Among the functions assigned to the Army and Navy Munitions Board which have been approved by the Commander in Chief is the task to “translate currently the joint requirements of the Army and Navy ... to analyze, calculate, and reduce such joint requirements to terms of raw materials, productive capacity and equipment, and to plan, in co-operation with the appropriate civilian agencies, to meet these requirements.”
This assignment places upon a part of the naval establishment the responsibility for assisting in the control of the maximum flow of materials to the most essential uses. Success in this undertaking may be measured directly in terms of the production of ships and tanks and planes and ammunition. A review of the major aspects of the problem should, therefore, prove of interest to others in the naval service.
The job is not a new one for the Army and Navy. As explained by Rear Admiral Henry Williams in the Naval Institute Proceedings for November, 1933, elaborate plans for industrial mobilization and raw material distribution have been prepared for a number of years. The Navy side of the Army and Navy Munitions Board was at that time part of the Office of the Chief of Naval Operations hut was made the Resources Division, Office of Procurement and Material at the time of the formation of that office in February, 1942. The change can be partially attributed to a recognition of the growing importance of the problems in raw materials distribution. However, the Navy side of the Army and Navy Munitions Board represents only a small portion of the Navy personnel devoting considerable time to raw material problems. The Bureaus of the Navy Department, naval inspectors, navy yards, and supply depots are all concerned in obtaining materials to carry out the functions and missions assigned.
Within the past two years there has been an increasing amount of evidence of raw material shortages. The evidence may have been a delayed delivery date for an essential piece of equipment directly traceable to a shortage of materials, or it may have been an order or an appeal to exercise the strictest conservation in the use of a specific material. At any rate the proof is adequate; a shortage of materials does exist and is vitally affecting the production of munitions and the war effort. A better understanding of the problem by all concerned may contribute to a solution.
Insufficient supplies of certain materials are inevitable in war time. The problem of converting from peace-time manufacture to war production on the scale required can only be solved by producing new tools, new machinery, more power, more factories, more transportation. But this procedure requires more materials which in turn demand more facilities to produce more materials. Eventually a point may be reached where all the materials are going into things to produce munitions and none into the munitions themselves. This is another way of saying that in the last analysis materials along with man power are bound to be the ultimate bottlenecks in war production.
The United States is particularly vulnerable to raw material scarcity because, in spite of the vast resources, American industry is accustomed to an abundance of cheap raw materials. To shift from an economy of plenty to one of scarcity within the relatively short period of two years requires many adjustments. Moreover, the whole of the economy is involved, there is not a manufacturer, an assembly plant, a repair shop, a wholesaler, a retailer, a jobber, or a supplier of services which has not had to alter its operations because of material shortages.
In order to distribute materials so that the maximum desired utilization from a strategic point of view is achieved three basic conditions must obtain:
- A detailed program must be established for the armed forces and essential civilian needs. This program is not static but will change from time to time to meet changes in the strategic situation.
- Information must be available in one central point on requirements for each critical material for each portion of the military and essential civilian programs in terms of when needed, where needed, and why needed.
- A strategic decision must then be made by the highest authority on what portions of the programs must be omitted or deferred because of material shortages.
Knowing these facts, distribution consists merely of directing raw material producers to ship to the manufacturers in accordance with the approved programs.
Unfortunately, for a variety of reasons, no method has yet been devised for securing the necessary facts for step (2) above. Several approaches to the problem exist; a brief study of each is warranted.
Basically, there are four methods for estimating or determining material requirements:
Method A.—Requirements based on estimates by the appropriate governmental agency, such as Army, Navy, Maritime Commission, the Board of Economic Warfare (for exports to friendly powers), the Lend-Lease Administration (for exports to Allies), and Civilian Supply (for industries contributing to the war effort).
Method B.—Estimated shipments from primary raw material producers based on orders on the books, such as the Aluminum Company of America for aluminum, the Bethlehem Steel Company for steel.
Method C.—Estimated requirements from each consuming company for all levels of production such as the New York Shipbuilding Corporation for steel plate that they actually procure and put into production, the General Electric Company for the steel plate they actually procure and put into production for the turbines going into the ships built by New York Shipbuilding Corporation.
Method D.—Estimated requirements from each prime contractor such as the New York Shipbuilding Corporation for battleships, the Chrysler Tank Arsenal for tanks. .
Each of these methods has certain serious limitations. With Method A the Navy has difficulty in estimating how much copper will be needed on all Navy contracts and subcontracts because the delivery dates required in the prime contracts only are known. The Navy does not know, and in ordinary times does not care, how much in advance Higgins Industries must have the Westinghouse electric starting motor and finally when Westinghouse must have the copper from the Anaconda Copper Company. Furthermore, the Navy Department does not know how much copper Westinghouse may have to waste in making the motor. In addition, the Navy buys many things on performance specifications and does not in ordinary circumstances care whether Westinghouse uses copper or zinc or wood so long as the material does the job. These factors can be partially compensated for by asking Westinghouse how much copper is wasted in making the motors or how much in advance it must have the copper or whether copper will even be used. But to apply this knowledge to all motor manufacturers is illogical and not sufficiently refined for purposes of directing material flow to specific places. At best the material requirements obtained by this method are of value in predicting shortages so that corrective action may be initiated.
Method B is to go to the other extreme of material flow by asking the primary producers of material to list the orders on the books and to report the estimated shipments. Alcoa can, and in fact does, report its orders. The objection to this method is the difficulty in associating each specific order for raw material with the prime contract, the appropriate agency, or the particular program involved. Identification is lost because the order has passed through so many levels of production. An actual case was recently uncovered by the Army and Navy Munitions Board where the contract for raw material was the sixty- fourth subcontract in the chain. Even if the order is traced to the prime contract, it may very well be that the prime contract is for a destroyer and no information is available on whether the aluminum is going into an essential item such as fire-control equipment or into some decorative fixture that can be made of a plentiful material or even omitted entirely. Further the destroyer must be properly identified because a certain destroyer nearing completion may be indispensable for certain strategic operations while another just begun may be deferred. One other complicating factor must be considered, that of so-called “shelf” or “intermediate” products such as ball bearings, nuts and bolts, motors. At the time the aluminum is put into production of these shelf items, no one knows whether they will ultimately go into a navy patrol plane or a washing machine, so that it is impossible to identify the use of the material at the time the authorization to ship is made.
Another disadvantage of reports from primary producers is that the flow of all materials to the same end use is not guaranteed. For instance, aluminum may be authorized for shipment to Westinghouse for motor rotors but the copper for the wiring may be denied. One without the other is useless and only serves to deny aluminum for some other essential purpose. The importance of a balance in the flow of the many types of materials to a specific company and end use cannot be overemphasized. Because each raw material industry has certain peculiarities of its own, the tendency is to develop separate control devices. Methods must then be found to tie these separate devices together, a step which is too often forgotten. At best the material requirements acquired by reports from primary producers are of value in producing information on what is needed and where it is needed but little information on why it is needed. Accordingly, the curtailment of the least essential uses cannot be selective but must be applied equally to all orders.
Method C of asking all levels of production to estimate their raw material demands for identified products is a combination of the others. Consequently, it has many of the advantages and disadvantages. Perhaps the most significant weakness, typical also of Method B, is the inability to relate the demand to a specific end product, prime contract agency, or program. On the other hand the greatest advantage is that this method gives the time, the place, and the amounts of materials required. Some claims are made that requirements figures, as reported by this means, are likely to be inflated. The possibility of inflated figures in any report from industry is an inherent weakness which is not more likely in this method than any other. Nothing short of government men in the field will completely overcome this weakness.
Finally Method D is very similar to Method A. The onus of determining requirements is lowered one level in the chain from the governmental agency to the prime contractor and is, therefore, advantageous in that the job is decentralized considerably. However, the one important advantage of this system is the ability to associate a material requirement with the end product (e.g. Diesel engines), the end use (e.g. landing craft), and the sponsoring agency (e.g. Navy). With this information a strategic decision can be made on whether the copper should flow to the Diesel engine or to ammunition if there is not enough for both. A serious limitation is that hundreds of prime contractors will be seeking the same information on raw material requirements from the producers of “shelf” or “intermediate” products. Moreover, considerable time is required in the flow of the information necessary.
Let us now see how each of these four methods of determining requirements has been or may be used to distribute materials.
At the earlier stages of the Production Program, the problem was simply one of anticipating shortages. For this purpose, reliance was placed on Method A of estimating by the Army and Navy Munitions Board plus studies of over-all consumption in past years. Inasmuch as shortages were more likely to develop in materials where dependence had to be placed in whole or in part on sources outside the United States, the Army and Navy Munitions Board set up classes of strategic and critical materials. Included in these groups were such materials as rubber, tin, cork, manila fiber, and tungsten. In order to overcome the shortages that would arise with a disruption of shipping in war time, efforts were made in early 1939 to build stock piles of these materials. The Army and Navy Munitions Board, the Procurement Division of the Treasury, subsidiaries of the Reconstruction Finance Corporation, and other government agencies fostered this program.
Unfortunately, the program was started so late that in all but one or two instances, the goals were never achieved. What was accomplished, however, is proving of inestimable value at the present in allowing time to develop the production of substitute materials or the exploitation of domestic marginal sources.
Serious material shortages began to appear in the early part of 1940, aluminum being the first. The initial and obvious step to distribute this material to the most essential users was a conservation order which prohibited its use in products which could be made of more plentiful materials equally well. For instance, the use of aluminum was not permitted in refrigerator trays. As conditions became more severe and it became necessary to conserve more materials, limitation orders such as one restricting or prohibiting the manufacture of domestic refrigerators were issued to supplement the so-called conservation orders. In the early stages, these orders were aimed only at civilian goods but this was found inadequate and today many of the orders include prohibitions against the manufacture of certain items from certain materials even for military consumption. Still another conservation effort adopted to increase the flow of scarce materials to most essential uses are the Federal Emergency Alternate Specifications. These specifications have been adopted as alternates which are to be used by federal agencies whenever a less critical material can do the job.
Even with all the conservation efforts in the form of conservation and limitation orders, emergency specifications, standardization, salvage, substitution, and inventory control measures, there were still insufficient materials to meet all demands. Accordingly, Method B of determining demand was adopted whereby the primary producers of the material were asked what orders were on their books. Form PD 26A for aluminum, PD 59 for copper, PD 27 for nickel, PD 209 for vanadium, and many others were adopted for each producer to report the demands on him. Utilizing whatever information was then available on end use, on the agency involved, on the program concerned, and other pertinent data, the demand was curtailed or delayed and the producers were informed what orders to fill first.
Before discussing the use of the other methods C and D for determining requirements, a brief discussion of the priorities system is desirable.
The priorities system was developed coincidentally with the developments on materials just described. The theory is a simple one: first things first. Obviously if a generator is needed for a replacement on a naval ship operating in the fleet and another to supply power to some summer resort and only one generator can be produced at a time, then delivery should be made to the ship first. In order to effectuate this policy, a series of preference ratings were adopted and assigned to the prime contract so that the higher the rating the quicker the delivery. These ratings were based on decisions of the Joint Chiefs of Staff on the portions of the military program that should be given precedence. If the generator manufacturer needed a steel forging, and there were insufficient forgings, he could extend his rating to the forge maker who in turn could extend to get his steel. As more of the total economy was diverted to war work, the more the rating determined whether delivery would be made at all. Consequently, the power plant for the summer resort never got its generator. This may not be a serious situation but there were many essential industries contributing directly to the war effort which could not be deferred indefinitely. Railroads, for instance, must be maintained or the entire war effort will collapse. Therefore, pressure was exerted by these groups and others to get higher ratings in order to get materials. The ratings soon became inflated so that greater refinements in the rating assignments were necessary. First the A-1 ratings were broken down into A-1-a, A-1-b, etc., and then later it was necessary to add AA-1, AA-2 and so on. The ratings could be extended to all materials or component parts to be physically incorporated in the final product.
Eventually many of the claimants for materials insisted that certain of their orders must be filled at all costs, so orders were issued for a direct allocation of materials. This procedure circumvents the theory of the priorities system. It was usually adopted for programs requiring small quantites of materials but eventually was applied to so many programs that only small quantities remained for the ratings.
Preference ratings assigned were entirely qualitative and not quantitative. The question of how much material was required or allowed in each rating category was not considered.
As mentioned previously, problems were simultaneously arising in the production of so-called shelf items such as nuts and bolts, valves, ball bearings. These items are prefabricated and go into a variety of uses. A manufacturer making a generator on a Navy contract cannot wait for the ball bearings until the preference rating is extended to the bearing manufacturer who extends the rating to obtain the steel. A plan was therefore developed which allowed the bearing manufacturer to report his past consumption of steel and distribution of bearings by preference ratings and what he anticipated would occur in the future. These reports were analyzed and, if they appeared reasonable, authorizations were made for the bearing manufacturer to extend certain ratings for certain materials at certain times for certain quantities. Note that in this instance attention was directed to more than a qualitative analysis.
This plan gradually developed into what is known as the Production Requirements Plan and is the Method C of determining material requirements. Instead of only “shelf item” producers reporting, all of United States industry with a few exceptions must report. About 95 per cent of war industry’s basic material requirements are covered. Some 30,000 reports for each quarter are received.
The Production Requirements Plan (PRP) presents a reasonably complete supply and demand picture. If properly analyzed and administered, PRP can allow demand to be balanced with supply so that the preference ratings can perform the task originally intended by controlling deliveries within a specific period but not precluding delivery of materials to approve programs for the duration of the war. Moreover, PRP permits a control of inventories so that hoarding is eliminated.
There are, of course, many pitfalls and weaknesses in the administration and analysis of PRP. The balancing of demand with supply is a decision of major importance which must be made only by the higher echelons in the agencies concerned. The 30,000 individual applications must therefore be summarized into groups on which strategic decisions can be made. As we have seen, strategic decisions can best be made when end use, end product, and sponsoring agency are known. Unfortunately, PRP has not been developed to permit summarization into groups that are sufficiently refined. For instance, ordnance equipment must be shown separately, but industry is not always able to keep separate records on past consumption, inventories, and requirements for ordnance equipment. In fact, in some cases a manufacturer may not even know he is making ordnance equipment. The danger then is that the plant, because its major business is a nonessential item, will be denied materials when actually an unknown portion is vitally important.
An attempt has been made to overcome the failure of PRP to link one level of production with another by use of the so-called allocation classification symbols or production code. This code is a series of numbers which identify in broad categories the agency, the program, or the end use and must be passed on from one production level to another. The time lag necessary for this code to permeate throughout the whole United States economy is long. In addition, the time required in understanding, analyzing, and processing PRP is perhaps the most serious limitation of all.
Because of these serious limitations of PRP, considerable attention has been devoted to a study of Method D for ascertaining material requirements and controlling distribution. Thus far this method of asking the prime contractors to supply the information has been used to only a limited extent. The prime contractor in turn must ask his subcontractor who in turn asks his subcontractor for the necessary information on requirements. Distribution by this method has one very important advantage: a material requirement for a specific program becomes known. Warrants or authorizations can then be issued to effectuate that program. The total authorizations for a specific material will not exceed the total supply. Because an entire program is being dealt with, a balance can be achieved, by granting the right proportions of each material so that there is enough steel to go with the copper authorized. The use of warrants need not eliminate the use of priority ratings; a warrant would guarantee delivery within the time period for which it is issued but the priority rating would control deliveries within that time period. As a further refinement to the plan, each agency may be required to report in detail to one central agency its requirements as reported by the prime contractors. This report may embody certain component parts and finished products as well as raw materials. From this information, master schedules can be prepared on raw material requirements and on parts for which the manufacturing capacity is limited. Industry can then be notified in advance of what is expected of it and can be given reasonable assurance that the materials will be made available at the proper time. Slow downs and production curtailment will be reduced to a minimum. Moreover, what is equally important, if the schedules are properly prepared, no airplane will be held up lacking a safety belt and no ship delayed because a bearing is missing.
There are three serious weaknesses to this so-called warrant or scheduling plan. First, provision must be made to handle operating supplies, repair and maintenance materials, and items of minor capital equipment. A manufacturer not only needs materials to be physically incorporated into the products he makes but also requires materials to maintain and repair his machinery. The warrant system is aimed primarily at assuring the delivery of materials to be physically incorporated. Secondly, little attention can be paid to inventory position because the warrants will be flowing from a number of agencies and prime contractors. Therefore, no one agency can assume that the inventories can be applied to its contract and not authorize additional materials. Finally, the third difficulty is the magnitude of the job. The great burden of the task, however, is thrown on industry, particularly mass production concerns, which have no peers in scheduling the right part to the right place at the right time.
No one can predict which system of material distribution will be adopted before the emergency is over.
As a matter of fact the Controlled Materials Plan which has been recently announced by the Chairman of the War Production Board to take effect on July 1, 1943, embodies all four methods of determining requirements and of distributing materials. Primary emphasis in the new Plan is placed on Method D because of the advantages indicated above but there are certain elements of the other three also included. Method D is used for controlling the flow of materials to products which are not standard items or which are not ordinarily produced for the civilian economy such as tanks, or destroyers or bombers. Since the controls under this method are more effective than the others, it is fortunate that there is concentrated in this category a large portion of material requirements in a relatively few types of products. Method C, whereby authorizations are made directly to a manufacturer rather than through the chain of contractors, is employed for shelf items such as ball bearings and valves. To employ Method D for this type of product would mean that the manufacturer would be overburdened with a tremendous number of warrants, each for a trifling amount of material. Method B is used in the Controlled Materials Plan in that raw material producers are required to report on their shipments. And finally Method A whereby independent estimates of materials requirements are made by appropriate governmental agencies will be necessary to anticipate shortages of materials not now closely controlled.
No matter which system or combination of systems is adopted, changes and adjustments will have to be made so long as the munitions output of the United States continues to increase, so long as the strategic situation continues to change and so long as improvements can be made in the light of experience.
Many of the difficulties experienced in material distribution are the direct result of placing too much reliance on the easy way to correct a bad situation. In the past the easy way has been to apply for a higher priority rating. The theory and practice now is to assign ratings only in accordance with the urgency of the end product or end use and not on the basis of the rating that is necessary to obtain materials. The Army and the Navy and all of the subcontractors as well as private industry have been guilty of seeking the easiest way. Evidence of this condition may be found in the machine tool situation where one company has a backlog of twenty months while another manufacturer producing similar tools has a backlog of only one month. Instead of asking for a higher rating in order to get better delivery, the purchaser should shop around and endeavor to locate the manufacturer with a one-month backlog. Further indications of the lazy way are found in a case where a manufacturer has built facilities to do the job which is now being done by subcontractors. Not only are the subcontractors thrown out of work, but more serious, their facilities and tools and machinery are all duplicated. This duplication requires materials. Evidence of another type of abuse of the priority system is the manufacturer who applies for a higher priority rating to get an essential part or material when the goods are available across the street in frozen inventories. Resourcefulness will eliminate the need for higher ratings and do much toward simplifying the tremendous job. After a reasonable search for relief has been made, an appeal can be made to the Navy Department where the case for a higher rating will be handled by the Army and Navy Munitions Board. But even there the policy is to investigate all other expedients before granting a higher rating.
Material distribution will be a problem of major magnitude for the duration of the war. A knowledge of the many ramifications should do much toward alleviating the problem.
The Secretary of the Navy has said “This is a war of supply.” Supply means materials and products containing materials. Only through adequately controlling the distribution of materials can an optimum of supply be obtained.