My Life and Work by Henry Ford (free novel 24 .TXT) 📕

degrees until they do move. If he is wise, instead of nibbling at the price and encouraging in his customers the hope of even lower prices, he takes a great big bite out of the price and gets the stuff out of his place. Everyone takes a loss on some proposition of sales. The common hope is that after the loss there may be a big profit to make up for the loss. That is usually a delusion. The profit out of which the loss has to be taken must be found in the business preceding the cut. Any one who was foolish enough to regard the high profits of the boom period as permanent profits got into financial trouble when the drop came. However, there is a belief, and a very strong one, that business consists of a series of profits and losses, and good business is one in which the profits exceed the losses.

Therefore some men reason that the best price to sell at is the highest price which may be had. That is supposed to be good business practice.

Is it? We have not found it so.

 

We have found in buying materials that it is not worth while to buy for 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