[Illustration: BIRD'S─EYE VIEW OF THE BALDWIN LOCOMOTIVE WORKS,
PHILADELPHIA, PENNA.]
Cyclopedia
_of_
Commerce, Accountancy,
Business Administration
VOLUME 2
_A General Reference Work on_
ACCOUNTING, AUDITING, BOOKKEEPING, COMMERCIAL LAW, BUSINESS
MANAGEMENT, ADMINISTRATIVE AND INDUSTRIAL ORGANIZATION,
BANKING, ADVERTISING, SELLING, OFFICE AND FACTORY
RECORDS, COST KEEPING, SYSTEMATIZING, ETC.
_Prepared by a Corps of_
AUDITORS, ACCOUNTANTS, ATTORNEYS, AND SPECIALISTS IN BUSINESS
METHODS AND MANAGEMENT
_Illustrated with Over Two Thousand Engravings_
TEN VOLUMES
CHICAGO
AMERICAN TECHNICAL SOCIETY
1910
COPYRIGHT, 1909
BY
AMERICAN SCHOOL OF CORRESPONDENCE
COPYRIGHT, 1909
BY
AMERICAN TECHNICAL SOCIETY
Entered at Stationers' Hall, London
All Rights Reserved
Authors and Collaborators
JAMES BRAY GRIFFITH, _Managing Editor_
Head. Dept. of Commerce, Accountancy, and Business Administration,
American School of Correspondence.
ROBERT H. MONTGOMERY
Of the Firm of Lybrand, Ross Bros. & Montgomery, Certified Public
Accountants.
Editor of the American Edition of Dicksee's _Auditing_.
Formerly Lecturer on Auditing at the Evening School of Accounts and
Finance of the University of Pennsylvania, and the School of Commerce,
Accounts, and Finance of the New York University.
ARTHUR LOWES DICKINSON, F. C. A., C. P. A.
Of the Firms of Jones, Caesar, Dickinson, Wilmot & Company, Certified
Public Accountants, and Price, Waterhouse & Company, Chartered
Accountants.
WILLIAM M. LYBRAND, C. P. A.
Of the Firm of Lybrand, Ross Bros. & Montgomery, Certified Public
Accountants.
F. H. MACPHERSON, C. A., C. P. A.
Of the Firm of F. H. Macpherson & Co., Certified Public Accountants.
CHAS. A. SWEETLAND
Consulting Public Accountant.
Author of "Loose─Leaf Bookkeeping," and "Anti─Confusion Business
Methods."
E. C. LANDIS
Of the System Department, Burroughs Adding Machine Company.
HARRIS C. TROW, S. B.
_Editor─in─Chief_, Textbook Department, American School of
Correspondence.
CECIL B. SMEETON, F. I. A.
Public Accountant and Auditor.
President, Incorporated Accountants' Society of Illinois.
Fellow, Institute of Accounts, New York.
JOHN A. CHAMBERLAIN, A. B., LL. B.
Of the Cleveland Bar.
Lecturer on Suretyship, Western Reserve Law School.
Author of "Principles of Business Law."
HUGH WRIGHT
Auditor, Westlake Construction Company.
GLENN M. HOBBS, Ph. D.
Secretary, American School of Correspondence.
JESSIE M. SHEPHERD, A. B.
Associate Editor, Textbook Department, American School of
Correspondence.
GEORGE C. RUSSELL
Systematizer.
Formerly Manager, System Department, Elliott─Fisher Company.
OSCAR E. PERRIGO, M. E.
Specialist in Industrial Organization.
Author of "Machine─Shop Economics and Systems," etc.
DARWIN S. HATCH, B. S.
Assistant Editor, Textbook Department, American School of
Correspondence.
CHAS. E. HATHAWAY
Cost Expert.
Chief Accountant, Fore River Shipbuilding Co.
CHAS. WILBUR LEIGH, B. S.
Associate Professor of Mathematics, Armour Institute of Technology.
L. W. LEWIS
Advertising Manager, The McCaskey Register Co.
MARTIN W. RUSSELL
Registrar and Treasurer, American School of Correspondence.
HALBERT P. GILLETTE, C. E.
Managing Editor, _Engineering─Contracting_.
Author of "Handbook of Cost Data for Contractors and Engineers."
R. T. MILLER, JR., A. M., LL. B.
President, American School of Correspondence.
WILLIAM SCHUTTE
Manager of Advertising, National Cash Register Co.
E. ST. ELMO LEWIS
Advertising Manager, Burroughs Adding Machine Company.
Author of "The Credit Man and His Work" and "Financial Advertising."
RICHARD T. DANA
Consulting Engineer.
Chief Engineer, Construction Service Co.
P. H. BOGARDUS
Publicity Manager, American School of Correspondence.
WILLIAM G. NICHOLS
General Manufacturing Agent for the China Mfg. Co., The Webster Mfg.
Co., and the Pembroke Mills.
Author of "Cost Finding" and "Cotton Mills."
C. H. HUNTER
Advertising Manager, Elliott─Fisher Co.
FRANK C. MORSE
Filing Expert.
Secretary, Browne─Morse Co.
H. E. K'BERG
Expert on Loose─Leaf Systems.
Formerly Manager, Business Systems Department, Burroughs Adding
Machine Co.
EDWARD B. WAITE
Head, Instruction Department, American School of Correspondence.
Authorities Consulted
The editors have freely consulted the standard technical and business
literature of America and Europe in the preparation of these volumes.
They desire to express their indebtedness, particularly, to the
following eminent authorities, whose well─known treatises should be in
the library of everyone interested in modern business methods.
Grateful acknowledgment is made also of the valuable service rendered
by the many manufacturers and specialists in office and factory
methods, whose coöperation has made it possible to include in these
volumes suitable illustrations of the latest equipment for office use;
as well as those financial, mercantile, and manufacturing concerns
who have supplied illustrations of offices, factories, shops, and
buildings, typical of the commercial and industrial life of America.
JOSEPH HARDCASTLE, C. P. A.
Formerly Professor of Principles and Practice of Accounts, School of
Commerce, Accounts, and Finance, New York University.
Author of "Accounts of Executors and Testamentary Trustees."
HORACE LUCIAN ARNOLD
Specialist in Factory Organization and Accounting.
Author of "The Complete Cost Keeper," and "Factory Manager and
Accountant."
JOHN F. J. MULHALL, P. A.
Specialist in Corporation Accounts.
Author of "Quasi Public Corporation Accounting and Management."
SHERWIN CODY
Advertising and Sales Specialist.
Author of "How to Do Business by Letter," and "Art of Writing and
Speaking the English Language."
FREDERICK TIPSON, C. P. A.
Author of "Theory of Accounts."
CHARLES BUXTON GOING
Managing Editor of _The Engineering Magazine_.
Associate in Mechanical Engineering, Columbia University.
Corresponding Member, Canadian Mining Institute.
F. E. WEBNER
Public Accountant.
Specialist in Factory Accounting.
Contributor to The Engineering Press.
AMOS K. FISKE
Associate Editor of the _New York Journal of Commerce_.
Author of "The Modern Bank."
JOSEPH FRENCH JOHNSON
Dean of the New York University School of Commerce, Accounts, and Finance.
Editor, _The Journal of Accountancy_.
Author of "Money, Exchange, and Banking."
M. U. OVERLAND
Of the New York Bar.
Author of "Classified Corporation Laws of All the States."
THOMAS CONYNGTON
Of the New York Bar.
Author of "Corporate Management," "Corporate Organization," "The Modern
Corporation," and "Partnership Relations."
THEOPHILUS PARSONS, LL. D.
Author of "The Laws of Business."
E. ST. ELMO LEWIS
Advertising Manager, Burroughs Adding Machine Company.
Formerly Manager of Publicity, National Cash Register Co.
Author of "The Credit Man and His Work," and "Financial Advertising."
T. E. YOUNG, B. A., F. R. A. S.
Ex─President of the Institute of Actuaries.
Member of the Actuary Society of America.
Author of "Insurance."
LAWRENCE R. DICKSEE, F. C. A.
Professor of Accounting at the University of Birmingham.
Author of "Advanced Accounting," "Auditing," "Bookkeeping for Company
Secretary," etc.
FRANCIS W. PIXLEY
Author of "Auditors, Their Duties and Responsibilities," and
"Accountancy."
CHARLES U. CARPENTER
General Manager, The Herring─Hall─Marvin Safe Co.
Formerly General Manager, National Cash Register Co.
Author of "Profit Making Management."
C. E. KNOEPPEL
Specialist in Cost Analysis and Factory Betterment.
Author of "Systematic Foundry Operation and Foundry Costing," "Maximum
Production through Organization and Supervision," and other papers.
HARRINGTON EMERSON, M. A.
Consulting Engineer.
Director of Organization and Betterment Work on the Santa Fé System.
Originator of the Emerson Efficiency System.
Author of "Efficiency as a Basis for Operation and Wages."
ELMER H. BEACH
Specialist in Accounting Methods.
Editor, _Beach's Magazine of Business_.
Founder of The Bookkeeper.
Editor of _The American Business and Accounting Encyclopedia_.
J. J. RAHILL, C. P. A.
Member, California Society of Public Accountants.
Author of "Corporation Accounting and Corporation Law."
FRANK BROOKER, C. P. A.
Ex─New York State Examiner of Certified Public Accountants.
Ex─President, American Association of Public Accountants.
Author of "American Accountants' Manual."
CLINTON E. WOODS, M. E.
Specialist in Industrial Organization.
Formerly Comptroller, Sears, Roebuck & Co.
Author of "Organizing a Factory," and "Woods' Reports."
CHARLES E. SPRAGUE, C. P. A.
President of the Union Dime Savings Bank, New York.
Author of "The Accountancy of Investment," "Extended Bond Tables," and
"Problems and Studies in the Accountancy of Investment."
CHARLES WALDO HASKINS, C. P. A., L. H. M.
Author of "Business Education and Accountancy."
JOHN J. CRAWFORD
Author of "Bank Directors, Their Powers, Duties, and Liabilities."
DR. F. A. CLEVELAND
Of the Wharton School of Finance, University of Pennsylvania.
Author of "Funds and Their Uses."
[Illustration]
Foreword
With the unprecedented increase in our commercial activities has come
a demand for better business methods. Methods which were adequate for
the business of a less active commercial era, have given way to systems
and labor─saving ideas in keeping with the financial and industrial
progress of the world.
Out of this progress has risen a new literature──the literature of
business. But with the rapid advancement in the science of business,
its literature can scarcely be said to have kept pace, at least, not to
the same extent as in other sciences and professions. Much excellent
material dealing with special phases of business activity has been
prepared, but this is so scattered that the student desiring to acquire
a comprehensive business library has found himself confronted by
serious difficulties. He has been obliged, to a great extent, to make
his selections blindly, resulting in many duplications of material
without securing needed information on important phases of the subject.
In the belief that a demand exists for a library which shall embrace
the best practice in all branches of business──from buying to selling,
from simple bookkeeping to the administration of the financial affairs
of a great corporation──these volumes have been prepared. Prepared
primarily for use as instruction books for the American School of
Correspondence, the material from which the Cyclopedia has been
compiled embraces the latest ideas with explanations of the most
approved methods of modern business.
Editors and writers have been selected because of their familiarity
with, and experience in handling various subjects pertaining to
Commerce, Accountancy, and Business Administration. Writers with
practical business experience have received preference over those with
theoretical training; practicability has been considered of greater
importance than literary excellence.
In addition to covering the entire general field of business, this
Cyclopedia contains much specialized information not heretofore
published in any form. This specialization is particularly apparent in
those sections which treat of accounting and methods of management for
Department Stores, Contractors, Publishers and Printers, Insurance, and
Real Estate. The value of this information will be recognized by every
student of business.
The principal value which is claimed for this Cyclopedia is as a
reference work, but, comprising as it does the material used by the
School in its correspondence courses, it is offered with the confident
expectation that it will prove of great value to the trained man who
desires to become conversant with phases of business practice with
which he is unfamiliar, and to those holding advanced clerical and
managerial positions.
In conclusion, grateful acknowledgment is made to authors and
collaborators, to whose hearty coöperation the excellence of this work
is due.
Table of Contents
(For professional standing of authors, see list of Authors and
Collaborators at front of volume.)
VOLUME II
PURCHASING AND STORES DEPARTMENT _By James B. Griffith_ Page 11
Lists of Dealers──Catalogue Filing and Indexing──Special
Quotations──Department Routine──Requisitions──Purchase Orders──
Receipts and Invoices──The Stores Department──Organization──Taking
Inventory──Installing a Stores System──Record Files──Materials and
Supplies──Parts and Finished Stores──Machinery and Equipment Records
RECORDS OF LABOR AND MANUFACTURING ORDERS _By James B. Griffith_ Page 65
Labor Records──Wage Systems──Day Wage──Piece Rates──Premium
Systems──Efficiency Systems──Time─Keeping Systems──Time
Clocks──Production Time Records──Time Cards──Mechanical Time
Recorders──Piece─Work Records──Production Orders──Shop Orders──Order
Register──Tracing the Order
GENERAL EXPENSE _By Chas. E. Hathaway_ Page 127
Expense Distribution──True Cost──Selling Expense──Methods of
Distribution──The Man─Hour─Rate Method──The Machine─Hour─Rate
Method──The Percentage Method──Productive and Non─Productive
Labor──Expense and Production Cost Ledgers──Departmental
Expenses──General Expense──How to Use Percentages──Operating
Expense Statements──What the Statement Should Show──Comparative
Figures──General Expense Statements──Charts
COST SUMMARIES _By James B. Griffith_ Page 165
Collecting Cost Data──Material Cost Records──Labor Cost──Job
Cost──Comparative Cost Records──By─Products──Production
Records──Controlling Accounts
MACHINE─SHOP MANAGEMENT _By Oscar E. Perrigo_ Page 193
Methods of Modern Manufacturing──Organization of Manufacturing
Plant──Official Communications──Successful Management──Shop Methods
and Records──The Employment Agency──Time Keeping──Time Cards──Paying
Employes──Production Orders──Plant Orders──Storing and Issuing Stock
and Materials
COST─ANALYSIS ENGINEERING _By R. T. Dana and H. P. Gillette_ Page 251
The Science of Management──Subdivision of Duties──Cost
Getting──Punch─Cards──Cost Distribution──Process Cost
Subdivision──Output──Checking up Charts──Cost Reduction──Bonus
System──Labor Saving Devices──Chronological Charts
REVIEW QUESTIONS Page 319
INDEX Page 331
[Illustration: SHOP OFFICE, WESTERN ELECTRIC COMPANY, NEW YORK CITY]
PURCHASING AND STORES DEPARTMENT
PURCHASING DEPARTMENT
=1.= If the old axiom, "Goods well bought are half sold," holds true,
the purchasing department may well be considered one of the most
important in any business. In referring to the purchasing department
we have in mind that department, or division of the business, whose
duty it is to attend to the buying. In a large industrial enterprise
this may mean a department headed by a purchasing agent with several
assistants; in a department store, the buyers for the several
departments; in a small retail business, the member of the firm who
buys the goods. No matter whether the department be an extensive one,
or one requiring but a part of the time of one man, the principle is
the same.
Perhaps no other head of a department has greater need of complete
information and systematic records of his department, than does the
buyer. A man may have every qualification for a successful purchasing
agent, but, unless he has the most detailed information to aid him in
judging qualities and prices, his cannot be considered a successful
department. On the other hand, many a man, with no other qualification
than common sense, has built up a most successful purchasing department
because his work was thoroughly systematized.
We will consider the purchasing department from two standpoints: The
_information required_, and the _routine work_ to be performed. Under
the first head the requirements may be stated as:
1. List of dealers.
2. Full information about lines carried by each dealer or manufacturer.
3. Records of special quotations.
4. Information about qualities supplied by various dealers, to be
obtained from records of past purchases.
LIST OF DEALERS
=2.= The purchasing agent will have no difficulty in securing a list of
dealers. Even a new business is usually well supplied with circulars,
catalogues, and other information showing which dealers handle certain
lines. The principal concern of the purchasing agent is to so record
this information that it will be instantly available.
In some cases it is found necessary to make special lists of dealers,
and these are usually made on cards. A card is used for each article or
class of material that may be of interest, and the name of the class
is written at the top of the card. Below this are listed the names and
addresses of dealers and manufacturers supplying that particular class
of material. Since in most concerns this information can be combined
with the system of catalogue indexing, we do not show a special form
for this record.
CATALOGUE FILING AND INDEXING
=3.= A purchasing agent must necessarily gather much of the information
required in the operation of his department from catalogues supplied
by manufacturers. These catalogues are his technical library, in many
cases supplying the only available information relative to a particular
class of goods. Needless to say, some method must be provided for
carefully preserving these catalogues. They must be filed in such a
manner that they can be located quickly.
While every office has plenty of opportunities to accumulate an
oversupply of catalogues, resulting in a tendency to discard all except
those in which the purchasing agent may be interested at the time, it
is better to err on the side of a liberal supply. A catalogue that
comes in to─day may be of no immediate value, but it may become useful
a little later. It would be impracticable to keep every catalogue and
circular that reaches the office, but, if it is from a new concern, or
offers any new ideas, it should be kept, even though the subject is not
of especial interest at the moment.
Many systems of catalogue filing have been devised, and there are
almost as many styles of catalogue files on the market as there are
manufacturers of such equipment. No one system or style of filing will
answer the requirements in every concern. Each must build up a filing
system that will conform to existing conditions.
Though a system of universal application cannot be laid down, some
general suggestions may prove of value. No matter what the style
of receptacle used, catalogues are filed according to one of two
methods: The _alphabetical_, or the _numerical_. The alphabetical
method consists in the arrangement of catalogues in bookcases or other
suitable devices, according to the names of the publishers. For a
small number of catalogues, this is a very satisfactory system, for
the very reason that a purchasing agent soon becomes familiar with the
catalogues of different manufacturers, recognizing them by their size,
shape, or color.
A modification of the alphabetical system is one in which the
catalogues are arranged alphabetically by classes; that is, the lines
of goods in which the purchasing agent is interested are divided into
specific classes. In each of these divisions, the catalogues of all
manufacturers listing that class of goods are arranged in alphabetical
order. This method is also very satisfactory for a limited number of
catalogues.
For a large catalogue file the numerical system will prove the most
satisfactory. By this system each catalogue is given a number which
should be plainly shown on the back of the catalogue. All catalogues
of a specific class are placed in one group, and a series of numbers
is set aside for the group. To illustrate, we might have machinery
catalogues, numbers 1 to 100. All machinery catalogues would then be
given a number in that series. If the number be increased beyond 100,
the numbering system would be repeated by using 1_a_, 2_a_, etc.
With the numerical system, the catalogues of each group must be
arranged in exact numerical order, so that any catalogue may be
instantly located.
=4. Files.= As has already been stated, the style of file, as well as
the method of filing, or indexing, must conform to the conditions in
each individual office. However, the experience of the past is the
best guide for the future. As a general rule, sectional bookcases
will be found the most satisfactory for catalogues in bound form,
that is, those with substantial covers, and particularly those that
will readily stand on edge. An advantage of the sectional bookcase is
that all catalogues can plainly be seen, and even though a numerical
system be used, a man soon learns to recognize catalogues of certain
manufacturers without referring to any number or indexing system.
In every catalogue file will be found pamphlets, circulars, and
price lists which are not easily cared for in bookcases. For these
a section of a vertical file is recommended, and in many cases this
file has been used successfully for filing all sorts of miscellaneous
catalogues. It may be expanded to any capacity, and can be used with
equal success for either the alphabetical or numerical system of
indexing.
Which is the better depends upon the circumstances, but in nearly every
case either the sectional bookcase or the vertical file, or perhaps a
combination of the two, will be found most satisfactory.
=5. Catalogue Indexing.= The principal value of a file of catalogues
lies in the index. A miscellaneous lot of catalogues is of very little
value unless it be properly indexed. True, most catalogues contain an
index, but this is not the sort of index required by the purchasing
agent. He does not care for an itemized list of every article
manufactured by John Jones & Co., but he does want an index that will
show him where he can find descriptions and prices of machines of a
certain class. A catalogue may list thousands of articles in which the
purchasing agent has no interest, where it lists ten that are of use to
him. These ten articles are the ones which should be shown in his index.
[Illustration: Fig. 1. Subject Card for Catalogue Index]
The principal index of the catalogue file is one arranged by subjects.
A card used for this purpose is shown in Fig. 1. At the top of the card
is listed the subject. Below this is given the names and addresses of
all manufacturers supplying the goods listed. In the columns at the
right are recorded the section number, catalogue number, and page. The
section number refers to the section in the file where the catalogue
will be found; the catalogue number to the catalogue itself; and the
page to the number of the page in the catalogue. In making up such
an index, it is unnecessary to include a long list of articles of no
especial interest, but simply those which the concern is obliged to
purchase. If an entirely new subject comes up, it can then be listed
after suitable investigation.
These cards are filed alphabetically, according to the name of the
subject. While in some large concerns a more elaborate file will be
necessary, this index can usually be kept in a small card tray in a
desk drawer.
[Illustration: Fig. 2. Title Card for Catalogue Index]
When the numerical system of filing is used, another index is necessary
to locate the catalogues by name. In most cases our chief concern would
be to locate the catalogue by subject, but there are times when it
becomes necessary to locate a catalogue by name. To provide for this
cross─index, the card shown in Fig. 2 is used. It will be noted that
the arrangement of this card is just the opposite of the subject index,
the name and address of the manufacturer being given at the top of the
card together with the reference to the section and catalogue numbers.
On the lower half of the card are listed the names of articles, made by
that manufacturer, in which we are interested. This card is also filed
alphabetically, but, of course, under the name of the manufacturer.
When the number of cards is limited, both forms can be filed in the
same index by using contrasting colors. For instance, a buff color
might be used for the subject index, and salmon for the name index.
SPECIAL QUOTATIONS
=6.= Every purchasing agent receives, in addition to published price
lists, many special quotations on material and supplies in which he is
interested. Very frequently quotations are received at a time when he
is not in the market for the particular material offered, but they are
nevertheless of value for possible future use, and should be carefully
preserved.
[Illustration: Fig. 3. Card Form for Special Quotations]
One method of handling special quotations is to set aside a special
file, or a drawer, or a section of the regular file, to be used
exclusively for quotations. The quotations, when such a file is used,
are usually filed alphabetically according to the name of the material
offered. This method of filing necessitates a cross─index to locate the
letters by names of firms and is not entirely satisfactory, owing to
the difficulty of locating the most advantageous quotations. There may
be a dozen or more letters from different firms quoting prices on the
same material, and, to find which is the lowest, all must be examined.
Again, a firm will make quotations on several lines in the same letter,
which necessitates copying a part of the items or reorganizing the
filing system.
In a business receiving many such quotations, it is advisable to
reserve a special file for them, but we recommend their being filed
according to the names of firms. To provide an accessible record of
special quotations, the use of a special form, either on cards or loose
leaves, is recommended. While no form universally applicable can be
devised, the several forms herein presented are very good examples of
forms in use and offer some valuable points for study.
Fig. 3 is a conventional form. This is a card, at the top of which
is provided space for recording the name of the article or class of
material. Below this is a record of all quotations received, giving
date, name of the firm from whom the quotation is received, and
initials of the salesman making the quotation, when made in this
manner. The columns following are for quantity, or size on which the
quotation is based, the list price, discount, net, whether f. o. b. or
delivered, and terms. The last two columns are for a record of orders
placed.
One of these cards is used for each article or class of material on
which special quotations are received. Every quotation is recorded,
no matter from whom, and when the card is filled a new one is added.
Whenever records on any one card become obsolete, the card can be
destroyed, keeping the file up to date.
The cards are filed according to the names of the articles or classes
of material. When the number of classes is limited, it will be
satisfactory to index the cards by means of a straight alphabetical
index. In this case quotations on bolts and all other articles, the
names of which commence with _b_, would be filed back of the _B_
index. If the number of articles is large, it is advisable to use
blank index guides and write the names of classes of material. As an
illustration, in some lines of manufacture, bolts will be used in all
sizes. On the index would be written the word _Bolts_, and back of
this the cards would be filed according to sizes, one card being used
for each size of bolt. The same plan can be carried out for each class
of material. It is also advisable, in a manufacturing business, to
subdivide the file as, between materials──representing materials which
actually enter into the construction of the product manufactured──and
supplies──representing all classes of factory supplies.
A card especially designed for a record of quotations on articles which
are listed in several sizes is shown in Fig. 4. The special feature of
this form is the inclusion of several columns in which to record prices
on a number of different sizes of the same article. This form would be
especially applicable in recording prices on such articles as bolts,
mentioned in the preceding paragraph.
[Illustration: Fig. 4. Quotation Card for Records of Prices of Several
Sizes]
ORDERS PLACED
=7.= Of equal importance is a record of orders placed. A purchasing
agent needs to know where orders for a given article have been placed
in the past, prices paid, promptness of delivery, and general character
of goods received. A convenient method of recording this information
is to use a card similar to the illustration, Fig. 5, which shows a
form used for recording purchases of a given article between specified
dates. The record itself shows the order number, quantity, name of
vendor, and full information about prices, including total cost per
unit. These cards are filed alphabetically, according to the name of
the article, exactly as described for the records of special quotations.
Fig. 6 omits some of the details, but provides for notations relative
to quantities, etc., under the heading, _description_. This form also
shows total amount, thus furnishing a record of the gross investment in
material of a given class.
[Illustration: Fig. 5. Detailed Record of Orders Placed]
[Illustration: Fig. 6. Record of Orders, Including Price and Amount]
Fig. 7 is used in a manufacturing business, and is intended to provide
a record of orders placed which will prevent a duplication of orders.
At the extreme right of this form is a column headed _purpose_. In
many manufacturing businesses, orders for certain materials are placed
after contracts have been received, and the material is specified
for use on a certain contract or order. In other establishments
several lines of goods are manufactured, but certain materials
enter into the manufacture of all lines. The purchasing agent may
receive requisitions from different sources for material required in
these various lines, and his records should show for what lines or
departments orders have been placed. Both of these contingencies are
provided for in this form, as the purpose of each order is plainly
stated.
[Illustration: Fig. 7. Order Record of a Manufacturer, Showing Purpose
for Which the Goods are Required]
[Illustration: Fig. 8. Record of Orders Providing for Details of Each
Order]
Fig. 8 is another special form, designed for use where certain
particulars are required. In devising a form, it should be made as
simple as possible, but, at the same time, provision should be made
for recording all particulars that may be of especial value in the
business in which it is to be used. The forms shown are presented, not
as being ideal for use in all cases, but for their suggestive value.
It is immaterial whether these forms be on cards or in loose─leaf form.
That is a question of individual preference, and can only be decided by
the person who is to make use of the system.
A good example of a form designed especially for use in a loose─leaf
system is shown in Fig. 9. This gives full information about both
orders and receipts, furnishing complete information relative to
quantities of any particular line handled.
[Illustration: Fig. 9. A Loose─Leaf Record of Goods Ordered and
Received]
The manner of filing is the same as with the card system, except that
these sheets are arranged between suitable indexes in a loose─leaf
binder. If desired, the order records and special quotations can be
filed together. By using forms of different colors the two can be filed
in the same index. This is a very convenient arrangement, for then all
records of both quotations and orders are found together. In some cases
all of the information required will be found on the order records.
When special quotations are received they can be filed in front of, or
immediately back of, this record.
While in some offices other special records may be advisable, all
necessary information for the average office relative to sources
of supply, prices, etc., are provided by catalogues and records of
quotations and prices described. Any other information required can be
provided for by a modification of the forms referred to.
DEPARTMENT ROUTINE
=8.= Any discussion of the routine duties of the purchasing department
is necessarily more or less theoretical and any method of procedure
laid down is subject to such modification as will reduce it to a
practical working basis for the individual establishment. To present
the subject in a practical manner, therefore, this discussion will be
confined to the needs of an average manufacturing business. As has been
stated elsewhere in these papers, it is much less difficult to modify a
system designed to care for all details in a large establishment than
to expand the simple systems of a small business.
The duties of the purchasing agent in respect to the actual purchase of
goods may be classified as follows:
1. Receiving _requisitions_, or orders for materials and supplies
required for stock or in different departments.
2. Placing and following up orders.
3. Checking receipt of goods.
4. Checking invoices for prices.
5. Filing order copies and requisitions.
=9. Requisitions.= Under ordinary circumstances the purchasing agent
will place no orders until he has first received a requisition from
either the stores department or the department that requires the
material. The requisition should in every case state the purpose for
which the material or supplies is required, as well as by whom wanted.
Each department should be supplied with its own requisition blanks,
and, to make them distinctive, a different color should be adopted for
each department. Each department should also be identified by a letter
which will be printed on the requisition blank in connection with a
serial number. Thus the requisition numbers of one department will
start with _A_1, another _B_1, etc.
A positive rule should be laid down that all requisitions issued by one
department are to be signed by one person, usually the foreman. This
rule must be rigidly enforced and no requisitions honored without the
proper signature.
While requisitions should be drafted in a form to meet individual
requirements, Fig. 10 is given as a typical example that will be found
suitable in a large majority of offices.
The requisition, as a rule, is made in duplicate. The original goes
to the purchasing agent and the duplicate is retained by the foreman.
In some of the larger establishments a triplicate form is used,
the original and duplicate being sent to the purchasing agent. The
duplicate is then returned to the foreman with proper notations to show
that the order has been placed.
There are very few cases, however, where this is necessary. It is
not a good plan to require the foreman to keep records that can be
eliminated, and the average foreman does not care when or where the
order is placed; all he wants is the material. He has no interest in
going back of the purchasing agent on whom he has made requisition.
When the factory is located at a distance from the office, requisitions
should be in triplicate and bear the O. K. of the superintendent or
factory manager. The duplicate will then be filed in the factory office
pending the receipt of the goods.
[Illustration: Fig. 10. A Typical Form of Requisition Blank]
Foremen who make requisitions on the purchasing agent will retain their
copies until the material is received.
On receipt of the requisition, the purchasing agent first investigates
to find if the material, or some other that will answer the same
purpose, is in stock. If not, he looks up his sources of supply
and prices, and then he is ready to place the order. When a large
investment is involved, it is usually necessary to obtain special
quotations, and sometimes samples, before the order can be placed.
=10. Low Stock Report.= Another form of requisition is the low stock
report furnished by the stores clerk. Every article and class of
material in stock is given a _low_ limit. When this limit is reached
the stores clerk makes a report, Fig. 11, to the purchasing agent. This
is recognized as a notice to purchase. The report shows the low limit
and quantity in stock. It is important that the low limit be included,
for in some cases it will be found advisable to change the limit.
Material formerly used in large quantities may now be in so little
demand that it will be thought best to reduce the limit. At other times
it will be necessary to increase the limit.
[Illustration: Fig. 11. The Stores Clerk's Report of Low Stock]
The report is made in duplicate, a copy being retained by the stores
clerk until advised that the order has been placed. There is no special
need for keeping these reports permanently; all information that they
would supply may be had from copies of purchase orders.
=11. Purchase Orders.= When an order is placed, it is of course
necessary to keep one or more copies. The best practice is to make
purchase orders in manifold, providing as many copies as may be
required. Modern typewriters and carbon paper render it possible to
make all necessary copies at one writing.
The number of copies will be governed by the requirements of the
business. In a small business where the goods are received by the
purchasing agent, one copy is sufficient. When a receiving clerk is
employed, a second copy will be needed by him to check the receipt of
goods.
The illustration, Fig. 12, shows a set of six blanks, the original
and five copies, which will meet the requirements of the average
manufacturing business. These copies will be used as follows:
[Illustration: Fig. 12. Typical Form of Manifold Order Blanks]
_Original._ This is to be mailed or delivered to the vendor.
_Follow─Up Copy._ This copy is retained by the purchasing agent to
follow up the order. It is first filed in a tickler, or date file,
back of the date when an acknowledgment should be received. If no
acknowledgment is received, the vendor is followed up and the order
filed ahead.
The order is next filed under the date when the invoice should be
received. After the invoice is received, the order copy can be used to
follow up the transportation company for delivery.
_Receiving Copy._ This copy goes to the receiving clerk who files it
according to the name of the vendor. When the goods are received, he
checks the items against the copy and returns it to the purchasing
agent. In some cases he reports the receipt of goods by means of a
receiving slip, which will be explained later.
_Auditor's Copy._ In a highly organized business a copy of every order
is given to the comptroller or auditor. The principal use of this copy
is to furnish information in respect to obligations incurred, that
finances may be provided in advance.
_Cost Department Copy._ The copy furnished the cost department is to
post the cost clerks in prices. In many large factories complete files
of all orders placed are kept in the cost office. This is an excellent
plan since it provides a complete price record.
_Shop Copy._ This is intended for the special use of the factory when
located at a distance from the office. It is filed in the office of the
factory manager, under the name of the vendor, and supplies him with a
record of all orders placed for the factory.
=12. Checking Receipts.= The purchasing agent will be advised of the
receipt of goods by the return of the receiving clerk's copy of the
order, properly checked. Or, in some cases, it may be advisable to have
all goods reported on a special form, Fig. 13.
[Illustration: Fig. 13. A Form of Report of Goods Received]
[Illustration: SURPLUS TOOLS GATHERED FROM OVER─EQUIPMENT AT LOCAL
SHOPS AND RETURNED TO CENTRAL STORES ON THE SANTA FE SYSTEM The
Reapportionment of Work, Concentrating all Manufacturing Operations at
Topeka, Made it Possible to Return to General Stock Many Small Tools,
to be Used as Needed Instead of Held in Unnecessary or Excess Local
Reserve Courtesy of the _Engineering Magazine_]
In those factories where a receiving clerk, as well as a stores clerk,
is employed, the receiving slip should be made in duplicate. One copy
will go to the stores clerk with the goods and will later be sent to
the purchasing agent, furnishing a double check on the goods. The
purchasing agent will send one copy to the cost clerk, first noting
the account to be charged. This gives the cost clerk the necessary
information for charging out material when used.
One argument in support of this plan is that, having no record of
quantities ordered, the receiving clerk will be compelled to carefully
count and list all articles received. But it is also true that he is
obliged to make a detailed copy instead of merely checking the items
against his copy of the order.
Another point in connection with the work of the receiving clerk that
has caused much discussion, is the wisdom of furnishing him with a
record of prices. The prevailing opinion among manufacturers seems
to be that this should not be done. This need not interfere with the
operation of our system, for prices can be left off the receiving
clerk's copy by using a short carbon. This will keep all blanks uniform
in size.
=13. Checking Invoices.= It may be laid down as a rule that invoices
should first go to the purchasing agent, not for audit, but to be
checked for quantities and prices. The purchasing agent will check the
invoice, note on it the purpose, or the department for which the goods
were purchased, and forward it to the auditor. The transaction is then
closed so far as the purchasing agent is concerned.
=14. Filing.= After the O. K.'d invoice has been forwarded to the
auditor, the following papers remaining in the purchasing department
are to be filed:
_Follow─up copy of the order_, filed alphabetically under the name of
the vendor.
_Receiving clerk's copy of the order_, filed with the original
requisition.
_Requisition from the department requesting the goods_, filed
numerically according to the departmental serial number; that is,
all requisitions from _Dept. A_ will be filed together in numerical
sequence.
When a record of goods received has been made on the forms prescribed,
the purchasing agent's records will be complete.
THE STORES DEPARTMENT
=15.= In this discussion, the _stores department_, or _stock
department_ as it is frequently called, is treated as a subordinate
division of the purchasing department. Properly organized, it becomes
one of the most valuable from a profit─making standpoint. Without
organization it may degenerate into one of the most useless.
To attain the state of efficiency of which it is capable, the
organization and system of operation of the stores department must
be of the highest order, otherwise it cannot be expected to fulfill
its mission. So much has been written about the failure of stores
departments and stores systems to produce desired results, that a
statement of what is meant by _stores department_ seems to be demanded
before we can arrive at intelligent conclusions regarding its functions
and operation.
Broadly, the stores department is that department of a business which
has the custody of its stock in trade, materials, supplies, and
other physical property, except real estate. Reduced to a concrete
example, in a trading business the term means that department which is
responsible for the storage and proper care of the goods purchased for
resale; also the materials and appliances required in the operation of
the business. There may be no department known by this name; there may
be no one man whose duty it is to supervise the work; nevertheless,
the department exists. Every clerk in a small retail store may be
a receiving clerk, a salesman, and a stores clerk; or in a larger
establishment several men may be employed as stockkeepers; but in both
cases the responsibilities of the stores department are shouldered by
some one, perhaps by several people.
Like every other department of a business, the organization of a stores
department depends largely upon the nature of the business. To furnish
an illustration that can be readily understood, we will treat the
organization and operation of the stores department from the standpoint
of a manufacturer.
ORGANIZATION
=16.= The stores department is properly under the direct supervision
of the purchasing agent. In the last analysis he is the man who is
responsible for the maintenance of a stock of materials and supplies
which will at all times be adequate for the business. It is proper,
therefore, that he should have supervision over the _receipt_,
_storage_, and _delivery_ of the goods which he has purchased.
In the actual operation of the stores department, the purchasing agent
will delegate his authority to the chief stores clerk, who will in turn
be assisted by the necessary number of stock men and a receiving clerk.
It will be the duty of the chief stores clerk to see that all materials
are properly stored, to maintain the records prescribed, and to furnish
such reports as may be necessary regarding the movement of the stock.
He will have general supervision over the entire department. In the
actual physical operations of the department, he will be assisted by
stock men who are subject to his orders.
In small establishments the stores clerk also acts as receiving clerk,
but in the larger enterprises, a separate receiving clerk is required.
He will check the receipt of all goods, deliver them to the storage
places prescribed by the chief stores clerk, and make such reports as
may be prescribed. While he is, generally speaking, under the orders
of the chief stores clerk, he also makes certain reports direct to the
purchasing agent.
TAKING AN INVENTORY
=17.= Before a stores department can be successfully organized an
_inventory_ must be taken, for this inventory will be the basis on
which the records of the stores department are founded.
Stores record systems are quite commonly referred to as perpetual
inventories, and, occasionally, such a system is pointed to as a
failure for the reason that at the end of the year, or other fiscal
period, the inventory, that is, the actual physical inventory of the
stock, does not check with the records. The fact that systems of stores
records have been regarded as inventories _in fact_, is responsible for
most so─called failures. Regarded in its proper relation, a perpetual
inventory is nothing more nor less than an accurate accounting of all
goods that come into and go out of the establishment, these records to
be checked by an actual physical inventory with such regularity and
frequency that the accounts can safely be considered as exhibiting
a correct inventory. In considering the question, how to take an
inventory, we refer, therefore, to an actual physical inventory, that
is, a count of every article in stock. When once this inventory is
taken and properly recorded, it is entirely possible to install and
maintain systems which will make it unnecessary to inventory all of
the physical property at any one time.
It has been the general custom in a large manufacturing establishment
to shut down for a period of greater or less duration, running all the
way from two or three days to as many weeks, for the purpose of taking
an inventory. Since it has been considered necessary to shut down for
this purpose, inventories have, as a rule, been taken but once a year.
All this is unnecessary, for, with proper methods, it is possible to
take even a complete inventory without perceptible interruption of
the operation of the plant. The first step is to decide, at just what
time the inventory is to be taken, and to have all foremen get their
shops in readiness. This means a general cleaning up which will make it
easy to locate and count, weigh, or measure the _materials_, _tools_,
_supplies_, and _work in process_. Then, at a specified time the work
of taking the inventory should be started simultaneously in every shop.