5. Buying methods.—Nowhere, perhaps, is techni cal ability more clearly demonstrated than in a mer chant's buying methods. This applies with special force to the retailer, tho it is also true of the manu facturer. Among those of the former class, over buying is an ever-present danger. The mistaken pol icy of many wholesale houses that emphasize quantity in the sales made to customers and that instruct their salesmen to "load 'em up," is largely responsible for this. So also is the ambition of salesmen to "make a record" for sales and to increase their own earnings where these are computed on a percentage of sales.
Obviously, the retailer should not buy more goods than he can sell, no matter how excellent their quality or how low their price. Many business failures are the direct result of overbuying, and well-managed sup ply houses regard this practice as one of the most insidious evils that affect the life of a retail business.
Indeed, well-managed credit departments are con stantly on guard to prevent such a condition. The credit manager of the Carnegie Steel Company, in discussing the company's credit policies, said: We believe it poor business to allow a customer to be over loaded with steel, even tho the fault may be with his own purchasing department. While there have been times when it would have been possible for us to ship large tonnages and collect the full charge from our customers for such ma terials, we have so far as possible protected our customers against this dangerous practice of tying up too much capi tal in stock.
The ability to determine for himself just what goods will be needed for the coming season or credit period and, having determined this, resolutely to limit his purchases thereto, gives evidence of technical ability in the retail merchant.
In the case of the manufacturer, buying ability will show itself more especially in the care with which he provides for an adequate supply .of raw material to carry out contracts for the delivery of fixed quanti ties of the finished product during a long period and at fixed prices. Unless precaution is taken to insure a sufficient amount of raw material at favorable prices, the contract which was expected to yield a handsome profit may turn out to be not only a bar to such profit but a drain upon the very life-blood of the enterprise itself. The wise credit-grantor will
look carefully into these conditions before establish ing credit relations with either retailer or manufac turer.
6. ability to forecast the trend of trade and, in the case of a manufacturer, to turn one's attention to the. production of goods for which a present demand is being developed augurs well for the success of the enterprise. Fortunes have been made thru a correct anticipation of a fad, a fashion, or a want created by peculiar conditions. On the other hand, over-readiness to cater to what may prove merely a local and short-lived fancy on the part of the public involves risk the extent of which is meas ured by the cost of the new or newly adjusted equip ment which is necessary and by the value of the ma terial and labor employed.
Such errors of judgment, however, may take place even in the production of staples. Unless the manu facturer keeps in touch with market conditions in his line of trade and with the trade situation in general he may find himself with a large quantity of manu factured goods on his hands for which there is no pres ent demand except at sacrifice prices, thereby imperil ing his profits and exposing himself to financial em barrassment that may render him dangerous as a credit risk.
Conservatism, alertness and business acumen must be combined to secure the best results in buying.
7. Equipment.—Just as undue optimism on the part of the retailer often leads him into overbuying, so a season's good business may lead the manufacturer to think that by enlarging his equipment and manu facturing facilities he may correspondingly increase his profits. Accordingly, he will sometimes reduce his quick assets in order to build an addition to his factory or instal new machinery, and as a result a fairly good business may be crippled. It may easily happen that the next season will prove as much be low the average as the first one was above it, and that the temporary flurry was mistaken for the beginning of a permanently increased demand.
On the other hand, well-kept and modern machin ery, suited to the needs of the plant, is indispensable to economical and profitable production. Unless the equipment can produce goods in proper quantity and quality, the manufacturer will not be able to meet the existing competition for business in his line.