Scribd Logo
Upload

Welcome to Scribd!

  • Factory PHYSICS - Hoop PDF

    Uploaded by

    Dayhanna Vargas
    17 views34 pages

    Original Title

    Factory PHYSICS - Hoop.pdf

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Report this Document

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
    Flag for inappropriate content
    17 views34 pages

    Factory PHYSICS - Hoop PDF

    Uploaded by

    Dayhanna Vargas

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
    Flag for inappropriate content
    of 34
    11 Introduction “4 a Pr T MANUFACTURING IN AMERICA What hasbeen wil be again, what has been done willbe dome again: there ie moshing ‘new under the sun, leisy ‘A fundamental premise of thi-book stat to manage someshing effectively, one mast first understand it. But manufacturing systems are complex enities that canbe viewed in many ways,! many of which ae integral to sound managerial insight. A pariculaly important perspective, which provides an organizing framework forall thesis tha of istry. ‘A sens of history is ndamental o manofacoring managers for wo main reasons, First in manufacturing, asin al walks fife, theultimate est of an ieaisthetestof time. ‘Since shorter sbecess may be tho est of luck or exogenous cieamstances, we ca ‘only idem concepts of lasting valu by taking the long-term view. Second, because the requirements for success in business change over tine, iti fitcl for managers trmake decisions with the fate in mind, One ofthe very best oo for consistently anticipating the fate is a sound appreciation ofthe pes. ‘Thehistory of American manufacturing, which followsits ise fom meager colonial beginnings to undisputed worldwide leadership by mid-20th century, through a period of serious decline in the 1970s and 1980s, and ina rviaization in the complex global evironment of the 1990s, is a fascinating story. Sal, we have neither the space nor the exports wo offer comprehensive coverage here. Instead, we bighlght major events ‘and tends with emphasis on themes tat willbe erica ater ithe book. We hope the reader willbe suicientl interested in these historical issues pursue more basic sources, The following ae tractive starting points. Wren (1987) provides an excelent. ‘general overview from a management perspective. Boorstn in The Americans wilogy (1958, 1965, 1973 offers a number of highly readable insights nto American business ‘mel oan oprain ane ta gut tw pat ow eran bbe rita cnmany of pple with she concer, an nat kien rend Cheyer Moca in Amece 15 Ina cultural context. Chandler (1977, 1990) gives a towering treatment ofthe evolution of large-scale management in America, as wel s Germany and Great Britain. We have «iawn heavily on these works, and ther references in what follows 1.2 The American Experience In many ways, America began with clean slate. Avast, wide-open continent offered ‘unparalleled resources and unlimited opportunities for development. Unshackled by the trations of the Old World, Americans were fre to write thee own rules, Government, Jaw cultural practices, and Social mores were al choices wo be made as part of the grand ‘American experiment ‘Naturally, those choices reflected the times in which they were made. Tn 1776, ntimonarchist sentiment, which would soon fue the reach Revolution, was on the ise in both the Old World and the New. America chose democracy. In 1776, Scotsman ‘Adam Smith (1723-1790) procisimed the end of the old mercanilst system and the beginnings of modern capitalism i his Neath of Nations, in which he ariculated the benefits ofthe division of labor and explained the workings ofthe “twisible hand” of capitalism? America chose the free market system. In 1776, James Watt (1736-1819) sold his first team engine in England and began the first industrial revolution in eamest ‘America embraced the new factory sytem, evolved a unigue style of manufacturing, and eventually led the tansporation and communications breakthroughs that sparked the second industrial revolution. In 1776, English common law was the standard for the civilized world. America adapted this tadtion, borrowed from Roman Ia and the Code Napoléon, and rapidly became the most itgious county inthe world Tn almost all eases, Americans didnot invent revolutionary concep from scratch, Rather, they borrowed freely (and even stole) ideas from the Old World and adapted themto the New, Because the neds ofthe New World were diferent, because they were not bound by Old Word customs and titons, and, quite frankly, because they were ‘naive, the social and economic institntions that esulted were uniquely American "The ver facthat America the opportunity tocreate itself nas dane mucho shape its national identity. Unbke the counties of the Old World, which coalesced as nations long after they had acquired a national spirit, the United States of America achieved ‘nationhood 36 composite of colonies With litle sense of common ideniy. Hence, ‘Americans actively sought an identity inthe form of cultural symbols. The strongest ‘nd most unigdly American cultara icon was tha ofthe rugged individualist secking freedom on the fonter. This spawned the wild comic legends about Davy Crocket and Mike Fink and later played a large par in ansforming Abraham Lincoln nto a revered national con asthe “ral spiter” president. Even after the frntie was gone, the myth ‘ofthe fromtier lived on in popular literature and cinema about the cowboys, anchors, gunfighters, and prospectors ofthe Old West Tn more recent times, the myth ofthe frontier evolved ato the myth ofthe sel- ‘made person, which has rots stretching back tothe aphorisms of Beajamin Franklin (1706-1790) andthe essays of Ralph Waldo Emerson (1803-1882), and whit found Terie ground in the Protestant work ethic. Tis myth made heroes out of suceesstal indastialists of the 1th century (eg, Came, Rockefeller, Morgan) and provided ‘we tk 150 ea at is an wih penne ened “To Wek of Nations” eo cone Sagan nb tran, a 10D sgiters oer 100 ages Lan 98 1, 16 Pon! Tre Len of sory cultural support for the unvarished pursuit of wealth by the corporat rides ofthe 1980s, The terms that referred to the players inthe takeover games ofthat “decade of ced gunslinger white bright, masters ofthe universe—-were not accidental. Not is the fet that marketing and finance have consistently been more popular im American business schools han operations management. Te perception has been that in finance sn marketing, one can do something “big” or “bold by starting daring new ventures or launching exciting new products, while in operations management one can ony srug- le to save a few pennies on the cst side—-necesar, perhaps, but not very exiting ‘Attention to detal may bea virtue in Europe o Japan, where resource limits have long been a fact of life itis decidedly dul in the land ofthe cowboy. ‘A thied cultural force permeating the American identity isan undetying faith inthe scien method. From the period ofthe Enlightenment, which in Amercatook he form ofthe popular science of Franklin and then the pragmatic inventions of Whitney, Bell, Eastman, Edson, and others, Americans have lays emiraced the rational, reductionist, analytical approach science. The frstuniquely American management system became known a sclentiie management. The notion of "managing bythe bers” hes deep roots in our eultrl propensity fr things scent "The reduetionist metho favored by scientists analyzes systems by breaking them down into their component pars and studying each one. This was a fundamental enet of sient management, which worked to improve overall ficiency by decomposing \workint specific asks and then improving the efficiency of each ask. Today's industrial cengincer and operations researchers sil use this approach almost exclusively and ave ‘ery much a product of the sienifc management movernest. ‘While reductionism canbe anestemely profitable paradigm for analyzing complex system —and cenainly Wester science has attained many triumphs viathis approach-— iCis not the ony valid perspective. Indeed, as has become abvious fom the huge ‘gap between academic research and acl practice in industry, 100 much emphasis on individual components can lead wo a oss of perspective forthe overall system, Th contrast to the reductionism of the West ar Easter societies seen to maintain 2 more holistic or systems perspective. In this approach, individual components are ‘owed much more i terms oftheir teractions with her subsystems and in the Fight ‘ofthe overall goals ofthe system, This systems perspective undoubtedly influenced the {evelopment of just-in-time IT) systems in Japan, as we will discuss more thoroughly in Chapter 4 ‘The dferenceetween the reductionist and holistic perspectives starkly illststed bythe diferng responses taken by the Americans andthe Japanese to the problem of ‘setups in manufacturing operations. Setup time isthe time requied for changeover of| 4 machine {rom making One product to making another In the American industal nginceringfopeatons research iterature, for decades, setup times were regarded as constraint, leading othe development ofall sors of complex matbematial models for determining “optimal” lot sizes that would balance setup oss apunstinvetory carrying ‘oss. This view made perfect sense from a reduconit perspective, in which the setups ‘were a given forthe subsystem under consideration, In contrat, the Japanese, looking st ‘manufacturing system inthe mare halite sense, recognized that setup times Were not ‘agiven—they could be reduced. Moreover, from a systems perspective, there Was clear “ale in educing setup times. Clever us of ig, Hates, of-ycl preparations, andthe Tike, which became known 3 single minute exchange of die, ot SMED (Shingo 1985), ‘enabled some Japanese factories wo realize signfcany shorter setup times than those this ie te tet at oe ik Wal i ere tems st Chaperone in Amerie ” incomparable American plants. In particular, the Japanese automobile ndusty became mong the most productive inthe world. These plants became simpler to manage and more flexible than heir American counterpants ‘Ofcourse, the Japanese system had its weak points as wel, Its convoluted pricing ‘nd isvibuion systems made Japanese electoni devices cheaper in New York than in ‘Tokyo. Competition was tighly regulated by a tational corporate netvork that kept ‘outneweomes and led to bad investments. Stong profits ofthe 1980s were plowed into ‘overvalued stocks and realestate. When the bubble burst inthe 1990s, Japan Found isl mmred in an extended recession tht precipitated the “Asian crisis” throughout the Pacine ‘Rim. BuCJapanese workers in many industries remain productive, thet investment ate ishigh, and personal debt is Tow, These sound economic basies make it wery likely that Sapan wll continue tobe a strong source of competition well int the 2st centr 1.3. The First Industrial Revolution Prior to the fist industrial revolution, production was small-scale, for limited markets, and lbor- rather than capital intensive. Work was earied ou under to systems the ‘domestic system and eraft guilds. In the domestic system, material was “put out” by ‘merchants to homes where people performed te necessary operations. For instance, in ‘he textile industry, citferent families spun, bleached, and dyed material, with merchants paying them ona piecework bass. Inthe ral guilds, work was passed from one shop to another, For example, lather was tanned by a tanner, passed 10 euriers, then passed to shocmakes and saddles. The result was separate markets forthe material at each step ofthe process. ‘The fist indusrial revoluvion bagan in England daring the m-th century in the ‘exile industry. This evolution, which dramatically changed manufacturing practices ‘nd the very conse of hima existence, wis stimulated several innovations that helped ‘mochanize many of the radional manual operations. Amang the more prominent technological advances were the fying shutle developed by John Kay in 1733, the spinning Jenny invented by James Hargreaves in 1765 Genny was Mes. Hargreaves), and ‘he wate frame developed by Richard Arkwrightin 1769, By sctaing the substituon of capital for labor, these innovations generated economies of scale that made mass provheton in cenalized locations atractive forthe ist ime, The single mos important innovation ofthe fst industrial revolution, however, was the team engine, developed by James Watt in 1765 an it nsale by obn Wilkinson in hisiton works in 1776. In 1781 Watt developed the technology for transforming the up-and-down motion of the drive beam to rolary motion. This made stam practical as {poner source fora host of application, inluding factories, ships, tins, and mines, Steam opened up fr greater freedom of locaton and industrial organization by freeing ‘manufacturer from tei reliance on water power. ILlso provided cheaper power, which Ted to lower production costs, lower prices, and greaily expanded markets, Tehas been ssid that Adam Smith and James Watt did moc to change the world around them than anyone else in their period of history. Smith old us why the modem factory system, with is division of labor and “invisible had” of eapitalism, was dest= ble. Watt, with his engines (and the well-organized factory in which he his partner “Matthew Boulton and their sons bil them), showed us how to do it. Many features of ‘modere life, including widespread employmentin large-scale factories, mass production of inexpensive goods the rise of big busines, the existence of a profesional managerial lass, and others, ae direct consequences of thie consbutions. 18 13a Purl The Lesson fry ‘The Industrial Revolution in America gland hada decided technological edge over America thyoughoutthe 18th century, and proteced her competive advantage by prohibiting export of models, plans, or people that could reveal th technologies upon Which her industrial strength was based. It as rnotanll th 1790 that technologically advanced texte ill appeared in America—and That was the result of an early cas of industrial espionage! Boorstin(1965,27)repocs that Americans made numerous attempts (0 invent machinery like that in we in England during te later years of the 18h century, go ing s0farastoorpanze sate Loerie to aise prize money fr enticing inventors. When these effort failed repeatedly, Americans Wed wo impor of copy Baglish machines. “Tench Cone, a Philadelphian, managed to get se of brass models made of Arkwright’ ‘machinery: Dut British customs officer discovered thm onthe dock and filed hs t- tempt. America filly succeeded in its effons when Samuel Slater (1768-1835}—who ‘nal boen apprentied a the age of 14 to Jedediah Stu, the parner of Richerd Aske ‘wright (1732-1792)— disguised himself as a farmer and lft England secretly, without even telling his mother, 0 avoid the English law prohibiting departure of anyone with ‘echnical knowledge. Using the promise of a parinership, Moses Brown (Tor whom Brown University was named), who oxned a small textile operation in Rhode Island ‘with his son-in-law Wiliam Ally, enced Slater wo share his Megalytansported th nical knowledge. With Brown and Almy's capital and Slates phenomenal memory. ‘hey built a coston-spinnin, frame and in 1793 established the Rest oder texte mull fn America at Payaucke, Rhode Island ‘The Rhode Island sytem, as the management system used by the Almy, Brown, nd Slater prinership became knowa, closely resembled the Brith system oa which ‘twas founded, Focusing only on spinning fine yarn, Sater and his associates relied line on vertical intgration and much on direct personal supervision oftheir operation. However by the 1820, the American textile industry would acquiea disney ferent character from thatthe English by consolidating many previously dispar operations lnder a single roof, This was cataly2ed by two Factors, Fist, America, unlike England, had no stong tradition of eral guilds. tn England, sisinc stages of production (3, spinning, weaving, dyin, printing, a cotton texte ‘manufacture vere cased out by different artisans who regarded themselves as engaged in distinct occupations. Specialize traders dealt in yarn woven goods, and dyestl ‘Trese groups ll had vested fteests in not cenralizing or simplifying production. In contrast, Amercarelied primarily on the domestic system fr extile production through- ‘outs colonial period. Americans of this time ether span and wove for themselves purchased imported woolens and cotons. Even in the later half ofthe 18th century, & large proportion of American manufacutng was cxried out by vilag atisans without jul afliation. As ares, dere were no oreanized constituencies to block the move toward integration ofthe manufacturing process, ‘Second, Amerie, unlike England, sil ad large untapped sources of water power in the late 18th and early 19tn centuries. Thus, the steam engine didnot replace war power in America on @ widespread basis wnt che Civil War With large sources of ‘rater power, twas desirable to centralize manufactring operations. Ths is precisely what Francs Cabot Lowell (1775-1817) did Mer smgaling plans for a power oor tof Britain (Chandler 1977, 58), he and his associates built the famous ction textile factories at Waltham and Lowel, Massachusets, in 1814 and 1821. By using single source of water power to drive al the steps necessary to manufacture coon clot, they established an early example fa moder integrated factory system. Ironically, because steam facilitated power generation in smaller units, it eri iniroduction in England (taper Moc mericn » served 1 kep the production process smaller snd more fragmented in England tan in ‘waterline America. The result was that Americans, faced with afundamenaly diferent environment than tat ofthe echnologieally and economically superior British firms, responded by innovating. These steps toward vertical integration inthe carly-I9-cenury textile industry were harbingers of a powerful wend that would ulimately make America the Tand of big business, Te seeds ofthe enormous integrated mass production facilities ‘hat would become the nom inthe 20th century were planted eaty in our history. 1.32. The American System of Manufacturing ‘erica integration was the first step ina distinctively American style of manefactring, ‘Te second and more fundamental step was the prodocton a interchangeable part in ‘he manufacture of complex multipart products. By the mid-19th century it was clear that the Americans were evolving an entirely new approach to manufacturing. The 1851 Ciystal Palace Exhibition in London saw the ist axe of the tem American system of manufacturing to describe the display of American products. such a the locks of Allred Hobbs, the repeating pista of Sambel Cot, and the mechanical reaper of Cyrus [MComick, ll produced using the method of interchangeable part. “The concept of interchangeable pats dd not originate in America, The Arsenal of Venice was using some standard pars in the manufacture of warships as erly 28 1436, French gunsmith Honore LeBlanc had shown Thomas Jefferson musket components ‘manufactured using interchangeable parts in 1785; but the French had abandoned his ‘pproachin favorofwaitioal raft methods (Mumford 1934, Singer 1958). Iflltotwo [New Englanders, El Whitney (1765-1825) and Simeon North, to prove the feasibility of interchangeable parts asa sound industrial practice. A Jefferson's urging, Whitney was amtacted 0 pred 10,000 muskets For the American government in 1801. Although took him util 1809 co deliver th last musket, and he made ony $200 onthe ob, he established beyond dispute the workability of wht he called his “Uniformity System.” Nort, a seythe manufacturer, confirmed the practicality ofthe concept and devised new methods for implementing it, through a series of contacts between 1799 and 1813 to produce pistols with interchangeable parts forthe War Department. The inspiration of Jeerson and the ideas of Whitey and North were realized ona large scale forthe fst time athe Springfield Armory between 1815 and 1825, under the dretion of Colonel Roswell Lee rior (othe innovation of interchangeable pars, the making of a complex machine vas caied out in its entirety by an anisan, who fabricated and fied each required Piece. Under Whitney's uniformity system, the individual parts were mass-produced to tolerances tight enough to enable their use in any finshed product. The division of labor called forby Adum Smith could now be earied out to an extent never before achievable, ‘with individual workers producing single parts rather than completed products. The highly skilled artisan was no longer necessry tis dificult o overstate the importance ofthe idea of interchangeable parts, which Boorse (1968) calls “the greatest skill-saving imovaton in human isto.” Imagine proding personal computers under the skilled atsan sytem! The artisan would fst have ta fabricate silicon wafer and then tar into the need chips. Then he printed- ‘iret boards would have to be produced, not to mention all the components that g0 Imo them. The disk drives, monte, power suppl. and so forth—all would have to be fabricated, Finally ll the components would be assembled in a handmade plas ease Even ifsuch feat coud be achieved, personal computers would cost millions of dollars » Pont The Lense sory nd would hardly be “persona.” Without exaggeration, our modom way of ie deponds ‘and evlved fram the imovation of interchangeable pars. Undobiedly, the Whitney nd North contracts were among the most productive uses of federal funds to stimulate technologial development inl of American history ‘The American system of manufictring, emphasizing mass production trough use of vertical integration and interchangeable prs, stated two important tends that impacted the nature of manufacturing managemertin this country to the present. Fis, the concept of interchangeable pars greatly reduced the need for specialized skis onthe prt of workers. Whitney stated his aim as to “subsite comect and effec tive operations of machinery for tht skill ofthe artist which is acquired only by long practice and experience, species of skill whichis nt postessed inthis county To any considerable extent” (Boorstein 196, 33). Under the American system, workers without Specialized skills could make complex products. An immediate result was adiference in worker wages between England and America. Inthe 1820s, unskilled laborers wages in America were one-hiedo one-half higher than those in England, while highly-skilled workers in America were only slightly better paid than in England, Cleary, America placed ower premiumon specialized sil than other counties roma very early point inher history. Worker, like pans, wore interchangeable, This early rise of the und {ented worker contibuted othe rocky history of labor elatons in Americ. Italo ‘paved the way oth sharp distinction bexwen pinning (by management and execution {by workers) under the principles of scenitic management in the erly 20th centr. Second, by enbedding specialization in machinery instead of people the American system placed a greater premium on general intelligence than on specialized taining. In England, unskilled meant unspociaized, but the American system broke down the 4isinction between skilled and unsileg. Moreover, machinery, techniques, and prod- vets were constantly changing, so that open-mindedness and vosality became more important than manval dexenity or ask specific knowledge. A liberal education was useful inthe New World ina way that it had never een inthe Old Wold, where an ‘education was primal # mark of refinement. ‘This tend Would greatly infence the ‘American sytem of education, Italso very likely prepared the way fr the rise ofthe rofessionl manager, who is assumed ale to manage any operstion without dete Knowledge ofits speciis 1.4. The Second Industrial Revolution In spite ofthe nowble advances in she textile industry by Slater i the 1790s and the practical demonstration ofthe uniformity system by Whitney, Nr nd Leen the early 1800s, most industry inpre-1840 America was small, faily-owne, nd Leehnoogiclly primitive. Before the 1830, coal was not widely available, so most industry relied on ‘water power Seasonal variations in the power suppl, duct drought oie, plus the ck ‘of reliable all-weather transportation network mae fulltime, year-round prodction impractical for many manufacrers. Workers were eerited seasonally fom te local farm population, nd goods were sold locally ortrough he aditional merchant network ‘stublshed to sell British gods in America, The class of permanent industrial workers ‘was small, and the clas of industrial managers almost nonexistent. Prior to 1840, here were almost no manufacturing enterprises sophisticated enough to require anything more ‘han wadiionl methods of direct factory management by the oer, [Before the Civil War, large factories were the exception rater than the rule. In 1832, Secretary ofthe Treasury Louis McLane conducted a survey of manufaetaring in (veer Mancini Amerie 2 10 states and found only 36 enterprises with 250 or more workers, of which 31 were textile factories. The vast majority of enterprises had assts of only a few thousand dallas, had fewer than a dozen employees, and relied on watee power (Chandler 1977, 60-61), The Springfield Armory. oftenctedasthe most odemplant ofits time —itused interchangeable ars, division of labor, cost sccounting techniques, uniform standards, inspectionvconto procedures, and advanced metalworking methods—raely had more ‘han 250 employees. "The spread ofthe factory system was limited by the dependence on water power unt ‘he opening of te anthracite coalfield in easter Pennsylvania inthe 1830s. From 1840, anthracite fueled bls farnaces began providing an inexpensive supply of pg ton forthe fis time, The availability of energy and raw material prompted a variety of industries (eg. makers of watches, clocks, safes, locks, pistols) o build large factories using the ‘method of interchangeable pars, Inthe Ite 1840s, newly invented technologies (eg, sewing machines end reapers) also began production using the interchangeable-parts method. However even with the availability of coal, large-scale production facilites dd not immediately arse, The moder integrated industrial enterprise was nol the consequence ofthe technological and energy innovations ofthe first ndustal revolution, The mass production characteristic of large-scale manufacturing required coordination of a mass fisribsion system to facilitate te Now of materials and goods trough the economy. Thus, the second industrial evolution was catalyzed by innovations in transportation ‘nd communication—rairoa, steamship, and telegraph—that occurred between 1850 ‘nd 1880. Breakthroughs in distribution technology’ i ten prompted a revolution in ‘mass production technology in the 1880s and 180s, including the Bonsack machine for gates, the “automatc-line” canning process for foods, practical implementation of the Bessemer tel process and electrolytic aluminum refining, and many others. During this ime, America visibly led the way in mass production and distribution innovations and, a a elt, by World War Thad more large-scale business enterprises than the rest of te world combined 14.1 The Role of the Railroads Railroads were the spark that ignite the second industrial revaution for tree reasons: 1. They were America’s fistbigbusines, and hence heist place where large-scale ‘management hierarchies and modem accounting practioes Were necded 2. Thei construction (and tat ofthe telegraph system a the same time) created & large marke for mass-produced products, sucha ron rails, wheels, and spikes, aswell asbasic commodities sci as wood, glass, upholstery, and copper wire. '3, They connected the country, providing relish all-weather transportation for factory goods and creating mass markets for products Colonel John Stovens received the first riroad charter in Americ from the New Jersey legislature in 1815 but, because of funding problems, didnot build the 23-ile Jong Camden and Amboy Railroad untt 1830. Tn 1850 there were 9,000 miles of track extending as far as Obi (Stover 1961, 9). By 1865 there were 35085 miles of railroad sn the United States, only 3,272 of which wore west ofthe Mississippi. By 1890, the total had reached 199,876 miles, 72,473 of which were wes of the Mississippi. Unlike {nthe Old World and in the eastern United States, where railroads connected established ‘population centers, westem railroads were generally bail in sparsely populated areas, ‘vith lines running from "Nowhere-n-Particula to Nowhere-at- Al n the anticipation of development. 1A2 Mass Retailers Pol The Leona iry ‘The capital required to build aratoad was far greterthan tat required to build atx lle millormtalwrkingenterpise. A single individu or small groupof associates ws ‘are able to ownaraload. Moreover, because the complexity and disibued nature ofisoperatons,themny stockholders or that representatives couldnot dicely manage ‘ralioad. For the fist time, anew clas of saliried employees—midale managen— ‘emerged in American business. Ou of necosity the alfoads became the birthplace of ‘he st administrative hierarchies, n which managers managed other managers. "Apioncer of methods for managing the newly emerging strctues was Daniel Craig ‘MeCallom (1815-1878). Working for the New York and Fsie Railroad Company in the 1880s, he develope principles of management and formal organization charo convey lines of authority, communication, and division of lor (Chandler 1977, 101). Henry ‘Varnum Poor, elitr ofthe American Railroad Journal, widely puricized McCallum’ ‘workin his writings and sold lithographs of his organization cart for each, Although the Brie line was taken over by financiers with lite concen for efficiency (i. the famous Jay Gould andhis associates), Poor's publicity efforts ensured that MeCallam's ‘ideas had « major impact on railroad management in America ‘Because of their complexity and relisnce ona hierarchy of managers, railroads required lage amounts of data and new types of analysis. In response to this need, innovators ike J. Edgar Thorson of the Pennsylvania Railtoad and Albert Fink of ‘he Louisville & Nashville invented many ofthe basi techniques of moder accounting during the 1850s and 1860s. Specific contbutions included ntoduction of standardized Faas, the rato between alas operating revenues and its expenditures called "he operating ratio) capital accounting procedures (eg, renewal accounting), ad unit ‘cost measures (eg, cst pet toni). Again, Henty Varnum Poor publicize the new accounting techniques and they tapidly became standard industry practice. Tnaddition to boing the fs bis businesses, the eaitoads, slong with the telegraph, ‘paved the way for future big businesses by creating a mass distribution network and {hersby making mass markets possible. As the wansporution and communication sy5- tems improved, commodity dealers, purchasing agricaltaral prot from fimers and selling to processors and wholesalers, began 10 appear in the 1850s and 18608. By ‘the 1870s and 1880s, mas euler, such as department sores and mail-odse houses, Tollowed suit ‘The phenomenal growth of these mass reales provided need for Further advances in the management of operations. For example, Sears and Roebuck’ sales grew from $138,000 n 1891 to $37.789,000 in 1905 (Chander 1977, 281). Oso Doering developed ‘syslem fr handling the huge volome of orders at Sears in the early years of the 20 ‘entry, system which used machinery to convey paperwork and transport its ia the ‘warehouse. Bu the key to his process was a complex and ig scheduling sytem that tive departments a 15-minute window in which to deliver ems fra particular one Departments that failed to mect the schedule were fined SO cents per item. Legend has it that Heory Ford visited and studied this state-of-the-art mail-order fcity before biking his first plant (Drocker 1954, 30), "The mass distribution systems ofthe relies and mail-order houses als produced important contributions to the development of accounting practices. Because oftheir high volumes and low margins, these eatxpises had to be exiremely cost-eonscions, ‘Analogous to the use of operating ratios bythe railroads, relailers used gross margins (sales receipts less cost of goods sold and operating expenses). But since retailers, ke Caper Momeni Aeron 2 the miroads, were single-ativity firms, they developed speciic meses of process efficiency unique to their typeof business. Whereas the alroads concentrated on cost peston-mile, th retailers focused on inventory tums or “stocktur” the ratio of annual sles to average on-hand inventory). Marshall Feld was trcking inventor tums early 1351870 Johnson and Kaplan 1987 41), and mainained an average of between five and Six tums during the 18705 and 1880s (Chandler 1977, 223), numbers that qual or better the performance of some retail operations today Teisimporant to understand the difference between the environmeatin which Amer- ‘can ealersurished andthe environment prevalent in the Old Worl. n Europe and Japan, goods were sod to populations in esablished centers wit song word-of-mouth {ontacts. Under such conditions, advertising was largely a luxury. Americans, om the ‘other hand, marketed their goods wo sparse and Huctating population seatered across ‘vast continent. Advertsing was the life Blood offi lke Sears and Rocbuck. Very early on, marketing was more important in the New Word than in the Ol2. Later on, th ol of marketing in manufacturing would be further reinforced when makers of new technologies (Sewing machines, typewriters, agricultural equipment) found they could ‘not count on wholesalers or ater intermediaries to provide the specialized services necessary o sll ther products, and formed their own sales organizations 1.4.3 Andrew Carnegie and Seale Following the lea of the railroads, other industries began the tend toward big business ‘hough horizontal and vrical integration. In horizontal integration, frm bought up competitors in the same lin of business (sel il, etc). In vertical integration, fms ‘ubsimed their sources of aw material and users of the product. For instance in the steel industry, veicel integration ook place when teste! mil owners purchased mining and fore production facilities on the upsteam end and rolling mils and fabrication facilis ‘on the downstream end In many respects, modern factory management fist appeared in the metal making and working industries. Prior wo the 1850s, the American iron and ste! indastry was fragmented into separate companies that performed the smelting, rolling, forging. and {abyication operations. In the 1850s and 1860s, in response othe tremendous growth of sskoads, several lrg integrated rail mils appeared in which lst famaces and shaping ills were contained in single works. Nevertheless, in 1868, America was ila minor playin tee, producing only 8,500 tons compared with Britain's production of 110,000 In 1872, Andrew Camepie (183S-1919) turned his hand to the see industry. (Camepie ha worked for J. ger Thompson on the Pennsylvania Railroad, rising from telegraph operator to division superintendent, and had sound appreciation forte ac counting and management methods of the rikoad industry. He combined the now Bessemer process for making scl with the management methods of MeCallum and Thompson, and he brought the industry to previously unimagined levels of integration and efficiency. Carnegie expressed his expect for his railroad mentors by naming his first imegrated sel operation the Edgar Thompson Works. The goa of the ET. Works was “a lange and regular outpat” accomplished through the use ofthe largest and most technologically advanced bltst famaces inthe world, More importantly, the ET. Works took fal advantage of integration by maintaining » cmtinuogs work Raw-—it was the first steel mill whose layout was dictated by material flow, By elenessly exploiting his Scale advantages and increasing velocity of throughput, Carnegie quickly Became the ‘most ffcient tel producer the word 4 Prat TheLessons fio, Carnegie further increased the sale of his operations by integrating vertically into {non and coal mines and eter steel-elsted operations to improve flow even more. The cifect was dramatic. By 1879, American tel production nearly equaled that of Brits. ‘And by 1902, Amerie produced 9,138,000 tos, compared with ,826,00 for Britain. CCamegic also put the cost accounting skills acquired fom his railroad experince to good use. A sickler for accurate costing —one of hs favorite dictums was, "Watch the cost and the profs wil take care of thomselves"-—be insted a stictsecounting system. By doggy focusing on unit cost, he became the low-cost producer of see and ws able to undercut competitors who had a less peccse grasp oftheir cos. He ‘sed this information to his advantage, using pices along with his competition during periods of prosperity and relenesly cutng ries during recessions. In addition wo grophically lusating the Benefits fom sale economies and high throughput, Caregie’s was a classic story of an entrepreneur wh made use of minute

    You might also like