Specialized Areas Of Production
( Originally Published 1939 )
Specialized machine production usually is most advantageous in large plants. The manufacture of many articles formerly produced in almost every locality has now become highly concentrated in a few favorable areas, usually because of accessibility to supplies of raw materials or skilled labor. More recently, it is true, the development of motor-truck transportation and electric power has freed industries from their dependence on railroads and nearby coal supplies. Together with the westward movement of the population, these developments have brought about a wider dispersion of manufacturing plants, particularly among industries making the lighter kinds of simple products for home consumption.
But in many industries concentration in a particular area persists-sometimes through inertia-long after the original reason for it has disappeared. Clock and watch manufacture, for example, is still concentrated in Connecticut and Massachusetts, the original centers of production. New York alone produces 70 per cent of all women's and children's clothing, while over half of men's wear comes from New York and Pennsylvania. Three states account for over 78 per cent of all carpet and rug production, four for 80 per cent of hat manufacture, while one state, New York, produces 87 per cent of all fur goods.
Among many of the new fabricated products there is also a high degree of geographic concentration. Michigan manufactures more than half of the automobiles and Ohio over two-thirds of the rubber tires. Three states account for over half of the radios and phonographs, three others for half of the refrigerators, and four states for 83 per cent of household washing and ironing machines.'
Regional concentration has become pronounced even in agriculture. The intensive study by agricultural colleges and experiment stations of the culture of specific products has encouraged their production within limited areas. Specialized agricultural machinery and the development of refrigeration, storage and transportation have made such concentration possible. Even perishable commodities, like milk and vegetables, which formerly had to be produced near the consuming market, are now being produced in specialized favored areas.
While specialized quantity production in highly concentrated areas has resulted in lower costs and increased efficiency in production, it has at the same time made distribution more complicated and costly. Concentration of production requires the transportation of raw materials to producing centers and of finished products back to dispersed and distant markets. This transfer takes time, requires intermediate handling and financing, and involves risks and costs not present in simpler types of economy.
Another distributive cost comes from the concentration of population in the producing centers. High urban land values and rents, excessive terminal and delivery costs, the very congestion of living and working conditions, magnify the difficulties and costs of distribution-not only in supplying raw materials to the specialized factories of the city and delivering their finished products, but in supplying the necessities of life to the population.
Factories Displace Homes as Producing Units
Distribution-as well as factory production-bulks larger today also because so many things that used to be done at home are now done in factories. Spinning and weaving are no longer carried on in the home. The ready-made clothing industry has largely taken the place of home sewing. Even canning and preserving fruits and vegetables and baking bread, cakes and pies, which were a normal and necessary part of the housewife's duty a generation ago, have now been largely transferred from the home to the factory.
All these things can now be done in the factory more efficiently and more cheaply than in the household. But this change has created new problems and new risks in distribution. Instead of selling the housewife staples like flour and sugar to be processed in the home into bread and pastry, or standard piece-goods to be manufactured into household goods and dresses, the retail distributor today must carry in his stock a wide variety of finished products from which the housewife can make her selection. Most of these products formerly produced in the home must be sold in small quantities, for they are perishable either because of actual physical deterioration or of rapid style obsolescence. The risks and costs of distributing them are far greater than those of merchandising the staples the family used to buy. As the commercial producer has expanded his function, so the distributor has had to assume new responsibilities. Standardized goods must be sold in large quantities, but in small units, to millions of consumers. With the growth of city populations and the crowding of families into smaller and smaller apartments with little or no storage space, the packaging of foodstuffs and other commodities has become a new and important phase of distribution.
The emphasis on the hygienic preparation of food has contributed still further to the success of the packaging industry. Every kitchen cupboard, however small, is today stocked with cartons of rice, sugar, coffee, and macaroni elaborately encased in air-proof wrappings to preserve freshness and flavor, and each likely to weigh a pound or less. Beside the paper cartons stand a row of canned goods-for the same reasons.
The improvement of refrigerating methods has been responsible for other changes in the marketing of foodstuffs. California fruits and vegetables now travel across the continent to eastern markets at all seasons of the year. Refrigerated ships bring fruits from South America to New York in January. Fresh meat available every day has become such a commonplace that nobody marvels at it, although the steer is raised hundreds and perhaps thousands of miles from the dinner table on which the roast appears. The consumer now demands variety in his food, and the retailer must furnish out-of-season goods or go out of business. Needless to say, the merchant's tasks and risks are correspondingly increased.
Increased Selling Activities and Sales Pioneering
Along with a rising standard of living and the development of mass production, the creation of demand-selling the consumer-has become an increasingly important factor in distribution. The producer must persuade the consumer that his goods are necessary and important. The consumer, ready enough to be convinced so far as his means allow, has steadily improved his standard of living. The burdens of the housewife have been lightened by ready-to-wear clothes and ready-to-serve foods which supply her family with greater variety and quantity than she could possibly have provided by her own efforts. But she has had to be informed about these new products before she was ready to buy them.
Unless we consider not only the volume but the nature of these new things, any true conception of modern distribution becomes impossible„ They are things which people want, but it does not follow that they are things which the consuming public has demanded on its own initiative. Nor does it follow that producers have produced merely what they wanted to produce and then cajoled the consuming public into buying them. The automobile, moving pictures, radio, electric appliances, modern heating and plumbing--these things were not only beyond the reach of the masses in 1870 but beyond anybody's reach. There is little question today that they supply a demand; but no one could be absolutely certain in advance just what the demand would ultimately be.
Somebody had to guess. Somebody had to use imagination. Somebody had to back up this imagination with scientific research, not merely to discover just what would be wanted, but how, if possible, the wants could be supplied. The task of distributors, therefore, is not merely to fill an existing demand as in the case of bread or shoes or soap, but to create new demands for new products. It is a process which is necessarily costly and necessarily accompanied by experiments which do not succeed, by efforts which do not materialize, and even by the temporary production and distribution of much which upon more mature thought we wonder why we ever bought.
But not all costly advertising and promotion can be defended on the grounds that it is necessary to educate the consumer to new products. The consumer needs no education as to the qualities of cigarettes, toothpaste, canned goods, gasoline, and a multitude of other standard commodities. Such products he would buy, whether urged to do so or not, which means that the money spent in promoting their sale must be charged off as one of the costs of competition. When it takes this form, however, competition in distribution is often likely to result in higher, rather than lower, costs and prices.
The apparent inefficiency and wastefulness in distributive operations is due in part to the multitude of small units and the over-crowding of the field in recent years. Because it is so easy and takes so little capital to get started, distribution, like agriculture, has become a residual occupation. When workers are forced out of highly organized industry through incompetence, old age, or by the introduction of labor-saving machinery, they may turn to house to-house canvassing or operating a roadside stand or a gasoline station or-at their most abject stages-to passing out advertising cards or carrying a sandwich board. Insofar as this labor on the average is less efficient and less productive than that engaged in the large-scale and more highly organized occupations, it adds to the wastefulness of distribution.
4. OPPORTUNITIES AND HANDICAPS
Because of its expanding role distribution has taken an increasingly large portion of the consumer's dollar over the past half century. But the divergent trends between production and distribution costs do not in themselves prove that distribution costs are too high. That this is sometimes true, however, is suggested by the subsequent chapters of this book.
To lower these costs is a great challenge to American ingenuity and courage. The effort to reduce the cost and increase the efficiency of distribution cannot be compared with the amount of effort that has gone into production. But the opportunity for cost reduction in distribution is great. The spread between cost of production and final selling price to the consumer of most commodities is larger than the total cost of production. A correspondingly larger area exists, therefore, in which possible economies may be sought.
While the potentialities of cost reduction in distribution may possibly be greater than in production, the difficulties to be surmounted are undoubtedly greater. Mechanization is an example. The processes of manufacture are far more susceptible to machine technique than those of selling. Shoes today are made with a mini-mum of hand labor but it is difficult to imagine mechanical de-vices supplanting shoe salesmen without a revolutionary change in the attitude of the customer.
Furthermore, the production manager can standardize and regulate both the use of materials and the conduct of labor far more exactly than can the executive of a retail store. The flow of work and the functions of labor can be specialized to a far greater degree in the factory than behind and over the counter. Because the retail salesman is dealing not with materials, as is the factory worker, but with men and women, each situation is a new one, and difficult to plan in advance.
Another difficulty is often more apparent than real-the displacement of labor. A lowering of the cost of distribution ordinarily would involve a reduction in the amount of labor required to distribute a given quantity of goods. But this should not mean more than temporary unemployment. Lower prices resulting from lower operating costs would release purchasing power and expand the market for goods, and this in turn would lead to greater production and increased employment.
Throughout this book it has been assumed that the important purpose of the various elements of the economic system-distributors, producers, capital, and labor-is not to serve their own individual ends except as a means of getting things to people and satisfying human wants. From this standpoint, lower prices, which mean increased purchasing power for the consumer, are the major objective. Obviously these lower prices must be achieved by improved methods and lower costs-not by cutting wages. There must be a constant introduction of better ways of producing and distributing more and more of the things demanded by consumers. The preservation of the status of any particular group of distributors is of secondary importance.
In the chapters that follow an attempt is made to picture the essential elements of the problem of distribution and its costs, which present such a challenge to American business genius, and to indicate some of the ways in which an attack on the problem can best be made.