IN the good old days of small machine shops and simple mechanism, the problems of management were easily solved. In those days one manager, usually the owner, directed the plant single handed. Now, owing to the greater size of individual plants, the intricacy of both the mechanism and business relations, the work of direction is divided between several managers.
The first and most common division of work separates the mechanical from the financial; after this the subdivisions go on according to the magnitude of the plant.
The present practice of the work has had a tendency to narrow the view and obscure some of the essential conditions that should be constantly borne in mind, and it is our purpose now to call attention to some of these essential elements. They will be unmistakably recognized when separated from their present covering of voluminous data, and this isolation of these facts will make it possible to present to the financier some of the controlling mechanical elements, and to the mechanical manager some of the real essentials of the financial side.
No attempt is to be made to give the financier instruction in finance, our sole aim being to separate the controlling points from the maze of non-essentials, the financial for the mechanical managers and the mechanical for the financier, and as a result bring closely together fundamental mechanical and financial data relating to the machine shop.
One of the most important factors to be considered in machine shop management is the plant value. Plant value is sometimes superficially stated to be wholly dependent on the earning power of the plant, although it is not generally stated that it is the presenl earning power that is being used as a basis, yet, nevertheless, this is the actual basis.
Now, since the present earning power may be at the expense of plant value, it is best to get clearly in mind what constitutes genuine plant value, and when it is safe to assume that the plant is not depreciating.
The scheme of valuation has for its object the obtaining of some basis for recording its approximate value in financial terms. Valuation based on inventory is made up according to the value of each element.
This valuation should not be considered the real value of the plant in operation. It is only its selling value, not the value at which it should be retained and operated.
To make this statement clearer it is only necessary to imagine an extreme case of a machine shop intended for general machine building purposes, equipped exclusively with lathes of one size and having no other kind of machinery. Now, the selling value of the plant might look well on paper, but it would not express the true value of a live plant. This example shows that the equipment should be a complete and harmonious whole; but there is still another comparison to bring out another phase.
Let us take for an example, (and it is not difficult to find one), a machine shop in which the modern links in equipment are missing. The equipment may be considered a harmonious whole, yet, on account of its lacking shapers for small planer work, and boring mills for that class of lathe work, it may be utterly valueless as a plant. This does not mean that it has no value in the second-hand market; it only means that as it is it has no value as a running machine shop.