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The Columbia University Libraries reserve the right to refuse to accept a copying order if, in its judgement, fulfillment of the order would involve violation of the copyright law. Author: Twyford, Harry Beaumont Title: Purchasing and storing Place: New York Date: [1921] -^wamnmmw n ■ COLUMBIA UNIVERSITY LIBRARIES PRESERVATION DIVISION BIBLIOGRAPHIC MICROFORM TARGET MASTER NEGATIVE # ORIGINAL MATERIAL AS FILMED - EXISTING BIBLIOGRAPHIC RECORD t 251 i T943 Twyford, Harry Beaumont, 1872- Purchasing and storing, by H.B. Twyford ••• N.Y., Industrial extension institute 5:Cl921j xvli, 435 p. illus. (incl. forms) diagrs. 19 cm. (Half-title: Factory management course and service. {v^AJj n RESTRICTIONS ON USE: TECHNICAL MICROFORM DATA FILM SIZE: 3S Vf\rf\ REDUCTION RATIO: ^1 IMAGE PLACEMENT: lA @ IB MB DATE FILMED: ^h|qs INITIALS: V\(-wl TRACKING # : MSVT \^% FILMED BY PRESERVATION RESOURCES, BETHLEHEM, PA, J^/ o c/) 15 ISO IN (/) 00 CJl Ki-< 00 M o ^d^ ^. ai 3 3 > DO o m N). ^ o O C/) < N X ISI v> 'V .-v^ A/ ^. a? ^3 'S.; ^^-V >^^ S V> >^ 1.0 mm 1.5 mm 2.0 mm i In o 3 i o o to O ri^i^ispi^Eisi; o CO b N5 00 10 In ABCDEFGHIJKLMNOPORSTUVWXYZ abccWghi|klmnopqrstuvwxyzl234567890 ABCDEFGHIJKLMNOPQRSTUVWXYZ abcdefghijklmnopqrstuvwxyzl234567890 ABCDEFGHIJKLMNOPQRSTUVWXYZ abcdefghijklmnopqrstuvwxyz 1234567890 2.5 mm ABCDEFGHIJKLMNOPQRSTUVWXYZ abcdefghijklmnopqrstuvwxyz 1234567890 x^ »<•* <' ^o- ^^ i, f* f^ ¥o> ^^> f^ 'A r^'" /* i '^^ <6^ <^ .**^^5^ ^^e t.-^^' -^ ^c? fp % ^ m 31 O O "o m "o > C CO I 73 ^ m O m />•. '♦ V c^ 3 3 o mm 5-0 3 I 3 — I Co ^^ * 4 Columbia Winii^tviitp LIBRARY School of Business ^ » ('4 FACTORY MANAGEMENT COURSE AND SERVICE A Series of Interlocking Text Books Written for the Industrial Extension Institute by Factory Man- agers and Consulting Engineers as Part of the Factory Management Course and Service INDUSTRIAL EXTENSION INSTITUTE INCORPORATED NEW YORK ADVISORY COUNCIL Nicholas Thiel Ficker, Pres., Charles P. Steinmetz, ^ -r^ T^ m CMef Consulting Engineer t Charles E. Funk, Secy., General Electric Co, Chas. a. Brockaway, Treas., Alwin von Aitw, Gen. Mgr. Boorum-Pease Co, Charles C. Goodrich, Goodrich-Lockhart Co. Willard F. Hine, Consulting Appraisal Engi- neer, Chief Gas Engr., Public Service Comm. N. Y. Jkrvis R. Harbeck, Vice-Pres. American Can CO. Benj. a. Franklin, Vice-Prea. Strathmore Paper Co., Lieut. Col. Ord- nance Depi. Charles B. Going, Formerly Editor, The Engi^ neering Mngasine, Con- sulting Industrial Engi^ neer. STAFF. C. E. Knoeppel, Pres. C. E. Knoeppel & Co., Consulting Engineers. Meyer Bloomfield, Consultant on Personnel. George S. Armstrong, Consulting Inaustrial Engineer. H. B. Twyford, Purchasing Agent, Nichols Cop- per Co. Nicholas Thiel Fickeb, Consulting Industrial Engineer. DWIGHT T. Farnham, Consulting Industrial Engineer. WiLiARD L. Case, Pres. Willard L. Case & Co., Consulting Engineers. David Moffat Myers, Griggs & Myers, Consulting Engineers. Joseph W. Roe, Prof. Machine Design, Sheffield Scientifio School, Yale Univ. Albert A. Dowd, Consuting Engineer. William F. Hunt, Consulting Inaustrial Engineer. Charles W. McKay, Appraisal Engineer, Cooley & Marvin. Organization and Administba- tion. Labor and Compensation. PiiANNINa AND TiMI^-STUDY. pltrchasing and storing. Industrial Cost Finding, Executive Statisth^al Control The Factory Bun -ding. The Power Plant. The Mechanical Equipment. Tools and Patterns. Handling Material in Factob- lES, Valuing Industrial PsopEBTiEa, PURCHASING AND STORING BY H. B. TWYFORD Purchasing Department of the Otis ELemitor Company VOLUME 4 FACTORY MANAGEMENT COURSE INDUSTRIAL EXTENSION INSTITUTE INCORPORATED NEW YORK ' ?:/\ S \3 Copyright, 1921, by INDUSTRIAL p]XTENSION INSTITUTK INCOBPOBATED di >UUUyv\X/©o J) :l5i > PREFACE The provision of raw materials and supplies for a manu- facturing establishment is a never-ending process as long as the factory is in active operation. It must commence before the machinery is set in motion and the workman exercises his art in producing the output. Prior to this the purchasing and storing cycle of operations will have been accomplished for the particular article on which the workman is engaged. Just as surely as a machine or tool must travel at a given speed to attain the maximum efficiency, so surely must pur- chasing and storing proceed in feeding raw materials and supplies to the establishment. Only on such a basis can max- imum efficiency be secured. There is no natural element which is not undergoing a change. Nature is continually at work producing raw mate- rials for manipulation by human effort. If human effort could parallel this endless activity there would be no reason for studying the economic questions raised by the delays in transporting, storing, and handling the product which is to undergo change in the factory. Some of the most important problems in purchasing and storing are caused by these delays, or rather by the quiescent periods during which the raw material is undergoing no change ; for it is during these periods that economic factors ar^ adding to the cost, to such an extent, perhaps, as to sweep aside considerations regarding the actual price at which mate- rial can be bought. vi PREFACE Having a manufacturing establishment ready for operation, it is with raw material that real efficiency must begin. It is the purchasing and storekeeping departments which must logically take the first step to effect savings in production. This does not mean that the purchasing agent must spend his energy in beating down prices, and the storekeeper spend his time in accumulating a large stock. The problems go deeper than that. Raw material must be obtained and sup- plied to the production department at the lowest price for the right material to obtain the maximum output of finished parts, and this must be done with a minimum waste of effort, and a minimum waste of time while the material is at rest. Good buying and storing are fundamental principles of manufacturing efficiency. The problems connected with the execution of these functions are many, varied, and interest- ing. I have attempted in the following pages to outline the most approved and tried methods of solving these problems, laying the greatest stress, perhaps, on the acquisition of pur- chasing knowledge. I desire here to express my appreciation of the courtesy shown by various manufacturers in allowing me to exhibit their purchasing forms and requisitions. H. B. TWYFORD. TABLE OF CONTENTS. CHAPTER I PRELIMINARY OUTLINE OF PURCHASING PAGE Definition 1 Science of Purchasing 2 Economics of Purchasing 2 Methods 3 The Purchasing Department 4 Creative Work 6 Policy 7 Six Great Divisions 8 Correlation of the Divisions 11 CHAPTER II THE ARTICLE Specifications and Definitions 14 Material Specifications 15 Equipment Specincations 17 Coal Specifications 18 Standard Commercial Definitions 22 Examples of Improper Descriptions 24 Purposes of Definitions 28 Standardizing Definitions through Purchasing ... 33 Enforcing Standard Definitions 35 Intended Use of Articles 38 Quantity Purchased 41 vii viii TABLE OF CONTENTS CHAPTER III THE SELLER PAGE Relations Between Buyer and Seller 43 Selling Expense and the Buyer 45 Reducing Selling Costs 47 Segregating Sellers 48 Genuine Competition 49 Losses through Incorrect Definitions ...... 50 Departmental Losses 51 The Market 52 Creating Markets 53 Over-Systematization 55 Jobbers 56 Sources of Supply 57 Records of Sources ♦ • 58 Purpose of Records 61 Recapitulation ^^ CHAPTER IV THE PRK E Price versus Value "4 Price Knowledge "° Daily Quotations *^ Price and Demand ^^ Trade Cycles and Prices '^^ Exports and Prices 74 Price Authority ''^ Manipulated Prices "" Competitive Prices 77 Strategy in Arranging Prices • ^ Buying Methods . ^^ Examples of Buying Methods ^2 Resale Prices "4 Price Based on Performance ^5 TABLE OF CONTENTS Price Gruaranties . Price Maintenance Other Arrangements CHAPTER V THE CONTRACT Care^ in Making the Agreement Verbal Orders •..>... Written Contracts Preliminary Communications .,..., Distinction Between Offer to Sell and Tentative Bid Changes in Contracts What the Contract Should Include Definition of Quality or Grade Time of Delivery ^ Place of Delivery Terms and Time of Payment Cash Discounts Contracts and Orders Contract Forms Regular Orders Rush Orders ... Pick-Up Orders Covering ' ' Orders for Recording Purposes .' .' * Remedial Contract Forms CHAPTER VI DELIVERY Importance of a Definite Delivery Date Co-operation Between Purchasing and Production De- partments Delivery and Production Costs .' .* Buying on Schedule .* ' ' * ' Transfer of Ownership . . ] PAGE 86 87 88 90 91 91 92 92 93 94 95 96 96 98 100 103 104 107 109 111 113 113 117 118 119 120 121 M a? TABLE OF CONTENTS FAGE . . 122 Traffic Work .123 Follow-up Work . .126 Emergency Orders '•'''''' 12I Helps in Getting Deliveries . Inspection Inspection Before Shipment . • • Testing Samples ^ " • * Need of Recognized Methods of Testing Transportation Problems . . • • 128 129 129 131 CHAPTER VII INVOICES Completion of the Purchasing Cycle .... Work to be Done on Invoices Standardizing Invoices Relation of Invoices to Purchasing .... Trade Acceptances ' ' ' Arranging Dates for Payment of Invoices . . Avoiding Duplicate Payment of Invoices . . . Credits Meaning of Net Cash Freight Charges * Invoices Without Previous Price Arrangement . The Buyer's Obligation • ' Invoices and Cash Discounts 134 135 136 137 137 140 141 143 145 145 147 149 154 CHAPTER VIII THE PURCHASING AGENT Responsibility . • Qualifications . Breadth and Vision : Finance and the Buyer Management and Administration 157 158 160 162 163 TABLE OF CONTENTS Psychology in Purchasing Reducing the Cost of Salesmanship Technical Information Policy Authority .... Natural Aptitude Wider Field for the Purchasing Agent Department CHAPTER IX THE PURCHASING DEPARTMENT Origin and Mission Standardizing Supplies . Relations with Other Departments Departmental Meetings Compiling Records . . . '. Relations with Sellers Cost of Issuing Orders Practical Experience for Employees Ethical Standards and Policy of the Reciprocal Agreements in Purchasing Executive Pressure Friendship in Business . Effects on Whole Department Outline of Work Organization .... * The Purhcasing Agent . Assistant Purchasing Agent, or'ch'ief Requisition Clerk Price Clerk . Order Clerk . FoUow-Up Clerk Traffic Clerk . Invoice Clerk Clerk xt PAGE 164 165 166 167 168 169 171 173 174 175 176 177 178 180 181 182 183 184 185 187 189 190 191 193 194 194 194 195 195 195 \ xii TABLE OF CONTENTS PAGE Information Clerk 196 General Arrangement of Department 196 CHAPTKR i. THE PURCHASING LIBRARY Books ^^^ Periodicals 200 Registers and Agencies '^^1 Catalogues 202 Technical Information in Catalogues 204 Standardization of Catalogues 206 Procuring Catalogues 208 Filing Catalogues 209 Universal Standard Catalogue System 210 The Universal System and Standardization .... 212 CHAPTER XI THE USE OF CHARTS AND DIAGRAMS IN PURCHASING Figures and Charts 214 Value of Charts to the Buyer 216 Compound Information 220 Influence of Charts on Buying 223 Scheduling Requisitions by Charts • • 223 Augmenting Buyer's Knowledge of Business Conditions 224 CHAPTER XII ROUTINE WORK OF THE PURCHASING DEPARTMENT Disposition of Incoming Documents .226 Accumulating and Recording Information .... 227 The Requisition 233 ''Rush" Requisitions ^^^ \ TABLE OF CONTENTS Xlll PAGE y • • • . . . 236 . . 237 ' • • . . 238 • • « . . 243 • • fl . 244 CHAPTER XIII Fundamentals Necessary Additional Information Samples of Requisitions Routing the Requisition Pricing Requisitions . ADDITIONAL ROUTINE WORK OF THE PURCHASING DEPARTMENT Contracts Orders Acknowledgment of Orders Writing Up Orders Variations in Routine Work Purchase Order Record Delivery Problems Following up Orders .... 251 256 257 259 264 264 267 267 \ CHAPTER XIV FINAL ROUTINE WORK OF THE PURCHASING DEPARTMENT Invoices Methods of Recording Preliminary Work Checking Invoice With Order .....*].'' Cheeking Invoice With Material Received . .' .* ,* ^ot Checking Prices .'288 Classifying and Checking Extensions .....*.' 289 Checking Freight Charges .' .' ! 289 Final Approval .' .' 291 Securing Cash Discounts .'.'].* 291 Securing Credits ! .' .' ' 292 278 280 282 283 284 ^i^ TABLE OF CONTENTS CHAPTER XV PURCHASING PROBLEMS AND THEIR SETTLEMENT PAGE 297 How Problems Arise ^gg Patterns and Dies ^99 Purchasing Agent's Authority ^^^ Responsibility of Salesmen 300 Orders to Agents ^^^ Price Lists ^qq Refusing to Sell ^^^ Quality 3qj^ Return of Containers Leeway in Manufacturing Quantities ^^^^ Solvency of Vendors • • ^^^^^ Machine on Trial ^^2 Trial Period *. ' * *^n9 Damages to an Article being Demonstrated ' * ' ' 3J3 Cancellation of Contract ^^^ Contracts not Specifying Quantity ^^^ Orders without Prices ^^ Penalty Clause - * ' ' ' \ ao4 Accepting a Portion of Goods Offered JJJ False Statements in Negotiations ^^^ Offers by Telegraph ^^^ Carbon Copies 305 Mistake in Contract ] Crating and Packing Charges ]^^^ Shipping an Order in Part ' Delivery Prior to Contract Time Delivery Point not Specified Delivery and Conditions beyond Control ^^^ Delivered at Destination Prompt Shipment TABLE OF CONTENTS XV PAGE Transportation Company's Obligation to Deliver Promptly gQg Transportation Losses 308 Claim against Transportation Company 309 Credit for Returned Goods 309 Freight on Defective Material 309 Liability of Railroad Company 309 Receipt for Goods 310 Inspecting Material 3J0 Terms Printed on Order Forms 310 Terms of Payment 311 Cash Discounts ^^^ No Extra Dating ! . . 311 Cash Discounts and Freight Allowances 311 Terms on Invoices 311 Lost Invoices g^o Settlement of Debit by Part Payment 312 Time of Payment 3^2 Credit Period 312 Payments 3^3 Date of Invoices 323 CHAPTER XVI RAW MATERIAL AND SUPPLIES A Form of Wealth 314 Cost of Storage ] .' ! 315 Factors which Reduce Values 317 The Great Stores Problem 313 Profits in Storage 320 Safe and Sane Storekeeping 321 To Store or Not to Store 322 Extremes of the Storage Problem 323 Psychological Factors in Storage 324 Standardization of Supplies 325 'r I xm TABLE OF CONTENTS TABLE OF CONTENTS • Correct Definitions Inventory Price and Market Value . . Storage Space and Production .... Establishing the Maximum and Mimmum The Financial and the Stores Departments PAGE 326 327 328 329 334 CHAPTER XVII RECEIVING AND STORING RAW Equipment and Manual Operations Planning and Locating the Storeroom Manual and Clerical Work The Counting Problem Counting Methods . Weighing and Estimating Even Balance Scale Proportional Scales Counting Machines Weighing Methods Trucking Material Conveyors . . • - Sectional Steel Bins and Shelving The Closed Type . Open Shelving . Racks . . • • Open Air Storage Intensive Storing MATERIALS 336 337 337 338 342 343 344 346 347 350 352 358 362 364 366 368 372 373 CHAiPTER XVIII STORES INVENTORIES Perpetual versus Periodic Inventories 376 The Perpetual Inventory ^^^ The Physical Inventory ^^^ Ideal Inventorying xv%% PAGE 391 Posting Values on Stores Inventory sgg Summary . CHAPTER XIX RECEIVING, INSPECTING, AND STORING Receiving Material at the Factory Records of Goods Received ....]]'' Value of Inspection Inspecting Methods Receiving Material into Stores ...].'].* Finished Material Storing Material Identifying and Locating Material ..!.*!' Material Returned to Stores Scrap Stationery Stores . . CHAPTER XX DISTRIBUTION OF MATERIAL FROM STORES Delivery Problems Form of Requisitions .... Shortages Deferred Deliveries . " • • • # Issuing Stores in Sets or Groups Shop Orders and Stores Requisitions Supplies from Stores .... Stores Records Stores Requisitions on the Purchasing Agent 394 396 398 399 402 402 403 404 405 406 407 410 411 412 415 417 418 420 421 424 PURCHASING AND STORING CHAPTER I PEELIMINAEY OUTLINE OF PUKCHASING Definition.— Purchasing is one of the commonest of business activities. It means the acquisition of some kind of property and the giving of an accepted price or consideration for that property. The terms pur- chasing and bujdng will be considered and used as convertible and synonymous, although there is a dis- position by some to regard purchasing as implying a transaction of more dignity and importance. _ Every transaction between buyer and seller involv- ing the transfer of property is a contract, and these contracts may take many forms. The simplest form of purchase is one whereby the negotiations are en- tirely verbal and are conducted simultaneouslv with the transfer of the article and the consideration. Other forms necessitate the issuing of orders specify- ing the material, price, and date of delivery; while more complicated forms are made the subject of lengthy written agreements defining minutelv in tech- nical terms the nature of the material, methods of payment, and many other factors. In such cases Pliysieal possession of the property may not pass to tiie purchaser until a considerable period after the agreement is made. 2 PURCHASING AND STORING Science of Purchasing.— Purchasing is just as much a science as any of the other activities in the great complex structure called business. The success or failure of a commercial undertaking may be the direct result of good or bad buying. The terms good and bad are not used here in a speculative sense. It is not intended to infer that good buying implies sim- ply that one has bought at the lowest market price or that bad buving means that the highest price has been paid. Poor buying means rather that the pur- chasing has been done promiscuously, loosely, and without foresight and accuracy. Whereas good buy- ing is scientific, and can be checked in many of its phases with the certainty of a mathematical problem. For the power of purchasing to be at its maximum there must be exact knowledge, which is science; knowledge of materials, which implies some knowl- edge of manufacturing processes; knowledge of mar- kets and prices; knowledge of sources of supply; knowledge of certain trade customs and usages, and also knowledge of the many ramifications of business transactions into which the exercise of purchasing carries the buyer. Fortunately, much of this can be formulated, tabulated, and recorded in such shape as to be available for instant use. Economics of Purchasing.— From the ine<'ption to the consummation of the transactions between buyer and seller many important economic problems are in- volved; and the proper handling of these and the ad- ministration of the business features connected with them are vital factors in the operation of any com- mercial undertaking. PRELIMINARY OUTLINE 3 ^ Undoubtedly, regulated and right buying is a study m economics. If one glances back over the field of endeavor connected with production and manufactur- ing and observes its tendencies during the past few decades, it will be noticed that intensive economical operation is applied more closely as time goes on, un- til a condition exists with many concerns where they save their profits instead of making them, or rather they make their profits by savings. It does not ap- pear that there will be any lessening of this tendency, ihis country, rich in natural resources, with a nation ot born salesmen and advertisers, has heretofore solved the problem of enlarging its profits by making more sales. Conservation of natural resources, com- petition, shorter hours for workmen with increased pay, and longer week-ends for employers, have forced a realization that an increase of advertising and sell- ing expense will not continue to increase the business m proper proportion to this increase of expense. Hence the necessity for reducing costs. Right buying strikes at the very root of the problem, as its eco nomic value has a vital bearing on the cost of produc- Methods.-It is essential, of course, to create stand- aidized methods of purchasing. These methods have as their object the simplification and assurance of ac- curacy of the results to be accomplished. The sub- jugation into mechanical habits of the various pro- cesses involved is of the highest possible value. To be a slave to these habits, however, might ultimately react against the object sought. Varying circum- stances and conditions will sometimes force one to a 4 PURCHASING AND STORING contemplation of a change in policy ---f ^^^^^ deviation in methods, and this change could not oe SproXd with an open mind if the habxts had fast- ened themselves too closely. phanae Any change in methods, however does ^ot chan^^ the fundamental principles of purchasing, ^^^f^^^ clear and well-lefined. These P""^^?^, ^^^l^'^^;. orio-in in past experiences and rules laid do^n by ac Tpfed authorities. To question these doctrines i to question their authority. But a mmd tramed in con structive thinking would not be ^o^t^"* ^f/^^^^X^^^ present standards of purchasing to ^^^^'I'^J^l^^ ence indefinitely without attempts at ^e «rmcnt^ These attempts will be along the lines of system and iieSods which must always be flexible enough in E nature to be permitted to adjust themse -^^^^^ varying situations without in any way d' ^r^* t^^S Irom tie fundamental principles for which they are '""Thf^urchasing Department.-The instrument through which the buying is done in indastnal es- tablishments is the purchasing department; ami the evolution and growth of this unit in the industrial organization has been continuous and constantly gam- ing in importance. The necessity for centra .zmg, systematizing, and controlling purchases le. to the al- location of part or the whole of the time of one man, or of several men, to do the work as conditions de- mand. The organization of establishments along the lines of departmental formation further ^suited m the segregation of these activities, and thereby the purchasing department came into existence. PRELIMINARY OUTLINE 5 It is essential that the work of the department be efficiently and expeditiously carried through, for the demands on it grow naturally from the requirements ot the business and do not originate with the depart- ment itself. The material needs, except actual cash, of every department or section of an establishment should be procured and furnished to them by the pur- chasing department. For this reason it probably comes into more direct contact and at more frequent intervals with the other departments than any other division of an organization. Not only in inter-department relations is the pur- chasing department particularly active, but in its commercial dealings it comes in contact with out- side concerns to a greater extent than anv other de- partment, except perhaps the sales department-and mad?°^ establishments even this exception cannot be In any walk of life, when our material necessities are not promptly and satisfactorily furnished we are apt to criticize those whom we regard as responsible for furnishing them or to whom we look as the source through which we procure them. The conditions re- ferred to in the preceding paragraphs naturally place the purchasing department in a position of vulner- consL^.rir'^^'f '"*' ^"^ '"*^'^^"- 0" *»»'« ^<"^o™t considerable diplomacy and tact are essential features in purchasing work; and, to confound the criticizers fficiency must be the watchword. "We don't know,"' Should never be the answer to questions regarding dehvery, to requests for prices, or to queries why in voices have not been approved. 6 PURCHASING AND STORING Creative Work. — From what has already been said and from the conditions which are usually supposed to surround purchasing it might i)e assumed that its function is largely negative. This supposition is mainly caused by the fact that the developments which originate the demand for purchasing are in- itiated through other departments. Every business activity, however, must progress to some extent by creative work within its own spheres of influence. Opportunities for this are greater with some activities than with otheit*. The mission of purchasing would not be fulfilled if it did not join in this; it would be stagnant, and progress in the art of buying would be at a standstill. It has been customary to leave questions affecting the suggestion and utilization of new goods for old purposes or old goods for new purposes to the sales . department. This has been natural, because the vo- cation of a salesman should familiarize him with the market for the products of his factory. But there is the other side of this matter to be considered, and ideal purchasing will mean that it shares with selling in the creation and development referred to. This is possible because men engaged in buying come into touch with markets which the selling force probably never see or hear of. The creative instinct in men engaged in purchasing could not fail to be aroused by new devices, new material, or articles which they might find applicable to the manufactures and prod- ucts of their own concern. In this way, selling and purchasing will jointly share in the creative work and progressive development. PRELIMINARY OUTLINE 7 For the purchasing agent this would be constructive activity of the highest order, and would mean that he would be instrumental in improving and bringing forward goods, not only for his own concern, but for many others. If this seems idealistic to any one he has only to look back over the field of endeavor in any industry or profession and review what has been accomplished and the progress made, and ask himself if this progress has any finality. If it has none, then there is no finality to progressive developments in purchasing. And it is exactly this which will ulti- mately prove for purchasing its measure of fitness and determine its relation to, and place in, the world of business. Policy.— The selling department of an organization will make strenuous efforts to establish a reputation, not only for the product it sells, but for its selling policy. This reputation will be assiduously and jeal- ously guarded; and the policy, strictly maintained on the standards adopted, will be considered one of its greatest assets. It is equally essential for a purchas- mg department to establish for itself a policy based on recognized standards of business morality and ethics. The value of this will be appreciated in the treat- ment accorded to the purchasing department in the multifarious dealings and debatable questions which otten come up between it and the many concerns with whom it has negotiations and transactions. The characteristics displayed by a purchasing de- partment will determine its standing in the business community. It is not just a matter of business mor- I it r. 8 PURCHASING AND STORmG PRELIMINARY OUTLINE als, but of knowledge of business methods and usages. Ignorance of these, intolerance, lack of courtesy, and high-handedness will do more harm to efficient pur- chasing than plain crass ignorance regarding the ma- terial being bought. Vendors are quick to sense these things, and their attitude and actions will be largely based on them. The acquisition of raw material is the initial step incurred in the cost of manufacturing anything. Equipment and tools of the necessary character nmst be procured before production work can proceed. Supplies also must be accumulated for use in the operation of the plant. The deduction to l)e drawn from this is that starting right means buying right. Six Great Divisions.— The activities of purchasing for an industrial establishment can be classed under six headings. These are the six main divisions, each of which can be subdivided into manv minor activi- ties. A diagrammatic survey of the principal on(»s is given in Figure 1. Eeference to this will gri^atly fa- cilitate a comprehensive grasp of the probh^m as a whole and some of its minor features and d(?tails. Amplification of these divisions is given in the fol- lowing brief description: T. The Article. This naturally comes first, because unless there was something to be bought there would l)e no buy- ing to be done. a. Authentication of the request to purchase. h. Knowledge that it is the article best suited for the intended purpose. c. An accurate definition which will completely pre- clude the possibility of confusion with any other article. Figure 1.— Diagram of the six great divisions of purchas- ing WORK, WITH some OF THE SUBDIVISIONS d, A correct specification or description of quality. e. Knowledge of the quantity to be purchased. A Knowledge of the principal characteristics and the processes through which the article passed prior to arriving at the condition in which it is to be bought. 9' The date on which delivery is required. 10 PURCHASING AND STORING PRELIMINARY OUTLINE 11 2. The Seller. The second stage is to form connections with vendors. a. Locating the best sources from which the particular article can be obtained. h. Elimination of economic losses by avoiding wrong sources of supply. c. Investigation of reliability of seller and methods of doing business. d. Securing assurance of ability to deliver at required date. e. Ascertaining location of shipping point and consid- ering its relation to delivery point with special reference to transportation facilities. 3. The Price. Establishing the consideration with the seller. a. Price knowledge. h. Securing competitive quotations. c. Knowledge of how to obtain the best price. d. Consideration of price in its relation to quality and service. e. Knowledge of available quantities and existing de- mands. 4. The Contract. Issuing the order or making the contract, and agreeing and arranging with the seller the various clauses and stipulations. a. Embodying in the contract the features outlined in above divisions, 1, 2, and 3, as to quantity, quality, and price. h. Arranging f . o. b. point. c. Agreeing as to payment of freight or delivery charges. d. Arranging terms and method of payment. e. Securing best cash discount. /. Reviewing legal aspects of contract. 5. The Delivery. Securing physical possession of the prop- erty. a. Institution of a follow-up system. 6. Keeping the seller up to the terms of contract. c. Inspecting material in course of manufacture or as shipped. d. Recording shipments or deliveries made. e. Keeping track of shipments in hands of transporta- tion companies. /. Following up and tracing shipments. g. Final receipt of goods at destination. 6. The Consideration. In-so-far as the purchasing depart- ment is concerned this means approving the invoice and seeing that it is in proper shape for payment. a. Checking with contract for quantity. h. Approving price. c. Seeing that terms and cash discounts are correctly stated in the invoice. d. Checking extensions and calculations on the invoice. e. Securing certification of receipt of goods. /. Properly classifying the charge. g. Finally approving for payment. The knowledge element and mechanical aids essen- tial to a systematic study and understanding of the six great factors in purchasing will be dealt with fully in proper sequence in later chapters. It is necessary for any student of this function of business to get a comprehensive grasp of the funda- mentals outlined. It will then be much easier to as- simulate the minor problems in connection with them as they arise for discussion. Corelation of the Divisions.— Purchasing can only be conducted at the highest percentage of efficiency when each of the fundamentals receives proper at- tention. A chain is as strong as its weakest link, and this axiom can be applied with unusual force to the 12 PURCHASING AND STORING PRELIMINARY OUTLINE 13 links in purchasing. If material is incorrectly or In- adequately specified or defined, the price obtained might be useless, or at least subject, to revision. If the order is not accurately worded, the wrong ma- terial may be delivered. If the material is correctly specified, the lowest price obtained, and the order is- sued to the firm best suited to supply it, still all these advantages might be nullified if delivery were not made as required. Lastly, assuming that all phases of the transaction have been taken care of in an ade- quate manner down to the receipt of the invoice and this is allowed to go through for payment not in accordance with the agreed price' or terms, all the (eco- nomic benefits secured by the good work done up to this point might be lost. This emphasizes the inter- dependence of each section of the work; and no one part of it can be overlooked, relegated to the back- ground, or treated as negligible. Simply placing orders is but a small part of the work and cannot rank as purchasing. What it is de- sired to emphasize is that there is a well-defined be- ginning and a logical conclusion to purchasing, and all the intermediate activities between those points must be carried through on a basis of equal efficiency to insure the successful operation of this department of business. The purchasing agent is responsible up to the time the material arrives. Unless it is delivered to the plant within a given time determined by the produc- tion department, the whole scheme of economical shop operation is jeopardized. Not only this, but it might entail delays in filling contracts entered into by the ( sales department, involving the contingencies of the loss of customers' good will and the possibility of being mulcted for penalties on account of non-deliv- ery. There is a triangle of expenditures that go to make up the cost of any manufactured product; this tri- angle is composed of material — labor — overhead charges. The last named is frequently determined by conditions and location. Trading and bargaining with labor is strictly limited. Neither of the two mentioned can be bought when the market is low and stored for future use. The other leg of the tri- angle — material — is most susceptible to control through good judgment, foresight, and selective abil- ity. For these reasons the importance of purchasing is being increasingly recognized. THE ARTICLE 15 i CHAPTER II THE ARTICLE Specifications and Definitions.— In making the di- visions of purchasing, as shown in the previous chap- ter, the premier place was given to the *' article," or the material to be purchased. The reason for this is obvious, since it is apparent that unless on(i knows what is to be bought, purchasing could not proceed. By placing it first, however, it is not intended to give it undue importance over any other phase of the work. To specify means to be explicit; to be definite; to describe accurately. This subject of correct speci- fications is of great importance, and, in many re- spects, it may be said to be the most important thing in purchasing. Appropriate to this subject is the following quota- tion from the Report of The Bureau of Supplies of New York City: Nothing should be left to the imagination in the writing of specifications. If the man desiring an article purchased or a piece of work done knows what he wants, let him describe it in straight, clean-cut, unmistakable language. This takes more time, but it is worth it. Adjectives and adverbs are particu- larly objectionable. To say that work must be done ** prop- erly,'' or ** suitably,*' or in a ** workmanlike manner" does not really mean anything, because what one man will consider ** proper" or ** suitable" another man holds to be quite the 14 contrary. Such expressions cause great uncertainty, they de- velop confusion, misunderstandings, hard feelings, and de- lay; and they contain such opportunities for unfairness and graft that they should not be tolerated. The clause that work must be done or supplies delivered ' ' to the satisfaction of the engineer or inspector" causes every prudent contractor to bid high in self defense. Broadly speaking, from a purchasing standpoint all material can be divided into two classes for specification purposes. One class covers material which it is necessary to describe in detailed technical terms, or which has to pass inspection other than that usually given to incoming material, or which is sub- ject to special tests. The other class covers material for which there are well recognized standard com- mercial definitions. Material Specifications.— The first class referred to usually comprises material of a certain grade, quality, or texture pre-determined by the technical staff as most suitable for the product into which it enters. Probably exhaustive and expensive experi- ments have resulted in the selection of this material, and it is no part of the duties of the purchasing staff to question the specifications. It is their province, however, to buy it, when, and as required, in the quantities requisitioned and get delivery at the stated time. To enable this to be done there must be in the files of the purchasing department complete detailed speci- fications. It is not sufficient for these specifications to be held by the engineering or production depart- ment and sent to the purchasing department with the requisition for material. Emergencies frequently re- 16 PURCHASING AND STORING quire prompt action in purchasing, and to be depend- ent on some other department for any information requisite to making the purchase means delay. The technical staff, having prepared the specifica- tions, should have them properly numbered and should retain the master copies, furnishing an ample supply to the other departments interested. The specifications can be printed, if sufficient quantities warrant it, or they can be typewritten or blue printed. The number required for purchasing purposes will depend entirely ou how often the material is bought, how many firms are asked to bid on it, and on the number of orders issued. When an order is sent to a vendor for material described in a separate specifica- tion, a copy of the specification should accompany the order, distinctly identifying it with the order by in- serting a clause reading, ''This material to b(? in ac- cordance with our specification No. , dated , which is attached to and forms a part of this order." Even though the firm receiving the order already has a copy of the specifications, which it may have retained when quoting, another copy should never- theless be sent with the order. The best method of filing these specifications is in folders similar to correspondence folders, although the extension or bellows type may be necessary where large numbers are kept. Card indexing them, as shown in Figure 2, will make them available for rapid reference and of immediate use for mailing. Nota- tions should always be kept of all revisions. The identification of these revisions by dates or by pre- THE ARTICLE 17 MATERIAL Specification No. Folder No. Original Date. Revision Dates. Also refer to riG. 2. INDEX CARD FOR SPECIFICATIONS In starting a new set of specifications it is possible to have the specification and folder number correspond fixing a letter to the number is the duty of the technical staff, and can be done in much the same manner as revisions on tracings. It is sometimes necessary to send out blue prints or sketches to bidders and with orders. It is not suggested that copies of these be kept in the purchas- ing department. The technical department, having charge of the original drawings and tracings, should be able to furnish prints promptly; but it is essential that such sketches be identified with the order in a manner similar to that suggested for the specifica- tions. Equipment Specifications.— Establishments of suffi- cient magnitude have a competent man or department to take entire charge of equipment, and usually this man or department is responsible for keeping a com- plete record of all machine tools, shop equipment, and plant, including engines, boilers, dynamos, inside and 18 PURCHASING AND STORING outside cranes, etc. It is part of his duties to keep a record of these and to be able to furnish to the pur- chasing department a complete description of any part that it may be necessary to buy. It is not conjecture, for experience has proven, to state that a great many plants keep no records, or at best very incomplete records, of their equipment. In such concerns when a breakdown occurs and it be- comes necessary to procure parts quickly, the efforts to do so involve a great waste of time, much corre- spondence, and even at times finally shipping the broken parts to the manufacturer when all other at- tempts to identify or describe the requirments have failed. In factories where such conditions exist the purchasing department can render an exceptional ser- vice by keeping a record of all equipment purchased. It can obtain from the manufacturers a complete specification of the machine, with illustrations or prints, with the invoice. These can be filed in a similar manner to the material specifications. Al- though it is scarcely the province of the purchasing department to keep a card system of plant and ma- chine tool records, yet, in the absence of complete records in any department, it can certainly render good service if it keeps track of its purchases of these items. Coal Specifications.— Other specifications which could well be handled in the same manner as the material specifications are those for coal, oil, and paints, if bought in sufficiently large quantities. Coal should always be bought on a B. t. u. basis, with some limits specified, probably, as to the percentage of THE ARTICLE 19 (mLr D** T ll HEXAGON FLAT OVAL HEAD FILLISTER FILLISTER HEAD HEAD r m BUTTON HEAD CAP SCREWS DEFINITION: Cap screws are milled from bars slightly larger than the size of finished head. Heads are true with the body. Cap screw* are finished all over. Threaded portion equals three-quarters of the length of screw up to and mcludmg 4 ' in length; over 4 ' long threaded portion equals one-half the length. If special length of thread is required, same is to be furnished per drawings or specifications. Special length of thread to be specified only where standard cannot be used. Cap screws vary in length by quarter inch from }' to 5' long inclusive and by half inch from SI' up. although seldom used over 5' long. These are standard variations and must be used wherever possible. For dimensions for heads of cap screws see table "Dimensions of Cap Screw Heads." 15204 Data Class. Hexagon head cap screws are not to be used when a regular hexagon head tap bolt wUI answer the purpose. Cap screws when made of machinery steel must have a tensile strength of not less than SO.OOO pounds per square inch. Cap screws with Flat fillister. Oval fillister, Rat or Button heads are not t* be used in sizes of J • or less. If this style head is required in sizes of J* or less, us* Machine Screws. For lists of cap screws giving Part Numbers, see: 11189 Table Class for Flat fillister head "90 Flat head "91 Oval fillister head 1192 " " " Button head "93 •• f " Hexagon head SPECIFICATIONS FOR PURCHASE ORDERS AND SfSCK LEDGER SHEETS. Head Cap Screws threaded U. S. S. (Hexagon Flat fillister Oval fillister" Flat Button J Example: 25— |' x 4* hex. head cap screws, threaded U. S. S. (If special length of thread is required, specify the length in inches). FIG. 3. STANDARD DESCRIPTIONS AND DEFINITIONS 20 PURCHASING AND STORING THE ARTICLE 21 sulphur, volatile matter, and ash. Each car load of coal bought on this basis should be sampled and analyzed. This can be done for a few cents a ton, and the premium may be paid or penalty deduct ed on the analytical results. There is now no difficulty in getting coal merchants to sell on these conditions. In spite of this fact, there are as yet very few in- dustrial plants buying coal on the basis of calorific value. It is a common practice to buy it on the repu- tation of the mine. But would one buy gold, silver, or iron ore because it was mined in a certain district? Certainly one would have it assayed. The process of determining the value of coal is not complicated or expensive; hence, considering the enormous consump- tion, it is only natural and fair that consumers should insist on payment being made on the results of analytical tests. Moreover, when coal is bought on the assumption that it is good because it is from a mine with an established reputation, it is difficult to take advantage of competition. In fact, there can be no real com- petition under such conditions. Each dealer will claim his coal is equal or superior to some other; but statements of this character have no foundation in fact unless proven, and the only proof is the con- sumer's analytical test. It is essential to determine also the size of coal best suited for the particular style of grate bars used in the construction of the boilers; or, if mechanical stokers are used, the speed of these and their method of operation may influence a decision as to size of coal. The customary method of defining size of coal as buckwheat, pea, nut, etc., i FIG. -4 COMPRESSION SPRINGS (Helical) FIG.-9 TENSION SPRINGS UIJ FIG. -12/^. TORSION SPRINGS SPRINGS DEFINITION r «>.i,!nn"^r^K^' construction those members that are to yieldingly resist force and regain their original position or shape at the removal of the force are called springs. They are made in an endless variety of forms and are used for many distinct classes of service -Com^.^^ ^^^^ ^'''^ TJ ^. ^'"""^^ ^'° ^^'^ ^°"°*^8 «='^^S' ^^'^^ indicate their use or function «-ompression, lension and Torsion. foUo^ed'on In"drawings^^' ^^ '*'°*" ''*^''^' ^'° "^^ ^^"^"' ""^^^^ ""^ dimensioning that should be In dimensioning or specifying springs, the foUowing information must always be given. Comprettion Springs (Helical) ^'*' thr'!n!!!f„^l''1l''',^l^^' °' '"''"^^ '^'^'""^^ depending upon which is the most important If » 11 IS to fit over a spmdle or similar part, the mside diameter would be of the most importance FIG. 4. STANDARD DESCRIPTIONS AND DEFINITIONS 22 PURCHASING AND STORING must sooner or later disappear, and dimensional sizes will be specified. In European countries this change has already taken place, and contracts can be placed containing a clause specifying the size of mesh of a screen over which the coal shall pass and the size of mesh through which it shall fall, with a stipulated percentage of coal smaller than the screen it passes over to cover breakage in handling. Standard Commercial Definitions.— The other class of material referred to in the opening of this chapter includes material for which there are standard or well-recognized trade definitions. In industrial estab- lishments the orders issued for such material are usually far more numerous than for any other class of material, and include orders for small tools and nearly all supplies. Probably more trouble is experienced by the pur- chasing department in dealing with these purchases than with any others, and this trouble is caused solely by incorrect, improper, inaccurate, or incomplete de- scriptions, which may arise from the fact that varying methods of defining an article are used by different departments and individuals. This leads to con- fusion, and compels the purchasing department to refer back to the storekeeper or to some other in- dividual who drew up the requisition. Delay and ex- pense are thereby entailed, besides other annoyances. The existence of this condition is demoralizing to the internal economic administration of an establish- ment. Not only is an inordinate amount of time consumed in getting requisitions into shape for price getting and ordering, but delays occur in placing THE ARTICLE 23 fIG.-l PUIN TYPE DEFINITION: FIG.-2 RIB TYPE LOCK WASHERS FIG. -3 POSITIVE TYPE The matenal used in the manufacture of spring lock washers is steel is wi^ir"'"'"' •'••"'"** '•"•* ""'"'•• ^^^^ *»•' '^^'^'-^ -"d also type, if other than PI«in type #5213 Dafi aa"sf "' "' '*"''"** ''"'* ""•^"'' ^' ^^^'^ "Dimensions of SUndard Lock Washers" »»»--- -P-'M. otherwise siSiJS.'*''^"' '^' '"^^ *'" *^^^ ^ ^^^'"^ ^^ ^o o^-half the width of the kerunless otheSSe^Stl"'^ " ""' manufacture of machine keys is machinery steel and wiU be used unless SPECIFICATIONS FOR PURCHASE ORDERS AND STOCK LEDGER SHEETS. Quantity. Width X Depth X Length Standard taper key Standard taper gib head key Straight key Straight gib head key Square end. one end rounded, or both ends rounded, as may be required. no. 6. STANDARD DESCRIPTIONS AND DEFINITIONS 26 PUKCHASING AND STORING machines. No intelligent prices could liave been ob- tained or an order issued on the basis of the defini- tion given in the requisition. Another requisition was for: 10,000 Bolts and Nuts 34"x3". In this case neither the style of the bolt nor of the nut is specified. The nuts might be square or hexa- gon, hot pressed or cold punched. If bids were asked on the description given, the bidders would im- mediately ask what was actually required, or would send in quotations for varying styles of nuts and the prices would be useless for purposes of comparison. The correct method of specifying and which should have been employed in writing requisitions is as fol- lows : 10,000 %"x3" sq. head Machine Bolts with C. P. R. hex. nuts., U. S. S. This description would be readily understood by any manufacturer of bolts and nuts. Its import is unmistakable to any person accustomed to handling this material. If one wanted to be technical, the specification could be extended as follows: To be made of machinery steel having a tensile strength of 50,000 pounds per square inch; and the nuts could be further described as cold punched, chamfered and trimmed hexagon rough nuts. But the definition as given above is the regular commercial one and is ample for all ordinary purposes. Another illustration is of a requisition which read: 1 Bale of Burlap for packing room. ROUND ROUND COPPER WASHERS Bolt Part No. Diam. 85304 84761 80182 86095 80490 80007 80148 84762 84764 80489 80149 80150 1867 80158 80147 85307 80185 80151 80152 80153 80154 80155 H #6 #8 #10 #12 125' .150" ^' A' .170' .195' A' A' .215 .228' A' y \' B ^'' ir V I' I' tt' A' 4'- C Remarks ih' Standard A' Special r ^' Standard ii' Special it' Sp. for "L" Push Button ti Standard ih' Special A' Standard iV' Special A* Contact disk, hole C's'k. iV Special A" " A' Standard A' Contact Disk A' Special A' ** *i ™. 7. A STANDARD METHOD OF INDICATING THE PART NUMBER siVdIv ^^Lvl'nVfh'^"''"?" department is able to requisition articles bimpiy by givmg the part number. The purchasing department will clearly understand what is to be purchased. 27 28 PURCHASING AND STORING If a purchasing agent asked for prices on such a definition he would be requested for information as to weight per foot and width. This is one of those in- stances where practical experience should determine the quality best suited for the product that is packed in the shipping room. It is possible that it may be found more economical to carry two or more weights in stock. In any case the width of the roll and the weight per yard should be specified. The illustrations given could be continued in- definitely, but those given will answer the present purpose. It cannot be emphasized too strongly that for intelligent purchasing every article and all ma- terial must be accurately and adequately described. In doing this it is preferable that definitions be brief, concise, and tersely worded. Sometimes one or two words and figures are sufficient. Nothing is gained by adding anything to the shortest definition, pro- viding this definition conveys in unmistakal)le lan- guage what is actually meant. No article is so simple or so common that it should not be properly and clearly described or specified. Confusion is further aggravated by the varying methods of describing the same article. One man may give the width first and the length next, while another will reverse this order. Again, the addition of a single unnecessary word might lead to a com- plete misunderstanding, while, on the other hand, the omission of one might even mean that the descrip- tion could be used to cover two articles. Purposes of Definitions.— The subject of standard definitions has had the serious consideration of many DEFINITION OF PARTS BASE— A part used as a foundation, rest or support for another part or parts. Apply a prefix to the term indicating location. Specification should state: Quantity, Name of Part, Material, Part Number. Example: 6 — contact holder bases, Brass, Part No. 3337. 1— equalizing hitch base, C. I., Part No. 6634. BEAM— A part long in proportion to its thickness, usually in a horizontal or nearly horizontal position and supported at its end or ends and loaded in some manner; as a load m the center, load at either end, or both ends, an equally distributed load, etc. This term should be used with discretion and avoided wherever possible. Apply a prehx to the term indicating function. Specification should state: Quantity, Name of Part, Material. Pzri Number. Example: 1 — momentum compound brake working beam. C. S., Part No. 5535. BEARING — A part used as a support for and in direct contact with a moving part. The moving part is usually a revolving one, as a shaft journal, pivot, pin, etc. or it may be a part subject to longitudinal motion. Bearings for revolving parts should be divided into three classes viz. those in which the pressure is perpendicular to the axis of the shaft, the pivot or step bearing in which the pressure is parallel to the axis of the shaft, and the thrust bearing in which the pressure is parallel with the axis of the shaft, but is taken on the face of a collar or other form of bearing from the periphery of the shaft. ■ The last two classes will be treated under their proper headings, viz, "E»ivot Bearings" and "Thrust Bearings". Apply a prefix to the term indicating location. Specification should state: Quantity, Name of Part, Material, Part Number. Example: 1— drum shaft bearing. C. I.. Part No. 3126 2 — ^inside worm shaft bearings, C. I., Part No. 6231. BED— A foundation for a machine. A rigid part of a machine on which something is supported and to which the working parts are usually secured. Avoid the use of this term, uang instead the term "Bed .Plate." BED PLATE — A rigid part of a machine on which something is suiv ported, and to which the working parts are usually secured, bpecification should-h*-^— — '-— .«jjg^le, stating: Quantity bevel gears where the) plane. The term "*'* the term "EJevel (jt* to bevel gears whosei Specify bevel gearsj (^ntity, Name of Pitch diameter. Mai Example: 1— bevel No. BLOCK— A term us to a part more or 1^ or more plane or ap be used with dis also "Pillow Block.] Apply a prefix to tr Specification should Part Number. Example: No. 141 4 — guide sh^ 1 — thimble BLOWOUT— A magneuj formed by the separatjf ing part of a circuit/ function. Specification should Part Number. Example: 1 — "C Part 2~"H Part BOILER— This term h As used by this Com strong metallic vessel BOLT— A strong pin of head at one end and a screw thread at the are given various nai the general shape of t Commercial bolts are follows: and nuts FIG. 8. DEFINITION SHEET These sheets are extremely valuable throughout any establishment. The object is to give clear definitions which may be understood by anyone. See also Figure 9. 2d 30 PURCHASING AND STORING manufacturers, and earnest efforts have been made tO find a satisfactory solution. Various schemes have been tried out with varying success. That it is es- sential to have some regulated and well ordered method of standardizing the descriptions of every class of material and of all articles, and also of all supplies of every kind and nature used around an industrial plant, can not be gainsaid. There have been more attempts to standardize material and sup- plies than to standardize the use of proper definitions. The purchasing department is more directly inter- ested in the latter phase. Both phases, unquestion- ably, should be dealt with simultaneously, but it is not always done. The objects to be attained by standardization are: 1. To indicate commercial material and articles to be used in production work and to be adopted as standard. 2. To reduce the variety of material and articles necessary to be carried in stock. 3. To reduce the variety of supplies used and con- sumed throughout the establishment. 4. To secure uniformity in naming and defining all material, articles, and supplies. The illustrations shown in Figures 3 to 10 indicate in what manner the objects mentioned have been at- tained. These sheets of definitions can be printed if there is a large number of users or can be prepared by the technical staff and blue printed if then? is only a limited number of users. DEFINITION OF FARTS KEY— For the definition of this term, also method or specifying, see #5022 Data Class. KNEE — ^This term will be understood as indicating a bracket which connects two parts at an angle, The use of this term should be avoided wherever possible, using instead the terms bracket, etc. Apply a prefix to the term indicating location or function. Specification should state: Quantity, Name of Part, Material, Part Number. Example: 1— brake band knee, W. I., Part No. 17751. KNUCKLE JOINT— This term will be understood as indicating a hinge joint, in which a projection with an eye on one piece, enters a jaw between two corresponding projections with eyes on another piece, and is retained by a pin which passes through the eyes and forms the pivot. LAMINATION — Used as an electrical term it will be understood as indicating a thin iron disk or plate used to build up an arma- ture, field pole pieces, etc. The thin disks or plates may or may not be insulated from one another Apply a prefix to the term indicating function or location. Specification should state: Quantity, Name of Part, Material, Part Nvunber. Example: 300— #17-26 Motor pole piece laminations. Steel, #28 (.0156') U. S. Gauge, Part No. 30001. LATCH — A movable piece which holds anything in place by en- tering a notch or cavity. The use of this term should be avoided wherever possible, using instead the terms "Catch." etc. Apply a prefix to the term indicating location. Specification should state: Quantity. Name of Part, Material, Part Number. Example: • 1— switch arm latch, C S., Part No. 17756. LEVER— A rigid piece which is capable of turning about one pcnnt, or axis, and in which are two or more other points where forces are applied or dehvered; used for transmitting and modifying force and mot" ■ AnnlY LINK— This term rod or piece for necting rod with be used to indica The term is also escalator, the p: also has a rack c Apply a prefix to' Specification shoul Part Number. Example: 1- 1— OF 1— lir LOCKNUT— This used in pipe fitting where a pipe pas or liquid: such as is cut on the pipej two locknuts are on the outside of the side of the between the lockr to make an absolul The term "Locknv a check nut. LOCK WASHER part or member or under a nut., or to prevent a For further infj specifying, see For dimension; For list of st #1205 Table C LOOM BOLT- of the body ne to fasten wood) very similar to larger, and the Avoid the use of 1^ LUG— This term will anything is support^ is fastened. Any FIG. 9. DEFINITION SHEET These sheets familiarize the staff with various parts, and are of great value to those in the technical departments and of far greater value to those without technical training. See also Figure 8, 31 PURCHASING AND STORING 'trffl Li^fJ 1 OVAL DOG OR PIVOT CONE POINT POINT POINT DIMENSIONS OF PIVOT POINT SET SCREWS. I* I* I' IV 2' Diam. of Pbint A* H' *• »• •• f *' r I* »»• If Length of Point A' r Spedal don't UK Pivot points are flat on the end unless otherwise specifieo, and the kngth of screw is measured from extreme point. If special shape or aize pivot point is required, it must be shown by drawing or sketch, or specified completely, the f^hich it is made, and the different styles, rath(?r than to secure the definition of a particular item. Intended Use of Articles.— Many articles have what might be called counterparts or prototypes. When in the market for any of these, the buyers are offered a legion of products which seem to differ but slightly the one from the other. Without any knowledge of the ultimate use lor which such an article is intended it is impossible to be sure in what manner the sub- stitutes offered are unsuitable. Unfamiliarity with the manufacturing procc^sses of the business for which he purchases is one of the prevailing weaknesses in the purchasing agent 's pro- fession. A buyer should know enough about the pro- duction and operating departments of his own factory to be able to make a reliable decision as to the utility of any substitute that may be offered. It is usually through the purchasing department that these alter- native articles and materials come to light, and the ability to discern what to reject and what to accept is a valuable attribute in a buyer. Unless a buyer has a good working knowledge of the manufacturing methods of his own house and its product he is at a great disadvantage in dealing with salesmen. The buyer interviews many salesmen. Any one of them, for example, may handle only a single line or article and in that one field he may be an expert. He can designate exactly the advantages of his product in the manufacturing processes of the concern to which he is trying to sell, and if the buyer is not equally well posted on the products of his own house, he will not be able to handle the situation with judgment and discretion. No matter what the nature of the purchase there are always questions arising which can only be an- swered by a knowledge of the intended use of the article, but it is not always possible for a buyer to have this close knowledge at first hand. In a very small business it may be, but in purchasing for a large corporation whose requirements embrace an enormous variety of objects, detailed information must be put into the purchasing agent's possession. And it must be put in such explicit shape that he can form his opinions and judgments on many questions from a paper standpoint. The illustrations given earlier in this chapter of standard definitions and stock parts and their use in the product of a factory are extremely valuable ad- • ]uncts to a purchasing agent's knowledge. Not only do these definitions give him information regarding the product of his own factory, but they also give him 40 PURCHASING AND STORING complete data, compiled by those who are in a posi- tion to know, and detailed specifications of all the articles and materials he purchases. Samples.— Many purchasing agents maintain a sample file with contents tagged and indexed. This may be advisable where the purchasing is done from a central point with storerooms and factories scat- tered in various places, but there is not much to be said in its favor when the purchasing, storekeeping, and production work are all located in one group of buildings. As a general rule buyers for industrial establish- ments do not show any great enthusiasm over buying from samples. Sometimes samples submitted by sev- eral bidders can be examined and put to some simple tests. This is of assistance in foiming a decision on the relative values of the quotations and, furthermore, the sample can be retained and compared with the material finally delivered. This is the most reUable means of ascertaining whether the material finally delivered is exactly in accordance with the sample submitted. If repeat orders are expected the sample can be filed for reference when subsequent purchases are made. Buying to sample should be confined to articles in which the chemical composition is unimportant or which do not have to pass any severe tests. But if chemical composition is important the only safe way is to specify the required composition in the body of the order and also to define any analytical and physical tests to which the material will be sul)jected. In some instances an article may not be specified THE ARTICLE 41 or defined by the purchaser, but the onus is thrown entirely on the seller to furnish material that will per- form certain work or fulfill some specified function. This is frequently productive of good results, because it starts a lot of sellers working for one buyer for one particular purpose, and out of the combination work- ing for him the buyer may secure an exceptionally good bargain. Quantity Purchased. — It is not usually the purchas- ing agent's business to designate how much shall be bought. Neither is it the storekeeper's, but this sub- ject wall be taken up under the discussion of stores handling, as it more properly belongs there. If a special order is secured by the sales depart- ment of the factory the amount of material called for by that order is the determining factor. If the ma- terial is one which is carried in stock permanently, the requirements of the business and length of time consumed in getting delivery must be considered. The first thing the purchasing agent wants to know is what the plant wants; and it is his business to secure what is needful to keep the production work moving along in its appointed way. The basis of scientific buying is to have an exact knowledge of these needs. They should be stated so precisely in specifications and requisitions that they cannot be misunderstood or evaded. The skilful buyer should endeavor to move in the direction of standardizing his entire line of purchases. Of course, all articles are not subject to standardiza- tion; but in purchasing for a large corporation there IS a big field for it. This is moving in the general 42 PURCHASING AND STORING direction of a permanent buying basis, eliminating much work and argument from the seller's end of the game. The alert purchasing agent, however, can* not allow himself to settle back comfortably with the feeling that standardization has made his future path entirely smooth. The sciences that enter into manufacturing are moving forward at a rapid rate, changing materials and methods, and the purchasing agent must continually revise his specifications and definitions to keep abreast of manufacturing require- ments. CHAPTER III THE SELLER Relations Between Buyer and Seller. — Forming proper business connections with the seller is one of the most important phases of purchasing work. The economic aspects of the subject warrant consideration at this time. In conducting electric current from generating station to the point of consumption certain trans- mission losses are bound to occur, and electrical en- gineers are constantly at work endeavoring to reduce these losses. In the world of business certain '* trans- mission losses'' caused by lax and unscientific methods of making connections between buyer and seller also occur. Strenuous efforts are being made to reduce these losses, and in these efforts the pur- chasing agent performs an important part. That the losses can be contracted and confined within well de- fined limits is beyond question; the benefits derived will be shared equally by buyer and seller. The statement has been made that, in the last analysis, all the complex ramifications of business can be reduced to two functions — buying and selling. The contention being that other activities, such as accounting, financing, and advertising, exist as sub- flivisions of those two functions. Be this as it may, 43 44 PURCHASING AND STORING THE SELLER 45 commercial transactions do revolve around these two functions, and for economic reasons tliey should be brought into the closest possible relationship. No one would be willing to admit that we have reached a condition where nothing more can be done to establish closer connections between buyer and seller. It is only necessary to review the vast amount of advertising and the strenuous endeavors made in all phases of salesmanship and compare them with the results obtained, to convince any skeptic on this point. A rectification of these conditions cannot be expected from the seller. He must go after business wherever prospects indicate a probability of obtaining it, and he must go after it in whatever manner seems likely to secure results. The buyer should be as assiduous as the seller. But his methods are necessarily different, and he, if his purchasing is conducted along scientific lines, can be largely instrumental in reducing some of the losses. When a purchaser buys any manufactured article he is getting in composite form all the materials which go to make up that article. The manufacturer of electric motors, pumps, typewriters, or loose-leaf ledgers had to buy various materials to produci^ these articles, and these materials, in turn, were the finished product of some antecedent manufacturing process. This tracing back process can be continued until the original raw material is reached. The function of buying is exercised many times during this prog- ress, and if in these movements its execution can be more economically administered and conducted it has a very appreciable effect on the ultimate cost. The economic benefits secured by the efficient op- eration of a purchasing department are not confined to the department itself or to the establishment with which it is connected. There is a much broader and more general view to be taken, and one which affects the whole world of business in its influence on lim- iting some of the losses already alluded to. Selling Expense and the Buyer. — A buyer should have exact information on all points relating to the material he purchases. He should know exact quan- tities required, when required, and the quality re- quired. By accurate research he can then confine his inquiries, negotiations, and orders to those concerns who are in the best position to supply him. If evi- dence were taken from business houses it would al- most unanimously show that a very large part of their correspondence, telephone service, and sales- men's time is employed in investigating incorrect defi- nitions and specifications of material. Many times they do not handle the material that is asked for, or may be only in a second rate or second best position to supply it. And it very frequently happens that salesmen are sent out merely to clear up moot points, traveling long distances on needless errands. These expenses must be included ultimately in the selling price of the material and articles affected and are therefore paid for by some buyer. There is no good reason why this condition should exist, because a purchasing agent can so gather and tabulate the necessary information that should eliminate a very large percentage of this wasted effort. It follows automatically that if improved buying methods effect 46 PURCHASING AND STORING THE SELLER 47 'i) a saving in selling expenses, lower prices should even- tuate with some resultant benefit to the purchaser. Some proprietary articles and certain materials must be bought in which there is little or no compe- tition, but outside of these there is a large field for the purchasing agent to create the competition he wants by the process of selection and elimination out- lined. A purchasing agent must get the right kind of competition. Many think, because they have a large number of concerns who are prepared to quote for their requirements, that they have good competi- tion. Nothing could be more fallacious. It is the purchasing agent himself who should dictate with whom he negotiates for prices and with whom he places orders. The consummation of every buying transaction should be effected with the. least amount of expense, not only to the two principals concerned, but to all unsuccessful bidders. It might be assumed that a purchasing agent is not interested in the selling expenses of the houses from whom he buys, but enough has been said to show that he has a very direct interest in the cost of sell- ing. To further exemplify this let any purchasing agent review the cost methods of his own establish- ment. A selling price is arrived at by a succession of steps or stages commencing with raw materials, followed by labor, oyerhead expense, selling expense, and to these, finally, is added a profit. If a purchasing agent studies this it will be brought forcibly to his obser- vation what an important item selling costs are. With this in view he can make some calculations as to re- ductions in the prices of the goods manufactured by his own establishment that could be effected if the selling costs were considerably lowered. And such a condition applies to every concern from whom a pur- chasing agent buys. If a permanent reduction can be effected in his own concern, a similar reduction can also be effected in others. Reducing^ Selling Costs. — Only a few hints have been given as to the manner of reducing selling costs. Later on, these will be elaborated and some concrete instances given; but at present the following facts should be considered. All forms of entertainment ad- vance the cost of doing business and raise sales costs. Undoubtedly this cannot be entirely eliminated; some expenses under this head are necessary, but the buyer can materially decrease them. It may be true that some salesmen indulge their own desires under the cloak of entertaining the buyer, but the buyer should not indulge in unnecessary entertainment for he is simply raising the price against himself. If a salesman is kept waiting an inordinate length of time before interviewing a purchasing agent, it has a bearing on the number of buyers he can see during the day and therefore exerts an influence on the selling cost. Every journey a salesman makes to see a buyer, every call made while negotiations are pending, every time he submits new prints, every time he re-figures certain quotations, in fact every move he makes costs money and thereby increases the cost of selling. The purchasing agent can do more than any one else to eliminate these waste movements and, further- i8 PURCHASING AND STORING THE SELLER 49 more, can encourage salesmen to work in this direc- tion by furnishing accurate and specific information on all points when going into the market. Segregating Sellers. — Except in a few isolat(»d in- stances of manufactured products and in a few cases of exceptional commodities every manufacturer and dealer can be classified under one of two headings. He is either as well equipped to furnish a buyer's ac- tual requirements as some other firm or he is not. It then behooves the purchaser to ask quotations only from those firms who are well qualified to furnish the required goods. By way of illustration take the manufacturers of bolts and nuts. Some of them confine their output to certain types; others specialize on small sizes; again, some make only finished bolts and milled nuts. In ordinary practice the purchasing agent, in obtain- ing quotations, approaches these manufacturers in a hit-or-miss or haphazard manner. Probably he has a list of manufacturers or obtains the names from a classified directory, hoping by getting in touch witli all to hit the one who can give him the best price and delivery. He may or may not succeed. Even if he does, his methods are unscientific, and he has in- creased the selling costs of many of them unneces- sarily. Illustrations analagous to the one given could be continued indefinitely. Dealers in lumber, manufac- turers of chemicals, of stampings, of forgings, are all susceptible to a more rigid classification than is given in any business directory or index. The author has seen requests for quotations sent to many lists of manufacturers and suppliers, and frequently not more than twenty or twenty-five per cent of the re- plies received could be used for competitive purposes. With a properly authenticated list, however, every inquiry sent out should bring a bona fide quotation. Genuine Competition. — Every quotation received from sellers not in the best position to supply a pur- chaser's requirements is not only an economic loss but furthermore is not genuine competition. One might get a dozen such quotations and still not have ob- tained good competitive prices. Genuine and re- liable competition can only be secured from a prop- erly selected list of bidders. Prices obtained in a promiscuous manner cannot be used for comparative purposes with any assurance that the best results have been secured. Sound competition can only exist between those parties who are best equipped to supply the particu- lar grade or quality needed. This is the right kind of competition, and anything short of this entails eco- nomic losses in the operations of all those asked to quote for the business. To illustrate this again, con- sider a list of spring manufacturers. It will be found on close analysis that some of them make only heavy helical springs, others make springs of light .w^ire, while others, still, are specialists in elliptical springs or springs of formed, stamped, flat-strip steel. Lum- ber dealers can also be subdivided into those who spe- cialize in hardwoods, high-grade lumber for cabinet work, or rough lumber for mill construction or pack- ing purposes. These distinctions and refinements cannot be disre- ^^ 50 PURCHASING AND STORING THE SELLER 51 garded, and it is incumbent on the buyer to confine his activities in canvassing the market to those con- cerns whom he has previously investigated along the lines suggested. By this procedure only can dei)end- able quotations and genuine competition be obtained. In considering the economic situation in its relation to competition it must be borne in mind that if, by keen competition or clever maneuvering, a buyer closes a deal which entails a loss to the seller it is not a loss to the world of business. What is lost by one party is gained by the other; the general commercial economic system has suffered no loss, as it has in cases where unnecessary movements have been caused by unscientific buying methods. Losses Through Incorrect Definitions.— In the pre- ceding chapter stress was laid on the importance of correctly specifying and defining every article and all material. No matter how trivial or infinitesimal a purchase may seem it is necessary to describe it so carefully that no doubt whatever can possibly exist as to size, quality, and quantity. The reasons for this are the same as those already given for properly se- lecting the right sources of supply; for otherwise similar losses would occur. If negotiations were opened with only those concerns })est equipped to supply the material, and then it was incorrectly or in- adequately described, the situation would be just as bad as though the material were correctly defined and an uncertified list of vendors were approached. It is quite as important to define an article of small intrinsic value correctly as it is the more valuable ones. Probably more so, because the proportionate loss is greater. Instances have occurred where orders were sent out for very small articles whose value did not exceed fifty cents, but because of improper de- scription a whole chain of inquiries was required to clear up ambiguous meanings, involving an expense far in excess of the value of the articles. Departmental Losses. — So far, in the discussion of the economics of purchasing, we have confined our attention to the effects on business in general and to the effects through reaction on the buyer. But the economical operation of the purchasing department it- self is also affected. Unfortunately, in too many pur- chasing departments the employees must spend con- siderable time in straightening out tangles arising from just the causes previously referred to. It seems to be looked upon as a part of the daily routine work which cannot be remedied. But this should not be the case, for this unpleasant feature can be greatly im- proved, if not entirely eliminated. Proceeding along the lines laid down means the cutting out of all the unnecessary work of answering inquiries regarding incomplete, inadequate, or incor- rect specifications; and when the business is placed with selected firms the work of following up the order and getting delivery is greatly facilitated, for they will have been chosen for their promptness in ship- ping and filling orders and their general service and attention. This means that shipping notices and bills of lading will be rendered promptly, enabling early advices to be given to the consignee department; and, what is perhaps most important, invoices will ^ome in quickly and regularly. This latter feature 52 PURCHASING AND STORING THE SELLER 53 is one that is essential if all invoices are to be put through their regular routine in time for the cash discount to be available. Where a very limited number of articles is pur- chased the purchasing department should work at an efficiency of one hundred per cent in getting competi- tive bids. This percentage cannot always be main- tained where large numbers of articles are bought, nor where new kinds of material are continually being required, but something very near it can be secured. The Market.— There is a logical market for any- thing and everything which it is necessary to pur- chase. It is incumbent on the purchaser, therefore, to confine his activities to those houses who can sup- ply exactly what he wants. Experienced purchasing agents with proper records have no difficulty in this respect, but inexperienced ones can secure equal effi- ciency by following closely the instructions given later in this chapter. The sources of supply may sometimes be very large, and the reverse may be the case with certain ma- terials. But even when one has a large number of vendors to depend upon for a specific article it will alw^ays be found that some are not in the logical list. As a measure of safety and preparedness for even- tualities a buyer should develop emergency markets from which he can draw whenever the occasion de- mands. It is the purchasing agent who is responsible* for maintaining a sufficiency of raw material for pro- duction work. Business acumen and foresight call for him to make provision for this in his scheme of buying. Many causes may force the buyer out of the logical field in order to keep his factory running. Strikes, breakdowns, stoppage of transportation facilities, freight embargoes, and other causes contribute to this. Sometimes certain artificial conditions may exist by reason of which the logical source of supply does not offer the greatest attraction to the buyer. A depres- sion in trade in another territory may make an open- ing for a good buy, or a combination working to the detriment of the consumer may be in effect among the regular sources of supply. During an unprecedented demand for screw ma- chine products because of war conditions, the waiter had an experience which will serve as an example for the necessity for emergency markets. A small milled article had been bought in large quantities for a num- ber of years, always within a radius of two hundred miles of the buyer's factory. Owing to the regular sources of supply having a surfeit of other orders, it was impossible to place with them further orders for this particular article except at an advance of nearly forty per cent and on six months' delivery. Some difficulty was experienced in locating another source, but finally a supply was found which, although it was some twelve hundred miles from the buyer's factory, furnished exceptionally good delivery and at a price only eighteen per cent over the old price. Creating Markets.— Constructive buying is not a fancy phrase, it is a reality. Lack of sound competi- tion, poor sources of supply, and sources located at inconvenient or distant points have brought forcibly to the attention of many buyers the advisability, if ; I 1 54 PURCHASING AND STORING THE SELLER 55 not the necessity, of creating and developing new markets. It has already been emphasized that potential com petition is essential to good buying. When competi tion is weak or indifferent, it is time for the purchas- ing agent to get active and find a solution. Some times one or two big concerns may so overshadow the market as practically to eliminate genuine competi- tion. These and other reasons make it necessary for the purchasing agent to use vision and imagination, and by careful selection of likely sources to build them uj) by a process of nurturing and fostering until he has created a situation that has all th(^ elements he needs for the efficient execution of his policies. This development work, when applied to some of the smaller and weaker concerns, may call for strategy and tactics of a high order, for the buyer's diplomatic moves made to accomplish his purposes must not be disclosed either to a strong concern from whom he is buying, or to the weak one which he is trying to make strong in some particular line. Important results have been achieved along these lines. One of the principal reasons for this is that the small man is having his selling done by the purcliaser. His selling expenses, then, are negligible, and gener- ally his overhead charges will be nmch lower than hi;^ big competitor. Quite often when the financial re- sources of the small concern are limited the buyer can arrange to purchase his raw material for him at lower prices than his cramped financial condition will per- mit. Such methods as these not only enable the pur- chasing agent to buy at exceptionally low prices but give him the assurance of a reliable source of supply. When a salesman discovers a ** prospect" he assidu- ously follows it up, nurses it, and endeavors to con- vert it into a customer. It is equally essential for the buyer to discover '* prospects," follow them up, cultivate their potentialities, and make of them im- portant economic factors in his general scheme of business. Other advantages crop out in developing the pos- sibilities of smaller concerns. For example, it is profitable at times to bring to the understanding of the bigger concerns that they do not enjoy the mon- opoly they figured was theirs. In such cases, where the visible supply of an article may seem to be al- most wholly in their hands, the psychological effect may stimulate them into actions which can only have beneficial results for the buyers. Over-systemization.— Some large corporations have carried departmental formation to such extremes that su|)sidiary departments or divisions are formed in oach original department, and even in these subsidiary ^t- urally, it does not take many such experiene(\s to cause a purchasing agent to eliminate such corpora- tions from his list of sources of supply. Jobbers. — Every buyer prefers to place his order with the actual producer and not through the inter- mediary jobber. Not infrequently, however, it will be found that better service can be obtained from a jobber than from a manufacturer. This is a ques- tion of considerable magnitude and can be discussed from many angles. Price, of course, is the predomi- nant argument and will be discussed more fully else- where. The buyer should include some jobbers in his available sources of supply and should, by all means, retain their good will. Such jobbers as he may keep on his list will depend largely on what he is buying, for he will be compelled to purchase some articles through these sources. The manufacturer's selling policy of protection usually enforces this. Again many manufacturers will sell direct to the consumer in picayune quantities. A manufacturer of machine screws, for instance, will take orders for one gross and ship direct to the user. But is the buyer gaining in service? The screws no doubt could be purchased from a local jobber and be deliv- ered at the buyer's storeroom at a price little above the manufacturer's; while in sending the order direct to the manufacturer, located probably in a distant city, shipment may not be made at once and corre- spondence regarding it may arise; transportation charges also may have to be paid by the purchaser. The inconveniences connected with buying small quantities at some distance from the destination of the goods are all the purchaser's and not the seller's. Manufacturers cannot carry stocks in every city. The jobbers do this for them, and hence they have a practical and legitimate place in the business world. Buyers are absolutely dependent on them for **pick up" orders, for example, and many times for ''rush" orders. Sources of Supply.— Another reason why the pur- chasing agent must keep a complete compendium of firms and localities where he can buy any material likely to be required by the plant, is that he may be iY 58 PURCHASING AND STORING called into fonsiiltation at any moment on negotia- tions the sales department may have in hand tor some big contract, and information will be required of him promptly and definitely as to where, when, and at what price the raw material can be secured. These particulars are essential, for the sales depart- ment needs them to determine on what basis to make its proposal to the customer. Both the sales and production de})artments are apt to overlook the possibilities of securing certain classes of raw material promptly; and without duly considering this phase they will frequently make concessions to secure an order which ultimately may prove very costly. Steel and copper, for instance, may have to be purchased from warehouse instead of from mill to meet delivery dates; and the addi- tional cost thus incurred should have been included in the sales estimate. Selection of sources of supply is not done by in- tuition. It is a scientific process of accumulating data and recording them in orderly and proper shape so that the best source can be chosen at a momiMit's notice. Delivery conditions from the selected source must be known, and variations in the time required to obtain raw material must be noted. Advices cov- ering this point should be sent as occasion demands to the manufacturing department to govern them in making their requisitions. Records of Sources. — Indiscriminate shopping and marketing is inexcusable. All the reasons previ- ously given and many others as well apply against a vague haphazard method of procedure in placing ■" 1 *- c Q- S o c/) ^ S. o <« z cial ing C XI (0 c E 2 2 O U. (/) H! *^ h- V, ■"=> < ^ o P .E x: ZD = 1 00 S Q. UJ o3 g UJ ra O 3 > o- cc LU 00 S C S) a* E 0) p . "^ ^ QO >. C -^ a. ^ a. E Z o I— CO CL- 2> O- o (^ q: o. o <0 ^ O . iii o 1 > o »- u < ransp't'n Facilities « Li. 1- c o '•4^ «J • 8 1 -* ' < i tn m UJ (T o o ^ . < a: Od UJ -J UJ _i ^— UJ < (/) S 1 1 *© cu o 8 X « eS & O H- c o 2 CO .^ o o o o u O c « Ed _o ^ K 2 « [£! as B c «> a; » O « H — *» ^ tJB CO ^ « X! a o (Si o o o 59 9 i o OQ 60 PURCHASING AND STORING THE SELLER 61 I ■' orders without first investigating tlie recipient. All phases of the transaction must be foreseen during this investigation up to final termination of the con- tract by payment of the invoice. A manner in which this information can be col- lected, accumulated, and tabulated is shown by Fig- ure 13. The necessary data can be obtained through a great many avenues, some of which are enumerated in the following list: 1. Through experience in dealing with vendors and salesmen. Naturally one does not take all state- ments made by salesmen at their face value, but much useful information can be obtained. 2. By inquiries among firms in lines which are some- what similar. This is probably the most depend- able method and can be used with confidence. If, for instance, one has a good reliable sourc(» of supply for cold drawn steel, through this cone «/) c -** CO o O "■' ~ 1 1 t ^-> ii Q> « a o - o ^ & .00 « as u. •-H O E k. ^ DING an in o i o 2 W "»* 0) o Q. g3 at K ^ ^^ g s *-> M c A «J 3 G. 14. her the i— 1 4^ Pm o s E 8 o i «*- ■o C ■ I o 1 •s { M ^ Q. S < " •0 cr is LU 1- «> < B • S CD S J o t* 69 70 PURCHASING AND STORING THE PRICE 71 i lation between price and demand; the relation be- tween trade cycles and prices; how advancing prices may be anticipated, and how declines in prices may be forestalled. All these things constitute price knowledge. Price knowledge starts by becoming well versed both in prices of daily purchases and of general cur- rent prices. Such knowledge is a valuable acquisi- tion to any person engaged in buying or selling, be- cause it gives one a mental picture of relative val- ues which cannot be obtained in any other way. Con- tinued application and practice in reviewing prices will yield a vast fund of information. An ability to know values can be more easily developed than might seem possible. Almost countless numbers of articles are bought by some purchasing departments, and, of course, it is not to be supposed that their prices can all be retained mentally; but the depart- ment is a storehouse of information, and should keep records, not only of actual purchases, but of all ma- terial in which the establishment may be interested. Daily Quotations. — For prices of other artick^s of interest, but which may not pass through a purchas- ing department, the quotations in the daily and trad(' papers may be utilized, as nearly all raw materials and many standard finished and semi-finished articles are listed. This source of information is a fruitful one, and a perusal or even cursory examination of these quotations will add greatly to price knowledge. A knowledge of daily quotations and prices of daily purchases gives a sure indication of the gen- eral trend of prices. Everybody wants to know, or to be able to divine or anticipate, changes in prices. A tendency towards an advance or decline can be predicted with some assurance by a close student of current prices. This is not solely because of a knowledge of a price or prices, but because any change in a price excites curiosity as to the cause of the change; seeking for the cause opens up a whole field of information on which an opinion can be based as to future price movement. In a large company, or in a concern where the purchasing agent needs no authorization before mak- ing stock purchases, such information is exceedingly valuable, for material mav then be obtained at favor- able periods. Even in those cases where the pur- chasing agent has no authority to buy except as in- structed, he can, nevertheless, make suggestions to the proper authorities with a view to taking advan- tage of an existing favorable market. The buyer who can forecast an era of high or low prices is a factor of great economic importance in any estab- lishment. Price and Demand. — As already stated, fluctua- tions in prices force one to look for the cause. They are usually found to be the results of fluctuations in demand. In other words, the shrewd buyer must look beyond mere price, which is not more than a heginning of knowledge of the market. Knowledge cf demand gives an idea as to probable rise and fall. It is the most powerful element affecting prices. Knowledge of demand, therefore, is essential, and can be acquired and assimilated in much the same manner as knowledge of current prices. 72 PURCHASING AND STORING THE PRICE 73 With knowledge of demand must be coii])led knowledge of supply. Demand for a commodity might be exceptionally large, but if the supply keeps pace with the demand at a proportionate rate, little or no effect will occur in prices unless from other possible contributory causes. Purchasing agents are apt to overlook or ignore the important factors of supply and demand so far as their effect on general purchases are concerned. But every buyer is inter- ested to some degree in some product. Traders in such commodities as wheat, cotton, copper, or coffee are keenly alive to the necessity of being thoroughly posted on the supply and demand of the commodities they deal in. Voluminous statistics are kept by them. Agents report to them regularly, and special avenues are kept open through which this informa- tion can be obtained. Without such information no firm could hope to compete successfully with those equipped with it. Contributory causes of price changes are so many and so varied that only a few can be mentioned. The general state of business is, of course, one of the de- termining factors. Sectional depression is another cause, but one not so prevalent in this country as it once was. Tliis is because industries are becoming more widely scat- tered. The prosperity of the Southern States, for instance, is not now entirely tied up with cotton. If any particular industry is more prosperous than an- other, other industries must benefit from this pros- perity, and this tends to keep industry in general on a common level. Better communications, transpor- tation, and the spreading and diversification of man- ufacturing throughout the country all exert an equal- izing effect on business conditions between the vari- ous sections. Another factor affecting business, and therefore prices, is politics. This is not only because the tariff question is kept alive, but also because of the attitude of politicians towards capital and labor. If the tariff question were settled on a scientific basis and both capital and labor were satisfied that a square deal would always be accorded them, business would be- come more stable. Strikes, lockouts, freight embargoes, and other dis- turbances also upset markets, and, in the case of perishable goods, create at least a temporary demor- alization in the prices of the goods affected. Trade Cycles and Prices.— What is a normal con- dition of business? Either prosperity or depression might endure so long that the resulting condition could rightly be regarded as normal. But business is nearly always moving in cycles, and at each period of the cycle a different buying policy should prevail. Wliile the high and low points of a cycle may not reach such acute stages as to be designated '* pros- perity" and ** depression, ' ' these terms will be used here for illustration. First Period: Liquidation. This period is indicated by declining prices, and the buyer's policy during such a period is to purchase only what is abso- lutely necessary— to accumulate no stocks of raw material, and to keep the minimum amount on I 74 PURCHASING AND STORING THE PRICE 75 hand that will assure the production department a supply equal only to its immediate needs. Second Period: Depression. During this period more confidence can be displayed in buying as low prices prevail; but it is not wise to purchase too heavily until there are signs that the liquidation period has exhausted itself. Third Period: Improvement. This period is an era of advancing prices, and buying can proceed con- fidently for requirements as far ahead as one's finances will permit. Fourth Period: Prosperity. It is taking consider- able risk to buy heavily during such a period as this. Prices are high and irregular, and great care should be exercised in making [mrchases. Some commodities will reach the peak prices earlier than others; while many may fluctuate in a most tantalizing manner, touching the liigh point several times during the period. Exports and Prices.— The exports of this country are normally greater than its imijorts. When this condition reaches abnormal proportions, as during the shipment of supplies to the European nations during the war, it has a distinct influence on prices. We are sending away our wealth in the sha])e of steel, copper, and other metals in raw, semi-manu- factured, and finished manufactured products, and also a great many commodities. The available sup- ply decreases and prices advance, but the situation is aggravated by the fact that we receive in ex- cliange large amounts of cash. Thus our wealth in actual cash is increased abnormally, and the money so obtained may be used improperly for speculative purposes, creating unhealthy booms. Even if it is used for investment in real estate or in the purchase of automobiles, it has the effect of advancing the real estate values and the prices of automobiles. If we had need of or could accept other material as imports to offset our exports, prices of many things would remain more stationary. This is the condi- tion in Great Britain and in other countries where the imports have always been largely in excess of exports. Of course, large amounts of cash due us from other countries in payment for the exports have never reached us, but instead have been used to liquidate the debts we owe to those countries. We have been losing material possessions, but we are becoming independent financially. This may be going a little beyond the subject under discussion, but is intended to show what effect abnormal exports have on prices and in what manner a surplus of money will influence them. Price Authority. — The purchasing department should be supreme throughout any organization on all questions of prices of materials and supplies, whether used in the production department or not. Sellers should not be allowed to quote to heads of departments; to do so weakens the authority of the purchasing agent. When he is known to be the court of last resort, he becomes an element of power to be reckoned with. Many establishments maintain an extensive esti- mating department, and quite often this department 76 PURCHASING AND STORING THE PRICE 77 needs prices of certain materials for the contracts on which it is estimating. Those prices should al- ways be obtained through the purchasing depart- ment. There are several reasons for this: the de- partment should know the best source of supply; the price knowledge of the department is increased, and finally its records are enriched by tabulating the in- formation obtained. Negotiations leading to the establishment of a price with the seller should be entirely in the haiid§ of the purchasing agent, and he should be sole ar- biter in all the final arrangements. In making a decision as to best price or with whom an order should be placed several factors, such as cash discounts, terms, f . o. b. points, etc., must be considered. These, however, open up such a wide range of possibilities that their discussion will be left to another chapter. Assuming that each bid variations, classiflcalions and eitras. . freight rale si.li)( ct to .to des'iDjftion, The price or prices quoted herein are based upon the publiiihed ___^___^ prescribed minimum weights, lengths, and minimum charges from lawfully in effect at date of this agreement, vii. cents per 100 lbs. No freight allowance iu excess of actual weight to be ivisde. Shipments of less than HA Hms 'o he" invoiced f. o. b. Seller s mill. In event of an increase of such freight rati- M.t' amount of such increase hhall Ix- addi-cl to the price of all materials shipped against this contract during ihi- pen .1 in which such increased rale is lu efect, and in event of a decrease in such freight rate the amnunt of such deon i-.' shall he deducted from tbe price "»f all oiaterials shipped hereunder during the period in which such decreased r:tK is io effect. Terms . from dale of invoice, payable in Fiitsburg. New York or Chicago luotia. In case buyer shall fail to make tiayments in accordance with th.- lerms and provisions of this agte'-ment, seller may defer further shipments until such payments are made, or may at its option, terminate this agiet-iMenl. Shipmenu and deliveries under this agreement shall at all times be sulrjeet to the approval of Seller'a t redit Department; and, in case sellrr shall have any doubt a> to Buyer's res|nii.sibility. Seller may decline to maltr any shipments hereunder except upon receipt of satisfactory secunty or for i ash before shipment. Termination of the contract under any of these coitditions shall not prejudici^ any claim tor damages tbe seller may be entitled Io n aie All transportation charges to be paid in cash by buyer. Specifications in detail shall be furnished to the Seller in substantially equal monthly quantities begisniogf — day of : 19_ Tbe Buyer's failure to fuoiijli •(n-iinv.ttions as ap^wioted may, at s, Iter's option without notice to Buyf r, be treated and considered as a refusal to sppcily and receive the unspei ill • I portion of the monthly quota Final speciflcationa due under this coolraci to lie in the hands ol the Seller at li .^I thirty days piior to the expiration date of this contract. The seller shall afford at its works reasonable facilitu - lor inspection and tests of material when sold and accepted subject to ii>e final. Shipiuevta to he made as soon after receipt of specifications as condition of seller's plant will permit. Qoodi to be delivered f. «. b. cars at consigned to The Seller agrees to replace material found defective for the purpose for which it is sold, when in the Imiiin of tbe buyer, but will not allow or pay any claims of any n,itiire wliatsoivi i ic.sulting from tbe use of such d-li -live material. In all cases full opportunity shall be give n for investigatiou by Msller'* representatives. Goods mni* uot be returned except by written permission of the seller. The Seller shall not be liable for non- performance of this contract in whole or in p.irt. if such nmipcifirm nice is the result of fires, strikes, differences with employes, casualties. d'lj>s in transportation, short.iKe o( ta^s or other causes beyond the Seller's reasonable control; nor shall these ext motions be litnitcd or waiv<-d by au) 'thir terms of this contract, whether printed or written Th** quantity of m;.'' rial shown by invoice shall id all . ascs govern settlements, unless notice of shortage be immediately reported lo the agent of the di-livering railroai. in order that the alleged shortage may be verified and unless like notice b. given to the seMer within i4 bonri sfter receipt of material. Claims fur other errors, deficiencica or imperfections will not be entertained by tbo teller unless made withio 16 days after receipt of mat«riaL ACCEPTED: ACCEPTED SUBJECT TO APPROVAL yiG. 15. ^ORM OF CONTRACT THE CONTRACT 107 5. 6. with no binding obligation on the buyer's part to take any definite quantity. The price may be a fixed one for the whole period. The price may be on a sliding-scale basis, increas- ing or decreasing in a ratio proportionate to quantities taken. The price may be at a percentage below the cur- rent market when material is taken. In each of these instances the material mav be taken in one shipment or in many; if it is taken in one shipment the transaction could in many cases be effected through a regular order. What is of primary concern to the purchasing agent is the proper in- sertion in the written document of all the clauses necessary to cover the agreement he has made with the seller; he should concentrate his attention on these clauses before signing the contract. If inspec- tion is to be made at the seller's factory during the time of the manufacturing process, or if chemical or physical tests are to be made then or subsequently, the contract should be drawn to incorporate them. When a contract covers many shipments over a long period, the best way to deal with them is to issue for each shipment a regular order which shall contain a clause to the effect that it is on account of contract dated . The following up, invoice work, and other details are then kept in conformity with other routine work; these I shall discuss under that heading in a later chapter. Regular Orders.— Under what may be classed as i<^*gular orders are included the majority of purchases 108 PURCHASING AND STORING THE CONTRACT 109 for industrial purposes. In those instances in which failure on the part of the seller to live up to the agreement would involve serious consequences for the purchaser, it is advisable to send the order in duj)!!- cate, and to insist that the seller write his formal ac- ceptance on the face of one copy and return it to the purchaser. Examples of forms for these orders are given in Figures 16 and 17. It is essential that the nine cardinal points mentioned earlier in this chapter, as well as all other pertinent information, be embodied in the order. As previously stated, an order that is issued in ac- ceptance of a proposal made to the buyer serves to complete the contract, provided the* order does not deviate from the offer in any particular. An order which is issued by the purchaser, and which does not come within the last named category, is simply an offer to the seller; an acknowledgment is therefore necessary for the completion of the contract. Some purchasing departments issue a great many of these orders — it must be left to the individual cases to de- termine whether acknowledgments should be required, and, if so, when. Many order forms have the text of the conditions printed on the reverse side. In such cases it is essen- tial to refer in the body of the order to these condi- tions, in some such phrase as this: ^*This order is issued subject to the conditions on the back hereof.'' If there is no reference to these conditions within the space which could be considered a.s containing the essential facts of the order, the seller is not obligated to read and interpret them as part of the contract. All Invoices, correspondence and packages must bear this ORDER No. JOHN SMITH MFG. CO. too SIXTEENTH AVE. NEW YORK ORIGINAL To Please enter our order for Price. John Smith Mfg. Co. Ship Via . F. 0. B - Purchasing Agent We will not be responsible for goods delivered to us with out a written order. Please acknowledge receipt, and advise when shipment will be made FIG. 16. ORDER FORM ''Rush" Orders. — Some of the expressions used in connection with *'rush" orders are: **The 'bete noir' of a purchasing department; ''A necessary evil;" *' There should be none." Every rush order means a rush price or no price at all. The barriers carefully f^iected against paying high prices are swept away. I^<'cause somebody has blundered! No, not always. There can be legitimate rush orders, and it is the ^hity of the purchasing department to be prepared for 110 PURCHASING AND STOIUNG JOHN SMITH MFG. CO. too SIXTEENTH AVE. NEW YORK Put this Order No on Vour Invuict To. Please detach and return ackruMvledgment at foot Quantity Description Price Ship Via.. F.O.B.— John Smith Mfg. Co Purchasing Agent Detach and mail at once to JOHN SMITH MFG. CO. 100 Sixteenth Ave. New York Order No. Date . Receipt of Order numbered as above is hereby acknowledged. We accept the order as specified Shipment will be made. Signed . FIG. 17. ORDER FORM, WITH ACKNOWLEDGMENT SLIP ATTACH HED For those orders, for which acknowledgments are essential, this is the surest way of getting them and brings better results than separate acknowledgment forms. tliem. This state of preparedness consists in knowing sources of supply and in having a thorough knowl- edge of prices. These phases of the subject were dis- cussed in the second and third chapters. Such orders may originate through the necessity that the manufacturing department produce on short notice some contract closed by the sales department THE CONTRACT 111 with a time limit clause. Even if there have been lax methods, or lack of anticipation, on the part of another department, still the purchasing department is in existence for the general good of the organiza- tion and should exert all its energies to do the best under the circumstances. If it is a case in which in- telligent anticipation would have obviated the rush order, it is certainly part of the purchasing agent's duties to call the matter to the attention of the proper authority. Buying on sane, careful principles should be insisted upon, and the purchaser should work for the elimination of all those factors that tend to nullify or destroy these principles. This is the purchaser's view of the cost situation in an industrial plant. * Tick-Up'* Orders. — A great deal of what has been said under rush orders could apply to '* pick-up" or- ders, but there are some other considerations also. There are times when a mill shipment is delayed from one or another of manv causes — excessive demand, strikes, break-down of transportation, and so on. In such instances it is necessary to **pick up'" from warehouse stock sufficient material to keep the series of factory operations unbroken. An advanced price must undoubtedly be paid, and in keeping this at a minimum the purchasing agent's price knowledge again comes into play. Another class of pick-up orders is in connection with small, picayune purchases which, taken alone, would be declined bv even the smallest of the dealers and supply houses, but which, in conjunction with other business, help to make a fairly respectable ac- count for some merchants and jobbers. 112 PURCHASING AND STORING The main evil of small pick-up orders is well illus- trated in a letter to a technical publication from *'A Victim." He relates that he received a pick-up or- der from a large corporation for two dozen cotter pins. A price of $1.50 was agreed upon when the or- der was telephoned. The company's order called for shipment to an outlying branch by parcel post. A copy of the invoice and of the original shipping list was to be mailed to the branch, and the invoice in quadruplicate with a copy of the shipping list was to be mailed to head office. The clerk responsible for checking the price on the invoice was under the impression that it was too high, and therefore obtained quotations from two other houses. Both of these quotations were lower than the shipper's price. Armed with this information, he opened fire on the dealer and after four letters had been written and despatched by each of the comba- tants, the dealer capitulated and reduced his charge to a figure in line with the other quotation he had re- ceived. In the case recited, perhaps several times the amount of the saving was spent by the purchaser in securing the adjustment. The remedy for such a con- dition lies in dealing with tried and reputable supply houses. A house that habitually renders invoices con- taining overcharges is not safe to do business with. The ultimate cost of purchased goods is not repre- sented by figures on an invoice. Possibly the example given is an exaggerated case, but it shows the need of common sense in buying small quantities as well as large. THE CONTRACT 113 ** Covering Orders*' for Recording Purposes. — ** Covering orders'' are necessary to enable the pur- chasing department to keep a record of the charges, and also to guarantee that invoices and bills of every kind will travel the same course before reaching the accountant. They also constitute a measure of pro- tection against duplication of payments, as I shall explain in the chapter on ** Invoices." These *^ covering orders" are written up and in- cluded in the purchasing files for the invoices to be recorded on them. They consist chiefly of such items as of electric-light bills, telephone charges, and many other monthly bills. Probably every purchasing de- partment at times receives bills for small items ob- tained by some person in the establishment, for which no formal order has been issued. Stationery and small items of merchandise are sometimes picked up in this way. These must be covered by formal orders for recording purposes only. Remedial Contract Forms.— The National Dry Goods Association has appointed a committee, com- posed of both manufacturers and jobbers, to discuss forms of contracts as a remedy for some of the anom- alies that now exist. The object is so extremely per- tinent to the discussion of the subject in this chapter that I give here the report of the proposed meeting which the New York Times published. The suggestion of such a meeting was made some weeks ago by E. L. Howe, Secretary of the retailers' organization, in a statement calling attention to the need of more definite and binding contracts between buyers and sellers. Mr. Howe said there should be a different understanding than existed be- 114 PURCHASING AND STORING tween the two parties as to the obligations imposed upon both by a contract for the delivery of merchandise. *'Our suggestion, therefore, is," he said at that time, *4bat immediate attention be given by both the retail and wholesale interests of the country to a form of contra^-t for merchandise orders that will place proper and binding obligations on both parties to it. As it stands today the retailer is bound to ac- ceptance of the goods if shipped within the specified time, but the seller slips out of his obligation as easily as he slips out of his coat. If the seller cannot be tied definitely in the matter, provisions should at least be made for notification to the buyer, at a reasonable time prior to the stated delivery, of the seller's inability to go through with the contract." This exposition of the buyer's side of the contract conti'o- versy brought a quick reply from the manufacturers, who, in turn, claimed to be the parties with a real grievance. Many instances were related of the buyer 's failure to live up to his contract with the seller, of his taking unjustified discounts, returning goods without a proper reason, cancelling orders given after goods had been put into work, and many other abuses. Many wholesalers have seen fit, during the prevalence of a market in favor of the seller, to correct some of tli(:;e evils. It was quite openly hinted that the retailers were grow- ing restless under the necessity of strictly observing the seller's terms or getting no merchandise. "The present tendency seems to be," he said, "entirely in the direction of binding the buyer and letting the seller off scot free. Both should be tied down specifically to the per- formance of certain obligations, otherwise there is no contract. The seller at present seems free to deliver whenever he wants to, and at any price he cares to ask. Take, for instance, a form of contract that one importer is forcing his custonnTs to sign. We have had copies of this contract for distribution among our members. Here are the terms laid down : THE CONTRACT 115 * Seller may delay or cancel all or part of deliveries in case of damage to mill, machinery, or stock, strike, accident, or de- lay in manufacture or transportation, inability to deliver or hindrance by reason of conditions occasioned by war or other circumstances beyond seller's control. 'If conditions occasioned by change of tariff and United States customs regulations or decisions, or by war or political disturbance increase the cost of raw material or processing of merchandise to seller, buyer shall pay proportionate in- crease in price upon all merchandise to be delivered. 'Seller may decline to make any or all deliveries, except for cash, and if buyer omits to pay cash for any instalment upon the date fixed for delivery thereof, upon the offer of the seller to deliver such instalment on such date for cash, then the seller may, at his option, cancel as to any or all instal- ments, or postpone deliveries until such time as buyer satisfies seller as to his financial responsibility, at which time seller may renew deliveries with such extension of time as seller may require by reason of postponement. 'Partial deliveries accepted by buyer shall be paid for at specified price and terms. Reasonable allowance of time from delivery date specified shall be allowed seller. Seller makes no warranties surviving acceptance. If any pieces delivered by seller are imperfect, buyer shall, within reasonable time, give seller reasonable opportunity to replace such ])ieces. * Failure of seller as to any instalment shall not affect buyer's obligation as to other instalments. If buyer fails to accept any instalments when due, or to make any payment when due, or to perform any term of any contract with seller, seller shall at any time thereafter have the right to cancel all or any instalments of this contract. This paper contains the entire contract. There are no oral representations or warran- ties by seller affecting this contract.' " "The provisions in this contract," Mr. Howe explained- 116 PURCHASING AND STORING ''show what seems to be lack of intention upon the part of the seller to bind himself to any definite obligation, yet at the same time providing that the buyer shall be held to a strict responsibility. Such contracts are not contracts in the strict sense, because they are one sided and unfair to the buyer. Such forms represent a condition in trade we hope to change as a result of the coming conference between buyers and sellers.** CHAPTER VI DELIVERY Importance of a Definite Delivery Date, — Probably no phase of purchasing work requires more keenness and close attention than that connected with delivery. Very few purchases are made for industrial establish- ments with an indeterminite delivery date. Practi- cally every order issued is for material or supplies re- quired at once, or at least at a fixed date. The determination of the date on which raw ma- terial is required, is an important factor in industrial economies. Eaw material is a form of wealth, and all wealth is in a stage of appreciation, depreciation, or stagnation. One of the objects of human activities in industrial organizations is to increase the value of the raw material manipulated. During transit, and while at rest in the stores, raw material is considered to be in a state of stagnation. Contemporaneously with these periods there may be an appreciation in intrin- sic value, but this is not the primary object of pur- chasing for industrial purposes. There may also be depreciation, on account of miscalculation or from causes beyond the control of the buyer. Taking the form of bulk, needing storage space, and being subject to loss by fire, damage and depreciation, an expense is naturally involved in car- 117 118 PURCHASING AND STORING rying any stock of raw material. For this reason a very close approximation is necessary of tlie dat«' on which tlie material is required by tlie production de- partnieiit, and of the time that will be consumed by the purchasing- department in procuring it. A pur- chase having been made on certain calculations of time as one of the principal factors, it is essential to see that these calculations do not miscarry — other- wise the whole fabric of good purchasing might collapse. Co-operation Between Purchasing and Production Departments. — Since it is the particular province of the purchasing department to be well-informed on market conditions, it is obligatory on that department to keep the manufacturing department posted on all changes in delivery conditions. In times of stress and unusual demand, it is necessary to keep very close watch on all questions that would influence the time required to obtain raw materials. It may not be ex- actly true that there is perhaps a shortage, or that manufacturers cannot make shipments as promptly as when conditions are normal, but the transportation problems must also be closely studied. Purchasing agents sometimes achieve the imi)rob- able, but they cannot accomplish the impossible. They must be given sufficient time to obtain raw material, and due notice of quantities and of time of require- ment should be furnished by the manufacturing de- partment. Co-operation between the two departments is essential — the buyer must keep the shop acquainted with delivery conditions. Foresight is the great fac- tor in securing a supply of raw material at exactly DELIVERY 119 the right time. If it is necessary to look ahead six months instead of two, it must be done. The shop should make known its requirements at the moment they become known, and not wait till the moment of actual need. If these matters are not handled right, the results, from a purchasing point of view, are disastrous. Prices are shunted to one side, quality in many in- stances is disregarded, specifications are endowed with elastic traits, and substitutes of unknown calibre are accepted or tried out. Alt these features are the re- sult of lack of foresight. To the purchasing depart- ment is delegated the task of securing delivery, and the production department wants materials and sup- plies, not excuses for non-delivery. Delivery and Production Costs.— Increased manu- facturing costs are too frequently caused by the ad- ditional cost of raw material which has been bought in a hurry from warehouse because mill shipments have not arrived at the estimated time. If the pro- duction department has been in the habit of getting certain raw material in, say, six weeks from the time it was requisitioned, it is a distinct shock to that de- partment to discover suddenly that it will have to wait, say, ten weeks. It should, however, be no shock to the purchasing department that has its finger on the pulse of the market. All the principal items used in manufacturing should be scheduled by the purchasing department, and regular notification should be sent to the produc- tion department concerning the time required for de- livery. Special notice should be sent in regard to any 120 PURCHASING AND STORING radical changes in orders. This procedure enables the manufacturing department to specify its requirem(^nts and to prepare requisitions early enough to avoid tardy deliveries. In discussing stores problems later on, I shall say something more with respect to the quantities which should be kept on hand, and how these quantities are governed by market conditions. In some establishments in which an article is bought infrequently, such an article is apt to be con- sidered unimportant in the general scheme of deliv- ery. Eequisitions will be sent to tlie purchasing de- partment for the principal material lequired for turn- ing out a product, while the order for the article that is considered unimportant is left to be included in later requisitions. As a matter of fact, it may take longer to obtain this article than to get the other ma- terial, and delay in securing it will hold up the com- pletion of the manufacturing process. Such cases need to be watched carefully by the purchasing de- partment. Buying on Schedule. — ** Dependent sequence," which I have just described, is nowhere more costly in delay and inconvenience than in getting delivery of material and supplies, and any follow-up system that will bring together the various units at the right moment are always welcome. A suggestion is given in Figure 18 for a time sched- ule for the purchase of all materials and supplies. A copy of this schedule should be given to each depart- ment that draws requisitions. This form needs little explanation, but it is essential th^t each item be given for which there may be requisitions. No general DELIVERY 121 ARTICLE Time required for delivery if ordered from Warehouse J Mill Mm. quantity which can be purchased at mm. price Warehouse J Mill Special Features i FIG. 18. LOOSE LEAVES OR CARDS CAN BE USED, AS FOUND MOST CONVENIENT, FOR COMPILING THE SCHEDULE OF THE TIME RE- QUIRED FOR SHIPMENT. THIS SCHEDULE SHOULD BE FURNISHED BY THE PURCHASING DEPARTMENT TO THE PRODUCTION MANAGER OR OTHER PERSONS MAKING REQUISITIONS. titles, such as ''Hardware," ''Chemicals," and so on, should be used. If such a schedule is carefullv worked out by the purchasing department, it will serve as a valuable help to all those authorized to draw requi- sitions. If the production department maintains "control boards," or diagrams of their operations, these schedule dates should be transferred to the hoards or diagrams. The fixing of standard times for purchasing and stores-handling not only allows the purchasing agent time to bargain, buy, and deliver, hut is an important economic factor in preventing over-buying and over-stocking. Barring accidents and other unavoidable causes, it also prevents delays. Transfer of Ownership.-— As explained in the last chapter, ownership passes from the seller to the buyer at the delivery point named in the contract. The 122 PURCHASING AND STORING DELIVERY 123 seller's responsibility ceases when he lias made deliv- ery as stipulated, and it might be inferred that at this point the buyer's responsibility commences. This, however, is far from being the case. In fact, there is generally more work involved in getting de- livery than there is in tracing the goods from the delivery point to destination. Inasmuch as the delivery point may be hundreds of miles from the destination, there are two distinct phases of this work. The first phase consists of some form of following up the order, keeping track of progress made by the seller, bringing pressure to bear when necessary, and using all legitimate means to get the material to the place of delivery and at the time of delivery agreed upon. In short, it involves en- forcing the clause in the contract covering this point and securing ownership in the goods. As already stated, however, ownership may pass to the buyer at a considerable distance from the ultimate destination; further work is therefore necessary while the material is in transit. Traffic Work. — The second phase of the w^ork, trans- portation, involves a knowledge of traffic problems. Some large corporations are compelled to maintain extensive traffic departments, chiefly for the benefit of the sales departments, because they sell much of their product *'f. 0. b. destination," and therefore the re- sponsibility is on them to trace and follow their ship- ments. Some of them may have factories and ware- houses located at widely separated points, between which movements of freight are constantly taking place. In many industrial establishments, however, the product is sold entirely **f. o. b. point of shipment" and consequently there are practically no traffic prob- lems connected with the selling end, the only work of this character is connected with incoming freight. Therefore, in these cases it usually devolves on the purchasing department to take care of the work within its own organization. I shall discuss this subject more in detail in this chapter. Follow-Up Work. — There are innumerable schemes and devices in use for following up and getting de- livery of goods. While some of these are in general use and fairly well standardized, it is probably an im- possibility to find two systems that work on identical lines. The object is to get the goods, and the methods adopted by one concern rarely fit the conditions sur- rounding the work of another; some variations in de- tails will always be found. In the discussion of rou- tine work I shall outline plans for following up pur- chases, and these can be used as a framework on which to erect any structure for solving individual problems satisfactorily. The basis from which to start all follow-up work is the delivery date named on the order, and the great- est factor is the reliance that can be placed on prom- ises. If performances could bear an exact relation to promises, the problem would be greatly simplified. In the discussion, in Chapter III, on selecting sources of supply, particular emphasis was laid on this ques- tion of promises and performances. It is at the de- livery stage of purchasing that the value of selecting right sources is manifested. There are many manu- 124 PURCHASING AND STORING facturers who would no more* think of evading a promise in regard to time of delivery than they would think of trying to change the price on an accepted order. Unfortunately, however, there are also many who cannot withstand the allurements and induce- ments of booking more business than they can prop- erly undertake and still give their customers satis- factory service. It is just such contingencies as the last named against which the purchasing agent must be on his guard; he must formulate some scheme for getting his own goods shipped on time. In work of this char- acter, the suppliers should never be approached with unnecessary requests for information and other foims of petty annoyances; if they are, the very object sought will be defeated. A busy concern that is doing its best to satisfy customers does not want to be pes- tered with such things, and if they are constantly an- noyed they will not give proper attention to legiti- mate inquiries. Intelligence must be used in the pur- chasing department in the handling of these matters. In addition to the stereotyped forms which are usu- ally sent out, and which serve for the intended pur- pose up to a certain point, there should be some well- directed letters that will bring the desired results. These can be supplemented by visits to the vendor's warehouses and factories. It is the practice of some large corporations to keep men permanently on the road following up purchases, and ascertaining the progress made in getting out the product, if it k * manufactured one. In times of stress and unusual activity this course is adopted by a great many con- DELIVERY 125 Progress Report JOHN SMITH MFG. CO. Copies to lOO SIXTEENTH AVE. NEW YORK Order No. Date of Order Date Promised Material Name of Supplier Date of Investigation Place of Investigation Investigation made by Date report sent in 1 NATURE OF REPORT % ' ^ionori PIG. 19. FORM FOR TRAVELING MEN TO USE IN REPORTING PROGRESS OF ORDERS. AS EXPLAINED IN THE TEXT, IT IS AN ESSENTIAL PART OF THE FOLLOW-UP SYSTEM OF MANY CONCERNS TO HAVE THEIR REPRESENTATIVES VISIT THE SELLERS' FACTORIES AND WAREHOUSES. cerns. At any time when great importance attaches to delivery of material this method should invariably be used, for it is undoubtedly the most effective means of getting the desired results. Some illustrations of follow-up forms are given in the chapter on *' Routine Work." There should also be standard forms on which the travelling men may make their reports, similar to those shown in Figures 19 and 20. 126 PURCHASING AND STORING DELIVERY 127 Marfp hy TO JOHN SMITH MFG. INSPECTION REPORT Copies of this report sent to rr> CU. Matprial Purchased from Drrlpr No Date material was Date of Ord«r ready for insper.tion Place of inspection Date of Date inspection sent in DETAIL OF INSPECTION AND TESTS . Report approved by Signed Pate of annroval FIG. 20. inspector's report form Several copies of this may have to be made, and sent to interested parties. Emergency Orders.— Every purchasing department at some time or another issues rush, or emergency, orders ; these cannot be handled by means of the regu- lar follow-up system. The manner in which they should be handled depends on the number of orders- some departments have to issue many more than others. The best plan is to have extra copies of the orders made, and to keep them continually in a prom- inent place so that they will get daily attention until disposed of. It is sometimes advisable to have the original order rubber-stamped '* Emergency ,' ' in large letters, and sent by special delivery. These methods invariably secure prompt attention for the order. Helps in Getting Deliveries.— The prompt return of cars and of all returnable containers is a factor in getting better delivery ; giving close attention to these matters will mean greater efficiency. Bonus and penalty clauses are sometimes inserted in contracts with the idea of keeping deliveries up to schedule, but this procedure is seldom resorted to in buying material and supplies. It is confined almost entirely to construction work and purchases in con- nection with such work. Dependable service on the part of the seller is the important feature of delivery. There are houses that can be depended upon in almost any emergency or contingency. Abnormal market conditions, labor dis- turbances, and transportation difficulties do not seem to disturb them, or, if they do, the concerns make good nevertheless. They do not throw up their hands and transfer the trouble to some one else. Their main object is to take care of their customers as they have agreed to do. Such service is valuable to the buyer; it is worth paying for. If he pays only what he would have had to pay another bidder he has a good bargain, for the other man might have cost him con- siderable time, effort, and expense in getting delivery. Some delivery promises are made by salesmen to secure an order without any knowledge on their part as to the ability of their plant to make good on the promises. Salesmen should be fully posted on these ./^ 128 PURCHASING AND STORING points. They should be able to answer accurately and authoritatively any questions regarding delivery, and should be ready to give undertakings on this score. Inspection. — ^At some time and at some place all purchases must be inspected. This inspection may take many forms. The receiving clerk may make only a superficial examination, or he may have to count carefully, measure, and weigh certain materials. When goods are received at the consignee's factory, the inspection may be made independently of the re- ceiving clerk, and the material may be put to some simple tests and possibly compared with samples or goods delivered on previous orders. I shall treat all these forms of inspection, and also the receipt of ma- terial when the destination is the purchaser's factory or storeroom, in the discussion of storeskeeping, a subject with which they more properly belong. Inspection Before Shipment. — Many contracts are placed which contain stipulations regarding inspec- tion before shipment or during tlie manufacturing process in the seller's factory. It is usual for the technical staff to specify the nature of such inspec- tion, and to descri])e clearly the essential tests they wish made. It then becomes the duty of the pur<^has- ing department to have these specifications incorpor- ated in the order or contract, and to ascertain from the sellers when the material is ready. Since the in- spectors themselves may not be under the jurisdiction of the purchasing department, this department should notify the proper authority to have the inspection made. DELIVERY 129 Inspection reports— as illustrated in Figure 20, or some other suitable form— should be made out by the inspector in duplicate or triplicate, as required, and forwarded to the home office. The purchasing depart- ment should always get a copy, which should be filed with the contract papers, or else a notation of it should be made on the order. Testing Samples.— Samples for testing purposes may be taken from shipments on arrival at destina- tion, or they may be secured before shipment is made by the seller. Those establishments that maintain their own testing laboratories can furnish the results of these tests to the purchasing department; if this is not done, arrangements should be made with some outside concern to do this work. Both the inspection and the testing of any moderate-sized establishment can probably be done cheaper and better by one of the firms that specialize in this work. The purchasing department should buy the services of some good firm for such work as it requires done, and issue an order in the regular way. There is an advantage in having this work done outside, because the benefit of the wide experience of the inspecting firm is obtained; nevertheless, there is some difference of opinion on this score. It is contended that while a man testing only a few materials for the uses of one factory be- comes a keen specialist on these few materials, he is liable to become narrow as a result of this kind of experience. Need of Recognized Methods of Testing.— Some very large corporations maintaining extensive labora^ tories can enforce their own methods of testing and 130 PURCHASING AND STORING DELIVERY 131 I sampling, but undoubtedly a need exists among the majority of industrial establishments for a bureau for testing materials and supplies according to some rec- ognized standards. All inspection and testing should then be based on the standards adopted. Inspection is often one of the weakest points of a manufacturing plant's operating system. It is fre- quently too lax, and sometimes too rigid. Exact methods ought to be in universal use — then the criti- cisms that sometimes arise regarding unfair testing methods could not come up. The question as to whether inspection should be entirely under the jurisdiction of the purchasing de- partment, or should be controlled by the manufac- turing department or by a technical staff, is also de- batable. The purchasing department is held respon- sible for obtaining the quality specified, and when material fails to check up to the specified quality, the onus of enforcing the specification is thrown on the piirchasing department. It is contended that this de- partment should therefore control testing and inspec- tion. The point is open to argument, because the pur- chasing department did not originate the specification, neither is it the actual user of the material. The determination of the question will vary in in- dividual cases. A laboratory maintained by an in- dustrial establishment should, in any case, be a sep- arate entity. Its services should be at the call of any of the departments, for at some time or another any one of them may require such services. Inspection may also be dissociated in a similar way. This ar- rangement can be made in any establishnumt where there is sufficient work for one or more men. Compe- tent inspection of incoming goods will prevent much production loss; the time to determine whether or not the goods comply with the specifications is before, or at the moment of, arrival— not when they are needed for use, or when they are already under manipulation in the shop. Transportation Problems. — Some establishments have a traffic manager, whose duties are restricted to looking after the outgoing shipments. Under such an arrangement, the incoming shipments have to be taken care of by the purchasing department. This should not be the case, for the traffic manager has more influence with the railroads in general than the purchasing agent. He can get quicker action and demand prompter attention to his requests than a buyer possibly could, because he controls the routing on outgoing shipments to a large extent, and exerts by this means a tremendous leverage on the operating department of a railroad through its freight agent's office. If similar work is carried on in two depart- ments, there must be some duplication of work, also, of records, freight classifications, and other matters which strictly pertain to traffic problems. Some buyers make a practice of issuing orders bear- ing the instructions **Ship and trace," indicating the desire of the purchaser that a tracer be started the same day shipment is delivered to the railroad com- pany—in fact, before the consignment has left the freight yards. This practice is decreasing; it should be discontinued altogether. The railroads, undoubtedly with some justification, 132 PURCHASING AND STORING consign to the waste basket, many requests for tracers when the papers show that the goods have not had time to reach their destination. If formei-ly these premature tracers had any effect in expediting the transit of goods, they have long since lost their effiect- iveness. It is much better to start a wire tracer the day after the consignment is due to arrive at destina- tion. The railroads perform for shippers a vast amount of clerical work in tracing shipments, which comprises a very considerable item of expense in the transpor- tation of goods. It cannot be doubted that a large part of this expense could be saved the transportation companies by the exercise of patience on the part of shippers and consignees, and by confining tracer re- quests to those instances in which shipments have ac- tually gone astray or have been delayed in transit. Before an order is placed, careful consideration should be given the question whether shipment should be made by parcel post, express, or freight. The date on which goods are required will be the determining factor in some cases. It is, of course, expedient to get the material in good time, but to have it come by express and then be held in tlie receiving rbom or stores several days is an unnecessary expense, when the same lot could just as well have been sent by freight and the differences in charges could ]iave been^ saved. When reference cannot be made to an organized traffic department, the purchasing department must be in a position to check freight charges and, before placing orders, it should be able to verify tlie freight DELIVERY 133 rate named in the quotation of the firm that is to re- ceive the order. This can be done through the local freight agent. The purchase order should carry in- structions concerning the routing of the material to be shipped, the classification, anci the freight rate which is to apply. 1 iU '41 CHAPTER VII INVOICES Completion of the Purchasing Cycle.— As shown in Figure 1, the cycle of purchasing does not end with getting delivery of the material; it is incumbent on the purchaser to see that the seller obtains the con- sideration agreed upon. Owing to the departmental formation in establishments, tlie actual payments are not made by the purchasing department, but the sell- er's invoice is treated in such a manner as virtually to make it as good as cash to the seller at the agreed time of payment. This work is generally looked upon as merely com- paring and checking with facts already established, and although requiring care and methodical treatment it is not supposed to demand a great amount of in- telligence or initiative. While it is true that care and close application are necessary, still ther(» are some phases of the work which call for something more than mere clerical accuracy. There is no little opportunity for the man with broad knowledge and creative instinct. When it is remembered that there are some orders against which a great many invoices are rendered, and that every order issued is responsible for at least one invoice, a better realization is gained of the im- 134 INVOICES 135 portance of the work connected with invoices, and of the magnitude it may assume when a great many or- ders are issued. It is necessary to keep in mind the essential differ- ences in an invoice as it first arrives in the purchas- ing agent's office and when it finally passes out of the office. In its initial stage it is a harmless document, but its characteristics are so altered on its passage through the department as to transform it into a docu- ment of considerable potentiality. Work to be Done on Invoices. — There is no recog- nized standard method of handling invoices, or of executing the necessary work in connection with them. While there are certain features that must be adequately covered, the manner of execution is largely a matter for individual decision. It is well in any case, however, to concentrate this work as much as possible, for invoices, more than any other documents, seem liable to be misplaced and lost. In some concerns, invoices go first to the accounting department for registration and checking extensions; in others, only extensions are checked. Sometimes the accounting department checks the invoice against receipt of material; in some cases it never reaches that department until it has been fully approved in every particular. To simplify the discussion I propose to treat in- voices on the supposition that the purchasing depart- ment has the task allotted to it of verifying quality and delivery, checking prices and extensions, classify- ing charges under proper headings, and finally ap- proving for payment. The accounting department, 136 PURCHASING AND STOKING INVOICES 137 h;'i then, must solve the prohlem of distributing the amounts to the various accounts and putting the in- voice in shape for payment. Standardizing Invoices. — There has been, at times, considerable agitation in favor of standardizing in- voice forms, but the movement has not made much progress. If a standard size could be adopted, it would probably bring some advantage in filing, hand- ling, and vouchering; or at least, a standard width would help somewhat to secure these advantages. There does not appear to be any good reason for the great disparity in dimensions which now exists. Ap- parently there is a tendency towards uniformity, for the exaggerated sizes formerly used are slowly disap- pearing. Many firms send out invoice forms with their pur- chase orders, and insert a clause in the order to the effect that the goods must be l)illed on these forms. This is a proceeding which has been much criticized, and great difficulty has been experienced in getting vendors to use the forms. The scheme originated with accountants — no practical purchasing agent would impose such a condition. All the advantages in connection with these invoii»es are on the side of the buyer; to the seller they are a source of trouble and annoyance, and interfere with his accounting methods. Every business house is recogniz(Kl imper- sonally to a certain extent from its stationery, which has an advertising value to the house. That the buyer should impose a restriction curtailing this advantage is unfair, and unless the practice is made universal it will always be unpopular. Relation of Invoices to Purchasing.— The work con- nected with the invoice is the last link in the pur- chasing chain; it has already been emphasized, in previous chapters, that each phase of purchasing work must be maintained at a definite standard to secure the greatest efficiency. The negotiations lead- ing up to the actual placing of the order may have been conducted in the most able manner, and all oper- ations connected with obtaining the best price, qual- ity, delivery, and terms may have been carried through in a way which will secure to the buyer the utmost advantages ; yet all this work may be nullified and the benefits lost if the invoices are not dealt with in such a manner as to insure their being permanently secured. Delay in dealing with the invoice might cause the loss of the cash discount and, in addition, the loss of the indirect and contingent advantages that accrue from the prompt approval and payment of invoices. Careless checking and examination would involve the risk of passing the invoice with in- accuracies and excessive prices, with the result that the good work previously done would be rendeied valueless. Trade Acceptances.— No discussion of invoices ^vould be complete without some reference to accept- ances. The use of these in this country is at present very restricted, but considerable publicity has re- cently been given to the matter. It is only a ques- tion of the custom's becoming better known to get it firmly established as a recognized part of our business system. This type of .credit instrument is in common use in <> I. i I ; !lil 138 PURCHASING AND STORING Europe. During my experience there, trade accept- ances seemed to be as common as checks, and it was not an unusual occurrence to see invoices with ac- ceptances attached. Bankers in this country are as a unit in favor of this instrument, and it only re- quires education and knowledge of its use to secure its general adoption by all business interests. The form of an acceptance does not vary any more than the form of checks; an illustration of the word- ing of one is given in Figure 21. The acceptance should always include the statement that it is given to cover the purchase of goods. The method of pro- cedure in connection with these acceptances is some- what similar to that of attaching a draft to a bill of lading for export shipment, but there are many points of difference. The advantages in using this instrument must be mutual, and inducements must be offered to buyers I 00 Name of Seller Address No., Date. .Days after date pay to the order of.- HuM of Seller .Dollars This accpptance is given to cover value of goods received. Name of Buyer Name of Seller Address By- "Treasurer FIG. 21. FORM OF AN ACCEPTANCE. DEVELOPMENTS IN THE NEAR FUTURE MAY BRING THESE INTO LARGE USE. INVOICES 139 to get them to execute acceptances instead of leav- ing an account open. It will, no doubt, become the custom to make stipulations regarding acceptances when agreeing to the terms in closing a contract, but as terms are at present arranged negotiations would work out along some such lines as the following: 1. When goods have been sold on the basis of 30 days ' net, 1 per cent cash 10 days, the giving of an acceptance by the buyer would entitle him to 60 days' net; or 1 per cent discount on giving a 30- day acceptance. 2. Goods sold on the basis of 60 days' net, 2 per cent cash 10 days, would entitle the buyer, on giving an acceptance, to go 90 days' net; or he would re- receive 1 per cent discount on giving a 60-day acceptance. 3. Goods sold on the basis of 90 days ' net, 2 per cent on the 10th prox., would entitle the buyer, on giv- ing an acceptance, to 120 days' net; or he would receive 1 per cent on giving a 90-day acceptance. These periods and discounts could be altered to suit any arrangement; even the maximum cash discount could be given in some cases with the maximum time, provided an acceptance were given by the buyer promptly. In any arrangement such as indicated for giving ac- ceptances there is an apparent advantage to the buyer, but there are also many compensating advantages for the seller. Business houses carry many open accounts that are vague and indefinite concerning the time fil 140 PURCHASING AND STORING INVOICES 141 when a settlement will be obtained. As assets, tliese accounts are to a certain extent intangible— at least the seller has nothing to show for them ex(iept an entry in his books; but acceptances have a definite value. They are, in fact, as good as cash, for any bank will discount them in preference to promissory notes, and probably at a lower rate. Moreover, they make a clean-cut, definite settlement between the buyer and seller from which there is no redress. Now that acceptances are coming into use, it will not be necessary for so many houses to carry their (custom- ers, and in many cases practically to finance them. If a concern has a large number of slow-pay (custom- ers, they are a big expense to the business and must necessarily cause an increase in the cost of goods. The result is that the prompt payer is penalized. The trade acceptance will equalize conditions, and will also prevent the making of unjust and unfair claims. It will mitigate many of the evils connected with cash discounts, and will bring about ))etter and easier (col- lections. These are only a few of the benefits that will be derived from the use of the acceptance. As it will undoubtedly come into more general use, and since it is closely associated with invoices, purchas- ing agents should make themselves acquainted with its uses and advantages, for the time will come when those buyers who are willing to give an acc(3ptance will be given the preference by the sellers over those who are not. Arranging Dates for Payment of Invoices.— When a purchasing department is receiving a large number of invoices from one concern every month, it can fre- quently arrange for specified dates on which to pay them. Especially is this the case if they are for small amounts, and at the same time secure the maximum cash discount. When the cash discount is for ten days, considerable work and bookkeeping is involved if checks have to be made out for practically every invoice. If the matter is taken up in the right spirit with the sellers, arrangements can frequently be made to send checks twice a month on the basis that all in- voices dated from the first to the fifteenth shall be paid on the twenty-fifth of the same month, and all invoices dated from the sixteenth to the last day of the month, on the tenth proximo. This arrangement gives ample time to get them approved, and effects a considerable saving in bookkeeping work. Avoiding Duplicate Payment of Invoices. — It may seem inconceivable to those persons unaccustomed to handling invoices that any establishment with an efficient accounting system could pay an invoice twice. Yet this has occurred in many business concerns, both large and small. Moreover the difficulty will prob- ably never be entirely overcome while the human ele- ment is a factor in invoice transactions. There are, however, many safeguards which can be erected by the purchasing department to prevent du- plication of payments. One of the* best methods, and perhaps the one most effective and most generally adopted, is to enter each invoice on the copy of the order retained in the purchasing agent's office. Any duplicate coming through should then be instantly de- tected and destroyed if the original is found to be iu 142 PURCHASING AND STORING INVOICES 143 III existence. If the original cannot be found, then to provide against any contingency of its turning up, the duplicate can be approved. It should be distinctly and prominently marked as a duplicate, so that the attention of the accounting department cannot fail to be attracted to its status. In some concerns many thousands of invoices pass through the purchasing department every month, and each one of these represents something definite to that department, and has a tangible connection with some contract or order. But when these invoices arrive in the accounting department, they are simply so many documents to be collected, tabulated, allocated, and vouchered, if they carry the proper authentica- tion and approval. It is the purchasing depjirtment which must absolutely see to it that no improper in- voice gets through. If it were just a question of duplicate invoices — that is, invoices of the same date, for the same amount, and for the same material — the matter would be simplified, because these are more easily detected. But there are complications. For example, two in- voices may be rendered for the same material l)ut, through some mistake, bear different dates. Also an order may be placed for 250 articles, with instructions to ship 50 by express and 200 by freight. The ex- press shipment is forwarded and an invoice mailed for 50. Probably the following day, or shortly after- ward, the remaining 200 are shipped by freight. This time, another invoice is rendered for the full quantity of 250. There are many other ways in which invoices can be made out improperly but inadvertently by the sellers, but these illustrations will suffice to show that it is entirely the province of the purchasing depart- ment to prevent approval of them. If they once get through that department they will probably be paid. There are other methods of preventing duplicate payments. I shall describe one here. The receiving clerk's receipt form can be attached to every invoice, and if a duplicate bill, or one for an excessive amount of material, is rendered there will be no receiving slip attached by which payment could be authorized. I shall give the details of these preventive measures in the chapter on **Koutine Work.'' Credits. — Incorrect invoices will appear in every purchasing department; the manner of handling them varies considerably. Any simple scheme that is ef- fective is all that is necessary. If there is too much red tape, it will destroy the usefulness of the plan; the task is merely to rectify and adjust the discrep- ancies. In considering this problem, it is important to ascertain in what manner these discrepancies arise. There are various ways in which invoices may be in- accurate. The price may be incorrect, or the exten- sions or footings may be wrong. Quantities in excess of order may be shipped or billed, or the material may not pass the specified tests for quality. Invoices that fall into these classes accumulate with amazing rapidity in large offices, and some effective method must be devised for disposing of them. Some concerns hold all such bills until a credit or a corrected invoice is received. This course is open to many objections. Sellers are generally very slow in investigating such matters, and the buyer may 144 PURCHASING AND STORING write half a dozen letters before getting any satisfac- tion. Accordingly, so much time may elapse that it will be difficult for either side to produce tangible proofs to support or controvert the claim, as the case may be. Such delay causes further complications irx connection with cash discounts, for the buyer often claims that he is entitled to the discount whenever the bill is paid, if the mistake in it is the fault of the seller. The seller, on his part, is unwilling to allow this contention. Evidently, it is imperative to dis- pose of all inaccurate invoices in the shortest i)ossible time, not only to expedite the work in the buyer's accounting department, but in order to prevent the necessity of the large amount of work which will arise in connection with them if they are held indefinitely. The scheme which has been found most satisfactory, and which I would here suggest, is the one according to which the buyer makes out debits against the seller. The forms to be used will be found in the chapter on ** Routine Work.'' Even when this plan is used, some invoices must be held for adjustment, because some discrepancies are always open to argu- ment, and the purchasing department must be abso- lutelv and positively certain, in making a debit, that it is V^stified. If it is not, then the debit will not be accepted by the seller, and the whole matter will be hung up again. When a doubt exists, caution must be exercised— the seller should be given an oppor- tunitv to explain his view of the matter. T}xe whole subject of deductions from invoices and allowances upon them, is a source of much trouble and annoy- ance, but the problem can be greatly simplified if INVOICES 145 judgment, discretion, and dispatch are all employed. Meaning of **Net Cash.''— The term ''net cash" is a somewhat ambiguous expression because no inter- pretation that has universal acceptance can be placed on it. A majority of the invoices received in a pur- chasing department are issued in accordance with terms specifically agreed upon and stated on the or- der, but there are a great many that are received for goods ordered verbally without a definite understand- ing as to terms. Frequently these are marked ''Net Cash." This expression is interpreted by some to mean that payment is to be made in thirty days, and by others that payment should be made on delivery. Again, some distinguish between "Spot Cash" and "Net Cash;" they take the former to mean that pay- ment must be made as soon as an invoice is received, and the latter to imply that payment must be made as soon as delivery is effected and the recipient has had time to check and examine the goods and invoice. What does the firm mean that is responsible for putting this term on a billhead? Can it be shown that sellers attach any significance to the literal term "Net Cash"? My own experience leads me to believe that it should be interpreted as meaning that no cash discount will be allowed under any circumstances, and that the invoice must be paid at the expiration of the usual net time allowed by the established custom of the trade for the particular article, material, or com- modity represented by the invoice. Freight Charges. — Transportation problems were re- ferred to in the last chapter, but the question of , , 1 146 PURCHASING AND STORING 1 1 checking and approving freight charges remains still to be considered. If a traffic department is main- tained by the establishment, then it is the duty of that department to check and approve all transporta- tion charges. If this is not done by the traffic depart- ment, the purchasing department must do the work. Some member of the purchasing department should have sufficient experience in traffic problems to han- dle these matters intelligently. If there is sufficient volume of work, it may take all the time of one man, or even of several men. In any case, there should be a special routine for taking care of it. I shall out- line this procedure in a simple manner in the discus- sion of routine work. If the amount of work justifies a complicated or extensive system, it would be handled by a department organized especially to do it. There is considerable difference of opinion concern- ing the relation of freight charges to cash discounts. It is contended by many buyers that when an order has been placed **f. o. b. point of shipment," with freight allowed to destination, the cash discount should be deducted first and tlie freight afterwards. Others, however, are of the opinion that the freight should be deducted first, and the cash discount should be taken on the net amount only. This is a debatable point, and no legal decision seems ever to have been given on it. When the freight charge is small, the question is not of great moment. But there are many cases in which the freight item is large; the point then at once becomes more important. When material is purchased '*f. o. b. destination,'' the buyer does not deduct an amount equivalent to INVOICES 147 the freight charges before deducting the cash dis- count, since he is not interested in the transportation cost. The seller agrees actually to deliver the goods to the buyer, and must pay freight charges and as- sume risks of ownership until they are delivered. It is my opinion that when goods are bought *'f. o. b. point of shipment," with a partial freight al- lowance or full freight allowance to destination, in making settlement the freight should be deducted first, and the cash discount subsequently. The reason is that the freight allowance is in the same category as any other allowance, deduction, or even trade dis- count. All of these would be first deducted, and the net amount of invoice would then be subject to the agreed cash discount. Invoices Without Previous Price Arrangement.— There are always some orders placed on which no price is mentioned. The invoices received against these orders need careful scrutiny; the responsibility for securing a fair price devolves upon the person doing the work. It is therefore necessary for him to have a complete price index. A form for this purpose is shown in Figure 22. It may be possible, in allo- cating and arranging the work of the department, to have one comprehensive and complete price record to which reference can be made by all interested em- ployees. Figure 14, in Chapter IV, illustrates one method of recording prices. This is intended more particularly for the use of the price clerk; in those instances in which it is essential to keep quotations and general prices distinct from invoice prices, sep- arate records must be kept. lit 148 PURCHASING AND STORING MATERIAL Date Price F.O.B. In Quantities of Seller How obtained • ■ • FIG. 22. A COMPLETE RECORD OF PRICES MUST BE KE^T BY THE INVOICE CLERK. ALL CONTRACT PRICES AND PRICES TAKEN FROM INVOICES SHOULD BE RECORDED, AND THE LAST COLUMN SHOULD STATE FROM WHAT SOURCE THEY WERE OBTAINED. Orders issued without price are usually emergency and **rus}i" orders. If there is no understanding to the contrary, the general assumption is that the goods will be billed at the prevailing market price. There are always some firms that are ready to take advan- tage of one's necessities. The best protection is to avoid such concerns. But since this cannot always be done, the invoice clerk must hold them to ** strict accountability" for any excesses in price. A complete compendium of prices must be compiled INVOICES 149 and kept up to date. All trade discounts and customs must be noted, and a record must be made of all changes in trade discounts and methods of figuring. It is becoming more common to quote base prices for many materials, with extras for various sizes, weights, or quantities, and additional extras for quality, style, or finish. It is no small accomplishment to become thoroughly familiar with, and well-versed in, all of these items. While some of them are simple, others are quite complicated. The task is perhaps simple enough for the sellers, since they have only to become acquainted with their own particular price list, but the purchasing department that buys many hundreds, and perhaps thousands, of articles must keep a rec- ord easy of reference and simple in exposition. Fig- ures 23 to 26 illustrate a method that may be em- ployed for this purpose. The Buyer^s Obligation.— Generally speaking, it seems to be ** human nature" for a person to make more strenuous efforts to get obligations due him sat- isfactorily settled, than to settle his own obligations. There is nothing that will injure purchasing more than the neglect of invoices or the careless and ill- considered treatment of them. If petty and trifling matters are made to look momentous and important; if attempts are made to enforce unfair claims; if un- just deductions are made; if cash discounts are abused; or if payment is delayed for some trivial rea- son—the buyer will sooner or later feel the effects of such a policy. 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When differences of opinion do arise, he should handle them in a broad-minded, capable man- ner and, while insisting on a just and proper settle- ment, he should conduct negotiations without friction or bad feeling. This policy will have a most beneficial effect, and even if it is necessary for the buyer at some time to make some slight concession he will probably gain far more than he loses, when making additional purchases. Invoices and Cash Discounts.— An understanding must be arrived at with the financial department in regard to the time required for it to do its part in paying an invoice, and it is then up to the purchasing department to get the invoices through to the finan- cial department in ample time. When this has been accomplished, the purchasing department has done its part in fulfilling its obligation. The trouble over cash discounts and the abuse of them, is rarely the fault of the purchasing depart- ment. The understanding with the seller is usually quite clear, and claims are very seldom raised in con- nection with cash discounts by the purchasing depart- ment. The financial department is more frequently at fault in this respect. In some cases it may be lack of adequate finances which causes that department to withhold payment for a few days; but more often it is because the financial organization does not fully recognize the importance of living up to contract INVOICES 155 terms. The agreement as to the discount is part of the original contract, and no purchasing agent worthy of the name would for one moment think of attempt- ing to evade contract obligations — for this is what the abuse of cash discounts means. Other departments, however, not so directly and in- timately in contact with sellers look on these obliga- tions with some laxity. The production department will sometimes want to postpone or change delivery dates, and regard such procedure very lightly, whereas it really may involve serious consequences for the seller. Likewise the financial department may look with indifference on a delay of a few^ days in making a payment. It is the purchasing department which has to stand between these departments and the seller and bear the brunt of any blame which may result. Such incidents are not conducive to good buy- ing, in view of their effect on the standing which the purchasing agent holds with the sellers. It may be asked why the sellers themselves submit to the abuse of cash discounts. Some of them do not; they will promptly return any checks that do not arrive on time. Nevertheless, it is safe to say that the majority of them do acquiesce in these trans- gressions — some because they need the money, and others because they think a refusal would imperil their relations with the buyer. Sometimes a buyer will make the excuse that the goods did not reach him within ten days, and that he is therefore entitled to examine them before pay- ing. The buyer knows that delivery dates are uncer- tain when the time required for transportation cannot 156 PURCHASING AND STORING m always oe definitely gauged. He knows this when he makes the contract, and he also knows that it may mean paying the invoice before the goods are received. If such an arrangement is not satisfactory to him, then he should not make a contract on this basis. He should certainly not do so if he doubts the probity of the seller to such an extent that he feels he could not get a proper adjustment on a sub- sequent payment if there should be any discrepancies. Each party should observe the provisions of the contract; otherwise confidence is impaired and sus- picion is generated. The purchasing agent who ex- periences serious and unaccountable delays in the receipt of goods may oftentimes trace the trouble to slackness in financial settlements, resulting in pref- erences being given to the concerns that pay most promptly. It is an undoubted fact that the cash discount priv- ilege is gradually being curtailed, but its complete abolishment is still a long way off. Probably among the causes for this curtailment the most prominent is the abuse of the privilege by the buyer and the re- sultant controversies with the seller, with tin* result that the latter is left with a large numfeer of unbal- anced accounts. CHAPTER VIII THE PUKCHASING AGENT Responsibility. — One man is not always wholly re- sponsible for the determination of all the factors con- nected with purchasing for an industrial establish- ment. Questions regarding quality and quantity may be determined by the engineer or by the man in charge of production, but the responsibility does rest much more on one man than on another. The devel- opments in the art of purchasing have increased its importance and influence as a business function, and have brought more into prominence the men in charge of the work. They now hold a position of distinction and consequence in commercial undertakings. There are several titles in use for the men in charge of purchasing. Manager of Purchases, Director of Purchases, and other forms are used to designate the head of the department, but the title most generally adopted is Purchasing Agent. In connection with this man's work the following is quoted from an address delivered by W. G. Besler, President of the Central Railroad of New Jersey, at a meeting of the National Association of Purchasing Agents. Have we taken sufficient account of the potentialities of the purchasing agent? Has he been sufficiently recognized as a factor in our daily conferences, and do we appreciate him at 157 158 PURCHASING AND STORING THE PURCHASING AGENT 159 his full worth and give him a standing commensurate with that to which he is entitled? I am afraid that some do not place a sufficiently high standard upon the position of the purchasing agent. At least, I have found instances which justify the thought that he is considered a sort of necessary nuisance who will attend to the filling of requisitions and the purchasing of material which other departments direct; and he has been regarded more in the light of an amplified clerk than an officer of the company, with executive ability and a keen insight into the affairs of the concern. A man who is big enough to be entrusted with the expenditure of vast «ums amounting to hundreds of thousands of dollars, is also big enough to be taken into the councils of the executives. Qualifications. — Great progress has been made in purchasing during recent years. In view of this fact, it is unfortunate that while the character and type of some purchasing agents have necessarily made their positions ones of recognized importance and au- thority, there have been too many who wer(^ simply ** order-placers.'' These conditions are fast changing, however, and to-day there is no reason why a man should be holding the title of purchasing agent whose duties merely consist in keeping records of purchases, orders issued, goods received, and invoices checked. In industrial organizations there is ample scope, be- yond the mere clerical features connected with the work, for the activities of the man in charge of pur- chasing. To develop the purchasing function and maintain it at its highest plane of usefulness, it is necessary to have a man with certain qualifications. This man, first of all, should have good judgment, and should be well-balanced, shrewd, sagacious, and well-fortified with the particular knowledge essential in his work. He should also have an appreciation of values. This does not mean simply a knowledge of prices — a knowledge of values is of far more con- sequence and importance, and implies a vast fund of information for their accurate determination. He must have a broad viewpoint. He should always posses^ executive ability; modern purchasing requires a purchasing agent who can deal with the executives of an organization more or less on their own level. He should be able to make others recognize the true importance of his position, and he should be capable of carrying on his w^ork in its relation to the various functions of the industrial organization. The purchasing agent should by all means be ana- lytical. The analysis of values is a primary factor in good purchasing. He should have the ability and the knack of analyzing information regarding values un- til he has brought to light every pertinent fact and exhausted every possible means of securing further knowledge from the available records. This require- ment is probably the main reason why we hear so much today of purchasing engineers — not because of their engineering education particularly, but because they have been trained, as a rule, to analyze to the minutest details. Coupled with the power of analysis the purchasing agent should have a talent for comparison, because through comparison he obtains to a large extent his true estimate of values. He should be aggressive, because it is often neces- sary for him to impress his views not only on all the units of the organization, but on sellers as well. He should be progressive, and should have considerable Ml 160 PURCHASING AND STORING THE PURCHASING AGENT 161 f initiative and originality, inasnmcli as a great many of the facts he presents should come from him un- solicited. He should be resourceful, for he may often be re- quired to prove certain data and facts different from, or in addition to, his regularly recorded information, and unless he is awake to every opportunity he may not know from what sources to secure it, or, knowing these, may not know how to procure it. He should have imagination, in order that he may visualize and intelligently undt'rstand the conditions which are portrayed and represented by the avenues of information on business conditions which are avail- able for everyday reference. Breadth and Vision. — It must be admitted that many purchasing agents in industrial establishments have not the status which the importance of their work warrants. The explanation is that those pur- chasing agents who have not received this full recog- nition are lacking in breadth and vision. Large ques- tions come for them to answer, yet they cjumot see beyond their daily routine work. This lack of breadth means that when some really important matter comes up such a purchasing agent has to report to some executive, who may take the matter out of his hands. The purchasing agent needs a viewpoint, an outlook, which shall embrace the whole organization, its mission, and its destiny. If he has this, he will not become narrow — and narrow- ness is probably the prevailing fault of present-day purchasing agents. It is perhaps unfair, however, to single out purchasing agents and stigmatize them with this fault, because it is common to many other men who specialize in a single business function. Like all specialists, the purchasing agent is apt to confine himself too closely to his own particular work. He will follow prices closely, keep in touch with sup- ply sources, get deliveries promptly, and constantly strive to perfect himself in all those things which make for skillful buying and the reputation of his department. But in doing this he may overlook the broad policy of the establishment, with which his work should be in accord. He is apt to sacrifice qual- ity for price; he may overlook the importance of having every department working in harmony with the others; he may not see the value of price in its true proportion. Why do salesmen often try to get a hearing with an executive, **over the head'' of the purchasing agent, especially if they have goods of merit to offer? They realize that they will receive broader treatment, that the executive will give due consideration to all sides of the question, and will view price, quantity, delivery, service, and so on, in their true perspective. But a salesman will never go beyond the purchasing agent's office if he meets there the man who can weigh all these points judicially and fairly, and give good judgment on the facts presented and on the knowledge he has of the general policy, aims, and ambitions of the concern. Vendors and their salesmen and representatives are quite often quicker to sense the general policy of the houses to which they sell than the men actually doing the buying; or, if this is not the case, they sometimes 162 PURCHASING AND STORING THE PURCHASING AGENT 163 I have a viewpoint which covers a larger range of vi- sion than that of the buyer. It is essential, therefore, that they be given a hearing, and that their state- ments be weighed and calibrated. Granted that many times suggestions and propositions which they make are not worthy of consideration, nevertheless in the long run, taking the good with the bad, the purchas- ing agent is the gainer. Finance and the Buyer.— The average business man is apt to spurn information on things financial as im- practical theory, but a purchasing agent should be financially weather-wise. For the successful buyer no information is too slight to be disregarded, and in- formation regarding financial affairs is particularly applicable to purchasing. Many materials are stable in price, irrespective of financial conditions. But there are also many for which there is a sensitively fluctuating market, and these will be distinctly affected by changing financial conditions. There is certain information from which can be deduced a principle for general application for such material. If a purchasing agent knows during what periods of the year there is a large demand for money, and during what periods the demand is slight, he has par- tially solved the question as to what time of year, under normal conditions, it is wise to buy or sell. The causes affecting the level of prices of sensi- tively fluctuating materials are not simple. Some of these causes — of which one is the supply of money — recur regularly, though the intensity of their effect is variable. The forehanded buyer will seek to recog- nize these causes, to judge their intensity, and finally to learn to modify his conclusions concerning their abnormal occurrences in times of great business ac- tivity, as during wars or when there are rumors of war. Management and Administration.— The purchasing agent should understand both of these terms, because he must both manage the purchasing and his depart- ment, and administer the policies of the organization, in so far as they affect his work and also the minor policies of his department. Management is a think- ing job and lays down general policies, while admin- istration accepts these policies as orders and trans- lates them into specific action. The organization and management of a purchasing department call for very much the same qualities as the organization and management of a business. Many business men seek success in management through methods and systems, or by means of what is called efficiency, or scientific management. These compel the mind to revert to some perfectly modeled plans or processes which are supposed to straighten out, as by magic, all kinks, worries and troubles. Thinking business men know better, and have long since abandoned the hope that mere methods and systems will of themselves accomplish anything, but they do know that scientific organization, intelligent analysis, and constructive thought will lead to greatly improved conditions if accompanied by something more than mere mechanical processes and changes. In other words, there must be vision and purpose, high ideals, loyalty, and service. 164 PURCHASING AND STORING THE PURCHASING AGENT 165 The purchasing agent must be the guide and in- spiration of his department and must assist in the formulation of the purchasing policies. If he is *a man of vision, a man who is broad enough to forecast and visualize possibilities; if the commanding figure is thoroughly imbued with ideals of business of the highest type; and if he makes purposeful (efforts to put them into effect— then a purpose of similar char- acter will permeate his assistants, and the smaller matters of detail — installing systems and methods — will become simply matters of form. Psychology in Purchasing.— Buyers and salesmen are diametrically opposed in a commercial sense. There must be some expression of this opposition, and the manner of the expression will be governed largely by the intelligence of the individual, particularly in the outward impression conveyed. Nobody can commend antagonism which can never do any good and may do much harm. On the contrary, a display of good feel- ing, even if it is fictitious, can do no harm even if it may do no good. The purchasing agent and the seller serve conflicting interests and are continually at war, but their feeling toward each other may be of the most cordial type, and based on the friendliest relations. The motives of sellers are never altruistic, however much they may so claim. It is well to re- member that all sales are made for profit. A salesman desires to produce an effect. What is the basic cause of it f The buyer *s psychology will com- pel him to search for the cause. If the explanation is that the salesman wishes to convey the impression that his product has the same qualities as those of his competitor — or better qualities — and yet is cheaper, the purchasing agent has to decide whether his statement is authentic, or whether it is made as an inducement because of the type of man the seller is dealing with. An easily influenced mind would yield to a well-directed verbal attack, but the intelli- gent person will investigate the reason why the state- ment was made. Such an analytical investigation may sometimes reveal extreme inconsistencies in what the seller says. Reducing the Cost of Salesmanship. — A concern that spends a large amount of money in investigating, testing, and developing the materials for use in pro- duction work, until it has procured the raw material exactly suited to its requirements, does this for many reasons. One of the principal reasons is that the firm wishes to obviate the necessity of the seller's making such tests for the buyer, with their attendant uncertainties. Moreover, the concern realizes that all work of this nature done by the seller increases the cost of the material for the buyer. The purchasing agent plays an important part in this development work. The greater his knowledge of his purchases, the less need is there for expensive salesmanship. Many buyers are paying for a sales- manship service that they do not need. A readjust- ment must come with the higher education of the pur- chasing agent, and also in those cases where the tech- nical experts in his own organization have fully sat- isfied themselves of the merits and desirability of cer- tain materials and articles. The readjustment may be slower in some industries than in others, but indus- !r! 166 PURCHASING AND STORING THE PURCHASING AGENT 167 trial organizations generally should be in the lead in this development. There should be some concessions to those concerns that employ engineering talent in order to determine in an accurate, scientific way the merits of anything they propose to buy. In other words, the buying con- cern — through the talent of its purchasing agent, or through its technical staff, or both— prefers to pay the cost of this determination and to arrive at the re- sult by scientific means under its own control. Technical Information. — A technical education is naturally a great advantage for a purchasing agent of an industrial establishment, but if this is secured by sacrificing other forms of education equally essen- tial, or more so, to a successful buyer, then nothing is gained by it. There are many engineers, architects, and professional men whose technical training and ability enable them to take first rank in their respec- tive professions, but whose commercial success is negligible, simply because they have no talent in that particular direction. The lawyers who amass large fortunes are not those who can best expound knotty legal problems, but those who can comprehtrnd and grasp the commercial and financial problems of large corporations, or similar problems in the administra- tion of large estates and trusts. A new title is creeping into existence — the ** pur- chasing engineer." There are probably a great many who should bear the title, but who are still disguised as buyers or purchasing agents. Such men are inval- uable if they have broad experience as ex(^cutives, if their commercial education is of the kind that can meet all contingencies, and if their technical knowl- edge of their own particular purchases is comprehen- sive and practical. There are sales engineers galore. It is now considered an essential part of a sales- man's equipment to be technically trained. But quite frequently these men need technical education only in one line, whereas a purchasing agent needs a much broader training, for he has to buy a multitude of things, even if his concern manufactures a limited number of articles. It may not be the province of the purchasing agent to determine technical questions, or even to select quality, but if he can do so, or give valuable assist- ance to those who do, he is to that extent more val- uable to his concern and of great assistance in its economical developments and operations. Policy. — The policy of the purchasing agent will naturally be the same as, or similar to, that of the es- tablishment with which he is associated, but there are minor policies connected with his work and his de- partment which every purchasing agent can formu- late for himself. If he finds that these conflict with the general policy of the organization, he can bring them to the attention of the proper executives, and if his policies are big and broad enough, and worthy of being adopted, they will probably find a ready ac- ceptance. They will also serve to enhance the repu- tation and standing of the author of them, for all organizations are looking for men who can formulate policies of this character. Since the purchasing agent's department exists to supply the material needs of the other departments I 168 PURCHASING AND STORING THE PURCHASING AGENT 169 i\ pmi'f of an organization, it is essential that he cultivate cordial relations with other dei)artment heads. It' he does so, the many petty differences and frictions that are apt to arise between inter-department employees, can be controlled and smoothed out before they de- velop situations which could in the least impair the efficiency of any department. Friendly relations should be established with all those concerns with which orders are placed and with which negotiations are conducted. Men will often do for friendship what they will not do for financial gain. A policy of recognized merit adopted and main- tained as a standard with every concern the purchas- ing agent comes in contact with, will secure valuable and permanent advantages in all his transactions with them. Authority. — There should be a clear definition of the purchasing agent's authority. He is virtually in control of a situation in which he can obligate his concern for very large amounts, for he can sign con- tracts and orders involving large expenditures. In this respect he can be compared, to a certain extent, with the treasurer. Would any concern permit its treasurer to sign checks and other obligations with- out proper voucher certificates or other accredited authorization ? In the first place, no purchase should ever be made without a requisition. This is the purchasing agent's authorization. These requisitions must be proi)erly drawn, and signed by department heads or other per- sons empowered and designated by the proper officials to do so. With these documents in his office, duly authenti- cated, a purchasing agent could — but no real pur- chasing agent would — throw aside all responsibility. The man who is alive to the necessities of the con- cern, who has its interests at heart and takes pride in administering the purchasing function, will scruti- nize requisitions as much for under-buying as for over-buying. Market conditions are an important fac- tor in determining the quantity to buy, and it may be necessary to make recommendations on this point to the party who signed the requisition. When large expenditures have to be made for ma- chinery and equipment, it would probably be neces- sary to get an authorization from the directors. If exceptionally large purchases have to be made for the execution of a contract into which the concern has entered, it may be necessary to consult with the sales manager and with the man in charge of the finances. Some definite scheme should be outlined, and a plan should be laid out by every establishment, governing the purchasing agent's authority. It is not wise, how- ever able a man may be, to throw the onus of respon- sibility on him, neither is it wise to place it with some irresponsible foreman. Natural Aptitude. — Neither intuition, nor natural aptitude, nor the ** buying instinct," will of itself alone develop a successful buyer for an industrial es- tablishment. Different degrees of capability exist in different persons. The proper qualifications are largely acquired by association with the work of buy- ing, but scientific methods and research work are nec- essary. Successful purchasing agents do not rely on 170 PURCHASING AND STORING THE PURCHASING AGENT 171 inherent knowledge, but upon that which is acquired. The tinal decision made by credit men in some cases is largely based on instinct or intuition. It is true that purchasing agents often close a deal satisfac- torily on this basis, but they depend mainly on scientifically acquired knowledge. And it must be re- membered that there is no finality to this work. It has been aptly said that ** acquired knowledge is only elementary compared with the vast fund of informa- tion which is yet undiscovered.'* From what has already been stated — in Chapter II, on ** Specifications" — it might seem that the purchas- ing agent is so restricted in respect to what he shall buy that nothing is left to his imagination and very little to his judgment. To be sure, in the cas(i of cer- tain material the purchasing agent's work is princi- pally a matter of specializing on price and delivery, since the question of what to buy has been prede- termined by exhaustive practical experiments, the re- sults of which are contained in the standard specifica- tions furnished to him, which he uses in canvassing the market and placing his orders. It must not be inferred, however, that his work is merely clerical, for it is necessary for him to know something of the material that he is buying, and of the antecedent manufaieturing processes through which it has passed. If the purchasing agent's work were strictly con- fined within these limits, his outlook would be de- cidedly curtailed, but an interesting and important field of work would still be left him. However, there is no reason why his activities should be r(istricted within such limitations. Wider Field for the Purchasing Agent.— I have em- phasized in previous chapters the fact that the pur- chasing agent should be the final arbiter in the con- duct and conclusion of all negotiations regarding price, terms, and delivery of all material for which he has requisitions. If he is a man who has a broad conception of his nob, there is a larger field for him. For example, he may be consulted in regard to capital outlays. In this connection his knowledge of prevail- ing financial conditions, the causes which have brought these conditions about, and the probable future ten- dency, will be of service. And this knowledge is val- uable in arriving at a decision as to the advisability, the manner, and the most opportune time to make an investment, whether it is in additional real estate, a new building, or better facilities for carrying on the undertaking. So a very wide area of research work opens up for the purchasing agent, and there is unlimited scope for the acquirement of knowledge useful in his sphere of endeavor. Getting prices and information on ma- terials needed, or known to be in immediate prospect, is only part of the work of the purchasing agent who keeps abreast of the times. He should be constantly absorbing information that will protect him against emergencies and ripen his judgment in the larger mat- ters he rnay be called upon to decide. A purchasing agent is employed to save money. He accomplishes savings through his knowledge of ma- terials and markets, coupled with the ability to dis- cover and select sources that can most advantageously furnish the requirements of the business. I •! 172 PURCHASING AND STORING ^ There is an inherent satisfaction in bringing nego- tiations to a successful conclusion and closing a pur- chasing transaction satisfactorily. The work is inter- esting, and the interest is heiglitened by the breadth of the field it opens up for research work and the constant changes that take place in all classes of goods. Owing to the complexity of manufacturing industries, the finished product of one manufacturer IS the raw material for another. CHAPTER IX THE PURCHASING DEPARTMENT Origin and Mission.— There is no manufacturing process so simple that it does not require for the production work of its factory certain raw materials, and usually a large variety of tools and supplies. Other supplies and articles are needed by every sec- tion of an establishment, and it has long since been recognized that the responsibility for procuring them should be centralized. The organization of business concerns into departmental formation demanded that the buying function should be recognized—therefore the purchasing department was created. The segregation of purchasing has important eco- nomic advantages. It has been found that a depart- ment specializing on market conditions, price, quality, service, and delivery, can obtain better results than can be secured through the division and decentrali- zation of the work. Such an arrangement, moreover, enables all other departments of an establishment to devote their whole time to their special functions and activities. All the material needs of an establishment should be obtained through the purchasing department. No exception of any kind should be made. Everything in the way of equipment, tools, supplies of all kinds— in- 173 fl«i 11 174 PURCHASING AND STORING PURCHASING DEPARTMENT 175 eluding coal, oils, stationery, printing and so on— is included under **material needs.'' The practice of some executives, of permitting some of the minor supplies to be purchased by the departments using them is too common and cannot be commended. The principal purchasing work in industrial establish- ments is, of course, connected with procuring the ar- ticles, goods, and commodities which actuall)- consti- tute the raw material for production work, oi- which, at least, are spoken of as such. It is essential that all supplies should pass through the department; oth- erwise standardization cannot be maintained. Standardizing Supplies.— It may be noticed that those concerns which have been in existence for some time, and which have permitted the purchase of sup- plies through individuals in different departments have a promiscuous assortment and a bewildering ar- ray of articles. Standardization of all office equip- ment, stationery, and all supplies used through the factory can be effected more readily through the pur- chasing department than through any other medium, because it is the clearing house for all requisitions. Economical considerations and questions of conve- nience should compel attention to this fact. Certainly better prices can be obtained if standard articles are bought which can be used in any department. The advantages also of their interchangeability should not be overlooked. There is no logical reason why any purchasing of this nature should be subject to the vagaries and personal preferences of persons in vari-. ous departments. The good of the whole establisli- ment should be the paramount consideration. In small industrial concerns the purchasing depart- ment can often be largely instrumental in standardiz- ing much of the material as well as the supplies — es- pecially if a technical staff is not employed to do it. This subject was covered in Chapter II in the discus- sion of standard definitions. Relations With Other Departments.— -The purchas- ing department exists, as a unit, in an organization to supply the needs of the other units. The attitude of the other departments will be a reflection of the purchasing department's service to them, and to a large extent the standard by which its efficiency will be measured. The staff must be in sympathy with the particular requirements of the users of the material, or they will fail to grasp one of the most essential ideas in con- nection with the purchasing department. Just receiv- ing requisitions, placing orders, and checking invoices is simply dealing with papers and accounts. Dealing with men and things inspires all employees with a different spirit in their work. Every purchasing agent has had the experience of being told what is thought of his department when delays occur in getting delivery of some much needed material. It is assumed at once that the department is entirely unsympathetic with the legitimate aims of other departments. There is an appreciable resultant gain from the maintenance of harmonious relations between departments. The exercise of tact, discre- tion, and diplomacy by the heads of departments will establish and continue such relations, and it is no exaggeraton to say that vast sums are lost where they 176 PURCHASING AND STORING PURCHASING DEPARTMENT 177 do not exist. The purchasing department is in con- stant contact with other departments, and co-operation and mutual confidence are absolutely essential. The question is merely one of being able to meet and han- dle the peculiarities and prejudices of human nature. If there are points of contact where there is any question of the work overlapping that of another de- partment, the duties of each should be clearly defined and arranged on the basis of the best interests of the whole establishment being served. Friction and the clashing of authority are in this way avoided, and the smooth working of the various activities is much fa- cilitated. Departmental Meetings.— The best antidote? for mis- understandings is understanding, and this can best be brought about through departmental meetings. If there are a large number of em})loyees, these meetings will be found very helpful in the allocation and as- signment of work. It will often be found at meet- ings of this kind that the work is unevenly distrib- uted. Temporary causes may be the occasion for this, and if a temporary re-alignment of the work can be made to relieve the situation a great deal of good will be accomplished. Proofs of this stateme^nt were plentiful during the strenuous periods brought about through the war, when it was exceedingly difficult to get shipment of certain materials. By the rearrange- ment of work and the assignment of more help co follow it up, great improvement has been effected. It is not always possible, of course, for the head of a department to divide the work in such a manner that each section of the department will have the same volume to handle. When consultation is held with each section independently, naturally a distorted viewpoint is often obtained; but joint consultation will remedy this trouble. Compiling Records. — Intelligent records are a part of every successful purchasing department; the na- ture of these records has been treated fully in Chap- ters II, III, IV, and VII. The records should be reliable and accurate. Although records may be a part of, and an aid to, efficiency, they do not in any sense insure efficiency. Accurate records may be col- lected and used without any resultant efficiency, and, on the other hand, a certain amount of efficiency may be secured without the use of records. There is no doubt, however, that accurate records, make for the development of efficiency in the purchasing depart- ment. Eecords must take note of existing surrounding con- ditions. There are elements which are ever present, causing continuous changes in business conditions and markets, and the compilation of records concerning them must be governed by experience and common sense. A qualified member of the department should have charge of collecting all the necessary data. These records do not only portray the market con- ditions and fluctuations in prices, to which reference has been made in previous chapters, but they are needed as an aid in the direction, arrangement, and control of purchases, in order that without an undue accumulation of materials there may be, at all times, sufficient stock on hand to enable the production de- partment to maintain its activities uninterrupted. 1 178 PURCHASING AND STORING Tlie requisitions, as they arrive in the department, will give the exact quantities required. Delivery dates should be specified on the requisitions, but it is essential for the department to keep a record of past purchases in respect to both quantities and prices. Other departments may send in estimates of future requirements, although unaccompanied by actual requisitions, and these will need to be rec(»rded and tabulated. Relations With Sellers.— Owing to the nature of the activities of the purchasing department, the members are brought frequently into contact with the represen- tatives of the sellers. Most of these are salesmen, but the follow-up section of the department gets into touch with the persons in charge of shipm(»nts, and the invoice division has communications and inter- views with the vendor's accountants and financial men. The policy of the purchasing department, as dis- played in its intercourse with outside conci^rns, will have considerable influence on purchasing efficiency. It is unfortunately a prevailing custom to adopt a different attitu, impar- tially rebuff all salesmen, whether they are well-mean- ing or not, who strive to broaden a business acquaint- ance. Any broad-minded purchasing agent will give friendship as readily and as quickly as he receives it, and if he does this to develop an embryonic friend- ship or to perpetuate one already formed, his conduct is right and may lead to gn^at good. Many true friendships between buyers and sellers have been formed. But if the purchasing agent takes advantage of his office to receive special remuneration, he de- cidedly does wrong. Friendship is a matter apart from money. It has been, and always will be, an important factor in busi- ness transactions. On a proper plane it is to be en- couraged betw(^en buyer and seller, for it can be of great advantage to both parties. I have referred to this subject in previous chapters, and I have ex- plained how valuable friendship can be when a buyer is suddenly called upon to purchase something new. To confer with business friends at such times is the quickest and surest way to find the best market and the best price. When it is difficult for a buyer to secure an article wanted quickly, a seller, for the sake of friendship, will undertake to supply it, and will put himself to much inconvenience to do so. Friend- ship can be cultivated even through the very manner in which a salesman is told he has lost, or cannot have, an order. These may seem small things, but courtesy, square dealing, honesty, and straight- forwardness beget friendship. They are appreciated PURCHASING DEPARTMENT 187 by sellers, and the buyer benefits very largely from them. The small effort expended in this manner will bring returns when least expected, and to a much greater extent than could be anticipated from the effort made. Friendliness is a natural qualification of some buyers; it should be cultivated by others. There are ethics of selling, as well as ethics of buy- ing. Many business houses have adopted and main- tained a certain standard of conduct in their relations with other firms, and have built up and firmly estab- lished a reputation for themselves on this standard. There should not be mutual suspicion and distrust between such concerns and buyers who measure their motives by the highest standards of honor and con- duct governing their motives, for the principles of both parties are identical. Eflfects on Whole Depaxtment.— The maintenance of a standard in purchasing is not the particular privi- lege of one man. Any attempt to pervert these standards is usually attributed to a desire on the seller's part to secure an order at a higher price than is justified, but this is very rarely the case. Inflated prices are very easy to detect, and returns are not commensurate with the risks incurred. Degrading quality is a simpler and easier method. Such procedure involves the persons in charge of inspec- tion, or the receiving clerk. If inspectors are sent to the seller's plant to examine and inspect material be- fore shipment, they must be men of proved character and dependability. It is futile to contend that the extension of scientific methods eliminates all forms of dishonesty. It does 188 PURCHASING AND STORING help, materially perhaps, through the safeguards erected. But independently of this, buying, as a com- mercial pursuit, stands on a higher plane to-day than it did even only a few years ago. This development will undoubtedly continue. Many of the liltle tricks, misrepresentations, evasions of contract ol)ligations, withdrawal of accepted quotations, divulgence of a bidder's price to a competitor, and innumera))le other similar expedients, are fast disappearing from both the buyer's and the seller's methods. Their relations are being established on a better basis— a basis which, according to present-day standards, should be desig- nated a businesslike basis. A few other points in connection with the policy of the purchasing department are so well expressed in the following quotation that I include it here. The extract is from a speech entitled **The Cultivation of a Higher Code of Business Practice and of Business Ethics," delivered at the twentieth annual convention of the National Association of Credit Men. Am I not safe in saying that we have no greater and no more urgen»t task than this? The unbusinesslike i)ractiee of allowing bills to run after maturity, the exaction of unjust claims and allowances, the rejection of goods shipped on bona fide orders, the deduction of discounts after the discount pe- riod has expired — are not these abuses the bane of every cr(?dit department? And why? Because there has grown up in our land too light a regard for the binding obligation of a con- tract. An importunate desire for immediate gain has usuj-ped the place of honor. We need to assert that the placing of a bona fide order confers a property j-ight that cannot be re- scinded except at the option of the vinidor ; that after a ship- ment has been received and accepted, the shipper is justly entitled to payment in full, according to the contract, witliont PURCHASING DEPARTMENT 189 unjust deduction ; that time is of the essence of the contract —therefore, the bill should be paid promptly at maturity; and that the taking of a discount, except within the discount period, reflects upon the honor of the man or firm deducting it. Too long have we acquiesced in these evils. Perhaps we are m part responsible for their existence. It now devolves upon us to put them without the pale, as unbusinesslike, un- ethical, and unwarranted in practice or in morals. Outline of Work.— In preceding chapters I have dealt with many phases of the work of a purchas- ing department. Before discussing the organization necessary to carry out this work, I wish to give the following detailed survey of that work and a resume of what it embraces: 1. 2. 3. The purchasing procedure. That is, the receipt of the requisition; its proper examination; the various checks to which it is subjected; establish- ing a price for the material requisitioned, either from contracts or by obtaining new quotations— this step involves comparison of the bids received; negotiations with the successful bidder; arranging all the terms of contract; and finally, closing the deal and placing the order. Getting delivery of the order. Following up the vendors; arranging for inspection, as stipulated, either at vendor's factory or at destination; pos^ sibly arranging for transportation and tracing while in transit. Receiving the invoices ; submitting them to proper checks, to make sure that they are strictly ac^ curate in every way, and that they represent exactly the price, terms, and quantities stated on the order; finally, approving them for payment. I 190 PURCHASING AND STORING 4. The collection of information necessary and use- ful to the department. This information must be tabulated and recorded in such a manner as to be available for instant use. Practically every mem- ber of the department should have access to such data. One of the principal things to keep in mind is the necessity for clearness and lucidity. This accumulation of information includes cata- logues and all literature considered essential for the department. Some forms for recording this information have been given in earlier chapters, and others will follow in the discussion of the re- spective subjects. These, in brief, are the operations the purchasing department covers. In later chapters on routine work they will be closely followed, step by step, and each detail will be explained. The above summary is in- tended as an outline that may render the more in- telligible the discussion of the organization of the de- partment, which follows. Organization.— The size of the department will, of course, conform to the needs of the establishment. It is impossible to lay down any set rules in regard to this point. I have been frequently questioned concerning the requisite number of employees, and in such in- stances the information on which I was expected to base an opinion was the number of men employed in a factory, the capital of a corporation, and other features which have only a very indirect bearing on this point. The number of employees is determined by the amount of work, and the calibre of the em- PURCHASING DEPARTMENT 191 ployees by the importance of the purchases. It is im- possible to decide a question of this character with- out first making a close examination and scrutiny of the work. Conditions vary in every concern, and individual necessities determine in every case. Establishments that are concentrated in a group of buildings, with the stores in close proximity, can handle the purchases with less help than those that have several factories, scattered over a wide area. Requisitions for an amazing variety of materials pass through some purchasing departments, making the amount of detail work far greater than it is in those departments that buy a limited variety. Then again, it is possible, with some materials, to place long-time contracts; in cases of this kind the work is con- siderably lessened, as it is not necessary, under such circumstances, to canvass the market so often. All these features and many others determine the number of employees requisite to carry on the work efficiently. Irrespective of the volume, there is a well-defined course through which the work must pass. I propose to outline this course. In accommodating it to indi- vidual conditions, it may be found necessary in small departments to amalgamate some phases of the work, while in large departments the handling of what is called a **one man's job'' may require several men. Figure 28 illustrates in a diagrammatic manner the organization of a purchasing department. The duties of each member are briefly outlined in the following description. The Purchasing Agent.— This man will have the general management and supervision of the depart- 192 PURCHASING AND STORING 1: ^ PURCHASING AGENT 1 CHIEF CLERK INVOICE CLERK REQUISITION CLERK 1 1 TRAFFIC CLERK PRICE CLERK 1 1 FOLLOW-UP CLERK , ORDER CLERK • 1 1 STENO- GRAPHERS FILING CLERK INFORMATIOrl CLERK 1 PURCHASING DEPARTMENT 193 PIG. 28. ORGANIZATION DIAGRAM OF PURCHASING DEPARTMENT. SEE TEXT FOR EXPLANATION. ment and will direct its policies. He will consult- whenever occasion requires— with other department heads, such as those in charge of the production de- partment, sales department, accounting department, and financial department. Except for some minor details, he should settle all differences concerning relations with, and connection between, his depart- ment and another. He will personally conduct nego- tiations, and will close all large and important con- tracts. If these are vital to production work, he will oversee the progress being made by sellers, and probably will arrange for inspection or tests to be made. He will have to interview many callers; he will have to adjust any serious differences that may arise with vendors. He will indicate to his assist- ant or chief clerk* the sellers who he believes should bid on certain materials. He will have to keep him- self posted on prices of commodities, on financial problems, on all business features which could affect the purchasing function — in short, on business condi- tions generally. He will be the inspiration of his de- partment, and its responsible head. When the pur- chasing has to be done for several factories or branches, and local buying is necessary, the depart- ment head might take the title of General Purchasing Agent. He would then have an assistant, who would assume a portion of his work, subject to his general direction. In the absence of the General Purchasing Agent, his assistant would be supreme. Assistant Purchasing Agent, or Chief Clerk. — In some purchasing departments, it may be advisable to have both an assistant purchasing agent and a chief clerk. In such a case the chief clerk will take con- trol of, and be responsible for, the clerical work of the department, while the assistant purchasing agent will be his superior and will assume some of the duties of the purchasing agent. Whichever title is held by the man next to the purchasing agent, he must take as much detail work off the head of the department as practicable, in order that his superior may have as much time as possible for consultation and for the larger affairs of the department. He will have to interview some pf the salesmen, and he should also, if possible, see all requisitions as they arrive in the department, and then turn them )■i^ 194 PURCHASING AND STORING I over to the requisition clerk. He should see all correspondence intended for the purchasing agent; he will handle part of the correspondence relating to bids, designating the firms from which quotations are to be requested. He will be responsible for the dis- cipline of the department, administer the policies of the purchasing agent, and generally direct the routine work. Requisition Clerk.— All requisitions should go to the requisition clerk to be checked for autlientifiea- tion. The specification should also be checked. It may be possible to arrange foi- this man to keep the purchase-order record, as explained in Chapter 11. He should see that quantities are properly stated, and also the point and time of delivery, and so on. In brief, he should see that the requisitions are in cor- rect shape to be dealt with for price-getting and ordering. Price Clerk.— The requisition will pass to the price clerk from the requisition clerk. He may keep the records of prices, both current quotations and those prices established by existing contracts. If there is a price established by contract, he will insert it on the requisition and pass it along for the order to be writ- ten up. He should see that requests for quotations are properly written up, and should keep a record of the best sources of supply, if there is no gem^ral infor- mation clerk for this work. Order Clerk.— The order clerk should receive the requisition after all questions regarding specifications, price and delivery are settled; then he should write up the order. He will be responsible for thci proper PURCHASING DEPARTMENT 195 wording of the orders and for checking them, as well as for the distribution of the copies to interested parties or departments. Follow-up Clerk. — The follow-up clerk will be re- sponsible for following up and getting delivery as specified on the order, and will report at once to the chief clerk when he is unable to get satisfactory as- surances, or when delays of any kind occur. He will have to turn over to the traffic clerk all details of orders which he will be required to trace. He must also advise the various departments regarding promises of shipments, and must promptly notify them of any delays. TraflSc Clerk. — This man will be responsible for tracing all shipments while in transit. He must be posted on freight rates and classifications, and must give information to the chief clerk, whenever neces- sary, regarding best routes between shipping point and destination and probable time required for trans- portation. He will be required to check all freight and express bills, as well as all freight allowances or charges on invoices. Finally, he should adjust all claims against transportation companies. Invoice Clerk. — The invoice clerk will receive and be responsible for all invoices. He must get them approved before the discount date expires, and must check them from every angle to see that they con- form to the order in every way. Quantity, price, and delivery, must be verified. Prevention of duplication must be certain and positive. He must take up with sellers all discrepancies — with the understanding that any decisions of his are subject to the approval of the )i 196 PURCHASING AND STORING chief clerk — obtain credits for these, and generally ad- just all differences. Finally, he must keep close track of all invoices, to insure their approval in tini<^ for the financial department to pay them on the date that was agreed upon. Information Clerk.— The information clerk will have charge of catalogues, and should properly index and classify them. He should keep all rtn-ords as directed by the chief clerk, and should see that they are always where they may be referred to by any member of the department. He should be able to quote market prices and recent [)rices to othc^r depart- ments and to give them information concerning avail- able suppliers. When any new material, or a special tool, is wanted, he should be able to state or ascertain quickly where it can be procured. General Arrangement of Department.— There are many minor activities connected with stenographic work, receiving callers, mailing, and so on, which are common to every business office and which I shall not discuss in detail. In the diagram of a department, shown in Figure 28, no provision is made for inspec- tion. When this part of the work comes under the jurisdiction of the purchasing department, it will be taken care of by the purchasing agent or the cliief clerk, provided the inspection is carried on at seller's warehouse or factory; in these cases the orders are probably of sufficient importance for one of these per- sons to supervise delivery. If the inspection is done at the factory, it may be independent of the f)urchas- ing department. I shall state instances of tlds kind PURCHASING DEPARTMENT 197 later, in connection with the work of the storeskeep- ing department. The organization of the personnel of a purchasing department is bound to vary with circumstances and conditions. The work may in some instances be found to be much heavier in some sections than in others; if so, a rearrangement to meet this condition can be easily provided for. Where a large number of purchases are made, it may take as many clerks to check and handle the invoices as it does to check requisitions, price them, obtain quotations, and place orders. In many purchasing departments each sec- tion keeps such records as it requires for its particu- lar work. Generally speaking, however, this practice is not to be commended, since it usually means dupli- cation of work; a common information bureau, if properly arranged and easy of access, is the preferable method. The w^ork of any purchasing department must be organized on some comprehensive scheme; moreover, the work itself must follow a route that is arranged in logical sequence, in order that it may not by any chance undergo duplication or backwardation. The aim should be to plan a route for the work with a definite object in view, coherent and thorough. Over- systematizing must be avoided; if it is indulged in, it will lead to confusion and will be a menace to effi- ciency. On the other hand, an incomplete system will render the work laborious. The justification of a good system and good methods is their effectiveness • m covering with accuracy and despatch all the points comprehended in the work of the office. It will main- ii 'ft It 198 PURCHASING AND STORING tain order, regularity, and expedition. A good system is dictated bv common sense. It has to be ad- ministered by the organized office staff which has all the human frailities to contend with. The better co- ordination it can bring to their efforts, the greater its potentialties for success. { fil CHAPTER X THE PURCHASING LIBRARY Books. — The number of books a man possesses on any subject is largely the measure of his interest in that subject. The existing literature on purchasing is exceedingly limited, but nevertheless the student of that subject has a very wide field from which to select his reading. There is scarcely any book pub- lished on any business subject from which he cannot glean something which will broaden his knowledge and add to his value to his profession and to his concern. For this reason, it is expected that a pur- chasing agent who is truly interested in his work will own many books on business methods and prac- tices.* The day has passed when any business man can learn by experience only. Would a doctor, a lawyer, an engineer, a midshipman, an army cadet, or would any advertising man, salesman, or accountant think of reaching the highest niches in their respective professions through experience alone? It is possible today to save oneself many hard knocks by taking advantage of the experience of other business men as recorded in their reliable data. The output of business books has been on the in- crease during the last few years, and the publishing 199 Ml I i! I 200 PURCHASING AND STORING houses that have issued these books have made a definite contribution to the business world. Like- wise, the libraries that have recognized their op- portunity to render a specialized service to business men, have added much to the general betterment of business. Books dealing in a methodical, cut-and-dried man- ner with any business subject are not the only jjooks that the purchasing agent will find it worth his while to study. It is becoming more and more evi- dent that the very best tonic for the business man is the reading of inspirational books. Those which set standards and ideals, which command our respect are always worthy of a place in the library. It is impossible to name any particular book, or to give any list of them, suitai)le for the students of purchasing. Selections can be made from the catalogues of publishers of technical and business books, and good reading can always be found in any public library. A book which is an excellent guide to reading, and which should prove valuable to any person who wishes to get a comprehensive list of business books, is ** Sixteen Hundred Business Books." It was compiled by Sarah B. Ball, of the Newark, N. J., Public Librarv and is published by H. W. Wilson Co. of White Plains, N. Y. Periodicals.—Foremost among periodicals suitable for the purchasing library is *'The Purchasing Agent." It is ably conducted, and alwavs has some information of value to those engaged in purchasing. It may well be given a place in every i)urchasing agent's library. THE PURCHASING LIBRARY 201 For those buyers who must be posted on the daily fluctuations in the prices of metals with information concerning output, movements, and available stocks, as well as in regard to estimates of production, there is **The American Metal Market." **The New York Journal of Commerce" is exceed- ingly valuable for the student of general business conditions, commodity prices, and commercial mat- ters of interest. **The Annalist," a weekly publica- tion, is an excellent medium for those who want the technical and business information without the gen- eral news items. Those interested in foreign trade conditions should have **The Americas," published gratis by the Na- tional City Bank of New York. There are several publications which make a specialty of industrial management, and also many devoted to particular industries, such as hardware, textiles, w^oodworking, paper, cordage, coal, and so on. Not only are all these periodicals valuable for in- formation concerning prices, commodity movements, and general business, but their advertising columns are worthy of scrutiny, for it is through these that it IS often possible to enlarge one's market and field of operations in buying. Registers and Agencies.— It is almost impossible lor a purchasing department buying a large variety of articles to get along successfully without one of «ie well-known registers, such as Hendrick's or Thomas's. These are compiled with great care and are very comprehensive, but, as explained in Chap- ter II it may be necessary to take the lists given 202 PURCHASING AND STORING them and further subdivide these, segregating the firms that are best fitted to supply one's special re- quirements. In order that it may be possible to determine the financial standing of concerns with whom business relations are contemplated, the library should include either Dun^s or Bradstreet's reference books, or per- haps those of such agencies as Proudfoot's and Moody's. Through these, practically any informa- tion deemed necessary can be obtained, including names of members of firms, ofiicers of companies, and so on, and special reports of all kinds. There are other sources from which much infor- mation can be collated by the purchasing agent. Many trades have an agency that disseminates news for its particular field. Babson's Statistical Organ- ization, for example, issues to subscribers exception- ally good information based on scientifically col- lected facts and data. Catalogues. — Every well-ordered purchasing de- partment contains a comprehensive equipment of catalogues. Not only those which are pertinent to regular purchases should be kept, but also those covering goods in which it is likely that one may be interested at any future time. It is also advisable to have catalogues of manufacturers who make compo- nent parts of some article or machine. For example, one may not buy cut gears, but if one is buying some machinery or article of which cut gears are a part, then a gear catalogue is valuable for the information it gives. It is impossible even to estimate the amount of THE PURCHASING LIBRARY 203 money spent annually on catalogues, but the total must be stupendous. The wastage, of course, is enormous, but to set against those catalogues which are lost forever are those which work overtime. Taking it all in all, the expense must be justifiable or the custom would have been discontinued or shown a tendency to die out, whereas, as a matter of fact, it is undoubtedly increasing. There are many concerns that get a large propor- tion of their business through catalogues. The great mail-order houses sell their entire line through this medium. On the other hand, some products could perhaps never be sold without personal explanation and solicitation. A catalogue is an advance agent — it is on the ground to give preliminary information, and is frequently the precursor of an active order. To the purchasing department, catalogues are of great value. Other departments, also, find frequent use for them. The estimating department may want to look up some valve which is specified by a pros- pective customer; the shop engineer may wish to know the foundation plan of a boring mill; the draft- ing room may require to know the channel sections rolled at a certain mill. Questions are constantly being asked the purchasing department regarding sizes and styles of very many articles, and it must be prepared to answer fully and accurately. The purchasing department should have complete charge of all catalogues for the whole establishment. It acts as a clearing house for information needed by other depastments, and in order that it may meet the demands made on it, a complete installation must u}| lii 204 PURCHASING AND STORING f be maintained, and kept in such shape as to be avail- able for quick reference. Technical Information in Catalogues.— The value of technical information in some catalogues is not always fully appreciated. It must be remembered that this information is written by highly trained practical men, experts in their particular line. Gen- erally it is compiled by men who love their work, and whose ideals are the perfection of their product. Primarily, of course, a catalogue is an advertising medium, and advertisements cannot always be taken at their face value, but if the advertising manager uses the knowledge and services of trained technical experts and inserts it in a catalogue, without altera- tion, the value of the inforniation is not lessened. The matter contained in catalogues forms a liberal education for any persons engaged in ])urchasing work. The modern tendency in catalogues is exact- ness in the claims made, so that specific statements can usually be relied upon. As regards general statements, they are sometimes apt to be rated above par. By way of illustration I shall take, at random, a catalogue of leather belting. It contains an exhaus- tive treatise on hides. Their physical characteristics are explained, the difference in the texture of hides from different breeds of cattle is pointed out, and it is shown how these need a variety of car(^ in treat- ment during the tanning process if a sufficient de- gree of uniformity is to be obtained. Th(» progress of the hides through the tannery is minutely de- tailed. Illustrations of hides are given, showing in THE PURCHASING LIBRARY 205 Avhat manner they are cut and trimmed, and for what purposes the backs, shoulders, centers, and sides are used and how they are graded. Next, there is a disquisition on the effects of acids, oils, water, and so on, on leather; an explanation of how belting is manufactured; how to order belting; how to figure horsepower transmitted; how to fasten belting; how to figure speed of pulleys — in fact, every conceivable mechanical condition is explained, and rules are given in connection wifli them. All types of belt drives are illustrated, and the necessary data are given with which to figure them correctly. A catalogue of drop forgings gives a history of the art, what the process is, how dies are made, the effect of heat treatment on metals, what carbonizing is and why it is done. An explanation of case hardening follows, with suggestions as to its em- ployment for certain purposes. Micro-photos are shown, illustrating structural differences developed in steel by varying its treatment. There are many catalogues of tool-steel manufac- turers, which give much valuable information regard- ing steel processes. Beginning with the iron ore, the description makes clear in what manner oxygen is separated from the iron, and deals in detail, step by step, with the various treatments to which the metal is subjected until high-grade steels are pro- duced by the introduction of different percentages of manganese, nickel, chromium, tungsten, vanadium, and so on. Then follow details regarding forging, hardening, tempering, and annealing. Manufacturers of insjalated wires and cables give ...•jt •M 20G PURCHASING AND STORING the dielectric strength of different forms of insula tion; the properties of resistance wires; a fund of information on electrical matters; tables of sectional areas; comparisons of wire gauges; and ma ay othei features which at some time are essentially involved in purchasing work. I could continue these illustrations indefinitely, but I have already given enough to show the gr(iat value of catalogues in the education of the purchasing de- partment. Quite often the technical staff, also, de- pends upon them for information. A well-selected list of catalogues, properly arranged for reference and consultation, is therefore a necessary and valuable adjunct to any purchasing department, from an educational point of view alone. Standardization of Catalogues. — So much publicity has been given recently to the standardization of catalogues, and there has been so much discussion in regard to the subject, that a tremendous impetus has been given to the movement. Tangible result? must certainly follow. Since the matter is one in which all persons engaged in purchasing have a large in- terest, it is well to note in what manner the change will affect them. The present catalogue system has grown up with- out any consideration of uniformity. Each manufac- turer has apparently looked on the preparation of a catalogue from one point of view only — his own. The buyer's interest and convenience in the matter have never entered into his calculations. It there- fore becomes necessary for the person who must find accommodations for a large number of catalogues, to THE PURCHASING LIBRARY 207 provide for an endless range of sizes. This require- ment, of itself, involves the loss of much valuable filing space. Furnishing catalogues in bound books, each book containing information on many articles, also compels the buyer to study a number of separate bound volumes, handling countless pages relating to other material, which at the time holds no interest for him. The high cost of buying and the high cost of selling will both be appreciably lowered by the change which is coming, and for which every purchasing de- partment should be prepared. Today many thousands of price lists, circulars, and data sheets received by buyers are consigned to the waste paper basket be- cause the buyers have no method of properly filing them, or because owing to the variation in the size of catalogue, their facilities are already overcrowded. The tendency in the movement for standardiza- tion is toward the issuance of all catalogue matter in bulletin form. The bulletins will include every- thing pertaining to catalogues — price lists, illustra- tions, data charts, tables of sizes, and so on. All the bulletins will be of uniform size; it looks, at present, as if the 8^^ x 11 inch size would finally be adopted. A manufacturer who makes several articles will have a bulletin for each article. This bulletin plan has already been put in effect by some manufacturers, but without any agreement among themselves as to a uniform size, and in many cases the bulletins are made to fit special binders — they are then really no better than the ordinary old-fashioned catalogues. The principal advantages to the purchasing depan- I 208 PURCHASING AND STORING ment of the new scheme of standardization are, briefly, the following: All bulletins from every manufacturer, pertaining to an article or a material, will be filed together, and whcm it is necessary to look for information on any particular artick^ or ma- terial, it will be found located in one place. It will not be necessary to make a search through many catalogues, some with the index in front, others with the index at the back; some with prices attached, others with separate price lists. These catalogues, under the present system, are scattered all through the tiles. There are many other points of advantage to the buyer, which I shall not enumerate since the scheme is not yet an accomplished fact; it will cer- tainly be adopted, however, and every purchasing department should be posted regarding its main features. Procuring Catalogues.-^A search through the ad- vertisements in the trade publications coveiing the manufactures in which the purchasing department is interested, will reveal the names of many concerns to which applications for catalogues may b(^ made. Visiting salesmen will speedily arrange to have their respective houses forward catalogues, many of which will be mailed unsolicited. Catalogues are a distinct asset. The extent to which the accumulation of catalogues should be carried, must be decided by each depart- ment for itself. It sometimes seems to me that no catalogue which is issued should be discarded. In my own tirm, calls are made on the department for a tremendous variety of articles, because of the wide- uii^V THE PURCHASING LIBRARY 209 spread and varied activities of this company. Un- doubtedly, however, in the great majority of in- stances there is a limit beyond which the collecting of catalogues should not be carried. This is particu- larly true in industrial establishments that manufac- ture a single line of articles or machinery. In such cases, only those catalogues that describe the ma- terial or equipment for which there is immediate or prospective need, should be accorded a place in the files of the purchasing department. Filing Catalogues. — It is not possible to do very much in the way of grouping catalogues, except in the matter of size, and in this respect they can be segregated into five or six groups. These dimen- sional groupings can be readily recognized in the index from the key letter prefixed to the number. For instance, B146 would be in the B group, and could be found much more quickly than if it were in numerical sequence irrespective of the group in which it rightly belongs. The grouping together of all catalogues for one class of material has the advantage of enabling a person to select quickly all the catalogues on one subject, but in every other respect such a scheme is a dismal failure and cannot be recommended for use in connection with any ordinary file. Catalogue filing, for the reasons given, is loose, ragged, and un- economical under the best conditions, so far as space occupied is concerned, but in keeping all catalogues on one subject together every one of the disadvan- tages is greatly aggravated. In addition to the catalogues in the form of bound '• < 'Ml 210 PURCHASING AND STORING books, in every purchasing department there are almost innumerable pamphlets, circulars, price lists, and so on, which it is necessary to keep and file. These can be kept in cartons, envelopes, or folders, of uniform size, and a section of the catalogue filing case can be devoted to receiving them. There is no difficulty in segregating these and in keeping pamphlets pertaining to a certain material in one carton or folder. It is, of course, imperative to maintain a complete cross-index under the name both of the supplier and of the material, as shown in Figures 29 and 30. It is also essential to have a record of those catalogues or documents removed from the file and taken out of the department. The latter procedure can be taken care of by inserting cardboard dummies in the files in the place of removals. On these dummies a record should be made of the disposition made of the originals. A record can also be kept on the index card, or a special card can be kept upon which may be entered a memorandum of all documents taken away and the names of the persons to whom they are delivered. Universal Standard Catalogue System.— -E M. Hooker, formerly President of the Catalogue Cabinet Company, of New York, who has operated catalogue libraries for over twenty years, has devised what he terms **The Universal Standard Catalogue System,'' and is publishing indexes to the catalogues issued by the different trades. These indexes assign a number to each catalogue, so that the user may have a completely indexed Name of Manufacturer Address Section iS No. 146 LIST OF MATERIAL MANUFACTURED FIG. 29. CARD FOR INDEXING CATALOGUES UNDER NAME OF MANUFACTURER MATFRIAI Manufacturer Address Section No. ill '•11 FIG. 30. CARD FOR INDEXING CATALOGUES UNDER NAME OF MATERIAL 211 212 PURCHASING AND STORING ll'*< il library of catalogues, if he will number them and arrange them in accordance with the index. The numbering is so arranged as to group catalogues automatically according to their subjects. The in- dexes are supported by the advertisers, and are free to any users of catalogues. Labels to paste on the catalogue may be procured from Mr. Hooker. These labels give, in addition to the number of the cata- logue, a description of it, so that the user may easily identify the catalogue to which the label belongs. The saving in labor will more than pay the cost of these labels. The cabinet designed to accommodate catalogues under this system is unique, in that it is so arranged that there is no excuse for misplacing a catalogue. Cartons are furnished of uniform width, but of vary- ing depths and thicknesses. Therefore any catalogue or group of catalogues can be enclosed in a carton of suitable depth and thickness. The maintenance of a uniform width for the cartons means that material will not slip and slide about in the file. The fact that these receptacles are dust-proof is a valued feature in many offices. Any ordinary bookcase grouping of catalogues by subjects entails considerable loss of space, because of the inequality in the sizes, but in this system e(?onomy of space has been considered and the loss has been reduced to a minimum. The same advantages could not be obtained in any other way. The Universal System and Standardization.— The most important aid to convenience in the filing of catalogues, is the rapid adoption by manufacturers THE PURCHASING LIBRARY 213 of the standard-size bulletins recommended by the American Institute of Architects and other technical societies. These bulletins should be 81/2 by H inches, without covers, and each should treat of but one sub- ject, so that they may be filed in any letter file, and distributed according to subject. These standard-size bulletins, when filed in the folders invented by Mr. Hooker, and used in con- nection with his index, undoubtedly constitute the most practical solution of the catalogue problem yet offered. The folders are devised to contain the bulle- tins in such a manner that they can be opened flat without being removed from the folder; moreover, they are fastened to it, so that it is impossible to mis- place them. The folder is prominently marked with the group number. When standardization has made sufficient advance to warrant the adoption of this system, it should command very wide attention. I M I I I: CHAPTER XI THE USE OF CHAETS AND DIAGRAMS IN PURCHASING Figures and Charts. — Every purchasing department is interested in compiling, asst^mbling, and recording facts and data connected with materials purchased and consumed. These facts and data may be quanti- tative, or they may indicate fluctuations in prices and quotations covering varying periods. It is also de- sirable in some cases to have statistics regarding the particular materials or commodities that bulk large in the activities of the establishment. Accurate data and facts are extremely important and valuable, but if they are not clearly presented the results to be gained from them do not sliow up as they should, and consequently lose mucli of their force. The proper presentati(m, therefore, of these records is ordinarily of as much importaiice as the facts themselves. If, for instance, a tabulated list of figures is being considered, or is under observation, and th(»se figures indicate the consumption or purchase of a commodity or article for a number of months or years, denoting frequent increases or decreases, it is a matter of some difficulty to get a comprehensive grasp of them, as compared to the ease with which the same facts can be assimilated if they are presented so as to be 214 CHARTS AND DIAGRAMS 215 readily visualized in the shape of a curve, diagram, or chart. When totals are merely footed, each conveys separate facts, however lucidly arranged; but when totals are connected up intelligently in a chart, a suc- cession of facts is presented each of which, while it retains its particular value and place, is a component part of the whole, larger fact that is being demon- strated m unbroken simplicity. Figures are for recording purposes, and convey pictures of weight or size. Many people think of these pictures, and not of the actual figures. Curves, charts, and diagrams are reproductions of these pic- tures, proportioned to a range of vision that makes them almost instantaneously intelligible. Before figures, weights, or measures were used, these mental pictures of bulk were obtained by the ancients by crude, but similar, means. Examples of these are found to the present day in the terms *^foot," indi- cating measurement, and ^* stone," under which desig- nation annealed binding wire is still sold. In com- mercial usage, *' stone" indicates twelve pounds. When figures are put in the graphic form of curves and diagrams, not only is there a great saving in the time of the reader, but there is the tremendous ad- vantage that one can absorb more facts with less danger of misinterpretation. It would be to the ad- vantage of any purchasing department to present in this form all numerical comparatives or fluctuations m prices for the assistance of the executives of the establishment, and for the information and guidance of the department iself. fm3 216 PURCHASING AND STORING Value of Charts to the Buyer.— When very largi' purchases are made of some commodity, and particu- larly of such things as valuable metals, it is vital to good buying that statistics be kept of production, consumption, and visible supply, and that these* statistics show variations in these items, together with fluctuations in prices. Not all purchasing agents are interested in expensive metals, except as they may serve to indicate the general business con- ditions and the prosperity - of the country. Purchas- ing agents should, however, be posted— as should all business men— on anything which is liable to affect commerce and industry. Probably every purchasing agent is buying something regarding whicli he should have reliable information clearly set forth and, rather than depend on a mass of figures, he will find it pref- erable to use some simpler means of portraying that information. The simplest and most generally used form of curve is that which indicates fluctuations in com- modities. This type is seen frequently in the journals and trade papers devoted to the interests of some particular product or commodity; it is illus- trated in Figures 31 and 32. Usually the advances and declines in the commodity in its raw condition are shown, but most purchasing agents are chiefly concerned with material in its semi-manufactured state— for instance, metals in bars and sheets— and they must know the exact variations in price of the commodity in the condition in which they buy it. The periodicals to which a purchasing agent has access cannot always be depc^nded upon to give him n " ' S50 3.00 m 224 PURCHASING AND STORING l^lt **liand to-mouth" policy in purchasing, and buy in the open market, only for immediate requirements, do not have so much need for charts. But for a manu- facturing plant that can make up a schedule of its requirements over a given period of time, records of prices are imperative if the most economical buying is to be done. These can be presented by the pur- chasing department to the manufacturing depart- ment. The latter can then make up the requisitions for quantities required, and can, moreover, make them up at the times most favorable for purchasing, as shown by the price record. Even in those cases in which buying is done on a ** hand-to-mouth'' basis, a record may prove valuable, because if the record can show that saving could be effected by a different buying policy some means may be adopted for putting it into effect. Augmenting Buyer's Knowledge of Business Con- ditions. — It is acknowledged that the general trend of business, and of most prices, can be forecasted by the output of the principal product of a country. As regards a country like Brazil, for instance, whose prosperity depends mainly on rubber and coffee, a chart record of these commodities would give valuable information to establishments buying or selling there. In the United States the situation is more complex, because our industries and commodi- ties are widely diversified. At one time, the pros- perity of the Southern States might have run along lines parallel with the condition of the cotton busi- ness, but for the whole country it is necessary to watch railroad earnings, building permits, bank CHARTS AND DIAGRAMS 225 clearings, and many other features. However, since steel is used in so many lines of business the situa- tion can be covered by keeping a record of the un- filled orders of the United States Steel Corporation. Whatever may be said in favor of the use of graphic charts, this fact must not be overlook-ed: It is necessary first to ascertain the correct figures from our bookkeeping methods before the lines can be drawn on the chart. This does not mean that the charts are not of value — as I have said before, it is decidedly advantageous not to have to digest a mass of figures. Economical buying is largely a result of keeping posted on market conditions, and for this reason it is desirable to know the value of graphic records portraying these and other features. Personal opinion as to the trend of business or prices is mere guesswork if it is not founded upon scientific data. It does not even deserve to be called speculation because the latter is at least based upon some funda- mental basic principles. in CHAPTER XII EOUTINE WORK OF THE PURCHASING DEPARTMENT Disposition of Incoming Documents. — Every pur- chasing department receives large quantities of mail, including correspondence, quotations, acknowledg- ments of orders, invoices, shij)ping documents, cata- logues, pamphlets and quite often samples, blue prints, and so on. There are also the inter-depart- ment communications, inquiries, and requisitions. All these must be taken care of in an intelligent manner. Some person in the office should be so well versed and trained in its routine and methods as to be able to segregate all the incoming mail and documents and pass them along to the various clerks interested. There are many heads of departments who seem to think they are neglecting some important duties if they do not personally handle everything that goes Note: — AcknowlemA.«i«B • ■aNCD. .Dl^T- A^^AOVCO. ^A^P«OV«0. »•* MOAMIl PIG. 35. 1H;quisition form Showing method employed by the Otis Elevator Company of inserting consumption for each month ROUTINE OF PURCHASING 231 Material. „ Material Record ITnl* YEAR » „ MONTH ManTUIc MUwaUkee | MaoviOe MUwiukee M«iiTiIle Milwaiiba. J«nn«ry l_ J " = B*=J DBS __ ^ — ;=, =*= FebniaiT Mtrch V ■M Li 1 bl'.i-i ^ u u La a 3d November i ~ 1 December riJ M. 1 J em - TOTAL ^ -^=^= —'I FIG. 36. MATERIAL CONSUMED RECORD Tho figures for this record are furnished by the factories, and The repord is kept in the purchasing department it one can determine whether the consumption is greater at one season than another. The figures are inserted by the stores department before the requisi- tion reaches the purchasing department. In Figure 36 is shown the method pursued by the purchasing department of H. W. Johns-Manville Company for keeping a record of material. An in- teresting feature of this record is that it covers a period of three years, and the separate figures are given for the Manville and the Milwaukee factories. The quantities are furnished to the purchasing de- partment by the factories, and the sheets made up from those quantities. Some interesting charts of the more important materials could be compiled from these sheets. 6. The estimate of quantities required in the future bears a close relationship to the record of quantities consumed in the past. In normal times, 'IM^ 1 1 1 ■ PURCHASING AND STORING MATERIAL PRICE RECORD UNIT a — Not Dclvd. Date Seller^ No DESCRIPTION Price Discount Term* Authority FIG. 37. PRICE RECORD A distinction is made by symbol between prices for ptods actually delivered and those for which only quotations are received. The sellers' names are listed on tlie reverse side under their key numbers the latter may so closely approximate tlie former that it can be accepted, provided there are no radical manufacturing changes. If there are any, or if a new class of material is to be procured, the purchasing de- partment should be duly advised. In any of these contingencies, with this information on record, the purchasing agent is in a position to take advantage of any favorable market, and in no case is he unaware of what the future demands will be. 7. So much has been said regarding price records in Chapter IV, on ** Prices," and in Chapter VII, on ** Invoices," that further discussion is scarcely neces- sary, but I wish to call attention to Figure 37, a form that is used by H. W. Johns-Manville Company. The ROUTINE OF PURCHASING 233 heading, **Unit," is for pound, ton, yard, and so on. The sellers are listed on the back, by number. The last column, '* Authority," is for indicating from what document, or other source, the price was ob- tained — such as order, contract, quotation, and so on. 8. Another class of information is that relating to the physical characteristics of purchases. This can be collected and compiled from several sources. There are, for instance, the inspector's reports, which have been referred to in Chapter VI, on '* Delivery." Copies of these should always come to the purchasing department. There are also the physical and chemi- cal tests, and all the reports concerning the action of materials during the manufacturing processes, and in the form of finished product. The outline just given includes the principal features of the information that should be secured and tabulated. Possibly in some purchasing depart- ments other data will be found necessary; the de- cision in regard to this point will vary according to individual cases and circumstances. The accumula- tion of the data is largely a question of the enter- prise and initiative of the man in charge of the work, and it is also his responsibility not to amass a lot of figures and records not pertinent to the department's work, of no value to the staff, and not conducive to the betterment of purchasing. The Requisition.— The requisition is the tangible authorization for a purchase; it is therefore an im- portant document. From it emanate practically all the activities associated with every order placed — in fact, it is the basis of the purchasing structure. •.H u^i ■^: 1 ! :et copper one eighth of an inch thick is indefinite and vague; yet many such requisitions are received by the average pur- chasing department. All requisitions of this kind should be returned with a request for fuller informa- tion. The width, length, and gauge should be stated, as well as the temper. 6. The purpose for which the material is needed should be stated. 7. The exact, or at least the approximate, date on which delivery is required should be given. This is a vital item of information, and on this point requisi- tions should be explicit and frank. The woes of a purchasing department are greatest in connection with delivery. There are more complaints in regard to this matter than concerning all others combined; for the alleviation of this condition as far as possible, honesty to start with is of the greatest assistance. It is foolish, as regards delivery, to name a date ahead of requirements, and almost as bad to name one too late. Either fault will have a deterring effect on good purchasing. Additional Information. — The features enumerated are the basic ones which are absolutely essential, but there are other points to be considered. Whenever possible, requisitions should be confined to single items, or at least to material of the same character. For instance, several items of brass tubing might appear on the same requisition, but if items for lum- ber, screws, and other material foreign to brass were grouped together, it would be necessary to issue a separate order for each. The purchasing department would then be put to some inconvenience in passing ', ■ '>K r III r 238 PURCHASING AND STORING one requisition back and forth among the employees, and notations would have to be made on it of each order number, name of seller, and so on, for which there might be convenient space. It is possible that in some cases it might be ad- visable to state the permissible maximum and mini- mum, the quantity in stock, and some other details, as I shall explain in discussing the examples of requi- sitions which follow. Samples of Requisitions.— Figure 35 is th(^ form of requisition used by the Otis Elevator Company for factory purposes. The great majority of these are written up by the clerks who keep the stores physical records. When the clerk balances his inventory card, on making entries of material taken from stores, and finds that the minimum has been reached, he immediately makes out a requisition for the quantity needed to bring the amount of material to the maximum, and passes it along to the head storekeeper. The latter signs the requisition— which is in quadruplicate— and the original is forwarded at once to the purchasing deartment. We have to deal only with the original in connection with purchasing. The spaces on this form for insertion of maximum, minimum, and other features are not primarily for the information of the purchasing department, al- though the latter gives them due consideration. Ordinarily, the amount of material in the stores and the amount requistioned should, together, total the maximum. When this is not the case thei-e is some reason, which is noted in the space headed *'Ee- inarks." For example, it may be found that a pur- ROUTINE OF PURCHASING 239 chase can be effected more economically for some larger quantity which would exceed the maximum. In such an event, the general storekeeper is notified, and on his authorization the larger quantity is requi- sitioned. A note to this effect, reading ** Maxi- mum exceeded, for purchasing reasons," would ap- pear in the space for ** Remarks." The purchasing agent also keeps the general storekeeper advised as to the time required to obtain various materials. This information is used as an aid in determining whether the stock is to be maintained on a monthly basis, or on a two, three, or six months' basis, or even longer. Except for these features, the purchas- ing department has only a passing interest in the figures inserted in these spaces. At the foot of this form, on the left-hand side, is a space for the signature of the general works man- ager, but his approval is required only when the re- quisition is for machinery, shop equipment, or some- thing else not under control of the general store- keeper. Figure 38 illustrates quite a different form of requisition. It is used by H. W. Johns-Manville Com- pany in their various factories. It will be noted that it is drawn by the foreman, and that the storekeeper fills in the information as to the amount of stock on hand and the estimated time it will last. This form is in triplicate and has a stub, which is retained by the foreman. The original is held by the purchasing department, one copy is held by the store- keeper, and the third copy (on the back of ticket C" in the illustration) goes to the receiving de- << .»•' i I Id U S FOREMAN'S STUB Good* K N? 249 Ooaatity- For Um On - Rcquiaitioo iMued Order Na Dcp'tNo.-- ,. REQUISITION FOR MATERIALS Dim K N? 249 Ordered Fn^. Goods Qinntity . - Dimemioiia . Oaality B: Stock oaiMAd- WiU 1*« _ To be u«cd for -•_ Wanted not btcr tbaa If Foreono ll I I I i "8 i <5 ^ ^ I I \ I K u B e t i 1 I ! i I I- ! ! t i ! i > il ! il I ■3 _ ie Order Na Dep't No Ordered Ptom. REQUISITION FOR MATERIALS K ^^ ^49 Goods Ouentitjr — Dimcnnoae Quilira — r- & -Slock oo hud- Will Ml ^ To be need for — Weated oof later I -19 FoieoMQ- APPROVED DITAATMIMT 240 I C 9 c ;3 o o O a* c C3 s a ft t2 1—1 22 -^ B 5 c o 00 S O a Is fa " 33 'a; ;^ *- .a C3 c5 o 9S « ROUTINE OF PURCHASING 241 para KMl-IMM Warner Sugar refining Company EDCEWATER.- N. J. REFINERY REQUISITION REQUIRED r FOR (. CHAROP... NO. A 2793 --^. OBPANTMKNT HCOUIWTION- Make Order to: APPROVED: MoMam O. K. ,. ^... 1 FIG. 40. REQUISITION FORM partment. An interesting feature is ticket "C,'* where a complete record is kept of all material on the order. Figure 40 is an illustration of the requisition form used by the refineries and factories of the Warner Sugar Kefining Company. These requisitions are sent to the head office in New York City, where the general purchasing agent is located. It will be noted that the authorization required in this case is that of the manager of the factory or refinery where the requisition originates. At the bottom right-hand corner is a feature not shown in the preceding ex- amples of requisitions. It is provided to enable the purchasing agent to put his O. K. on the requisition t . ;. t 'f 242 PURCHASING AND STORING REQ NO.. TELEPHONE PURCHASE SLIP TO BE CONFIRMED uate.. -19- MATERIAL. Requested by. Factory. Placed by With Per Price. F. O. B. Terms. Delv'y. FIG. 41. CONFIRMATORY TELEPHONE REQUISITION after the detail work has been done on it, and before the order has been written up. Figure 41 is a sample of a form used for an emergency purpose; I commented on it earlier in this chapter. It is not good policy to receive over the telephone these requests to purchase, and have only a vague memorandum on a hastily secured scratch pad. When messages are taken in tliis man- ner there will frequently be some omission of an essential detail, whereas if one uses a proper form on which to make a notation of the message, this can- not happen. A formal requisition follows the tele- phone request, and this should be marked ** Con- firming telephone." In connection with all the examples given, there are matters of detail which must be settled as in- dividual circumstances and preferences dictate. None of the seven fundamental requirements, how- ever, as already laid down as necessary for every requisition, can be neglected. In matters of detail, ROUTINE OP PURCHASING 243 for example, the requisition shown in Figure 35 does not have any space for the order number — an unusual omission. The reason why the space is omitted is that the stenographer who writes up the order, in stamping the requisition, uses a large rubber stamp which has on it the word, '* Ordered" and a space for the date and the order number. This method has one outstanding advantage — the impression of the rubber stamp, being very prominent, is clearly seen, so that requisitions already dealt with are easily dis- tinguished from requisitions for which orders have not been written up. Routing the Requisition. — In small purchasing de- partments, it is possible for all requisitions to pass through the hands of the purchasing agent himself. In larger departments, they may go over the desk of the chief clerk, who may review them. He will prob- ably mark some of them as being of sufficient im- portance to be dealt with or to be brought to the at- tention of the purchasing agent. In still larger de- partments, it may be found advisable to let the re- quisition clerk take all requisitions first. This method would relieve the chief clerk of much detail work, as many of the requisitions could be disposed of without going through his hands. Those for ma- terial for which there is a blanket contract, or for which a price has been established, could be passed along for the order to be written up. It is taken for granted, of course, that all features of the requisition are in proper order, that material is correctly speci- fied, and that the requisition is signed by some authorized person. i! ''I : m i r m "I ' ^ ^f 1' ' i i .' 1 ' Bi^ PI 2M PURCHASING AND STORING The paying teller of a bank would not cash a check until he had noticed the date, assured himself that the signature was genuine, and made sure that the amount demanded stood to the credit of the drawer on the books of the bank. A requisition lias some features which are analagous to those of a check, and these features require examination. For example, the requisition clerk must see that the requisition is signed by some person who has the necessary authority. He should see that it bears the date upon which it was drawn; or, what is more essential, the date of its appearance in the purchasing department should be stamped on it. The specification of the material or article must be closely scrutinized and, if Bot correct, it must be made to conform to the stand- ard practice as explained in Chapter II. The date on which delivery is required should be definitely stated. It is not sufficient to say **soon," *' quickly," or *'as soon as possible." These expressions, used in this connection, have no real definite meaning, whereas, as previously stated, one of the most important features of a requisition is the honest statement of a delivery date. If a requisition fails to meet any of the tests to which it is subjected, it should be returned to the maker for correction. Pricing Requisitions. — Having satisfactoiily passed the tests, the requisition should be priced. It is pos- sible that the material which it covers has already been contracted for — if so, all that is then necessary is to insert the contract price, delivery point, and a notation to the effect that the order is issued **0n account of contract dated " ROUTINE OP PURCHASING 245 In those cases in which competitive prices have to be obtained, a form suitable for the purpose should be used. Figures 42 and 43 illustrate quite different styles of forms for requesting quotations. These will serve as a basis for a similar form for any industrial establishment. Care should be exercised in the word- ing of these forms, to prevent their being mistaken for orders. These inquiries for prices are sent to the selected sources of supply, as fully discussed in Chapter II. If the material is correctly and OTIS ELEVATOR COMPANY OFFICE OF PURCHASING AGENT Request for Quotation Please quote ON THIS SHEET your best price F.O.B. for the articles specified below and state how soon you can furnish the same. Bid on each item separately 00 NOT FAIL TO SIGN THIS BID Total Signature. Address. Requisition No. Purchase Order No. FIG. 42. REQUEST FOR QUOTATION The paper for this form is very thin so that a number of copies may be made 1/ i < H 246 PURCHASING AND STORING H OOVKM ooniwinTV H. W. JOHNS-MANVILLE CO. MADISON AVE. k. 41A STREET NEW YORK CITY »••■■•■ ■ ■ ■■■■■►••••••■I — ■■ • •■■■■■■•■■■■»^^ INOLIKY NO. Date -X Plea*e quote the following mctirial ? O. B. State when you can ship. State terms of payment. Material is required at dettiaation before _ This is not an order. OtrcA reply to H. W. JOHNS-MANVILLE CO. PURCHASING DEPARTMENT MadUon Ave. & 41« Street NEW YOU Attentloa ol PIG. 43. REQUEST FOR QUOTATION adequately specified, replies are usually received very promptly; upon receipt, they will have to be tabu- lated for comparative purposes. It is possible to have the back of the requisition arranged for the tabulation and comparison of prices. Such an ar- rangement renders unnecessary the use of a special form, and whenever it is found necessary to look up the quotations received on any requisition, the search is greatly simplified if it is possible to refer to tli(i requisition itself. However, this is not always pos- sible — a special form for quotation purposes ia illus- trated in Figure 44. This is a very useful form; in ROUTINE OF PURCHASING 247 UUktSBx COMPETITION SHEET * Material Date Last Purchaae Date BIDDER F. O. B. TERMS *-- 1 — ^ ^. FIG. 44. FORM FOR TABULATING QUOTATIONS those cases in which the price clerk has not the authority to decide on the acceptance of any bid, it furnishes a brief, clear and concise method of pre- senting the quotations to the purchasing agent or chief clerk for decision. It makes it unnecessary for either of these persons to wade through each quota- tion. All bids should be read very carefully, since it is a very common occurrence for the prices to be made on a basis different from that indicated in the quotation request. This is particularly noticeable in connection with the delivery point. Very frequently these quotation forms come back with prices named at varying f . o. b. points, even though the requests all named a uniform specific point of delivery. In these cases, the freight from f. o. b. point to destination would have a bearing on the quotations. -i )!.' li 248 PURCHASING AND STORING ROUTINE OF PURCHASING 249 When a purchase is made h)cally, the prices can be obtained by telephone and written on the back of the requisition, but it is imperative that the bidders should be made to understand clearly what is being inquired for, and that the name of the party quoting the price be ascertained and noted. A memorandum should always be made on th(^ requisition stating th(» accepted price and the fact that the order is in ac- cordance with the quotation made by telephone by Mr. on . If the order is plac(^d by tele- phone, or verbally with a salesman, a memorandum should be made to that effect, so that when the order is written up it can be marked '* Confirming tek^phone order'' or ** Confirming verbal order given to your Mr. today." These points are important. They might seem trivial to the casual reader, but in an experience in which it was necessary to tdephone an average of fifty to sixty orders every day it was found that they were vital. Much confusion resulted either if the price or the '* Confirming tek-phone order,'' etc., was omitted by the price clerk, or if these were over- looked by the clerk when he wrote up the order. There is the possibility that goods may })e shipped out of the warehouse by the seller immediately after the receipt of the telephone order, and that then on receipt of the formal order an additionjd shipment may be made duplicating the first one. Only a rigid adherence to the rules laid down can prevent such an occurrence. When the work on a recpiisition is finished, it is passed along to the order clerk in order that the formal order may be written up. Before leaving this subject, however, I wish to treat the disposition and filing of the requisitions. It will have been gathered from what has already been said that there is no standard type of requisition with respect to either size or wording. For the great majority of industrial establishments the most useful size is probably about 8V2 inches square. The ideal requisition should be arranged with spaces for the insertion of the following: Checked by Priced by Price obtained from contract '* ** *' quotation F. 0. B Order from Order No When these spaces have been used for their indi- cated purposes as the requisition has passed along to be finally disposed of, and when the requisition finally completes its journey through the department, there is a clean-cut, complete document telling a concise and intelligent story. There is no reason why proper places should not be provided for the particulars indicated. To make the notations in various places on the requisitions is a ragged, loose method, and much confusion will result if reference has to be made at any future time to the document. Every requisition should be numbered, and for pur- poses of identification the order number must also be inserted on the requisition, and the requisition number on the order. These numbers connect them in such a way that reference from one to the other is quick and certain. Because of the importance of '4 Mil > I V 250 PURCHASING AND STORING the requisitions, they must be preserved for such periods as may be found necessary in each individual case. The best scheme is undoubtedly to use post binders, retaining the system of numerical sequence in filing. Many thousands can be ke])t by this method, economically and in a very limited space; the requisitions are easy of access and cannot be mis- placed. There are a few departments that use the vertical filing system; in these cases the purchasing department's copy is made of fairly heavy stock in order that it may stand the use to which it is put. Requisitions should be numbered when printed. The spacing should be arranged to conform to type- writer spacing, and all copies should register. In conclusion it is worth while to emphasize the fact that every purchase should be sanctioned by a requisition. In the case of verbal or telephone re- quests to purchase, requisitions should always be exacted. Verbal requests to purchase should be sanctioned as seldom as possible. If conditions and circumstances do not warrant them, the purchasing agent should take a determined stand in the matter and refuse to honor them. CHAPTER XIII ADDITIONAL ROUTINE WORK OF THE PURCHASING DEPARTMENT Contracts. — ^Before discussing the routine work con- nected with the order, which follows in logical sequence after the requisition, I wish to discuss the subject of contracts, since many orders apply on con- tracts which may be in force. Practically all industrial establishments of any magnitude find it essential to cover part or all of their requirements of certain materials with blanket contracts. These have been discussed in Chapter V— they are, in effect, somewhat similar to a bank ac- count. Every time an order is made out to apply on a contract, the proceeding can be compared to draw- ing a check against an account. Contracts of this nature are really arrangements made in advance of the actual need of the material. Although it may be definitely agreed to take a specific quantity in a given time, the actual need and instructions to forward are represented by the order, which follows on the receipt of the requisition. Contracts are entered into by the purchasing agent with the known requirements of the factory as a basis. The selection of the materials or supplies which it is thought advisable to place contracts for, is entirely within the jurisdiction of the purchasing 251 I I r .V 252 PURCHASING AND STORING ROUTINE OF PURCHASING 253 agent, altliongh any action he may take will probably be subject to the approval of the directois or execu- tives. It is customary for the purchasing- agent to conduct personally the negotiations in connection with these contracts, using his knowledge of busi- ness conditions, markets, prices, available sources of supply, and all other factors which have previously been discussed. There are many forms of these contracts— one of them was given in Chapter V, Figure 15. Another is given here. Figure 45. In connection with this it will, of course, be appreciated that there are some stipula- tions in such a contract which cannot always be en- forced, particularly in strenuous times, when the sellers have the upper hand to a large extent. In ordinary times it is very useful, and is generally ac- cepted by the sellers; it has been found a workable form of contract by some of the largest industrial establishments. Like all other contracts, it must be administered in a spirit of fairness and mutual con- fidence. Provided this spirit forms a basis for the relations between the buyer and the seller, there is nothing agreed- to in this form of contract that can- not be performed. CONTRACT between the smith-jonks mfg. co., (the Pur- chaser) and the (Seller) for famishing '. for a period of months, commencing Material: Material shall be Quantity: Quantity shall be the entire requirements of the Purchaser at its factorii. . . now, and for some time, in operation \ located at or at any other point where the Purchaser may require the material for its own uses. Quality: The quality of the material shall be and must be satisfactory to the Purchaser. If, at any time, material furnished is not satisfactory to the Purchaser, and the Seller, upon due notice in writing does not forthwith make the same satis- factory, the Purchaser shall have the right to terminate the entire contract, if it so elects. The Purchaser shall have the right to return all un- satisfactory goods for credit, at the expense of the Seller. Such credit shall be in cash or goods covered by this contract, at the option of the Purchaser. Price: The price shall be Delivery: Delivery at the above price shall be made F. 0. B. Deliveries shall be made at such times and at such places as the Purchaser may designate by formal orders. If the Seller does not make deliveries with reasonable promptness the rights of the Pur- chaser shall not be forfeited by making purchases elsewhere. '4. ' * II 254 PURCHASING AND STORING ROUTINE OF PURCHASING 255 Terms: Terms of payment shall be Routing: The Purchaser shall have the right to route all shipments, provided however, that such routing on material sold at delivered prices shall not in- crease the cost of delivery. Packages: Material sold by weight shall be charged at net weight not including weight of packages. No charge for package, container, cartage or other- wise, shall be made unless specifically herein agreed. Renewal: The Purchaser has the right to renew this con- tract for a like period of time at the same prices and terms. Patents: The Seller agrees to defend at his solo cost and expense any suits brought against the Purchaser for alleged infringement of letters patent by reason of use or sale of goods covered by this con- tract, and to make good to Purchaser any damages, costs or money recoveries resulting from such suits. General: This contract is subject to strikes, fires, accidents or any cause for delay beyond the control of the Purchaser or Seller. DATE Accepted : SMITH- JONES MFG. CO., Accepted FIG. 45. FORM OF CONTRACT FOR INDUSTRUL PURCHASES CONTRACT RECORD CONTRACTOR MATERIAL DATE EXPIRES QUANTITY PRICE SHIPMENTS Date QUANTITY UNIT VALUE Date QUANTITY UNIT VALUE _ ■ . ^ J- ^ ^_ — L .. ^ r^ ^ PIG. 46. RECORD OF SHIPMENTS AND PROGRESS IN FILUNG ORDERS As stated in the delivery clause of the contract, Figure 45, formal orders will be issued from time to time as the material is required. But as these orders are scattered through the binders, in regular numeri- cal sequence, with orders for other materials and supplies, it is necessary to keep a record of the shipments made against the contract. This require- ment is provided for by the form shown in Figure 46. It is important to keep an accurate record of these shipments; they should be posted on the con- tract record, from the invoices and not from the 256 PURCHASING AND STORINd ROUTINE OF PURCHASING 257 orders. The reason is that the full quantity ordered may not be shipped, and in a constantly advancing market the buyer might be short of a very large quantity. Where these conditions prevail, pressure must be exerted to obtain the contract quantity. Orders. — The order form is the most important document used by the purchasing department. It is a legally binding obligation on the buyer if it is issued in acceptance of a quotation, or if it is issued as an offer to buy and is accepted by the seller. While it is unnecessary to employ intricate legal phraseology in the text of an order, nevertheless there are certain technicalities which must be complied with, and which arise in the ordinary transaction of the business. Some manufacturers attach greater importance than others to the insertion of all clauses covering the various conditions. This will appear from the illustrations that follow. Some also require acknowl- edgments, while others will waive these. The car- dinal points that must appear on every order have been discussed in Chapter V, but the routine work of the purchasing department may include some other features. For example, if invoices in duplicate or triplicate are required, the fact should be stated on the order. Some sellers are very tardy in sending in invoices, and as promptness in this respect is essen- tial to the efficient working of the purchasing depart- ment, as well as to the cost, auditing and financial departments, something might be included regarding this point. These and similar matters must be left, however, to individual decision. Acknowledgment of Orders.— In regard to acknowl- edgments of orders, these are difficult to get in every case. Nearly all attempts— no matter what the method— to secure acknowledgments are treated in a perfunctory manner by the sellers. One scheme, as illustrated in Figure 47, is to have a perforated slip attached to the order, to be signed by the recipient and returned to the buyer. This order form is a splendid example of a very complete and well-framed order. Mr. J. R. Pels, purchasing agent of the War- ner Sugar Refinery Company, expresses himself as follows on this subject: I have given the conditions printed on the reverse side of this order much attention, and find them very useful. I am very particular about having the perforated acceptance slips returned, signed in such a manner as to make the signa- ture binding m law, and I have found at times that this acceptance of the order has saved us a great deal of annoy- ance, and considerable money in some instances. Other schemes for getting acknowledgments are to send separate acceptance forms, or to send postcards with the orders, but probably these receive less at- tention than the perforated slips. A good scheme is to send the order to the seller in duplicate; the two copies are identical, except that the one to be signed by the seller and returned to the buyer bears this clause, ** Receipt is acknowledged of this order and the conditions are accepted by us. Signed " Generally speaking, acknowledgments are not of such great moment in connection with orders issued on ac- count of contracts, or for orders issued in acceptance of a written quotation from the seller. In the former '• M ,1 i ni I ROUTINE OF PURCHASING 259 case, the contract is closed, and the order is really a form of delivery instructions. In the latter, the order completes the contract. The main advantage in ob- taining an acknowledgment in these instances, is to secure an assurance from the seller that he actually received the order. Acknowledgments are very es- sential when orders are issued for material for which there has been no previous offer to sell. Because there has been no *' meeting of minds,'' there is no agreement and consequently no contract. As I have already explained, the order is simply an offer to buy, and to complete the agreement an acceptance from the seller is necessary. Figures 48 and 49 are also excellent examples of purchase orders. The former has conditions printed on the reverse side, while the latter has some condi- tions printed at the foot, with a blank space sufficient for the insertion of any special conditions that might be necessary with certain orders. All these orders are in triplicate or quadruplicate. In the progress of the discussion of routine work, these copies will come in for consideration. Writing Up Orders.— In the last chapter I ex- plained the active work of the requisition. It has also a negative duty to perform, for from it the order must be written up. The digression which has taken place from the end of the last chapter to the present point has been essential to the explanation of some of the features connected with contracts and orders. I shall now consider the requisition in its completed state, and continue with the progress of the routine work. The order clerk has only to transcribe cor- ■ n fn !.l Purchasing Department H. W. JOHNS-MANVILLE CO. Madison Are. & 41st St, NEW YORK, R. T. sMlSS £.""«"»■ Date ortDtR Ma. RCaNak •HIP TO VI* aUANTITV H. W. JOHNS-MANVILLE CO. F. W. ROWE. General Purctietlng Agent nTSuna «HI» COMTRACT SUBJECT TO CONDITIONS PRINTED ON BACK MCRtOr CONDITIONS GUARANTEE ROUTE Unless otherwise specifled. ship by freight unless express chsrses are approximately the mnei MARKINGS Purchase order namber must be shown on all packages or ahipment wiu not be accepted. SHIPMENT Shipment must actually U effected within the time .t.ile.l in Purchase Order, falline In which .* reevre la eumel.^ SVrflmB ^ " elsewhere and charge you with ««r J«*i i«urr«l lb. ^o, unle., d..er,«i .h,p».JT^ ^C)^'^ Orders subject t« cancellation In case of .inkes. lire or ct,nditlon. beyond our control or affacllng our oiMration'a. All material, purch.-ised on weight bas.s. unless otherwise a.r.nged tor. will be .eitlod for at n.t weight, not Includlu weight of package or container. "■••■". ""> inEiuauis INVOICES Bender Invoices In triplicate on date of shipment, and separate inrolce for each order Note Shipping weight on Invoice and accompany by bill of l-vding ahow.nis freight rale. Purcbeae order number must appear on Invoic^L -w^ «#««• DRAFTS No drafts for purchases made by this company wlU be honereC PACKING AND CARTAGE A^JltJ*'^'^" "'" •*,""<"'*'' ""■ Pa'^klng. bosing or carcige unl-ss agreed upon In writing at th. U(ne of purelUM. but damages to any mataial not packed to Insure proper protectui. to aar^ w.U be charged to you. I™rc«.«, ma PAYMENTS I'r' tL'vT"^"'," "•»'"•* ■""' •>'»'J««» «<> e»<* diacount samn win be dikounted 10 days from r«.lpt of correct inTole^ If above Instruction are not compiled with. Invoices c.inn. i be passed for payment mTOc* RAGS Of matlnal deduTnn/'/'"'*"' Z' ""k '.'"""""' '"°'"» "" """' "^' """'*"' "" ">• ""^ " ">• "«>""■ following receipt 01 material, deducling ! per cent, cash discount al that tlrr.c tn r.u cl.-\>» net ■»«•»'• Of a^y m"!rnr^ ".'LT'""' '*"'"r'' ""• '" »">' ""'"^ -"- "* 2^'" "' ■~-^»' -ndfOI. ■Inrolc.. received after Ih. IbC Of aiiy mon h will be treated as invoices of such month. Order gi^tn subject to above conditions vniess invoices a.e mailed on shipping date, the discount prnod will be calcuUted from date of reeelpfof We reserve the r«ht to adjust any Irregularities against suUwquent shlpmenla. •na.^'s"'luV,lS'*f!;'m\r'^*'°'*^°" '!''!'"''■''•'"■•'""''''•••' '"' »*'""«' •» »"• "'* •"'» "<" "•■" ""-blsh or any U . Xni ;educ.troVa"t:ar:;^7t T.=:fJ^t^ --'ea-ei:: 1-^^ fn^rC '"> " — • All wasle m.Tl.rial and oullhrowa to be disposed of by us _lour_ac,.eplance al our order consliiutea agreement to above ti^ma. FIG. 48. ORDER FORM AND ACCOMPANYING CONDITIONS "^he conditions shown below are printed on the reverse side. 260 ROUTINE OF PURCHASING 261 THE. JEFFREY MFG. CO. Not* Thli Numtotr •« lAv«le* ORDER No. o 33319 PURCHASE AND STORES DEPARTMENT :i COLUMBUS, OHIO. SHIP TO VIA MAIL ALL CORRES.ONO.NCt. INVO.CM AND .H.rr.NO DOCUM.NTS PEBT.IN.NO TO THIS ORDER, TO PURCHASING OCPARTSSCNT. THE JEFFREY MANUFACTURING OO. ON MATCRIAL SOLD p. O. •. COLUMBUS TaAfti«»Aa>Au *>..<. ...^-. PURCHASE NUMBER MUST S^P^Tr'on ,;;o7c.^"Vd PiTcS^^G^" """ " "*"*• RENDER DUPLICATE INVOICE WITH PRICES FIG. 49. ORDER FORM WITH SPACE FOR ADDITIONAL CONDITIONS rectly to the order form the particulars on the re- quisitioiie Every order should be checked before inailiiig, and in the case of those of any consequence It IS particularly important that this checking never he omitted. It is absolutely imperative to check these orders for which acknowledgments are de- inanded. It will be observed that in the form shown in Figure 47 a space is provided for the initials of the person who checks the order. The order clerk should be responsible for the proper distribution of the copies, and should have charge of the purchasing department's copy until it is taken over by the fol- low-up clerk. ^-^ i 'f 4 ■ if! H I % ^ { iff i I 262 PURCHASING AND STORING It is generally the practice to keep the copy of orders in the purchasing department in a post bindor. This scheme is used by the Otis Elevator Company — actually 100,000 copies are kept with a minimum of trouble in the smallest possible space, and they are so easy to refer to that it is no more difficult to find a copy than it is to find a given page in the Encyclo- pedia Brittanica if one has all the volumes in front of him. Mr. F. W. Kowe, general purchasing agent of H. W. Johns-Manville Company, says, in connec- tion with the purchasing department's copy of their orders: ** Although this is a loose-leaf form, we have recently found it just as safe to handle these as to handle cards in an open index file or tray." It is sometimes necessary to make changes in an order after it has been sent to the seller — most often in connection with delivery dates. Written instruc- tions on such points must be sent to the seller. An excellent plan for taking care of this feature is illus- trated in Figure 50; it has so many advantages over writing a letter that it should be universally adopted. The form, termed an instruction sheet, is identical, in size and spacing, to the order form. A copy is kept in the purchasing department, and is filed with the copy of the order, to which it can be fastened if necessary. Since it is of a distinctive color, it can- not escape observation when in the file. If a letter is written, additional work is involved in making a notation on the copy of the order, and this notation may sometimes be overlooked. Moreover, the copy of the letter gets into the general file, and a record of the change in the order is lost. ROUTINE OF PURCHASING 263 INSTRUCTION SHEET jH. W. JOHNS-MANVILLE CO. Msditoa Ave. & 41A Street. NEW YORK. DAT! MO. I rCEASE OBSERVE THE FOLLOWING INSTRUCTIONS APTLYINC TO OUR ABOVE ORDER THIS CANCXU ANY PKEVIOUS INSTRUCTIONS ISSUED ON THIS OROUt H. W. JOHNS-MANVILLE Ca rimcHAifNc osn. FIG. 50. INSTRUCTION SHEET This form, as noted, pertains only to orders bearing the same number. In some establishments there is a rale — usually made for financial or auditing reasons— to the effect that the copy of the order kept in the purchasing department must bear the price of the material or the article ordered. It may not always be possible to insert the price before the order leaves the office, since the seller may be located at some distant point. In such an event, it would take several days to secure a quotation, and valuable time be lost if it should be necessary to get the order placed quickly. Under cir- cumstances of this kind a letter can be written giving the particulars of requirements, with instractions to proceed, and asking the seller to state the price. When the latter has done this, a formal order may be issued. However, many sellers will not proceed without a formal order, and so it is better to send the formal order and request that a statement of the 264 PURCHASING AND STORING price be sent by return mail. Some firms use a form for this purpose if they issue many such orders; an illustration of su6h a form is shown in Figure 51. Vaxiations in Routine Work. — For the sake of out- lining a well-defined route for the work of a purchas- ing department, I have assumed that the progress of that work depends on a succession of individuals whose duty it is to handle certain developments as the work is carried to completion. It is literally true that the purchasing activities must follow a well- defined course, and that there is a logical rotation for them, but it is not true that there must be a cor- responding succession of individuals each of whom would handle a different activity or function. In some purchasing departments there are several men engaged in obtaining prices and telephoning orders, and each of them writes up his own orders. In other departments the re(]uisitions are divided up among several men, who verify them, insert prices, make the necessary notations on them, and pass them along to boys or girls, who write them up. In either of these cases the orders are collected as fast as they are written by a clerk, who puts them through the final checking and filing stages already described. Whatever changes there are in the personal element in handling the work, there must not be any de- viation from the fixed stages through which the pur- chasing function should proceed step by step. Purchase Order Record. — As fast as the orders are written up — and before they are filed, or immediately afterwards — a record of them must be made. This record is in the nature of an index of material. An ROUTINE OF PURCHASING 265 THE J. B. WHITE EIGIIEERING CORPORATIOI ENGINEERS CONTRACTORS 43 EXCHANGE PLACE. NEW YORK 19 Gentlemen i ORDER No.~ CONTRACT Ple«.e ref.r to our order of the above number and place hereon, in .pace allotted below, your very be*t quotation covering the item* included in the order. Your* vtry truly, THE J 6. WHITE ENGINEERING CORPORATION C. N. CHILSON Manaom or PuncMA^aa By- THE J. 0. WHITE ENOINEERINQ CORPORATION Gentlemen > We quote below our very be.t price* covering the item, mentioned on your order of the above number. Total Price FIG. 51. REQUEST FOR PRICE ON ORDER ALREADY ISSUED 266 PURCHASING AND STORING ROUTINE OF PURCHASING 267 1 Our Order No. Date of Ordef D«pt. Order- ing SELLER Weight or Quantity Ordered MATERIAL Charge To Price Of Rate ■ PIG. 52. PURCHASE ORDER RECORD A separate sheet is used for each kiinl of material. The sheets an* then bound in a leather covered binder and indexed with leather tabs index of orders under the seller's names is rarely necessary, but there are isolated cases where it might be advisable to keep one. A record under the name of the material, however, can seldom b(» dispensed ^th — the value of it is evidenced by the constant reference to it. The form used can be framed to serve many useful purposes; it can be utilized for compiling the prices paid for all purchases, also for arriving at the total quantities of each article and each kind of material purchased. It also furnishes a list of all sellers of each article and each kind of material. Attention was called to this record in Chapter IT, and Figure 8 illustrated a suitable form for many departments. An additional example is shown in Figure 52. The arrangement of this form is really a matter of individual requirements. If either of the records mentioned in the last paragraph is the more important to the department, or if it is desired to make one of them the most prominent feature, the form can be readily rearranged — as a matter of fact it can be made to conform to practically any condi- tion. Delivery Problems. — ^When material has been pur- chased, an order placed for it, and a satisfactory de- livery date set, it would seem that the purchasing department has practically completed the work con- nected with the transaction. This is far from being the case, for if the matter were allowed to remain in a quiescent state when it had reached this stage, every advantage stipulated in the contract might be lost to the buyer. Getting quotations and getting sellers to accept orders is relatively easy work com- pared to getting them to make deliveries at certain promised dates. There are probably a few purchasing departments free from any serious delivery problems, but gen- erally speaking, delivery is the phase of purchasing in which it is. most difficult to get satisfactory re- sults. Complaints against the purchasing depart- ment occur more frequently on account of delivery questions than from all other causes combined. Following Up Orders. — ^It is highly important that every order be *' followed up." This means that the intent and purpose of the order must be followed to their logical conclusion, the contract must be com- pleted by the delivery of the goods, and payment must be made for them. There are innumerable schemes for taking care of this work, and each of these is probably somewhat different from the others in detail and application. With each and all of '•■1 in '1v 268 PURCHASING AND STORING 1. 2. 3. them, however, the largest factor of success is con- sistent, persistent, and unremitting attention. For the purposes of the present discussion, every order can be placed in one of three classes : Ordei^ on which no delivery has been made, and on which no invoice has been received. Orders on which delivery has been made, but on which no invoice has been received. Completed orders, on which delivery has been com- pleted and invoice received. The question at once arises as to the manner of separating the orders to preserve these classifications. This depends largely on the follow-up system adopted, as well as upon the number of orders. If there are only a limited number, say a quantity not exceeding an average of twenty-five orders a day, it is quite possible to keep the iirst two classes in tem- porary binders, and to transfer them to the perma- nent file when the desired object has been attained. This is all the more feasible if many of these should be orders for immediate delivery, for then they would be sure to be quickly disposed of. On the other hand, if the orders are in excess of tlie quantity named, and if many of them are for deferred delivery, an extra copy of the order must be made and must remain in possession of the person in charge of getting de- livery, until his work is completed. Then, if the in- voice is not received, it will pass along to the invoice clerk. The latter scheme — which involves the making of an extra copy of the order — is necessary because if there is only one copy in the department, and it is ROUTINE OF PURCHASING 269 held out of the permanent file until delivery is com- pleted and all invoices rendered, the number so held out would reach such large proportions that the work of later transferring them to the permanent file in proper numerical sequence would be a serious problem. The records of delivery and invoices, how- ever, must appear on the copy in the permanent file. Therefore, it is necessary when delivery is made to make this record on such copy. The temporary copy can receive a check mark of some description, indi- cating that this has been done, and it then will pass to the invoice clerk. The advantages of segregating the copies to pre- serve the threefold classification, are the following: 1. The permanent file of copies of orders, which are usually of thin stock, are subject to less handling and are preserved intact. These copies have a per- manent location in the department, and can always be referred to by any member of the staff, at any time, without interference with the work of the fol- low-up and invoice clerks. 2. The clerk in charge of delivery always has at hand, for his own particular use, copies of all orders he is interested in. This advantage is valuable be- cause he is not obliged to refer to the permanent file, which may be located at some distance from his desk, and at the time he needed one of the binders another member of the department might be using it. Or, should he not have these copies, he might have to transcribe in longhand onto cards the details of each order he had to follow up. II i> Ml 270 PURCHASING AND STORING ROUTINE OF PURCHASING 271 it 3. The invoice clerk always has a complete file of those orders against which invoices have not been received. Many purchasing departments are lax in this respect, paying little or no attention to the re- ceipt of invoices. If the invoices come in, **well and good." If they never come in, still it is **well and good." Since the purchasing cycle is not complete without the invoice, its prompt delivery should be insisted upon. Under this scheme, also, it is possible to give a prompt answer to the financial department should a request be made for a statement as to the value of material ordered but not invoiced. The routine of follow-up work really begins at the time the order is mailed to the seller; therefore, if acknowledgments are to be secured, they come within this category. In some purchasing depart- ments, a great many city orders are telephoned to the sellers. Delivery of some of these is effected before the formal confirmation is mailed. In all such cases, the orders pass immediately into the second class. There are also a great many orders which call for immediate shipment; if delivery is made at once, these orders would also pass into the second class. In both cases cited, the invoices should be received promptly; when they are re- ceived, the orders are automatically transferred to the last class. In any scheme for getting acknowledgments and delivery, the copy of the order should be used for recording any action taken and promises made, be cause thus the complete story is kept together. I these records are kept on separate cards or sheets, FOLLOW-UP GOODS RECEIVED INVOICES Date Action taken Date Quantity Rec'g Slip No. Date Quantity Amount • 1 FIG. 53. REVERSE OF ORDER-SHEET RETAINED BY THE PURCHASING DEPARTMENT Showing the scheme for recording follow-up work, receipt of material, and invoice work a lot of unnecessary work is entailed in trans- ferring the particulars of the order to the card. Or, if this is not done, then it is constantly neces- sary to refer to the order for particulars concerning the material, dates, and so on. Paper of different colors should be used for all copies of orders — then it will be impossible for them to get into the wrong channels. » The copies of orders retained in the purchasing department should be printed on the reverse side as illustrated in Figure 53. The question arises as to the manner of dealing with these copies. When only a small number of orders have to be followed up, the copies can all be looked over daily, and i ' I' 272 PURCHASING AND STORING ROUTINE OF PURCHASING 273 those which need attention can be selected. If it is not necessary to keep them in numerical order, they can be arranged in pigeon holes, one for each day of the month. But the more numerous the orders, the more essential is it to keep them in numerical sequence. When they are kept in this way, a card for each day of the month can be filed, and on the cards only the order numbers need be . noted. Each day's card would then indicate those orders which needed attention on that day. There is one big advantage in securing an acknowledgment from the recipient of an order — the acknowledgment usually contains the seller's promise of delivery, and this is something tangible with which to start the follow-up work. Many orders are sent out with a delivery date specified, but this is often the date set by the buyer as indi- cating when he requires the material, and is not based on any promise from the seller. As explained previously, the great difficulty en- countered in this work is that of obtaining satis- factory replies or, sometimes, replies of any kind from the shippers, but they can be secured through persistent effort. It will pay to use discrimina- tion — to ask for information only when absolutely necessary, and to refrain from making unimportant inquiries will help materially. Shippers will (quickly respond to such consideration. A large number of in- discriminate inquiries would only tend to make the shippers resent the uncalled for importunities of the buyer, and eventually the former would siinply become indifferent and refuse to pay any attention at all. The form and manner in which the inqury is made will have a large influence in determining its measure of success. All city and local inquiries can be made by telephone, and the record of them can be placed on the order at the time the message is received. The inquiries which it may be necessary to mail, if couched in brief but courteous language, will bring better results than if abruptly expressed. The prin- cipal point is to get a reply. A form used with con- siderable success is illustrated in Figure 54 — it has been found that a very small percentage of inquiries of this type have failed to bring replies. In more im- portant and urgent cases it is desirable to follow the first inquiry with some such form letter as the one illustrated in Figure 55. The percentage of these fol- low-ups that have failed to bring answers is so small as to be almost neglible, and if they, in turn, were followed by a specially worded personal letter, re- sults could always be secured. The success of all efforts of this character depends on the insistence on getting replies, properly recording the information, and pursuing the matter at the exact time it is neces- sary to get information. So far the discussion connected with the following up of orders has been confined to the matter of get- ting promises, but promises are intangible things at best. A satisfactory conclusion and the final dis- position of the problem is secured only when the evidence of shipment is received. The bill of lading, shipping notice, or other document, should pass through the hands of the follow-up clerk, should be recorded on the copy of the order, and then should ■fP I'M. 274 PURCHASING AND STORING roRM mt (Riv. s^it) Follow Up on Material Orders ▼o Date 1 t PLEASE ADVISE 8EUOW WHEN YOU WILU SHIP MATERIAI. SPECIFIED ON OUR ORDER ' DATE OUR NO VOUR NO SHOP IMO >. Otis Euevator Company OFFICE Reply (do not detach from above) DATE THE ABOVE ORDER SHIPPED FROM VIA REMARKS: SIONEO FIG. 54. FORM USED FOR FOLLOWING UP ORDERS be passed along to the receiving department or the traffic department, as conditions demand. Another phase of the work connected with delivery has to do with inspection made at seller's factory or point of shipment. This matter has been discusst'd in detail in Chapter VI. On receipt of the inspector's report, a notation regarding it should be made on the copy of the order, as should also reports from special ROUTINE OF PURCHASING 275 OTIS ELEVATOR COMPANY NEW YORK puricHAjiNO DtPARTMEMT. tUMNTM AVCNM «*• TWWTV-SXTM STKRT Gentlemen: Our order dated covering for our eontalned the following statement: "SHIPMENT TO BE MADE OM OR BBPORE- Unle33 advised to the contrary at once, wo will understand that shipment will be made on or before this date." We have assumed in the absence of contrary advices from you, that you will maJce shipment by at the latest, but as prompt shipment is now very essential, we wish to be assured that there will be no delays, and you will please advise date by return mall when shipment will be made. If shipment has been made, send us shipping papers with invoice at once, and in the event that you have already dona so, please furnish shipping particulars when replying nevertheless. Yours very truly, OTIS ELEVATOR COMPAHY W. E. HODOMAN, General Purchasing Agent. By REPLY Mall tO! Otis Elevator Company, 11th Avenue & 26th Street, New York City. (Do not detach from above) -19— THE ABOVE ORDER SHIPPED.. FROM VIA_ K2MARKS SIGNED . FIG. 55. FORM LETTER FOR FOLLOWING UP MATERIAL SHIPMENTS 276 PURCHASING AND STORING ROUTINE OF PURCHASING 277 Ponn V^ (R.V. 3-M6) ■ p^^^^^g ^^p^^^ IQ OUR P. O. No.. . AS FOLLOWS, WILL BE ailPPED FROM VU __ •* REMARKS: PURCHASING DEPARTMINT, W. E. HODCMAN, GENERAL PURCHASING AGENT. BY FIG. 56. PROGRESS REPORT ISSUED TO DEPARTMENTS OR FACTORIES representatives sent out to secure info rniat ion regard- ing the progress of manufacturing and shipping. When purchasing is done in a central office for a number of factories, the lattm- must be advised of the promises secured and the progress made in obtaining shipments. The factories must not be left in total ignorance regarding their raw material. When they have themselves stipulated the date of delivery, and the material is moving along to them on a pre-ar- ranged time schedule, it is not necessary for the pur- chasing department to report that the schedule time is being kept. But in every case of delay, and when the schedule is departed from without piior instruc- tions from the factory, then the factory must be kept advised of all changes and developments. A fonn for this purpose is illustrated in Figure 56. Assuming that delivery has been effected in accord- ance with the contract, still the goods may be sev- eral hundred miles from their ultimate destination. As I have explained in previous chapters, the shipper has no responsibility after he has delivered the ma- terial to the transportation company at the point designated in the contract. It is important, therefore, to keep informed concerning the various shipments that may be en route. This is the duty of the traffic clerk, who must follow up the shipments and get the transportation companies to send out tracers when necessary. If local purchases are made f. o. b. the seller's store, arrangements must be entered into with trucking concerns for delivery. This must be done in regard to incoming freight on the railroads before all questions of delivery can be considered as finally settled. ROUTINE OF PURCHASING 279 CHAPTER XIV FINAL KOUTINE WORK OF THE PURCHASING DEPARTMENT Invoices.— There is great variation in the methods employed by industrial establishments in dealing with the routine work connected with invoices. This vari- ation is frequently caused l)y the difference between the systems used by the accounting and financial de- partments, with which this section of the purchas- ing department naturally is closely allied. Any attempt to discuss all these variations would involve dipping deeply into the variations in account- ing and financial methods, which I cannot do in the present treatment. I do propose, however to cover the salient points, in order that the reader may be enabled to understand fully the functions of an in- voice and the nature of the routine work involved in putting that invoice into proper shape for pay- ment, thereby completing the purchasing cycle. It will have been noticed, from the description of routine work already given, that prior to the moment at which an order is issued, practically all the work of the department is based on the recjuisition, but that just as soon as an order is issued, all routine work is based on the order. In the processes de- scribed in the last chapter, the copy of the order had been carried to the point where delivery had been 278 secured. .It should next be passed along to the in- voice department. This scheme enables the invoice clerk to have always at hand copies of all orders on which invoices have not been received. If, as previously stated, copies are not kept segregated in this manner, and if it should be necessary to search through the general order file to ascertain what in- voices were not received, an enormous amount of work would be involved, for some purchasing de- partments issue several hundred orders each day. When one realizes that invoices, under the best con- ditions, cannot come in for a day or two, that the majority of them do not come for a week or two, and that some are delayed even for months, he will appreciate what a search through the file would be. Sellers should be followed up for invoices covering material delivered but not billed, since a bill that is received several weeks or months after material is delivered is certainly more difficult to check than one which is received at approximately the same time the material is received. It is essential, also, to the proper operation of the cost-keeping and financial de- partments, to obtain receipt of invoices promptly. The responsibility for getting these lies, clearly, with the purchasing department. While it will be found neither necessary nor advisable to employ an extens- ive system in following up orders for invoices, still they should be gone over systematically at regular intervals, and delinquents should be notified. Not much difficulty will be experienced in this respect, but some invoices will fail to arrive unless inquiry is made in regard to them. 280 PURCHASING AND STORING ROUTINE OF PURCHASING 281 Methods of Recording. — In the first paragraph of this chapter I referred to the variation in the methods of proceeding with the routine work connected with invoices. The first point of contention is expressed in these questions: Should a complete record be kept of all invoices as they are received? And if one is kept, on whom should rest the responsibility of doing the work! Some purchasing departments have in- augurated such a scheme, and later abandoned it as unnecessary. Other departments have transferred the work to the accounting department. In still other cases, conditions have been reversed, and the work of recording has been relinquished by the account- ing department and taken up by the puichasing de- partment. The answer to the first question is that a record should by all means be kept, since it is essential to right buying. Invoices have a peculiar tendency to get lost or go astray, particularly if they are passed around from one department to another. A seller will call up on the telephone, or write, asking why some invoice has not been paid, and the answer may be given that it cannot be found. Let this occur with the same concern twice, and the standing and rating of that purchasing department goes down the scale rapidly in the eyes of the seller. It has been empha- sized repeatedly that the higher the standard of pur- chasing is maintained, the greater is its potentiality for successful operation. Every seller is attracted by good buying, which includes^ unfailing promptness in handling invoices and regularity in paying them. This attraction of sellers draws bargains to the pur- chasing agent's desk, secures priority, and obtains preferences. The answer to the second question depends mainly on the organization of the establishment and the location of the departments. Some large purchasing departments are arranged so that they are adjacent to the accounting departments, the invoice clerks in one being in close touch with those of the other. It is then immaterial which department keeps the rec- ord. Some executives insist on all invoices going first to the accounting department in order that it may be able to compile figures regarding the obligations for which the financial department must make provision and arrange the information concerning the dates. In the absence of counterbalancing considerations, for the reasons stated in the last paragraph, and also be- cause until invoices are finally approved they are documents of tangible importance to the completion of the purchasing cycle — it may be generally con- ceded that they should go first to the purchasing de- partment and, if possible, remain in the department until approval is completed. An example is given in Figure 57 of a form for re- cording invoices. This needs little explanation, as the headings of the various columns make obvious the purpose of each. To secure ready identification, all invoices should be numbered seriatim as they ar- rive in the department. This record gives the date on which invoices are received, as well as that on which they are finally passed. If they should be sent out of the department for any reason, a record of this fact, with an explanation, is also kept. !*",■ 282 PURCHASING AND STORING ROUTINE OF PURCHASING 283 INVOICF RFCORD Date _ Date fin* Invoice No. Amount Sent out of Dep't. Date Returned Final Approval For Cash Discount For other Reasons • FIG. 57. FORM FOR RECORDING INVOICI<:S If an invoice, for any reason, must be sent out of the purcliasing department, the fact should be noted on tliis r»?cord Preliminary Work. — After the invoice has been re- corded, the next thing to do is to scrutinize the date when payment must be made to secure the cash dis- count. It is essential to ado])t some effective method of keeping this date prominently before all persons who have anything to do with the invoice. Space must be allowed for certifying purposes; it frequently happens that an invoice is so crowded with printed or written text that no open space is left. In some cases the method of pasting a slip on the invoice is resorted to; in other cases this has been abandoned, and a rubber stamp is used. Both schemes are open to objection, but the preference should be given to th(^ latter. The main objection to this is that, owing to the lack of space on the front, the improHsion must frequently be stamped on the back, and then it is necessary to turn the invoice over to verify the certi- fications. This drawback, however, is less of an ob- jection than to have an additional sheet attached to the invoice. Figure 58 indicates a good form of im- pression to use; this may be stamped on the invoices by the clerk who makes the record of them. Checking Invoice With Order. — The next step in connection with the invoice is to check it with the order. This is the logical order of procedure, but it IS permissible to change this routine somewhat, ac- cording to circumstances. It is better to check with FORM 549 DISCOUNT EXPIRES FIG. 58. RUBBER STAMP FOR INVOICES TO DRAW ATTENTION TO CASH DISCOUNT the order first, because, if quantity or price were found to be incorrect, there would be no object in checking the extensions. The check against the order is the main safeguard against paying an in- voice twice. Figure 53 illustrates the reverse side of the copy of the order kept in the purchasing depart- ment. Every invoice must be entered; it is enough to give simply the date and the amount. It can be readily seen that a second invoice for the same date and amount ought never to be approved, but this mistake sometimes occurs, for human nature is never infallible. ' »• 284 PURCHASING AND STORING ROUTINE OF PURCHASING 285 It will be noticed that the record on the back of the copy of the order is arranged for notes on th(» follow-up procedure, so that a very complete history can be kept on this document with tho minimum amount of work. A point which must not be over- looked is that the requisition number appears on the order, the order number is on the requisition, and th(? invoice number is on the order. Consequently, the controlling papers connected with any order can be obtained at any moment with the least possible amount of trouble. In the checking of the invoice againsi the order, there are some other features which must be watched. It must be seen that the description, grade, and so on, correspond. If the material is subject to inspec- tion before delivery, the inspector's reports must be secured and examined to see whether the material has passed satisfactorily the requisite tests. When the invoice has been completely checked Avith the order, a distinctive check mark should be placed upon it to show that the process has been completed. Checking Invoice with Material Received.— This is another feature in which gi-eat variation exists. In existing practice, the receiving department sometimes reports to the accounting department and sometimes to the purchasing department. It would be impos- sible to discuss intelligently and to the point, within a limited space, the many contingencies that might arise from the adoption of (me or another of these methods. The purchasing department should cer- tainly be informed of the safe arrival of the material before finally approving an invoice. I shall outline here three simple schemes, any one of which may be used to that end. 1. The receiving department can make a complete record of all incoming material on loose-leaf sheets in triplicate, as shown in Figure 59. Either small, separate sheets — which would correspond with each invoice — or large sheets, can be used. If individual sheets are used, one copy can go to the purchasing department, one can follow the material to the de- partment which requisitioned it, and the third can re- main as a permanent record with the receiving clerk. This distribution cannot be made if a large number of items are placed on one sheet and rewriting is necessary. , 2. As illustrated in the form * ' C " shown in Figure 38, a copy of the original purchase requisition can be returned to the receiving clerk, who fills in the information and returns it to the purchasing depart- ment, where it can be checked with the invoice and, if desired, attached to it. The latter feature is in- sisted upon by some auditors. The disadvantage of this method is that in ordering the material, the requisition may undergo changes which would neces- sitate altering that document, and the receiving clerk must make an independent record for other purposes. This procedure entails additional work. 3. A copy of the order, as illustrated in Figure 60, can be sent to the receiving clerk. On this the re- ceipt of material can be recorded, and the document can be returned to the purchasing department to serve the same purpose as the copy of the requisi- tion, named in the last paragraph. This scheme 286 PURCHASING AND STORING ROUTINE OF PURCHASING 287 I NAME. ADDRESS. Date Quantity Unit FO.I Freight Charges Description of Matenal Received on account of Order No. Receiving Clerk Inspection Report. Signed. Inspeclof Signed. Material received into Stores Storekeeper Attached to Invoice No. Signed . Invoice Clerk FIG. 59. RECEIVING CLERK *S RECORD OF RECEIPT OF MATERIAL One copy ultimately goes to the purchasingMepartment and a second copy follows the material to the inspector and subsequently to the storeroom. The upper half can be in (juadruplicate, if desired, so that the receiving clerk can retain one and forward another to the pur- chasing department as a prompt notice of the arrival of goods NOTICE: A detailed report of the goods mentioned on the opposite side of this sheet must be made in the space below. Partial receipts should be reported on Form 423- Date How Delv'd. Quantity ToW i Point! Freight Charged to Class Amount Received by. Approved Approval mtrst be by Mgr. or Supt. or one duly authorized. FIG. 60. RECORD OF RECEIPT OF MATERIAX. (REVERSE SIDE OF COPY OF order) suffers from some of the drawbacks just mentioned, in that it is necessary for the deceiving clerk to com- pile a record of receipts independently of that made on the copy of the order. In either case, all the ma- terial requisitioned or ordered might not be de- livered at one time, and in that event extra or supple- mentary forms of some kind would have to be used for the recording of part shipments. It would seem that the first scheme outlined com- bines all the elements of simplicity, safety, and effi- cacy — certainly, from a strictly purchasing point of view it covers everything essential — but it is not always possible to evade the rules and regulations laid down by auditors, for which, from their stand- H : j^ 288 PURCHASING AND STORING ROUTINE OF PURCHASING 289 point, there are good and sufficient reasons. For ex- ample, in some establishments all invoices must bear the signature of the party actually receiving the goods, a rule which necessitates sending the invoices out of the purchasing department for this purpose, and getting them back again. In all the instances cited, there is another object besides the securing of an acknowledgment upon the receipt of the material: namely, the sure pre- vention of duplication of payments. It is self-evi- dent that the receiving clerk's receipt — whether it is on a special receiving slip, on a copy of the requi- sition, or on a copy of the order — cannot be at- tached to two separate invoices. ^Even if, in any individual case, it is not the custom to attach these documents to invoices, the protection should still be positive, because the receiving slip should be can- celed in some definite way as soon as it is checked with the invoice. In the discussion of stores prob- lems I shall be obliged to refer again to the receiv- ing department, but what I have already said is sufficient, so far as the strictly purchasing essentials are concerned. Checking Prices. — ^In the case of many orders no price appears, or perhaps a discount is quoted apply- ing on the standard price list, or simply a base price is quoted. This matter was covered in Chapter VII, and illustrations were given which showed conve- nient ways of keeping these records and price lists. An invoice clerk is constantly in need of this infor- mation, and he will find that a loose-leaf system, as described in Chapter VII, is invaluable. It is im- possible to dispense with it in any department that checks invoices for more than a few kinds of ma- terials and supplies. Incorporated with this price record there should be, in an abbreviated form, the particulars of each contract in force. These memo- randa transcribed from the contracts should be suf- ficient to enable the clerk to check the invoice with- out reference to the contract itself. Classifying and Checking Extensions.— Both of these features should be taken care of in the pur- chasing department. That department, since it is more familiar with materials, and since it has the original requisition designating the classification, is in a better position than the accounting department to do this work. Likewise, in connection with the extensions, there is need for a man familiar with trade discounts and some trade customs, for fre- quently the unit prices are inserted on invoices with- out any indication as to whether the unit is a dozen, a gross, a hundred, or a pound. Only familiarity with trade usages and customs will enable a person to make the proper distinctions. Experience has proved that the checking of extensions cannot be slurred; therefore work of this kind should be as- signed to a man who has the necessary qualifications. Checking Freight Charges. — On the invoice of every article which is received at destination, and an which a charge for freight or delivery is paid, this charge should appear, in order that it may be prop- erly classified. The allocation of freight charges to general expense is a loose and inadequate method. The freight charges on some materials are equivalent i 290 PURCHASING AND STORING RECEIVED QUANTITY PRICE JOB No. F. 0. B. FREIGHt EXTENSIONS CHARGE TO CLASS FORM 941 APPROVED AMOUNT mm^ PIG. 62. RUBBER STAMP FOR APPROVING INVOICES Each of the spaces should be utilized for the purpose indicated before the invoice is finally sent out of the department for payment to 25 per cent or more of the invoice price, and if these charges did not appear under the same classi- fication as the invoice, there would be serious dis- crepancies in costs accounting. It is for this reason that, in the verification of an invoice, the delivery point must be indicated and the amount of the trans- portation charges must be inserted. (See Figure 62.) Another reason why these particulars should ap- pear on the verification of the invoice is that the f.o.b. point specified on the order must be checked with the delivery actually made by the shipper. When these do not harmonize, the necessary adjustment must be made with the seller. The receiving clerk should always specify on his reports the transporta- tion charges on incoming material. The accuracy of ROUTINE OF PURCHASING 291 these charges can be checked by a member of the purchasing department, or, if the establishment main- tains a traffic department, it may be done by that de- partment. Final Approval.— The signature that determines the final approval of the invoice converts it into a docu- ment of tangible value. Naturally the signature should be that of some person in authority who is thoroughly familiar with the various checking pro- cesses, and who would be able, without too close an ex- amination, to detect any glaring mistake in them. If the final approval is given in an entirely perfunctory manner, it might just as well be pronounced by the office boy as by anyone else. The exit of all invoices from the purchasing department should be recorded on the form shown in Figure 57. Securing Cash Discounts.— Throughout the discus- sion concerning the checking of invoices, I have as- sumed that the checking is done to permit the invoice to reach the financial department in time for the latter to make the payment minus the cash discount. If the verification of the invoice cannot be completed in time for the cash discount to be secured, it should be sent to the financial department with a request that It be returned, after payment has been made, to the purchasing department for completion of the ap- proval process. When invoices are sent out of the department, for this or any other purpose, the fact should be noted on the invoice record. (See Fio-nre 57.) ^ The regulations of most auditing and financial de- partments will not permit of the payment without 292 PURCHASING AND STORINCJ ROUTINE OF PURCHASING 293 final approval; in such cases, of course, this will have to be given. Whether or not it is given is not a mat- ter of importance to the purchasing department, be- cause, if any adjustment should be necessary on account of errors subsequently discovered, approval would have to be secured after payment was made, whether or not the department had approved the in- voice. If, however, business is being done with r(»- liable concerns, no difficulty should be experienced on this score. I have emphasized this point in prc^ vious chapters. The purchasing department is chiefly concerned in getting the invoices back in order that the verification may be completed. If it cannot get them, it will have to make cojnes. Securing Credits. — It has been estimated by some business men that ^Ye per cent of all invoices are in- correct in some particular. This is an exaggeration if applied solely to some vital factor of the invoice which would change its total in dollars and cents. Minor features, such as dates, order numbers, and so on, are more frequently incorrect, but inaccuracy with respect to these, while annoying, is not so ser- ious. Throughout the discussion of the whole pur- chasing subject, I have emphasized the importance of selecting sellers who use ))usiness methods of ap- proved standards. Dealing with such concerns re- duces all form of friction and, to a great extent, the probability of error, even in invoices, but mistakes will occur, and the purchasing department must make provision for them. The manner in which the jiroblem is dealt with by different concerns varies greatly, and many of the methods used entail an indefinite delay in the ap- proval of the invoice. A plan that often brings quick results is to return the invoice to the vendor, using a printed form which calls his attention to its inac- curacy. And yet this scheme, although widely used, has many drawbacks. It is sometimes difficult to get some of the invoices back. If they are subject to cash discount, this discount may be lost, or a contro- versy may arise in connection with it. If the check- ing process had been partly done, it would be neces sary to cancel these checks and take the stand that no invoice had been received. Requesting credits from sellers and holding in- voices in the purchasing department until they are received, is also a very unsatisfactory method, for all of the reasons stated, and many more. This is a big problem in large purchasing depart- ments and it should be looked at in a broad light. Special care is necessary because the problem arises from comparatively small and petty matters which may become of considerable import if not taken in hand and disposed of daily. The logical method is to debit the seller with the discrepancies, and then pass the invoice along to the financial department for payment. The adoption of this scheme absolutely prevents any accumulation of invoices in the purchasing department; it permits the cost department to proceed with their work without delay, and insures prompt payment of all invoices; it also makes a clean-cut issue between the buyer and the seller, and defines the position of the former ac- curately and positively. 2M PURCHASING AND STORING The only element of uncertainty in this method of procedure is in connection with the seller's accept- ance of the buyer's debit. For this reason, it is im- perative that no debit be made unless the evidence of its correctness is convincing and unmistakabh*. When there is an element of doubt the matter can be taken up first with the seller, and an understanding can be reached before any definite amount is debited. The cases which involve uncertainty are, however, so few that they do not occasion any serious disturbance or dislocation of the regular operation of the routine work. There are two forms that can be used for making Debit Note No. Charge to_ Applying on Invoice No Address. Quantity Material Amount Reason fof Debit FIG. 63. DEBIT NOTE APPLYINCJ ON INCORRECT INVOICES This form should be made out in the purchasing department whith will then render a formal debit memorandum to the seller ROUTINE OF PURCHASING 295 JOHN SMITH MFG. CO. too SIXTEENTH AVE. NEW YORK DEBIT MEMO. NO. Date. TO. We have debited your account as stated below: Your Invoice Date Amount Reason for Debit Amount of Debit FIG. 64. DEBIT INVOICE If the regulations of the establishment permit, the purchasing de- partment may use this form to send debit invoices directly to the seller. The form is in triplicate; the original is sent to the seller, one copy is attached to the invoice, and the third remaining in the purchasing department debits applying on invoices. The first one, as illus- trated in Figure 63, is made out in duplicate in the purchasing department. The duplicate is retained in that department; the original is attached to the in- voice and accompanies it to the accounting depart- ment, where a formal debit invoice is made up from it and mailed to the seller. This method requires some duplication of work, because full details of the debit must be written up in the purchasing depart- 296 PURCHASING AND STORING ment, and subsequently have to be copied by the ac- counting department. There is no getting away from this feature, however, in those establishments which absolutely prohibit the making of debits or credits by any except the financial or accounting departments. If the condition just mentioned is not enforced, a form such as that illustrated in Figure 64 can be used. This can be made in triplicate — the original will be sent to the seller, the duplicate will be at- tached to the invoice, and the triplicate will be re- tained in the purchasing department. The advantage of this method is that it is not necessary to rewrite in some other department the particulars of the debit. When either of these forms is used, full, complete, and explicit details of the charge against the seller must be given. They must be such as will enable the seller to see clearly the accuracy of the debit and the reason for making it. The debits should be numbered in sequence in the purchasing department, and these numbers should appear on the copy of the order and also on the seller's invoice in the space allotted for the approval. If the plan outlined above is closely followed, the most disagreeable feature in connection with checking invoices can be handled without diffi- culty and disposed of in a systematic, businesslike manner. The purchasing department's files are ke])t clear, the cost department has prompt information as to the actual cost of materials, the accounting depart- ment has no unbalanced accounts with creditors, and the financial department can make payments i)rompt- ly, taking advantage of all cash discounts. CHAPTER XV PUKCHASING PROBLEMS AND THEIR SETTLEMENT How Problems Arise. — Mistakes are made in pur- chasing as in every other department of business. These can be rectified, and if either party has sus- tained a loss, an adjustment can usually be effected on an equitable basis, provided the party that made the mistake is willing to admit the error. Misunder- standings are sometimes more difficult to adjust, be- cause each party may honestly think that his version is the correct one. I have emphasized, throughout the discussion of purchasing, that it is always im- portant to bring into agreement the minds of the two parties to the transaction, and that when this ''meet- ing of minds" is an accomplished fact, there should be documentary evidence to show for it. Buyers and sellers do not appeal to courts of law to settle disputes that involve only trivial amounts. They do not do so, in many cases, even when the amounts involved are very large, and each party honestly feels that the true version of the case is his own exposition of it. The problems that actually arise for settle- ment are multitudinous. The records of the courts have been crowded with them ever since the time that such records were first kept. The problems cited in the following pages are a 297 298 PURCHASING AND STORING PROBLEMS AND SETTLEMENT 299 few of the simplest ones. The opinions expressed are not legal— they either are based on my own practical experience, or have been furnished by reliable author- ities. They have this value, that they may be used to strengthen the arguments of any one who en- deavors to adjust a misunderstanding. Patterns and Dies— Few, if any, questions arise concerning patterns. If a pattern is furnished by the buyer, or if it is made for him by the founder, it is paid for by the former and is recognized as his prop- erty. The disposition to be made of it depends upon his instructions. Why should dies be treated differ- ently from patterns? Custom has probably decreed that they should be. There is no other reason, and the day is coming when the question of dies will be treated in as broad a manner as the question of pat- terns. If dies were always at the disposition of the pur- chaser of the forgings, many misconceptions would be eliminated. A clear understanding should be insisted upon by the buyer, in placing orders, as to the owner- ship of the die. If an order is given to a forge con- cern which involves making new dies, a price per piece is frequently agreed upon, which includes the cost of the die. In placing repeat orders, it is ex- tremely probable that the same price will have to be paid, which means that the buyer is paying again for the die. Or if this is not literally true, at least he can do very little towards combating the price on the second lot if no arrangement has previously been made regarding the dies. There is always the question of repairs to dies to be considered, and a forge concern with not too fine a sense of fairness can make the cost of repairs what it will. A buyer should ask for a statement of the cost of dies separate from the quotation for forgings, and it is always well to have a definite under- standing on certain points. For example, the buyer should know positively whether the dies are subject to his call, whether he is to pay the cost of repairs, or whether the seller is to keep them in repair. If the forging manufacturer keeps the dies in repair, the buyer should know whether this arrangement will prevent his claiming them. A definite settlement of all these questions will save much worry, and per- haps considerable expense. Purchasing Agent's Authority. — A purchasing agent is assumed to be empowered to purchase the require- ments of his concern. If, however, he should have private instructions not to buy certain materials, or not to purchase in excess of a stipulated amount, and should act contrary to such instructions, his action cannot be repudiated by his principals. The purchas- ing agent would apparently be acting within the scope of his authority as that authority is understood by the trade in general. The private instructions he had were not supposed to be divulged to a third person. Responsibility of Salesmen. — ^Buyers should ac- quaint themselves with the responsibility of salesmen, and should have definite knowledge that the latter are authorized by the concerns they represent to make offers and accept orders which shall be binding on their concerns. If the salesmen are not authorized, 300 PURCHASING AND STORING PROBLEMS AND SETTLEMENT 301 i the principals may repudiate orders either made or accepted by them. Orders to Agents. — Contracts or agreements en- tered into with agents are governed by rules similar to those made with salesmen. An ageni, in many cases, serves merely to bring the two principals to- gether. For example, a purchasing agent might com- plete an agreement with an agent to buy certain material, and the conditions, when accepted by the agent's principal, would complete the contract. If subsequently the buyer wished to modify the contract by increasing or decreasing the quantity, and agreed with the agent with respect thereto, and the agent failed to notify his principal, the buyer could not enforce the modification. In some cases, however, agents are appointed by the principals and are clothed with full authority to make contracts. Price Lists. — Printed price lists sent to the trade in general are not in the same category as a specific offer to sell. The latter can be accepted by the buyer upon the issue of an acceptance or order — then a legal contract is in force; but this rule does not apply if an order is issued against a general offer in the shape of a trade price-list. Such general offers are subject to withdrawal, revision, or change, without notice. Refusing to Sell. — A manufacturer or merchant is not compelled to give a reason for refusing to sell to any party who wishes to buy. There are certain classes of business, such as those represented by transportation, theatres, hotels, and so on, of a semi- public character which are forbidden by law to dis- criminate. Outside of those that come under these regulations, however, no control is exercised, and it is not necessary to assign any reason for refusing to sell to, or do business with, a particular person or firm. Quality.— A dealer or jobber does not warrant the goods he sells unless he gives a distinct understand- ing to this effect; therefore, in all important pur- chases a warranty should be secured. But on the other hand, when one buys direct from a manufac- turer, whether or not a warranty is given, there is always an implied warranty for such goods as the manufacturer himself produces. Return of Containers. — When there is an agree- ment that containers shall be returned, credit is usu- ally allowed only when they are delivered in good condition at the seller's address. If there is no stipu- lation as to the place of delivery of the containers, the customary practice is for the buyer to deliver the containers to the seller, at the point at which the contract originally called for delivery to the buyer. Leeway in Manufacturing Quantities. — In making large quantities of small parts — particularly some screw-machine products — trade usage permits an over-run or under-run of about ten per cent if noth- ing to the contrary is specified in the order. In all those cases, therefore, in which it is important to the buyer that he receive the exact quantity specified, it should be expressly agreed that no leeway in respect to quantity is allowed the seller. Solvency of Vendors. — Buyers should be advised regarding the solvency of concerns with which they place contracts, because a seller who becomes bank- 302 PURCHASING AND STORING PROBLEMS AND SETTLEMENT 303 rupt is released from fulfilling the contracts that he has accepted. A rising market might involve the buyer in very serious losses, but he would be unable to recover any part of them as damages against the bankrupt concern, even if it should be liquidated and pay all creditors in full. Machine on Trial. — ^When a contract is made for the purchase of a machine, an article, or any appar- atus, on the condition that a test first be made, a time should always be stipulated for the test. If no time is mentioned, then only a reasonable period can be taken to try out the machine. For example, sellers will sometimes put machines out on trial without naming any definite period, and a few days later they will telephone asking for a decision, stating that an opportunity exists of placing the machine elsewhere. If a decision is not given by the buyer, or if he delays returning the machine, he may be compelled to pay for it. Trial Period. — When agreement is made to pur- chase a machine or article provided it proves satis- factory at the end of a trial period, and it should fail to prove satisfactory, the seller must be formally notified before the termination of the trial period. Otherwise the buyer may be compelled to i)ay for it. His acceptance is implied from the fact that he re- tained possession of the goods after the trial period had expired. Damages to an Article being Demonstrated. — A person is bound to use reasonable care in connection with another's property which may, for any purpose, be entrusted to him, or which may be temporarily iu his possession. If an article left for demonstrating purposes is damaged as a result of negligence, the cost of repairing the damage will fall on the party in whose care it was at the time it was injured. If, however, any damage results from some flaw or de- fect in the article, then the owner is responsible. Cancellation of Contract.— If a buyer endeavors to cancel a contract, the seller can naturally hold him for damages for the attempted breach. The damages would probably be assessed on the basis of the profit that would have accrued to the seller if the contract had not been suspended. A seller is not allowed to continue work, or to do anything which would en- hance the damages a buyer might be called upon to pay. Contracts not Specifying Quantity.— Many contracts are made by purchasing agents for material for such quantities as may be ordered between specified dates. Such a contract is indefinite as to both time and. de- livery. It does not obligate the buyer to buy at all; and conversely, there is no obligation on the other party to sell — it is not, in effect, a binding contract. If, however, a contract stipulates that the buyer will place orders with the seller for all, or half, or part, of his requirements, then it is assumed that the seller has acquainted himself with the buyer's needs and knows the quantities implied by the terms '* whole,'* half,'' and *^part." Orders without Prices. — A seller can charge only a reasonable" price for goods concerning the price of which no previous agreement exists. If an exorbitant price is charged, it can be contested by the buyer, a (( 304 PURCHASING AND STORING PROBLEMS AND SETTLEMENT 305 but the determination of a reasonable price is depend- ent upon circumstances. A seller receives an order for rush delivery, or he furnishes it on the urgent solicitation of the buyer — in doing this, the seller may incur unusual expense, or he may have to pro- cure the goods at an unusual price. If such is the case, a seller will generally inform a buyer, but a buyer's necessity may not allow of this loss of time — if so, the fact must be given consideration. Penalty Clause. — A penalty clause inserted in a contract and merely designed as an endeavor to se- cure performance of the contract, cannot be enforced. A penalty can be enforced only if it is based on the measure of the damages which may actually be sus- tained because of a breach of the contract. Such a penalty is usually termed liquidated damages, and should represent the actual amount of compensation to which the injured party is entitled. This com- pensation would have to be a fair amount; otherwise the penalty could not be enforced. Accepting a Portion of Goods Oflfered.— An offer to sell several items of merchandise when a separatt? price is named for each, does not permit the buyer to accept some items and reject others, unless a con- dition to this effect is inserted in the offer. The whole of the quantity offered must be taken, if the contract is to be binding. If the buyer wishes to take one or two parcels out of a quantity offered, and signifies his willingness to do so, this understanding consti- tutes a new offer and must have the seller's accept- ance before it can be considered that an agreement has been reached. False Statements in Negotiations.— If a salesman secures an order by assertions that are afterwards proved untrue, then the order is obtained by fraud. If, for example, he should claim that the goods in question are used in certain named places, or for cer- tain purposes, and it was subsequently discovered that these statements were false, the goods may be returned to the seller. But the buyer must return the goods within a reasonable time after discovering the fraud— otherwise the seller will claim that the sale was ratified by the buyer's neglect. Offers by Telegraph.— Offers to sell made through the medium of a telegraph company must be accepted in a similar manner, if the contract is to be binding, unless the offer contains a stipulation regarding time which would permit of an acceptance being sent by mail. Carbon Copies. — Carbon copies will be accepted as evidence. If a seller disputes the accuracy of a car- bon copy of an order sent to him by a buyer, the seller must be prepared to support his contention of inaccuracy by documentary evidence, or by the pro- duction of the original order. Mistake in Contract. — Neither party to a contract is permitted to take advantage of a mistake by the other party, if the mistake is palpable and obvious. For instance, a stenographic error resulting in the insertion of a cipher that makes a price read $100 instead of $10, would not obligate the party respon- sible for the mistake to pay the larger amount, pro- vided the hundred dollars could be proved an absurd price. 306 PURCHASING AND STORING PROBLEMS AND SETTLEMENT 307 I Crating and Packing Charges.— If a contract is silent on the question of charges for crating or box- ing, a buyer cannot repudiate such charges if it is customary in the trade to charge them to the buyer. The charges, of course, must be fair and reasonable. A buyer cannot claim ignorance of trade practices and customs as an excuse for non-payment. Should there be no established trade custom, the buyer can- not be compelled to pay for crating goods, if the seller found it necessary to crate them in order to place them in a deliverable state at the point of de- livery agreed upon. DeUvery Point.— If no reference is made in the order to the f.o.b. point, the general assumption is that the seller has executed his part of the bargain by delivering the goods to a common carrier, unless it can be proved that the universal trade custom is contrary to this practice. Holding Back Delivery.— A buyer must take de- livery as, and when, specified in the contract. If he instructs the seller to withhold delivery for a fixed or indefinite time, he is virtually authorizing him to store the goods for him, and should they be damaged the loss will fall on the buyer. All the seller is required to do, is to exercise reasonable care in connection with goods so held. Shipping an Order in Part.— If a vendor, on re- receipt of an order, can ship only part of it, and does so, the buyer is not compelled to accept wliat is sent. The buyer's order was an offer to buy the whole quantity, and if it is to form a binding contract it must be accepted and fulfilled intact. ' Delivery Prior to Contract Time.— When a contract names a specific delivery date, the buyer cannot be compelled to accept the material at a premature date; if the goods are delivered too soon, he has the right to refuse to accept them. But if he does, the seller is not released from his obligation to make delivery at the time originally agreed upon. Delivery Point not Specified.— If there is no express stipulation to the contrary, and if there are no cir- cumstances which indicate a different intention, the point of delivery is understood to be the place where the goods are located at the time the order is sent to the seller. All orders, therefore, should specify a de- livery point. Delivery and Conditions beyond Control.— In those contracts in which time of delivery is an essential feature, it is customary for the seller to insert a clause referring to conditions beyond his control, such as strikes, fires, and so on. Should a strike last, say, one month, the seller could not compel the buyer to accept delivery one month later than the stipulated time, neither could the buyer force the seller to make delivery at the later date. If the stipulated time of delivery is not followed, the contract comes to an end. Delivered at Destination. — If goods are bought ** Delivered at Destination," and the seller fails to prepay the freight, which is subsequently paid by the buyer, the seller is not relieved from the responsi- bility for the goods until they arrive at destination. If, however, it should become necessary to present a claim against the transportation company, the buyer would have to do it^ since he paid the freight. 308 PURCHASING AND STORING PROBLEMS AND SETTLEMENT 309 ii ■> l: Prompt Shipment. — What does prompt shipment mean? So many orders are placed by buyers, and ac- cepted by sellers, for ''prompt shipment" that a defi- nition of the term is essential, particularly in times when the market price is advancing. ''Prompt ship- ment" really means that shipment must be made with reasonable promptness. Failure on the seller's part to live up to this understanding entitles the buyer to purchase elsewhere and to claim as damages any difference in price he may have to pay. If the ma- terial can be readily purchased in the oi)en market, the seller cannot be compelled, by process of law, to make delivery. Transportation Company's Obligation to Deliver Promptly.— Many questions have arisen regarding the liability of a transportation company for delays in transit, but unless neglect can be proved no claim can be enforced. At various times traffic congestion has delayed deliveries at practically all points reached by railroads. If the transportation company does not discriminate against one shipper in favor of another, and if it uses its facilities for the best interests of all, it cannot be held to account for delays. ^^ Transportation Losses.— ^'hen material is bought "f.o.b. shipping point," ownership is conveyed to the buyer at that point. As owner of the goods, the buyer assumes the risk of loss or damage; in transit, fn transporting the goods, the carrier acts as the buyer's agent, and any claim for loss or damage must be settled between these two parties. The seller's responsibility ceases when he has made a satisfactory delivery at the place agreed upon. Claim against Transportation Company.— An in- crease or decrease in the market value of goods lost or damaged in transit, does not affect the amount of a claim, which must be based on the invoice price at time of delivery to the transportation company. Credit for Returned Goods.— When goods are re- turned for credit, the general assumption is that the credit will apply on the account between the two parties. But if the buyer obtains no more goods from the seller, then the amount of the credit must be paid in cash within the credit period recognized as stand- ard for such goods. It is taken for granted that there is no agreement to take other goods in exchange for those returned, or to buy others of a value equal to the credit. Freight on Defective Material. — Transportation charges on defective material are an obligation of the seller, irrespective of the delivery point named in the contract. This rule applies not' only to the charges incurred on the original journey of the material to the buyer, but also to those incurred in its return to the seller. Since the material is defective, the con- tract has not been filled and no proper delivery has really been made. The buyer, therefore, is under no obligation, but it is customary for him to consult with the seller concerning the return of the material, and to obtain instructions as to routing, and so on. Liability of Railroad Company. — ^When a car is loaded by the shipper it is customary for the railroad company to stamp the bill of lading, "Loaded by shipper. The carrier is not accountable for weight, quantity, or condition of property." This statement 310 PURCHASING AND STORING PROBLExMS AND SETTLEMENT 311 does not relieve the railroad company from its ordi- nary liability for the goods in transit, but if it should become necessary to make a claim against the rail- road company, the latter could compel the shipper to show proof of weight, quantity, and condition of the material when it was loaded. Receipt for Goods. — In giving a *' clean" receipt to a transportation company for goods which arii boxed, or which are so enclosed as not to permit of examination for defects, the buyer does not waive his right to make a claim against the seller for defects in the material, should any appear when the boxes are unpacked and the material is examined. Inspecting Material.— The right to inspect and re- ject material, even when it is bought ^'f.o.b. shipping point," remains with the buyer until the shipment has arrived at destination. If the material should not be of proper quality, it can then be rejected, for, if this is the case, the seller has not performed his part of the contract. Terms Printed on Order Forms.— Many order formg used by the purchasing agent include a printed clause that sets forth the buyer's terms. It is poor policy to make any stipulation of this kind, since arbitrary terms cannot be enforced. There are so many varia- tions in terms that the really good buyer must permit flexibility in this respect, and not attempt to insist on hard and fast terms of his own choosing. If one of the order forms referred to were sent to a seller in response to a quotation, and the terms printed on the order were not in agreement with the seller's terms, it would not constitute a legal contract. Terms of Payment.— The terms of credit— some- times called period of credit— mentioned in a contract begin at the date of delivery. If the delivery point is at destination, the buyer, in making settlement, is entitled to assume that the date of invoice is con- current with date of arrival of the goods at destina- tion. A stipulation to this effect should, however, be inserted in the contract, since usually the implied un- derstanding is that an invoice dates from the time of shipment. Cash Discounts.— ** Two per cent, ten days," and **Two per cent, ten day from date of shipment," are not synonymous terms. The latter means exactly what it says, the former period is governed by the delivery point named in the order. No Extra Dating.— Invoices that bear the imprint, or have terms stated on them, reading "No extra dating," require that the bill be paid at the termi- nation of the discount period. For instance, *'Two per cent, ten days, no extra dating" means that the invoice must be paid in ten days. Cash Discounts and Freight Allowance. — When goods are sold subject to a cash discount and a freight allowance, the allowance must be deducted before the cash discount. The freight allowance comes in the same category as any other allowance or trade dis- count. Any deduction of this nature would be sub- tracted from the invoice before the cash discount was deducted. Terms on Invoices. — *'No anticipation allowed" is a term sometimes used on invoices, although it ap- pears very seldom. The intention, when it is used, !|| 312 PURCHASING AND STORING PROBLEMS AND SETTLEMENT 313 I is to prevent the buyer from endeavoring to secure a larger cash discount than usual by making payment before the date agreed upon. Lost Invoices. — Loss of an invoice in the mails docs not release the buyer from the obligation to pay for goods within the specified contract time. By properly addressing the invoice, affixing the necessary stamps, and mailing it, the seller has completed all that he is compelled to do; the post office really acts as agent for the buyer. If the contract entitled the buyer to, say, five per cent cash discount in ten days, he would have to pay within ten days from the time the goods were delivered, even if the invoice were lost. Settlement of Debit by Part Payment. — When a creditor accepts, in full payment of a debit, a smaller sum than the actual amount of the debit, that debit is not completely liquidated, and he can still collect the balance. In all cases of this kind, there nmst be some consideration in addition to the payment. For instance, the payment may be made, and settlement may be effected in consideration of the payment being made in advance of the due date of bill, or in con- sideration of there being defective material or dam- ages. Stipulation should be made to this effect. Time of Payment. — A buyer may withhold payment until delivery is made by the seller at the point agreed upon. If there is a credit period, then pay- ment can be withheld until its expiration. The pay- ment of freight by either buyer or seller does not affect this question. Credit Period. — When a contract is made in whicli no Deriod of credit is mentioned, the seller may de- mand payment on delivery. The buyer may not plead, ''Trade usuage or custom generally allows 30, 60, or 90 days.'' Possibly the seller may not con- sider that the buyer's credit warrants the risk en- tailed in allowing him the usual period in which to make payment. When purchasing on a credit basis, the buyer is bound to keep his credit good. Payments. — If a debtor owes several amounts to one creditor and makes a payment, specifically stating that it is to be applied on a certain item, it must be so applied. The creditor may not accept the payment and then apply it against some other item, even if payment for that item is overdue. If no stipulation is made by the debtor when he sends a remittance, the creditor may apply the payment in whatever man- ner he pleases. Date of Invoices. — It is a common practice of sellers to date all invoices the day shipment is made, irre- spective of the point of delivery. Delivery and pay- ment are concurrent conditions in every contract, unless a statement to the contrary is made. There- fore, in all cases in which the contract calls for "de- livery f.o.b. destination," the invoice is antedated if it bears an earlier date than the time on which the goods reached their destination. Very little attention is paid to the dates of invoices that carry no cash dis- count. The above point is worth remembering — it might be important in instances in which goods took several weeks in transit. RAW MATERIAL AND SUPPLIES 315 if CHAPTER XVI KAW MATERIAL AND SUPPLIES. A Form of Wealth.— The acquisition of raw ma- terial and supplies for an industrial establishment is an investment made with a specific object in view. It is not an aimless exchange of one form of wealth for another. The property purchased is not supposed to lie dormant; although it may be at rest tor periods of varying lengths before becoming an active and essential part of the manufacturing process. All forms of wealth must be guarded, controlled, cared for, checked, and kept in such shape that the quantity possessed can be readily ascertained. An example of wealth in its commonest form is money; special institutions— banks— exist for its safekeeping and for facilitating its transfer between parties hav- ing commercial transactions. Conservation of natural resources and tables concerning them, the taking of censuses, and statistics regarding health, are other forms of controlling and recording wealth. The property acquired as raw material for con- version into the finished product of a manufacturing establishment takes the form of bulk. It needs space and storage capacity for its proper conservation, for protection against physical depreciation and for dis- posing of it in accordance with pre-arranged plans. 314 Material possessions, whatever their nature, are liable to depreciate in monetary value; conversely, they may appreciate. While the latter is desirable, it is not a primary consideration in accumulating the raw material and supplies for manufacturing pur- poses. Depreciation in cash value, naturally, is not desirable while the goods are at rest in the stores, or during the period of their conversion into the finished product, and foresightedness in purchasing can, to a large extent, secure protection against it. In discussing storage problems, many writers argue that there is depreciation in the value of material during the period it is carried in the stores, because of the various factors of expense connected with handling and storing. This is not literally true. These factors add to the cost, but they do not de- preciate the value. This additional cost must be absorbed in computing the cost of the manufactured product. Now, as all expenses, all effort, and all out- goings of every description must in the last analysis appear in the cost of making and disposing of a product, and as the primary object is to keep these costs at the minimum, it is apparent that storage prob- lems are of considerable economic importance. Cost of Storage.— Due to the fact that storage con- siderations vary tremendously with the product, the location, the length of the quiescent period, and other conditions, there never can be any hard and fast rules concerning the cost of storage as an economic proposition. The permanent investment — that is to say, the cost of construction of the building— is a factor of some magnitude if the space occupied for \ :• i 316 PURCHASING AND STORING RAW MATERIAL AND SUPPLIES 317 11^ storage purposes is large and is located in an expen- sive section of a city or other congested district. Such a condition may well-nigh prohibit the utiliza- tion of any large area for this purpose. If space is curtailed for this reason, the storeroom itself may readily acquire a congested condition, with all thr accompanying inconveniences of handling and stor- ing. Only one result is possible where insufficient facilities exist— an additional expense. It often means that material must be handled more frequ(mtly than it would if ample facilities existed. Lack of space and the extra handling involved adds materially to the cost and may cause damage to the goods. An investment in equipment is also necessary. This equipment is both fixed and movable, and is also affected by space conditions. With an ample area the material can be moved freely, easily, quickly, and at less cost than in a crowded storeroom. In figuring storage costs both forms of investment must be taken into the calculations, with the attendant interest charges and the depreciation charges on building and equipment. The interest charge on the money invested in ma- terial and supplies is a factor in storage costs which cannot be determined accurately. Credit periods obtained by the purchasing agent vary greatly and, in some cases, it may be possible that the material will have passed through the stores and be under manipulation in the shop before any moiKiy is dis- bursed in payment. There is of course an invest- ment and a corresponding interest on all material in the shop, and this continues until the product is finally disposed of; but the present discussion is limited to the withdrawal of the material from the stores for use in production work.* Other material may be paid for even before it arrives at the factory. Strict accuracy in obtaining costs would necessitate the determination of the actual cash outlay on each article for the exact time which lapses between the payment and the movement of the goods out of the stores. It is possible to determine accurately the items of general burden and overhead connected with cost of storage. Salaries and book-keeping expenses, wages incurred in receiving, handling and delivering, and also the insurance expense item, are generally pos- sible of exact determination. Factors which Reduce Values. — ^Depreciation in money value has already been alluded to. Good buy- ing should reduce this to a minimum; but reduced values will occur sometimes from this cause in spite of the precautions taken in buying. If the market price of a material should decline during the storage period, and the finished product is largely composed of this material, it is extremely probable that there would also be a decline in the market price of the finished product. In many cases, deterioration in the physical char- acteristics of materials in storage need not be con- sidered, but in some instances there is a more or less intangible loss of quality. Perishable goods, as usually designated, are not often met with in manu- * For a discussion of stores hnndlinp from the. cost standpoint, see Industrial Cost Finding, Vol. 5, Factory Management Course. -y. 318 PURCHASING AND STORING RAW MATERIAL AND SUPPLIES 319 llf facturing establishments; but semi-perisliable mate- rial, such as paper and rubber goods, are liable to deterioration, and many other materials nmst have protection against rust and weather conditions. Also some materials suffer from abrasion in handling. While great care may be taken to prevent deteriora- tion from these causes, some loss in value may occa- sionally take place. Industrial storage problems do not include the bugbear of the retail merchant, who may find himself faced with a sudden change of fashion and fancy which may render much of his stock of little value. But there is a somewhat parallel pitfall in the fact that new discoveries, or processes, or developments in manufacturing may necessitate an improvement of the product, and whatever quantity may be in stor- age may become obsolete or partially so. The danger from this cause is naturally much greater in manu- factured goods than it is in the raw materials. This risk of evolutions, however, does not often come so suddenly that one cannot ''get from under" without any serious loss. The Great Stores Problem.— An active industrial establishment has an insatiable^ maw for raw material. It consumes it without cessation. The general store- keeper knows that he must provide for the demand, that there may be neither let nor hindrance in the factory operations. Knowing the importance of this — knowing the imperative necessity for maintaining a supply in unbroken continuity— he could play safe and always have on hand such a great sufficiency that would take care of any situation or any con- tingency. No good storekeeper would do this, how- ever, for he would consider the economic factors that continually add to the cost, and the economic and physical factors which may degrade the value of the goods under his charge. The element of time is the one which forces itself to the attention of the storekeeper. A banker, when he has more cash on hand than he requires for current needs, puts every dollar above the established safety mark out to work for him. The storekeeper also has a safety minimum, and he too endeavors to put into active service as much of his surplus as possible. This, as already explained, is because time is constantly working against him and is increasing the cost of all the material in storage. Time is the great storage problem. Time is work- ing against values twenty-four hours a day and every day in the year. There is only one possible way that time can render a service of a favorable character to the storage problem, and that is through a change in market prices which might appreciate the intrinsic value of the material during the storage period. From a strictly storage point of view this factor cannot be considered, — at least not from an economic standpoint. The only true way for the storekeeper to base all his calculations is on the economic factors. These can be established and if the combined judg- ment of the purchasing and production departments decrees a purchase in excess of the maximum set by the storekeeper, these two departments must set the storekeeper's bill of costs against the appreciation they hope to gain. 320 PURCHASING AM) STOlUxNG RAW MATERIAL AND SUPPLIES 321 ^ ui 1 Profits in Storage. — While refusing to consider profits or appreciation in values from the store- keeper's point of view, ther^^ are nevertheless some profits in storage, although ])asic cost kec^ping prin- ciples do not and can not sanction an assumption of a profit in the storage function. From the inception to the final completion of the manufacturing process, costs must follow a well-defined and regulated course; and as the accretions follow one another in their proper rotation, the cost of storage must take its appointed place, ignoring any question of apprecia- tion in values. In view of the remarkable advances in the prices of nearly all raw materials during recent years the question may be raised as to what becomes of the so- called profits in storage. It has been quite possible for a concern to inventory 100,000 pounds of steel at a price of two dollars per hundred pounds, and a year later inventory the same quantity at four dol- lars per hundred pounds. It would seem at first glance that here was a profit of two thousand dol- lars; but this is far from being the case, unless during the interval between the inventories the price of all incoming steel had been at the figure prevailing when the first inventory was taken. This is an impossibL; condition in the advancing market such a change in price would indicate. The amount of steel in tlie stores when the first inventory was taken would be absorbed into the manufacturing costs at the pric(^ paid for it. All shipments Sf steel coming into the stores would likewise be absorbed at the advanced prices paid for each respective shipment. There re- mains, then, only the last 100,000 pounds which may have come into the stores at a price of $3.50 per hundred pounds. On paper this would show a store's profit of $500 if the inventory were figured at market prices. Should this be the case then all outgoings from the stores from date of inventory must be absorbed into manufacturing costs at the inventory prices, otherwise serious descrepancies would occur. Theoretical profits may be figured in the operation of the stores of an industrial establishment, but in practice a credit balance cannot be transferred from the stores to the profit and loss account, although it might be done in the case of a supply house, a dealer, or a jobber. In a manufacturing establishment the balance sheet should reflect the activities of the pur- chasing agent and storekeeper, but even favorable action by them might be counteracted by a stationary or decreasing price for the finished output of the factory. Safe and Sane Storekeeping.— Too much worrying about moderate price fluctuations is apt to destroy good storekeeping. The fundamental economic fac- tors may be lost sight of, and the luxury of over- stocking may be indulged in, or it may result in the reverse condition of a shortage with all its attendant evils. From the storekeeper's point of view, there- fore, the only rational, safe, and sound policy is to ignore these variations and allow the purchasing agent to deal with the problems of price fluctuations and market conditions. For a storekeeper of an industrial establishment to commence pondering whether market conditions warrant stocking up on 322 PURCHASING AND STORING RAW MATERIAL AND SUPPLIES 323 one thousand or ten thousand pounds of copper bars is dangerous. Scientific rules can be laid down for determining the maximum and minimum quantities to carry in the stores, and the storekeeper should adhere rigidly to these rules. It is purely a problem of internal management, and external conditions must not be allowed to influence or interfere in the determination of the limits. When these limits are set in botli directions, then other factors may properly be takc^i into consideration. When it becomes necessary to question the advisability of exceeding or curtailing the safety limits set by the inexorable demands of the production department and the economic factors connected with good storage, then the storekeeper may be called into consultation to set forth these factors as an aid and assistance in arriving at a decision regarding tlie departure from the rules. To Store or Not to Store. — This is not a new prol)- lem, but it is a problem which is attaining a new importance. The significance of the question has recently been rapidly and forcefully compelling the attention of concerns which buy for manufacturing purposes, for resale purposes, for future distribution in any form, or for consumption. Unobtrusively perhaps, but none the less surely, the issue is pent'- trating every activity which involves the retention for a long or short period of materials and supplies in any form. The new importance of the subject is largely bi'- cause of better methods of figuring costs and a better realization of these costs in so far as the material in the stores is affected. Probably the matter of storage costs has been brought more prominently to the front by the abnormal market conditions which have pre- vailed during the past few years. A '* sufficient unto the day" policy has brought some rude jolts to many manufacturing establish- ments. It is only necessary to look through the technical and trade periodicals of recent times to note the tales of woe of industrial concerns forced to suspend or curtail operations because of a shortage of coal or some other essential commodity or material. Mere price fluctuations do not create shortages except as they may be allowed to influence the buying or storage policy of individual cases. The question is deeper than just one of price. Lack of labor, car shortages, embargoes, and other factors have all brought the storage problem prominently to the front, and all of these have had their influence in causing a deeper study of storage costs, and conse- quently of the problem of whether to store or not to store. Extremes of the Storage Problem. — Available stor- age space and other physical conditions, and also financial considerations may compel the adoption of a middle ground or neutral policy, but unhampered by these restrictions extremes are apt to be indulged in in times of stress. On the one hand is the store- keeper alarmed by tardy and deferred shipments, co- operating with a purchasing agent who is also alarmed but for a different reason, that of rapidly rising prices. This combination may develop wild buying and storing, which is merely speculative or 324 PURCHASING AND STORING perhaps is consummated to secure peace of mind for the storekeeper and purchasing agent. The other extreme is illustrated by a too compla- cent attitude of both the storekeeper and purchasing agent, resulting perhaps in hurried purcliuses from warehouses at prices so much higher than those pre- vailing for mill shipments that the storage costs are exceeded many times. Storage problems cannot be solved by chance or impulse, they are a matter of cool, calm calculation of relative advantages and dis- advantages. Psychological Factors in Storage.— For its effect on the worker there is nothing that is quite equal as a stimulant to productive labor to the knowledge that there is an abundance of material ahead upon which to work. Noting daily the dwindling pile of material or the inability to get freely what is needc^d from the stores, the workman will slacken his efforts, perhaps unconsciously. As an illustration of this watch any laborer shovel- ing a pile of sand. As long as there is plenty, he will work with energy, but as the pile diminishes his energy also diminishes. Drop a fresh pile, and his energy seems to take on new life and vigor. Some concerns have allowed their taxes to influence the storage problem. Alarmed over in Planning and Locating the Storeroom. — In plan- ning the storage facilities, proportion is one of two main essentials and location is the other. Storage space properly proportioned to the needs of a fac- tory is an economic factor of great importance, and a well selected location will save much physical ef- fort. In large establishments with many departments there will naturally be branch or subsidiary store- rooms located at convenient and accessible points. Some raw material may undergo only one operation, or pass through only one department before going to the assembling shop or finished stock room. In such cases the material can go directly from the receiving department to the storeroom connected with the de- partment in which the work is to be done. This question of planning locations scarcely comes within the scope of the present discussion, but to enable the stores to be handled in the most efficient manner it should be given proper consideration in the layout of a plant. It is scarcely necessary to point out that individual circumstances and conditions will influence the amount of storage space and location. The product of one plant may require the storage of light and bulky raw material, another of heavy material, while others may use many small .articles. However this may be, there are two physical factors in connection with any stor- age proposition which can be discussed along the same general lines. . Manual and Clerical Work. — The two factors re- ferred to are the manual work and the clerical work connected with the operation of the stores. If one 338 PURCHASING AND STORING Of these were inaccurately done, the result would be confusion, regardless of how accurate the other might be. Ckrical records can be very simple but very complete and absolutely accurate; but if a shipment ot ii.32 machine screw nuts was dumped into the bin contaimng 10-30 nuts, or if a helper handed out 110 pounds of copper rod instead of 100 pounds, the cleri- cal records would not tally with the contents of the racks and bins The closer these two features can be brought into harmony the nearer is the operation ot them brought to a state of perfection. Generally speaking more attention has been paid to securing accuracy in the clerical work than in the manual operations, but the demand for better methods counnL ' t^" "^'^''"P"'' "^"5^ appliances for Zn^f' '"'^«\'"^' ,inea«'^ring, handling and trans- Zn « V^"" TT'' ^"*^ ^"^P"^^- Many improve- ments have also been effected in the arrangement and equipment of storerooms, conserving space re ducing labor and expediting and facilitating' the handling of the contents. No discussion of stores prob- oTor f ^: ""f ''''^ '^^'"P'^t^ ""h°"< reference to some of these. It would be manifestly impossible to describe, or even mention, all the good things the e are on the market at the disposal of and suitablelo storeroom use In calling attention to a few of them therefore. It is not intended to discriminate againT "'ilT'^T''^"^'?"'^^ ""''''' ^"'i usefulness The Counting Problem—Comparatively few things hat are handled in bulk in factories are vl ed fn size weight, or character. Consequently the great problem is one of counting, with L least expendi INTENTIONAL SECOND EXPOSURE 338 PURCHASING AND STORING I'M' I 'I ! lilt of these were inaccurately done, the result would be confusion, regardless of how accurate the other might be. Clerical records can be very simple but very complete and absolutely accurate; but if a shipment ot «-d2 machine screw nuts was dumped into the bin containing 10-30 nuts, or if a helper handed out 110 pounds of copper rod instead of 100 pounds, the cleri- cal records would not tally with the contents of the racks and bins. The closer these two features can be brought into harmony the nearer is the operation ot them brought to a state of perfection. Generally speaking more attention has been paid to securing accuracy in the clerical work than in the manual operations, but the demand for better methods m the latter has developed many appliances for counting, weighing, measuring, handling and trans- porting raw materials and supplies. Manv improve- nieiits have also been effected in the an-angement and equipment of storerooms, conserving space, re- ducing labor, and expediting and facilitating the handling of the contents. No discussion of stores prob- lems could be considered comjjlete without reference o some of these. It would be manifestly impossible to describe, or even mention, all the good things there are on the market at the disposal of and suitable for storeroom use. In calling attention to a few of them, therefore. It is not intended to discriminate against other appliances of equal merit and usefulness The Counting Problem-Con.paratively few things that are handled in bulk in factories are varied in size weight, or character. Consequently the great problem is one of counting, with the least expendi- 340 PURCHASING AND STORING ture of time and labor, the masses of things which come in like units, or in units which vary so slightly in weight and size that the variations can be neutral- ized on a bulk machine count. As a rule the hand-counter in an industrial estab- lishment makes a mark with a pencil as he or she finishes a hundred. Thus in hand-counting, there are usually three distinctly different operations: the hand operation, the mind operation, and the pencil operation. Now suppose that just as a worker is about to put down a *' hundred" mark, his attention is distracted by a loud noise or by someone speaking to him. When his mind returns to the task in hand is he likely to know whether he has made, or still has to make, that ** hundred" mark? Such instances are frequent, and the almost invariable tendency is to ''stay on the safe side." The counters argue that it is better to count out too many than too few. Does dependence on this kind of accuracy *'fit" with the careful calculations upon which modern business rests? When machine operators receive from the stores 2020 or 2005 each of parts to be worked on, instead of 2000, the stipulated number, how can the foreman know where he is ''at," or how can disputes be avoided with piece workers? Furthermore, if one looks at it "in the large," and reasons that the effect of each error grows more harmful the longer it, or its cause, remains unremedied, how can the superintend- ent know what is being wasted until the magnified result of some miscalculation shows up in serious form? INTENTIONAL SECOND EXPOSURE fllll r™ 340 PURCHASING AND STORING ture of time and labor, the masses of things which come in like units, or in units which vary so slightly in w^eight and size that the variations can be neutral- ized on a bulk machine count. As a rule the hand-counter in an industrial estab- lishment makes a mark with a pencil as lie or she finishes a hundred. Thus in hand-counting, there are usually three distinctly different operations: the hand operation, the mind operation, and the pencil operation. Now suppose that just as a worker is about to put down a '* hundred '^ mark, his attention is distracted by a loud noise or by someone speaking to him. When his mind returns to the task in hand is he likely to know whether he has made, or still has to make, that *' hundred" mark? Such instances are frequent, and the almost invariable tendc^ncy is to *'stay on the safe side." The counters argue that it is better to count out too many than too few. Does dependence on this kind of accuracy **fit" with the careful calculations upon which modern business rests? When machine operators receive from the stores 2020 or 2005 each of parts to be worked on, instead of 2000, the stipulated number, how can t\w foreman know where he is **at," or how can disputes be avoided with piece workers? Furthermore^, if one looks at it ''in the large," and reasons that the effect of each error grows more harmful the longer it, or its cause, remains unremedied, how can the superintend- ent know what is being wasted until the magnified result of some miscalculation shows up in serious form? u. O Q O P3 O 02 < o < o ^ Q O o m w a o H 00 CO 342 PURCHASING AND STORING RECEIVING AND STORING 343 One point is especially worthy of mention, and it may well be emphasized here: The actual work of production, dominantly important though it is, has absorbed more than its share of serious attention and has thereby overshadowed many contributory prob- lems, such as the counting of parts, stock, and ma- terial — operations which furnish abundant oppor- tunities for leaks and losses. Next in importance to the inaccuracy and lessened efficiency caused by unnatural mindstrains, are the expenditure of time and labor. It is evident that if a man counts 1000 small articles by fives, he performs 200 separate and physical and mental operations. If the articles are so large that he must count by twos, then 500 physical and a similar number of mental operations must be performed. A conservative esti- mate, therefore, places the average handcount ratio of the minimum number of operations to the number of articles to be counted at one manual and one mental operation to each count of five pieces. Counting Methods. — All counting methods now in use, logically divide themselves into five divisions, or separate systems including hand-counting. Eliminat- ing the hand counting, the use of which is only permis- sible for very small quantities, the four remaining systems can best be described under the name of the type of equipment used, thus we have the '* weighing and estimating method," the **even balance scale,'' the ** proportional scale," and the '* counting scale" or '* counting machine" as it is generally known. The expressions ** counting by weight" or **by the pound" are often used to explain mechanical count- ing, but they are not altogether correct. '* Counting bv balance" is more accurate because all devices that count, while more or less highly developed forms of scales, operate on the principle which says that an object placed at the end of a lever will balance two of the same objects at the other end, provided the lever is pivoted at the right point. Indeed with the exception of the weighing and estimating method of counting, in which the known weight is a necessary factor, the most modern systems of mechanical ci)unting are not dependent on the know^n weight of the objects handled at any stage of the operation. The only thing required in that respect is that these objects be in weight units suitable to the ratio capa- city of the counting device employed. To gauge the efficiency of the different methods of counting by balance, it is advisable to remember that industrial counting is divided into two kinds of tasks. One is the counting, or measuring out, of stated quantities for disbursement to departments or machine operators. The other is the determination of how many things there are in bulk lots of un- known quantities. This requirement provides the severest test of mechanical counting efficiency. AYith these points clearly in mind, the differences between the various methods can be more clearly explained and will be taken up according to the order of their generally accepted efficiency. Weighing and Estimating.— This method of count- ing represents the first step between hand counting and the use of a machine made specifically for the purpose It is still in use to some extent. 344 PURCHASING AND STORING In using the weighing and estimating method, the weight of a given number of the articles to be counted— preferably an even number for the sake of quick calculation— is first obtained, usually on a regular weighing scale. If 200 articles of uniform size and weight, for instance, weigh three pounds, then exactly twelve pounds of the same pieces must contain a total of 800 pieces. (See Figure 69.) Greater speed and fewer operations are the ad- vantages of this method over hand-counting, but it still invites inaccuracies from mental computation. It is also doubtful if the common insensitiveness of a scale made simply for weighing ever permits much greater accuracy when used for counting. Very few weighing scales of any considerable capacity can be compared with mechanical counting devices as to sensitivenes. And the degree of sensitiveness is the chief factor in determining the efficiency of a machine that counts by balance. The least hesitation of one of these devices in responding when the burden on the platform is increased or decreased is a flaw in the accuracy of the machine. Exceedingly quick re- sponse of a high grade counting-by-balance device, technically termed a *' sensitive break," is absolutdy necessary to accuracy. Even Balance Scale.— This system of counting also represents one of the earlier attempts to improve on hand-counting by means of a mechanical device. To count out 2,000 articles with an even balance scale, 500 articles, for instance, are first counted out by hand and placed on a tray or receptacle on one side of the balance, or scale. By putting an equal INTENTIONAL SECOND EXPOSURE 344 PURCHASING AND STORINO 411 t 1 < 1 In using the weighing and estimating method, the weight of a given number of the aiticles to be counted— preferably an even number for the sake of quick calculation— is first obtained, usually on a regular weighing scale. If 200 articles of unifoi'in size and weight, for instance, weigh three pounds, then exactly twelve pounds of the same pieces must contain a total of 800 pieces. (See Figure 69.) Greater speed and fewer operations are the ad- vantages of this method over hand-counting, but it still invites inaccuracies from mental computation. It is also doubtful if the common insensitiveness of a scale made simply for weighing ever permits much greater accuracy when used for counting. Very few weighing scales of any considerable capacity can be compared with mechanical counting devices as to sensitivenes. And the degree of sensitiveness is the chief factor in determining the efficiency of a machine that counts by balance. The least hesitation of one of these devices in responding when the burden on the platform is increased or decreased is a flaw in the accuracy of the machine. Exceedingly quick re- sponse of a high grade counting-by-balance device, technically termed a ** sensitive break," is absolutely necessary to accuracv. Even Balance Scale.— This system of counting also represents one of the earlier attempts to improve on hand-counting by means of a mechanical device. To count out 2,000 articles with an even })alance scale, 500 articles, for instance, are first counted out by hand and placed on a tray or receptacle on one side of the balance, or scale. By putting an equal # 346 PURCHASING AND STORING RECEIVING AND STORING 347 Itiill quantity of these articles on the opposite tray an even balance is struck, of course; and, if the orig- inal or base, hand-count was correct, tlie balance scale holds 1,000 pieces. Then the five hundred pieces on one side are put with the five hundred on the other and enough pieces put on the empty tray to balance the scale again, making a total of 2,000. To count a bulk-lot of unknown content by this method, it is first necessary to count by hand a **'base number" lot — as described above — which may be 100 or 500 articles, depending on the size of the lot to be counted. Then a series of balances are made, as in the first described use of this scale, until the remainder is too small to create a balance, when the hand method is again employed. Proportional Scales.— Proportional scales are made to work according to certain set even ratios; and the ratios usually range from 10 to 1 up to 200 to 1. A scoop hangs from the end of the scale beam, serving as the counter-poise. On the 10 to 1 scale, one hun< dred small pieces in the counter-poise scoop will bal- ance 1,000 similar pieces on the platform. To count the contents of unknown bulk lots with this scale, the material to be counted is put on the platform, while enough pieces are put in the counter- poise scoop to bring the beam to a *'low balance.'' Then a single piece is removed from the scoop, giv- ing a **high balance." Next, enough pieces are taken from the platform to make a perfect balance. The total of the pieces removed from the platform is added to the total of pieces on the platform, which total has been determined by multiplying the ratio of the machine by the number of pieces in the counter- poise scoop. To count out a specified number of pieces with the proportional scale, a number of pieces are placed in the counter-poise, in number equal to 1/10, 1/50, or 1/200 of the total quantity to be counted, the pro- portion depending, of course, upon the set ratio capacity of the scale in use. The platform is then burdened with a load of pieces sufficient to bring the beam to the perfect balance point. Without further adjustment of beam or counter-poise scoop, it is then possible to count out as many lots as desired by simply repeating the process of loading the platform to the balancing point. These scales can also be used for the purpose of weighing material as well as for counting. (See Figures 69 and 70.) Counting Machines. — The counting machine, which retains the form of a scale, has reduced the process of mechanical counting to the point where, with the exception of the comparatively small hand count necessary to provide the ratio number necessary to operate, all mental computations have been elimi- nated. The results are secured almost automatically and the total counts are indicated in plain figures on graduated counting bars, which are attached to the beam. These machines have the usual small scoop to take the ratio count of pieces, but this scoop or ratio pan, slides along the counting bar instead of resting in fixed position on the counter-poise. Counting machines are made in a great variety of sizes and capacities from the delicate machines. Fig- 348 PURCHASING AND STORING RECEIVING AND STORING 349 I ures 71 and 72, which count 25,000 pi(»ces to the ounce, up to machines of heavy dormant type, Fig- ure 73, which counts tons of heavier piec(»s. To obtain the count of an unknown quantity of pieces with the counting machine, the tare of the package or contents is first set out on one or the weighing beams, of which there are usually two. From the contents of the package the number of pi«ces required for the ratio pan are taken out, the number required for this purpose is indicated on the counting bar. The ratio pan is then move I vatmg type of truck with the multiple platform sys- tem. These trucks can be obtained to cairy loads of any weight likely to be handled in the ordinary in- dustrial storeroom. They can be arranged so "that the platforms have sufficient clearance for any floor conditions, and can negotiate any grades which can be mounted by an ordinary truck. There are many types of these trucks in use, and while the construction of the steel frame and liftin- mechanism varies to some extent the principle is the same in all of them. The platforms are simple and inexpensive, and a large number of them can be kept on hand. When not in use they are nested and stacked, thereby occupying little floor space. One big advantage of these platforms in a storeroom is that raw material of some kinds can remain on the platform, saving the unloading and stacking when the material comes in and the reloading on the truck when delivering from stores. Some material of this character can be stacked in two or three. tiers. If it is necessary to get out the back tier first, it can easily be done by running the lift truck under the first and second tier platforms, pull them out, and have ready access to the rearmost tier at any point desired. Each platform really becomes a truck as soon as the transporting mechanism is run under it. This •enables the receipt of material into stores to be greatly facilitated, because as many platforms as may be necessary can be loaded at the receiving point and moved immediately to their respective places in the storeroom. It is not necessary to unload these at INTENTIONAL SECOND EXPOSURE mi :: ■A I 354 PURCHASING AND STORING vatmg type of truck with the multiple platform sys- tem. These trucks can be obtained to cai-iy loads of any weight likely to be handled in the ordinary in- dustrial storeroom. They can be arranged so 'that the platforms have sufficient clearance for any floor conditions, and can negotiate any grades which can be mounted by an ordinary truck. There are many types of these trucks in use, and while the construction of the steel frame and liftin.- mechanism varies to some extent the principle is iC same in all of them. The platforms are simple and inexpensive, and a large number of them can be kepi on hand. When not in use they are ii(;sted and stacked, thereby occupying little floor space. One big advantage of these platforms in a storeroom is that raw material of some kinds can remain on the platform, saving the unloading and stacking when the material comes in and the reloading on the truck when delivering from stores. Some material of this character can be stacked in two or three tiers. If it is necessary to get out the back tier first, it can easily be done by running the lift truck under the first and second tier platforms, pull them out, and have ready access to the rearmost tier at any point desired. Each platform really becomes a truck as soon as the transporting mechanism is run under it This •enables the receipt of material into stores to be greatly facilitated, because as many platforms as may be necessary can be loaded at the reeeiviu"- point and moved immediately to their respective places in the storeroom. It is not necessary to unload these at % 356 PURCHASING AND STORING once and place the articles in bins or on shelves, as the platforms can remain where placed until suffi- cient help is at liberty to do the work. This greatly reduces the amount of labor required by the old trucking system, where the truck was run backwards and forwards, dumping the material on the floor, or causing delays by holding the truck while unloading and stacking goods. The use of this system in transporting goods in the stores has many advantages. It cuts down the initial expenditure for equipment; it reduces the labor item considerably; much time is saved, because the unload- ing and re-loading of material may be eliminated; much of the floor space occupied by the old style truck is saved. Also, as the goods are not handled so much the risk of loss by damage is reduced. Ami, finally, the trucking system is quicker and more flexible. If a storeroom is receiving castings or any article which will ultimately go into the shop in quantities of 100, 500, or any other number, they can be placed on the truck platforms in these quantities and no re-counting or handling is necessary. They can then be delivered to the production department at a moment's notice by simply running a truck under the platform. In some stores the raw material can be very largely handled in this way on much the same principle as the use of tote boxes. In fact, the platforms can be arranged as tote boxes if advisable. Lift trucks built for heavy duty are lowered grad- ually and effectually by a hydraulic check. For oper- ating in large areas they can be equipped with elec- tric drive. The head and front wheels are so placed INTENTIONAL SECOND EXPOSURE •■ ft 356 PURCHASING AND STORING once and place the articles in bins or on shelves, as the platforms can remain where placed until suffi- cient help is at liberty to do the work. This greatly reduces the amount of labor required liy the old trucking system, where the truck was run backwards and forwards, dumping the material on Ihe floor, or causing delays by holding the truck while unloading and stacking goods. The use of this system in transporting goods in thft stores has many advantages. It cuts down the initial expenditure for equipment; it reduces the labor item considerably; much time is saved, because the unload- ing and re-loading of material may be eliminated; much of the floor space occupied by the old style truck is saved. Also, as the goods are not handled so much the risk of loss by damage is reducted. And, finally, the trucking system is quicker and morij flexible. If a storeroom is receiving castings or any article which will ultimately go into tlie shop in quantities of 100, 500, or any other number, they can be placed on the truck platforms in these quantiticF and no re-counting or handling is necessary. The> can then be delivered to the production department at a moment's notice by simply running a truck under the platform. In some stores the raw material can be very largely handled in this way on much thi same principle as the use of tote boxes. In fac^t, th( platforms can be arranged as tote boxes if advisable. Lift trucks built for heavy duty are lowered grad- ually and effectually by a hydraulic check. For oper- ating in large areas they can be equipped with elec trie drive. The head and front wiieels are so placed 358 PURCHASING AND STORING as to turn a complete cycle, enabling the truck to operate in its own length in narrow aisles. Figure 76 shows a further development in elevat- ing trucks, on which a scale is mounted so that ma- terial loaded on the platform may be weighed (grosH, net and tare weights can be quickly determined) and when transported wherever desired without rehand- ling. When transporting material the loaded plat- form is supported on a special set of side bars, so that there is no strain on the scale mechanism. Conveyors.--The layout of a plant should provide for a location for the storeroom in clos(* proximity to the receiving department. There may be condi- tions where this is impossible, and in those cases where a number of subsidiary storerooms are main- tained in separate buildings, it is, of course, not feas- ible to have them adjacent to each other. Hand trucking may not prove the best means of transport- ing material in such instances, and it becomes neces- sary to use self propelled trucks or some kind of conveyor. The very large size of many industrial plants, the great amount of ground space occupied, and the necessity of hauling vast quantities of material havt' resulted in the installation of various typ(is of con- veying equipment to make possible the rapid trans- portation of parts from one building or one section of the plant to another. The use of conveyors for this purpose keeps the manufacturing operations in progress without delays and reduces the cost of handling the goods to a minimum. As there are so many types of conveyors, and as FIGS. 77 AND 78. RECEIVING GOODS BY ROLLER CONVEYERS Bolls of paper, above, delivered to the basement storeroom of the Empire Paper Tube and Box Co., N. Y. Below, goods received into the stores of Endicott, Johnson & Co., Binghamton. 359 INTENTIONAL SECOND EXPOSURE It m^M'^ 358 PURCHASING AND STORING as to turn a complete cycle, enabling the truck to operate in its own length in narrow aisles. Figure 76 shows a further development in elevat- ing trucks, on which a scale is mounted so that ma- terial loaded on the platform may be weighed (gross, net and tare weights can be quickly determined) antl when transported wherever desired without rehand- ling. When transporting material the loaded plat- form is supported on a special set of side bars, so that there is no strain on the scale mechanism. Conveyors.— The layout of a plant should provide for a location for the storeroom in close proximity to the receiving department. There may be condi- tions where this is impossible, and in those cases where a number of subsidiary storerooms are main- tained in separate buildings, it is, of course, not feas- ible to have them adjacent to each other. Hand trucking may not prove the best means of transport- ing material in such instances, and it becomes neces- sary to use self propelled trucks or soukj kind of conveyor. The very large size of many industrial plants, the great amount of ground space occupied, and the necessity of hauling vast quantities of matc^rial have resulted in the installation of various types of con- veying equipment to make possible the rajnd trans- portation of parts from one l)uilding or one section of the plant to another. The use of conveyors for this purpose keeps the manufacturing operations in progress without delays and reduces the cost of handling the goods to a minimum. As there are so many types of conveyors, and as FIGS. 77 AND 78. RECEIVING GOODS BY ROLLER CONVEYERS Rolls of paper, above, delivered to the basement storeroom of the Empire Paper Tube and Box Co., N. Y. Below, jroods received into the stores of Endicott, Johnson «& Co., Bin^iiamton. 359 360 PURCHASING AND STORING nearly all types can be arranged for variations in lo- cation changed in construction to suit tlu* character of the material to be conveyed, any detailed discus- sion of the various problems met with in storeroom practice is out of the question here. Engineers and managers of industrial plants have of late been devoting considerable attention to the possibilities of harnessing the force of gravity to solve their trucking problems. Gravity is always ready to operate on the instant, twenty-four hours a day, three hundred and sixty-five days in the year, without attention. Wherever large quantities of regular objects are to be moved in a fairly steady stream from floor to floor downward, or from one level to a lower one on the same floor, some type of gravity conveyor usually can be devised which will handle the mat(»rial rapid- ly, economically, and with safety to both goods and workmen. Even for moving materials from one point to an- other on the same level the gravity convt^yor may he used when it is combined with short elevating sec- tions operated by individual motors; for an insignifi- cant amount of electrical power suffices to raise tlie objects to a position where gravity can get in its work, and the long stretches of distance are then compassed by gently sloping rollway. Conveyors depending entirely on gravity naturally have their limitations, but in locations where the r(^- ceiving room is on the main floor and the storeroom in the basement they can be adopted in preference perhaps to any other type. There are also cases FIG. 79. COMBINED ROLLWAY, SCALES, AND CHUTE IN THE FIN- ISHED STOCK ROOM OF HOTALING, WARNER & CO., SYRACUSE, N. Y. I FIG. 80. MOVING STOCK BY MEANS OF OVERHEAD BELT CONVEYOR IN THE FACTORY OF J. B. STETSON CO., PHILA. 361 INTENTIONAL SECOND EXPOSURE w > L 360 PURCHASING AND STORING nearly all types can be arranged for variations in lo- cation changed in construction to suit the character of the material to be conveyed, any detailed discus- sion of the various problems met with in storeroom practice is out of the question here. Engineers and managers of industrial plants have of late been devoting considerable attention to tlio possibilities of harnessing the force of gravity to solve their trucking problems. Gravity is always ready to operate on the instant, twenty-four hours a day, three hundred and sixty-five days in the year, without attention. Wherever large quantities of regular objects are to be moved in a fairly steady stream from floor to floor downward, or from one level to a lower one on the same floor, some type of gravity conveyor usually can be devised which will handle the material rapid- ly, economically, and with safety to both goods and workmen. Even for moving materials from one point to an- other on the same level the gravity conveyor may he used when it is combined with short elevating sec- tions operated by individual motors; for an insigniii- cant amount of electrical power suffices to raise tlie objects to a position where gravity can get in its work, and the long stretches of distance are then compassed by gently sloping rollway. Conveyors depending entirely on gravity naturally have their limitations, but in locations where the re- ceiving room is on the main floor and the storeroom in the basement they can be adopted in preferene<^ perhaps to any other type. There are also cases FIG. 79. COMBINED ROLLWAY, SCALES, AND CHUTE IN THE FIN ISHED STOCK ROOM OF HOTALING, WARNER & CO., SYRACUSE, N. Y PIG. 80. MOVING STOCK BY MEANS OF OVERHEAD BELT CONVEYOR IN THE FACTORY OF J. B. STETSON CO., PHILA. 361 362 PURCHASING AND STORING where a central storeroom has been locattnl at a suffi- cient height in one of the buildings so that all raw materials are elevated to such central stores and dis- tributed by gravity to the various departments of the plant, thereby eliminating subsidiary storerooms. One of the greatest advantages of the gravity roller conveyor system is its flexibility. By means of curves, switches, chutes, elevators, and other appli- ances the conveyors may be run around corners, through partitions and floors, and may be laid out practically wherever desired. Under the most favor- able conditions these conveyors will carry pa€kages with a smooth surface on a grade of only two and one-half per cent, but ordinarily a grade of at least four per cent is advisable. The uses of belt conveyors are so varied that there is hardly any problem involving the conveying of light parts or materials, over short or long distances, that cannot be solved by some form of moving belt! Even pneumatic conveyors and carriers are used to good advantage in many industrial establishments, and none of these methods should be overlooked in considering the transportation problems. Sectional Steel Bins and Shelving:.— An office with- out correspondence files would be helpless; yet, un- noticed, many supposedly well-equipped factories are rendered just as helpless through lack of efficient storage methods. Were the value of every square foot of storage space determined and the stock con- sidered as so many bins of pennies, nickels, and dimes, instead of rivets, nuts, and washers, the neces- sity of proper care would be quite evident. FIGS. 81 AND 82. METAL BINS IN THE STOREROOM OF THE PACKARD MOTOR CAR CO., ABOVE; AND IN THE BUICK MOTOR CAR CO., BELOW 3G3 364 PURCHASING AND STORING Steel equipment for storage purposes is of many types. Small and valuable articles may be kept in lockers, and exceptionally heavy material mav need special construction, but generally speaking i^ost of the material kept in bins or racks can be stored in either the closed type, the open type, or the rack, type of receptacle. These can all be obtained in the unit system of construction which provides for ample flexibility in length, width and depth. The 3-inch vertical ad- justment of shelves and the approximately (i-inch horizontal adjustment of dividers permits the great- est economy in available storage space. This adjust- able feature affords a saving of 25 to 30 per cent in storage space when compared with the construction of the ordinary wood bins and shelving. Further- more, the simplicity of the construction permits easy erection by an ordinary workman, the only tool neces- sary being a screw driver. Another important point is that construction of this kind is a fire retardant. iNo building can be consider<'d completely fireproof when It is equipped with combustible wood bins and shelving. The Closed Type.-The construction of the closed type Figure 83, consists, first of flat steel backs which extend the entire height and length of the as- semblies. One back is necessary for each nnit and acts either as a back to a single face assembly or as a dividing wall in a double face assembly. The uprights are attached at right angles to the back with stove bolts through holes in a back flange and corresponding holes in the backs. The uprights and FIG. 83. CLOSED TYPES OF METAL BINS 365 366 PURCHASING AND STORING •« backs are all punched for the attachment of shelves. The shelves are connected by means of stove bolts through holes in the side and back flanges. Thus, the uprights and backs each carry a portion of the shelf load. The standard bin construction is such that an as- sembly of plain shelving can be made into a bin con- struction by simply attaching a bin-front in connec- tion with the front face of the shelf. The bin-front and the shelves, being bolted to the frame, tie the entire construction together. This provides absolut<. rigidity, but does not prevent easy removal of an en- tire bin, nor the quick adjustment of the shelves. A 3-ineh vertical adjustment is used which provides sufficient range for any storage space desired. Open Shelving.— This type of construction, Figur.. 84 has a continuous opening through the assembly, and IS used when requirements call for the storage ol' a material which is to be handled from cither side Both faces are alike, and the design is such that th. complete assembly is self-anchoring. The uprights are formed from one piece of sheet steel, the front face of which is punched with holes for 3-inch adjust- ment of shelves. The shelf is formed from one piece of sheet steel with edges turned on four sides. The front face of each shelf is attached to the face of the uj)right with four bolts. This arrangement acts as a knee brace and provides for lateral thrust. In other words, each shelf IS so designed that when attached it adds to the stiffness of the entire assembly and thus effects a perfectly rigid construction. 368 PURCHASING AND STORING RECEIVING AND STORING 369 ItH 11 As shown by the illustration, the shelving is biiill on the unit principle and is simply made up of up- rights and shelves. A bin construction can be made up if desired by at- taching bin boards to the face of the uprights and along the front of the shelf by the use of stove bolts. Card holders can be attached to the faces of tho shelves by inserting prongs through the slotted holes. Racks.— The rack type of construction, as shown in Figure 86, is adaptable for the storage of Babbitt metal, spelter, drill rods, and so on, and is generally used m conection with the storage of dies, molds, pat- terns, cores, etc. It is composed of heavy gauge formed sheet steel uprights and a rack shelf attached to the uprights by means of stove bolts. The manner of attaching makes the rack self-anchoring. In the illustration the ends of the front face of the shelf are flat. This part acts as a small knee brace which, when attached to the upright, provides for lateral thrust. Each shelf contains four of these knee braces, and, there- fore, every shelf adds to the rigidity of the entire construction. The front face of each shelf is punched with slotted holes for the purpose of attaching card holders. The uprights are all punched for the vertical adjustment of shelves. The stock rack shown in Figure 87 is designed for the convenient and economical storage of rods and bars of steel, brass, etc. It is made in two styles— the single-hook, or wall pattern, and the double-book type. Both styles are furnished in sevenil lengths for stock of varyinig lengths. The unit idea is carried out in the construction, so that the rack can be ex- panded or contracted to meet changing requirements. The rack can be easily and completely knocked down when it is desired to re-locate it in another part of the storeroom. Hooks and tension bolts are of steel, the material best suited to withstand the combined bending and tensile stresses, while cast iron distance pieces of twice the crushing strength of steel sustain the com- pression due to load. The roll-up on the end of the hooks is important as it prevents the load from spill- ing off. It is impossible to overload the rack, and the entire space between hooks may be filled without causing undue stress. Spaces are provided to accommodate a large vari- ety of sizes without unduly mixing them. This elimi- nates the necessity of handling a great variety of stock before getting the desired size. End hauling of bars is eliminated and no valuable floor space is wasted thereby. The graduation in length of hooks — long at the bottom and short at the top — materially facilitates the removal of stock vertically where hoist and runway service is employed. The wall pattern type, as shown in Figure 88, as its name would indicate, is designed to be placed against the wall and is particularly adapted for use where floor space is limited. Pans may be provided with either type of rack between the uprights for ac- commodating pieces not long enough to reach be- tween the posts. Several lengths of pans may be used to obtain varying distances between posts. i! \4 < o o H OS 00 00 « CO 372 PUHCHASING AND STORING Open Air Storage. — The preceding discussion has been confined to interior storage facilities, but a storekeeper in some establishments has under his charge large quantities of materials, which are not kept under lock and key or are not stori^i in ware- houses, such as have been described. In foundry work, for instance, there would be coke, pig iron, and scrap iron. In the case of the pig iron, the yard should be arranged with stalls open at one end, or partitions only can be used sufficiently far apart to accommodate one carload in each compartment. Two or three of the pigs should have the car number painted on them as a means of identification should there be any trouble with the metal, either in its use in the foundry or when analyzed. With a travelling crane and magnet it is possible to keep pig iron and scrap in any kind of enclosure. It also enables all shipments to be segregated. The material can be stored in less space than when in loose, untidy, straggling heaps, and certainly it is under much better control. It is sometimes necessary to keep several kinds of foundry sand, if both brass and iron castings are made, both for machine molding and floor molding. Open covered sheds properly subdivided should be arranged for this material. Fire clay also should be stored in a similar way. The latter is not so suscep- tible to deterioration by exposure, but the sand should have protection from the weather, as should also limestone and sea coal. All materials of this nature should be under rigid control. There is abso- lutely no reason why stores of this character should RECEIVING AND STORING 373 not be subject to accurate record, but too often no records, or only remotely approximate ones, are kept. When large quantities of structural steel are used, it is, of course, not practicable to store it in the same building or in the same manner as small articles, and it may be necessary to detail one of the stores clerks to keep track of this material. An ideal arrange- ment is for the cars to be unloaded at one side of the building, the bars, angles, channels, and beams stacked in regular order according to size, and stock should be drawn from the opposite end of the stack. As such supplies usually pass directly to the saw bench, very little work is necessary in keeping a record as the cuts are made. Intensive Storing. — Using storage intensively and, at the same time, avoiding overcrowding or placing one class of material where it interferes with the free movement of another class, is a problem to tax the ingenuity of any storekeeper. In any discussion of equipment used in industrial storerooms, the subject can only be treated in a general way, unless one were to recite instances of unusual problems which have been overcome by some storekeepers. These prob- lems are individual, and solutions have to be found to meet the special conditions. A visit made to the storerooms of almost any large industrial plant will afford a demonstration of some clever device to solve intensive storing. It is common practice nowadays to use ^^s for some articles, instead of placing them in "bins or racks. Wall space which could not be utilized other- wise is made to serve a purpose. Some of these ar- 374 PURCHASING AND STORING RECEIVING AND STORING 375 tides, and also some of tliose in bins, whieli are drawn from stores in regular specific quantities are tied or bundled in these quantities. Thi^ saves de- lay in counting or weighing when the articles are requisitioned, and the material can be handed out without loss of time to anybody. In a large plant where steel billets are us(^d, the former custom was to dump them in hea])s, until the storekeeper evolved the plan of unloading them onto platforms which are stacked on top of each other by a crane. When it becomes necessary to use the bil- lets, the platforms are lifted by the crane onto self- propelled trucks and are transported to the rolling mill. This eliminates several handlings over the old method and economizes space. Such mechanical aids as barrel stackers and sack stackers are utilized to good purpose in many store- rooms, but it is still possible to see four or five men struggling with barrels filled with heavy material en- deavoring to stack them without the aid of theso appliances. Seventy-five per cent of this hibor could be saved by using the mechanical stackers. When an inventory of materials is taken, an in- ventory should also be taken of the non-productive labor used in receiving and storing the materials. Simply because a storeroom is devoted mainly to heavy materials it does not always follow that it is necessary to have brawny men to handle it. There are so many mechanical appliances to-day that physi- cal strength in the human being is, by reason of them, largely equalized. The majority of men who labor with their hands are not willingly mentally idle. They would just as soon work with their brains, but intensive, strenuous, mechanical, monotonous work dulls thinking. Sometimes a laborer, however, will work with his brain as well as his hands and produce a method of relieving the physical strain. There is ample room for this in some of the store- room operations. CHAPTER XVIII STORES INVExNTORIES Perpetual versus Periodic Inventories. -A short time ago a prominent technical journal d(' voted con- siderable space to a discussion of stores inventories. The principal argument advanced was that it is ad- visable to omit the regular annual or semi-annual inventory. Many opinions have been advanced from time to time on this subject, and as inventorying is a matter of vital interest to good stores keeping and as many misconceptions exist, it is essential to eluci- date the various points. A logical reason for the discontinuance of the prac- tice of taking physical inventories at periodic inter- vals of material and supplies in the stores, would be that the perpetual inventory represented the actual quantities on hand, or that it was so nearly accurate as to make the difference negligible betwc^en the ac- tual quantities and recorded quantities. It is im- portant that the perpetual inventory should indicate the true state of affairs, or should come as near it as possible, for all the stores clerical work revolves around it. It is the stores ledger; and tlni account kept with each customer in the sales ledger of a con- cern should not be more accurate than the account kept in the perpetual inventory of the debits and credits entered against each stores account. 376 STORES INVENTORIES 377 There are still to be found some manufacturers who keep no daily records, or perpetual inventory as it is called, of material on hand. They have some method of keeping track of material used in produc- tion work, and annually close the establishment for inventory purposes, at which time a general physical inventory is taken. In olden days such methods may have passed muster, but they cannot be tolerated under even ordinary conditions to-day. In intensive manufacturing they would be impossible, and nothing can be said in support of them. On the other hand, some manufacturers claim to have developed the perpetual inventory to such a high state of perfection that it is unnecessary to take any physical inventory. Let us examine the ad- vantages claimed by the adherent's of this system. The Perpetual Inventory.— This gives complete de- tailed information monthly, weekly, daily, or even hourly, if necessary, of the state of the material on hand, the rate of consumption, and the many valuable features essential in the exercise of purchasing and storekeeping which have been covered in previous chapters. These features alone would indicate that a perpetual inventory is imperative. A continuing ever-ready record being essential, the question which presents itself is, whether this record can be brought to such a state of accuracy and per- fection that periodic physical inventories can be dis- pensed with. In some manufacturing plants this has been done, and many advantages and savings are claimed for the innovation. v. CU 0* « c c c eS o c« S 4-> CO 5^ ca • o 12; • ^ 12; o 1 > P ===]= = = -=== = 6 E- < H 2 y < hJ <^ b U o a, 13 Li o £ n *» eg Q > . . c o 2 d Q 2 ki . = = 1^ o ^ 1 -^=H^ ^^ d 55 k L> 1 •-] > $ < S , - Qi OLU J> OJ I loa f Aes » u V < r> <: z, b^ s 1 1 . - - o H m Q P o h3 H Qi W PH O O 05 6 00 I:- CO STORES INVENTORIES 379 Instead of closing down the plant for several days or a week to take the physical inventory, a balance is struck of all stores inventory accounts in exactly the same way and at exactly the same time that bal- ances are taken of accounts payable and accounts receivable. One of the principal advantages claimed is that it eliminates the closing down of a plant and throw- ing out of employment hundreds, and perhaps thou- sands of workmen, involving them in a loss of ap- proximately two per cent of their annual income or earning capacity; while at the same time plant ex- pense goes on — for rent, interest, insurance and simi- lar charges do not cease while the physical inventory is being taken. The salary of every person engaged in the inventory work while production is stopped is a dead loss; for it cannot be distributed as a bur- den on the factory product, because nothing is being produced. Another argument put forward for abolishing the physical inventory, is that it is more likely to be in- accurate than the perpetual records, because the counting, weighing, measuring, and so forth, of the large quantities is very liable to be incorrect. This work is frequently performed under the pressure of time. The persons engaged on annual inventories often work long hours, and generally amid consider- able confusion which is apt to cause many errors. Those advocating the elimination of the physical inventory state that in actual practice a comparison of the actual results has showed several discrepancies between the annual and perpetual inventories, but S >^W K^ S Has •< fi o> as s s< £13 O a, V St CQ a g ® » Q a> O CO OS u o 03 01 U "ar O 2 Z O H H I W < H W CJ s 33 O 5 CO I-] •=> Cf a UL o a n cs w w K H Ph O d 00 00 (U 03 '5 a> •5 2 re CO 03 f >» Z (!. ■ft) a> cyo 0-2 re o V i/i vt 0) c/) •= a> (/) U «A m re 03 n Pi pi CO . 00 ^ ; 382 PURCHASING AND STORING on re-counting the perpetual inventory was found to be correct in ninety per cent of the instances. More- over, the total discrepancies between the two inven- tories was less than $800 in a store on which the valuation was placed at nearly three quarters of a million dollars. This difference, of course, does not warrant the expense incurred in taking the annual physical inventory. It is a practice of some concerns to s(?t aside an amount every year- for the purpose of inventory ad- justment. This is done in much the same manner as a reserve for bad debts. Such a fund may never be called upon, but it is good sound business policy. Any such policy is equally applicable to any kind of inventory, hence it is not an argument for or against a perpetual inventory. Perpetual inventory figures, the advocates claim, are more reliable than those of a physical inventory, unless the latter are checked by duplicate? counting' weighing, and so on. If such a course is used, it amounts to practically the same as taking two 'in- ventories. But if the reliability of an annual inven- tory is dependent solely on one count or weighing, taken perhaps hurriedly, it is better to compile the annual statement of stores on hand from perpetual inventory balances. Finally by keeping the storeroom clean, by regu- larity and order in arrangement, by careful methods in receiving goods into and delivering them out of stores, the perpetual inventory if rightly planned for the character of the stores, can be brought to a high state of accuracy. STORES INVENTORIES 383 The Physical Inventory.— The advocates of an an- nual or semi-annual physical inventory claim that it is absolutely necessary to use it as a check on the perpetual inventory which has been running for a period of six months or a year, as the case may be, without any positive check. During this period there may have been hundreds or thousands of entries to one account, and it is not to be supposed that this amount of book-keeping can be done without errors, some of which might be serious. It is claimed that closing down for a period of about one week every year is a necessity in many manufacturing establishments— for repairs, altera- tions, replacements, etc.— and that such work can be done much better and more economically when the USED iq. JAN. FEB MAR APR MAY JUNE JULY AUG SEPT.. OCT NOV DEC TOTAL , PAST ODNSUMPTION U^D iq JAN FEB MAR APR USED iq. JAN FEB "MAR APR MAY : MAY... JUNE JUNE... JULY JULY... AUG.... AUG.... SEPT SEPT. . . OCT OCT.... NOV NOV.... DEC DEC... TOTAL TOTAL. J PIG. 94. REVERSE OF FIGURE 93, SHOWING METHOD OF RECORD- ING PAST CONSUMPTION I 384 PURCHASING AND STORING workmen are not around. Even if there is no work of this character to be done, it is considered advis- able to close down for a short period in llie summer, when many workmen are asking for vacations. These vacations can then be disposed of practically all at one time, and a physical inventory taken in the work- men's absence. Again, there are certain items used in manufactur- ing in reference to which a perpetual inv(3ntory can never be very accurate. Bulk material, such as sand, coal, fireclay, scrap iron, and so on, cannot be as correctly determined as regards their incomings and outgoings. For these it is imperative that physical particulars should be ascertained to enable calcula- tion to be made for an inventory of any kind. Furthermore, knowing that at a regular date a physical inventory will be made, induces care in keeping the perpetual inventory. If this check were discarded, the clerks keeping the perpetual inventory would be inclined to carelessness, and no great re- liance could be placed on its accuracy. It is also claimed that the physical inventory has a *' house- cleaning" value, in that it brings to light some ma- terial or articles which have been placed in the wrong bins or receptacles. Finally, for legal reasons a physical inventory is advocated, because if it was ever necessary to go into court, a perpetual inventory would be ridiculed as a true statement of affairs. Ideal Inventorying.— The foregoing remarks cover the principal pros and cons put forth in respect to keeping stores records by the advocates of both sya- — — c 3 < d q: O 1 c Rl E 1 — ^— E z Ui o 8 c 3 < O O w u c CO 3 C E IS Q c 3 O E < U t 3 E i ? (0 O c 3 3 O E < 0) y c 3 o o o E Si T^ § i g - o o ^ == 1 ~T~ o > "Is w o •-a w m P o H 'A < H M (1. O PS o d to CO i-0 386 PURCHASING AND STORING STORES INVENTORIES 387 terns. The ideal inventory, in my opinion, is un- doubtedly the perpetual record, posted promptly, maintained accurately and absolutely reliable. So accurate should it be that one can walk to any bin or rack and find there the exact quantity of material shown at that time on the inventory records. Infallibility is an impossibility while the human factor has to be considered, and it is not to be ex- pected that the many thousands of clerical entries on the records, and the corresponding number ol* manual operations in receiving and delivering the goods, can be accomplished without error. If this could be done, we should have the ideal record, show- ing always the exact state of every stores account. The manner in which stores records are compiled and the documents from which they are written up do not as a rule permit of such accuracy as the entries made in the ledger accounts with debtors and creditors, yet no accountant would think of taking as correct the items posted to these accounts without the check of a regular trial l)alance. It is essential, therefore, that the perpetual inventory be also sub- ject to some kind of check. While it may be possible that manufacturers of certain articles have found it possible to eliminate the semi-annual or annual physi- cal inventory, it is probably because the nature of the product manufactured does not call for a very large variety of raw material, or it is such material that accurate records of it can be maintained with com- paratively few clerical entries. The question of the losses sustained by closing a manufacturing establishment for a few days or a week, in order to take a physical inventory, is a matter for individual consideration. It is possible that some plants have quiet periods when no loss would be incurred by closing down, and at such times a physical inventory could be taken. These dull periods usually come around midsummer or toward the end of the year, when books are generally balanced; but even if this is not so there is no in- superable objection to a general inventory being taken at any time of the y^ar that is convenient. A physical inventory is really a check on the perpetual inventory, and if there is any discrepancy between the two, what is going to be done about it! The cost accountant has not compiled his records from the physical inventory but from the same documents that have been used in writing up the perpetual records, so that from certain viewpoints it is im- material whether an inventory is taken, or not. The legal reasons which are said to exist for tak- ing a physical inventory at the same time that the financial balance sheet of a concern is made up, do not exist in fact but only in imagination. If proper perpetual records are kept, and the documents pre- served which were used for compiling the records, then these are just as good evidence as the books showing the debits and credits with customers. It has been shown that the necessity exists for checking the stores book-keeping with the actual stores contents, and that it may be done by regular periodic physical coimt, providing it does not entail a loss of profitable productivity. To produce at a profit is what a manufacturing establishment exists 388 PURCHASING AND STORING for. To suspend this function by closing down oper- ations could not be considered as good policy. The alternative to a periodical inventory is to check the clerical records by a physical method at convenient times, when it will not disturb production. In establishments of sufficient magnitude it is pos- sible that the men engaged in inspecting raw mate- rial on arrival or similar work in the shop could be assigned to this work, if it is desired to have some one not actually taking part in the manual operations of the stores. This is some protection against collu- sion, but it may be found that the regulai* employees of the stores can be relied upon to take the physical inventory at such times as they are not fully occupied with the routine work. By following this practice closely, and covering all of the stores within certain prescribed pmods, the clerical records will not go very far wrong without the discrepancies being quickly discovered. Other requisites in inventorying are a clean storeroom, well kept and well arranged bins and receptacles, and careful, accurate, but alert help in both manual and clerical operations. Posting Values on Stores Inventory.— It is not a general practice for the records kept in the stores to cover the value of the stock, but this is sometimes found advisable, especially in smaller concerns, and an illustration of a concise method of doing this is shown in Figure 96. In connection with the value of raw material and the pricing of it for cost pur- poses there is some difference of opinion in the dis- position of cases where prices vary. STORES INVENTORIES 389 Article. -Size. .Bin No.. Description Unit .Max.. .Min.. Verified ORDERED Order No. Quantity RECEIPTS & DELIVERIES Date or Req'n No. Quantity BALANCE Amount 1 Quantity Annount UNIT PRICE FIG. 96. INVENTORY SHEET FOR rSE WHEN ENTRIES ARE NOT NUMEROUS The receipts should be posted in red inli, and added to the previous balance. For example, let lis assume that 100 units are received into the stores at 20 cents each, and 40 are issued to the shop, leaving a balance of 60. An additional quantity of 80 is then received into the stores at a price of 25 cents each, making a balance in the bins of 140. When further issues are made to the shop, at what price should they be charged out? 390 PURCHASING AND STORING STORES INVENTORIES 391 It is a practice of some establishments to average the price as soon as there is any change. In the example given above with 140 units in the stores, there would be 60 at 20 cents and 80 at 25 cents, or an average price of 22.8 cents. Is it correct or good practice to use the average price for the next delivery from the stores? If 25 cents each represents the lowest market price, then the quantity on hand before the last shipment was received has appreciated 5 cents in value. Some concerns would charge them out of the stores at the advanced figure, but such practice may be dismissed without discussion. It is not a correct method for figuring production costs; and in so far as the stores account itself is concerned, it would simply mean that this account w^ould show either a profit or a loss according to market fluctuations. As already pointed out this is not good policy. Those who advocate that stores prices be averaged, argue that it is better to have one price apply on all material in the stores of one kind, it simplifies the price, it is less liable to lead to mistakes, and it ren- ders the calculations connected with the annual or semi-annual balancing much easier. The best practice, however, is to charge out the hundred units at a price of 20 cents and the follow- ing 80 at 25 cents. The theory is that all articles are taken from the bottom of the bin and that the material which has been longest in the stores should be used prior to later receipts. There is another and more important reason for this method of procedure. An order may be accepted from a customer, or e NUMBER P.BCLASS BILL'G PRICE PLATE INV CLASS SELL C PRICE MAX 1 MAX MIN ' MAX 1 MAX MIN Mm DATE IN OUT 8AL OAIE IN OUT BAL DATE IN OUT BAL DATE IN OUT BAL uoutur fOttWARO BtOUHHI wtwfo aHOUQHT loimtiiD itwen' roti'n 1 roimtui) Kumtm I- fOitm»iiti — 1 FIG. 97. CARD FORM OF PERPETUAL INVENTORY stock order is issued for the shop, to make up a number of finished parts, in either case this is done on the basis of the price of raw material then in the stores or the price at which it can be bought. It is, therefore, only reasonable and fair that this order should be executed with raw material priced on this basis, and not on an average price, which may apply on some later order. Summary.— The man who knows most about his business seldom fails, and the one who knows least is usually the one who does fail. Nothing is of greater importance than a well kept perpetual in- ventory for advancing one's knowledge of the con- dition of that portion of one's investment represented by the stock of goods and materials in the stores. Perpetual inventories require perpetual attention. Cost authorities are practically united in favoring h 392 PURCHASING AND STORING them. The difficulties in handling them have been largely due to a lack of attention on the part of employees. The benefits of maintaining a perpetual inventory having been discussed, the question of keep- ing accurate records can be covered by some very simple rules. First: No material should be received into the storeroom without some form of advice in the shape of receiving clerk's report form as shown in **C '' Figure 38, page 240. These tickets or slips are used to make the debit entries. If material is allowed to pass into the stores without some such document, no record might be made, or if one was it might be in- correct. Second: No material should be allowed to leave the stores without a properly drawn requisition which must clearly indicate the quantity taken from stores. For instance, if the stores inventory for a certain article is kept in units of weight and the requisition asks for a number of the articles, it must be (converted into units of weight before the articles leave the stores. These documents are used for making the credit entries, and their preservation is vital. Third: Accuracy in posting entries is essential, as also is accuracy in delivering the correct quantities called for. Inaccuracies in the latter function would probably be discovered by the recipient of the mate- rial, but the clerical work of posting entries should be checked daily, unless a check by physical count is made at intervals frequent enough to enable the clerical entries to be checked back should any dis- crepancies appear. STORES INVENTORIES 393 Fourth: Perpetual inventories should be treated as cash is treated. Cash is verified often, or should be, and an inventory should also have regular periods for verification. Fifth: The documents indicating the incomings and outgoings of material pass into the possession of the cost department, but they should be preserved there a sufficient length of time to cover the period when they may be needed to check back; that is, until a physical count is made. 7 CHAPTER XIX KECEIVING, INSPECTING, AND STOEING Receiving: Material at the Factory.— In Chapter XVI it was necessary to refer to the receipt of ma- terial and supplies purchased in order to explain the method of securing approval of the invoice, but the subject must be discussed more fully to cover com- pletely the connection between the purchase of goods, their arrival at the factory and final disposition. Nearly everything received at a manufacturing establishm'ent passes into the control of tlie store- keeper. In very small concerns he may also act as receiving clerk, or this work may be combined with the shipping clerk's functions. But in larger estab- lishments the receiving clerk may stand alone, un- attached to any department. This is the preferable position, because his duties are closely allied to the purchasing, accounting, and storekecping work, and it is desirable for him to be strictly neutral and not to have his movements controlled by any one of these departments. He can then serve them all with equal fairness. Many concerns refuse to permit the receiving clerk to have a copy of the order, thinking thai, having this in his possession, it may have a tendency to relax his vigilance. Not knowing the quantity ordered he 394 RECEIVING, INSPECTING, STORING 395 would be compelled to scrutinize the incomings more closely, and will get no help in doing this, such as he might receive from a copy of the order. This is a practice, however, which cannot be commended. If the receiving clerk is lax in his work and so little dependence can be placed upon him as is implied, then he is scarcely the man for the job. There are good reasons for giving the receiving clerk a copy of the order. In the first place, in mak- ing his report, he must identify each item on his receiving slip with an order number, otherwise the purchasing department will be unable to check the receipt of material with the order. Also, without such a copy the receiving clerk will not know to which department the goods belonged. It would mean a great deal of work to investigate these mat- ters after getting the receiving clerk's regort. Fur- thermore, lacking the information, the receiving clerk might receive goods not ordered at all, or goods that had been cancelled, or quantities in excess of the order. Any one of these would be sufficient to tangle up matters so badly that, if nothing worse happened, it would mean a lot of trouble and expense for the purchasing department to straighten matters out. I am firmly of the opinion that the receiving clerk should have a copy of the order, and that he should record all receipts on a form similar to Figure 59, page 286, or on any suitable form which would serve the same purpose. It should be in triplicate. The original can go to the purchasing department, and can, if necessary, be attached to the invoice. One copy can follow the goods to the inspector and finally 396 PURCHASING AND STORING to the storekeeper, or if the goods go direct to some department without passing through the stores this copy would still follow the goods. The remaining copy stays with the receiving clerk and can be filed in a numerical sequence which should also be in the order of dating. The order of dating is the more important, because it is sometimes necessary to ask the receiving clerk questions regarding goods re- ceived, and invariably the date is used to enable him to look up his records. Records of Goods Received.— Figure 38-C, page 240, illustrated a method of recording receipt of ma- terial on a copy of the purchase requisition and Figure 60, page 287, showed a copy of the purchase order to be used for the same purpose. If the receiv- ing clerk did not have to keep any records for his own referqnce and could simi)ly O.K. the copy of requisition or the copy of order and pass it along, this scheme would involve the least amount of work. But if he has to keep records it only means duplica- tion of some portion of his work. Another bad feature is that so very often goods are not received exactly in accordance with the requisition and order. They may come in several shipments, which means that subsidiary forms must be used for recoi-ding the earlier receipts, withholding the copy of requisition or order until final delivery is made. In actual practice this is what occurs with the use of the form shown in Figure 60. An illustration is given in Figure 98 of a form for recording receipt of material. In this casci the re- ceiving clerk is under the jurisdiction of the purchas- RECEIVING, INSPECTING, STORING 397 I nS S-B-IMM WARNER SUGAR REFINING COMPANY PURCHASING DEPARTMENT EDGEWATER. N. A .»»- We hMyt ihb day recewed in good coodidoo good* at called loc « «he foOowing requisitioiu and order*. Signed- Req. No. Order No. MATERIAL RECEIVED By whom delivered FIG. 98. FORM USED BY WARNER SUGAR REFINING CO. FOR RECORDING RECEIPT OP MATERIALS ing department. Another illustration is given in Figure 99. This is more nearly in accordance with the ideal method of recording receipt of material, because it carries the signature of the person who is responsible for approving quality. It is used in triplicate, one copy following the goods and one re- maining with the receiving clerk. To summarize receiving conditions: The receiving clerk should be independent of any department; he should have copies of all orders for goods he will 398 PURCHASING AND STORING Rer'ri 1Q From Quantity Material Purchase Order No. Receivin g Clei ^k Quality F.O.B. Quantity Freight Price Mfg. No. Extensions Req. No. Job No. Charge To Class Amount 1 Approved Total FIG. 99. FORM FOR RECORDING RECEIPT OF MATERIAL ultimately have to receive; lie .should make a record of these receipts on a form in triplicate, noting any freight or delivery charges; he should r(ii)ort the arrival of goods promptly to the purchasing depart- ment and should pass all goods without delay through the inspector's hands to the storeroom, or* direct to the interested department. Value of Inspection.— Inspection is too often the weakest link in the chain of activities connected with RECEIVING, INSPECTING, STORING 399 buying and storing material. Poor finish or other superficial defect, incorrect size, irregularity in gauge, and so forth, should be detected at the entry of the material into the establishment and not post- poned until it has passed into the production depart- ment. When it reaches that department there should be some positive assurance that it is equal in all respect to the standard ordered. Delays at this point of the progress through the manufacturing process might prove very costly. Another reason for not delaying inspection is that it is obviously incumbent on the buyer to advise the seller of any defects immediately on arrival of the goods, or within a reasonable period. If this were not done it would be very difficult, in some cases, to get the sellers to take the goods back or to get any adjustment. The practice of receiving all kinds of materials and supplies into a manufacturing estab- lishment and simply counting, measuring, weighing them, and then passing them along for consumption or use is far too common and cannot be too greatly deplored. When discussing this subject, I have been met with the objection that it is not possible for many manu- facturing concerns to maintain a receiving depart- ment, an inspection department, and a storeroom as separate entities. This may be true, but it is no reason for not properly examining and inspecting all goods received for use in the plant. Inspecting Methods.— Every establishment, what- ever its size, must have some person or persons to receive, inspect, and store material. In very small 400 PURCHASING AND STORING concerns the functions can bo combined in one man who should be capable of determining inspection questions. In large establishments the function of receiving and inspection can be combined, while in still larger plants the three activities can be entirely separated. Inspection means the detection of poor quality, such as can be discovered by close observation or some simple tests; the detection of irregularity in the size of small articles; the measuring of gauges and sizes by simple instruments, such as micrometers, calipers and gauges. An examination should be made for flaws and poor finish; also whether goods have deteriorated from atmospheric conditions, poor pack- ing or exposure to the weather. In fact the inspec- tion of raw material should cover everything except such tests as may be necessary to carry out in the chemical laboratory or physical testing room. The two latter methods should be applied to all materials which the technical staff has previously decided are vital in production work. Th(» inspector, upon notification of the material which is to undergo these tests, should send as many samples to the chem- ical or testing room as required, properly identifying them with the order and shipment to which they be- long. Naturally there must be some means of knowing that goods have been inspected and, after the chem- ical or physical test, a form similar to Figure 100 should be used. This should be in triplicat