Breakneck demobilization, a crash, and lessons learned by purchasing
By Jim Morgan -- Purchasing, 11/18/1999
Demobilization at the end of World War I was not a pretty thing. Almost overnight, the country jumped from an all-out war economy to one trying to turn itself back into a civilian mode. And as the country tried to shift gears at breakneck speed it brought on one of the sharpest crashes since the mid-1880s.With the end of hostilities, government and industry found themselves with huge stocks of materials and products for which there was no longer a substantial market. The war was over and with its end the need for many goods and materials were gone. On the other hand, a fair amount of deferred demand had built up over the war period.
The full impact of the dislocations created by demobilization were not fully apparent until 1920. Still, even by the early months of 1919 the signs of dislocation were showing. On the positive side, food prices had begun to weaken, along with a handful of other consumer prices. Less optimistic signs were showing up in demand. Perhaps the worst case of outright inventory dislocations showed up in copper where the federal government alone was staring at a war-accumulated surplus of 800 million pounds of copper. Typically, the Phelps Dodge Co. was forced to reduce its production by 50% from a record high in 1918 of 186 million pounds. All over the country inventory dislocations and switchovers from military production to consumer production resulted in plant shutdowns and fighting men returning from France in search of jobs.
Along with the dislocations in supply came a wave of unrest among the ranks of unionized labor. Claiming they were unable to meet the high cost of living (which by the middle of 1919 had advanced 77% over the 1913 level) more than 4 million unionized workers in various industries went out on strike. Among the most serious of these strikes were those called by 300,000 steelworkers, which lasted from September 1919 to to January 1920 and one called by 450,000 bituminous coal miners, which lasted from November 1919 to January 1920.
Purchasing agents often were finding themselves in paradoxical positions. In a very short period they had to shift from having to scrounge for materials made scarce by war, and then turn completely around and buy with extreme caution in a falling market. Furthermore, in many companies the state of inventories had gotten completely out of hand in the rush of military mobilization. One purchasing agent at the time, for instance, was reportedly fired for suggesting at a professional association meeting that "no one" in his company, "from the president to his clerk" could give a "rational estimate of sales or inventories" for the next three months.
In another instance, the purchasing agent for a battery manufacturing company was suddenly summoned by his company from a professional society meeting where he had just been elected president. He was needed to deal with a "wild" lead market. The market had "broken," prices were plunging, and the purchasing agent had to cancel all outstanding orders as fast as possible.
In this kind of an economy purchasing agents and specialists began to get their first tastes of the complexities of supply management. For the first time they were simultaneously trying to hedge against shortages and bottlenecks while trying to meet demands of top management to cut inventories. Moreover, they were beginning to think strategically about stockouts and shortages--in terms of using hedging tools and experiments with the idea of organization along the lines of commodity specialization.
This transition period also saw the beginnings of a major movement toward standardization. Purchasing headed the movement with a push toward developing a degree of standardization for commodity specifications. The promotion of standardization through purchasing professional organizations eventually led to the development by the Commerce Dept. of a dictionary of specifications for commodity goods and materials.
On the organizational side the question of centralization vs. decentralization was continuing to be argued. At a number of companies that had developed multi-plant operations during mobilization the idea of centralization took on growing appeal. For the most part, purchasing executives were not looking at centralization as an alternative to traditional decentralization, but rather, in terms of adopting some aspects of decentralization.
By war's end, interest in some aspects of centralization, instead of disappearing, continued to to grow. In addition to previously cited advantages of increasing pricing leverage, use of centralization was being considered for solving complex problems involved in controlling inventories. Rough inventory reporting systems were being developed at some multi-plant operations and at a few companies centralized commodity tracking was being instituted.
The best thing that could be said of the "crash" at the end of World War I was that it was mercifully short. By the end of 1922, the "return to normalcy,"promised by President Warren G. Harding had pretty much taken over the landscape. The dislocations of the war years were over and the nation was looking ahead to a new era of growth and prosperity propelled by the demand for two wildly popular consumer products--automobiles and radios--and the rise of a fledgling air transport industry.
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