If someone asked me the question, “What is the biggest contribution Reserve officers made to the Navy besides their part in actually winning World War II?” I would answer with, “Alerting the Navy to modern administration, management, and business practices.” The contributions they made along these lines will be lasting ones.
During the ten years immediately preceding World War II, the Naval Establishment was operating with a minimum of funds and personnel. So acute was this shortage that there was doubt each year in the early ’30’s as to whether or not the Naval Academy graduating class would be commissioned. The bottom was hit with my own class when in 1933 money was appropriated for commissioning only one-half of the graduates. The small amount of money made available to the Navy was used for the most part in keeping in being a Fleet capable of fighting one all-out battle. Plans at that time did not envision a long drawn-out war. Such was the situation during these critical years.
These conditions were not conducive to business advancement. Because of a shortage of officers, the fulltime services of those available were required to maintain the status quo. This, coupled with a shortage of funds, in the main prevented post-graduate business study and the assignment of officer personnel to study the techniques of successful business enterprises.
The war brought to the Naval Establishment Reserve officers who were experts in all phases of business administration. This vast reservoir of knowledge and experience contributed immeasurably to the Navy’s advancement along all business lines. A few of the important ones which will be discussed in this article are materials handling, organization, purchasing, and inventory control.
Materials Handling
There have been many advancements made in the last few years in expeditious handling of materials. New types of cranes, hoists, and other mechanisms have been developed. The biggest single development, however, has been the introduction of the pallet, the unit load, and the fork lift truck which handles the unit load.
The pallet is usually a square platform ' four feet by four feet which is so constructed as to permit its being raised and lowered by the fork lift truck. The unit load usually consists of material stacked to a height of four feet on the pallet. The type of handling to which the pallet will be subjected, together with the type of material carried on the pallet, are the factors which determine whether or not the load should be strapped to the pallet.
The capability of this innovation to handle larger tonnages with the same number of men is astounding. As an example, it may take twelve men one full day to unload and store a box car of provisions in a warehouse located approximately one hundred and twenty-five feet from the box car. If this same load were palletized, it could easily be unloaded in two hours by one man and a fork lift truck. So successful and timesaving was this innovation of cargo handling that it was even used with success in LST’s on some initial assaults. Fork lift trucks were made standard equipment on all aircrafts carriers and LST’s. They were used with tremendous success in large advance base supply depots, like the Naval Supply Depot, Guam. This Naval Supply Depot, at its peak, was handling over two hundred thousand tons of material per month. Of course, ships cannot be completely pallet loaded, like railroad box cars, because of the curvature of the ship’s sides. However, for most types of material they can be about eighty per cent pallet loaded. Fast loading and unloading of a vessel in effect increases the vessel’s capacity as well as conserving manpower. By spending less time at the ports of loading and discharge, the vessel is able to make more round trips in any given period of time.
When one considers that a box car holds approximately forty tons of material, and that in unloading this car, properly palletized, one man and a fork truck are able to do in two hours the same work which in some cases required twelve men eight hours, it is easy to visualize the great new field which has been opened for savings in manpower. Let us look at the Naval Supply Depot, Guam. This depot handled the equivalent of • five thousand box cars of material monthly, of which over fifty per cent was palletized.
Benefits over and above manpower savings accrued to Guam because of this new system of cargo handling. The most important in my opinion was the ability to re-warehouse material within the depot. The Naval Supply Depot, Guam, was operating while growing at an unprecedented rate—340.000 sq. ft. of covered storage, and 1,440,000 sq. ft. of open storage per month. This fact meant that the space used for all stores in the initial months was not sufficient for even one category of material a few months later. The first sixty warehouses erected had one- third of one warehouse devoted to electronics. Ten months later, electronic material alone filled all sixty of these warehouses, plus fifteen more. Stock had to be shifted continuously to keep up with the new construction and ever increasing volume of supplies arriving. Only a mechanized operation made this possible—it could not have been done manually.
Besides the conventional use of the fork lift truck in handling pallets, unusual circumstances brought forth a number of additional uses. At the time of the landing on Guam there was available to the embryo supply depot (D1 Component, Lion 6) for materials handling one 5-ton caterpillar crane and ten fork lift trucks with pneumatic tires. These fork lift trucks really saved the day. Even though the crane operated twenty-four hours a day, its capacity was always overtaxed because of the number of heavy pieces of equipment which were being landed. The bulk of cargo received in the early phases of this operation was not palletized. Rather, material came in large boxes averaging 300 to 400 lbs. in weight. These boxes, for the most part, were too heavy to be lifted by hand, and could not be rolled off trucks without breakage. The boxes, however, were large enough to rest across the forks of the fork lift trucks, and in this manner they were easily unloaded and stacked in accessible piles.
It is doubtful if the Stock Control Division at N. S. D. Guam realized that it was being assisted by fork lift trucks. To make ready issues of the items required for issue is the basic mission of any supply activity. To attain this objective, proper stock control is a prerequisite. Stock control on a large scale can never be effective and ready issues cannot be made unless, among other things, material is accessible within an area; like materials are located within the same area; and all of this material is so arranged as to permit an accurate and quick count. Too many supply activities and those dependent on these activities for support have learned to their great sorrow that big piles of conglomerate material can be real heartaches. You know that the material is in the pile but you can’t find it. At other times you only think you know it is in the pile—someone beat you to it, forgot to charge it off on the stock cards, and physical count is impossible. Yes, the fork lift truck even helps in stock control.
In addition to the manhours saved by improved materials and handling methods, time, often more important than economy of manhours, is also saved—time to fight and time to increase transport capacity. Conservatively, by means of pallets a depot could load a Task Force in one-tenth of the time which would be required to effect the same loading manually.
Organization
The war clearly demonstrated to the Navy the imperative need of good organization: organization in which the limits of functional responsibility of the component units are clearly defined; organization which assures that all component units work in complete harmony toward a common objective. The Navy quickly reached complete realization of the maxim that capable officers can function effectively under any inadequacy but cannot operate efficiently without a good plan of organization. Not only was it apparent that changes in organization were required, but it was also apparent that plans had to be made for the future of the Navy’s large business operation.
To assist in solving this problem the Bureaus and Offices of the Navy established management engineer divisions. The Secretary established in the Executive Office of the Secretary a Management Engineer’s Office to assist him and all Bureaus and Offices of the Navy Department. Nearly all large shore stations established similar divisions to assist with their local problems. Some of these divisions were called staffs, others planning divisions, etc., but in essence they were all created to assist top- management with problems of business management, including organization.
In order to help the Bureaus and Offices in their initial efforts, the services of a civilian management engineering firm were obtained. This firm made a series of wartime organization studies within the Navy Department.
It is my opinion that the work which has been done, coupled with the planning now in progress, presents the following analogy of organization as used in the Navy to that used in large business enterprises.
There are four major components of organization, viz., top-management organization, operating organization, staff organization, and committee organization.
Top-Management Organization. Like any large enterprise, the Navy must have the organization of top-management clear and fixed. Failure definitely to delineate authority and fix responsibility at this top level will inevitably result in confusion being spread throughout all lower levels of organization within the Naval Establishment. In business enterprises top-management organization is usually divided into three parts: (1) board of directors, (2) general management, (3) divisional management.
The board of directors is in essence a trusteeship. It views the business as a whole and lends its efforts to making improvements which benefit the entire enterprise. The Navy’s board of directors consists of the President of the United States, the President’s Cabinet, and the Joint Chiefs of Staff.
The general management is a group of officials who devote their full effort to the advancement of the business as a whole. General management works within the range of policy established by the board of directors. In the Navy, the Secretary, the Under Secretary, the Assistant Secretary, the Assistant Secretary for Air, the Chief of Naval Operations, and the Administrative Assistant to the Secretary perform the general management duties.
Divisional management is composed of the group of officials who are heads of the divisions or departments into which the business enterprise is divided. These top officials report directly to the general management. In the Navy these officials are the Fleet Commanders, Chiefs of Bureaus, and Chiefs of Offices.
Operating Organization. This is the division of organization into which the Navy is divided to permit effective operation. Primarily this division is made on a regional and functional basis: Naval Districts and technical Commands ashore; fleet, type, and technical unit commands afloat.
Staff Organization. “Staff” organization, as will be described herein, should not be confused with the staff corps of the Navy. “Staff” agencies can be and are headed by any competent officer. When a line officer heads such an agency, he is working in a “staff” capacity as distinguished from an operating capacity. Contrariwise, when staff corps officers head operating units such as medical depots, they are serving in an operating capacity as distinguished from a “staff” capacity.
In the Navy, as with civilian companies, top-management is called upon to study problems and make decisions on matters which can be appropriately handled by Staffs. The Navy is fully aware of difficulties entailed in creating proper “staff” agencies. If the same labors and functions are being performed throughout a number of departments and divisions, an increased price is being paid for specialized knowledge without receipt of the benefits therefrom. On the other hand the greatest care must be exercised to prevent the grouping of unlike functions into a single “staff”. Above all, “Staff” Agencies which are properly functionalized and formed, must be components of the executive organization of an official who is sufficiently high in the top-management level to provide the authority and force necessary to obtain the results desired.
To perform properly some “staff” functions it is necessary to form a central agency and corresponding divisional agencies. As an example, such an arrangement was mandatory to effect the Navy’s inventory control program. Where this type of organization is required, it is imperative that the central agency confine its activity to coordination policies, general procedures, and operational review for compliance. In general, policy making and operations are not good bedfellows. When mixed, one usually will receive an abnormal share of the effort expended at the expense of the other.
Committee Organization. This is perhaps the least understood unit of organization. Undoubtedly this is the reason why it is so often abused. There is no disputing the definite need and use for committee organization. However, to make a committee agency effective, its composition and functions must be as clearly set forth as in any other unit of organization.
Committees, to be used efficiently and effectively, should not be the originators of ideas. Rather they should bring together various viewpoints and arrive at collective judgment on definite plans and propositions which have been submitted to them for consideration and resolution.
For top-management to function with full efficiency by using the principles of organization just discussed, two very important aids must be made available: first, qualified personnel; second, a. workable plan of controls. The Navy has recognized the need of not leaving to fate the task of getting qualified officers in key positions. Provision has been made for proper training and postgraduate study for the further development of qualified officers. Controls in the broad sense have not as yet reached full effectiveness in the Navy; however, the machinery to obtain this desired end has been set in motion. Effective controls permit top-management to rid itself of details and still be assured that the enterprise is functioning properly. Controls are achieved by means of staff agencies or staff agencies working in collaboration with committees. Any good plan of control must embrace the following parts: an objective (what is to be done); a policy (who does what, how, and when); a standard (what is to be acceptable performance); and an evaluation (how well was it done).
Purchasing
Before the War the Navy contracted for its material, for the most part, under the competitive bid system. In most cases award was made to the lowest competent bidder. Contracts were executed on forms which contained many provisos, the legality of which had never been contested in the courts. These contracts were not prepared by experienced commercial lawyers, and actually there was little need for such experienced counsel. For the most part the Navy was doing business with large, reputable concerns. A good many, to whom the Navy’s largest contracts were awarded, were dependent on the Navy for survival. Likewise, the Navy, to keep industries such as shipbuilding and aircraft manufacturing going, was dependent on these same corporations as a source of supply for these categories of material. Under such conditions there was little likelihood of legal testing of contracts. Nearly all points of conflict were settled amicably by negotiation out of court. With the advent of the National Emergency it became apparent that this type of contracting was no longer workable. The list of suppliers mushroomed and the money value of contracts increased to astronomical amounts.
To obtain maximum production for the War effort, factories which previously made a diversity of products were assigned the task of producing only one product. Whole industries were diverted from making their peacetime products to producing implements of war, etc.
With these changing conditions the Navy changed its purchase mechanisms. Means were sought to increase the speed and flexibility in executing contracts; to provide for long range scheduling of production; to develop industrial facilities by new construction or conversion; and to develop statistical controls on the progress of programs.
As the industrial mobilization plans unfolded at the beginning of the War, new and powerful governmental agencies came into existence—agencies such as the War Production Board. Such an agency is a centralized staff agency. (This type of organization is discussed in this article under Organization.) To provide the department counterpart to this central staff agency, the Navy established the Office of Procurement and Material in the Office of the Under Secretary. The Office of Procurement and Material sought to provide coordination and establish procurement policy controls.
In order to change from peace to war procurement, the Navy realized that decentralization was necessary. At the beginning of the emergency, for the most part, the technical Bureaus determined what they wanted to purchase. Actual contracts were prepared on both a centralized and decentralized basis, the Bureau of Supplies and Accounts serving as the centralized agency.
The system of using standard forms and procedures for all types of contracting was completely inadequate. New problems and legal complications arose from many angles. The need for increased legal help was apparent. It was reasoned that it was just as important for lawyers having commercial legal experience to assist in contract preparation as it was to have engineers with good technical experience assist in specifications preparation. Both had specialized experience which was needed to obtain a good finished product at a reasonable price. As a result of this reasoning the Procurement Legal Division was established in the Office of the Under Secretary of the Navy. This Division, by means of representatives within all Bureaus, provided the needed legal assistance.
To meet the increased and urgent need for speed and flexibility, a new system of contracting was evolved. This system of contracting was called negotiation. Many types of negotiated contracts were put into use, the most common of these being fixed price, maximum price, cost plus a fixed fee, incentive, and emergency facilities contracts.
The negotiation system of contracting had many advantages over the competitive bid system. The most important advantages were: (1) It permitted the contracting parties to communicate with each other verbally rather than by means of letters. This in turn brought about better understanding between the contracting parties by permitting each to understand better the problems of the other. (2) It permitted selection of the type of contract which would be of the greatest benefit to both the Government and the contractor. (3) It permitted, after the best type of contract was chosen, the contract itself to be tailored and legally recorded in a manner best to fit the needs of a particular job. This ability is mandatory in all-out war when manufacturers are called upon to produce types of equipment which their plants normally do not manufacture. (4) It permitted the Government to gain the lowest possible price. This is particularly true in a seller’s market or when there is only one bidder.
The wartime method of contracting proved so successful that the Navy has requested legislation which will provide for its continued use in peacetime.
Provided the requested legislation becomes law, the Navy intends to continue executing its negotiated contracts by means of the negotiating team which was so successfully used during the War. The quarterback of this team is the businessman; he is the team member who will make all contacts with the manufacturing and business enterprises with which the Navy deals. After this initial contact the other members of the team, consisting of a lawyer, an engineer, and an accountant, join forces collectively or individually, as required, to provide their specialized knowledge. This is similar to the method of purchasing used by the most successful industries in the United States.
As stated in the introduction, this article in its entirety deals with those fields in which Reserve officers made lasting contributions. It is interesting to note that in the field of purchase, as far as officer personnel were concerned, almost the complete function was developed and operated by Reserve officers.
Inventory Control
The Inventory Control Office (a Staff Agency organization) was established by Secretary of the Navy Forrestal in 1944 with a basic mission of establishing for the Navy the necessary controls which will assure a proper balance between the supply of and the demand for each individual item required for the maintenance, construction, and operation of the Naval Establishment. This in effect means developing the policies and procedures by means of which the Navy will properly determine its requirements by item on a Navy-wide basis. The military commander (Chief of Naval Operations) develops the statement of requirements in broad terms, such as the number and types of- ships required, the number and types of bases required, the number of personnel required, etc. The Bureaus of the Navy Department or their designated Supply Demand Control Points determine the number of individual items required to meet the broad determination of requirements given by the military commander. Without exploring any of the mechanisms which assist in achieving inventory control, let’s consider the import of this objective.
The proper determination of requirements, in my opinion, is the life blood of logistics and of all supply operations. It matters not how efficiently business or industrial plants are performing, if they are dealing with incorrect quantities. Let us assume, for example, that in developing the decision of the Joint Chiefs of Staff to occupy Guam, it is calculated in some division of the Navy Department that one hundred 75-k.w. generators are required to carry out these plans. Now let us further assume that the purchasing officer was able to negotiate a most favorable contract for these generators. In fact, the contract was so favorable that savings of $100 per unit accrued to the Government. These generators are assembled at the Naval Supply Depot, Oakland, and at the proper time are shipped to Guam along with the other thousands of items required for this operation. As the plan develops into reality and the occupation has been accomplished, it is found that only fifty generators were really required. Think what this means: the factory that produced the fifty extra generators was really working for nought. The country’s industrial capacity was already overtaxed, and yet as a result of this improper determination of requirements, the effort of these factory workers and the valuable materials put in these generators were lost.
This is only the beginning of the losses which accrue in a mistake of this kind. The railroads which had insufficient capacity to transport items which were urgently needed were called upon to transport these fifty generators which were not needed. Stevedores of the railroad were called upon to load and unload these generators. Upon arrival of the material in Oakland more handling and recordkeeping were required. And finally, shipping space which was extremely limited was taken up by cargo not required. In summary, all of this means that the ability of the purchasing team to negotiate was negated because purchase, at any price, of something not needed is a bad purchase. During a war, production capacity is always limited, and the combatant who uses this capacity with greatest efficiency attains an advantage. The same applies to transportation—-rail and water. These things are actually weapons; they must be used correctly to obtain an advantage. It matters not how well the packing unit, preservation unit, etc., in the Naval Supply Depot handled these generators. It matters not how efficiently they were handled by the receiving enlisted men at Guam. It does matter that all of their time and energy was lost. They were working on something which never should have been purchased in the first place.
What would have been the effect if the requirements had been determined as twenty-five generators instead of the fifty needed? Almost the same thing as happened in the over-determination case. Costly emergency procurement would have been effected for the twenty-five generators short of requirements. This, besides wasting money, would in turn result in wasted production capacity, wasted manpower, and wasted transportation capacity. Whenever something is expedited, whether it be in a supply depot or a factory, total production is lowered and someone suffers, because if the depot or factory is working at maximum capacity one demand can be satisfied only at the expense of another. Too many emergencies can upset an entire organization. I will never forget seeing this principle demonstrated in the Naval Gun Factory.
In 1938, I was Officer-in-Charge of the Storage Group of the Gun Factory Supply Department. At that time the Supply Department had capacity to fill approximately 1,450 routine requisitions and 50 emergency requisitions daily. Emergency requisitions were filled by the storekeepers immediately, and the material was carried away by the person presenting the requisition. Routine requisitions were filled in the order of arrival, the material being delivered to the requisitioning shop two days later by regular yard delivery trucks. For some unknown reason, the emergency requisitions started to increase, first to 100, then 200, then 300. As the emergency requisitions increased with their resultant interruption in the normal production line basis of filling routine requisitions, the delivery time required for routine requisitions increased. First, to 3 days, then to 4 days, then to 5 days. The vicious cycle was started. The longer it took to fill routine requisitions, the larger became the number of emergencies. The larger the number of emergencies, the longer it took to fill routine requisitions. Before the cycle could be broken by a conference of interested parties, emergency requisitions reached 400 daily, and routine requisitions dropped from 1,450 to 800 daily. Thus, total output was reduced from 1,500 to 1,200 requisitions daily. In this case it took about twice as much effort to process a requisition individually as compared to the normal production line method. The supply department, like any other enterprise, had just so much capacity. Its maximum capacity could be obtained only by uninterrupted production. When one person being supplied gained, someone else lost, and ultimately everyone would lose. No, emergencies are not healthy when they become the routine; and in a war it is conceivable that too many emergencies could result in a lost cause.
Because of the complex intertwining of production control, procurement control, transportation control, manpower control, and their combined effect on the progress of any war, the exact results of failure to obtain maximum efficiency from any one of them is indeterminable. Likewise, that an advantage both military and economic does accrue to the country which uses these controls with the maximum efficiency possible is indisputable. Thus I believe it is axiomatic to say that an efficient Inventory Control system is both an economic and a military necessity. From the standpoint of economy, establishment of the tools necessary for accurate determination of requirements will save many times the cost of establishing such controls. Basically, savings will accrue because the Navy with all of its material identified, cataloged, and centrally controlled will be in a position to determine accurately its material requirements. The Navy will not overbuy through uncertainty as to what it needs or through ignorance of what it has on hand. Costly emergency procurement caused by underestimating requirements will not be necessary. Accurate determination of requirements will allow the Navy to recognize and dispose of material that is surplus to its needs. Similarly, accurate determination of requirements will assure the Navy that it retains all material that is needed. From the military point of view, Inventory Control is a necessity for five reasons: (1) fighting a Fleet necessitates knowing what, how much, and where material is needed; (2) placing orders for items not needed or in excess of needs ties up productive capacity and transportation which are vitally needed to fight a war; (3) lacking precise knowledge of interchangeability denies the fighting front the use of available equipment, spare parts, and supplies (This situation occurs when the requiring activity asks for items under different names and numbers from the ones under which they are carried by the stocking activity); (4) the next war will undoubtedly be a war of scarcity, therefore, the side which makes the most efficient use of its resources will have an immense advantage; (5) not knowing what is available and lacking real usage information makes it impossible to determine accurately War Reserves or mobilization requirements.
In the beginning of this article, I attempted to give credit to the officers of the Naval Reserve who contributed so much to the Navy’s advancement along the lines of modern administration, management, and business practices. In addition to these officers, there are others who contributed greatly to the Navy’s advancement along these lines. They are the executives who served the Navy in civilian capacities. Being fully occupied with their own business affairs, they had to make very substantial financial and personal sacrifices to accept posts in the Navy Department. The Navy was indeed fortunate in acquiring their services and the counsel of their friends who remained in industry but nevertheless took time to work on the Navy’s problems.
It is my belief that the Navy will henceforward be progressive and aggressive concerning business efficiency. To the Navy’s great credit it has been proved that capable officers can function effectively even within inadequate instruments. It also has been proved that to function with full efficiency, advantage must be taken of all modem techniques of business. Now that the course has been charted it is the Navy’s intent not only to utilize the knowledge and information made available by the war but also to make use of future instruments and techniques as they are developed.
Commander Lee, since graduating from the Naval Academy in 1933, has served afloat in all types of combatant vessels and ashore at two Navy Yards. During World War II he served as Supply Officer in Command of the Naval Supply Depot, Guam. At present he is head of the Inventory Control Office in the Office of the Assistant Secretary of the Navy (Material Division.)