Immense storerooms for keeping finished stock are shown with pride, unmindful of the fact that every dollar's worth of unnecessary stock on the shelves in the stockroom, every dollar's worth of unnecessary work in the plant, represents idle money and faulty management.
If this money is to be retained in the business, the system should be changed so that the money will be put where it will bring the best return.
The excessive stock in process is sometimes an outcome of blind progressiveness—the blindness that fails to see that there is as much money tied up in stock in process and in finished product as there is in the entire machinery equipment.
An adaptable equipment facilitates keeping down the amount tied up in stock in process. The modern plant should take advantage of these modern methods and machines which tend toward profitable use of capital. Such machines are highly developed and true to the controlling ideal of adaptability and largest output per dollar of investment.
Cost of the Product.
The practice of disregarding the profit, when considering changes in machine equipment, is the natural outgrowth of the separation of the mechanical and the business departments.
The changes in the equipment are usually determined by the mechanical department, and this is done with particular regard for the quality of work and the cost per piece. The relation between the profit and the net labor cost is not considered.
The cost of the product of the average machinery-building plant may be divided into three nearly equal parts: the material, the labor, and the burden; or, in four equal parts, if a reasonable interest charge is made for the use of the capital invested.
The material is the iron, steel and other material that enters into the construction of the machine, and it is taken in the condition in which it usually comes to the machine shop.
The burden includes all expenses and salaries necessary for the maintenance of the business.