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other than immediate needs. We buy only enough to fit into the plan of

production, taking into consideration the state of transportation at the

time. If transportation were perfect and an even flow of materials could

be assured, it would not be necessary to carry any stock whatsoever. The

carloads of raw materials would arrive on schedule and in the planned

order and amounts, and go from the railway cars into production. That

would save a great deal of money, for it would give a very rapid

turnover and thus decrease the amount of money tied up in materials.

With bad transportation one has to carry larger stocks. At the time of

revaluing the inventory in 1921 the stock was unduly high because

transportation had been so bad. But we learned long ago never to buy

ahead for speculative purposes. When prices are going up it is

considered good business to buy far ahead, and when prices are up to buy

as little as possible. It needs no argument to demonstrate that, if you

buy materials at ten cents a pound and the material goes later to twenty

cents a pound you will have a distinct advantage over the man who is

compelled to buy at twenty cents. But we have found that thus buying

ahead does not pay. It is entering into a guessing contest. It is not

business. If a man buys a large stock at ten cents, he is in a fine

position as long as the other man is paying twenty cents. Then he later

gets a chance to buy more of the material at twenty cents, and it seems

to be a good buy because everything points to the price going to thirty

cents. Having great satisfaction in his previous judgment, on which he

made money, he of course makes the new purchase. Then the price drops

and he is just where he started. We have carefully figured, over the

years, that buying ahead of requirements does not pay--that the gains on

one purchase will be offset by the losses on another, and in the end we

have gone to a great deal of trouble without any corresponding benefit.

Therefore in our buying we simply get the best price we can for the

quantity that we require. We do not buy less if the price be high and we

do not buy more if the price be low. We carefully avoid bargain lots in

excess of requirements. It was not easy to reach that decision. But in

the end speculation will kill any manufacturer. Give him a couple of

good purchases on which he makes money and before long he will be

thinking more about making money out of buying and selling than out of

his legitimate business, and he will smash. The only way to keep out of

trouble is to buy what one needs--no more and no less. That course

removes one hazard from business.

 

This buying experience is given at length because it explains our

selling policy. Instead of giving attention to competitors or to demand,

our prices are based on an estimate of what the largest possible number

of people will want to pay, or can pay, for what we have to sell. And

what has resulted from that policy is best evidenced by comparing the

price of the touring car and the production.

 

YEAR PRICE PRODUCTION

1909-10 $950 18,664 cars

1910-11 $780 34,528 "

1911-12 $690 78,440 "

1912-13 $600 168,220 "

1913-14 $550 248,307 "

1914-15 $490 308,213 "

1915-16 $440 533,921 "

1916-17 $360 785,432 "

1917-18 $450 706,584 "

1918-19 $525 533,706 "

(The above two years were war years and the factory was in war work).

1919-20 $575 to $440 996,660 "

1920-21 $440 to $355 1,250,000 "

 

The high prices of 1921 were, considering the financial inflation, not

really high. At the time of writing the price is $497. These prices are

actually lower than they appear to be, because improvements in quality

are being steadily made. We study every car in order to discover if it

has features that might be developed and adapted. If any one has

anything better than we have we want to know it, and for that reason we

buy one of every new car that comes out. Usually the car is used for a

while, put through a road test, taken apart, and studied as to how and

of what everything is made. Scattered about Dearborn there is probably

one of nearly every make of car on earth. Every little while when we buy

a new car it gets into the newspapers and somebody remarks that Ford

doesn't use the Ford. Last year we ordered a big Lanchester--which is

supposed to be the best car in England. It lay in our Long Island

factory for several months and then I decided to drive it to Detroit.

There were several of us and we had a little caravan--the Lanchester, a

Packard, and a Ford or two. I happened to be riding in the Lanchester

passing through a New York town and when the reporters came up they

wanted to know right away why I was not riding in a Ford.

 

"Well, you see, it is this way," I answered. "I am on a vacation now; I

am in no hurry, we do not care much when we get home. That is the reason

I am not in the Ford."

 

You know, we also have a line of "Ford stories"!

 

Our policy is to reduce the price, extend the operations, and improve

the article. You will notice that the reduction of price comes first. We

have never considered any costs as fixed. Therefore we first reduce the

price to a point where we believe more sales will result. Then we go

ahead and try to make the price. We do not bother about the costs. The

new price forces the costs down. The more usual way is to take the costs

and then determine the price, and although that method may be scientific

in the narrow sense, it is not scientific in the broad sense, because

what earthly use is it to know the cost if it tells you you cannot

manufacture at a price at which the article can be sold? But more to the

point is the fact that, although one may calculate what a cost is, and

of course all of our costs are carefully calculated, no one knows what a

cost ought to be. One of the ways of discovering what a cost ought to be

is to name a price so low as to force everybody in the place to the

highest point of efficiency. The low price makes everybody dig for

profits. We make more discoveries concerning manufacturing and selling

under this forced method than by any method of leisurely investigation.

 

The payment of high wages fortunately contributes to the low costs

because the men become steadily more efficient on account of being

relieved of outside worries. The payment of five dollars a day for an

eight-hour day was one of the finest cost-cutting moves we ever made,

and the six-dollar day wage is cheaper than the five. How far this will

go, we do not know.

 

We have always made a profit at the prices we have fixed and, just as we

have no idea how high wages will go, we also have no idea how low prices

will go, but there is no particular use in bothering on that point. The

tractor, for instance, was first sold for $750, then at $850, then at

$625, and the other day we cut it 37 per cent, to $395. The tractor is

not made in connection with the automobiles. No plant is large enough to

make two articles. A shop has to be devoted to exactly one product in

order to get the real economies.

 

For most purposes a man with a machine is better than a man without a

machine. By the ordering of design of product and of manufacturing

process we are able to provide that kind of a machine which most

multiplies the power of the hand, and therefore we give to that man a

larger role of service, which means that he is entitled to a larger

share of comfort.

 

Keeping that principle in mind we can attack waste with a definite

objective. We will not put into our establishment anything that is

useless. We will not put up elaborate buildings as monuments to our

success. The interest on the investment and the cost of their upkeep

only serve to add uselessly to the cost of what is produced--so these

monuments of success are apt to end as tombs. A great administration

building may be necessary. In me it arouses a suspicion that perhaps

there is too much administration. We have never found a need for

elaborate administration and would prefer to be advertised by our

product than by where we make our product.

 

The standardization that effects large economies for the consumer

results in profits of such gross magnitude to the producer that he can

scarcely know what to do with his money. But his effort must be sincere,

painstaking, and fearless. Cutting out a half-a-dozen models is not

standardizing. It may be, and usually is, only the limiting of business,

for if one is selling on the ordinary basis of profit--that is, on the

basis of taking as much money away from the consumer as he will give

up--then surely the consumer ought to have a wide range of choice.

 

Standardization, then, is the final stage of the process. We start with

consumer, work back through the design, and finally arrive at

manufacturing. The manufacturing becomes a means to the end of service.

 

It is important to bear this order in mind. As yet, the order is not

thoroughly understood. The price relation is not understood. The notion

persists that prices ought to be kept up. On the contrary, good

business--large consumption--depends on their going down.

 

And here is another point. The service must be the best you can give. It

is considered good manufacturing practice, and not bad ethics,

occasionally to change designs so that old models will become obsolete

and new ones will have to be bought either because repair parts for the

old cannot be had, or because the new model offers a new sales argument

which can be used to persuade a consumer to scrap what he has and buy

something new. We have been told that this is good business, that it is

clever business, that the object of business ought to be to get people

to buy frequently and that it is bad business to try to make anything

that will last forever, because when once a man is sold he will not buy

again.

 

Our principle of business is precisely to the contrary. We cannot

conceive how to serve the consumer unless we make for him something

that, as far as we can provide, will last forever. We want to construct

some kind of a machine that will last forever. It does not please us to

have a buyer's car wear out or become obsolete. We want the man who buys

one of our products never to have to buy another. We never make an

improvement that renders any previous model obsolete. The parts of a

specific model are not only interchangeable with all other cars of that

model, but they are interchangeable with similar parts on all the cars

that we have turned out. You can take a car of ten years ago and, buying

to-day's parts, make it with very little expense into a car of to-day.

Having these objectives the costs always come down under pressure. And

since we have the firm policy of steady price reduction, there is always

pressure. Sometimes it is just harder!

 

Take a few more instances of saving. The sweepings net six hundred

thousand dollars a year. Experiments are constantly going on in the

utilization of scrap. In one of the stamping operations six-inch circles

of sheet metal are cut out. These formerly went into scrap. The waste

worried the men. They worked to find uses for the discs. They found that

the plates were just the right size and shape to stamp into radiator

caps but the metal was not thick enough. They tried a double thickness

of plates, with the result that they made a cap which tests proved to be

stronger than one made out of a single sheet of metal. We get 150,000 of

those discs a day. We have now found a use for about 20,000 a day and

expect to find further uses for the remainder. We saved about ten

dollars each by making transmissions instead of buying them. We

experimented with bolts and produced a special bolt made on what is

called an "upsetting machine" with a rolled thread that was stronger

than any bolt we could buy, although in its making was used only about

one third of the material that the outside manufacturers used. The

saving on one style of bolt alone amounted to half a million dollars a

year. We used to assemble our cars at Detroit, and although by special

packing we managed to get five or six into a freight car, we needed many

hundreds of freight cars a day. Trains were moving in and out all the

time. Once a thousand freight cars were packed in a single day. A

certain amount of congestion was inevitable. It is very expensive to

knock down machines and crate them so that they cannot be injured in

transit--to say nothing of the transportation charges. Now, we assemble

only three or four hundred cars a day at Detroit--just enough for local

needs. We now ship the parts to our assembling stations all over the

United States and in fact pretty much all over the world, and the

machines are put together there. Wherever it is possible for a branch to

make a part more cheaply than we can make it in Detroit and ship it to

them, then the branch makes the part.

 

The plant at Manchester, England, is making nearly an entire car. The

tractor plant at Cork, Ireland, is making almost a complete tractor.

This is an enormous saving of expense and is only an indication of what

may be done throughout industry generally, when each part of a composite

article is made at the exact point where it may be made most

economically. We are constantly experimenting with every material that

enters into the car. We cut most of our own lumber from our own forests.

We are experimenting in the manufacture of artificial leather because we

use about forty thousand yards of artificial leather a day. A penny here

and a penny there runs into large amounts in the course of a year.

 

The greatest development of all, however, is the River Rouge plant,

which, when it is running to its full capacity, will cut deeply and in

many directions into the price of everything we make. The whole tractor

plant is now there. This plant is located on the river on the outskirts

of Detroit and the property covers six hundred and sixty-five

acres--enough for future development. It has a large slip and a turning

basin capable of accommodating any lake steamship; a short-cut canal and

some dredging will give a direct lake connection by way of the Detroit

River. We use a great deal of coal. This coal comes directly from our

mines over the Detroit, Toledo and Ironton Railway, which we control, to

the Highland Park plant and the River Rouge plant. Part of it goes for

steam purposes. Another part goes to the by-product coke ovens which we

have established at the River Rouge plant. Coke moves on from the ovens

by mechanical transmission to the blast furnaces. The low volatile gases

from the blast furnaces are piped to the power plant boilers where they

are joined by the sawdust and the shavings from the body plant--the

making of all our bodies has been shifted to this plant--and in addition

the coke "breeze" (the dust in the making of coke) is now also being

utilized for stoking. The steam power plant is thus fired almost

exclusively from what would otherwise be waste products. Immense steam

turbines directly coupled with dynamos transform this power into

electricity, and all of the machinery in the tractor and the body plants

is run by individual motors from this electricity. In the course of time

it is expected that there will be sufficient electricity to run

practically the whole Highland Park plant, and we shall then have cut

out our coal bill.

 

Among the by-products of the coke ovens is a gas. It is piped both to

the Rouge and Highland Park plants where it is used for heat-treat

purposes, for the enamelling ovens, for the car ovens, and the like. We

formerly had to buy this gas. The ammonium sulphate is used for

fertilizer. The benzol is a motor fuel. The small sizes of coke, not

suitable for the blast furnaces, are sold to the employees--delivered

free into their homes at much less than the ordinary market price. The

large-sized coke goes to the blast furnaces. There is no manual

handling. We run the melted iron directly from the blast furnaces into

great ladles. These ladles travel into the shops and the iron is poured

directly into the moulds without another heating. We thus not only get a

uniform quality of iron according to our own specifications and directly

under our control, but we save a melting of pig iron and in fact cut out

a whole process in manufacturing as well as making available all our own

scrap.

 

What all this will amount to in point of savings we do not know--that

is, we do not know how great will be the saving, because the plant has

not been running long enough to give more than an indication of what is

ahead, and we save in so many directions--in transportation, in the

generation of our power, in the generation of gas, in the expense in

casting, and then over and above that is the revenue from the

by-products and from the smaller sizes of coke. The investment to

accomplish these objects to date amounts to something over forty million

dollars.

 

How far we shall thus reach back to sources depends entirely on

circumstances. Nobody anywhere can really do more than guess about the

future costs of production. It is wiser to recognize that the future

holds more than the past--that every day holds within it an improvement

on the methods of the day before.

 

But how about production? If every necessary of life were produced so

cheaply and in such quantities, would not the world shortly be surfeited

with goods? Will there not come a point when, regardless of price,

people simply will not want anything more than what they already have?

And if in the process of manufacturing fewer and fewer men are used,

what is going to become of these men--how are they going to find jobs

and live?

 

Take the second point first. We mentioned many machines and many methods

that displaced great numbers of men and then someone asks:

 

"Yes, that is a very fine idea from the standpoint of the proprietor,

but how about these poor fellows whose jobs are taken away from them?"

 

The question is entirely reasonable, but it is a little curious that it

should be asked. For when were men ever really put out of work by the

bettering of industrial processes? The stage-coach drivers lost their

jobs with the coming of the railways. Should we have prohibited the

railways and kept the stage-coach drivers? Were there more men working

with the stage-coaches than are working on the railways? Should we have

prevented the taxicab because its coming took the bread out of the

mouths of the horse-cab drivers? How does the number of taxicabs compare

with the number of horse-cabs when the latter were in their prime? The

coming of shoe machinery closed most of the shops of those who made

shoes by hand. When shoes were made by hand, only the very well-to-do

could own more than a single pair of shoes, and most working people went

barefooted in summer. Now, hardly any one has only one pair of shoes,

and shoe making is a great industry. No, every time you can so arrange

that one man will do the work of two, you so add to the wealth of the

country that there will be a new and better job for the man who is

displaced. If whole industries changed overnight, then disposing of the

surplus men would be a problem, but these changes do not occur as

rapidly as that. They come gradually. In our own experience a new place

always opens for a man as soon as better processes have taken his old

job. And what happens in my shops happens everywhere in industry. There

are many times more men to-day employed in the steel industries than

there were in the days when every operation was by hand. It has to be

so. It always is so and always will be so. And if any man cannot see it,

it is because he will not look beyond his own nose.

 

Now as to saturation. We are continually asked:

 

"When will you get to the point of overproduction? When will there be

more cars than people to use them?"

 

We believe it is possible some day to reach the point where all goods

are produced so cheaply and in such quantities that overproduction will

be a reality. But as far as we are concerned, we do not look forward to

that condition with fear--we look forward to it with great satisfaction.

Nothing could be more splendid than a world in which everybody has all

that he wants. Our fear is that this condition will be too long

postponed. As to our own products, that condition is very far away. We

do not know how many motor cars a family will desire to use of the

particular kind that we make. We know that, as the price has come down,

the farmer, who at first used one car (and it must be remembered that it

is not so very long ago that the farm market for motor cars was

absolutely unknown--the limit of sales was at that time fixed by all the

wise statistical sharps at somewhere near the number of millionaires in

the country) now often uses two, and also he buys a truck. Perhaps,

instead of sending workmen out to scattered jobs in a single car, it

will be cheaper to send each worker out in a car of his own. That is

happening with salesmen. The public finds its own consumptive needs with

unerring accuracy, and since we no longer make motor cars or tractors,

but merely the parts which when assembled become motor cars and

tractors, the facilities as now provided would hardly be sufficient to

provide replacements for ten million cars. And it would be quite the

same with any business. We do not have to bother about overproduction

for some years to come, provided the prices are right. It is the refusal

of people to buy on account of price that really stimulates real

business. Then if we want to do business we have to get the prices down

without hurting the quality. Thus price reduction forces us to learn

improved and less wasteful methods of production. One big part of the

discovery of what is "normal" in industry depends on managerial genius

discovering better ways of doing things. If a man reduces his selling

price to a point where he is making no profit or incurring a loss, then

he simply is forced to discover how to make as good an article by a

better method--making his new method produce the profit, and not

producing a profit out of reduced wages or increased prices to the

public.

 

It is not good management to take profits out of the workers or the

buyers; make management produce the profits. Don't cheapen the product;

don't cheapen the wage; don't overcharge the public. Put brains into the

method, and more brains, and still more brains--do things better than

ever before; and by this means all parties to business are served and

benefited.

 

And all of this can always be done.

 

 

CHAPTER XI

 

MONEY AND GOODS

 

 

The primary object of a manufacturing business is to produce, and if

that objective is always kept, finance becomes a wholly secondary matter

that has largely to do with bookkeeping. My own financial operations

have been very simple. I started with the policy of buying and selling

for cash, keeping a large fund of cash always on hand, taking full

advantage of all discounts, and collecting interest on bank balances. I

regard a bank principally as a place in which it is safe and convenient

to keep money. The minutes we spend on a competitor's business we lose

on our own. The minutes we spend in becoming expert in finance we lose

in production. The place to finance a manufacturing business is the

shop, and not the bank. I would not say that a man in business needs to

know nothing at all about finance, but he is better off knowing too

little than too much, for if he becomes too expert he will get into the

way of thinking that he can borrow money instead of earning it and then

he will borrow more money to pay back what he has borrowed, and instead

of being a business man he will be a note juggler, trying to keep in the

air a regular flock of bonds and notes.

 

If he is a really expert juggler, he may keep going quite a long time in

this fashion, but some day he is bound to make a miss and the whole

collection will come tumbling down around him. Manufacturing is not to

be confused with banking, and I think that there is a tendency for too

many business men to mix up in banking and for too many bankers to mix

up in business. The tendency is to distort the true purposes of both

business and banking and that hurts both of them. The money has to come

out of the shop, not out of the bank, and I have found that the shop

will answer every possible requirement, and in one case, when it was

believed that the company was rather seriously in need of funds, the

shop when called on raised a larger sum than any bank in this country

could loan.

 

We have been thrown into finance mostly in the way of denial. Some years

back we had to keep standing a denial that the Ford Motor Company was

owned by the Standard Oil Company and with that denial, for

convenience's sake, we coupled a denial that we were connected with any

other concern or that we intended to sell cars by mail. Last year the

best-liked rumour was that we were down in Wall Street hunting for

money. I did not bother to deny that. It takes too much time to deny

everything. Instead, we demonstrated that we did not need any money.

Since then I have heard nothing more about being financed by Wall

Street.

 

We are not against borrowing money and we are not against bankers. We

are against trying to make borrowed money take the place of work. We are

against the kind of banker who regards a business as a melon to be cut.

The thing is to keep money and borrowing and finance generally in their

proper place, and in order to do that one has to consider exactly for

what the money is needed and how it is going to be paid off.

 

Money is only a tool in business. It is just a part of the machinery.

You might as well borrow 100,000 lathes as $100,000 if the trouble is

inside your business. More lathes will not cure it; neither will more

money. Only heavier doses of brains and thought and wise courage can

cure. A business that misuses what it has will continue to misuse what

it can get. The point is--cure the misuse. When that is done, the

business will begin to make its own money, just as a repaired human body

begins to make sufficient pure blood.

 

Borrowing may easily become an excuse for not boring into the trouble.

Borrowing may easily become a sop for laziness and pride. Some business