INTEREST IN "COST OF DOING BUSINESS" GROWS

Mr. Copeland is at present Director of the Business Research Bureau of the University and Professor of Marketing. He graduated from Bowdoin in 1906, received his A. M. from the University in 1907, and his Ph.D. in 1910. Since 1912 he has been on the teaching staff of the Business School except in 1917-18 when he was in Washington as Executive Secretary of the Commercial Economy Board and the Conservation Division of the War Industry Board.

I am happy to announce that this year the wholesale grocers have shown more interest in our study of the cost of doing business than in any previous year. We have received reports that we can include in our tabulations from 317 wholesale grocers. These firms did a business in 1920 of $616,000,000. In addition we also have reports from twenty-six other firms with sales of $51,000,000 which will not be included in our tabulations because for one reason or another the figures are not strictly comparable. Including this last group, we have received reports this year from firms with an aggregate volume of sales of $667,000,000.

We heartily appreciate the cooperation that we have received from the wholesale grocery trade this year as well as in previous years. In addition to the facts that we have thus gathered for use in the Harvard Business School and in other educational institutions, we also have become acquainted intimately with a good many problems of the trade. At the present time the interest in business education is spreading at a rapid rate throughout the country. A large number of colleges and universities are undertaking to give their students a better training for business. It is just the kind of data that has been furnished by the wholesale grocers that is fundamentally necessary for the proper sort of instruction in these new business courses. Business men sometimes are disposed to criticise our educational institutions as being impractical. In so far as that is true, the fault is fully as much with the business men as with the institutions. Unless the business men are willing to open up and furnish the real facts regarding their businesses, without of course having their used in any way to reveal the identity of the individual concerns, they cannot fairly expect the educational institutions to have the intimate knowledge of business affairs that is essential for thoroughly practical teaching. I can assure you that the cooperation of the wholesale grocery trade in our research work during the last five years has been of tremendous assistance to us in our teaching.

Practical Value Shown

We also have been glad to find that a good many wholesale grocers could make use of the results of this research immediately in the practical, everyday management of their business. The figures on the cost of doing business have been used extensively for purposes of comparison. When a wholesale grocer has put his own figures beside the average for the trade, he frequently has found the exact point at which his expense was too heavy. In some cases it was sales force expense. When his attention was called to that point, further investigation usually proved to him that the reason was not that he was paying too high salaries and commissions, but poor routing of his salesmen or too small average sales per salesmen.

The figures in such summaries as the Bureau has issued merely serve as indicators. They suggest the points to which attention should be given. The burden of the solution of the problem and the decision as to the exact method of meeting any difficulty thus indicated remain with the individual executive. Sometimes we find that a merchant expects that some sort of ready-made system will solve all his troubles. That is impossible. We cannot prescribe ready-made methods that will fit all the circumstances throughout the country. We cannot find any genuine substitute for the individual initiative, imagination, and foresight which always have been essential for business success. The big task is to get real facts and collective experience which the individual merchant can interpret and apply to the management of his business.

We have encountered a number of large wholesale grocers, as well as some small ones, who still say "My business is different". This statement is amusing to one who has seen the inside facts of numerous businesses. Of course, every business is different--in some details. Nevertheless there are many points of similarity which make it worth while for every wholesale grocer to compare his figures with the average figures for the rest of the trade. If the differences are due to real differences in circumstances, well and good. Very often, however, other divergencies that cannot readily be explained are brought out. It seems to me that the statement "My business is different" usually indicates a feeling of smug contentment, of superiority, of satisfaction, and that the merchant who uses it believes that he has nothing more to learn from his fellow merchants.

The annual figures on the cost of doing business have been thoroughly useful during the last five years. I am not certain, however, that with the information now available it is worth while to continue to collect these figures each year. Whether or not that should be done seems to me to be entirely a question for the trade to decide. Be that as it may, I am inclined to believe that the time is now here, or nearly here, when monthly figures on sales, purchases, stocks, and credit conditions would be desirable for the wholesale grocers.

Cost Accounting Important

There are also many complex problems that arise from day to day in the management of a wholesale grocery business concerning which further investigation might be worth while. These include such things as problems of internal operation, perpetual inventories, methods of paying salesmen, cost accounting, and a hundred and one other things. Cost accounting especially is a subject in which a good deal of interest has been shown. In fact, questions of cost accounting were among the first that were presented to the Bureau when it took up its work with the wholesale grocery trade. Before going into the subject of cost accounting, however, it was necessary to develop the standard accounting system which already has been adopted by so many wholesale grocers. The trade may now be prepared for the next step. From such information as we have, however, comparatively little has been done in the way of detailed cost accounting in the wholesale grocery trade. Last year we had reports from one hundred and fifty-nine wholesale grocers. One of the questions that we asked on the schedule was whether sales and expenses were departmentized. We found that there were about twenty-five wholesale grocers out of this number that departmentized their sales. In some cases the sales were departmentized into three departments, in others into sixteen to twenty departments, and by one firm into forty-five departments. There is obviously no standardization of these departmentizing methods, and if any cost accounting is to be undertaken the first step will be to work put a classification of the merchandise and a standardization of departments so that in collecting reports each wholesale grocer will include the same merchandise in each department. Until a substantial number of wholesale grocers have standardized their business in this way, it will be futile to attempt to collect any figures on departmentized sales or expenses.

Out of the reports that we had last year there was only one wholesale grocer who indicated that he was departmentizing his expenses in the manner that is necessary for obtaining the costs of operating each department. To departmentize expenses on this basis, it is necessary to prorate each item of expense to each department. Suppose, for example, that one of the departments is flour. The flour department would have to be charged with its pro rata share of the sales force expense, advertising expense, receiving and handling expense, rent, and so on for each of the other expenses. The basis for prorating would have to be determined after a careful first-hand investigation. Furthermore, there are serious difficulties in the way of prorating expenses in a wholesale grocery business. This is because the largest item of expense are those for sales force and for other salaries. To prorate these expenses properly, it is necessary to estimate the amount of time devoted to the handling and selling of the articles in each department. To make these estimates is a far more hazardous undertaking than cost accounting in a factory, where ordinarily it is possible to keep an exact record of the time spent on each job. This cost accounting may be thoroughly worth while in individual wholesale grocery businesses. I am by no means sure, however, that the trade generally is prepared to install the detailed records that would be necessary to secure practical results. Personally I should not be interested in going any further with a cost accounting investigation unless there was evidently a widespread sentiment in the trade indicating that a substantial number of wholesale grocers would keep the essential detailed accounts, and I have serious doubts on this point.

I had planned to discuss at some length the business outlook. I find so many other things to say that I shall have to forego that. Briefly, however, I am convinced that we definitely turned the corner in business depression several months ago and that the gradual improvement which has begun to occur in several industries is the forerunner of general and widespread improvement in business. The improvement may be slow; it may be spotty; it may be threatened from time to time by political disturbances in Europe and other world influences. Nevertheless American business is throughly sound at heart. In this country there are one hundred and five million people, most of whom are living in an ordinary, normal fashion, and it is these one hundred and five million people who at the same time are consumers and laborers, merchants and producers. They must be fed, and clothed, and entertained. I am not at all pessimistic regarding the ability of the business men of this country to meet the conditions which they face. Whatever assistance or whatever handicaps they may encounter from governmental sources, I thoroughly believe that we will go ahead and that we already are going ahead toward a period of prosperity.

Now is the time, however, when the wholesale grocers and other business men should consider seriously the problem of lessening the severity of fluctuations in business in the future. Unless we learn the obvious lessons of the past eighteen months, two or three years hence we may find ourselves in exactly the same predicament as today. It is not reasonable to expect that we can eliminate all the ups and downs in business. Nevertheless the fluctuations in business conditions due to the faulty working of our business methods and the lack of foresight on the part of merchants and manufacturers can be corrected in part. We have not learned how to do this. That is one of the big problems of the future and one which I thing all the business men of the country should now devote a good deal of attention