Our policy is to reduce the price, extend the operations, and improve the article. You will notice that the reduction of price comes first. We have never considered any costs as fixed. Therefore we first reduce the price to a point where we believe more sales will result. Then we go ahead and try to make the price. We do not bother about the costs. The new price forces the costs down. The more usual way is to take the costs and then determine the price, and although that method may be scientific in the narrow sense, it is not scientific in the broad sense, because what earthly use is it to know the cost if it tells you you cannot manufacture at a price at which the article can be sold? But more to the point is the fact that, although one may calculate what a cost is, and of course all of our costs are carefully calculated, no one knows what a cost ought to be. One of the ways of discovering what a cost ought to be is to name a price so low as to force everybody in the place to the highest point of efficiency. The low price makes everybody dig for profits. We make more discoveries concerning manufacturing and selling under this forced method than by any method of leisurely investigation.
The payment of high wages fortunately contributes to the low costs because the men become steadily more efficient on account of being relieved of outside worries. The payment of five dollars a day for an eight-hour day was one of the finest cost-cutting moves we ever made, and the six-dollar day wage is cheaper than the five. How far this will go, we do not know.
We have always made a profit at the prices we have fixed and, just as we have no idea how high wages will go, we also have no idea how low prices will go, but there is no particular use in bothering on that point. The tractor, for instance, was first sold for $750, then at $850, then at $625, and the other day we cut it 37 per cent, to $395. The tractor is not made in connection with the automobiles. No plant is large enough to make two articles. A shop has to be devoted to exactly one product in order to get the real economies.
For most purposes a man with a machine is better than a man without a machine. By the ordering of design of product and of manufacturing process we are able to provide that kind of a machine which most multiplies the power of the hand, and therefore we give to that man a larger role of service, which means that he is entitled to a larger share of comfort.
Keeping that principle in mind we can attack waste with a definite objective. We will not put into our establishment anything that is useless. We will not put up elaborate buildings as monuments to our success. The interest on the investment and the cost of their upkeep only serve to add uselessly to the cost of what is produced—so these monuments of success are apt to end as tombs. A great administration building may be necessary. In me it arouses a suspicion that perhaps there is too much administration. We have never found a need for elaborate administration and would prefer to be advertised by our product than by where we make our product.
The standardization that effects large economies for the consumer results in profits of such gross magnitude to the producer that he can scarcely know what to do with his money. But his effort must be sincere, painstaking, and fearless. Cutting out a half-a-dozen models is not standardizing. It may be, and usually is, only the limiting of business, for if one is selling on the ordinary basis of profit—that is, on the basis of taking as much money away from the consumer as he will give up—then surely the consumer ought to have a wide range of choice.
Standardization, then, is the final stage of the process. We start with consumer, work back through the design, and finally arrive at manufacturing. The manufacturing becomes a means to the end of service.
It is important to bear this order in mind. As yet, the order is not thoroughly understood. The price relation is not understood. The notion persists that prices ought to be kept up. On the contrary, good business—large consumption—depends on their going down.
And here is another point. The service must be the best you can give. It is considered good manufacturing practice, and not bad ethics, occasionally to change designs so that old models will become obsolete and new ones will have to be bought either because repair parts for the old cannot be had, or because the new model offers a new sales argument which can be used to persuade a consumer to scrap what he has and buy something new. We have been told that this is good business, that it is clever business, that the object of business ought to be to get people to buy frequently and that it is bad business to try to make anything that will last forever, because when once a man is sold he will not buy again.
Our principle of business is precisely to the contrary. We cannot conceive how to serve the consumer unless we make for him something that, as far as we can provide, will last forever. We want to construct some kind of a machine that will last forever. It does not please us to have a buyer’s car wear out or become obsolete. We want the man who buys one of our products never to have to buy another. We never make an improvement that renders any previous model obsolete. The parts of a specific model are not only interchangeable with all other cars of that model, but they are interchangeable with similar parts on all the cars that we have turned out. You can take a car of ten years ago and, buying to-day’s parts, make it with very little expense into a car of to-day. Having these objectives the costs always come down under pressure. And since we have the firm policy of steady price reduction, there is always pressure. Sometimes it is just harder!
*** My effort is in the direction of simplicity. People in general have so little and it costs so much to buy even the barest necessities (let alone that share of the luxuries to which I think everyone is entitled) because nearly everything that we make is much more complex than it needs to be. Our clothing, our food, our household furnishings—all could be much simpler than they now are and at the same time be better looking. Things in past ages were made in certain ways and makers since then have just followed.
I do not mean that we should adopt freak styles. There is no necessity for that Clothing need not be a bag with a hole cut in it. That might be easy to make but it would be inconvenient to wear. A blanket does not require much tailoring, but none of us could get much work done if we went around Indian-fashion in blankets. Real simplicity means that which gives the very best service and is the most convenient in use. The trouble with drastic reforms is they always insist that a man be made over in order to use certain designed articles. I think that dress reform for women—which seems to mean ugly clothes—must always originate with plain women who want to make everyone else look plain. That is not the right process. Start with an article that suits and then study to find some way of eliminating the entirely useless parts. This applies to everything—a shoe, a dress, a house, a piece of machinery, a railroad, a steamship, an airplane. As we cut out useless parts and simplify necessary ones we also cut down the cost of making. This is simple logic, but oddly enough the ordinary process starts with a cheapening of the manufacturing instead of with a simplifying of the article. The start ought to be with the article. First we ought to find whether it is as well made as it should be—does it give the best possible service? Then—are the materials the best or merely the most expensive? Then—can its complexity and weight be cut down? And so on. There is no more sense in having extra weight in an article than there is in the cockade on a coachman’s hat. In fact, there is not as much. For the cockade may help the coachman to identify his hat while the extra weight means only a waste of strength.
*** The use of the word “standardizing” is very apt to lead one into trouble, for it implies a certain freezing of design and method and usually works out so that the manufacturer selects whatever article he can the most easily make and sell at the highest profit. The public is not considered either in the design or in the price. The thought behind most standardization is to be able to make a larger profit. The result is that with the economies which are inevitable if you make only one thing, a larger and larger profit is continually being had by the manufacturer. His output also becomes larger—his facilities produce more—and before he knows it his markets are overflowing with goods which will not sell. These goods would sell if the manufacturer would take a lower price for them. There is always buying power present—but that buying power will not always respond to reductions in price. If an article has been sold at too high a price and then, because of stagnant business, the price is suddenly cut, the response is sometimes most disappointing. And for a very good reason. The public is wary. It thinks that the price-cut is a fake and it sits around waiting for a real cut. We saw much of that last year. If, on the contrary, the economies of making are transferred at once to the price and if it is well known that such is the policy of the manufacturer, the public will have confidence in him and will respond. They will trust him to give honest value. So standardization may seem bad business unless it carries with it the plan of constantly reducing the price at which the article is sold. And the price has to be reduced (this is very important) because of the manufacturing economies that have come about and not because the falling demand by the public indicates that it is not satisfied with the price. The public should always be wondering how it is possible to give so much for the money.