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LETTER XVI.

SUPPLIES AND PURCHASES.

Salt Lake City, Utah, July 22, 1911.

My Dear Boy:—Supplies and purchases are a feature of railroad operation illustrating the tendency to overcentralization through overspecialization. Please notice that I say supplies and purchases; not as some roads do, purchases and supplies. Is not “supply” the broader term, including “purchase” as a very important component? If we happen to make some of our supplies from our own scrap, a question of supply and accounts is involved, but not necessarily one of purchase. The volume of work involved in purchasing for a large railway may be so great as to warrant the segregation of the purchasing function.

Among the best purchasing bureaus in the United States are those of the Harriman Lines. As I understand it, their able director of purchases does not, as many people suppose, scrutinize all requisitions. Each of the eight vice-presidents and general managers has his own purchasing agent, who, under the broad policy of local autonomy, buys many articles as best he can. Those large items which experience proves can best be bought for all by the director of purchases, are so purchased under blanket contracts. For those items the local purchasing agent becomes an ordering agent. The point of it all is that no iron clad rule is laid down. Because some items can best be purchased in bulk, it does not follow that local administration should be hampered by requiring all items to be so procured. Instead of a narrow, rigid rule, there is a broad policy enunciated which permits the discriminating judgment of experience, to decide questions on their individual merits under the ever-changing conditions of service.

When railroads are older similar broad treatment will be accorded other features of operation as well as supplies and purchases. Broad policies and individual judgment will gradually supplant attempts to decide questions in advance in accordance with preconceived notions of probable conditions.

The evolution of the so-called store department on most railways has been a striking instance of one-sided development. A railway exists to manufacture and sell an intangible commodity, transportation, not necessarily to carry either a large or small stock of material and supplies. The purchasing agent tells us in good faith how much money he has saved the company by time spent in driving good bargains. He is not in a position to know how many men have been worked to poor advantage, or have been idle, while waiting for proper tools, materials and supplies. Such features of economic waste are not always the fault of the purchasing agent. The general storekeeper and the local storekeeper, ambitious for low stock records, may hold down their requisitions. It is so easy to say that a telegram will bring a cylinder head or other spare part to the desired point. If meantime a big locomotive has been out of commission in a distant roundhouse for two or three days and a light engine has been sent to protect the run, there is nothing in the store accounts to reflect this needless expense. The individual batting averages are high, but some way the team is not winning games.

One of the fallacies introduced by the store people is that the user of material cannot be trusted with its custody, because he will carry too much stock, due to an exaggerated view of future necessities. This mistaken theory is carried to the extent of denying to the division superintendent the custody of fifty shovels to be used by the emergency gang of fifty men which it is entirely within his province to order out to clear the road. The men he can command. The shovels, without which the men are useless, he must beseech from a storekeeper receiving, perhaps, one-third as much salary as himself. Of course, in an emergency, the superintendent takes the shovels, anyway. As I said before, it is a pretty poor system that breaks down in an emergency. The test of a system is an emergency. I confess my inability to see that being a user of material necessarily makes a man more indifferent to the company’s interests. Perhaps it is the same habit of mind that causes me to deny greater rectitude to the man in the accounting department.

The user of material has undoubtedly been careless in many cases. Will he not become more careless if relieved of responsibility and informed that he cannot be trusted? When children err, the wise parent does not disown them. From his fund of riper experience, he helps them by impressive teaching to gain a proper viewpoint. Similarly, the general storekeeper should control the superintendent and teach the latter the most economical handling and use of material and supplies. Control is comparatively valueless without authority. This authority can be most effectively conveyed by rank. The general storekeeper should not be a keeper of a general store. He should be a general officer, under the general manager, superior in rank and pay to the division superintendent. Instead of the superintendent being relieved from responsibility, he should be held to a greater accountability. The reformed and reconstructed bandit often makes a relentless police chief. The despised user of material under proper organization becomes the zealous conserver and protector.

The general storekeeper, like the chief mechanical officer, should be located in the same building with the general manager. There is no more reason for locating either one at a store or at a shop than there is for locating a general superintendent in a switch shanty near a yard. General officers must see the whole property and maintain a balance among its component units, which are normally operating divisions. If I were you, as between your purchasing agent and your general storekeeper, I would appoint the most experienced an assistant general manager, so that his office file can be logically and consistently consolidated with your own. The other of these two men I would make purchasing agent with a distinct title and a separate office file, because of his large volume of business with outside persons. Such assistant general manager would be in effect manager of supplies and purchases, the trained expert seeing the whole problem of operation and deciding normally what material and supplies the company needs. Under such assistant general manager, would be the purchasing agent, a staff officer, specializing on the technique and psychology of bargaining. Such assistant general manager, as a line officer, would be his own general storekeeper and would hold division superintendents responsible for the stores on their respective divisions. His work would be co-ordinated with that of the other assistant general managers by the chief of staff, the senior assistant general manager.

The organization thus outlined would preclude the necessity for the usual perfunctory approval of requisitions by the general manager. The assistant general manager for supplies would normally put the final approval on requisitions. Large or exceptional items the general manager would approve. When differences of opinion developed among the interested assistant general managers as to the relative ultimate economy of different mechanical or structural devices, the general manager would be invoked to give a decision that really would be worth something, because made after considering different viewpoints. Under the old order of things, the superintendent of motive power or the chief engineer is tempted to seek the ear of the general manager on the latter’s best natured day to put over a requisition for some pet device. So sporadic is the comprehensive consideration of requisitions, so perfunctory is the usual approval, that the general manager frequently tells his purchasing agent not to take the former’s approval too seriously, and to hold up approved requisitions about which the latter is doubtful. This is another species of unconscious administrative cowardice which attempts to put on the subordinate the burden of responsibility for a departure from the normal. True organization and administration demand normal procedure by subordinates. At normal speed, the administrative machine should run well balanced. When the speed becomes great enough, higher authority should be a governor brought into action more or less automatically. Telling a subordinate habitually to question the acts of his superior has the same cheapening effect as unchecked disregard of block signals. It puts higher authority in the undesirable attitude of exploiting a fad, or an over-worked system, rather than of demanding reasonable compliance with proper and logical requirements.

Have we not overdone the matter of low working stocks? Is is not more expensive for a railroad to carry too small a working stock of material and supplies than one too large? Is not the problem too extensive to warrant very rigid comparisons as between different roads? Like the average miles per car per day, does not the equation contain too many variables to admit of a very exact solution? Can we compare effectively the dissimilar conditions involved in climate, distances from producing and distributing centers, character of predominating traffic, etc.? Are not some records for seemingly low economical stocks based upon the fallacy that it costs the company nothing to ship and reship its own material? Where would these records land if company material carried a freight charge of, say, 5 mills per ton per mile? Is it not more economical to handle numerous items of supply in carload lots regardless of average monthly consumption? Have we given due weight to the concealed items of expense in arriving at conclusions as to the cost of handling company material and supplies?

Two of the best-managed roads in the country, the Pennsylvania and the Big Four, had no stores departments the last time I inquired. At the other extreme, we find the Santa Fe and the Lake Shore carrying their departmental system to their stores in an intensified form. In between—that happy medium which I mentioned to you—stand the Harriman Lines with division stores under the division superintendent, who in turn as to supply matters is under the general storekeeper or other chief supply official, the latter already having in some cases the title and status of an assistant general manager. The man in direct charge of the one general store which is allowed each general jurisdiction is called a storekeeper. The underlying conception is that railroad stores are maintained to help make the wheels go around, that all supply activities should be concentrated upon the most economical manufacture and sale of transportation.

This brings us to another phase of the problem. Frequently a railroad as a plant is adequate to manufacture more transportation than it can sell. The other fellow is getting too much of the competitive business. Investigation often shows that railroad solicitors can sell a shipper no freight or passenger transportation, because his salesman receives no orders from the railroad’s purchasing agent. The industrial bureau of a traffic department works to create new business which is fostered by discriminating freight rates. Yes, I stand up and use the word “discriminating,” because, when properly understood, it implies intelligence and science, and is therefore one of the finest words in the language. This good work of the traffic department in creating wealth and developing industrial communities in territory local to a particular road may be largely lost to that road because its purchasing agent, consciously or unconsciously, fails to exercise proper and legitimate discrimination in the performance of his important function.

At first blush, in these days of doubting insinuation and hysterical aspersion, when a railway official is often denied the presumption of possessing common honesty, when the burden of proof is to show him as having average rectitude, such a statement may be construed by distorted minds as a plea for subtle forms of rebating. Tenuous as may seem the line here between right and wrong, it can in a given case be readily determined. Too often apparent complexities are only the result of an abstruse contemplation of abstract possibilities. Give honest, fearless, practical treatment to each concrete case as it arises, indulge more in inductive reasoning which predicates laws upon facts, not facts upon laws, and complexity gives way to common sense. Transportation is the most exacting, the most diversified, the most far-reaching of commercial and industrial activities. It follows then, under the law of the survival of the fittest, that those who can survive in the art and science of transportation must be the fittest of the fit. In their hands can safely be left the solution of these difficult problems.

After three years of satisfactory experience with division accounting bureaus, the Harriman Lines have extended such activities to include the division stores. This is done by moving the division storekeeper, his accounting and correspondence clerks, to the division superintendent’s office in order that division records may be consolidated in one file and division accounts in one bureau. A division material-on-hand account is included. The necessary issue clerks, foremen, etc., are left at the storehouse, which is often a mile or two from the superintendent’s office. Another avowed object is to get the division supply people closer to the train sheet, to give propinquity a chance to develop love, and to counteract that we-are-so-different feeling which comes on many railroads, not only in the spring, but under all signs of the zodiac. The logical development on divisions of considerable volume of supply business will be to make the division storekeeper an assistant superintendent. This method of store accounting is relatively closer to real transactions, especially where the division supply train is used, than might be supposed. On the Hill lines, the store accounting is done in the general auditor’s office, perhaps one or two thousand miles from the store itself, a decidedly long range proposition. Which policy is better is of course a question of opinion. A man’s views on organization and methods are largely a matter of temperament and association, just as his politics and religion depend usually upon heredity and environment.

Affectionately, your own,

D. A. D.