¡. /M erest on book lass
O ld m achine- in use
A nnual p e r c e n t r e t u r n on investm ent =100
U n its o f P roduction
< ' ' >J A r e a o f P r o f its
I In te re st on adc/edinvestme/
I 'tr .- n m —y\ 'A d d ed investm ent-
! ! » !!!!!!& ' / ' /B o o klo ss
MtjirriiM f I i ! Interest on book loss
O ld m ach in e
in use ; Depreciation Reserve
A n n u al p e r c e n t r e t u r n on i n v e s tm e n t =100 U nits o f P ro d u c tio n
F ig . 6— H o w th e a n n u a l p e r c e n ta g e retu rn on th e in v e s tm e n t, fo r th e case o f F ig . 5, m a y b e p o rtra y ed F ig . 7— I llu s tr a tin g th e situ a tio n w h e r e th e r e p la c e
m e n t m a c h in e is m o r e efficien t an d m o r e c o stly
plus interest on the book loss and added investm ent.
W h en the new m achine costs less than the old, the reduction, distributed over its useful life, is an added profit fo r the m achine, in addition to the profit from reduced depreciation charge. T h e interest on the reduc
tion is also an added profit.
T h ere are other cases which can be handled sim ilarly.
F o r exam ple, w here a m achine such as a conveyor is substituted fo r hand labor, the picture is exactly th at of Fig. 7 except th a t there can be no charge fo r book loss n o r fo r interest on the book loss (unless shovels and w heel-barrow s are to be w ritten o ff). W h en the cost of operation goes up, not thro u g h any fault of the machine, but because the N R A has increased raw m aterial and labor costs, th e useful life rem ains the sam e because an identical m achine would be subject to the same cost in c re a se s; b u t m odernization becomes
D E T E R M IN IN G R E T U R N O N IN V E S T M E N T IN M O D E R N IZ A T IO N
(N o te : AH costs s h o u ld b e th e a v era g e u n it costs that m ay b e e x p e c te d o v e r th e u s e fu l lif e o f th e m a ch in e )
S a v in g s p e r U n it, S L o sses p er U n it, $ (a ) S avin g in d irect la b o r ( I ) B o o k lo ss on o ld m i-( b ) S avin g in su p e r v is io n * c h in e f
( c ) S a v in g in p o w e r or fu e l* (m ) In cr ea se in su p e r v isio n * ( d ) S a v in g in m a in ten a n ce* ( n ) In cr ea se in p o w e r or fu e l*
( e ) S avin g in d e p r e c ia tio n * ( o ) In cr ea se in m a in ten a n ce*
( / ) S avin g in in su r a n c e an d ( p ) In cr ea se in d ep recia tio n *
taxes* ( q ) In cr ea se in in su ra n ce and
(g ) R e d u c tio n in in v e s tm e n t* ! taxes*
( h ) In te r e st o n r e d u c tio n in (r ) In cr ea se in in v e stm e n t* ! in v e s tm e n t* ! ( s ) In te r e st on a d d ed in vest-( £ ) R e d u c tio n in sp o ila g e m e n t* t
( j ) In cr ea se in v a lu e th r o u g h ( t ) In te r e st on b o o k Io s st h ig h e r q u a lity
( k ) S a v in g in raw m a te r ia l
Su m o f sa v in g s = S Sum o f lo s s e s — L W h en a ll sa v in g s an d lo s s e s h a v e b e e n co m p u te d an d to ta led , th e n :
__________ I 0 0 ( S — L ) U K ~ C + (— 7i + I + s + D U E
w h e r e R is th e a n n u a l p e r c e n ta g e return on the in v e stm e n t in th e n e w m a c h in e ; U is th e n u m b e r o f u n its p r o d u c e d p e r y e a r ; C is th e co st o f th e n e w m a c h in e ; and E is th e e c o n o m ic o r u se fu l l i f e in years.
•M a y a p p e a r e ith e r as a saving’ o r as a loss.
t P e r u n it o v e r th e u se fu l life o f th e m a c h in e; see Fig-. 7.
even m ore attractiv e because of the proportionately la rg e r potential savings to be made. A new m achine u n d er these circum stances will be m ore costly, but its savings in term s of dollars, will be larger.
T h e foregoing analysis, because it includes the fac
to r of increasing cost-per-unit, gives a m ore accurate representation of the im provem ent to be effected by a new m achine th an can a fo rm u la which depends on th e cost fo r one p a rticu lar sh o rt period of time. E x cep t graphically, the v ary in g cost-per-unit concept is diffi
cult to handle. H ow ever, if it will be borne in m ind th a t the costs-per-unit re fe rre d to are the average of those anticipated over the useful life o f both the old and the new m achine, the form ula presented above will give the sam e results as the graphical m ethod which, of course, expresses the same relations.
N ovem ber, 193 3 — Chem ical & M etallurgical Engineering replacem ent been m ade either earlier o r later th a n as show n, the to tal profit fo r the en tire interval would have been slightly reduced.
T h e d ete rm in a tio n of the re tu rn on the new invest
m en t is accom plished sim ilarly. F o r convenience, the book loss in F ig . 6 is show n as a constant charge.
B y com p arin g the added p ro fit area fo r a y ear w ith th e to tal in v estm en t (in clu d in g the in terest a r e a ) , the an n u al re tu rn percentage m ay be calculated.
T h e cases w h ere the new m achine costs either m ore o r less th an the old are sim ilar except th a t the fo rm er involves a n added charge, req u ired to am ortize the a d d ed capital, and the la tte r an added profit. I t m ay n o t be en tirely obvious th a t a m ore expensive m achine req u ire s a n am o rtizatio n charge over and above its increased depreciation, b u t th a t this is th e fa c t will be evident w hen the additional capital is borrow ed fro m an outside source. In this event, it is clear th a t th e new m achine w ould not only have to bear a d ep re
ciation charge th a t w ould replace it, but it w ould also have to c a rry a charge to am ortize the loan, as in F ig . 7. T h e situ atio n is identical w hen the added cap ital com es fro m surplus, fo r then it m u st be re tu rn e d to su rp lu s over the life of the new m achine if th e total p ro fits a re not to be reduced by the change.
I f th e new m achine can do no b e tter th a n re tu rn the add ed investm ent, it is no im provem ent, fo r it would be ta k in g m oney fro m one pocket to p u t it in an other.
F u rth e rm o re , in terest on th e book loss and on the add ed in v estm en t a re charges ag ain st the new m achine.
T h ey a re n o t costs of the business, deductible fo r ta x purp o ses, b u t they are costs of th e m achine in com p a riso n w ith earlier m achines. A gain, the annual p e r
centage re tu rn is d eterm ined by com paring the increased p ro fit w ith the sum of the investm ent and book loss
B ij
»f. Y . S M I T H
t e c h n i c i a n a n d E n g in e e r M a s tic P a r k , L . I., N . Y .
P R O C E S S C O N T R O L i t s P l a c e in
M o d e r n i z a t i o n
n ,
.N T H E S E R E M A R K A B L E T I M E S w hen so m any new notions are being bandied about, it is p leasant to find th a t a new freed o m e x ists to discuss things w ith o u t the fe a r o f being conspicuous o r “eccentric .” T h is freedom even ex ten d s to th e discussion of the m anifold phases of th e g a d g etry th a t is P ro cess C ontrol, an d how these g a d g ets— given a chance— can upset som e of the sentim ental attach m en ts fo r fine old processing trick s th a t have long stood in th e w ay o f a general cost realignm ent. T h ese tim es a re p erh a p s a little u ncom fortable, b u t they a re salu tary , fo r m ost people have q u it try in g to hide the badge o f hum an frailty. “ W h at - w a s-g o o d - enough - f o r - g r a n d f a th e r -is - g o o d -en o u g h -fo r-m e” is n o t such a successful b o ast as it used to be, an d in d u strial R ip V a n W in k les, em erging from th e long h ib ern atio n of th e last fo u r y ears, are finding th a t th e old o utfit m akes th em ju s t a bit ridiculous in 1933. I f they w ake, fo r exam ple, to the belief th a t all is sw eet fra te rn a lism , and th a t u n d e r th e codes they can sit back and un lo ad a d m in istra tiv e re sponsibilities on a w illing g overnm ent, they a re overdue fo r ru d e enlightenm ent. O nce back in th e sw ing, it m ay be p red icted w ith confidence th a t in stead o f b ro th e rs- u n d er-th e-sk in , they w ill find th e ir new com petitors ad ep t in refined cruelties. N ew efficiencies, new accu r
acies, new high levels o f qu ality w ill force th em to ab andon th e ra g s of 1929 in fa v o r of new clothes, new shoes, a k n ife, a w atch, a pocket lig h ter a n d o th er m odern p arap h ern alia. T h e sooner these anachronism s discover to d a y ’s req u irem en ts, th e quicker th ey will be ready fo r tom orrow .
O n the su rface, th e principle of avoiding, in every perm issible w ay, leaving som ething u nnecessarily to chance, seem s to be a harm less and pious so rt o f n otion and y et it is r ife w ith sta rtlin g ly u sefu l possibilities.
P ro cess C ontrol, w hich is th is prin cip le’s m o re usual nam e, has been su b ject to th e u n fo rtu n a te h a b it th a t m any people have of sp littin g th e term . P ro cess, o f course, is a fa m iliar th in g aro u n d alm ost any p la n t in the in d u s try ; b u t C ontrol, to the vast d etrim e n t o f P ro c
ess, has been considered by too m any people as a th in g a p a rt. In too m any m inds th e re is th e fallacy th a t (p ro c e ss) control a p p a ra tu s is “ ju s t a lo t of e x o rb i
ta n tly priced m erchandise belonging to th e class o f expensive lu x u ries . . . ” Y et, to the m en w ho u n d e r
sta n d the skill req u ired to m ain tain equ ilib riu m in a process, such a re m a rk is peevish nonsense. W h e n M easu rem en t and R eg u latio n a re om itted fro m con
sid eratio n along w ith th e stoichiom etry, th e th e rm o d y nam ics and th e m aterials and th e en erg y req u irem en ts of a process, one of the last is c e rtain to g et o u t of balance, a t the cost of tim e, m oney an d som ebody’s prestige. P e rh a p s reprieve m ay com e th ro u g h a m iracle of in g en u ity o f the in stru m e n t m ak ers, b u t it is ab su rd to leave such a rep riev e deliberately to chance.
O n e w o n d ers why, in th e past, it has been so difficult fo r the P ro cess M an an d th e In s tru m e n t M a n to get to g eth er, to th e ir m u tu al benefit. T h e fo rm e r is a con stru ctiv e w o rk er, as distin g u ish ed fro m th e profit- ta k e r and rack eteer of business. H e is in th e business o f p ro d u cin g a com m odity such as salt, shoes, soap o r sox, or som e o th er com m odity in term ed iate betw een such finished states and th e ir raw beginnings. H e h as the problem s of a d m in istra tio n an d m a rk etin g in all th e ir extensions, refinem ents and com plications.
T h e In s tru m e n t M an is also a co n stru ctiv e w o rk e r in the sam e distinctive sense as th e P ro cess M an. H e is in th e business o f co n triv in g an d sy stem atizin g m echanistic devices w hich will increase and refine th e pow er o f th e five h u m an senses in control over m a tte r a n d energy. N ecessarily then, th is involves P ro cess C ontrol. I f a question in the technology of pro cessin g is p u t to him , he is obligated to give it s tric t a tten tio n . S o infinitely larg e a re th e categories o f m a tte r, energy, technology and m easu rem en t w h erein he m u st p e r
fo rm th a t he can n o t an ch o r his policy, his w o rk m an ship and his speech to a com m odity like salt o r soap.
W h e re a s a processor can successfully an ch o r his policies an d suchlike to his com m odity, th e in stru m e n - tician is e x a sp erated to find th a t his policies, w o rk m an
-588 C hem ical & M etallurgical E n gin eerin g— V o l.4 0,N o.ll
sh ip and speech a re ham pered ra th e r th a n helped by problem . C onsequently the resu ltan t linguistic hodge
podge of the In stru m e n t M an is bound to be everything
b oth A ctio n an d W q rd s into th e p rescription. A lte rn a te doses a re prescrib ed w ith the caution th a t im pulsive v ariatio n of such sequence m ay m ake th in g s w orse.
T h e prescrip tio n re a d s : ( 1 ) T im e A llo w an ce; ( 2 ) W o r d s ; ( 3 ) A c tio n ; ( 4 ) M o re W o rd s ; ( 5 ) M o re A c tio n ; and ( 6 ) R esults.
In g re d ie n t ( 1 ) , th e tim e allow ance, is a sacrifice fo r both P ro cess M an and In stru m e n t M an. P ro b ab ly th e P ro cess M an will sacrifice less tim e b u t su ffer g re a te r pain in so doing because in th e p ast he has ra re ly been forced to do such a th in g in a case like th is. T oday, how ever, is to w ard the end of a fam o u s p erio d in h is
to ry and finds th e P ro cess M an noticeably re a d ie r to try things— even tim e allow ances.
In g re d ie n t ( 2 ) should tak e th e fo rm o f a sh o rt pow w ow involving th e in stru m en tician and th e technical and p roduction m en o f th e p rocessing business, w ith special care being tak en to lock o u t th e p u rch asin g an d m a rk e t
in g m en of the business. A lth o u g h th e discussion need be but sh o rt, th e re a re th re e logical stages to it. In the first stage the co n ferees should a rriv e a t intelligibility on shop and technical dialects. I n th e second a m a x i
m um perm issible know ledge o f process o p eratio n should be im p arted to th e in stru m en tician . I n th e th ird th e nam es an d synonym s of devices, th e ir necessarily sim ple principles an d th e ir perm issible v a riatio n s should be im p arted to the technician an d p ro d u ctio n m an.
In g re d ie n t ( 3 ) should be a p a ir o f sim ultaneous an d intensive a n a ly s e s ; by th e in stru m en tician in h is p la c e ; by the technician and p ro d u ctio n m an in th e ir places.
I n th e p ro cesso r’s place, th e re a re a t least tw o jo b s to be done. O n e is to com pile d escrip tio n s o f th e phases o f process w hich have been le ft to g u essw o rk b u t w hich com m on sense says should n o t be. A n o th e r is to d ra g ou t those phases o f process w hich a re re p u te d to be m easu red an d regulated b u t w hich experience show s n o t to be rig h t. In the in stru m e n tic ia n ’s place, the chief ta sk is to tra n sla te fro m a b stra c t term in o lo g y to pro cesso r’s dialect th e d escriptive m a tte r on devices w hich th e o riginal co n feren ce show ed to be p e rtin en t.
F u r th e r w o rk m ay be necessary to cut, trim a n d focus specifications on a device w hose n a tu ra l ra n g e m ay be so w ide th a t the p ro cesso r’s special ran g e gets lost som ew here in th e m iddle. I t is also likely th a t o th er specifications req u ire ex p an sio n w h ere older descrip
tive m a tte r on a device has been p u t into circu latio n p rio r to focus on p re se n t specific p roblem s an d w here, consequently, such d escriptive m a tte r im plies a n e x clusion w hich is not th e case. In som e cases th is in volves m erely a change o f label w ith o u t a lte rin g th e device as, fo r exam ple, chan g in g “ G as A n aly sis” to an equivalence o f “ G as D en sity .” I n o th er cases only a m in o r m odification o f co n stru ctio n m ay be req u ired . P r o b a b l y it has been noted th a t a special fe a tu re of th is A ction o f In g re d ie n t ( 3 ) is a d r a f t on th e T im e A llow ance o f In g re d ie n t ( 1 ) . A tte n tio n is called to th is because, ov er a period of y ears, in stru m en tician s an d processors have helped each o th e r to fo rm a h ab it o f re je c tin g th is tim e facto r. E a c h p a rty has been p rone to tak e it fo r g ra n te d th a t the o th e r has been m ak in g these im p o rta n t re a d ju stm e n ts like th e snap o f a finger, in ru n n in g strid e, d u rin g a n initial c o n fe r
ence. U n fo rtu n a te ly such cannot be th e case.
In g re d ie n t ( 4 ) is an o th e r co n feren ce— this tim e w ith th e p u rch asin g an d m a rk e tin g ends o f th e p ro c e sso r’s business invited. A t th is tim e th e term in o lo g y of both processor an d in stru m en tician should be intelligible enough to th e prev io u s co n ferees fo r m ain tain in g stability of discussion a g a in st irrelev an cies in tro d u ced by the new conferees. M o st likely th e p ro c e sso r’s m a rk etin g specialist fits in congenially a n d h e is also likely to tak e aw ay w ith h im som e valuable new m a terial fo r talk in g points. B u t if th is co n feren ce goes as it should, th e p u rch asin g ag en t w ill find his p re-d ep ressio n style p re tty m uch cram ped. N o body denies th a t th e o p ti
m um “ price, term s, delivery, etc.” a re im p o rtan t. B u t the a d m in istra tio n of a p ro cessin g in d u stry goes so fa r beyond stra ig h t b u y in g an d selling th a t o p tim um “ speci
fications” a re ju s t as im p o rta n t, if n o t m o re so.
T h i s is not a m a tte r of vindictiveness a g ain st the frien d less p u rc h a sin g a g e n t; it is m erely co n sisten t w ith th e fa c t th a t such fu n ctio n s as purch asin g , d isb u rsin g and accounting have been so grossly ex ag g erated by the e ra o f chiselling an d p e rc en tag e-tak in g th a t reflation is upon us w ith o u t full realizatio n of it by all concerned.
I n this p rescrip tio n (u p to th is p o in t) th e prelim in ary h earin g s have been restric te d to o p erato rs, technicians an d in stru m en tician s because these m en have allow ed them selves to be bulldozed an d because, consequently, th e am o u n t by w hich th ey have fallen behind has to be m ade up artificially in o rd e r to re sto re a balance.
In g re d ie n t ( 5 ) , M o re A ctio n follow ing p rev io u s talk a n d action, cannot a t th is tim e be m uch m ore th a n an ex ten sio n o f th e earlier steps. T h e u ltim ate p u rp o se o f action expected of p a rtie s p a rtic ip a tin g u p to th is p o in t is to g et this fu n ctio n of P ro cess C o n tro l a g re a t deal n e a re r to its logical category. I t is n o t precisely know n w h ere P ro cess C ontrol belongs am o n g o th e r fu n ctio n s o f a d m in istra tio n . B u t it is c e rtain ly know n th a t it belongs am ong th e a d m in istra tio n fu n c tio n s ; th a t it positively does n o t belong in crates lying a ro u n d a shipping-receiving ro o m along w ith broom s, cuspidors an d o th e r ingenious devices p u rch ased over th e coun
te r o r th ro u g h p u rc h a se -o rd er fo rm s. P ro cess C ontrol A p p a ra tu s is v ery m uch a tan g ib le p a rt of a skilled pro fessio n al service, th e w o rth of w hich is determ in ab le by d irect ap p raisal o f loss to the business, as a whole, occasioned by serious lapse in th a t service.
T h e fo reg o in g p rescrip tio n has called fo r a lte rn a te in g red ien ts o f ta lk an d action. O f these, ( 2 ) an d ( 3 ) , involving th e in stru m en tician an d th e p ro cesso r’s tech nician and p ro d u ctio n ist, are th e least sp ectacu lar b u t m ost im m ediately u sefu l. T h ese th ree, b ein g ju s tly le ft alone w ith th e ir capabilities and a le rtn ess to th e issues, can show a trem en d o u s am o u n t o f g ro u n d covered w ith rem ark ab ly little consum ption o f tim e allow ance.
V e ry quickly the tw o specialists o f th e p rocessing business can discover p ractical needs fo r d e p a rtin g fro m the s tric t sym bolic sense o f p rescrip tio n . O n e o f the first d e p a rtu re s .will be upon discovery o f a now u n fo rtu n a te w eakness am o n g a p p a ra tu s m ak ers— nam ely, th a t no single m a n u fa c tu re r can p rofitably m ake th e best o f a full v arie ty of devices re q u ire d fo r a w ell- balanced P ro cess C o n tro l system . I n o th er w o rd s, th e sym bolic “ in stru m e n tic ia n ” w ill have to be endow ed w ith five o r six d iffe re n t p erso n alities in o rd e r to cover
Chem ical & M etallurgical E n g in eerin g — V ol.40 ,N o .ll