Physical and Financial Resources

Progress towards measurement of each individual business resources needed differ. Also, objectives in this area do not concern managers throughout the enterprise as do the objectives in all other areas: the planning for an adequate supply of physical and financial resources is primarily top management’s job; the carrying out of these plans is mainly the job of functional specialists.

Physical and financial resources are too important to be left out of consideration. Any business handling physical goods must be able to obtain physical resources, must be sure of its supply. Physical facilities – plants, machines, offices are needed. And every business needs financial resources. In a life insurance company this may be called “investment management,” and it may be more important even than marketing or innovation. For a toy wholesaler the problem may simply be one of obtaining a seasonal line of credit. Neither however can operate unless assured of the financial resources it needs. To set objectives without planning for the money needed to make operations possible is like putting the roast in the oven without turning on the flame. At present objectives for physical resources, physical facilities and supply of capital are only too often taken as “crash decisions” rather than as carefully prepared policies.

One large railroad company spends a lot of time and large amounts of money on tariff forecasts. But a decision to spend ten million dollars on new equipment was taken in a board meeting without a single figure to show what return the investment would bring or why it was necessary. What convinced the board was the treasurer’s assurance that he could easily raise the money at low interest rates.

A notable exception in respect to physical resources is the long range forest building policy of Crown-Zellerbach, the West Coast pulp and paper manufacturer. Its aim is to make sure that the company can stay in business by providing the timber supply it will need in the future. Since it takes fifty years or more to grow a mature tree, replacements of cut trees involves investing today capital that will not pay off for a number of years.. And since the company expects the trend of pulp and paper consumption to continue to increase sharply, mere replacement is not enough. For every tree cut today, two are being planted to become available in fifty years.

Few companies face a supply problem of Crown-Zellerbach’s proportions and those that do, usually realize its importance. All major oil companies work on the finding and exploration of the new oil wells. The large steel companies, too, have begun to make the search for new iron-ore reserves a systematic, planned activity. But the typical business does not worry enough about tomorrow’s supply of physical resources. Few even of the big retailers have for instance, anything comparable to the planned and systematic development of “sources” that is so important an activity in Sears, Roebuck. And when the Ford Company announced a few years ago that it would systematically build up suppliers for its new West Coast assembly plants, the purchasing agent of a big manufacturing company considered this a “radical innovation”. Any manufacturer, wholesaler, retailer, public utility or transportation business needs to think though the problem of its physical resources, and spell out basic decisions.

Whatever the decision, objectives should aim at providing the physical supplies needed to attain the goals set for market standing and innovation.

Equally important is good facilities planning. And it is even rarer. Few industrial companies know when to stop patching up an old plant and start building a new one, when to replace machines and tools, when to build a new office building. The costs of using obsolete facilities are usually hidden. Indeed, on the books the obsolete plant or machine may look very profitable; for it has been written down to zero so that it looks as if running it involved no cost at all. Most managers know, of course, that this is pure fallacy; but it is not easy to free completely from the spell of arithmetical sleight of hand.