PURCHASING MATERIAL 1. General.—The first step in the production of any article is to obtain the necessary materials. All in dustrial effort is concerned with the transporting of physical materials and their transformation into other forms in which they are more serviceable. Material in the natural state usually possesses potential value only. As labor is bestowed upon it the material rises in value; in fact, practically all industrial values are principally labor values. Thus, a pound of iron ore in the side of a hill has potential value only and may be bought for a fraction of a cent. This same iron ore when smelted into cast iron may be worth a cent per pound; when manufactured into Bessemer steel it may sell for one and one-half cents per pound. If made into crucible steel it may be worth sixteen cents per pound, and if made into watch springs it will be worth many dollars per pound. This is true of all manufactured products. Industrial values are, largely, accumulated labor values; the value of the material in the original, natural state is a small part of the final value.
In the great majority of industrial pursuits the pro duction of marketable products is divided into many stages, only a limited number being performed in any one plant. In a few cases, such as cement works and salt works, the transformation from the natural prod uct to the finished article is performed in a single plant. But in the majority of cases, most market products are the results of several distinct stages and these stages may be separated widely, both geographi cally and by characteristics. The material that is re quired for a large electrical works, for instance, is of tremendous variety and is gathered from many sources. Practically all of it, however, has had more or less labor expended upon it before it goes to the factory. The articles which one manufacturer looks upon as finished product may be looked upon by other manufacturers as supplies or raw material, and the extent to which any manufacturer may control the sources of his supplies will vary greatly. Probably
no industry exists today that is not dependent in some measure upon other industries for some portion of its supplies, and the extent to which it will pay any given manufacturer to engage in making what will normally be considered supplies is an interesting industrial problem that lies outside the scope of this discussion.
Since material represents value, just as much as cash in the safe does, it would seem to be unnecessary to urge that proper supervision be exercised over all operations involving its purchase and use. It is true that in many industries where the material used is very cheap, crude methods of finding material costs will suffice. But, on the other hand, it is amazing to see the complacency with which some factory mana gers view material wastes in the factory, involving thousands of dollars, while exercising the greatest strictness to avoid the loss of a cent in cash. Wastes of this kind go on day after day in some shops, but any effort to stop them by means of intelligent super vision would instantly be met with opposition on the ground of unnecessary expense. No well-regulated enterprise in which the materials used are an impor tant financial factor, can afford to be without a cost system that takes cognizance of all material from the time it is ordered until it is shipped as finished prod uct.
2. Importance of purchasing.—It would seem un necessary, therefore, to urge that purchasing, the first step in the process of production, should be conducted with skill and foresight. It is not possible to discuss in this book the art of purchasing,.but certain phases of purchasing must be considered here since these bear directly upon costs and cost finding.
Whatever the size or character of the enterprise the purchasing should be centralized. Where this power is delegated to several persons, or left to any one on whom the responsibility may happen to fall, eco nomical results cannot be obtained, and the first op portunity to secure low costs is surely lost thru loose and extravagant methods.