S 155 /2 >py 1 Industrial Management's Cost Control Committee Plan Detailed Instructions for Its Organization and Operation By John H. Van Deventer Editor, Industrial Management Copyright, 1922, By The Engineering Magazine Company 120 West 32nd Street, New York MfcR28'22 CU672160 y\A^ I ^^ ^^' Organization and Operation of tlie Cost Committee Plan INDUSTRIAL Management's Cost Control Com- mittee Plan was devised as an effective means for building industrial "economy morale," for the primary purpose of re-establishing manufacturing profits. To understand thoroughly the purpose and operation of this plan you must first understand just what we mean by economy morale. Economy is the watchvv^ord for 1922, and will be for som.e years to come. Economy, in industry, does not mean going without things that we need; using old, worn-out machines or cheap men or worthless methods. It means investing the company's energy most wisely— so it will bring in the greatest return. Every industrial concern uses three forms of energy — man-hours, dollars and power. Whether an organiza- tion uses these forms of energy wisely and economically, or waste fully and ignorant ly, determines whether it succeeds (and makes a profit) or fails. This statement is not new or radical— every executive will accept it as true and every progressive company takes systematic steps to inculcate economy and efficiency. But in nine hundred and ninety-nine plants out of every thousand, this effort toward economy is superimposed — in other words, through disciplinary channels. Discipline and morale are two entirely different things, as one will readily see who stops to think a moment. The American army had much less discipline than the German arm.y, but it overwhelmingly made up for this lesser discipline by better morale. The average American soldier in France was decidedly less expert at maneuvers than the average German soldier, but the American's heart and mind were keyed up to fighting pitch as well as his body. Morale and not discipline was what enabled individual American soldiers, such as Sergeant York and others, to single-handed defeat and 3 capture fifty or more better drilled, better armed and better disciplined German soldiers. In industry, as in war, we must have both discipline and morale, but when the test comes, the latter quality is the one that wins the day. During the remainder of this year of 1922 — and probably for a number of years to come — economy must be the watchword for every industrial organization. Our available units of money, m.an-hours and power must be made to count effectively — wastes must be eliminated — a profit must be had if we are to survive, and had largely from what we have wasted or thrown away in the past. Indeed this economy is so vitally ne- cessary that it is safe to say that those firms that do not now make it their primary policy will find the ones that do so taking the bulk of the business and all of the profits away from them. And this spirit of economy must pervade the ranks— it cannot be superimposed by the management, nor fully obtained through the in- dividual effort of department managers — disciplinary measures and disciplinary channels, in other words, are not suitable nor sufficient for developing it successfully. To develop its full possibilities, it must be an economy morale created and inspired instead of being merely superimposed. We believe that the Cost Control Committee Plan, out- lined herein, is the most effective, practical and logical m.ethod of creating a real economy morale in any or- ganization. jjs H: * We beheve in it thoroughly and completely because we have found, in our own organization, that it m.akes every intelligent and thinking employee strive just as forcefully for economy and waste elimination as do our executives and department heads. THE MECHANICS OF THE COST CONTROL COM- MITTEE PLAN Broadly speaking, this plan divides itself into two elements — the Mechanics of the Plan and the Opera- tion of the Plan. The Mechanics of the Cost Control Committee Plan consists in the formation of a number of committees, 4 in general independent from the permanent disciplinary organization, but drawing upon it appropriately for personnel. The primary functions of these committees, which are so organized and subdivided as to include the key (m.ost active and influential) members of the non- executive personnel, are : The Analysis of Manufacturing Costs and Expenses Detailed Waste Surveys in Assigned Processes Budget Control and Revision Suggestions for Specific Cost Cutting A Co-ordinating Committee, or central committee, controls the activities of five general committees cover- ing the five primary industrial elements of Men, Meth- ods, Machinery, Materials and Money. These five general committees are again subdivided into numerous sub-committees to suit the specific needs of the organiza- tion. The chart on page 6, shows a typical industrial organization and on the page facing it is shown a typical Cost Control Committee organization with its ramifica- tions, adapted to this organization. The make-up of the committee organization will, of course, vary with the need of your own plant and must be suited to it. Individual industries vary in their components more widely than individuals vary in feature and tempera- ment. In one plant, for example, labor is a small item. The process is almost entirely automatic and the big outstanding elements of cost are materials and power. If the cost control committees have a given number of dollars and hours to invest in a cost' attack in this plant, the outstanding places to put it are in the purchase, handling, use and storage of material and the generation of power — not in reduction of direct labor. Again there is the plant in which direct labor is the predominating item. The process, perhaps, requires great skill and a high degree of training, the quantities involved in manufacture are such that automatic ma- chines are out of the question, the material cost and the power cost are insignificant compared with the item of labor. Still another plant may show no very great dispropor- tion between these three typical items of material, labor and power. In this case the committee organization I EXECUTIVE I off ice: SALES DIPT. FACTORY PRODUCTION OFnCE TYPICAL ORGANIZATION PLAN OF AVERAGE FACTORY. Suh- Committee General Committee MONEY / Lxpsnse Analysis Cost ^ Budqet Adjusimgni Enfire Pt^nt '^pgrsonnel 8^ CO J-" J-. K o >^ OJ CD r)— I t-t— I o f:; a I. a> i-. s coordinating committee: METHODS / Production Pro-j cess Surveys \ Office Routine Handlint^ Mettiods Stock Keepinc^ Power Pknt Mettiodfe MACHINER 3 / Produciionlquip ment Survey Transmission & Auxiliary Equip. o en > ^ p o r 03 (.0 § I o MATERIALS VcTste & Scrap Reduction ^ R.ecI(?miation in o S-. •-r-< ^ ^ COST CONTROL COMMITTEE ORGANIZATION SUITABLE FOR AVERAGE FACTORY. 7 must be such as to apply the greatest cost saving energy on that factor which is weakest, least efficient and there- fore susceptible to most improvement. This, too, sounds axiomatic and one would say could scarcely be over- looked, but it is nevertheless and very frequently. Doubtless all who read this can call to mind factories which have elaborate cost and production systems, but very second rate mechanical equipment — a very perti- nent demonstration of this truth. It will be seen that industries vary so considerably in the relationships of their components of cost that, while each has many points of profitable attack, these will not necessarily coincide nor will the emphasis to be put on a certain point in one plant be equal to that which should be applied to the same point in another. CO-ORDINATING COMMITTEE AND "MONEY" COMMITTEE FORM THE STARTING POINTS It is for the above reason that we recommend that in installing the Cost Control Committee Plan, the initial step be forming the Co-ordinating Committee and the Money Committee. These, unlike the remaining Gen- eral Committees and their subdivisions, are most suit- ably drawn almost entirely from the executive personnel. These two committees must, through their recommenda- tions, devise the organization of the remainder of the committees and through the formation of the sub-com- mittees, shape the general points of attack on wastes and excessive costs. A suggested make-up for these two committees is as follows : Co-ordinating Cojnmittee ''Money" Com^mittee General Manager (Chair- Treasurer (Chairman) man) Chief Accountant Production Manager Cost Accountant Heads of Production De- Production Manager partments General Manager (Ex-off.) The Money Committee first makes an analytical study of various groups of expenditures, with the purpose of segregating those items of expense which, due to their relative prominence, are considered promising fields for effort toward economy. The principle kept in mind during this analysis is that a possible saving of 10% on an item involving $100,000, for example, is more promising of results than applying the same time and energy, with equal possibilities, to a $10,000 item. In other words, to make a start, aim to hit the Jiigh spots first. And the initial job of the Money Committee is to list the high spots. The Aloney Committee then reports its findings and recommendations to the Co-ordinating Committee, which in the meantime has listed the weak spots. The high spots and the weak spots determine the general make-up of the remainder of the committees and of the sub- committees whose specific job is to find ways and means to reduce these high spots and strengthen the weak spots. Thus far the work has followed disciplinary channels but from this point forward, the morale element is em- phasized. The next step is to ''sell" the plan to the or- ganization as a whole, and this is the first task of the General Committee on Men. A suggested make-up of the General Committee on Men is as follows : Personnel or Employment Manager (Chairman) Sales Manager Foreman of Production Department #1 Foreman of Production Department #2 Foreman of Production Department #3 Foreman of Production Department #4 Foreman of Assembly Department Six of the most influential employees selected * from various departments. The first activity of the General Committee on Men is to study the plan in full, as outlined in this booklet, and to thus familiarize itself with its scope and purpose. The second step is to have every member of this com- mittee firmly convinced that economy and v/aste elim- ination is the policy that must be adopted throughout the organization — not only in order to have the com- pany survive and progress but also because the wages and opportunities of every one in the organization prim- arily depends upon it. We recommend that this com- * May be elected if shop committee representation is in effect. mittee study carefully the editorials in Industrial Man- agement, January, 1922, page 1, and February, 1922, pages 65 and 98, which were written for the purpose of demonstrating this truth. The third step for the General Committee on Men is to explain the Cost Control Committee Plan to the or- ganization as a whole so that every member of the or- ganization understands that it is to his personal advant- age as leading to permanency, full time employment, good wages and better working conditions, to cooperate faithfully and fully through suggestions, personnel economies and efforts to reduce waste. In this connection it is timely to say that neither the Cost Control Committee Plan, nor any other plan wdiich involves morale as distinguished from discipline, will succeed in organizations in which the management, whether deservedly or undeservedly, has the distrust of the employees. When such feehng exists any innova- tion is suspected of being merely an exploitation and is foredoomed to failure. Morale is a reciprocal proposi- tion — it must exist in the management before it can ex- ist among employees. Fortunately, however, in the average American industrial organization Management and Labor respect each other even if they disagree on certain subjects. Again, to be successful, the economies resulting from the Cost Control Committee Plan must better the con- dition of those who help to effect them — and must be miade known. Publicity is a fundamental concomitant to morale. Under the h^ad of incentives, other than the direct financial incentives of bonus rewards, etc., that may be worked out by the Incentives sub-commit- tee of the General Committee on Men, the following in- direct incentives must be kept in mind : The fact that every operative gains interest in his work in proportion to his knowledge of the process, the final use of the product and the relation of his work to these things. The work of the various committees, being largely educational, produces this result. The fact that ambitious employees are given an oppor- tunity to prove their fitness for promotion and get the attention of the management through their active par- ticipation in the plan and their practical suggestions for waste elimination. The fact that the records of the various committees and the savings resulting from, their work, being made 10 public ^^ regularly, creates the "competitive interest" or "game" spirit which is recognized as a large factor in moral promotion. The "Publicity" Sub -committee of the General Com- mittee on Men has the function of keeping interest alive in ths Cost Control Committee Plan after the novelty has worn off, by the frequent pubhcation of results obtained, by installing graphic performance charts in various de- partments, by conducting a feature department in the plant m.agazine, etc. THE THREE TECHNICAL GENERAL COMMITTEES Thus far we have sketched the mechanics of the cost control committee organization as applied to the co-or- dinating committee and the general committees on money and men. The remaining three general commit- tees, namely, Methods, Machinery, and Materials, and their sub-committees may be described as ''technical" since their functions are to make surveys, to elicit sug- gestions and to compose recommendations as applied to bettering specific technical components of the manufact- uring process. The principle of subdivision into sub- committees based upon the study of the co-ordinating and money committees is to give each sub-committee a definite job and a practical job — in other words, to nar- row its field beyond the point of generality or vagueness so that each sub-committee has something very specific to work upon instead of attempting to cover the whole field with its activities. This is a very important point, for it differentiates the plan very distinctly from the old "Suggestion System" which failed because of its generality and because under it eff'ort was diffused in- stead of concentrated. These three technical committees should be composed with three distinct purposes in mind : 1. To incorporate in their membership the key members of the non-executive personnel who come most closely in contact with the subjects to be survej^ed, and also such members of the executive personnel who are charged under the general disciplinary organization with the responsibiliy for definite results — relating to these sub- jects. 2. To secure as part of the membership a sufficient number of "detached viewpoints." Men arc largely crea- tures of liabit and those who are most intimate and famil- iar with existing ways of doing things come to regard them as satisfactory because these methods and processes 11 exist and do the work. It is important, therefore, to in- corporate in each one of these three committees analy- ticall}/-minded people who are not directly connected with the daily routine to be investigated and who would be inclined to question the reason for existence of various processes and methods. 3. To incorporate as part of the membership of these three com^mittees "general viewpoints" represented by those who have a broad knowledge of the general policy and plans of the organization and who are therefore in position to advise how suggested changes fit or do not fit into the general plan. FUNCTIONING OF THE COST CONTROL COM- MITTEES The sub-committees function continuously, each mem- ber being urged to do these three things : 1. Discuss the problems and purposes of his committee with as many members of the general personnel as pos- sible with a view of getting their ideas, viewpoints and suggestions. 2. To carefully comb current technical publications for ideas as to how other concerns handle the same problem. 3. To question each step in the process or system as to its necessity and after its necessity is established to ques- tion its efficiency. Each sub-committee meets once a week to receive reports from individual members and to compose rec- ommendations to its corresponding general committee. The general committees meet once a week, one or two days after the date of meeting of the sub-committees, to receive the reports of their sub-committees and to consider them. At such m.eetings the chairman of each sub-committee is present. The members of the coordinating committee meet once a week preferably one or two days after the meet- ing of general committees to consider and act upon the recommendations transmitted, and also to make sug- gestions for new lines of effort for the various sub- committees or for the formation of new sub-committees on subjects which may develop as necessary or desir- able. In the functioning of these committees, as outlined above, it will be noted that the principle ''direction of flow" of ideas, criticisms and suggestions, is upward, originating through the work of the sub-committees, in the operating or subordinate personnel and culminat- ing in the co-ordinating committee which is largely 12 executive in membership. This is exactly opposite from the "flow of orders" through the disciphnary organiza- tion. The "rate of flow" of ideas, suggestions and criti- cisms will be a measure of the economy morale created by the committee on Men and of its sub-committee on Publicity. Where the Budget Plan is in operation, the General and Sub-committees will be found exceedingly effective, not only in helping to control expenditures so that the budget figure is met, but also in helping to revise budget figures in a favorable direction. In fact, the Cost Con- trol Committee Plan fits itself admirably either into an existing budget or as a means of creating and instaUing a budget plan in such plants as have not already taken this forward step. A CONCRETE EXAMPLE OF COST CONTROL WORK A concrete example of a typical Cost Control Com- mittee activity will help the visualization of the opera- tion of the plan. One of the findings of the Money Committee, for example, was that the "paper work" or order system of a certain plant amounted, in materials and labor involved, to 8% of the total production cost. This was considered an excessive amount and its survey was recommended to the General Committee on Methods through its sub-committees on Ojfice Routine and Systems. The members of this sub-committee first made sure that they understood each step involved in the practice in vogue^ — and to do this most effectively and easily, they mapped the routine on a chart, as described in "Planning Department Systems." "^ After this was done, they questioned each step, first as to its necessity and next as to its efficiency, discuss- ing the matter thoroughly and broadly with the operat- ives in each department who came into contact with the system in an}^ way. They found as a result of their survey that there were eleven distinct, unrelated, printed forms used, that six of these were of such nature as to be easily dis- pensed with by slightly altering the other five, and that * Industrial Management, November, 1920, page 373. 13 these five in turn could be so arranged as to be typed at one operation instead of written individually. They reported these facts to their General Committee, which went a step further and found that extra copies of the same form could be adapted to the needs of the Purchas- ing Department and the Billing Clerk, thus eliminating several more steps. The General Committee recom- mended to the Coordinating Committee that the new plan be installed, that a listing and billing machine of sufficient power to make all of the necessary copies at one time be purchased. It also recommended that the two shop clerks who were not needed under the new plan be transferred to production work. The Co-ordinating Committee considered these sug- gestions and acted upon them, instructing the Purchas- ing Agent to secure the necessary forms and the new equipment, and also advising the Personnel or Employ- ment Manager to place the two shop clerks at produc- tive work."^ The Publicity Sub-committee of the General Commit- tee on Men functioned in the above case by publishing or posting the facts of the case, explaining the new pro- cedure and its superiority to the old one and calling attention to the new work of the replaced employees. ANOTHER EXAMPLE OF COMMITTEE WORK Another illustration along somewhat different lines : The Cost Survey Sub-committee of the General Com- mittee on Money reported that the cost of a certain ar- ticle was such as to require a seUing price too high to develop its maximum possible sales market. This prob- lem was handled by four sub-committees, as follows : Snb-conimittee on Production Process Surveys: Surveyed and analyzed the existing production process and invited suggestions as to simplification. Found that a slight change in design would eliminate three operations. * It is important that provision be made for all who are thus displaced through Cost Control Committee recommendations^ to be placed at other work with equal or better pay, and if possible with better opportunities. If this is not done, cooperation will cease. Committees of employees cannot be expected to help to uncover wastes and reduce them if this means depriving other fellow employees of a living. The responsibility rests upon the management to capitalize these economiies in growth that will absorb, in productive work, those who are released from non- productive work. 14 Sub-committee on Production Equipment Survey : Cooperated with above committee in search for ma- chinery that would reduce production cost. Discovered that the purchase of an automatic machine would return 60% on investment in savings in first year. Sub- committee on Alternative Materials: Analyzed the material components of cost with the view of substitution of less expensive but equally suitable ma- terials. Found that five operations could be eliminated by using die castings and that a sheet steel stamping could replace an expensive casting. Sub-committee on Publicity : Called attention, in advance of the investigation, to the facts which necessitated, the reduction in cost. Published the results after they were obtained. Co-ordinating Committee: Readjusted the price of the article so that it would sell freely at a good profit. WHY CANNOT THESE PROBLEMS BE LEFT TO MANAGEMENT? One may say that all of these problems are part of the function of the management — therefore why erect this Cost Control Committee organization structure to do the work that management is supposed to do? Leaving aside the necessity for developing economy morale, as outlined previously, by creating a flow of in- terest opposite in direction to the disciplinary flow of orders, there still remains a very good reason. No management, if we restrict this term to its usual inclu- sion of executives and department heads, has enough time or energy available to thoroughly cover one quarter of the profitable investigations that any live "Money" committee can suggest. A little thought in connection with the prospective activities of the several committees listed on page 17, will conclusively demonstrate this fact. It is only by making the word management em- brace the entire personnel that it can become "hydra headed" enough to keep pace with the almost infinite possibilities for waste elimination and cost reduction. 15 Recapitulation Economy and Waste Reduction must be key-note policies in successful organizations for several years to come. Disciplinary measures and channels are not suffi- cient to induce miaximum employee cooperation to- ward waste reduction, or in other words, to build economy morale. The Cost Control Committee Plan is a mechanism tor intelligently directing creative thought on the part of the whole organization and for liberating a vast reserve of potential creative effort toward waste reduction. To succeed, it must be undertaken in a spirit of mutual cooperation for mutual benefit, and its suc- cess must be reciprocally applied. 16 Suggested Activites for Various Sub-Committees Committee. Money — Expense Analysis Money— Cost Analysis Function. A thorough survey of all items of expense and the seg- regation of "high spots" of large percentage for attack. Analytical study of product costs for the determination of "high spots." Money — Budget Adjustments Revision of Operating Cost and Expense Budgets as the Cost Control C o m m i 1 1 e e work progresses. Men — Employment Men — Incentives Men — Production Quotas Men — Publicity Men — Education Methods — Office Routine and Systems Methods — Production Process Surveys Methods — Handling Cooperation with employ- ment manager in search for "square pegs in round holes." Replacement of those dis- placed by waste reduction activities. Recommendation of incen- tives, cash and otherwise, as direct stimulus for success- ful and noteworthy waste re- duction. Readjustment of production quota budgets as work of Cost Control Committees progress. ''Selling" the Cost Control Plan and keeping it "sold." Explanation of various proc- esses, uses of product, etc., as an aid to the work of the technical committees in se- curing practical suggestions. Critical study of the use and efficiency of methods for handling routine, and their comparison with other plant practice. Step-by-step study of var- ious manufacturing process- es in order to either justify present practice or improve it by greater economies. Analysis of methods of hand- ling work between machines 17 and departments of simplification. with view Methods — Stock keeping Methods — Power Plant Machinery — Productive Equipment Survey Machinery — Transmission and Auxiliary Equipment Study of rates of transit and "idle time" of stock parts, with vievv^ to reducing invest- ment in materials in process. Comparison of present power costs to best practice and recommendations for waste reductions in power genera- tion and distribution. Comparison of efficiency of available improved equipment with present ecjuipment, as adapted to the product mianu- facture. Study of transmission equip- ment, belting, elevators, con- veyors, trucks, industrial trackage, motor fleets, etc., with view to comparison of efficiencies and improvement. Systematic observation of shut downs, idle time, etc., with view to its reduction and consequent reduction of the "machine-hour" charge. Study of materials compos- ing the product Vsnth view to substitution of equally desir- able but less costly compon- ents. Materials— Waste and Scrap Systematic inspection of all Reduction scrap, cuttings, waste, etc., with the view of tracing it to its source and reducing it. Materials— Reclamation Study of and search for means of reclaiming, utilizing or profitably disposing of un- avoidable v/aste materials. The above are but a fev/ of the many profitable possibilities for Cost Control Committee Work. Read them over. Then ask yourself whether it is not dis- tinctly worth while to get all of your progressive em- ployees, in addition to your department heads, act- ively thinking along these lines? The Cost Control Committee Plan will Solve Your Problems Machinery— Reduction of Idle Time Materials — Alternatives 18 LIBRARY OF CONGRESS 021 589 751 5 *