Document 1g42L2wYKJXpnJ68jyE7dzeEo

Wilmington, SiUnri, December 11, 1920. Copy to lir. Irenes duPont.Pres. 20 - 3X3CUTI7E COldaHHB THOM - V, V. PlCOED, 7101 SUESXDKHZ* 2 s \ . ' Ping AID VAR5IS5 B0317338 * X attach report froa Committee referred, to in eommunioatlon Ho* 4214 to the Sreontlve Committee on the same general subjeot froa whloh report it will he noted that the Coaalttee haa worked out epeolflo plans and reoommendatlaas whloh they believe will result in turning the tide froa loss to profit* fhere are a few statements whloh X believe are open to question* 4t least as a natter of interpretation* as fer instance paragraph numbered 5 at the bottom of page . In whloh it states that the oontrol of the business shall be by aeans of a counsel of three aeahers* 4s this would be aa organisation innovation* X assume the proper interpretation is that the eounsel would be in oontrol of the business in the sense only of administering ^ whatever general plan of operation was approved by the heads of the departmente In volved* namely* Purchasing* Sales,Production and Servlee* . However, the presentation eeema to me an exeellant one, and the idea aa praotloal as any whloh has so far been evolved, end I am inollned to reoomaend that the Committee disouse this report aa a broad propoeition and authorise the various department heads involved to approve it with such modifications as it may stem wise to said department heads to make* Shis report is sent In under pink oovar in view of the faot that the ohange, if made* ahould be operative January 1st* would involve many considerations which should be deoiled before that time* c 3m z> LLI a 1 2 s 3 i I 5 .1 3 & 3$ LHW 0010393 N50766 December 10, 1930a pamiwlon hom the HAOlfc MUSEUM S LIBRARY, BO, 36*), VWItnltvon. DM, HR. C. 1. MEADE, VICE PRESIDESI MR. F. V. PICKARD, VICE PRESIDES! MR. E. S. CARPESTSR, VICE PRESIDES! A PLAS TO KATE 10$ OS OCR PiISI AKD VIRSISa SET SALES Offlolal forecast #4-1 for the paint and varnish business, twelve months September SO, 1980 to September 30, 1931, Is as follow** Gross Sales . Freight A Delivery ' Selling Expense Kill Cost Adsinistrative let Reoelpte lid Deosmbex Slet write-down Final Set Reoelpte 16,118,016 338.368 847.368 4,057,716 313,185 844,651 178,803 483,364 ' 1 previous foreoast showed approximately a 1500,000 lose exclueire of any write-downs, but that foraoast has been superseded by tha abort. Unofficially and without portfolio the undersigned hare sat together on sewer*1 occasions arid worked out a plan to change the above loss into a profit, which is herewith submitted* i "O5 ' The above estimated lose of $483,364. occurs as % follows x $376,608 la the last quarter of this year tiiioh include el a write-down of $178,803 and the balance of $146,746 is lost in |[ the first nine months of 1931* _ .,, 5J As it is too late to make any ehaages for the Z - E= last quarter of this year, we hare made our oaloulatione entirely S.*i. on the twelve months of 1931. On this basis, deducting estimated % . i ,#v O sales of $600,000 for^khit$ lead and oil which ws estimate to be ~ sold by the faint A Varnish Division at *-selling expense of $35,0^0 N50766.01 DUP110134309 Not to be reproduced or published without permission from the H A G L f MUSEUM {. LIBRARY, Box 3630, Wilmington, Delawa, -t ve forecast the paint end. varnish business an follovst groae Sale* Freight A Deliver/ Selling ETpen.ee Mill Cost Administrative Set Beoeipta 350.000 683,300 3,883,331 150,478 435.000 $4,500,000 * ' This proposed profit of $435,000 for 1931 should he cospared with annual losses einoe ve have had the paint and varnish business of fros $300,000 to $500,000 actual lose plus the paper loee of no return on our investment amounting to some $300,000 to $500,000 per year* For instance, in 1919, the Paint and Tarnish Division lost nearly $500,000 actual sash in addition to a loss of 10 expected returns on the Inveetaent or soae $500,000 vhlch aade a lose of income to the Coxpasy of nearly $1,000,003* Ihe foreoast for 1931 lndloatee that there vlU be an aotual loss of s o bs $300,000 (twelve months bated on nine month prediction) in addition to a loss of so return on investment of $6,000,000 vhlch aeans an apparent loss of nearly $600,000. To aoooaplish the transformation of a loee to & profit the oounoil (vhlch for ooovenienoe ve called the informal association of Messrs. 8. B. Voodbrldge, X* 0. Thompson and F. 8* MacGregor) proposes some sew baslo policies am follovs: 1. To abandon the effort to fit a volume of business to a certain scale of expenditure already laid down* 3. To seleot a volume of business for rtvloh there is a minimum amount of uncertainty aa to obtaining it and arrange our expenditures so that this volume of business will give a profit* In other words, to budget our expenditures to fit ths business* 3. Ylthout in any way passing an opinion on the present ' ' `method of carrying on the business -- to plan a soalo of living for the paint and varnish business vhleh can be maintained and not live beyond its inoosie,and to oontrol the business by means of a oounoil, oomposed of the paint sales director, the paint product ion assistant director and a neutral third member* LliW 0010395 DUPl10134310 4 To plaoe the responsibility of profits' end control of the business in the s u m plaoe. 5. To oonoentzate on esstern and southeastern territory economically handled from our plants, and build up a profitable industrial line, in ahioh line the technical knowledge, eiperienoa and resources of the du Pont Company oan be used to advantage. le feel that a policy night be adopted to work e out of our present unsatisfactory position within the nsrt year _ or two on a baala of gradually eliminating expenses and being nC* willing to aooept a lose for 1931, Just such a program has been 8 :. ` x In foroe for almost four years and we feel that the plan submitted n now iethe only one that has any possibility of guaranteeing result^, The theory on which the budget Is based was - <5 3 *cbodled in some figures transmitted by Hr, V, 8, Carpenter, Jr, *o in July 1930 to Messrs. 7, T, Plokard and 0, A, Heads. This letteg2 to showed a calculation of the distribution of the -expenses by per- ID oentages of two of our leading paint competitors, one, three tloss 0 the else of the other and based on 1914 figures and 1917 figures. 5 This distribution was as follows: Tor every lOOjt of net sales, that Is, sales less freight and delivery and all dieoou&ta afid- ^ E allowances, of this amount should be spent for raw materials, | 37^ for all expenses and 10^ remains am profltf The total invest- | BL sent should be equal approximately to the sales. Therefore, .i 10ft c on sales gives 10 on the investment. Taking the item of 37^, we -5 have divided this into three parts e 17 .l for production 16.24 e sales 3.7> administrative To compare our paint and varnish business for 1930 as eotually handled with the same business as handled under this proposed plan, the following table le presented: LHW 0010396 I t rm | A S. 5 3S 1 2 o S DUP110134311 Actual 1920, Wet Sales Freight 4 Delivery Selling Expense Mill Coat Administrative Bet Heoeipta before write down . 5,160,000* 348,300 919,307 4*000,000 203,000 210,507 " ' Under Proncaei Plan let Sales ^ 5.160,000* Freight & Delivery 34S;303 Selling Expense 796,000 Mill Cost .3,440,000 9 Adminstrative 181,500 Bet Receipts 494,200 This indicates that there is a net difference be-J tween the two methods of operation of $704,707*, This is accountedc for by the following discrepancies: Hill CostDifference $560,000 % Sales * 133,307 - Adminstrative* 81.500 2 : 204,.707 nMO With reference to differenoe in the mill cost-witSb considerable added time we oannot determine how the difference should be distributed between the purchases and manufacturing expense but tm oaloul&tions show that neither group could probably account for al$ -s the differenoe and that, therefore, it wag a contribution by both fSr t=o3 the loss in 1930. We feel that purohaaes should be sore closely ti3d up with the general oontrol of the business. ^ We have taken our own past figures, analysed the=^ and made the necessary curtailment in expenses to get within this O budget. To go over e&eh item in detail that was contemplated woulcf1 O take a number of weeks of very exhaustive work in order to prepare $ detailed report, but we feel the indications are such that if our proposed plan is put into effect, the details oan be satisfactorily^ worked out and put into sffeot immediately as they are eaoh dsoidedv' g : rather than hold up everything in order to get a final decision on|j > the plan. J3 a3. - t* * As anexample, ws say take the 8ales Department : TS expenses which afe now running at the sate of $919,307. per year. We allow a budget of $882,300. Examples of the ohangee to aooompl^h thismay be given briefly. i" '* o This assumes that sales prloes were proper; if too low then mill differenoe is too large By that amount, and sales should bear addi tional amount of $704,707 discrepancy.,,.. . DUP110134312 In the expenses of bxanoh offices we find that Boston is about satisfactory* In Chioago, *e oen eliminate tbs position of assistant salts aan&ger, alialasts tbs I&nsas City offios and oontlmie tbs oonsolid&tion of tbs Minneapolis offios with Chicago. Ta would elisin*ta oowpletsly tbs Colunbua and Pittsburgh organizations, and bandit that territory between Philadelphia and Cblaago .off lose* lew York proper and Saw TorkPhlladelpbla-sub and Pbiladelpbia oan all be oonaolldatsd and with t r; '6 co "c tba alinlnatlon of tost expensive personnel and other reductions, nale a saterlal earing* bain offloe expenses ean also bs reduosd '-s. ' considerably, for lnstasoe, in general salea expenes, we( propose to ooabine the Order Bureau and 8torskeeplng Dir is ion and ourtail considerably the expenses of Boles Expense Bureau* Trade Record expense oan be curtailed beoause our paint and varnish business , constitutes only a very s eaII part of the paint and varnish business of the country and, under the oixaumet&noee, we are not cUS <oXs c>c3ca 3s LtoLI s=3 concerned about statietlos shoving the relation of our business to other paint and varnish buelnesses of the country* Speolal o 2 Sales Bureau, Technical Iduc&ttonal Bureau, Technical Bureau General Offios are either abandoned or the work added to Paint and Varnish Sales Division^ In the product ion end, tiilob include e all other E g 1 j| activities except adalnlstrative and sales, we have carefully flgurjl out certain savings riiioh nay be illustrated as folio vet lo oharget from the Cheaioal Departaent as such work oan be taken oare of by 5 ' 2z the Paint and Varnieb Teobnioel Departaent at Gray'* Parry* 3. ^ H la innt ion of Service Departaent and such duties as are needed ^ c * ' * ^ ds transferred to Production^ for example, the funotlone of the Vorke = j ez Supplies Section should be taken oare of by the Purchasing igont* ~ Finished Products Seot ion,work oan ba handled as far am oocplainte -8 1* o are oonoernod by our Technl^pl Departsent and the standardization ol \ - z eto*. oan be'taken over by the `Purohaalng Agent* The Order DUP110134313 Section is to be & snail unit directly attaohed to the sales dlreotor. HI oost xeoords sill go direot fro* the plants to OcSr3> the Accounting Department, and ve have alloved for oost figuring as a part of direot operating expense* Planning Soot ion will be one man attached dlreotlj to the aaaistant director of Pro i *2 duction. Salvage Section vill work on a oocalaelon basis end the Printing Seotion sill hid for buslnesa the same as in outside I i oonoerne* As to the Telfare, Jire Protection, Safety and " Inspection Divisions, ve admit their dasirabilitj but in their "S present fora we cannot afford them in the paint and varnish buaine& S and ve proposer, therefore, to have a very suioh codified eobese - " possibly one man only to handle the work of the four sections* For the administrative item, ve have allowed ' $150,479 &e cospared with $203,000 for 1920. Te immediately al- ** s O3T s lov $72,570 vhlch is the general administrative, comprising Executive Committee, Pinasoe Committee, Segal, 1dminletrative Miscellaneous, eto., beoauee ve foal that the Paint and Tarnish Division in partaking of the general backing of the du Pont . organization and influenoe should participate in ite pro-rata o < > Eo so g share of this executive charge. The balance left in the adminia- tratlve item le made up of such items as - looounting Department Zxpenee which oovers General Division, Production Cost, Accounts Payabls, Accounts Receivable and Sales Analysis* Auditing Department Expense vhlch oovers Audit lag Division and credits and collections* Salary Department vhioh oovers Administrative, Salary, . Payroll and Paymaster Divisions. .. ii o; "2 ; j . Te feel that there is a considerable reduction im possible in the auditing and credits and oolleotlons items but onljS - '* . s moderate economies oan be Expected in the Aooounts Receivable and _ tz Sales Analysis Divisions,especially in the_ltne_of etookkeeping,invoic DUPl10134314 freight on each of the bo m thousands of involoes per month Is ealoulatad for each gallon* This oaa be onltted and a eo-oalled freight pool used, shich to all lntente and purpose a la exsotly _ ae satisfactory and results la some eoonomy of olerloal expenses. = The reason that this freight calculation has been made le due to J the fact that the 139 sheet for the Paint and Tarnish Dir is Ion Is 5 divided into four or fire items* To feel that this division provee i s nothing asthe divisionItemsshoving millcost, etc*, are more or less arbitrarily distributed in spite of an effort to do it ~jj accurately and uhen all is said and done the real anseer lies in j* ' 19 the total*Aooordlngly, wefeel that the139 sheet should oonslst _ of the total items only oovering gross xeoelpta, freight and delivegp CQ aelliag expense, mill cost, administrative and net receipts; auoh detail as may he needed can be oared for by the respeotive 8ales and P_roduotlon Divisions* Tha investsent as of September 30 in the paint s=3 UJ CaZOJ and varnieh business le as foliovet Including 8aleo of ?roduots purchased from Chioago varnish Co* & Investment due to euoh sales but evoludlng Mendel St. Plant Investsent & Haw Materials Investment sold to Tllnt Tarnish & Color forks Cash Receivables Materials * Supplies Tin!shed Product Pin* Produot (Chioago) Deferred Charges | 340,000,00 1.635.083.00 943.780.00 1.393.035.00 66,073.00 104.439.00 TOTIL TOFtma CAPITAL 4,683,398,00 Total Permanent Investment TOTAL XVTE8TMEIT 1.348,737.00 6,031,133,00 According to the experience of the Development Department in the examination of Other companies, the ratio of one " t **> `S to o ne for salee and total liveatsent is proper. Therefore, for DUP110134315 =- >7T?^s. * *r- J3L-- ocx forecasted voluae for 1921,. the total inrestaent should be ,, (4,250,QQQ, Subtracting the total permanent .Investment (which. -.7 %.. Y.`t - > A-V-* '..*. cannot be chasge4appreolably)-of (1,348,737/*we hare ran allowed 1 . - ..*. -r- ^_ *`1 .* - ,t r 5-j a .* !* **. working- oapital of (3,901,373,.as compared with ar present working -- . , , :/ - .^1. : ;V ; '. 5. . '-V.'- >V--.'-,,'r T'^ rVi- <}'Z-ai'' ' . g cap it sil of (4,683,396V Allowing (1,500,000 for oobined hoocunts race It able* and.*caahB as against the present iVsaof, $2,175,083. c- we have. anallewahleamcunt for ooehiael Izventorlee of :.(1#401,373^> ' as against the present item of ^3,403,877V :.fhis seansVtb&t a ` -r ' ' \-;7' * V *. `-v S-'-: -;rV* ../?* ... : >.. . reduotion of materials.and supplies and finished produot must amoun CO to $1,001, :;:v * ' ^ ._ . ' . - V'"* . ` , . .' .*.' '*- . - - * **' * ' . -*'.* *w*.. `K * * V ' 2 - ;* ' ' fThh4is .Maas' thatt)ket' *i canAalt sAo*rVt AoffffeVxAcessasa-.r-aewt- '- - materials of (300,000 but that on the othexhand we have moms (700,000 worth of finished produote whioh'mirt' be.noved somehow; ff 32m *s whether by aaotion sale or tber*iae:re are'not yet prepared to state, as a good deal of it is obsolete and closed out brands,- . U32i 3CO S Tor the above stated.reasons we cannot fore cast a 10^ return on the investment too but wpuld suggest at least o3< six months to get the isreetaent down to the foreoasted .asount J so that we may expect a 10 return on the paint and ramlehJlTeit<^ . . .. .- .. ... a- aent in the last half of 1931,; .. ... Owing to this iaveetnent situation it is ad- S 1 isable that this proposed plan be put in foroe as soon as posel- 2L ble if It is at all favored, and for that reason we haws not taken5^o the tlae to supply the detailed figure-s ahich. the c.cpuncile pooseei^*e -t , J= backing up the figures in this report..' ileo the poee'lbllity of = ' . .. 3 getting all wrltd-dowas and ohargod off iteas into our 1930 books ^ so ae to hare 1931 start onra fair baaia le i^poxtaaW-. - , . v t . a. ?. 8. MacGregor "------------ 0 " 1& *s DUP110134316