not show maximum possibilities; they only apply to what actu- ally may have been done; they are simply a record of 11 12 ORGANIZING A FACTORY facts without means of comparison. No accurate meth- ods of determining costs even could be obtained by the old methods of keeping accounts. Three things must always be obtainable in a modern accounting system: what has been done, what Necessities of is bein S done >- and what COuld be done > Modern both as to volume of output and costs for Accounting manufacturing same. The necessity of this has brought about new systems and methods of accounting amounting to almost mathematical surgery. The factory, considered as a thing by itself, is a living, breathing, moving being, which has an anatomy, peculiar to itself of course, but which can, nevertheless, be analyzed in its every function. And it is right here that old and new methods differ in accounting. The modern and scientific accountant no longer takes an already existing condition in factory practice and ap- plies a method of rendering accounts for it; he first insists as far as possible on a proper departmental organization and relation, both as regards the move- ment of a product through the factory from raw ma- terial to finished stores or units, and as regards author- ity from the management down to the last man who is to be possessed of authority. Having accomplished this, he then takes the body industrial and classifies it into members and organs, and applies an accounting system that forces each and every one of these members and organs to function properly and render a correct ac- counting of itself. It is by such methods, and by such methods alone, that the managerial mind is enabled to grasp and in- terpret the whole body, and not some portions of it to the exclusion of others, which has invariably been the fault of old methods of administration. For, almost 0. E. WOODS 13 withouc exception, the tendency of every manager in the past has been in either one of two directions, some- times both — "along the lines of least resistance," or in such directions as particular tastes or past experience would nearly always, sometimes unconsciously, lead him. New methods analyze the anatomy of a business so closely that not the smallest detail or sub-detail of an Analysis of ** em esca P es *ts pro rata amount of atten- theNew tion. Old methods, for instance, paid Method uttle if any attention to the details of single operations on a part, or even to the individual part considered as a whole in the construction of a unit of production ; neither did they take cognizance of the progress of work through the shop : but the modern manager or accountant considers every movement of material and every operation performed on that ma- terial as carefully as a bank looks after its cash bal- ances. It is true, as has often been pointed out, that all factories are not alike in detail, but it is also true, as has not always been pointed out, that the principles in the construction of an accounting system as used by one manufacturing institution should apply to another ; the detail may vary, but not the principles. What is needed is to provide a system whereby the management can view the body industrial under his charge as a whole without being prejudiced in any one direction, either by personal preference or solicitation from those under him ; a system, the principles of which will be so flexible that administration becomes what it should be — almost automatic in its day to day action, in which no contraction or expansion of the business can take place without at once affecting all correspond- 14 ORGANIZING A FACTORY ing relations. This is not to say that any one man would or should have sole charge of every detail connected with and required in the business. It does mean, how- ever, that every department can be brought into such Manager relation with all other departments that and the administration itself, or the acting Departments manager) i s practically the head of every department in the business and acts as such in the ab- sence of the head appointed by him, and that the ab- sence of any one or several heads to a business could not in any wise cripple its general efficiency as a whole. To what can be attributed all this change in man- agerial and accounting necessities? It had its origin simultaneously with the consolidation of kindred in- terests into what are commonly termed "Trusts." The inefficiency and inaccuracy of old methods of account- ing became immediately apparent when outside expert accountants commenced to review individual industri- als for the purpose of placing valuations upon them to furnish a figure which would guide a syndicate in its purchase of same. Fictitious valuations and profits became so numerous that accountants were forced to devise new ways of analysis, and this in itself developed possibilities of accounting that hitherto had not been thought of. And the creation of industrial trusts, or mergers, in its turn, has also created a new demand in the qualifications required of managers and superin- tendents. The old superintendent or manager finds himself no longer the sole authority in his particular vocation; his requisitions and desires will only be granted when backed by proof of figures. In other words, an entirely different condition of regime is gradually spreading itself over the industrial World, bringing with it demand for talent that is scien- C. E. WOODS 15 tiflc in its methods. Unfortunately, this is obtainable only in a very limited degree, at the present time. The Managerial and executive work has Trust never yet reached the dignity of a science eeme or even of a profession; the artisan in industry is far better equipped in this respect, for he is molded by an educational process into a scientific worker at some particular trade and becomes a master at his art when he can set into activity causes that will produce predetermined effects — for this constitutes science in anything. Compare this with commercial man's education to- day, which consists mainly of an accumulation of in- dividual experience and judgment rather than a scien- tific understanding of the broad principles of organiza- tion, manufacture and commerce: it points clearly to the reasons as to why desirable business talent is not obtainable. Our educational systems have not antici- pated the rapidly changing conditions in the industrial world to anything like the extent that that world itself has. Ultimately a commercial education will receive the same dignity in its various branches as does an engineering or legal profession, and business manage- ment and executive work will be equally as exacting in its execution. The concentration of large interests has already recognized the need of all this, but at the present time Dearth scientific administration falls far below of Scientific what the new regime requires, for the real Managers scientific industrial and commercial sys- tem is as yet incomplete. The whole industrial world is still dealing with effects rather than causes. This applies not only to the handling of labor but in a large measure to commerce, which has been only too often 16 ORGANIZING A FACTORY instanced by premature and unnatural growth, not only in individual corporations but in consolidated trusts as well. Every effort at the present moment is being made by the so called trusts to modernize their business at all points, and to this end their agents everywhere are on the lookout for talent that can help them reach the desired end, better salaries and better futures are the incentives offered, and from this one fact individual corporations have as much to fear as from the direct competition of the market. For the tendency of trusts is not so much to reduce market prices in competition as it is to reduce costs of production and marketing by securing and holding the necessary talent, thus leaving individual competition incompetently officered for the conflict. C. E. WOODS 17 18 ORGANIZING A FACTORY C. E. WOODS 19 8>.M o.SSSS§ S3* ill ssa® - a) o 3.2 » 2 9 .&§£3g£a ego a 5 S " S m Si C *> 2 ga§3 3 Sp. -s-agggg S8ggIJS o aj ^ " v befl ~ a>« P ^ ,cj A -~ « += CO a>-^ © "S^ 77 ofl'g £«— .8 feS §"= ° ° P ir.a tic . •d-u«£a>-2g -*= 5i 'rl « 0) v MO H 3 c3.S o a » a uo) 4541 h a a 8 -,- n 1 o O OS- M§t3 S o o fl 2 m ■35 a taa a v 20 ORGANIZING A FACTORY z J w OtnS w z n- W * 5S»2> IrfOO llEl-tr z •Msg a z u ^ £ T o E 0. °i it z o -"••;£ c z <* X 5 u ° Si UI c? "Co £ £;= o D O <" S £ U (C (C N i£S ° s« 5 s - x L 3 OHAPTEE II THE ORGANIZATION ELEMENTS AND AUTHOR- ITIES OF AN INDUSTRIAL BODY A man makes two distinct steps to reach a given end: First: He acquires knowledge concerning the thing in question. Second : He applies that knowledge to the accom- plishment of some definite purpose. The first step is analytical and comparative in its scope; the second is creative and constructive in its purpose, and whether a man maps out a professional or a business career for himself, this rule prevails. The surgeon must study the body physical before he can operate upon it : its organization, in general and in de- tail, must occupy his first attention. The architect must learn the physical details of materials and their correlation in strengths and usage before he is qualified to design a structure. The same principle applies to all engineering professions, and, as a universal law, must also apply to business, and especially to manufacturing industrials. A factory with all of the various depart- ments and authorities which go to make up the exist- ence and control of the body industrial has an anatomy as clearly defined as has the body human, and is usu- ally healthy or diseased in exact ratio to the governing power of the latter. The first interest centers wholly upon organiza- tion ; without an understanding of this, one cannot be qualified to administer to the wants of the body indus- 21 22 ORGANIZING A FACTORY trial, whether to keep it healthy or to relieve it of disease. The aim of organization, literally denned, is: First: To systematically unite individuals into a body purposed to work together for a common end. Aims of Modem Second: To unite in reciprocal and industrial concrete relations and duties. Organization TMr( j . Tq bring .^ systematic con , nection and co-operation parts of a whole. Fourth, and specifically as applied to an industrial body : To prepare for the transaction of business by electing and appointing officers, committees and au- thorities over divided and subdivided parts of a whole business so that the duties of each shall correlate and co-operate with all. These definitions show the first necessity of com- mercial or industrial organization — i. e., co-operative working by the head of each and every department. Any organization that is not so working is diseased, which, unfortunately, is often the case. The writer has found, in analyzing and diagnosing organization and accounting work, that charts can ex- press more on one page than is sometimes expressed in several chapters of writing, and has been the author and originator of many methods of charting industrial expressions. It is necessary, as a first step, for ana- lytical and other purposes, to make a chart expressing all of the relations governing the organization of a busi- ness so as to show the very foundation upon which all authorities, accounting, and business transactions are based and conducted. There have been more failures scored both personally and financially for lack of these very elements in a business than by reason of any other one thing. As well try to build a house without a foun- C. E. WOODS 23 dation as to try to conduct a business, especially a manufacturing business, without proper organization. The actual manufacture of material into a specific product is a sort of digestive process which must have a functioning organization purposed to meet the re- quired ends, just as the human body has, and it is governed by similar conditions. It must also be directed by a specific intelligence and must have in- ternal and external avenues of correspondence to keep it alive; and, like a living organism, must adhere to the eternal economy of things and show a profit by its activities or it cannot progress. To exemplify this in a simple way, the writer has laid out Figure I, showing the prime elements corn- Elements in posing the anatomy of an industrial body, industrial One does not have to draw on the imagina- Organization tion yery far to make a comparison of this anatomy with that of man. It has its mind, will power, and brain to direct it, as indicated by the stockholders, directors and executive officers, a heart which keeps in flow the circulating medium internally ; and avenues of correspondence with the outside world which furnish to it the very elements of existence. This chart shows first, that the stockholders are simply elements belonging to the general public who have made an investment for some specific purpose; second, that immediately after this, the election of directors sets into action the first internal factor in the body, which is then divided into different functioning powers by the election of executive officers. The final circulation of the business is kept active by the auditor or comptroller and is divided into four factors, viz.: Administration, Labor, Up-keep and Ma- terial Expense, the dotted lines within the oval indi- 24 ORGANIZING A FACTORY eating to what extent this circulation enters into the organization as a whole. Labor permeates through all departments, Material not extending beyond the pur- chasing and accounting departments ; while Up-keep ex- pense permeates through all departments and is com- posed — as indicated by the second dotted line within the oval, of both labor and material. As Administrative Expense is but a local circulation of expenditure in the Administrative Section, it is indicated by the line so dotted. This chart also shows what the avenues of corre- spondence with the outside world are, incoming corre- spondences consisting, first, of the stockholders who make an investment; second, the material receipts; third, the commercial receipts. The outgoing correspondences are, commercial dis- bursements in payment for material received and manu- factured output which comes back in the form of com- mercial receipts. The least number of prime elements to which a manufacturing business can be reduced and retain a proper functioning power is also indicated. In the Manufacturing Section, it is Purchasing, Stores and Manufacture. In the Commercial Section, it is Ac- counting, Advertising and Sales, with a general man- ager at the head of and connecting the two. No matter how small a business, it must have this much of an anatomy. No matter how large it may grow, its ulti- matum is simply the subdivision of these prime ele- ments into extended functioning powers. We now come to Figure II, which is one of the most interesting and valuable charts made by the writer in his work for the larger industrials. While it is reduced here to the simplest possible expression, it C. E. WOODS 25 at the same time contains all of the elements which govern the laying out of an organization of any magni- tude. This is the Chart of Prime and Working Au- thorities, showing exactly where each authority is re- lated to the others and how far each authority may ex- tend in the business. The writer has retained in this chart the adminis- trative, commercial and manufacturing sections in the Authorities for P osi tion as exhibited in Figure I, and Industrial has separated these different sections into Body specific departmental divisions for the purpose of showing how the authorities governing dif- ferent departments are related to the industrial body as. a whole. Departmental division is a necessity oftentimes not well understood, and means much more than a mere division of authority. It is necessitated by the fact that different methods of procedure in the manufacture and marketing of goods require widely varying experi- ences with the authorities that govern them; so that the division of a business into departments is controlled by two elements, viz. : The character of the labor it is necessary to employ, and the character of the material processed. Therefore, in order to know the proper division of a manufacturing business into departments it is necessary to first trace the essential processing of material from a raw state to a finished product by pro- gressive steps, and then lay off the departments along this line of travel in accordance with its differences in the elements above designated. In Figure II we see in the Administrative Sec- tion that the stockholders control the directors and that their paths of authority do not extend beyond this. ^Te then see that the directors control the executive 26 ORGANIZING A FACTORY officers and form themselves, or a part of themselves, into an executive committee, and that the paths of authority for both the directors and executive com- PoUowin mittee are identical, but that they do not steps of extend beyond the line which separates Manufacture them frQm thfi gpace occupied by the gen . eral manager. It also shows that the general manager is accessible to all of the executive officers. This chart further shows the exact position of the auditor or con- troller of the company as closely identified with the board of directors, all the executive officers and the gen- eral manager ; but that his office does not extend beyond that. It is an isolated dotted circle, which indicates the independence of this office as regards the work per- taining to it. Coming now to the general manager's path of au- thority, we see that it extends entirely around both the Manufacturing and Commercial sections and that all departments coming up to the dotted line are directly answerable to the general manager for the conduct of their duties. In Department No. 1 the purchasing agent is the first division into sub-authority, whereby the chief stores clerk, Department No. 2, is under the purchasing agent and communicates only with the manager through the former. Department No. 3, office of superintendent, has a path of authority extending under the general manager as far as the Manufacturing Section goes, and sub- authorities under him of chief engineer, assistant super- intendent and chief shipping clerk, under whom the business is again divided into sub-authorities, as indi- cated by Departments No. 5 to No. 15 inclusive. The writer has found this method of procedure in O. E. WOODS 27 charting organization most effective, as the lines of au- thority can be exactly and definitely set and extended into any number of sub-divisions of authority that a business may require. The prime distribution of expense is another inter- esting grouping. This shows, first, the confines of the Functions of administrative expense ; second, the manu- General facturing non-productive expense; third, anager ^ e manu f ac t ur ing productive expense; fourth, the commercial or selling expense. This method of procedure is so flexible in a chart that it can be divided up to meet the requirements of any business. One point to which attention is called in connec- tion with this chart is the fact that while the shipping and warehouse are under the authority of the superin- tendent, their expense is a commercial or selling ex- pense, the details Of which will be studied later in the Accounting Charts. The laying out of such a chart as this is the very foundation for all administration and accounting re- quired, and when laid out after this method and given the consideration due to any specific business, it clears up more questionable points and avoids more disputes regarding authorities and necessities than any method that has ever before been devised. It is wonderfully effective in this respect because of the very simplicity employed in its construction, and once laid out a copy should be placed in the hands of everyone having au- thority in a business. The writer uses similar charts for making records in many ways. The actual Organization Chart em- ployed for any specific business has each department apace filled in with not only the names of the heads of 28 ORGANIZING A FACTORY the departments, but also the names of all sub-authori- ties that the head has under him ; so that the Organiza- tion Chart shows not only what is exhibited as funda- mental here, but also the entire personnel of an organ- ization above the ordinary labor employed. In most instances the application of new ideas has to be made to already existing plants, and in analyzing such for the purpose of determining most economical production, as well as a system for keeping costs and records, it must always be borne in mind that the first desideratum is the movement of product from raw ma- Administration terial t0 finished units, irrespective of any andAocounting geographical departmental conditions or chart locations already established, as it is only by this means that possible rearrangements and loca- tions are attained. With such a chart as Figure II arranged on such a basis, i. e., with departments put in sequence through the manufacturing section, in accordance with the dif- ferent movements required in the processing of ma- terial, it becomes a very easy matter then to take geo- graphical condition into consideration and arrange them in such a way as to make the movement of product manufactured continuous in one direction. This, of course, cannot always be carried out in already existing plants, but the writer has been able to make some wonderful reductions in costs on this point alone. CHAPTEE III DEPARTMENTAL AUTHORITIES, DUTIES AND RESPONSIBILITIES Having laid out the general chart of organization by dividing it into authorities, and establishing the lines of its beginning and termination, it must be fol- lowed up still further by carefully laid out written in- structions to each department head. In other words, a written set of rules governing these authorities should be carefully compiled in detail. To illustrate this, I will reproduce here a set of such rules as I have laid them out for a number of fac- tories so that the reader may become not only thor- oughly conversant with the method, but also with many general details of importance which would apply to any manufacturing business — although, of course, no one set of rules in all their details would apply to every business. The division of a business into departments, and their authorities would be of little value unless followed up by such specifications as would enable every author- ity to thoroughly understand his duties and responsi- bilities. In this I do not propose to go farther up than the General Manager, as the duties of Committees, Direct- Eelation of ors an( ^ higher authorities would be foreign Higher to this work. I will only say that a clear Authorities understanding of the relation between the General Manager and an Executive and Advisory Com- mittee is essential. 29 30 ORGANIZING A FACTORY The General Manager usually has limitations set upon him as to expenditures and obligations or con- tracts that he shall assume; before executing any ex- ceeding these he must have the sanction of the Advisory Committee. And the Advisory Committee stands in ex- actly the same relation to the Executive Committee. That is to say, a General Manager may have supreme authority in expenditures and obligations to perhaps $10,000.00. An expenditure exceeding that amount must be passed by a vote of the Advisory Committee. The Advisory Committee, in turn, has jurisdiction up to, say, $25,000.00. Exceeding this the matter must be passed upon by a vote of the Executive Committee, which, acting as the representative of the Board of Di- rectors, has no limitation set upon it. In case no Ex- ecutive Committee exists, this applies directly to the Board of Directors. But where a corporation has a large board it has been found most effective to utilize the services of an Executive Committee, elected from the Directors by themselves, to act in their place. In very large corporations there are often other committees organized, as for instance, Committee of Finance, Committee on Sales, Committee on Improve- ments, and so on, but they are usually short termed and elected for some specific purpose, while Executive and Advisory Committees are a permanent part of an organization. General Manager, under the direction of the Execu- tive and Advisory Committees, is in full charge of all General ^ e company's commercial and manufac- Management of turing affairs, as indicated in Figures I Business and j^ and ig usual i y ass i s t e d in the larger corporations by two competent deputies: first, a Business or Assistant Manager; and, secondly, a C. E. WOODS 31 Superintendent or Works Manager. The authorities of these two men in the business are distinctively separated one from the other ; the former is connected solely with the business or commercial affairs of the Company ; the latter has sole charge of the producing or manufactur- ing end of the business. Specifically, the points that require the attention of a General Manager are : 1. Rentals, depreciations, special machinery for contract sales and by order of the Executive Committee, the purchase of real estate, buildings, equipment and extensions. 2. Banking arrangements, notes, discounts, special credits, inventories, balance sheets, contracts, taxes. 3. Fixing of employes' bonds' insurance, fire, sprinkling, and watchman's service. 4. Creation of card, cost, accounting, and depart- ment systems. 5. The appointment of all offices and officers under Manufacturing Authority. 6. Distribution of all mail matter, and creation of systems for recording, filing and mailing of same. All contracts and all purchases out of the order of regular requirements come directly under a General Manager's administration, whether they are for ma- chinery for the plant, or for the filling and executing of sales contracts, or for items not manufactured by the Company but sold by it in conjunction with its regular production — such as machinery, supplies, and accessories. This last authority is exercised only in case the purchase is of a specific nature from time to time; where supplies and accessories are carried con- stantly in a merchandise account, they are purchased through the regular channels by the Purchasing Agent. 32 ORGANIZING A FACTOKY It is the General Manager's duty to compile and arrange the sale prices of all products manufactured in the business, to arrange for and supervise the compila- tion of all the inventories from data which shall be furnished him by the heads of each different depart- ment through their respective channels, the arrange- ment of which should be in such a way as to check itself with the Auditors financial report. The general system of bookkeeping adopted must be provided for by the General Manager in such a way as to harmonize with whatever system of keeping costs and other records that he may introduce into the busi- ness. It must be a system that, in connection with the monthly reports and costs system, will best exhibit the constant expenditures and receipts in such a way as to clearly indicate progress or retrogression in the busi- ness and how and at what point it exists. In many companies a Business or Assistant Man- ager is appointed whose duty is specific in its nature. Business or Assistant Manager, under the direction of the General Manager, has full charge of all office Business Man- wor k that especially pertains to the com- ager-Labor mercial end of a business, is responsible and Authority to the General Manager for all the de- partments coming under his supervision, and must at all times consider himself as the General Manager's deputy. Aside from taking care of the general and specific correspondence coming to his office, looking after the details pertaining to the various departments coming under his direct charge, the three most important duties of the Business Manager, and the real purpose of his office are : first, the promotion of sales ; second, the C. E. WOODS 33 collection of accounts; and third, the auditing and record keeping of all correct commercial business. In consequence the Business Manager passes on all requisitions for material; after having passed on these, he renders them to the Purchasing Agent of the Company. He also passes on deliveries covering all purchases ; in other words, he investigates the time and periods at which the various requisitions call for ma- terial, and from his knowledge of requirements and sources of supply, sets the time of delivery that money may not be unnecessarily tied up in such items. Further, he passes on all bills payable, and renders them over his signature to the accounting department, that disbursement may be made over his voucher. In this manner, times of delivery and payment of bills can be regulated and balanced, and the carrying of surplus stock avoided or the making of a premature investment of money in materials and supplies easily checked. As the Purchasing Department comes under the Business Manager, it is his duty to keep himself fully posted regarding the demand for all supplies used in the business, and to constantly confer with the Pur- chasing Agent regarding them, in order that an excess of purchases is not made of any item or items, and that items are bought at lowest prices. Especially is it his duty to see that all monthly auditing of the Company's business is properly done for review by the General Manager and Board of Directors at such times as are set by them for such investigation, and to compile all items belonging to his departments and administration for the rendering of inventory by the General Manager. The Business Manager has no authority to change 34 ORGANIZING A FACTORY any system of book, record, cost of filing, as installed by the General Manager, nor has he the authority to contract for the purchase or disposal of anything not under him, except the General Manager shall by special instructions so direct; but he is responsible for the maintenance of the discipline and operation governing the departments under the regime created by the Gen- eral Manager. He should constantly confer with the General Manager concerning all departments under his charge. One point should be emphasized here. The Busi- ness Manager should not have any direct authority over the Superintendent, as the latter is responsible to the General Manager in exactly the same sense that he himself is, and should be a person competent to act directly in the discharge of his duties, as the head of the manufacturing end of the business, just as the Business Manager is at the head of the commercial end of the business. The same relation should pertain vice versa, otherwise the efficiency of these authorities will be im- paired and unnecessary confusion often arise. General Accountant, under the direction of the Business Manager, has charge of all bookkeeping, bill- Bookkeeping- in & P^ cash > and a11 statements and Labor and financial records covering the Company's Authority commercial and factory business. He has under his charge all bookkeepers, assistant bookkeepers, bill clerks, cashiers and other help employed in this department ; he has charge of all pay rolls as per times account rendered by the Superintendent and Business Manager for all help employed in the factory, and for all help employed in the office (the time account of lat- ter should be kept separate under the Business Man- ager). C. E. WOODS 35 The General Accountant has no authority to amend or change the system of accounting, as installed by the General Manager, and no authority in any other department except his own. He should, however, have full and complete access to all details that interfere with or pertain to the Company's accounting of any nature, in order that the rendering of his monthly statements may be clear in every detail, covering the commercial, factory and private Company accounts. The Accountant has no authority to make disburse- ments except over properly audited vouchers. All ac- counts collectable by the company should be enforced by the Accountant up to the point where legal assist- ance is required; at this stage the Business or General Manager will take up the issue direct or through the Corporation Counsel of the Company. All help employed in this department is responsi- ble to and hired by the Chief Accountant, and placed under such bonds as the General Manager shall require. His own bond is fixed by the General Manager direct. The character of help employed, the calendar con- dition of the books, and the workmanship of the ac- counting are the sole responsibility of the General Ac- countant. In many companies the General Accountant holds the office of Treasurer, which is a most excellent idea, as it not only gives his office authority, but gives him great power in the enforcement of his duties in relation to the public, imparts more dignity to his presence in the office, and strengthens his interest in the business. To hold his office, he need not necessarily be a director or even a stockholder, although it is much better if he is both a stockholder and director. Inasmuch as this is a very important office it 36 ORGANIZING A FACTORY should have most careful consideration in the person selected to fill it as regards experience, character and disposition; for he comes first in line for promotion to Business Manager, and thence to General Manager. Chief Stenographer, under the direction of the Business Manager, has full authority in the employ- Correspondence ment of a11 labor and cle rical work re- — Labor and quired in the department of correspond- Anthonty ence; he has charge of all the filing of cor- respondence of whatsoever nature which comes in this department and is responsible for its safe-keeping and proper filing. All stenographers employed in the offices come entirely under the Head Stenographer's authority, and, as required for dictation throughout the various de- partments of the business, are furnished at the option of the Head Stenographer — according as they may be occupied or otherwise. By this means any stenographer becomes - sufficiently familiar with the business to be available for any department — a great convenience when the stenographic work of departments is irregu- lar. In addition to this, it throws a safeguard around the correspondence of the office by breaking the con- tinuity of work in any one department for any one stenographer ; in plain words, no one stenographer will become too well acquainted with the Company's secrets or internal affairs, and dismissal will carry no appre- hension to the Company on this score. Nearly all large concerns, not using phonographs, now employ this method, the only exception being where private secre- taries act as stenographers for some of the officials. All materials used in this department, classified as stationery, must be bought upon requisition of the Head Stenographer by the Purchasing Agent, and a C. E. WOODS 37 z g en > 5 Ul in z M Q. X lil Ul I E a, 38 ORGANIZING A FACTORY IT O m 6 d i- 1 o 1 1 1 £ O cr Z t- < £ c o z z u o .s - - - - -- -- : --- -■ - ---•— ll if > h o Q H Q. < o ■ I 5 I 1 1 s S i 8 § § s s 8 IX 9 < < < _° S 2 £ 2 2 s li 1 : 1 --""--- J* -- ! — - --- - li IT"*- ' - - - f > 1- o a o a. a. z z < H It 3 I si % g il __ ^ _ i - _ i|_ „ < * < < < < i ; li :: !' = ^ - - - ay i- z Id E t- K < Q. S =1 O O © t~ TOOL BOOM TOTAL WOOD SHOP 3E o o o is < 1 S o ^ — 1- = 13 2 § Q o o o s < ill o a co 6 z O o o < a«M a : -IH mo Tdr MY as HM» ,. K a p tn 23 ^3 C. E. WOODS 39 i if a i 0_i z 2 i< . «£ Sh : «!- 30 : CCO 1 OH »H || OH 10 LU -l f; : J 3 i 1 Q LU CO j 0. a. O i- 1 ! o CO > 4 i lj -i CO 1 j 1 <: DC: o IK "" a. CO o k- < 3 IL. 1 CO ! 01 UJ DC, K r 3 Sal 0.111 1 Q 1L to s 1 ca ; : 0) 1 1 HI 1/1 i !j o s«| a J ! !j CO -1 OJ < O H id UJ n 2 !' 1 !' 1 z LU 5 15 s -1 in X ! 1 ( < LU LL IT UJ 1- < s CO _i 0. 0. St , QUI (0 1 Cfl _1 < LT Hi s 1 LU H H LU 1 I"' »- c o Da «( _i LU o u. IL h ' z a. m 1 m LU 2 LU a ■ o it" > 1! < ID 1 o CD H Z < _l H i i ! ! «)! (0 1 D -i f- < 2. >- * 0) ! in HI C in 1 z II 11 «c) o H | uj t! | oa | H m o LU] »j -i a (0 a. ^ 1 J o ■* 2 j j <* H 1 i- I -J O 0. : U o < 1 a rr = ... -.- .....aJL _ to H L = LU CO ■ i en I EC O 2 -i CO < 2 z 1 CO 0) Z |l 1 o < E 1 a i o - I'- ll - l « bo 1= 9 c 3 9 40 ORGANIZING A FACTORY LI E < z z z d z 6 z 6 z o z (3 z z -3 a: 5 i II Ul Q d IS N 10 0) o ._ CM o <» < < « H z •■ ^ *~ •■ N w 01 w N o u I LlJ Ul £ ■» < z U iZ u. O 1 (0 z z 1- 1- «l Q 3 a. 6 z Ul < > o 0. ui Ul hi Ul o - N o * m a Ul t- < -1 -1 1- < z c iZ a _i < u -1 < u i- U) -1 s < X C a u z z 111 t- < S £ u. o Q O E > u. 1- z n h u 4 o u u. z z s D u 6 U. s 5 < 3 z w n * 10 o N CO 01 C. E. WOODS 41 proper account rendered by the Head Stenographer in return for them. This account includes a daily report of the number of letters, packages, and parcels mailed, with the number and denomination of postage stamps used in this department. The Head Stenographer has charge of and is held responsible for the condition of all machines, desks and other appliances used in this department, and renders all requisitions for repairs required. All such work is charged to the proper account of expenses incurred in this department each month. In addition to this the Head Stenographer has charge of all regular supplies used in the office of what- soever nature, including all blanks, bulletins, cata- logues, literature, postage stamps, and so on, and de- livers them only on proper requisitions from the other departments. This constitutes what might be termed the office stores, the inventory and maintenance of which devolve upon the Head Stenographer. When regular office literature of any kind is be- coming low the Head Stenographer must notify the Business Manager, who at once proceeds to take up the matter with the General Sales Agent, from whom the production of this literature emanates. If the same literature is to be used over again, a requisition is passed on to the Purchasing Agent for making of con- tract with the printers. The same procedure applies to all stationery. Postage stamps, however, should be obtained through the Cashier of the Accounting Department, or from the General Accountant, who will then be able to make proper distribution of the expense charge. Negli- gence of this one item alone is costing many concerns hundreds of dollars annually. 42 ORGANIZING A FACTORY General Sales Agent, under the direction of the Business Manager, has full authority over the employ- Sales-Labor nient of the salesmen, the making of their and salaries, the passing and allowing, or re- ut onty jection of all traveling expenses incurred by them, and the arranging of all representation for the Company on a commission basis. But he can make no permanent contracts with dealers that are binding, un- less they have been approved by the General or Business Manager. All prices made by him for apparatus must be standard prices, confined within such circle of contract as will be furnished by the Business Manager. If out of the regular method, terms of payment and deliveries must be subject to approval. All photographing of apparatus for office record, advertising or catalogue purposes is also under the charge of this office. This office does not carry with it any authority to make sales for the company of any apparatus or sup- plies not listed as standard product or regular supplies, nor does it carry with it the authority to make con- tracts for the sale or delivery of any auxiliary ma- chinery, such as engines, except subject to approval by the General or Business Manager. The General Sales Agent has full charge of all advertising contracts for journal, magazine or any periodical advertising, and of the compilation and is- suing of all factory advertising literature, such as cata- logues, bulletins and price lists. The accounts of the latter, as distinguished from periodical advertising, must be kept entirely separate. No single contracts can be made by this office for periodical advertising ex- G. E. WOODS 43 ceeding a certain fixed sum in amount and a fixed period of time. All contracts for office literature must be passed through the regular avenues for purchase, and all ac- counts contracted for by this office must be passed through the regular avenues of auditing before pay- ment can be made. The reason for putting all photography, cut-making and advertising under this department is because it belongs exclusively to the expense of making sales, and because a thoroughly competent General Sales Agent should be a man thoroughly versed in the art of adver- tising. Therefore, should an advertising man be em- ployed expressly for such work, he should come under the authority of the General Sales Agent, as his salary is really an expense chargable to sales. The importance of this office to any company should provoke a liberality of spirit and policy in ex- cess of any other one department, for on the successful exercise of this department depends in a large measure the success of the business. Good salesmen are not always good in other qualities, and a General Sales Agent should always give such things due considera- tion. Purchasing Agent, under the direction of the Busi- ness Manager, has full authority in the purchase of reg- Purchasin ular and standard supplies and material Labor and for the Company, and for all machinery Authority an( j ^ QT a jj p 0wer su ppii e s as coming in regular form over properly audited requisitions. The Purchasing Agent, however, has no authority to pur- chase anything except what he knows to be such re- quirements from experience, except by direct instruc- 44 ORGANIZING A FAOTOKY tions from the Business or General Manager. Any- thing out of the regular requirements, such as auxiliary machinery for sales contracts, building material, real estate improvements or complete buildings, must have the personal audit of the Business or General Manager, before authority is vested in the Purchasing Agent to exercise his office. All purchases of any magnitude should be made only after receiving bids from several sources on the same requirements, and then the purchase must be placed with the lowest bidder, all other things being equal. It should be the Purchasing Agent's duty to keep a complete and indexed reference file of catalogues and price lists of each and every thing used and purchased by the company in connection with its business, and a private card system covering all prices and discounts on them. The latter should be kept in conjunction with his regular card system of quotations which should be separate from his card system covering purchasing orders. Further, all confidential prices and quotations on the cards should be kept in symbol, the key held only by the Purchasing Agent, the Business Manager, and the General Manager, thus preventing any collusion be- tween minor employes and the representatives of other companies. All requisitions for material and supplies and minor purchases, must have the audit of the Business Manager, before being executed by the Purchasing Agent, and all requisitions for machinery or equipment must have the General Manager's audit before purchase is made. Chief Order Clerk (sometimes Chief Engineer, and sometimes the head of the order and schedule depart- C. E. WOODS 45 ment), has entire charge of the issuing of all production orders for shipping to the factory, as per sales orders handed him from the sales department or manage- Orders-Labor men tj an & * s responsible for the proper and classification of these orders into regu- uthonty j ar p r0( j uc t S) parts and repairs, mer- chandise account, or outside contracts. Whether goods are already in stock ready for shipment, or are to be made up as per order does not concern the Chief Order Clerk, except in so far as time of delivery is concerned. All production orders issued to the fac- tory for the making up of stock goods must pass through the hands of the Chief Order Clerk — they pass directly from the General or Business Manager to him and then the Superintendent. Notification of all ship- ments by the Shipping Clerk come direct from the Chief Order Clerk, are O. K.'d by him in accordance with his original order, and passed to the accounting depart- ment for the rendering of an invoice. Where shipments are made in installments covered by one shipping order number, the responsibility for the getting out of the order does not cease with the Chief Order Clerk until the entire shipment is completed, after which all re- sponsibility on his department ceases. Where a Chief Engineer is employed, as in an auto- mobile or any other business making a constant demand for drawings and engineering work, the draughting room and the model and experimental room should come under his direction. In such case, all orders for production of any kind must first pass through his hands, be checked, and have drawings and bill of ma- terial attached to them by him, unless the necessary drawings are already in the factory. In that event no- tation of this fact must be made on the order and bill 46 ORGANIZING A FACTORY of material before they are passed by him to the Super- intendent. In some lines of work, the office of Chief Engineer would not extend beyond the model, experi- mental and draughting room, and sometimes not be- yond the model room. The management will always have to regulate the office of Chief Engineer in accordance with the neces- sities of the case. Where a Chief Engineer is not em- ployed at all, the draughting room comes directly under the General Superintendent, and all drawings before going into the factory for execution must bear the sig- nature of his approval. Superintendent, under the direction of the General Manager, has full charge of the manufacturing end of superintendent the business. Independent of the regular —Labor and workings and department organization of Authority the factory; the Superintendent has di- rectly under his charge all timekeeping and all inspec- tion of work in factory, which is in no way under the charge of any departments or foremen of departments ; that is, all inspection of work must be directly looked after by the Superintendent, or such clerks or inspec- tors as he shall deputize in his place. This is done that there may be absolutely no collusion between the fore- men of the various departments and the inspectors who pass on the work produced under the various foremen's supervision. The Superintendent is responsible for all requisi- tions made for material, machinery and supplies, for all requirements and requisitions for the arrangement and allotment of work throughout the factory, and their execution on time in accordance with the General Manager's orders. He has sole responsibility for the class, character C. E. WOODS 47 and quality of the labor employed throughout the fac- tory, and the discipline under which this labor is main- tained. He has full and complete authority in the ap- pointment of all foremen and deputies employed under his charge. As the Superintendent is the connecting link be- tween the manufacturing end and the commerical end of the business, he should always be prepared for con- ferences on any matters pertaining to the whole busi- ness at a moment's notice. To do this his office must be constantly posted and up-to-date regarding all con- ditions of material, supplies and work under his charge, in order that he may estimate the time required for the execution of any construction under consideration, and be prepared for steps of an extraordinary nature that might be needed for the fulfilling of any contract out of the usual order. The Superintendent is responsible for the execu- tion of all shipments as per order of main office, and must be thoroughly posted and have data compiled rela- tive to transportation for all requirements demanded by the business of both intake and output. This in- cludes the complete schedule of freight rates to all points of distribution, and the obtaining of all special rates for any special requirements. The office of Superintendent pertains strictly to the producing end and not the creating end of the busi- ness, consequently he is in no way responsible for the designs or working of apparatus built, further than its compliance with specification and drawings delivered him as approved by the General Manager, except in so far as he himself shall design or improve for the Gen- eral Manager. It is the Superintendent's personal duty to see that 48 ORGANIZING A FACTORY all insurance requirements are maintained, that a proper fire service is incorporated, and that all neces- sary watchmen and watchman's devices are provided. He must carefully keep watch of the service being obtained from the equipment, that the machine tool wage may be kept as near standard as possible by a proper distribution of the work throughout the factory. Specifically, his duties are: first, production; sec- ond, delivery of production; third, safety of property. These three form the prime captions for his thousand and one duties. Mechanical Engineer (usually the Assistant Super- intendent), under the direction of the Superintendent, Factory Power * s responsible for the conditions, opera- and tion and maintenance of all primary estxng power units, such as the boiler, pumps, engines and all their auxiliary machinery, generators, storage batteries, all motors used for driving apparatus and machinery throughout the factory. He has charge of all engineers, firemen, oilers and watchmen, and is responsible for all plumbing and sani- tary arrangements. Further, in some kinds of busi- ness, the Mechanical Engineer has direct charge of all labor in connection with the testing of the product, which shall be delivered to him from the assembling de- partment, and returned by him to the assembling de- partment. He is responsible for all supplies relative to the units under his charge, such as coal, oil and waste, and makes all requisitions on the Superintendent for same. All drawings and designs for factory extensions, plant enlargements, factory arrangements and provis- ions come under this office, as do all railroad provisions and connections, coal storage, water supply, and so on. 0. E. WOODS 49 This department is responsible for the appurte- nances used for moving machines around the building, Shop Carrying does the handling of all Shop Carrying -Labor and throughout the factory, and has charge of ut onty a jj g 0Qr men j^. j g on -j-jjjg, make P™per pres- and ervation of packing materials and lumber Authority j or f u t ure US€) check over entire receipt in detail, and hand memorandum of receipt to Superin- tendent. The latter immediately forwards them to the main office for checking against the original purchase of invoice accompanying them. Immediately upon the completion of the unpacking and checking over all goods, they must be delivered to the Chief Stores Clerk with name of consignee, date of receipt and point of shipment attached. They then pass to the charge of the Chief Stores Clerk. Under no circumstance is the consignors' invoice to be given to the Receiving Clerk to check from, as this too often leads to check marks on the invoice without a count of the goods. His memorandum of receipt contains an account of all items and statements, and must be compared with consignor's invoice in the main office entirely independ- ent of the Receiving Clerk. This method insures abso- lute certainty regarding the correctness of the amount and quality of the goods received. Chief Stores Clerk, under the direction of the Superintendent, has full charge and authority in the Factory stores ' ac t° r y stores, which are classified under —Labor and three divisions : finished, semi-finished, Authority and rougll s t res. The chief of these de- partments is responsible for all stores and supplies of 52 ORGANIZING A FACTORY finished, semi- and unfinished product. He has charge of all assistants and storesroom clerks, and must render all receipts to the office for the entire intake and output of the factory materials and supplies. All requisitions for supplies must be made by the Chief Clerk to the Superintendent, and must in each instance be accompanied by an inventory of goods on hand at the time of requisition. The Chief Stores Clerk has under him all stock clerks, stores clerk and inventory clerks, and has charge of all finished stocks, such as completed ma- chines or parts of machines that can be used and ship- ped for repair work, which themselves constitute a fin- ished product, until required in the assembly room. In other words, there should be two divisions in the stores room department of material: rough stores, constitut- ing raw material which is used to produce finished stores as made by the factory; and finished stores, which constitute all work done by the factory after completion, and all purchases of supplies or parts which are ready for assembling or filling of orders with- out the requirements of labor in the factory. The Chief Stores Clerk is solely responsible for the maintenance of a perpetual stores inventory system, and for the keeping it posted up to date. Immediately upon receipt of goods, the items must be posted on cards covering such items, before goods are placed in storage position. All job tickets for work must be made out by Chief Stores Clerk from each bill of material received and sent to the Superintendent with his requisition for parts required. The tickets are then given by the Super- intendent to the foremen of the various departments, C. E. WOODS 53 who distribute them to the men in their departments whom they desire to do the particular operations. Shipping Clerk, under the direction of the Superin- tendent, has charge of all shipments made by factory, Shipping-Labor an ^ * s responsible for the direct acquisi- and tion of all data relative to means of trans- it onty portation by wagon, car or boat. He is re- sponsible for all material used for packing purposes and making of shipments, and must render requisitions for them to the Superintendent. He cannot receive them from stores supplies until audited as above. He is held responsible for all errors in shipment and for all delays after goods have been delivered to his department. All shipments made must be in ac- cordance with written instructions and requisitions, and must be correctly written on shipping clerk's mem- orandum. The Shipping Clerk has no authority out- side of this department. He must make all requisitions for additional help, when insufficient help is in the de- partment, directly through the Superintendent. He cannot take men through any of the foremen. No shipment can be made until final orders from the Business or General Manager are received by the Superintendent after shipment is ready ; in actual prac- tice this means that the main office must be notified of completion of an order ready for shipment and return final shipping orders before actual shipment is made of any goods. The original productive order marked "shipping" must remain in force until a complete shipment of all the items contained thereon has been made. When goods covered by one order are shipped on installments, memorandum of shipments bearing the order number 54 ORGANIZING A FACTORY must be made out to notify the main office, until the last shipment, when the original order must accompany the memorandum. Foreman, under charge of Superintendent, is re- sponsible for all machines, dies, jigs, and any special Tool Boom— tools classed as tool room property. He labor has all the labor in this room directly and Authority un( j er jjj s c h ar g ej and is responsible for all materials received from Company's stores for use in this department. This department is an exception to all other de- partments, inasmuch as work is arranged between fore- men of all other departments and this one, but can be arranged by the Superintendent so that all requisitions issued by such departments will be honored by it with- out his audit. This arrangement lies entirely in the hands of the Superintendent. All timekeeping of this department comes under the head of General Time- keeper ; but it must be kept entirely separate from other work so that all work done in the tool room may be charged to the department for which it was done, or to a productive charge when items are made for sale. The Foreman of tool room must understand that his department is for the benefit and necessities of all other departments, but not under them, and that each requisition must have attention in its order of issue and receipt as near as possible. He must exercise great care to see that each piece and each operation on each piece is properly headed on the workman's job ticket, so that a proper distribution of expense may be made from these tickets. All jigs, dies and special tools made for the use of the factory are a subject of general expense, and must be charged to it — not, as is often done, to plant better- 0. E. WOODS 55 ment, or equipment increase, for such items have abso- lutely no market value and are worthless beyond the direct application for which they were designed, which makes them liable to become obsolete any time. The distribution of such expense is made to cover such a period of time as work will be manufactured from any special jigs or dies. If for a single job, that job must bear the entire expense ; if for parts of a regular prod- uct, the expense should be distributed over such a period of time as will correspond to their life, or until the manufacture of the part is discontinued and they become obsolete. The usual method is to charge 50$ of the cost of the first year, 25$ the second and 25# the third year. All separate departments are under a Foreman, who is under the Superintendent. The foremen are Departments- responsible for all the Company's tools Labor and machinery in their departments, for and Authority all labor employed, and for all materials taken from stores. They have a certain amount of au- thority over requisitions for making tools, as required by them for their departments ; but the tool room must not be considered as any one of theirs exclusively, but as being for the benefit of the entire shop. It is each Foreman's duty to see that his men and tools are provided with work ; idleness of tools will be no more excused than will idleness of men, when there are any orders that these tools can be worked upon. Therefore, it is one of his most important duties to lay out and arrange the distribution of his work in such a manner that there will be no idleness of either men or tools, and he will be held solely responsible for this feature. It is his duty to further see that this depart- ment is kept clean and orderly, and under no circum- 56 ORGANIZING A FACTORY stances to allow a congestion on the floor of material or partly finished work. All time slips of any nature whatsoever must be checked by foremen before work is passed into in- spectors' hands. All nnmbers governing work mnst be placed on time slips when they are issued to workmen with his part of the work ; it is the Foreman's duty to place the clock or check number on each man's cost time slip and distribute them when received from Superin- tendent. All requisitions for workmen must be made on the Superintendent, as no Foreman will be allowed to hire his own men. C. E. WOODS 57 Ld K 4 a t- 6 U) z o Q a X o z K < o < o i~ h U Q w o < -1 4 E z h o o o 1- ID Ld LX z 111 z z < -1 _J @ 1- z DC _J 1- Ld — -1 o o < lx Ld 1/) 1- < o < 1- m z m Id IX Ld LX 1- 1- Ld -1 Ld CO L. O K 3 D Ld D _i h lil 6 o _l Z -J 0! o > I- z O z Z I « _l Ld O Id — O D lx H O < u. d z u «t o y 5 □ UJ to a I o LX D 0. o Ld h- o o -i < z (3 o LX o < C Id h < S h Q. Ld a -i < D Z Ld h < LX LX D < -J 0- S id h Z < N < 3 4 LX Ifi Z O z 5) Z 0. a O t- Ld < X 5S ORGANIZING A FACTORY o EC < o Q E O O UJ IE z c u t- < 0. O IB Z u >■ o > a C. E. WOODS 59 Q DC < o Q C£ O O Ul DC -I o o h -l < O UJ o. to =8 (/> a UJ o 1- I o E o m u ■a 5 _j m L. Q O z h => U. o C 0. V a GO ORGANIZING A FACTORY u id i z a U p z i- 10 6 z 0. II) u > 5 6 i- z < id a _i u b. Z -J Q < IE z < b. U J z ; Z o Iff z o X u 1- u z O ' < 1 K i * § o Z E 1 < 1- u (A -l o z 111 0. in o < a u o < 6 111 E z -1 Q C < U 1- < a CHAPTER IT THE ACCOUNTING OF EXPENSES AND COSTS I do not propose to lay out or provide here for a complete accounting system, but rather to show the de- pendence of accounting on organization, the insepar- ableness of the two and the foundations upon which factory accounting must be built together with the prin- ciple involved in the gathering of costs, and to further show how independent of bookkeeping in its general sense, cost accounting really is. The first consideration in the organization of an ac- counting department is a prime division of costs; the second consideration is their relative position in and distribution over the business as a whole. In the broadest sense, expenditures have but three prime divisions, which are clearly illustrated in Figure IV. As here indicated, they consist of General Ex- pense, Labor Expense and Material Expense, the sum of which gives, as shown, the Total Cost to Make and Sell. General Expense, in the broadest sense, means all expenditures that cannot be directly charged to cost of production. Labor Expense means the cost of any and all labor employed in a business excepting its administrative labor. Material Expense, in this division, is any form of material that is purchased by a company either for processing into a product for sale, or as supplies for operating a plant, or as office supplies. 61 62 ORGANIZING A FACTORY In other words, these three divisions of expenditure are the least number to which the expenses of a busi- ness can be reduced, but, as a prime, each of them is subject to many subdivisions as may be required to cover an itemized classification for any particular busi- ness. Referring to Figure IV, it will be noticed that these three primes flow into two separate channels — one, Commercial Expense; the other, Manufacturing Expense — and that these two avenues of expenditure then join in a final summary of "Cost to Make and Sell." It is pertinent to emphasize here the necessity of a complete separation between commercial and manu- commercial and featuring expense. It is absolutely neces- Kanufactnring sary to know, first, what it costs to pro- Expenses duce goods ready for sale, and, second, what it costs to sell them ; because a works manager or superintendent may manufacture goods at a cost of production in every way favorable for most successful competition, yet the business may be a dividend-making failure because of excessive expenditures required for marketing the goods. The latter is a condition for which the factory or manufacturing authorities would in no way be responsible. This is a point which the writer advises every manufacturing institution to give most careful con- sideration; it often may mean much more than at first would be apparent. In the first place, it places respon- sibilities for two entirely different functions in a busi- ness directly where they belong; in the second place, the administration required for these two elements is broadly different in its nature; in the third place, the cost of making goods in a manufacturing business C. E. WOODS 63 should be separated from selling expense and profits by as sharp a dividing line as is the purchase price of goods in a mercantile business. And in the fourth place the manufacturing end of the business should be al- lowed to participate in the actual mating of profits, which should be termed the manufacturing profit ; that is to say. if it costs $50.00 to manufacture a unit it should be charged to the Sales Department at. say $55.00. the credits for all profits above that to belong to the Sales Department, and the credit for all profits under that to belong to the Manufacturing Department. The desirability of this is obvious. In the first place where to * T establishes the strongest kind of an chuge incentive for a superintendent or works ^ tpeases manager to reduce his costs and so in- crease his showing of profits. In the second place it makes prohibitive the cutting of prices by the Sales Department below a point at which there is no profit, and establishes for the Sales Department a standard price from which to work, so that they will never under- take the sale of goods unknowingly as regards costs; in other words, it establishes a sort of competition in the making of profits between the manufacturing and sales departments, each of which has a common basis to work from. The prime divisions of costs, as shown by Figure TV. are the foundation upon which any accounting sys- tem must be built ; and it is the care and consideration in making a distribution of the subdivisions of these primes that furnishes information by which a business is made successful of otherwise. And in this distribu- tion is probably one of the most troublesome and least satisfactorily understood questions in connection with a manufacturing business. The proper organization 64 ORGANIZING A FACTORY and arrangement of this distribution is as much of a necessity as is departmental organization and arrange- ment, and, when done properly, must incorporate the physical organization of the factory as a part of its composition. One of the most satisfactory methods of reaching this end is that devised by "the writer, as ex- hibited in Figure V, which he has always made his second step in the work of factory organization and cost accounting. It is impossible to give on a sheet the size of this book a perfect representation of how this distribu- Division ^ on * s ma( ^ e ) Dut Figure V conveys in a of manner sufficiently clear the idea of the operation of this system. There is, in this two-page chart, one complete sec- tion, "A," Labor, and the three heads, "B," Material, "C," General Expense, and "D," Plant Betterments, constituting a continuous sheet, which gives the three primes, "A," "B" and "C," with a certain number of subdivisions, which, as before stated, constitute the en- tire expense of a business. But there is a further expenditure always, as indi- cated by "D," Plant Betterments. This is an expendi- ture which is not an expense, inasmuch as every outlay made for such items as are indicated brings an asset to the company. Consequently it is an investment and not an expense. Of Labor, it is necessary to know two quantities as related to the prime — first, that labor which is nonpro- ductive; second, that which is productive. The writer has found so much misconception of these two terms that a brief explanation will not be out of place here. Productive Labor, sometimes called Direct Labor, is that labor employed in a plant, whose efforts are C. E. WOODS 65 directed solely to processing material into a product for sale. Nonproductive or Indirect Labor is that labor which is employed in a plant, whose efforts are not ap- plied to the processing of material into a product for sale. This division should be strictly lived up to for the reason that the opportunity for lessening costs on a Productive and Z iven output and equipment lies alto- Non-Froductive gether in the nonproductive labor. To pro- duce a given output requires exactly so much productive labor, and this cannot be varied ex- cept by a very small percentage. The amount of non- productive labor employed on a given output and equip- ment is, to a great extent, a question of administration, and consequently is subject to a much greater percent- age of variation than is productive labor. In the large sheets used by the writer for Expense Distribution, of which Section "A," Figure V, is an illustration, is made an exhibit of all the information required about a business, so far as expenditures and their distribution go. First, labor is divided into productive and nonpro- ductive, while under these two subheadings is arranged the classification of labor, as shown by Department Heads, Assistant Heads, Clerks, and so on; Nonpro- ductive, Foremen ; Pieceworkers and Day Workers, Pro- ductive. Of course, in actual practice, this classifica- tion must be arranged to meet the requirements of any particular business. The nonproductive foremen might come under "Department Heads" or "Assistant Heads," but as in nearly all factories there are some productive foremen, space should be provided for them. It should now be noticed that the arrangement of 66 ORGANIZING A FACTORY the departments is exactly in confirmation of Organiza- tion Chart, shown in Figure II, in the preceding chap- ter, showing by groups here as well as there just what Indicating departments belong to manufacturing ex- Actual pense, divided into productive and non- Expenses productive departments of a factory, and also just what departments are chargeable to selling expense. This method of distribution then shows just what the expense of each one of these departments is as re- gards authorities, clerks, and other workers, as well as common labor; hence any change in the organization, either by increase, decrease or abandonment, exhibits itself in the next succeeding report, as do also any changes in the number of men employed. In other words, this method of distribution always keeps the organization alive and subject to consideration, atten- tion and care. This method of distribution goes yet further. In addition to showing the exact expense of any class of labor employed in any one department, it gives a total of the nonproductive labor, as well as a grand total of both, for each department, bringing all of the organiza- tion heads or authorities into one column, day workers and pieceworkers into their respective columns, so that the footings are — first, the totals, and then the grand total for any individual department; second, the total for any class; third, the grand totals, both in vertical and horizontal columns, the latter two making a cross- checking system, which summarizes into the same set of figures in the lower right-hand corner. This system gives the total nonproductive labor, the total productive labor, and again the total nonpro- ductive and productive department expenditures in a C. E. WOODS 67 factory, and then the total commercial or selling ex- pense. All of these data are presented on one sheet. Classification * n °t ner words, this sheet makes a com- of plete classification, distribution and re- capitulation of all the labor employed in a factory, for whatever time period it may be necessary to make an exhibit of. But this is not all. The classification under "Pro- ductive" and "Nonproductive," designated in the bot- tom horizontal line as 'A-l," "A-2," "A-3," and so on, are 'the charge account numbers. That is, they show the classification and the charge accounts for the regular ledger entries, and are made up as follows: Any de- partment number, in combination with any classifica- tion number, constitutes a charge account ; i. e., "4 — A- 3" would be all clerks employed in the cost accounting department; "3 — A-3," all clerks in the superintend- ent's office ; while "8 — A-6" would be all foremen in the wood shop ; or "8 — A-7," all pieceworkers in the wood shop ; or "8 — A-8," all the day workers in the same de- partment. And so On, for any department or class of labor that it is desired to separate into charge accounts. The plan of distributing labor, devised by the writer, has given more satisfaction to accountants in general than anything of a similar nature that has been adopted in years, and is proving of inestimable value to the ex- ecutive ends of a business. The writer has, however, carried this method of distribution much further than a mere application to labor, as shown briefly by "B," Material, "0," General Expense, "D," Plant Betterments. "B" is separated into Processing Material, i. e., any kind of material bought, which can be processed. This is again subdi- vided into Product Material, i. e., any kind of material 68 ORGANIZING A FACTORY bought with which to manufacture product for sale; Equipment Material, i. e., any kind of material bought for the purpose of making tools or machinery for the factory, as made by itself; Construction Material, i. e., any kind of material bought for building or real estate improvements. "B" is again divided into Office Sup- plies, as indicated by subheads under this ; Office Equip- ment, meaning furniture, fixtures, and other articles; Distribution and then a S aln into factory supplies, of meaning waste, oils, fuels, small tools, or Expenses any ^ ej . items which would belong to such classification. " 'C,' General Expense," has exactly the same ar- rangement, a general list of items being used to make the exhibit, giving a total for general expense and then a summary total for "A," "B," and "C," so that on a working chart each department will have a distribution made to it of all the items indicated in these three sec- tions. Each department is charged with whatever be- longs to it in the distribution. It should be borne in mind that the labor in "C-9," however, and the material in "C-10" must be deducted from "A-5" and "B-2" or "B-3," as the case may be, when making distribution of "C" over cost of production. Otherwise, these items would appear twice. This last caution also applies to shop-made plant betterments, as whatever expenditures are made by a plant on itself for betterments must go as a credit against any expenditures made under "A," "B," and a pro rata amount of "C." This brings up a point on which many manufac- turers seem to be at a loss, and that is that any self- made plant betterment such as, for instance, the mak- ing of a machine or tool by a factory for its own use, C. E. WOODS 69 should be a matter of capital stock, that is, the depart- ment making such a tool should be credited with so much output, in which case the factory has become its own purchaser instead of making an output for outside sale. In other words, instead of placing a contract for betterments with outside contractors, they would have contracted with themselves and the credit should be carried accordingly- First, the factory should be credited with so much output; second, the purchase should be charged to capital stqck as an investment the same as though it were purchased outside. I have in so many instances seen work of this nature charged up erroneously to general expense that I have thought it opportune to emphasize the facts as they should be on this point. CHAPTEE Y ANALYSIS OF DIFFERENT METHODS OF PAY- ING LABOR The absolute necessity of a Cost System for ascer- taining the cost of producing goods in any factory, and the necessity of dividing these costs into the cost of labor, cost of material, general factory expense and general office expense, has become a fact too well estab- lished to need comment here. It is an element that con- tributes more to the success of any manufacturing business than any one other outside of the administra- tion itself, and should have every consideration at the hands of any manager who wishes to be successful. So called Cost Systems are almost as numerous as factories, most of which have been installed without any idea as to the prime principles which cover the col- lection, tabulation and retention of costs, and it is pertinent to review here in brief the various principles available, in such a way as to show the strength or weakness of each individually, and thus obtain a premise for the compilation to follow. There are many ways by which the costs of pro- duction may be made to make themselves manifest. Day labor is, of course, the oldest method from which costs are computed, and one which makes the labor cost jj of a product dependent entirely on the Labor and honesty and skill of the workman. Its weakness lies in the fact that a manufac- turer has no established labor cost on the product which can be maintained, as it is subject to a constant 70 C. E. WOODS 71 variation in accordance with the honesty and skill of the labor he employs. The whole question of cost on production has largely grown out of dissatisfaction with this method of paying labor, and the desire for some means which would establish the labor cost at a permanent point, and at the same time stimulate the labor employed to an increased effort. For many years this has been covered by what is known as the "Piece Work System," one that does not reduce the wage cost per piece of out- put, but does increase the amount of product manu- factured with a given amount of labor and manufac- turing equipment. The governing feature in the piece-work system is a good and proportionate reward to labor for increased effort on its part, and a corresponding penalty if this effort is not made, in the shape of a proportionately smaller wage. It established also a fixed price on the labor cost of work, making the estimated cost exactly what the actual cost will ultimately be. The weakness of the piece-work system lies in the fact that invariably the time comes, no matter how the price rate may have been computed, when the wage earned is too high for the labor employed, and rate cutting becomes neces- sary; which in itself introduces a third penalty of an Piece inverse nature, and one which is some- Work what disastrous, and which, broadly System speaking, makes the piece-work system carry a penalty for doing poorly — in the small amount of wage earned — and for doing overly well — when too large a wage is earned — the rate-cutting made neces- sary in the latter case resulting in the partial or whole cessation of further speed effort on the part of the em- ploye, which in turn affects equipment speed, and cost 72 ORGANIZING A FACTORY proportionately, thus in a way defeating one of the objects which it was desired to accomplish. The above are the prime facts for consideration in the piece-work system, and it is believed cover the situation exactly as it is, without prejudice for or against it, and are facts which should have most careful consideration on the part of any manager, either when he is about to estab- lish a piece-work price, or when he is about to resort to rate-cutting. To quote Mr. Halsey on piece-work will best bring out some facts as given in a lecture by him, Feb. 7, 1902, in which he says : — "No man knows what he can do under an incentive until he has tried it. The workman in saying that he cannot 'make wages' at the piece prices offered when piece-work is first introduced, is entirely sincere but he is nevertheless mistaken. All experience shows that when the test comes the increase of output under the incentive of piece rates is far beyond what anyone — manager or workman — would have believed possible. The output mounts up and the wages with it, and the employer soon finds that he is paying an extravagant rate of daily wages — an extravagant rate being under- stood as a rate materially in excess of what it would be necessary to pay another workman for doing the same work, he having the first man's experience before him. The employer submits to this for a time but the wages continue to increase and ultimately he is driven to his only recourse — he cuts the piece price. This is an im- mediate announcement to the workman that the prom- ises of piece-work are false. He was told that he would be paid a certain rate per piece, but he finds that to be true up to a certain limit only. The workman, again under compulsion, accepts the new price, but unless he is very dull, he has learned a lesson. If he is very dull C. E. WOODS 73 it may require a second cut to enforce this lesson, and this second cut, either on the price of his own work or on that of some fellow-workman, is soon forthcoming. The lesson is that if he pushes his production to a point which raises his earnings beyond a certain more or less clearly denned limit the direct result will be a cut in the piece price. Perhaps new men come in or the old ones are given new work to do — the result is the same. If any one is so unwise or so unfortunate as to do a large amount of work he is at once punished for it by having his rate cut. Such cuts from the workman's standpoint have one result — he is compelled to work harder than before but he earns no more." In theory, the facts stated above are all, to a greater or lesser degree, true, but in practice such ex- Premature treme conditions are found only when, Adoption of first, due study and consideration have Piece Work n( ^. j, een gi ven to setting of piece rate in the first place; second, where the management is inex- perienced in handling the piece-work system; third, in an old factory where a new work is being developed and a piece rate is set before a sufficient accumulation of experience has been collected from which to determine a piece rate. In factories experienced in handling of piece-work it has been found not always advisable to make the desired cut all at one time but to make it mod- erate, step by step, until it has been reduced to the nec- essary point. In this way, confliction with, or dissatis- faction on the part of labor never exists to any such degree as Mr. Halsey suggests. But when, farther on, he says : — "The workman, of course, looks upon these cuts as an exhibition of pure hoggishness on the part of the employer. While the employer may take undue ad- 1i ORGANIZING A FACTORY vantage in this way, the fact remains that if he does not make the cuts he will eventually do it from neces- sity, for it can be shown that these cuts are an integral part of the piece-work plan, which can no more be operated without them than a wind-mill can be oper- ated without wind, and for the reason that as the years go by, the whole tendency of prices is downward. There are, of course, periods of advancing prices, but they are short-lived, and are nothing but the incoming waves of the receding tide. The tendency through a series of years is downward and this must be so. It may also be said that this is what industrial civilization is for — to make things cheaper. The whole industrial world is engaged in a ceaseless effort to reduce costs in order to reduce prices, and with so much effort it would be strange if there was not some success. With this future of falling prices before him no manufacturer can contemplate paying the same piece rates ten years hence that he does today. In normal times most manu- facturing enterprises are conducted on a small margin of profit, and with a future of falling prices before him, no manufacturer can continue to pay materially more per piece for his work than his competitors pay. The simple fact is that uncut piece rates lead to rates of wages which, under the conditions of competition between manufacturers, cannot be maintained." He strikes the true philosophy of the relation be- tween output and labor, for it is a fact that the tend- Hecessitv enc ^ °^ ever ything manufactured is to- of *vard a reduction in cost, but his argu- Reduction ment mugt ap piy to any method of paying labor. The accumulation of experience on the part of labor and the introduction of new methods of tooling, handling, etc., from time to time, are bound to increase G. E. WOODS 75 the output per capita of any plant in existence, while the maximum wages per capita can never exceed some certain or established limit. Therefore, in day-work, piece-work, or the premium plan of paying labor, the ultimate issue of any product must be a reduction in the cost of labor to produce it. We now have to consider a proposition which has been under considerable discussion and one that seems to have both its advocates and enemies, and which is known as the "Premium Plan" for paying labor ; a plan that would seem to have in it the true economics of manufacture, as it embraces the following points: the lowest possible wage per unit of production ; incentive for the labor to maintain the highest equipment output ; any increase of wage decreasing unit cost both, in wage and equipment costs. In piece-work we have seen that the wage price per piece is constant and unvarying, except when rate-cut- The ting is resorted to. In other words, the Premium workman receives the full benefit of the Plan increased output on the wage side of cost which he usually sacrifices through over-zealousness in the form of a cut. Any employer can afford to increase the wage of his employes provided a proportionate increase in out- put is secured, and if in connection with increased out- put and an increased wage paid for labor, the cost per piece for both labor and equipment is at the system for paying labor that would be thoroughly practical and desirable in every way, and this is exactly what the Premium Plan purports to accomplish. The higher the wage paid, the less the cost per piece for both wage and equipment. This is obtained by setting a time limit on a piece 76 ORGANIZING A FACTORY of work which shall be from a day pay basis, and a division made between employer and employe of any wage saved by the lessening of the time limit on any given piece of work. Under this plan, there is no pos- sibility of rate cutting taking place, except by mutual adjustment between the employer and the employe due to some new method of procedure in manufacture, and Itg its only weakness would seem to be in the One fact that the system is one that offers re- Weakness wards for increased effort on the part of the employe, without subjecting him to any penalty for not making increased effort, inasmuch as the time limit is practically a guarantee for a certain day's wage, but this in itself has one virtue, as it leads to less contention among the employers in the installation of a cost system. Mr. Halsey's own illustration exempli- fies the plan very nicely. "To gather the exact workings of the plan, assume a concrete case. A workman is paid (say) $3.00 per day and produces one piece of a kind per day — that is in 10 hours. He is told that he will continue to be paid his $3.00 a day as before but that if he will reduce the time on the piece he will be paid in addition to his wages a premium of ten cents for each hour saved. If he reduces the time by an hour that hour represents in money value a gross saving of thirty cents. Ten cents of this amount is paid to him as a premium, leaving the remaining twenty cents in the employer's possession — this sum making itself manifest in the reduced cost of the work. If the workman goes on reducing the time in which the piece is made, the same process is repeated, each hour saved resulting in an increase in the work- man's wages of ten cents and in a reduced cost of twenty cents. In other words, the wages go up and the C. E. WOODS 77 ill ' t CD ! 1 ! 3 ! < o : I J * Z i s ! ! : s ■ Es CC 1 i P 1 >r o ! ° o ': a ; L" 1 ^ I ! * |, to l! ° 1 i o O o u h- 2 o ^ u if} z 0. ll i zo I 5 < cc 3 u o HO o c o < - § a 3 cc s i i < < cc O CO o £o z z : ""*" ' O ' a2 — ! S o o o 2 O 1- o 5 cc D o o in cc g I Q. < ' XI- 01 W u "J S ___ '| 0:5 Ll ° -i gs ■ h -2 . 5 z — E 1 *£ (0 w 5 h " 1- , 5: -£- £L V, X -^s- a _ «_ A ° o I 1 S: a d S« a ■' is i _ _ « " ~" z I w » i r ! H : - o * Z o - p -~ — 1| z-i— CJ_ a < "■ ' > oz * S 5 i i' !c cc * § » 1 °? --- 1 ' Ui K !. O a: LU C . °- 5 u o si z i" *; s O cc Si- IT •* -J u o z o u (0 r> r : ■ |S _-_ z (M ■ 1 I a m 1 JL.O D 1 1 *o^ — _il 1 z c O) ^f d H ! s 1 r- Q 5 I _x i ID ~~lj z D O < 1 qO _i o z O < 1 gcc . m --i! UJ > m o c£«;o CM 2 5r°Z o K z (J til s Q, D- Q i ssl I O 3T o LU z 00° Z O o u 3 o to J- < ^ \ft s 2 u^ z cc d z to < 0.E OT o u. O i- z < E 5 a o 5 z I s u a o o o a E-i ORGANIZING A FACTORY G.T.— GAIH TIME ON PREMIUM WORK, t-T = L05T ' " " FACTORY NO. MONTHLY TIME RE DISTRIBUTION OF JOB EMPLOYES NAME -■■:. CLOCK OR CHECK NO. L- T. O. T. Figure XIII. Form serving for the monthly record R. T.— REGULAR TIME OH DAY WOHK^ "OVERTIME OH DAY WORK. MONTHLY TIME RECORD DISTRIBUTION OF JOlf Figure XTV. Form serving lor the C. E. WOODS 79 CORD OF LABOR NUMBERS & EXPENSE, R.T.= REGULAR TIME ON DAY WORK. O. T.=OVfcRTIME OH DAY WORK. MONTH ENDING— of Time Labor and Non-productive cost on any job OF MACHINE TOOLS, KTX3 NUMBERS & EXPENSE. STANDARD TIME PER MONTH FOR MACHINE TOOLS 165 HOURS. MONTH ENDING roR » no. 29 TH. j"z ioES H for a g iven Piece Sate amount of work per day the wage earned ystem Qn pi ece . wor ]j W ould be much less than would be paid if the laborer was working by the hour or day for the same amount of work — the purpose of which is two-fold. First, to stimulate activity toward increased effort on the part of the employe, and second, to attach a penalty for too great an effort on his part if the workmanship is inferior. The method is to set C. E. WOODS 83 a price for the amount of work that is to be done in a specified time, exceeding which the price is raised per piece not only for the work done in excess of the limit set, but for the entire contract or number of pieces both under and over the limit. The result claimed for this by those who have tried the system is less immediately incentive on the part of labor to establish speed than in the direct system, while the penalty, if the workman- ship is inferior but passable, is greater, — as in this case the piece price is not raised though the amount of work done per day has exceeded the limit set. Good workmanship, however, results in high average pay to the labor, but without any reduction in wage cost per piece; the aim being the attainment of an extremely low equipment cost per piece by causing the labor to raise a large output in production. The weakness, if any, in this system, lies in the fact that absolute prior certainty must be arrived at re- garding the cost of production relative to labor and also ultimate machine capacity, as a mistake in this would result in the complete failure of the system — in one case discouraging the worker by having set an un- attainable limit, and on the other hand, by the setting of a too easily attained speed of production, necessita- ting rate cutting, or what amounts to the same thing, increasing the amount of work done in the same limit of time. This review of the various methods employed for setting a labor wage brings us face to face with a con- A New dition much to be desired, but which had Coat never been realized, until the writer solved System ^ q ues ti n; and that is a cost system applicable to a wide range of products as made in differ- ent factories, or by different factories under correspond- 84 ORGANIZING A FACTORY ing varying conditions ; also a cost system which would further have its blanks and forms so perfected as to be used on any and all of the methods above described for paying labor. I'p to the present time, the introduction of the Premium Plan has been rather uncertain, owing to the lack of any prior uniformity in collecting costs from which to establish a time limit, which is one of the vital factors in the whole system. But in the present system an entirely new arrangement has been effected, the first of its kind by which these time limits can be established on a day pay basis, and afterwards piece-work or a premium plan introduced without in any way changing the system already in vogue or the blanks and forms used. As a matter of fact, this system is designed so that all of the blanks and forms can be used for either Time Limit on ^ a ^ wor k> piece- work, or premium plan of Day Pay paying labor ; an advance in cost keeping of unusual importance and inestimable value when one considers that in nearly every factory it is absolutely necessary to establish either piece-work or a premium plan on all or part of the items manufac- tured, and also that the nonproductive labor of the factory is always on a day pay basis. The value of the following system in carrying all classes and conditions of labor on the same forms and blanks making it pos- sible to change from one method of paying to another any time it may be found desirable or necessary to do so, will be fully appreciated by those who have had ex perience in an endeavor to create a cost system that would be satisfactory in such respects and meet all the varying conditions mentioned. OHAPTEE YI DEPRECIATION OF TOOLS AND ITS RELATION TO COST Ask any foreman of any machine shop how he keeps track of the depreciation on machine tools and equipment. If he does not frankly admit that he has no accu- rate system of keeping such records, the chances are that he will answer boldy that he figures the annual de- preciation at "10 per cent." There is no good reason why 10 per cent should be accepted as a basis for figuring the depreciation other than that it is the figure that most manufacturers have arbitrarily accepted for years past. It is assumed that 10 per cent is a fair estimate of the annual depreciation on machine tools. Accordingly "10 per cent" is the reply you will probably get to your inquiry from the foreman who feels that he must answer "something." One of the first points for consideration in arrang- ing the general organization of a factory, and especially its accounting systems, is the consideration that it will be given to depreciations. Notwithstanding the many differences of opinion on this point, it bears directly on the cost of production. Depreciation, especially on machine tools, is as much a part of the direct cost of production as are labor and material ordinarily called "flat" costs. I do not know of one single item that has been more confusing to managers and superintendents than this one. Many small factories do not write off any depre- 85 86 ORGANIZING A FACTORY ciation whatever on their machine tool equipment, but Antiquated carry their initial values on their inven- Methods tories from year to year. Others write off common a certain percentage each year, usually 7% or 10 per cent. But this is obviously wrong, as there is certainly no equity in charging off a straight percentage for the entire equipment of machine tools in a shop when it is evident that some of these must be used greatly in excess of others and should have a corresponding depreciation charge. A lathe, for instance, used but one week in a month would have an actual life four times as long as one used every work- ing day, and this is a condition that prevails to a greater or less degree in every factory. Such a method writes off a specific sum without any regard to the actual amount of wear and tear on a machine and offers no way of figuring correctly the cost of production in any one department, when that department is making a complete product in itself. Machinery that is used directly in the manufacture of goods for sale should be considered in the same light as labor, inasmuch as a machine tool, as a productive factor, is nothing more or less than a substitute for hand labor, but, unlike such labor, is an asset of a com- pany, subject to interest on the investment required for it, and also to a depreciation charge in proportion to the amount that it is used per annum. To arrive at a proportionate and proper apprecia- tion charge of machine tools, a wage should be estab- A Wage lished for them that will enable them to for Machine pay for themselves in direct proportion to Tools their usage. To establish such a wage, the known or estimated life of a machine tool must first be given, which, broadly speaking, is as follows : C. E. WOODS 87 High-speed machines, ten years. Medium-speed machines, fifteen years. Large and slow machines, twenty years. The years are assumed to be composed of 2,000 hours each, which is about 166 hours a month, or an average of six and four-tenths hours a day of twenty- six working days a month. The above, in general, applies to power equipments, either steam or electrical, and a depreciation charge can be carried on them in the same way, if desired. On such a basis it becomes apparent at once that a machine tool is enabled to retire itself pro rata to the time worked without regard to actual years in service. To establish an hourly wage for any machine tool, we must take into consideration the amount of interest due on the investment itself, and distribute this in such a way that we may have a uniform hour rate for the entire period of time required, as the complication of setting a different hour rate for each year to correspond with reductions brought about by principal and interest credits is altogether undesirable. To illustrate this : If a machine costs $ 100 and we wish to retire it in one year, it would have to earn $106 on a six per cent interest basis in 2,000 hours. If we wish to retire the same machine in two years, we would have f 6 interest for the first year. The reduction of a $50 earning on the first year would leave $50 to be earned for the second year, on which there would be $3 interest, the total amount to be earned on the machine being $109 for two years or $54.50 a year, which would amount to an hourly wage of .027 cent per hour. It is on this basis and for this purpose that the ac- companying depreciation tables have been computed by the writer. These tables are carried up to values of 88 ORGANIZING A FACTORY f 1,500 for twenty years, and, of course, any value in excess of this may easily be found by adding the proper amounts together. For instance, $2,000 should be twice the amount of $1,000 or $3,000 should be twice the amount of $1,500, and so on indefinitely. To find the amount to be earned annually for any given cost, or any number of years up to twenty, take How the figure representing the known cost in to the left-hand column, follow this line to Handle Tables tbe right untn it int e rse cts the required number of years, which figure will show the amount to be earned annually for that number of years, and in- cludes all interest at six per cent. Likewise in the table of wage an hour for machine tools, the intersecting point of years and amount indi- cate the wage to be earned hourly to earn the sum given in that number of years, based on 2,000 hours a year, in- cluding all interests. The foregoing explanation, it is believed, will clear up all doubt as to the fact that the creation of a fund for the replacement of machine tools which are subject to depreciation to the extent of their full value in a cer- tain given time is also as much a charge to cost of pro- duction where such tools are used directly on the pro- duction of goods for sale as is the labor employed to operate these tools. And like labor, it must be divided into both productive and nonproductive cost elements of a business. Expenses chargeable are derived from two factors : First, the depreciation of a tool itself in accord- ance with its life. Second, the upkeep of the tool, which consists of all the expense attached to its active elements of operation, i. e., the making of all cutters or cutting tools that are C. E. WOODS 89 subject to daily and constant wear during the process of manufacture. A full complement of miscellaneous tools for each machine tool should be a living asset in the inventory, Derivation ^ut no macmne should ever be inventoried of Expenses for more than one complement of these chargeable miscellaneous tools, as constant wear and tear on them is a subject of upkeep expense, as before stated. From this it is readily understood that the expense attached to the depreciation of a machine tool is charge- able to production cost in the same ratio that labor is when used in the manufacture of a product to be sold, and is chargeable to non-productive cost in the same ratio that labor is, when so used. Consequently all time slips used by the men should bear spaces in which may be recorded the time of the tool as well as the time of the man. It will also be seen that upkeep or main- tenance is chargeable to nonproductive or overhead costs exclusively, the gauge to all of which is the amount of time worked. There are other factors that are brought into life by this method of dealing with machine tools that are almost of as much value as the foregoing. By keeping time on machine tools in the way outlined, the records show not only where and how fast the fund for replac- ing tools is derived, but also show the exact age of the tool. A machine may have been in a factory five years, and yet be only three years old in service, or it may have been in the factory but three years and be four or five years old in service. Collectively, such a record from a factory shows at the end of each month how well the entire equipment of the factory has been em- ployed, and thus enables the manager to point out ex- 90 ORGANIZING A FACTORY actly how work can be best distributed to make the &eai investment earn the greatest possible reve- Ageof nue. In many instances it will prevent additional investment for new equipment by pointing out what portions of the equipment are most often idle. In a factory there is no more excuse for idle tools than there is for idle men, and many a manager, for lack of proper data regarding his equip- ment, has been forced into buying new machine tools when twenty-five per cent of those he had were idle. The method of keeping these records is very simple, and is explained very fully in sections covering the de- scription of record sheets. A vast amount of inquiry among various manu- facturers and users (the details of which will not be gone into here) has shown the foregoing tables of life for the active units used in a factory to be a safe guide to go by in considering depreciations. The amount of salvage to be obtained after the life of a unit has ex- pired can be relied upon as it is given here, but it must be understood that the percentage given is on the orig- inal cost and does not include any labor or material that may have been afterwards added. That is to say, all of the original cost, including countershafting, freight and installation, must be included, but not any changes that may afterward be made. Many will undoubtedly say after reading the above that they have many machine tools that are out of use more or less of the time which will make it difficult to apply such a method, but this is just exactly where the Uses of method is most needed, as it shows up Depreciation what and where and in what ratio the Tables equipment of the plant is being used. Others will bring up the argument that marins* tools 0. E. WOODS 91 are often thrown out after having been in service a com- paratively short time for the reason that improved tools are bought to take their places and that this method of writing off depreciations can not be made to apply. This depends altogether on what disposition is made of the expense of the machine or tool discarded; some manufacturers prefer to write it off in full and charge the loss direct to expense for current year. But obvi- ously this is not fair. If a tool has been in service three years, and is then thrown out because of imperfections, three years' depreciation should then be written for a credit to this machine. Then whatever it is sold for as junk or as a second-hand machine should be credited to it, and in case of a substitution, the balance charged to the cost of the new machine, as that is precisely what it has cost to put the new machine in the factory. This will then distribute the burden of this expense over the life of the new machine. Unless this method is adopted, the loss on the old machine must go to profit and loss. If for any reason the latter method is preferable, the expense of the new machine will be exactly what it cost and depreciated accordingly. There is another condition attached to this method of writing off depreciation of no inconsiderable value Tables Show besides depreciating a machine in propor- tb.e Actual tion to its use. By using an hour wage the expense of depreciation is distributed in the only equitable way possible over the product made. Parts that require an expensive tool or much tool time thus have a perfect division of their pro rata share of this expense placed upon them, which figured down to individual operations often results in a change in price. Further, it is the only method for determining of 92 OKGANIZING A FACTORY what actual value the machine has been, and what por- tion is a direct loss in case it is discarded and all writ- ten off at once. There are instances where managers have tried to consolidate with depreciations on tools other items of expense, such as power and repairs, and put the total into an hourly or daily wage basis. But this is obviously wrong, as it practically puts the whole charge of these items into a general expense fund, rather than a portion of it into a sinking fund for the renewal of machinery when it is worn out. The nature of this depreciation and of obtaining a fund for renew- als is so specific in its nature that it should not be con- founded with any other expense. In pro-rating the power of a factory over machine tools for the purpose of arriving at a charge an hour for such power, the whole matter should be the subject of a separate charge account. This should again be sub- divided into that portion actually used by each ma- chine as compared with all the power lost or absorbed in transmission devices. That is to say, the friction load of an engine of the power that it takes to run a factory when the machine tools are not operating should be pro-rated in the shape of a general charge rather than in the shape of power. But this is a subject foreign to this subject and will not be dwelt upon further in this chapter. CHAPTEE VII A COMPLETE ANALYSIS OF THE ELEMENTS OF A COST SYSTEM To devise and arrange a factory cost accounting system it is necessary to know just where to commence. And this knowledge is the result of a study of the gen- eral conditions in that particular plant under consider- ation. From this starting point can be formulated a com- prehensive chart or series of charts, that will give a complete anatomy by which to express a manufacturing business in its every detail. By these charts, also, we can dissect or diagnose every movement of the product manufactured and the authority that controls these movements from raw material to finished units — a fact which most cost accounting systems have completely ignored. To systematize and discipline a manufacturing plant, as well as its departmental organization, is al- most wholly within the province of cost accounting. As a matter of fact, there is no other instrument by which these necessities to a plant can be reached successfully. The great error in most systems has been in trying to make a cost system fit already existing conditions too closely. This always results in fragmentary work and results. To be successful, a factory cost accounting system must be a unit as complete in itself as is a unit covered by either some mechanical or governmental expression, for it pertains to both elements. The first chart required, as the skeleton for our 93 94 ORGANIZING A FACTORY physical expression, draws all of the various depart- ing is to merits in a plant, as is illustrated in Fig- Secure the ure II. But to arrive at this in a proper skeleton way, the product manufactured must be analyzed. This analysis must show: — First, the units as a whole. Second, the parts of each unit, and Third, the operations on each part of each unit. For it is only by this that we can find out how to divide a plant into departments and then how to relate these departments one to another, so as to give the most progressive movement possible to the product manu- factured. Raw material at one end and finished product at the other is always the governing principle in factory organization, if cost for shop transportation and expe- ditious handling by productive labor is to be considered. Modifications to this are, of course, made in case large parts are made and shipped without assembling into a complete unit at a factory, or when parts are manu- factured and shipped without assembling at all. In such cases the departments which make such a part can be considered as a plant in itself, and the part in its relation to such department or departments may be con- sidered a complete unit in itself. All of this, however, does not alter the classification and relation of the part to the business as a whole. Therefore, of a part we must know (Figure VI) : First, its name; second, its model number; third, its own number; fourth, its drawing number; ing Each fifth, its pattern number ; sixth, its flask Part number; seventh, its die or jig number (one or all as the case may be) ; and eighth, the number and description of all the operations required to make C. E. WOODS 95 it a completed part, together with the kind and meas- ure of materia] used, and the number of individual parts required to make the completed unit for which it is designed. All of the different parts required for a completed unit should be classified under its model number. The necessity of this will become apparent when the method employed for collecting costs is ex- plained. With the above information in hand, it is not diffi- cult to study out the best and necessary departmental divisions for a progressive movement of the product to be manufactured. All important in this is the location of rough and finished stores ; each department and each location of stores should be numerically and alphabeti- cally arranged for classification and identification. The next step in the preparation of a cost account- ing system is the classification and numbering of all the Inventory machine tools and equipment, jigs, dies, of etc., and also all of the power units and Equipment equipment. For in this lies great value in connection with a perpetual inventory system, saving a vast amount of time each year, and at the same time giving correct value, minus depreciations. Therefore, of machine tools (Figure VII) and power equipment, we must know: First, name of machine; second, maker's serial number; third, size number; fourth, catalogue number ; fifth, from whom purchased ; sixth, date of purchase; seventh, original cost; eighth, freight and installation cost; ninth, total cost; tenth, estimated life; eleventh, present value, in all or part, as the case may be; and a list of all accessories that would form a live inventory, as this data not only has to do with what is known as the perpetual inventory, but also with costs of production. 26 ORGANIZING A FACTORY The same applies to all patterns, jigs, dies, for pur- poses of perpetual inventory and classification. On patterns we must have (Figure VIII) ; First, name of pattern ; also description if necessary ; second, date made ; third, from drawing, number made ; fourth, for parts, number made; fifth, flask number; sixth, flask size; seventh, follow board; eighth, kind of ma- terial; ninth, cost of material; tenth, cost of labor; eleventh, tool cost; twelfth, overhead cost; thirteenth, total cost ; fourteenth, date and present value ; fifteenth, number of pattern. On dies, jigs and special tools (Figure IX), we must have : First, name, also description, if necessary ; second, number of itself; third, parts number; fourth, kind of material ; fifth, cost of material ; sixth, cost of labor ; seventh, tool cost ; eighth, total cost ; ninth, date and present value. If these items are all carried out as above, it not only gives a complete record of them, but makes a com- plete inventory for the life of any of the articles enumer- ated, as nothing remains to do each year but write off on the record cards depreciation in proportion to their life, except when they are thrown out and retired en- tirely by either abandonment or substitution. Thus this forms the first work to be done in preparing a fac- tory cost accounting system and what is known as a perpetual inventory system — although, literally speak- ing, the latter is a misnomer; but as this comes under record-keeping, we will not attempt to go into it here. The final form (Figure X) is self-explanatory, ex- cept, perhaps, it is necessary to observe that the back of the card is used for carrying inventory of valuations of these drawings from year to year, thus putting these items into the machine tool classification. C. E. WOODS 97 factory an FORM PARTS COST CARD. HO. 13 HEADINO MO. KINO OF MATERIAL ACHINE TOOL. No. OPERATION. 'TIME IRATE COST. TIME TrATE. ' COST. 1 ' 2 ! ! J I 3 4 6 6 ' 7 ■' e 9 10 11 TOTALS FORWARD. Figure XVII (obverse). The Parts Cost Card, showing a complete statement of cost MACHINE TOOL. No. OPERATION :.TiME .RATE COST. TIME RATE. COST, FORWARD. ! TOTALS. GRAND TOTAL, DISCOUNTS. MATERIAL COST NET PRICE- OVERHEAD EXPENSE FILLED .N BY. T0TAL PAR ™ COST- Figure XVII (reverse). The Parts Cost Card 98 ORGANIZING A. FACTORY Figure XII. The Eill of Material which is issued in the STORES RECORD FROM SHELF OR FLOOR SPACS NO. SPECIFICATIONS TO BE CARRIED IN STOCK MUM TO BE CARRIED IN STOCK FROM WHOM FROM WHOM SHQPOROtfl KG- PRICE FROM ' MEASURE Q DATE g % m MEASURE _ I' ENTERED SY J I OFFICE RECORD, POST EVERY 4 WEEKS Figure XXII. A detailed card for a specified time on which are posted receipts and deliveries of stock FORM NO. 30 DESCRIPTION OF ARTICLE GIVEN OUT GIVEN OUT Figure XX. The first of the cards on which the Chief Stores Cleik records stock on hand C. E. WOODS 99 MODEL M3. RETURNED ISSUED 1 AFTER MR FINISH-™ QUftNI-l.lES FOH ASSEM OPERATION. Ins TO Surf * H ? lu D ,JI|o BLIN1 ha. hn it FIHl&Mtu " Superintendent's oftice before work on an order is Degun STORES RECORD FROM - RACK NO. -190 TO- FORM NO. 31 L90 SHELF OR FLOOR SPACE NO.- SPECIFICATIONS- STANDARD MAXIMUM TO BE CARRIED IN STOCK a DATE !^LX9-aEJ?ABJUEj^j8Ta£ SHOP ORDER NO MEASURE FROM 0< MEASURE j 1 ENTERED B^ Figure XXL A detailed card for a specified time on which are posted receipts and deliveries of stock 100 ORGANIZING A FACTORY SEE FILE NO. APPLICATION FOR POSITION 1S NOW EMPLOYED AT AS TRADE TIME ATTRADE AGE WHERE EMPLOYED LAST WHY RELEASED HOW LONG THERE MARRIED SINGLE EDUCATION WHERE REFERENCES RELATIVES IN FACTORIES NATIONALITY U. G. CITIZEN LANGUAGES SPOKEN UNION OR NON-UNION Figure XVIII. The card bearing detailed information of the application for work RECORD OF WORK SPOILED DATE PARTS NO COST REMARKS DEPT SEE FILE NO. CARD NO. _ EMPLOYE'S RECORD CARD NAME APPI ir.ONT'S MO, ._ , . DATE FIRST EMPLOYED „ CHECK OR CLOCK NO. TRADE RATE PER l S ' NGLE — — — CHANGE DATE WAGES RATE DATE QUIT CAUSE DATE DISCHARGED CAUSE TRANSF'D DEPT TO DATE Figure XIX. Employe's Record Card. Record of Work Spoiled Card CHAPTEE Till THE MACHINERY OF COST GETTING A practical cost system must not only give the cost of a unit as a whole, but to be effective it must also give the cost of each part, and the cost of each operation of each part. The reasons for this are obvious. A plant manager must know exactly where a reduction in the cost of a product can be made, in case competition is too close or dividends are unsatisfactory. If competitors in the same line can at any time undersell him, one of two things is evident : They are either manufacturing their goods cheaper, or they are doing business without profit. Consequently any method employed for collect- ing and tabulating cost on a product must be such as will reveal just where it is possible to reduce the cost of manufacture by changing the method of tooling, the method of handling, the method of assembling, or even the design of the part itself. As pointed out before, this is especially necessary in those elements that go to make up nonproductive costs. Further, a cost system to be effective must be sys- tematized in such a way as to permit of the use of any or all different methods of paying labor that may be- come necessary. In other words, the system must be such that, after a few weeks paying of labor by the day or hour, the facts relative to the cost per piece or per operation can be obtained so accurately as to enable the adoption of either piece-work at so much per piece, or 101 102 ORGANIZING A FACTORY the premium plan of paying by establishing the time limit per piece. A system for keeping cost in such detail will enable a plant manager to tell, definitely and with surety, prices for repairs. It also gives him, in connection with a proper bill of material or specification sheet and a stores record of material, an absolute key as to the amount of stock required to make up any special con- tract or sheet order. Thus in figuring estimates on work he can make them with a certainty regarding profits, and in making purchase of material for them he can do so without over or under buying. This certainty can be reached in no other way and is a thing of no small importance in itself. The several groupings in a cost system and the several items that compose each group must be ar- ranged in such a way that the latter shall be tabulated not only for use in connection with the cost system, 1..1..4. «* but shall also be in the form of what is Analysis of Items, Parts known as a perpetual inventory. By this and Operation means tlie va i ue f power, equipment, ma- chine tools, small tools and et ceteras of such nature can be readily ascertained at a moment's notice. This plan, in conjunction with proper methods of handling material and stock, composes what is practically known as a Perpetual Inventory System. The first desideratum in the devising of a system as set forth in Chapter VII for collecting costs in the an- alysis of items to be manufactured. These items must have due consideration in the draughting or sample room, where they are divided into parts and the number of operations required on a piece of raw material to make it earn the name of part. They should then be classified on a card, as in Figure VI, to be used for C. E. WOODS 103 reference by the Superintendent, Stores Clerk and Cost Clerks. Each one of these parts must be given a heading number to distinguish it from all other parts — for in- stance, in the manufacture of harvesting machines, take a wheel. There are many sizes and kinds of wheels, but "Wheel," as the name of a part, should always have the same number. Thus No. 22 would always mean a wheel, no matter what kind of a wheel it might be ; while H22 or M22 would indicate the model or specific kind of a wheel that was to be covered. This Parts' Key Card has also on it, as indicated, the drawing number, the pattern number, the die or jig number, the kind of ma- terial that is used and the amount required, the model that the part is used on, and the name and number of the operations required to make a piece of rough ma- terial into a completed part. This card is the first step in the compilation of a cost system, as from it all the necessary numbers and names are obtained with which to mark job tickets, bills of materials, and other forms, as may be required. It serves no purpose beyond this, being precisely what its name indicates — a Key Card, one of which must be made out for every piece or part manufactured in a factory. The next step is the matter of records for patterns, dies, jigs, special tools and machine tools, as indicated Accu- *>y Figures VII, VIII, and IX. The items rate specified on these cards are so self-ex- Record planatory as hardly to need detailed de- scription. They serve three purposes; first, they serve to make a complete reference record regarding the several items they cover; second, they serve as a per- petual inventory; and, third, in connection with the Machine Tool Record Card, they indicate at a glance i04 ORGANIZING A FACTORY the hour rate to be charged for the hourly wage to be earned by any machine tool. Too much importance cannot be attached to the exact filling in and recording of all items that are to be covered by these cards. They should be filed in such a manner as to be immediately accessible for the purposes for which they are designed, one complete set for the main office, one for the Cost Clerk, and one for the Store- keeper. We now come to what is really the vital part of a cost system — the methods and forms used for the pri- mary collection of the costs on labor and material, com- monly termed "flat cost." Whenever it is proposed to build anything, whether it is a house or a machine or railroad, the first thing that has to be done is to make an estimate on the amount of material that will be required. An architect in his specifications always furnishes what is called a "Rill of Material," from which contractors figure their estimates. In connection with cost systems an entirely new feature covering this same has been intro- duced by the writer. Whenever a production order is issued to the manufacturing end of a business from the main office, it does not carry with it a bill of material. Consequently the latter must be made up by the Super- intendent, or whomever he may deputize, before a requi- sition for the purchase of material to cover the produc- tion order can be made. The method as adopted by the writer is to make this bill of material a permanent record in connection with the production order, and to further make it a record of the progress upon the work required on the material it represents. Upon it is also placed such necessary information as is required for C. E. WOODS 105 filling out the workman's cost time slips, job ttckets, and so on, as shown in Figure XI. This bill for material is made out in duplicate (Figure XII) . One copy is retained by the person who makes it out originally ; the other is given to the Chief Stores Clerk, together with a copy of the production order which it covers. The original filing in this bill of material takes it up to the column that shows to what The Bill S ^P anc * c ^ oc ^> or check number, the items of are issued by the Stores Clerk. After that atenal a jj recor) j s ma( j e on this bill of material are made in the departments of the stores clerks. In the first column are placed the number of parts required; in the next column the expense charge to- which they betong, which is taken from the key fur- nished by the monthly distribution sheet (Figures XI, XIII and XIV) . The third column is the heading num- ber as recorded on the Parts' Key Card ; the next is the name of the part from the Parts' Key Card ; then, fol- lowing in succession, are the drawing number, the pat- tern number, the die or jig number, the kinds of ma- terial, the number of operations required — all from the Parts' Key Card. The department to which the part is to go is filled in by the routing department or Chief Engineer, as the case may be, and checked by the Chief Stores Clerk, or his assistant, when he gives out the material to the de- partment store clerk. Then comes a column which re- cords the time slip number, and the clock or check num- ber of the workman, to whom the part or parts, repre- sented on the same line, was delivered. The next column is for the purpose of fixing a record of the parts on which work may be temporarily 106 ORGANIZING A FACTORY stopped. To illustrate, if a part should have ten opera- tions, and at the end of the fifth operation it became necessary to stop working on that part for a while, the Stores Clerk must be notified of this fact. He then en- ters it in the next column "Returned After Operation," accordingly. In some instances material in this semi- finished condition is to be returned to the storeroom. In other instances it will not, especially in connection with heavy castings or a large quantity of pieces. When work is again taken up on such parts as have been stopped, the fact is noted in the next column. The following column is for recording the quantities and dates as finished. That is, if 1,000 parts are to be made, and they are finished in installments of one, two or three hundred, it would be so noted in this column. It is at this point that material passes from rough stores into finished stores. The next column is where finished stores are given out for the purpose of assembling. Where stock is given out in bulk, such as steel rods, bars, brass stock, sheet metals or liquids, the quantity is entered in the next column. After the work required from that quantity has been done, what remains is in- dicated in the next column, while the following column Bill of Material snows the actual amount that was used, and store The three succeeding columns are for the Departments p ur p g e of making deductions of cost on this material. A careful study of this arrangement is required, as it is purposed for other conditions in connection with the workmen's cost, time slips and daily checks. After the Chief Stores Clerk has been given this bill of material, it can readily be seen that he has no license to make requisitions on the purchasing depart- ment for material in excess of the amount called for on C. E. WOODS 107 the bill, except in case the stock for any particular parts is below the minimum standard amount to be carried on hand. The amount on hand is always given on his requisition for purchase. The minimum and maximum amounts of stores to be carried should be standardized as early as possible, and constantly recorded on the cards used to indicate the receipts or deliveries of stock. In this way, as stated before, over or under buying of stock is impos- sible. For the filing of these bills of material, a center post with swinging doors of a suitable height should be made for the sub-stores' clerk. The bills should be filed on each side of these swinging doors. In this way, each bill of material is accessible in a moment's time, and can be filed in regular order, as issued. Each bill of material, after it has been received by the Stores Clerk, must remain in full force until all the work on the material it represents is either completed or entirely abandoned. A requisition form should be used for stock and material that does not enter into a product for sale, such as may be required by the draughting room, tool room, experimental and model room, or for any general supply needed throughout the factory or office. This form corresponds to the bill of material. We now come to Figure XV, the Workman's Cost Time Slip, a form that can be used in several ways, and for either day work, piece-work, or for premium work. Each slip has a serial number, as will be noted, and then, following consecutively, shop order number, stock order number, shipping order number, model number, number of pieces that are being made, drawing number, pattern number, die or jig number, operation 108 ORGANIZING A FACTORY number, bill of material number. The operation and kind of work being done is also indicated. One slip is to cover each, operation on any part. All of the foregoing numbers, with the date of issue, must be filled in on the slip from the bill of material by the Stores Clerk, or his assistant, which then accompan- ies his requisition to the Foreman for the work that is to be made in the factory in accordance with the bill of material they represent. When the Foreman receives these slips, he or his clerk fills in the workman's name, clock or check number, machine tool name or number, to which he wishes the slip to go. The workman then has all the information neces- sary to enable him to proceed with the work. He knows, Use of * n Edition to the shop, stock and ship- Time pi Q g order numbers, what drawing num- p ber or operation number he wants, what die or jig number he may require and so on. The amount of time that is saved in this will more than pay for the use of this slip by enabling the workman to immediately get what he wants without having to run around for such information, as is so often done. Upon the receipt of this material, the workman fills in the "hour started" work column, and then records each day the number of hours consumed in the opera- tion represented on the number of parts that are given him to work with, the total number of which is given in one column. If the work is being done under the premium or differential piece or piece-work system, columns are provided for gain or loss of time. If, on the operation, the man works overtime by day work, a column is provided for that. The rate is given for any method of paying, as is also the time limit per piece or quantity. C. E. WOODS 109 Now there are two methods of handling this slip. It can be retained by the workman until the operation it covers for any number of parts is completed. Then he himself can enter his time on it, turning in daily day work check (Figure XVI) until the work on the cost time slip is completed ; or, after the first day's work, this can be turned in to the cost keeper, who fills it in from the daily day work check or daily piece-work check (Figures XVI and XV), if it is found more desirable to do it this way. This form serves two other important functions. First, it serves as a voucher that a man should have the Auxiliary material which he wants to work with, Functions of and indicates to the Stores Clerk exactly Workman's Slip what the material is fOT) so that in keep . ing a record of the work as it progresses, he knows what workman is on any individual part in the factory, and just exactly what quantity of material he is licensed to take out of stores. Secondly, it serves as a receipt when material and work is passed on from one workman to another. Whoever receives the rough ma- terial for the first operation has his name recorded on the bill of material. When this operation is done, it is passed on to another workman, who must become re- sponsible for the slip of the workman preceding him by signing his name on the line "Defects accepted by." The value of this is that it brings into action the law of self-preservation and makes a sort of self-inspecting system, as the second workman will not sign this slip without being reasonably sure that both the material and workmanship that he is receiving are O. K. This continues from one operation and workman to another until the part is finished. If the slips are given after i'.:a first day's time to the cost keeper, they must be re- 110 ORGANIZING A FACTORY turned to the workman upon completion of the job, for the signature of the next succeeding workman. After the operation is completed, the total cost is entered up on this slip on the lines indicated. Thus, by the use of this slip, in connection with the bill of ma- terial, we have a short cut to all the flat, or labor and material, costs. Ten operations on any part will call for ten slips which, filed together, give a complete an- alysis of all the operations for that part. The parts on these ten slips are then transferred to the Parts' Cost Card (Figure XVII) , on the foot of which can be entered the material cost from the bill of material, together with the overhead expense, making a complete state- ment of the cost of every part manufactured in the factory. Any number of complete units that it is desired to manufacture can thus be grouped together, and the cost Total collected on the total allotment without costs any bookkeeping or record making other shown than the bin Qf material and the work . man's cost time slip in connection with the daily checks. So, were it desired to manufacture twenty thousand bicycles, or one hundred automobiles, they would go into the factory under a production order number covered by one bill of material, to which upon completion would be added all of the workmen's cost time slips; these would give the exact flat cost of the entire allotment. These cost time slips are all designed for filing in binders. Hence upon the completion of any order, they compose a complete record book of costs, to which should be attached the bill of material belonging to them. This method of collecting costs, by a proper record- ing of the numbers and conditions, as provided for on C. E. WOODS 1H the bill of material and the workman's cost time slip, enables any part or operation to be traced to the exact source where it was made or performed. Thus, in case of mistakes, errors or bad workmanship, the Superin- tendent or management can unerringly trace the party responsible for it. As fast as the cost time slips and workman's daily tickets are turned in from the factory to the cost keeper, they should be classified under two prime headings: First, shop order number, covering the whole job; sec- ond, parts heading number. This classifies all of the operations belonging to each part of all the parts on any one shop order. This makes a very simple method of procedure for keeping a record of the work. Not only does it throw up the record after the work is finished, but it also gives the cost of the work as it progresses from day to day and its stated progress and nearness to completion. It makes, not an estimated condition of the work, but an actual statement concerning it. So far as nothing but the actual collection and recording of flat, or labor and material, cost is con- cerned, the forms grouped referred to are all that are necessary, as they in themselves, individually and in their relation one to another, constitute what would ordinarily be a complete cost system. But, as before Add ._ stated, costs are of two kinds, productive tion..l and nonproductive; consequently these functions forms mugt lend themselves to the collec- tion of the nonproductive materials, supply and labor element of the factory, as well as the productive costs. They must also harmonize with such forms as are necessary for the moving of the product from point to point in the factory, by means of production orders, shipping orders, and so on. Further, they must consti- 112 ORGANIZING A FACTORY tute, in connection with all the forms used in the manu- facturing business, one of the strongest elements for maintaining discipline and general system throughout the factory. After having collected the workmen's time slips and checks daily, it becomes necessary to provide two recording sheets — one for labor and another for ma- chine tool time. Figures XIII and XIV are an exposition of forms in detail. First is Form XIII for recording labor. In the Make-up of ^ rs ^ c0 ^ umn the employe's name and clock Labor or check number are placed in the two Time Sheet spaces provided. The next column indi- cates the kind of time under which he is working. R. T. means regular working time on day work or piece- work ; G. T. means the time that is gained over this on the premium plan. To illustrate : If a man is working on the premium plan, where nine hours constitutes a day, nine hours is put down in regular time. If the man has gained on the work done for that day, say two hours, it would be put down opposite G. T., indicating that the man had made eleven hours' time that day, two of which were to be divided between himself and the company on what- ever basis may have been established. On the other hand, should he work nine hours, and not accomplish in the nine hours as much as he should, or, in other words, should he fall short of this limit of two hours, it would be indicated in the column opposite L. T. O. T. is for overtime work, where one and a quarter or ore and a half wage is paid for all overtime. This is entered up on this sheet from the workman's daily time ticket or cost time slip. This method saves an immense amount of time in making up payrolls, as they O. E. WOODS 113 are virtually made up by each department daily. In addition to hours worked, the shop order num- ber is recorded, and the expense charge under which the man is working. In this way a complete record of the expense distribution is made directly in connection with the man's time and the shop order number under which he is working, for either productive or nonpro- ductive labor. This space also provides a further con- venience for such departments as the drafting room, experimental or model work, tool room, or other non- productive departments. If a man is working on regu- lar time — that is, day work, G. T., L. T. and 0. T. can be scratched for any one day, and four different job shop order numbers or expense charges indicated in the same space. Such a necessity often arises, especially in the departments enumerated, as the men are frequently changed from one short job to another under entirely different shop order numbers belonging to an entirely different expense charge. This sheet is provided for continual record for thirty-one days> with summaries, as will be noticed in the last four columns covering it. This sheet also serves another purpose. It makes an absolutely perfect comparative record of the time „. „ . consumed on any operation or job in the as Record factory, so that after day work has been and Payroll j n VO g ue f or a w hile, from its record, piece- work or premium work can be accurately established. It gives a comparative record of the time consumed by different men on the same class of work, and a com- plete record of each individual man for comparison from day to day or month to month. This form of re- cording labor, as devised by the writer, is entirely new in connection with cost systems, and has been found by 114 ORGANIZING A FACTORY him to be one of the most satisfactory forms ever con- ceived for making such records. Further, this sheet answers every requirement for a payroll sheet, as at the end of each week or two weeks, a man's time can be footed up and his pay envelope made out from same. The day terminating each week or pay day should be filled in with red ink, so that the division of the monthly record into pay days may al- ways be apparent at a glance. Figure XIV is a similar record sheet for the wage earned by machine tools to cover their own deprecia- tion, in accordance with Chapter VI. The name and number of the machine is indicated in the first column. The next column indicates the kind of time: regular time means a full day's work, overtime the amount of time the machine works over the regular day's work on any particular day. Instead of having an overtime charge, two expense charges or job numbers may be M hine given for one machine tool in the same Tool day. It is found on the average that these Time sheet tw0 are aU that are nece ssary. Should the work in the factory be of such a nature, however, that the machine tools are constantly changed from shop order to shop order during the day, this form can be made up with four spaces, the same as Figure XIII. But this will rarely be found necessary. Like Figure XIII, Figure XIV is provided for con- tinuous record for a month, with summaries at the end, so at the end of each month it shows a comparative daily record of all the machine tools in a factory — a comparative monthly record with a summarized state- ment of the amount of earnings for each individual machine tool for that period of time. As stated in Chapter VI, the standard time for a C. E. WOODS 115 machine is 166 hours per month. From the total number of hours per month, we can always ascertain whether a machine is working full or over time. At the end of several years of this record we can determine exactly what is the age of a machine in actual service without reference to calendar time — a thing of no small im- portance when the time comes that it is desired to dis- pose of machine tools. This record also shows exactly what is being ac- complished with the machine tool equipment of a fac- tory; how many of the tools are busy, and how many are idle. By watching it the Manager or Superintend- ent is enabled to determine whether he has the work distributed to the best advantage in the factory or not, and whether the investment for such tools earns all that it possibly can. It will further indicate any neces- sity in a growing business for the purchase of new ma- chine tools. Requisitions by foremen or superintend- ents are often made for new equipment, when twenty- five per cent, perhaps, of the equipment they have is idle. It is now apparent that an entire collection and distribution of all active costs, both productive and nonproductive, can be made and distributed without bookkeeping or ledger accounts, excepting in summary form. CHAPTER IX LABOR RECORDS AND CLASSIFICATION In addition to keeping a record on the costs oi labor as set forth in the preceding chapter, there are some other conditions in connection with labor that it is absolutely necessary to record from time to time and also regularly, either daily, weekly or monthly, as the case may demand. First, are the applications made for positions as illustrated on card, Figure XVIII ? These cards should all carry a card number as pertaining to themselves, a file number in which a file of correspondence relative to this particular applicant should be placed, together with the applicant's number, which number should always be used in corresponding with an applicant. Other information as given on the cards is self-explana- tory. For the employment of all artisan labor, clerks, etc., this card covers an abundance of information. Officers and high salaried men usually come under a different consideration, which oftentimes requires more searching inquiry than this card furnishes, although these cases, as in any and all labor employed, should be registered on one of these cards. The card shown in Figure XIX immediately comes into life upon the engagement of an applicant from A r t'a card Figure XVIII, and is the summarized First record of a man from the time he is em- Beoord ployed until he leaves the employ of the company. This card should carry on it the same fiJe 116 C. E. WOODS 117 E--7 C_ *_ a LU n_ CO 3= LU «— o_ ex. »- LU CO lo- (0- .;. V do v ts— « ef~ t— «_ CO « a ~~ S- =3 *"~ 2— 2- o— _ " >- a - n~ —J 3 S - <0— u>_ *- a— «- 10 a - UJ Q— m «- Z ;« - — £- =3 2~ 5- o_ »- *- (0- V* 1 T \^ n s~ ci - >- a" «- o «C £ o_ -O- 7- S- " IT _i <0_ o «" eoet OS Q_ <: ■*- ffl- «« 9- pg *- «._ 2— _JT Sj n ~r >a 5 2° o o o o o o to * *a 43 o . - o- o o o o o O o £; oj o; - O- w ' ,*• - * to « j !- FIGURE XXVII. Comparative Labor Chart, seasons 1903, 1904 and 1905. lactory labor only 118 ORGANIZING A FACTORY ROUGH STORES LEDGER RECEIVED DATE j ARTICLE FROM WHOM RECEIVED BTtwes i hequisitioh j BIN NO RACK NO. !H£ 'Sf I I i — ' _ . — . „ 1 * . ■ J . ■'-i Figure XXI3X The Rough Stores Ledger Card on -which receipts and must balance FINISHED STORES AND MERCHANDISE LEDGER RECEIVED DATE 1 ARTICLE FROM WHOM RECEIVED requisition i bin no no. ! RACK t O. Pt-OOH tUVO-CE 1 SPACE NO , DATE ! j ^z r- ■ i _L_ ^ . ^ -i '- Figure XXIV. The Finished Stores Ledger Card which performs ex- stores =---^™ -— - SMALL AND HAND TOOLS LEDGER RECEIVED DATE ARTICLE FROM WHOM RECEIVED OUAHTITT S'7E THE IS tXJH COST \, DATE ! TO WHOM DELIVERED !j i Figure XXV. A Stock Ledger Card for small hand tools. The three GENERAL SUPPL IES LEDGER RECEIVED DATE i ARTICLE OUAKTTTY FROM WHOM RECEIVED received STE £%• OUR Figure XXVI. The Stock Ledger on which is kept lecord oi all gen- C. E. WOODS 119 FORM NO. 33 Gl /EN OUT RECEIVED il TO WHOM DELIVERED 1 QUANTITY | TO SHOP t %! ii ,'L C - E i BALANCE ™ T * L F j NET ON HAND j COST INVENTORY " \ i ' . — — — — — T " 1 L 1*- --74 delivery of all stores must be posted— tlie "Eeceived" and "Given Out" sides KORM HO. 3+' GIVEN OUT QUANTITY i RECE1VEO , TO WHOM DELIVERED TO SHOP FACTORY BALANCE 1 BALANCE BALANCE NET COST j WVENTORV | VALUE J — - n ' I actly the same duty for Finished Stores that Form XXIII does for rough FORM NO. 36 GIVEN OUT RETURNED QU.KT1TY 8 <" °* KLVMEfr ^X J £i COST BALANCE DATE ■ BY WHOM RETURNED \ CONDITION <' USED VALUE 1 stock | ON HAND i i 1 ! i 1 . . L_— -t. __ ' headings pe T TQ"t a complete inventory of new tools in use can be kept OUT _.__ FOR m no; 38 GIVEN ; COST ' DATE ■ ' TO WHOM DELIVERED ' QUANTITY 1 OELIVERED J§§L Q°uismc 'E- | TO BE USED FOR COST HAND !_ -j — — -^ ^. l'— — II *— - ~, .^— — - eral and miscellaneous supplies— used »* »re the previous cards 120 ORGANIZING A FACTORY 8? s ° 2 » L o o o -: 00 :"^ to O O O O o t- ta Tt- eo eg ,- *•- - -CO CJ - ce °>_ co S. CO 10- :| c*~ t— «_ J \ \ Q in =3 CD s- J W % z (0— j 11 « w «> UJ_ 4 tf >■ < 5 >- — I CD- = % y j o s ID £- t\ P" - 1 s n w ° « ■*- \ UJ 13 O ci — / // 2 8 § V in ' ° to- ^ >- £ CD— \ o o o Z Z 2 [O -J cc -J_ \ o_ / : ^: "5 co- j ce ta o_ / TO_ CJ UJ •- - j^--— UJ «_ c_ O (D- Z «._ f s O EC s« a>_ m CM *" o2 >-£ o J- o ■*- E« *2 S o"~ o o o ~e>~ o o o o o COO H o o — o o o o - o o o *§ 2 o GO K O to * cq e* — C. E. WOODS 121 number and applicant's number as card Figure XVIII, and all correspondence resulting from this card should be filed in the same file so that at any time the complete history of any one man is kept together in one file of which either one of these cards is an index. I have seen many elaborate systems for covering these same fea- tures but after they were worked out in their detail I have found every bit of information that is required concerning labor in this respect is provided for on these two cards. We now come to a form of report which should be filled out at some stated period, either weekly, monthly or at given pay periods, which shows the fluctuation in labor by departments and by classifications of each de- partment in such a way as to correspond exactly with the distribution of labor expense on chart Figure IV, Chapter III, and with the prime organization chart, chart No. II, Chapter II. It is noticed that these departments are classified on the end under manufac- turing and commercial expense, also under productive and nonproductive departments. It will also be noticed that nonproductive and productive labor is divided up by classification of fore- Fluctuations men > c l er ^ s ; e * c v an ^ the number of each of kind of this classification, together with Labor ^e percentages of each kind in each de- partment, is given. There is also a column, the one next to general information, in which the percentages of each department to all other departments is also given. This form thus provides an immediate survey at some stated period of any fluctuations, either by de- partments or by classification of different kinds of labor employed in any one department. A comparison of this report is of vital importance 122 ORGANIZING A FACTORY in connection with the variations in the amount of out- put, as with increase or decrease of output continuing for any period of time certain percentages of fluctua- tion in labor by departments and in labor of each de- partment should take place, which will gradually be ascertained after a few weeks or months of careful watching. In other words, it forms an instrument for making up a schedule of labor required to produce some given output. I cannot impress too strongly upon the reader the value of this simple report in these respects. I think it opportune to say here a few words in re- gard to the policy and attitude of any administration toward labor, and 1 say it from a very wide experience and study of the question. It should be borne in mind that labor as a whole does not work from choice but from necessity, and this effort is obtained only by em- ploying incentives, and while the incentive of wage is the first desideratum, it does not by any means, as many suppose, cover the whole question. Absence of any other incentive than this simply makes it impos- sible to progress or modernize a business in any way. In addition we should bring to bear upon labor such incentives as will result in the use of their heads as well as their hands, by way of promotion, personal credit or financial reward. Those men in a company who are in charge or have authority in any way, should have applied to them such incentives incentives as to lead them to distinctly to understand what their possible promotion Labor ma y ^ e an( j wna f- p ersona i credits will be alloted them for achievement of any kind. Other la- bor throughout a factory should have such incentives applied to it as will make them understand that sug- C. E. WOODS 123 gestions for improvement in any way will be a subject of financial reward. A workman may be dense and plebeian in his per- sonal make-up. At the same time he may acquire an experience in certain operation or operations after months or years of service that will point out a new method of processing or even a design itself that will very materially result in a reduction of costs of pro- duction, and no incentive is so strong in any factory as the one which makes this man understand that if he can do this he will be suitably rewarded in hard cash. Every man in every factory should be made to understand that provisions are arranged whereby his communication on any subject of this character will not first have to pass through his and several other foremen's hands with the probability of never reaching headquarters. He must be provided with means whereby his suggestion can reach the management di- rect and be made to understand that it will be given consideration by this management, — first, in the shape of an immediate acknowledgment, and second, in the shape of action, either for or against, by some com- mittee that may be provided for such work. If any one doubts the efficacy of such an arrangement, let them try it for sixty days and they will marvel at the amount of brain power stored up in their business that they have never taken advantage of. CHAPTER X PERPETUAL INVENTORIES— THE MACHINERY FOR KEEPING THE RECORDS Before going into the detail of methods which should be employed in a perpetual inventory, I want to make one thing clear — that there is in reality no such thing as a perpetual inventory — the name unfortun- ately is a misnomer. Continuous valuations could more properly be used as the term, as this is exactly what is obtained — continuous valuations which have to be re- capped and summarized weekly, monthly or annually to obtain an inventory proper. There is still another point that should be given due consideration in connection with laying out a sys- tem for this kind of work — the method to be employed for receiving goods. It is clearly within the province of a purchasing department to buy goods. It is also within its province to receive goods at the factory. But after delivery and receipt of goods are made, all receipts of whatsover nature, except coal, machinery, patterns and similar articles, should be passed into the keeping of the Chief Stores Clerk. All checking by the receiving clerk should be done independent entirely of invoices, as it is the only way to insure a proper checking. Checking from an invoice makes check marks too easy and counting too hard ; in other words, goods are often checked without counting. As soon as goods are received by the storekeeper or stores clerk they should again be checked off by him on a memorandum of receipt, independent of the receiving 124 C. E. WOODS 125 clerk. The storekeeper signs this and gives it to the receiving clerk, who will compare it with his own memorandum of receipt, which has been compared with the consignor's invoice in the main office. As soon as this is O. K.'d the stores clerk adds to his standard cards, covering items in stores, the items received in new goods and enters them upon his various ledgers. This practically inventories this class of assets to date. The first tools necessary for a stock-keeping sys- tem are the cards described in Chapter VII, on which Necessary are c ^ ass ifi e d all the fixed assets of a corn- First pany, such as fixed tools, general equip- ps ment, and so on. On the back of these cards are arranged columns for placing valuations from year to year in accordance with the depreciation or earnings which have been charged to cost, as was ex- plained in Chapter VIII. For instance, if a lathe has earned $100 on a wage scale during the year, that much of it should be written off on the back of the card as a depreciation. This is in accordance with the general scheme carried out in Chapter VIII. The next step is to provide cards for the use of the Chief Stores Clerk for keeping track of the stock or ma< terial that is in storage. Figures XX, XXI, XXII ex ; hibit these in detail. On Figures XX and XXI are posted all receipts put in boxes, bins, racks, shelves, and so on. All goods given out are likewise posted on this card. Figure XXI shows a more detailed card of this character, in which the "on hand" amounts are entered and balanced off in some specified time required. It will be noticed that this card shows the minimum and maxi- mum amount of any item to be carried in stock, the date from whom goods are last received, and the dis- 126 ORGANIZING A FACTORY tribution as they are given out. If the system is laid out in accordance with Chapter VIII on keeping costs, the charges for everything given out from stores will be covered by a charge account or shop order number. Figure XXII is a ledger card to be filled out once a month — say on the first — and kept in the main office or purchasing department as the inventory record of stores on hand. Figures XX and XXI are very similar in use — either one can be used in the same way. Figure XXIII is a rough stores ledger on which all goods of whatsoever nature of rough stores must be en- The tered on the receiving side. Thus, if 1,000 Bough stores castings are received on a certain date, Ledger ^ e y a j one wou ia b e entered on that side of the page until they were balanced up on the "given out" side to the same quantity. In other words, the handling of stores by this method is exactly the same as a cash ledger — quantities given out must balance re- ceipts in opposition. In filling out the "to whom de- livered" column, it should be borne in mind that the "to whom" is a charge account, shop order number, or whatever will show the exact classification which the distribution of "given out" covers. Columns are pro- vided on the right of this, as will be seen, to show bal- ances and quantities in values at any time, so that the actual kind of items and stores themselves by this method never becomes necessary. Figure XXIV is precisely the same form of ledger as Figure XXIII, but it is used for finished stores and merchandise — that is, for such merchandise as is bought but never processed — simply handled and resold again ; or such parts as are made in the factory, as repair parts or carried in stock as finished parts in an as- sembling room; or, again, a completely finished prod- C. E. WOODS 127 uct. The study of these two ledgers will show that as fast as rough stores are made into finished stores they will check themselves up properly in the columns indi- cated. The value of these ledgers in connection with the cards cannot be overestimated in both store and stock- room, as on them is done all the accounting of all the stores, not in dollars and cents, but in quantities and numbers. Besides furnishing an absolute key to the distribution of stores, where and to what charge ac- counts they are distributed, they also indicate instantly any discrepancy in the amount used compared with the amount received. The Chief Stores Clerk is held ac- countable for any discrepancies that may exist. Figure XXV is a ledger for small hand tools. It will be noticed that on this ledger there are three head- Eeoordson * n & s — ° ne * or " rece ipV one for "given Tools and out," one for "returned." To illustrate General Supplies thig . The storeg derk may receive one hundred monkey wrenches ; John Smith on a certain date has two monkey wrenches given to him; they are charged up to John Smith and John Smith must sign his name in the column "to whom delivered," or some other form of receipt must be used. These two wrenches thus stand charged against John Smith until he brings them back for renewals or returns or for any other purpose. Figure XXVI is a ledger for general supplies used in the factory, such as oil, sandpaper, emery, and all the miscellaneous supplies that compose the general sup- plies of any manufacturing establishment, and is used as regards receipts and disbursements of supplies in exactly the same way that the foregoing ledger forms are used. This same ledger can also be used in the commercial end of the office in connection with all office supplies. OHAPTEE XI HOW THE EXECUTIVE MAY KEEP IN TOUGH WITH THE FACTORY Time is too valuable to allow the executive heads of present-day business concerns to devote to study of long and complicated accounts. They must transact a large volume of business ; they cannot afford to distract their attention to the detailed minutiae of reports. Old methods of making statements have not been comprehensive enough. The executive officer of today must grasp the whole of a situation or condition with as little detail as possible. Not only questions con- cerning the moment must be considered, but similar prior conditions must also be taken into account at the same time, that comparisons of progress may be made. In his work for the larger industrials, I believe the writer has been one of the first to develop a system of expressing business conditions in a concentrated and comparative form. To overcome the above objections has been one of his chief aims in organizing and systematizing manu- facturing and commercial affairs by arranging state- ments and reports of concerns in such a way as to give an instantaneous review of conditions, snap shots of industrial progress in which, however, every detail of importance is found and placed to its proper reckon* ing. This is done by making up statements in the form of charts instead of balance sheets — a heretofore un- known system of dealing with the summaries of a busi- 128 C. E. WOODS 129 ness, although such methods have been used in engineer- ing work for many years. The value of a statement of any kind, when iso- lated, is very small. It is only when compared with some other similar statement that its full value is found. If a manufacturer says that he employed a thousand men last month, the idea is given that he has a large factory and employs a large number of men. But when he says that he employed a thousand men last month, eight hundred men the month before, and but five hundred men a year ago last month, the value of the current statement is intensified by each compari- son. This means that every statement is always covered by a time period, and that a corresponding time period of some other date is necessary to fully grasp the present condition. It is because of this that the writer's system of chart making has been found so efficacious. There are Value of no details °f a business as a whole, by Comparative departments, or by conditions regarding Figures goods made or handled, that cannot be covered by some form of chart. The limited space here, however, will permit of but three general illustrations. The first of these is Figure XXVII, which is a com- parative labor chart of the number of men employed in a factory for a period of three years. The curves in this chart are taken from an actual record ending Septem- ber 30, 1903. The headings, however, are given for 1903, 1904 and 1905, showing weekly and monthly divisions, and the dates that these come on during these years ; so that those- who may desire to use a chart of this kind may copy the headings and apply them to their own particular needs. It will be noticed in the lines for all three years 130 ORGANIZING A FACTORY that from the 1st to the 15th of October the labor in- volves only from 200 to 300 men; whereas, the normal working force is from 700 to 800 men. This was a two weeks' inventory period, after which the number of em- ployes rises very rapidly, ^y the 1st of November the normal number of men employed is very nearly reached. In reading a chart of this kind, first ascertain the year and date ; follow this line down to the intersecting point of the curve for the corresponding year. Then, from the dot, trace to the left, where the average num- ber of men employed for any particular week will be found in the left-hand column. For example : On January 3, 1903, 800 men were employed ; while the week ending January 2, 1904, but 750 men were employed ; and the week ending January 1, 1905, only 690 men were employed. This shows a falling off in two years for the same month and week of 110 men. Even when one not familiar with chart making inspects a chart of this kind, he sees at a glance that there was a variation in labor for the three years in corresponding periods. He also sees at once that there was a big drop in labor during the week of April 11, 1903. These points would constitute his first two in- quiries. The drop of April 11th was caused by a strike which lasted for four weeks, during that year, but it was four weeks more before the number of men em- ployed had resumed normal proportions — altogether, an eight weeks' interference in the business. This one chart shows the whole history as to the number of men employed each week for a period of three years. In other words, at a single glance the compara- tive labor conditions of a factory are comprehended for 0. E. WOODS 131 that length of time in divisions of one year as compared Comparative witl1 an °ther. This chart is distinctively Labor what is termed by the writer a "time Chart period chart." That is to say, it repre- sents on each dot the number of men employed at that particular time in a way relative to the number of men employed before or after it. This method of making a chart to cover labor can be applied to as many different divisions or labor, or hours worked, or payrolls, or comparative number of piece-workers and day workers, or comparative number of productive as against nonproductive men, as it may be desired to have comparisons. Moreover, this same method of charting is used for showing the number, amount, quantity or measure of goods manufactured or sold for each day of the week, or for each day, week or month of the year. The next chart (XXVIII) is an extremely interest- ing one, as it shows a certain output as compared with Outwit a cer t a i n number of men employed. It Compared shows, first, the average daily number of Witu Labor employes for each week for a period of one year; second, the number of tons of castings that were made each week for the same length of time ; third, the percentage of good castings that were obtained out of the total amount made for each week during that time. The double line of percentages should be read from the percentage column on the right-hand side, while the number of men employed and number of tons of castings made should be read from the black figures in the column on the left-hand side. For example : In the week ending November 15th 610 tons of good castings were made, 470 men were em- ployed and 69 per cent of the castings made were good. 132 ORGANIZING A FACTORY Here is another instance, more marked than eve*, of the value of comparisons. The chart presents the report in so simple a way that we are able to take in at a glance the entire year's business as regards labor, output and percentage of good results. The first marked deviation we notice is in the week ending November 22d, which was Thanksgiving week, with three holidays, so the output was low. The next low drop was the week ending April 4th, which was caused by primary elections and corresponding reduc- tions in forces. But there is something here of vastly more import- ance than all this, for we see the highest economical rate at which the foundry was operated. The maxi- mum capacity of this factory each week was 700 tons, and the nearer this capacity was reached the less the labor required a ton of output, as shown in the last two weeks of October and by the higher rise during the months of February and March; while on the 6th of June the cost for labor has been increased to one ton a man instead of 1.3 tons a man as in the week of March 7th. All through the summer run this higher cost of outfit was maintained, until in August and September. As the tonnage crept up a little, the cost for labor was lessened. There never was a balance sheet or a numerical statement made that would show actual conditions of a year's business as plainly as does this chart without spending hours of time over it in order to get an intelli- gent understanding of comparative conditions and re- lations. Figure XXIX is particularly applied to a commer- cial or mercantile business and covers a time period of one month by days. It contains a quadruple expression C. E. WOODS 133 of a single item — e. g., sales — and shows two different methods of charting; one, which the writer terms a "step chart," and the other by curves as in Figures XXVII and XXVIII. It shows the sales each day, as compared with every other day, and then the cumulative sales from day to day for the entire month. That is to say, the sales of one day are added to those of the next, and so on for the entire month, ending in the total sales for the month. The total sales are represented by curve No. 3, or about $14,000 for the month. In this chart the cumulative black lines are read from the black figures in the left-hand column, while the amount of sales made for each individual day, as indicated by the double line, is read from the light- faced figures in the right-hand column. To illustrate : On the 15th of the month, the sales were $850, while on the 16th they were but $430. The cumulative sales for the same days were, closing the night of 15th, $6,950, and on the night of the 16th, $7,380. The total sales are again divided into credit sales, curve Xo. 1, and cash sales, curve No. 2, the sum of which makes total sales, curve No. 3. This chart shows at once what amount of sales has been made during the month, what the relative amount „ . of credit and cash sales was, and what the Value ' of the relative amount of sales on any individual Chart day was as compared with any other day of the month. It should be noticed that on every Fri- day sales ran much higher than on other days. This was due in this instance to Friday bargain day and was controlled by special prices and strong advertising features. Another sharp illustration of the value of a chart 134 ORGANIZING A FACTORY of this kind is shown on the 25th day of the month. On this day sales fell off to $225. Inquiry showed that this was a very stormy day, with a little better weather on the 26th and 27th, normal trade on the 29th, and the 30th again being inclement weather. This particular month is chosen as it illustrates excellent values in chart making. It will be noticed that there is no rise to the curves on Sundays ; the line is dotted only, show- ing that no trade was obtained on those days and for this reason neither rises nor falls. The charts illustrated here are some of the more simple forms devised by the writer so that those inter- ested might readily understand the method of proced- ure used in making them. But charts are made to cover every expression of a business as regards costs, or production and sales, or to show every variation con- tained in a trial balance, or to cover statistical records for any number of years of which it may be desired to make an exhibit in chart form. For railroad and insurance companies, banks, de- partment stores and other business concerns, this method of presenting results to executives will be found so broad in its expression, so concise in pointing out conditions that need executive administration, and so time-saving and clear in its whole presentation as to almost retire the use of the old-fashioned balance sheet with its numerical compilations and lack of means of comparison. OHAPTEE XII REDUCTION OF LABOR COSTS The one great aim of manufacturers toward th« reduction of the costs of production has been to con- vert labor employed by the day into piece-work labor. By so doing they invariably expect that they will not only fix their cost of production at some definite point, but will also greatly cheapen the cost of production as a whole. Theoretically this argument is logical, but in actual practice I propose to show that without a proper means of checking exactly what work is done and the prices paid for it, a very large possible profit to a fac- tory may be eaten up with no outward indication that such is the case. The governing feature in a piece-work system is a good and proportionate reward to labor for increased effort on its part, and a corresponding penalty if this effort is not made in the shape of a proportionately small wage. We all know that the weakness of the piece-work system lies in the fact that invariably the time comes — no matter how the price rate may have been computed — when the wage earned is too high for the labor employed. At that point rate cutting inevit- ably begins. This in itself introduces a third penalty — a penalty of an inverse nature that is somewhat disastrous, as it makes piece-work subject to two penalties — one for not doing well (in the small amount of wage earned), and one for doing too well (when too large a wage is 135 136 ORGANIZING A FACTORY earned). Rate cutting in the latter case results in a whole or partial cessation of further speed effort on the part of the employe, and this in turn affects the equip- ment, speed and cost proportionately. The broadest experiences have shown that the whole tendency in the cost of production for labor, whether by piece-work or day work, is downward as the years go by. There may be times of advance in piece- work prices, but they are short lived. The effort of every financial interest and of every engineering inter- est is centered on lessening costs, while the laborer him- self, by virtue of his accumulation of experience in deal- ing with an operation or piece of work, increases his speed and contributes unconsciously to this same les- sening of cost by increasing his output. The laborer knows, however; that if he increases his output beyond a certain point the inevitable cut will How Piece- come. As a result, a body of piece-workers Workers Limit in a factory often establish among them- Production selves an understanding regarding the amount of output that they will produce at a given price. This understanding is so thoroughly established that in many cases it becomes an unwritten law. In factories where speed bosses are employed, or where special tests for output have been devised, I have seen men purposely dull their drills and other cutting tools, so that by the most diligent work they could only show a production equal to some standard set among themselves, in order to avoid any checking on the part of those interested which would have a tendency toward a cut in piece rates. It was to overcome this waste that the writer conceived of the plan of measuring this waste through the channels which are illustrated on the accompanying charts. C. E. WOODS 137 TT 13S ORGANIZING A FACTORY s li J Si OJ j OT Hi A H Hi 1 to D o D -t I < L > 2? 1 D 1 Ui ii 1 z D ht T la i >- < s i| I a: Q. < If [ I s< 1 O g 1 J) < hu. I £ sS 1 >- ZU. ir < a* \ =} tr m s< 1 u. £Z J cc 8- ll < D JE_ J z £« I "* Hi }> tr UJ |i CD £ «1 o mi \ T L±J a 1 i T a 2u. Ul L 1 CO ii \ l iij \ l > \ 1 \ 1 z U.I t \ a 1 \ m 8* 1 \ 2— h h D i- O i 1 £ to in io m «o Ul Ul if) tl> io za-j^wneiH-TO CgiantosNioeiiiK) tu«eM«««« w (N«04 (-> o o sg fc'M C3 &a 3 u i o u j=d a [/} o » Si P. -a v£ t-i aj ' 'd 4J W uS 3 ■a ii° a* H»S « M7„ CM £ > ggs MBS B^ of£o Eg? is C. E. WOODS 139 o m o m o >a O O O) CO CO N S Q o O ■" E ' Hi „ , -nr*> m S P 1 = tr ■ m ,_ 111 ! -s-» I- .2 a 0) £ ■So SI CO 1> 3+> oooooooooooooooooooo OiooLnOioouooiooLOOiooioomoio O0)OC00)NN(D(0>0l0'4''tcq co,« C«l t- t- -CJrt (-.13 +=> t-. * a 5 gls fe- ed 60 83 140 ORGANIZING A FACTORY Comparative Life of Various Units Used in Factories STEAM EQUIPMENT 2808 Hours for a Year STEAM. BOILERS Tubular Construction - 30 yean J e . _., . Water Tube Ceerfnicdoo 40 yean ( Sd*»* Old lion STEAM ENGINES High Speed Auiomiilo 20 yean I Mediui.. Speed Automatics 30 yean > Salvage 5(6 to 10 C Corks Type • - - 40 yean I STEAM PUMPS 125 to 150R. P. M. 8 years 1 75 to 100 R. P. M. 15 yean ! - , ,,, ... 50 to 75 R. P. M. 20 year* f Savage 5* to 10* 30 to 50 R. P. M. 25 years j STEAM PIPING Ordinary Wort 30 year. 1 , , Hi B h Grade Work *» 40 years f Mk PLUMBING Ordinary Work 40 years ) , . High Grade Work - 50 years f J""* ELECTRIC EQUIPMENT Vcltaoes up to 250 ELECTRICAL MACHINERY Very High Speed • 8 yean. Salvage 15$ to 20* Medium Speed - 15 yean. Salvage 20% to 25S Very Slow Speed . 20 and 25 years. Salrase 25* to 30* ELECTRIC WIRING FOR POWER AND LIGHT Ordinary Open Wealber Proof - -15 yean J HI B h Grade Insulation Concealed 23 years > Salvage 20* to 25* High Grade Insulation in Conduits * •■ 40 year* * 16 C. P. ELECTRIC LAMPS 110 to 125 Vote - • 600 borjn f c , „ _. 220 w 250 Volts • 500 hours f S»W 2% to 4* STORAGE BATTERIES Never Worked Above Normal 15 yean ) Never Worked up to Normal 20 years }- Salvage 2H* to 5* Frequendy Worked Above Normal 10 yean 1 GENERAL MACHINERY EQUIPMENT 2000 Houn for a Year LATHES, PLANES. DRILL" PRESSES. ETC. Very High Speed 10 yean I Medium Speed - ' 15 yean > Salvage 7%% te 10* Very Slow Speed - 20 years ) AUTOMATICS AND TURRETS High Speed ... . 8 years 1 Medium Speed 12 years - Salvage 7H* to 10* Sow Speed ... |6 years I LINE AND COUNTER SHAFTING Highspeed 12 years J Medium Speed 18 years > i Slow Speed • * * 24 yean I BELTING High Speed - 12 yean 1 Medium Speed 15 years > Salvage Nothing Slow Speed • ' 26 yean I BUILDINGS Frame. Ordinary . * Mill Construcrioo • Steel. Unknown. Left to Comparative Table showing life of various equipments C. E. WOODS 141 In the first place, a chart was made on which was shown the average wage paid an hour for both day work and piece-work for a time period covering an en- tire year. This chart is illustrated in Figure XXX. The upper line represents the hourly wages of the piece- workers, the lower line of the day workers. This chart has proved of inestimable value in keeping the record of either an advance in wages by day work or an ad- vance in earnings by piece-work, for, as before said, the time invariably comes when piece-work has to be re- adjusted. In the instance illustrated the time was very near, as there had been a gradual increase throughout the year up to June, while from June until the end of September, the increase in piece-work had been prac- tically nothing. These figures showed that either a maximum speed had been attained by the piece-workers, or that they had reached a point (which was the fact) where they dare not make higher speed for fear of being cut. The aim was to find out the exact facts in the case. In the Figure XXXI, I make an exhibit regarding these facts. This is one of the most interesting charts that has ever been plotted in connection with a manufac- turing business, and one that is capable of doing more to point out a possible reduction in costs, or rather in- crease in the value of labor, than any chart that I have learning the ever made - Jt is entirel y original with Efficiency the writer in so far as its specific use in ofLaber connection with labor is concerned, and has proven wonderfully effective in pointing out the exact conditions relative to the subject. To indicate the steam engine of a factory for the purpose of finding out whether foremen were holding their men up to the work or not and obtaining efficient 142 ORGANIZING A FACTORY service from them and the factory equipment, would at first sight seem to be a far-fetched proposition. But such is the method used in obtaining the facts as shown on Chart B. On the left side of the chart it is seen that at 6 :45 in the morning about 520 horsepower was being used, There is very little rise on this from that time until 7 o'clock. It is also seen that this same condition pre- vailed at 12 :45 in the afternoon as at 6 :45 in the morn- ing. This shows that the friction load of the engine, or the load on the engine for transmission devices, such as belting, shafting and idle machines, amounted to a trifle over fifty per cent of the maximum power required when the plant was running with its full load factor. Following from 7 o'clock up for the first fifteen minutes, it is noticed on the heavy line that but 800 horsepower was being used, and at 7 :30 but 935 horse- power was being used, and that the maximum load, or 1,000 horsepower was not reached until 8 o'clock. At 11 o'clock it will be further noticed that the load has dropped about 20 horsepower, that at 11:15 it has dropped 80 horsepower, that at 11:30 it has dropped 200 horsepower, that at 11 :45 it has dropped 355 horse- power, and that at noon it is back practically to fric- tion load. Starting again at 1 o'clock, it is noticed that the maximum load is not reached until 2 :30, and that the load again commences to drop off at 4 o'clock and con- tiues to do so down to 5 o'clock, very similar to what it did at 11 o'clock. From this chart one fact is certain — the amount of power required is exactly in proportion to the machines in operation, and the machines in operation are exactly in proportion to the men at work. Consequently fluctu- C. E. WOODS 143 ations in power can indicate but one possible condition, i. e., that the men are not operating their machines at such times as the power is lower than normal. Investigation into the causes pertaining to this particular instance showed in addition to the informa- Wanton ^ on Sphered concerning the total amount Waste of of power required that the labor through- out the plant using this power was not being kept up to its work. In other words, it was a case of building glass offices for the foremen and letting the men idle a great deal of the time. For this chart is an absolute indication of such a condition. If the machines were kept busy up to within five to ten minutes of noon the power could not fall off. If the men were at work promptly at 7 o'clock and at 1 o'clock the load factor could not be so slow in reaching a maximum. The whole evidence shows a great lack of discipline over the men throughout the factory, and a wanton waste of time on their part, resulting in an equal waste of time for the equipment employed. In a factory that employs day work and piece-work labor, as in this instance, and in which the piece-work labor amounts to over fifty per cent of the total labor, the natural inquiry is, why, with so large a percentage of piece-workers, is the load so slow in reaching a maxi- mum, and why does it fall off so early in both the fore- noon and afternoon? An analysis of Figure XXX, showing the average wage earned an hour, indicates that the piece-workers had reached the point in wages earned beyond which they dared not go for fear of being cut. Consequently the piece-workers were at the times indicated "soldier- ing" on their work. This in itself was incentive enough for the day workers to do likewise. 144 ORGANIZING A FACTOR'S Enforcement of discipline in this particular in- stance and the keeping of the men up to their work, Kndiiw resulted in forcing the power demand out the to the point shown by the dotted lines, which made an actual gain in time, each day, of 74 minutes. This time multiplied by 800, the number of men employed, equals 986 working hours, which, at an average rate of 20 cents an hour, is $197.20 a day, or $59,160 a year. These figures represent the actual cost to one company of a lack of a system for re- cording the work of employes. But the results were more far-reaching than this. The discovery recorded on this chart not only increased the output capacity of the factory by about eleven per cent, but it resulted in an adjustment of piece-work rates which amounted to nearly a fifteen per cent cut in wage cost for piece-work — and still left the piece- workers earning as much as ever. But they had to work a full day. The writer has found this means of investigation so far-reaching as a cost-reducing factor as to almost revolutionize the internal workings of a plant. But in no instance, in conducting these tests, has it ever been surmised in the factory, beyond the superintendent him- self, exactly what was being done. This method of making tests can be made in two ways: First, by indicating the steam engine which operates the factory; and, second, by using an electrio motor placed upon a truck to make it portable, and running each individual department in the factory with this motor for a sufficient number of days or periods to find out the facts required. The writer has yet to see an instance in which the expense attached to such a test has not paid for itself a thousandfold. C. E. WOODS 145 The latter method, of taking one department at a time, is the most effective of the two, for the A - ■ simple reason that it locates to a nicety Leakage which foreman and which class of workers are most responsible for the discrepancies found. A still further value to the investigation is the fact that it showed the tremendous loss of power due to transmission and friction, amounting to 50 per cent of the maximum power required, or about 62 per cent of the average power required through the day. A rede- signing of the entire power transmission system re- sulted in a saving of 50 per cent of this loss, or in dol- lars and cents a saving of $4,050 a year, making a net saving due to the investigation as follows : Time saved $59,160 Reduction in piece-work rates 26,400 Power saved 4,050 Total $89,610 Yet there are manufacturers who do not believe in the application of modern ideas to their business. CHAPTER XIII SCHEDULES FOR RECORDING FACTORY OUTPUT "What we want out of any plant is a full capacity output — a question of vital importance in cost of pro- duction; and any plant capacity that is obtained by working some departments overtime, while others do not have a full load factor, is as uneconomical a propo- sition as a low output for all departments could be, and causes as many complications. Figure XXXH shows the design of a sheet for a manufacturing schedule, to cover any length of time up to one year, for any one item. This sheet shows the day on which each week of the year ends, the number of days in each week, and the number of days to any given date cumulatively. The following example illustrates the way this sheet is used. Suppose that we want to build 1,350 automobiles, commencing the week ending July 7, 1906, and that we have to finish this order by June 30, 1907. From July 1 to June 30, as will be seen, is 307 work- ing days. We can, of course, manufacture at different rates per day for different periods, if we desire. From July 1 to October 1, we might make four automobiles per day; from October 1 to February 1, five automo- biles per day; and then four automobiles per day for the balance of the year. 146 C. E. WOODS 147 Figures for this would be filled in accordingly in the two columns under the heading of schedule — in the first column the number for each week; and in the second column, the total number that is required to date, at the end of each week. That is, the first week would show "for the week" twenty cars, as there are only five working days in this week, and also twenty machines in the column for "cumulative total." The week ending July 14 would show twenty-four automobiles under the heading "for the week" and forty-four under "cumulative total." and so on for the entire schedule of one year. Then, at the end of each week, we would put under the heading "made" the number of automobiles actu- „_ , . v ally produced that week and the number Checking the „ , , , m, , . «. Output With of cars produced to date. The dirterence BequirementB between the two cumulative columns "schedule" and "made," we would then divide by the rate per day, and place under the column headed "days" the result, which would show the number of automobiles that we were ahead or behind our schedule. In commencing a manufacturing season, or at any other time for that matter, from the total amount re- quired, as shown in the heading, whatever is on hand must be deducted before the schedule is made up: and, of course, if at any time during the year it becomes necessary to change the rate per day, by increasing or decreasing the amount, the production schedules must be altered accordingly. So far, we have applied our schedule only to the completed automobiles. We now have to consider the various parts of the automobile and will use this same identical sheet for scheduling the various parts re- quired from each department. These latter schedules 148 ORGANIZING A FACTORY become records of progress for the use of the super- intendent and the various foremen; whereas the first sheet of the completed units becomes the record of progress fur the management. By scheduling all of the various parts in different departments, the superintendent is in immediate touch with work as it progresses through the factory and thus is enabled to know what the exact performance of these departments is, and can rush them ahead or cut them down as the case may demand. In other words, it will absolutely stop any danger of over-pro- duction of some parts, which is invariably the case in all factories, and which causes a large investment of money, the returns on which, in many instances, are never realized on account of some change of de- sign of special parts. These schedules, properly worked out at the begin- ning of a manufacturing season and carefully studied, not only show the equipment that will be required, but also almost the exact amount of material that must be purchased, and further, the times of delivery for ma- terial. This set of schedules for the completed units and the various parts would apply to each different type or model of unit that was to be manufactured. It must also be remembered that there are certain parts which have to be manufactured in greater quan- „ „ ., tities than actually called for in the fin- How to Provide . . a Snpply of ished units, which parts are those that are Bepair Parts to be sold for repair work ; so that the schedule for any particular part on which there is considerable repair must embrace a sufficient number to cover requirements, for both completed units, as per schedule, and repair parts. C. E. WOODS 149 TOTAL REQUIREMENTS FOR PP. RATEF NO. DA ODUC1 i BALANCE TO SCHEDULE, TIME PERIODS ITEM, REMARKS WEEK ENDING, NO. DAYS. SCHEDULE MAOE DAYS MONTH DATE IN WEEK CUM. FOR WEEK CUM. TOTAL FOR WEEK CUM. TOTAL AHEAD BEHIND. JULY. 1906 7 E 5 14 6 11. 21 6 IT. 28 G 23 AUGUST A G 29 11 G 35 13 G 41 25 G 47 SEPTEMBER 1 e 53 8 s 58 15 6 64 22 S 70 29 e 76 OCTOBER G G 82 13 6 88 20 6 94 27 e 100 NOVEMBER 3 6 106 10 6 112 JT 6 118 24 6 124 DECEMBER 1 5 129 B 6 135 15 6 141 22 6 147 29 S 152 JANUARY, 1907 5 s 157 12 6 163 19 6 169 26 6 175 FEBRUARY 2 6 1B1 9 6 187 _ 16 6 193 23 G i* MARCH 2 6 205 ^ a 211 15 6 217 23 6 223 30 6 223 APRIL 6 6 235 13 Q 241 20 6 24T 27 5 253 MAY 6 259 11 6 265 18 6 271 25 G 277 """ JUNE 1 6 2C3 a 6 209 15 G 295 22 6 3(Jl . 29 307 Figure XXXII: A manufacturing 1 schedule covering- a year, giving the ouwber of working days, the requirement, and the actual output 150 ORGANIZING A FACTORY I have found in connection with the schedules, that the management usually prefers to have a chart ac- companying the actual sheet. How this is handled I am illustrating here by Figure XXXIII, designed to show the scheduled output for any given unit or units, and further, to show what is manufactured from week to week against such schedule. We find the total number of automobiles scheduled for the year was 1,350, as represented by Line 1. Line 2 shows we actually built 1,285. That is, we fell short of schedule for the year by sixty-five cars. Line 3 shows the schedule by weeks, and the dif- ferent rates given for the different time periods. For instance, the rate is as per the sheet, four cars per day from July 1 to October 1 ; five cars per day from October 1 to February 1 ; and then four cars per day to June 30 — which, of course, makes a horizontal line under the different rates. Line 4 shows the actual performance by weeks in output obtained, and. shows that the factory was nearly eight weeks in reaching an output per week equal to the schedule. But from this time on, it maintains a fairly uniform output, with the exception of one or two instances in November and December. Comparing Line 2 with Line 1, we readily see that at no time during the year were as many automobiles manuft :ured as the schedule required. In making up a si edule it is desirable to schedule a little be- yond the plant capacity so that the output never does quite equal the schedule. In this way it becomes nec- essary for the superintendent to keep after the vari- ous departments constantly — which always results in higher efficiency all a^ng the line. C. E. AVOODS 151 I am now going to illustrate another form of chart- ing an output which shows the relations between schedule, manufacture, shipping orders and shipments. Figure XXXIV is of unusual importance in ex- pressing progress of manufacture and is the writer's method of covering time periods accurately, both by the number of working days and by calendar time. Hence it is called a chronological chart. In the first place, the chart is divided into sections, from right to left — to represent seven days to the week; while the vertical columns are divided into six days to the week. So, as before stated, we have both calendar time and working days' time. Line 1 shows the schedule of the number of ma- chines to be manufactured. That is, these figures are , _ . the goal which it is desired to reach in the An Error in . Factory Output art of manufacture as a given output. I he Detected figures of Line 2 show exactly what was manufactured as compared with the schedule of re- quirements. For instance, in the week ending Novem- ber 14, we find that the manufacturer was seven days ahead of schedule ; while for the week ending January 9, he was two weeks behind schedule in actual working days. Line 3 shows, as indicated in the key, data rela- tive to shipments. The upper figures show the total number of orders received to date. The lower figures show the shipping orders on hand. Line 4 shows data relative to shipments actually made, the upper figures being the number of automobiles shipped to date and the lower figures the number of automobiles on hand. Both Line 4 and Line 3 are plotted relative to Line 2. For instance, for the week ending January 23, the manufacturer was eleven days behind schedule, and the 152 ORGANIZING A FACTORY output manufactured up to that date was six weeks ahead of the shipping orders received to date. Or, in other words, 18,639 machines had been manufactured, shipping orders received for 12,692, and of these ship- ping orders 7,162 had been shipped, leaving a balance on hand in the factory of 11,479. In other words, shipments at this time were five weeks behind shipping orders. This would be so evi- dent in a chart of this kind as to make immediate in- quiry necessary. The facts in connection with the case are that the machines on hand were made for foreign shipment, while the shipping orders were for domestic shipment. Consequently, a large stock was being carried that could not be shipped. This, of course, showed evi- dence of very bad administration in the art of manu- facture. It will be noticed that the schedule of this chart commenced with an inventory of 6,416 and wound up the season with an inventory of 6,914 ma- chines, showing that this amount of inventory was about the balancing factor in the manufacture of the particular unit. The one great purpose in connection with a chart of this kind is to have complete information in con- nection with any one item, compiled on the same sheet, so that we not only have it graphically set before us, but have the actual figures pertaining to orders, manufacture, schedules and estimates as ar- ranged for tabulation at the top of the sheet. In the use of this chart, it should perhaps be ex- plained, Line 2 is plotted from Line 1 in its space of days' difference; while Line 3 and Line 4 are both plotted from Line 2 in the number of days' or weeks' difference shown into time periods. C. E. WOODS 153 It should further be noted that this difference be- tween Line 2 and Line 1, or between Line 3 and Line 4, or either one of these and Line 2, is based on the schedule rate per day as indicated from the caption showing the amount for any week covered by such rate, which, from October to February, is 170 per day, and at the rate of 200 per day for June, July, August and September. One very noticeable thing in connection with this chart is that manufacture went on at an extremely high rate all through the year, being, in some in- stances, ten and eleven weeks ahead of shipping orders. But, as the particular unit represented by this chart was sold mostly between May and September, the con- dition as represented was absolutely legitimate. In any line of goods that is sold practically as fast as manufactured, any such condition of affairs would be reprehensible and would show very dangerous man- agement, as it would mean the piling up of an immense stock that would be unwarranted by sales. I am going to illustrate one more chart in connec- tion with schedules, which is one of great value, inas- much as it is a combination chart and makes com- parisons of several other conditions with the schedule and actual performance in obtaining the required out- put. Figure XXXV is exactly the same kind of a chart in its time period as Figure XXXIV, but shows an en- tirely different combination of plotting, as A Study of . • • 11 * Output in a it is designed principally for use m a Foundry foundry. We have, as in Figure XXXIV, our schedule and our actual manufacture placed against time; but in addition to this, we show the actual out- 154 ORGANIZING A FACTORY put in tons from week to week by "C," total tons of iron melted per week; "D," total tons of eastings made weekly; "F," total tons of good castings out of the total tons of castings made; "E," percentage of good castings to the total castings made ; " G, " aver- age number of employees per day; while "H" shows the average number of employees per ton of good eastings. In other words, with such a record as this kept for a time, we can determine the efficiency of our foundry, as it is to be observed the larger the output of the foundry, the better the percentage of good castings. Also, the higher the output of the foundry, the less the number of men per ton to produce a ton of cast- ings. Again, if we know we have a certain amount of castings to make for a certain time period, we can gather from such data as this that we need an average of three and a half men per ton of castings to get the work out of the foundry. Here again, as before stated, the superintendent or manager has before him statistics in such a way as to illustrate the high and low points, and call to his at- tention immediately places that need his personal administration. CHAPTER XIV PREDETERMINING A BUSINESS PROPOSITION The two considerations in the manufacture of any given unit are labor and material, the amount of either that is required being dependent altogether upon two things: first, the number of manufactured units it is proposed to make; and second, the pre- vailing market price of labor and material at any given and definite stated time period. Therefore, we can see at a glance without any further analysis that a cost cannot enter into consideration as a dasis for operation. If it takes a man two and one-half hours to turn a piece of shafting, this time unit must he reduced to two and one-half hours "man effort," the cost for which will depend altogether upon the scale of wages prevailing. Therefore, our first study in con- nection with a product is to find an expression which will reduce the unit to "man effort" required to manufacture it, together with the amount of ma- terial required. In order to get at this basis, certain original re- search must be carried on in connection with a man- ufacturing proposition, in order to balance it by de- partments, to study its organization and to lay out a foundation for the predetermination of results to be achieved. 155 156 ORGANIZING A FACTORY The research work naturally begins with the study of floor areas and capacity. Figure XXXVI « _ . shows the reduction of departments for A Comparison r of Floor Space seven large plants, lettered from A to and Capacity G> to prime department divisions, to- gether with the percentage of each division to the total for each plant, and for the total of all the plants. Such an analysis as this for a group of plants is not only instructive but of vital importance. For instance, Ave know that in "A" the blacksmith shop is 9.8 per cent of the total floor area, while in "B" it is only 5.6 per cent. Research work on "B" showed that every year the blacksmith shop ran about 35 per cent overtime; consequently, the blacksmith shop bad to be increased in size and proportion as was necessary to balance it up with the rest of the plant. Having obtained our floor areas, our next re- search would be for output. Taking this same group of plants, we find that the output for the years 1902, 1903 and 1904 was as per Figure XXXVII. From this data we can make deductions which will show us the capacity of the plants, as per Figure XXXVIII, which gives us data both in machines and tons. It is at this point that we begin to reduce our expression to one common factor or constant; that is to say, all of the different machines manufac- tured are reduced to a tonnage of manufacture, the purpose for which will be obvious a little further on, inasmuch as this makes possible our predeter- mination of results which can be obtained. 0. E. WOODS 157 1- o 5? <• 0* : ri 2 s s * " | s - § ! ; s 1 1 i I I | j : * ; ! e j 3 | = I i 1 | i | ; 5 ! I 1 St. 3" 1 | 1 | I s I ° S i s ° ° | S s : 3 ■ 6 # 1 ; ri 2 § i 5 ' "I 5 2 i 1 | 7 | T ~| I s I 8 5 i i 1 I 1 s 1 o I | : - # = 3 5 * 2 I 4 " | I i 1 | | % - 1 I I I 1 S Bl- f i 1 i E I I ! i s s : S : 1 s l s '• s I I u * i : * 8 s 5 [J ■ s ? « 'I i 1 I 1 i 1 | | | 11- s 1 S I 1 s • s 1 s I I ■ 1 2 \ g % I i 6 £ ► t n u « ° U * 1 i £ I n . | I I s 3 3U 's I 2 I ! 1 1 1 I ! s 1 s i s E i 1 s I s 6 # % s 6 « s * : 1 s A | j 1 I | | i 1 s s = (JL. 2 » I £ I s S 2 I 1 « » 1 j | ■ 1 1 a £ ; ! 5 ■ s ™ 1 5 1 V • I 1 1 i ! " s 1 | fr | f ! 1 I ! 1 i 1 1 5 5 ■ i S * | j i s 5 < s? : : ~ " s ° 5 -. I ! 5 S j | = 1 ! s > I 1 s 2 Sl- aw 1 i l ! 1 1 5 i * 1 1 I • ; ? I ! ; z > I o 5 = S » a. O I o O o X o I i z o < c Z O o i z X E o X z a z z i O 01 ■> 3 X c < i < ' 1- | | > | | | 1 • • o • " - > IX X X s o X X X 158 ORGANIZING A FACTORY ^ t m ■" r •! J fit 4|| j s § » l|, ft i JiljfJ" j * ^ 55 =i i U f ft ■- — J-— j ■|[" "! ! ! Il ! ! S|t J ] Jp:!!!!!!T l!m f ft ' ? j j f | ;; f j n :: = s FIT n 3 j ( j E^tt fc %^ fcit ft H S *l * * ;S IpiH^Nililllill FThs | S |. k ;= 5-5 !S t JT J |3 i f 1 ! ; s; '■ t.jft ; J: 5 : 5 [ t j Ji lit l«* I pi |i IP. | s J': - » i. i> ■*» * I i h ■ i n r ML! » * " *]*'(_'» « J* "» * *»H I|!liMiIiSH!niifl"jMji« iiiilili in | 5 [Jm. =i ii ii :: iu ft . f >i fllltffi •' ! fi 1 I||5!imi||*ii|MWJ tlttttf 1 JllII njiS 1 J s i $$ffl0SliE i $ f • S f ■iailwfW'jt « rf » ni:I;£lMIIIIJllMJlElIt :r ] C. E. WOODS 159 ■£• » O * o o o o 3giD f- ta u> , rt « ° i <2- £ =- 1> — t~ do > o. 2 — o \ IE \ 1 Q. \ a a _ < - £ « — U C \ ED is — \ \ * r" .-^ \\ v\ 3 * », % 5 160 ORGANIZING A FACTORY OCTOBER | NOVEMBER DECEMBER lg, i9 26 12 JANUARY 9 16 33 FEBRUtt* 6 ij * fjfi, 1S7I6 /t6'6 fft66~ t8y$(> tfi'et, 20S*l x*Syi 23SH 23SU±V6<* 't M'rt* ***** ^22 E,Ji7^? 3*67' 5if*d f*j/| f/sr tfiX soyS tfXf z?3 *Y3o 3.ta-i\ „-//* SdA.2 /6Zy \&£'z. 3f'o\ ■g-IJj Z3?o \ ?3£? UNfe Figure XXXIV: Chronological chart divided into periods of a week each, to show actual output; Lice 3, the orders received and orders holding; Line 4. the shipment? C. E. WOODS 161 MARCn 12 19 £6 APRH 9 \*> 23 ^0 JUNE u ie *-'2£»V«J!<>fl W* if aft 3f-tf6 17'of 7J W \s7«?t /3tJLl \'8oL9 tft63~2.t>S&) ss -fit /37f¥ / J*f¥ the progress of manufacture. Line i shows the schedule of requirement; Line 2 the made and stock on hand 162 ORGANIZING A FACTORY OCTOBER 10 17 24 51 NOVEMBER 7 14 21 28 DECEMBER 5 12 19 26 JANUARY 9 16 25 ;i 11*0 loso 1020 96o 90o 840 780 720 660 600 5-40 480 420 560 300 240 180 ta/o jiso /zoo /sue jGoi 79/g gsgo 3t?6 /o/o /ejo proi oo 3&op woa *7bo 3300 3^00 O joo 7VO~o gse* 9*oo /o/oo //oeo //too" 1 Figure XXXV: Progress chart for a foundry. Line A shows the pctual output in total castings made; Line F, good castings made ; Line E, percentage ot good ca nines; C. E. WOODS 163 FEBRUARY 6 15 20 27 MARCH 1Z 19 26 2 APRll 9 16 25 MAY 14- 21 JUNE 2B| 4- " " '70 /S7» 7V \ /3±o6 t4eo» /SS0O sg*oo I tjoq iHeo ts/oa /s?Oe lOjoo J0900 f$oo ,y/aa . -^ ■ -— — ■ ■ 30 fgff TrS Td j'$/t - e; ««» /Arrtt ,7st-r, /PSaoZZlZJ .5 PC JW'O X SOBS' t+frtr- 23° xso fSo /so *■*j \ftj j£ 3 % **?***& **S*.*}*r*Sar J.f*r*.9i? 2.9?? /&£? /£<£? J-?yS J.9V& 2.CZ& 3f'7 ZerS 333* i7vrjFyJ JP*"J 3Z/f Jffi 3 7o3 Z?6?37t3 3&Z* 199? -ZtGo 'Vfk. /o?? f?3j zr/2. Zar? /6eZ zcz? 3o?i ts3r Z6s$ JL»rf WCt z7?£ *7ff z i'?-r i-?r trti-p ffjo? ft-Ti-r te-z°7 mff ■ ■ ■ fi~o iofo r''o 9tfo> tr\>? fi?o? l»llirri»'i%Ji rfZY^Sfet riyrv ?ru? ??"*? 7ftS; jj<37 Ttyi? ?>r}7 < tjytT f C. E. WOODS 169 Having now reduced this element to tonnage we reduce our capacity to square feet of floor area re- quired per ton, as shown in Figure Space for Each XXXIX. This gives us definite infor- TTnit of Output mat i n for the design of a plant in which to manufacture a specified line of machinery. For instance, in Figure XXXIX we see that the average for all works requires seven square feet of productive floor area and three square feet ware- house floor area per ton of output. Knowing the weights of the units of manufac- ture and reducing them to tonnage, comparing the tonnage output required for any given period of time we are able to determine readily whether ouir plant has sufficient capacity; and to make adjust- ments accordingly, which is the first study in a pre- determination of results. We now know definitely in this proposition the limitations of our manufacture, so far as factory capacity and equipment is concerned, and by pre- scribing a certain schedule of manufacture, per week and per month, can determine at just what point we should terminate our manufacture as compared with our maximum capacity of manufacture, so far as floor space is concerned. The next most important question for considera- tion is how much labor, or that is, how many men f w *^ ^ e re( l u i re d in a factory to give Men for Each us a maximum output according to the Unit of Output fl oor area, tonnage required, and so on. This is made up by taking the daily average number of employees, by months, for each year and for each plant as per Figure XL. 170 ORGANIZING A FACTORY i k *• s ID o t» a to a n r> o N 0* a « o A o « s o a 10 * a K M 0> o « a A A A 10 « (4 111 u 8 5 N « O 0) o • (0 M A O A co O 0) III « o A O 10 a n n o (0 0> CD O O s a 10 • A 6 O A « A 5 10 « M n u 9 e 0) A 10 o N « A A 6 • O o <* a V 5 5 ffl CM « CO N O A u A O A A b 10 10 u a a S a « $ 5 o 10 f ft «i <0 o « o 10 o M o 5 o to 5 a n A O A ft o ft' | OB X. u u 1 o to < c u n z. o * u K < C o o -1 Ik i u > o § o c u" g i u c < K u u k U c < D O w < o > h O 2 < u z o c u 0. t> 1- ii o c to u I u" > O Q O c Q. u w O z u K < i af o c u a. t u * < 3 <9 10 mi < K 1- C Of « S ** ca o.5 _.c SH £i at O 3 *- a « M CO oo 3f *" ? n ona ■2 c id 5sS "«» 2 a** CVOO O > b. J=.S2 •S3.* ■8*6 ..So C. E. WOODS 171 F""'~ n-= l-j : — I W 1 1 o I c I > 1 * c9 big n to « h- a a « 10 © (0 N 10 N n N * B E «D> O « CD 0) 10 e o | I U o to n »- (0 « 10 CD 0.1 10 « 1- 3 ru 1 * to »" o 10 0) 10 0> O 1 0) a n 0) o 10 o ! 3 2 * O N «• « « N 1 ^ n p w I O « m o z CD t~ « < 10 CM « o | ■* N ( , in E K in (M * 0) E 1 10 N « (0 n a (0 « < « < CM CO n . o n , w 10 (ft 1 « CO •» K £ 1 « „ 111 f M " m 1- * 0) O (0 n (0 10 CM CD m u b. H « n id w n CM i — ■« « D r» 2 D IS ■ N < jj N ID (0 H o to n U' <0 o 00 Ml V •9 10 5 O D 1 « « 2 « 10 CD I S S 5 5 o s « o N j z 1 5 « o en h N ^ * 1 io Z » O K 1 K « « N " n N o 3C 5 »'? 5 5 X 5 s X o a * i 0." O a. fL m N 7 I < u © o> 0» 3 H 172 ORGANIZING A FACTORY r. ■ ' • *. • '& I I • a n e e • O a 5 m b ss t I 1 ■ i 1 1 I 1 1 « J? 1 . 3 " o » * o ■ u B sS N J • a « = « a o rt « .■» n " n N u ft. # 5 ,1i o * ft 6? 1 1 1 1 i 1 o *~ % 1 1 1 i 1 a a. 1 a * • •• o " ". - n « - n * 2 , y „ n „ ri H « I 5s s « o * n s a a. I * 6* 1 1 I 1 1 1 t 1 b! B "fi | 1 J 5 X 1- 5 3 X a' 5 ° •. • o *" B o ft bB ■■? M | 2 - | 1 Is* ft B B o .a o *m i N B '#» B 5 ; ■Tk ^ « ?! o c t- o 5 B -• O 'S « P e : o ID a o * N i*» a, kt a * I I ■o 10 to n a B M IS n o N B a S ■0 O b n a * o a | B B n 5 9 10 R « O e a a : ■ I 1 M Z 3 n O e 4 n • 2 n > 1 1M 10 « HI a 5 e I * E ■ * e s £ K a < 3 * 1 ► a a * * 1 e B B 4 i M e a ; « | 5 e ^ K 1 B H o H « a o n 1 j a 1 a B 1 B V m n ° S 1 10 a 1 1 B I B B ' B | B 1 > I 2 e 1 * ■0 a ■» s n 1 a •=1 ' ° 1 o fi « 1 c o « 10 t a 5 : E X s s - n « a « #» .a a © i « tt 6 C. E. WOODS 173 --——-———— 8«; 5 o 2 « *. S: 10 IB s i < ^ o> w N 10 N d M en » c « >; N o 10 »- 2 o * ffl U (- l«l D # ;<• -» ' K s « * 10 n K Q. < 5 W (D « O I n z d 5 © o b. n o z P 3 a < r> ^ « .8 n ^ <9 > O z 10 10 N * n ° • o o « ffl a a lii o < K U 1 < 1 ^ 1 ° w 1 * 1 u 1 * M O ■ <* N O 01 « o 01 1 , *« ag 3 o ag w O l-s o o ■° 9 a° a to aa 8« ■S"t .2 m .3 8 -£' 3 o a v> 0» .. % i-t o »— i J3 i-l to M - *s a, S to 93 u g *B S 3 S=5 4> U ** a 12 rtT3 en a) - a> u» a — a Sa la bfi V ES 174 ORGANIZING A FACTORY This will give us a reduction to the daily average number of employees for each plant for the years 1902, 1903 and 1904, as per Figure XLI. The total number of men employed for 1902, 1903 and 1904, divided by months for each plant as per Figure XLII, gives us the number of men required per ton per month as shown in Figures XLIII and XLIV. In other words, we have now reduced our out- put to an expression which enables us to say that it takes so much "man effort" to produce a ton; therefore we know now not only what our works develop as to capacity and floor area, but we also know what is the total "man effort" required to produce a given output, and how many men should be on the payroll to produce a total given output, for any given period. The result obtained by this method can be subdivided to show the number re- quired in any department on any given schedule of manufacture, all the details of which will not be treated here, as the purpose is more to explain the principle of making the predetermination than to go into minute details, which cannot be applied to any and all kinds of industrials. We see in Figure XLIV that it takes a little less than half a man per ton per month as a grand aver- age for all plants, while from Figure XLIII we see that it takes .454 of a man to produce one ton in one month. CHAPTER XV CORRECTING A FACTORY SCHEDULE In the preceding chapter a description was given of the methods of predetermining the output of a plant or a series of plants. One of these plants was given an allotment of machines to manufacture in a period of one year, on which the amount of net tons to manufacture after deducting the inventory was 156,007. The su- perintendent of the plant, an old experienced man in the business, made his schedule up for each week according to line C-c on Figure XLV. This in itself shows that the superintendent did not know the plant capacity at the time he made up his schedule, and that he did not understand the conditions required for the manufacture of machines on a schedule for those time periods. Otherwise his tonnage schedule would not have varied so materially from week to week as line C-c shows, for it would be impossible to maintain an un-uniform weekly schedule with a uniform number of employees. The analysis, which was made from the beginning of October until April, proved this assertion; as A-a shows the tonnage that he would have for the num- ber of men that he actually employed, whereas B-b shows the actual tonnage that he did produce against what he promised to produce in C-c. 175 176 ORGANIZING A FACTORY On April 30, we find that the difference between B-b and C-c, that is what he promised and what he actually made, amounted to nearly five weeks be- hind his schedule. The superintendent himself was unable to account for this deficiency. At this time the writer had the analysis nearly completed and was fast arriving at the true inward condition of the plant of which the management had not been iware. Figure XLVI explains the point fully. line A shows the number of employees that the superin- _. _. tendent should have had to manufac- Pigure Show- ing a Shortage *ure the schedule requirements on Fig- of Workmen U re XLV. Line C shows the number of employees that he actually did hire, divided into G 1 end G 2, *lie first being the number of pro- duetiv employee ,nd the iecond being the per- centage oi non-productive employees; D being the percentage of non-proauctive employees and d being the percentage of pieceworkers. The difference be- tween C and on Figure XLVI is the number of men the superintendent was short to produce the tonnage which he had scheduled on Figure XLV, B on Figure XLVI simply showing the number of men who should have been employed to produce the tonnage B-b, which he actually made on Figure XLV. Of course, varying help from week to week to any such extent as this not only indicates an impos- sible condition, but shows the absolute lack of uni- formity in completing manufactured units on the part of the superintendent, which would naturally lay him open to the severest criticism in this respect. Having completed the analysis of this particular plant on April'' 30, an adjustment was made to com- C. E. WOODS 177 menee the first week in May, whereby the tonnage qutput per week and the number of men employed were balanced after the method exhibited in Fig- ures XLIII and XLIV, with the result that we prac- tically had a straight line of manufacture on Figures XLV and XL VI, for the balance of the season, show- ing how a predetermination of results was obtained over both output and labor in this instance, thus reducing administration to the same science as en- gineering. But this was not all that was obtained by the analysis. Figure XLVTI shows the financial analysis of Figure XLV and Figure XLVI as regards the payroll requirements. In this instance the schedule requirements as laid out by the superintendent on Figure XLV called for payroll investments by weeks and by months, as shown by Line A on Figure XLVII. In April, when the writer commenced the analyz- ing of this situation, the treasurer of the company . „ t , was complaining that he was overfinan- Correct Sched- e , . , , nie but Poor cmg as compared with the allotments Management ealled for; and he could not understand it. This applied not orly to labor, but to material as well. The difference shown for labor on Figure XLVII in April is the difference between Line B tod Line A. The actual requirements according to the writer's new basis of figures are given in Line C, showing that the estimate of cost used by the superintendent for labor was fairly accurate, but in the handling of his plant he was wholly at sea as regards pos- sibilities in both output and labor. He scheduled by machine, which varied greatly in quantity, as he 178 OEGANIZING A FACTORY thought he could manufacture in different kind$ sizes, and so on. Consequently his only measure of labor requirements was the demands of his fore- men for their individual departments. These three charts then show us, first, exactly how to schedule our output in a uniform way by reducing the entire output of manufacture to one common expression; second, how to arrive at the exact number of employees required to manufacture any given output; and third, how to provide the treasurer of the company with figures for the exact amount of money that will be required from week to week, and month to month, for the entire period of one year. Having made a complete record of each indi- vidual part and operation as per Figure VI, page 40, for all units manufactured, we can Determining the Cost for take the schedule of our output and Materials classify accurately the amount of each different kind of material required for every unit to be manufactured, so that orders may be placed with the purchasing department for execution and de- livery according to order requirements. And hav- ing in our record a complete classification of the current priees prevailing at the beginning of the year on all of the different materials used, we are in a position to specify what money will be required for materials, as accurately as we have been able to show such information in connection with labor. There is still further value to this method of procedure and that is the method of determining inventories. The last thing in the world that a superintendent or foreman wants to do is to lay off his men. They C. E. WOODS 179 will enter every imaginable plea for holding their organization together and, as most plants are run they can usually manage to control this situation to such an extent that large and excessive inventories are piled up. As outlined in the foregoing, we can almost pre- determine what our inventory will be, because we can prescribe exactly what shall and what shall not be manufactured. Knowing the number of men as divided into different departments and knowing the value of the output by departments, we can pre- scribe almost as accurately the amount of inventory as we do a regular output for market. As a mat- ter of fact, the writer has done this several times. The whole secret of this performance is to reduce by some means the entire manufacture of a plant down to some one common basis and derive from that one common form of expression — which is in this instance tonnage — the amount of "man effort" required to produce whatever that form of expres- sion may be. GLOSSAET DEFINITIONS OF TERMS USED IN FACTORY COST ACCOUNTING Accounting: Commercial Cost; accounting which concerns all expenses attached to the selling of goods. This is to the commercial side of the business what overhead, is to the manufacturing end. Factory Cost; all the accounting done in the factory to ascertain the cost on a product from raw material to shipment, inclusive, primarily divided into Labor, Material and General Over- head. Mercantile; accounting pertaining strictly to transactions in the purchase 1 and sale of goods as merchandise. Bettebme^ts : Plant; any extensions or additions to real Estate), Buildings, Equipment or Fittings; must not include any addition to Material, Supplies or Merchandise; is same as improve- ments. Cost: Factory Burden; the English term for Gen- eral Overhead expense, and is identical with it (See General Overhead, below.) Factory; a term used to designate all of the costs of making a product ready for sale. Flat; an American expression that signifies the exact labor and material cost on a product. General Overhead; all of the expense in- curred in a factory, of any nature whatsoever, that is not direct labor and material expense. General Expense; the same as General Over- head. 180 C. E. WOODS 181 Cost (contd.) : Labor, Nonproductive; all of the labor em- ployed in a factory, whether clerical or other- wise, not directly engaged on a product made for sale. Labor, Productive; all of the labor actually engaged in making a product for sale. L. & M.; the cost of all actual labor and all material employed in producing an article for sale. Material; expense of any material used for the making of an article. Equipment: (NOTE.— In making dies, jigs, special tools, etc., for the factory Itself, it must always be borne lm mind that the plant is buying its own product, and that labor, material and overhead expense should be attached to the regular product.) Office; all of the executive, managerial and clerical expense and supplies attached to a factory as distinguished from work shop items. Overhead; a term exactly the same in items as General Overhead, but applying to individ- ual departments only. Plant; expense attached to betterments and additions. Prime; an English expression for labor and material cost. To Make and Sell; all of the expense in every detail incurred in the manufacture and mar- keting of a product. Total; the complete cost of any individual part, unit or any subdivision of a business it is desired to individualize into totals. Any form of apparatus or machinery necessary to manufacture or construct a product. Extensions & As applied to a Factory, same as Improve- Additions: ments or Plant Betterments. Factoby: A manufacturing plant; the term covers all of the buildings in which any individual Indus- 182 ORGANIZING A FACTORY Factoby trial operations are carried on, although the (contd.) : words "Mill," "Works" and "Shop" signify the same thing in some instances, such as Ma- chine Shop, Tool Works, Rolling Mill, etc., but the 1 word Factory and Factory Organization covers all of these. Organization; the arrangement and division of a factory business into departments and the methods employed for the systematizing ' of same, and for the collection and tabulation of costs. Receipts; all matter which is received in a plant in the shape of material and supplies. Has no relation to finances. Finished Parts; parts that are finished to a point ready for sale or for assembling into complete units or repairs, same as Current Machine Parts. Product; complete' units, as manufactured by any factory for sale. Flooemew. Any and all men employed as Sweepers, Clean- ers, Oilers, Scrubbers, Window Washers, and often includes Watchmen and Yardmen, and sometimes in small plants Truckers or Shop Carriers. Fuel: Manufacturing; fuel which is used in a direct application to product made, as for Forging, Brazing, Smithwork, etc. Power; fuel used for the generation of steam only; divided into Light, Heat and Power. Hand Tools; (See Tools.) Improvements: Same as Betterments, being often confused with Repairs; begins at the exact point where Repairs leave off, for a repair is only a replace- ment, while an improvement is an extension. Intake: Same as Factory Receipts. C. E. WOODS 183 Job Machini: Maintenance: Mateblal: Mebchawdise: Nu: Tickets; those tickets used by the workmen for collecting the time or material, or both, of each individual worker, on any specified shop order. Usually, some product manufactured; should not he confused with Machine Tools, which are a part of Equipment. The expense incidental to the keeping of a thing or condition up to a certain standard of usefulness. Any substance or matter to be made up as a product either for sale or improvement; must not be confused with Supplies. (See Supplies.) Those commodities which are neither material nor supplies, being composed of such articles as are bought by a factory to be sold again without having any labor added to them. ■ Belt; a number usually applied only to Main Driving belt. Blue Print; the serial number of a blue print and having no relation to the drawing number. Building; a number used in the classification and identification of a number of buildings belonging to one plant. Catalogue; one of a series used to classify completed units or a number of parts of units as manufactured by a factory for sale. Check; the number on the face of the check used by workmen for identification. Combination; union of two or more numbers or a letter and number for the classification of parts. Department; one of a series of numbers used for the classification of the departmental divisions. Die; a number for the classification of all dies. Drawing; a number used for the classification 184 ORGANIZING A FACTORY Numbeb of all drawings, and may either be in combina- ( cont'd.) : tion or single. Flask; a number used for the classification of all flasks in a foundry. Parts; a number used for classification of the various parts required to make a complete unit. Pattern; a number used for the classification of all patterns. Power Equipment; a number used for the classification of all units whatsoever for the development, transmission and application of power required. Purchasing; a number used for the identifica- tion of all orders under this heading. Record; a number used both for identification and classification of all records. Requisition; a number used for the identifica- tion of all requirements under this heading. Serial; a number used for the recording of all units or parts of units that are sold. Shafts; a number used for the classification and location usually of main line shafts only. Shipping; a number used for the identification of all shipping orders. Tickets; a number used for the identification of all tickets required for the collection of costs. Mill; (See Factory.) Okdeb: Chief Engineer; an order issued directly by the Chief Engineer to his subordinates. Factory; usually, a production order, but should be obsolete and production order used instead. (See Production Order.) Foreman; an order issuing from the Foreman to his subordinates. Mechanical Engineer; an order issuing from the Mechanical Engineer to his subordinates. Mill; (See Production Order.) Production; an order from the commercial C. E. WOODS 185 n Be E O < Z J = 3 M .a •9.3 5 © o S » « S a & 8 « jsgo * "US 1 *gS "3- 2 ".9 i -2-2 to U S O a -2-s.s a 3^-0 o s.*g 2 fees - R :§§ >> &„>» i «$.° £ I III O 2-4-> 3 If*!* ** a « 3 I- 8 !*! ■S5-g^g f-r- 3 * 186 ORGANIZING A FACTORY PS M °s to I > o CI I i I 5 • 5 8 I ! 8 » 3 i i 1 § 8 01 i i i 5 S 8 1 1 8 8. 5 \ i I * I a I 8 i 5 s 8 1 8 8 J 8 5 ' ? $ I 8 3 I s 1 i i a S i 3 i 1 3 ? i f i 1 8 8 10 1 i i i S i S i 8 3 1 1 l I i S 5 Ifl 1 i i 1 o I 1 1 8 3 l - 1 i 8 3 I 1 s *■ ! - i i o i i 8 I i I i s i S 3 s m m i s 8 1 8 s 8 1 I 8 S 1 8 i. 5 9 a i N . i § i a 1 i 1. I I 5 ? 8. 8 8 5 e i i - . 8 i 5 s 9 1 8 8. s i a 3 i i ? q I 1 1 o i % I = 1 i I I i I 8 8 i « 3 5 1 I 1 8) i t 1 5 5 i 8 1 s 3 8 8 ? I 9 3 8. 1 s 1 © 2 i I 1 o 1 § s 5 S I 1 5 8 8 i I : 8 N 1 J \ 1 1 8 I i i 8 6. 8 5 t 5 8 i S 5 — >> o Hi «** cd . °&§ 'S"S,» 80S 2>,- 8 31 w« a — „ « .3 2-3 S 3 O ^a-o & B S CJ » ™ (3J3 ■*» ■Si 3 JB'S'S cd o »Sa . u a 'S3 ^ 2.S5 Jill OO .3 rf3 -*5 - p« 9 o 0. E. WOODS 187 Ordeb (contd.): end of a business to the manufacturing end, for the latter to produce or manufacture goods in accordance. Is by some carried directly into the factory as a Production Order, but by others is treated as a Sub-Production Order, owing to the fact that the Works Manager or Superintendent may merge two or more Pro- duction Orders together in issuing same to the factory, especially in parts required. Production, Shop; (See Production Order.) Purchasing; any order for the purchase of material, supplies or machinery. Sales; any order received from those who pur- chase the product manufactured. Stock; any order issued to a factory to make up a product that has not as yet been sold, in anticipation of some future market. Shop Transportation; any order having to do with the transportation of material, parts or product made in a factory in itself. Shipping Directions; an order directing the routing of a shipment by Express or Freight. Shipping; direct instructions covering a specific amount of product to be shipped. Output: Complete Product; that which is a complete unit manufactured by any plant. Cafe; all sales or receipts realized from the operation of cafe 1 direct by the factory itself or by lease. Contract; specific or special work taken in to be manufactured that is not a regular product. Merchandise; the quantity of any goods or pieces bought and sold without having any material or labor added by the factory. Parts and Repairs; any one or number of parts as manufactured by a plant for its com- pleted units and sold exclusively by Parts and Repair Department, Plant Sales; any portion of a plant or its equipment that may be sold. 188 ORGANIZING A FACTORY Output Scrap; all income realized from the sale of (contd.) : scrap of any kind. Product: Anything that is manufactured for sale. Parts: Current Machine; all parts in a factory which are completely finished as far as labor and material are concerned, as individual parts, whether in the Stock Room, Factory, Ware- house packages or otherwise, except such parts as are set aside into what is commonly termed as Parts Repair Department. Repair; all parts carried in stock for either local repairs in factory on the product manu- factured, or for shipment to other points for the same purpose. Specifically, stock on hand belonging to the Parts Repair Department of the business. Work in Progress; those items which have ceased to be raw material by having had one or more operations performed upon them that has individualized them sufficiently to give them the dignity of a name, but are not as yet completed parts. These must not include castings bought outside, but if made by the factory itself, then they are a department prod- uct and become Work in Progress, as does any other item converted to some 1 definite form by a factory from Gross or Prime Substances. Power: Any apparatus used for the generation or application of power in a factory. The word "Transmission" to he included with Electrical Equipment Repaies. Plant; all repairs incident to the up-keep or maintenance of a Plant Must not be con- founded with improvements. Product; any labor or material furnished to repair the product made. Belongs to ^arU and Repair account C. E. WOODS 189 Saibs: Cafe"; all Income derived from operating a CafS In connection with a plant. Contract; sales, as in certain lines of business,. where contract Is not only for product manu- factured by contractor, but for product not made or controlled by him; as for Instance, an engine builder may contract to furnish dynamos and boiler to go with his engine. Merchandise; all goods bought and sold with- out having either labor or material added to them, except for handling. Outside Work; sales made by special contract covered by some specific form of construction differing from regular product. Parts and Repairs; both labor and material for repair work. Plant; anything sold from real estate, build- ing, fittings or equipment. Shop: (See Factory) Carrying; any form of convenient product parts, material or supplies in a factory, whether by crane, truck, hand or barrow Small Tools: (See Tools.) Stook: Raw Material; any material as it is received prior to processing by the factory. Parts and Repairs; any completed parts that are carried directly In stock for the purpose of supplying repair parts. Finished Product; all product finished Into complete units that is for sale. Stobbb: Assembly; (1) In some Instances the same as finished stores; (2) in other instances, such stores as, are separated into an assembly room end classified as assembly parts. Finished; same as stock finished product, and includes stock parts and repairs. Rough; same as raw material; all that ma- terial which goes into a factory from which 190 ORGANIZING A FACTORY Stokes (wntd.) : Supplies: Tools: Up finished stores are produced prior to its hav- ing any work done on it. May include, how- ever, highly finished items, such as wire, sheet metal, screws or any completed parts bought outside of the factory, to which no fur- ther labor and material is added; also, cast- ings that have not as yet been processed in any way, if bought outside. Semi-Finished; those stores usually termed Work in Progress, in which rough material has become individualized, but is not yet a completed part or parts. Stock; (See Stock.) Such items as are consumed in the plant itself, as Oil, Fuel, Waste, etc.; must not be confused with material. Hand; all such tools as die and tap sets, files, hammers, wrenches, etc. Machine; all general equipment of the ma- chine tools or machines used in a factory out- side of the power equipment. Small; jigs, and dies, drills, reamers, arbors, cutters, and tools of like character. Workingmen's; all tools that are the individ- ual property of the workingman. Same as Maintenance; must not be confounded with Betterments, Improvements or Deprecia- tion, as is often done. Comprehends strictly the necessary expense of keeping a thing in condition, operative and useful; broadly speak- ing, includes all repairs to buildings and equip- ment. Works; (See Factory,) ■<'S : --V ;V "".. 3fo . ' .:'" ..