The Controlled Materials Plan of World War II

Home , Ferdinand Eberstadt, War Production Board

Organizational Capabilities and U.S. War Production: The Controlled Materials Plan of World War II

Robert Cuff York University

On November2, 1942,Donald Nelson, former vice-president of Sears Roebuck, and chairmanof the U.S. War ProductionBoard (WPB), announcedthe introductionof the ControlledMaterials Plan (CMP), a new systemfor controllingthe distributionof criticalmaterials to war production programs.CMP offereda sophisticatedinstitutional framework for decision makingon materialsallocations, as well as a new mechanismfor materials control. The plan would balancedemand and supplyfor three critical materials:steel, aluminum, and copper; and it wouldensure their availability in quantity,forms, and time requiredby approvedprograms and production schedules. With CMP, Nelson and Washington'sproduction chiefs offered organi?ationalinnovation as a way to lift total manufacturingoutput. A more effectivelyplanned coordination of administrativeunits under WPB supervisionwould guide the distributionof materialsto key metal-using plants,the manufacturingcenter of the nation'swar economy.

CMP Origins

In its broadestcontext, CMP originatedas a consequenceof policy settlementbetween civilian and militaryproduction agencies on a balance between defenserequirements and the nation's total overall production capacity.No amountof distributioncontrol could assure balanced munitions productionat industryand firm levelsgiven unrealisticmilitary demands. Military and civilianofficials had clashedbitterly over this issueboth before and after Pearl Harbor. The "feasibilitydispute," as contemporaries describedit, persisteduntil October1942, when the militaryservices œmally yieldedto civilianplanners and agreedto bring their overall production goalswithin mutually agreeable limits [1, 14, pp. 96-97;21, 23, pp. 220-224]. We can also understandCMP as one in a series of increasingly complexadministrative devices that had developedhaphazardly since 1940 as administratorsresponded to new industrialproblems, including how to manageshortages in an economyin transitionfrom peaceto war [9, 18, 26]. The ProductionRequirements Plan (PRP), introducedon a voluntarybasis at the end of December1941, was the mostcomprehensive of the preceding

103 104 experiments.Under PRP, manufacturersapplied to WPB for blanket prioritieson all criticalmaterials they requiredfor military or essential civilianproduction. PRP consolidatedprior schemesfor metalscontrol. The plan also providedan importantreporting system on inventoriesand consumptionamong metal-using plants. DonaldNelson made PRP mandatoryin the third quarterof 1942. Allocationscame under it in the fourth quarter. Nelson felt obligedto respondto militaryassertions of jurisdictionalauthority. He had to confront growingbusiness criticism of materialshortages. He alsofelt compelledto show President Franklin D. Roosevelt that as WPB chief Nelson himself retainedfull control over the nation'sproduction program. The sudden decisionto make the schememandatory, however, triggered criticism both insideand outsideof Washington.The program'ssubsequent difficulties in administrationand informationprocessing, coupled with growing press reportsof materialsshortages, appeared to justifythe attack[5]. PRP could not ensure coordinationamong specificmilitary end programs or among specificallotments of materials supplies. WPB controlledmaterials allocation; but the militaryservices and otherwartime productionagencies controlled prime contractsand productionprograms. One analystexplained: "It wasentirely possible for Ordnanceto schedule the productionof, say,500 tanksper monthin an arsenal;for the arsenal to applyon PRP for the materialand be given90% of steeland 80% of copper;for this80% of copperto be reducedto 70% by the copperbranch [of WPB], and for somesubcontractor making a vital part to be givenonly 60% of his materialsrequirements" [12]. Debate over allocationmethods for criticalmaterials had preceded PRP's compulsoryintroduction, but it reacheda crescendoduring the late summer months of 1942. Representativesof the Navy Office of Procurementand Material and the Army Servicesof Supplypromoted a warrant plan. Under this schememajor defensecontractors would get warrantsfor criticalmaterials and passthem downto subcontractors,who woulduse them as authorizationto accompanyorders to materialssuppliers. GeneralMotors andformer Ford Motor Companyexecutive Ernest Kanzler submittedproposals. So did the steelindustry. Additional suggestions came from academiceconomists and governmentadministrators, as well as from businessexecutives in WPB'siron and steel,aluminum, and copperbanches. They all supportedmore verticallyintegrated systems of materialscontrol. On September20, 1942, in responseto external and internal pressures,Nelson made FerdinandEberstadt WPB vice chairmanfor program determination,and chairman of the WPB's Requirements Committee.Such action cleared the wayfor a policyreview. A Wall Street lawyer,investment banker, and closeally of militaryleaders as head of the Army/NavyMunitions Board, Eberstadt spearheaded the subsequentdrive to think the materialsproblem through collectively. He alsoplayed a key role in giving the idea of vertical allocationorganizational form. His conceptualpower, incisiveness,and effectiveuse of staff, especiallyhis opennessto bright youngpeople, impressed all thosewho workedwith him to draft a new plan over the next six weeks[4, 5, 22]. 105

Eberstadt canvassedopinion among individual critics. He also establisheda centraldiscussion forum, a Committeeon a Materials Control Plan, in whichindustrial heavyweights could make their case. The seriesof eight meetingshe conductedin late Septemberand early October1942, provided a high-poweredseminar in wartime distribution and control problems. Debate centeredon proposalsfrom the steel and automotive industries.Eberstadt personally favored the Steel BudgetPlan. It focused on resourceconstraints. Steel supplieswould set productionlimits. Auto industryrepresentatives, on the other hand,approached the issuein terms of a prime contractor'sproduction schedule. Eberstadttreated Detroit proposalsskeptically, however. He wonderedhow far he could trust productionexecutives to conservemetal supply. Both plans, despite differenceof emphasis,accepted vertical principles of metalsdistribution, however,and Eberstadtsynthesized them into the final versionof CMP, announcedNovember 2, 1942 [8].

CMP Described

Eberstadtenvisaged CMP organizationas "a pyramid,"he explained at the Novemberpress conference. [See charts.]"We work out from the control,decentralizing through the operation. You can only handlein one organizationat the top the mostgeneral type of questions,"he asserted, "andyou must decentralize your operation just as fastand just as completely as you can, if you want to accomplishyour job within the time available. That objectivehas been kept in mind in workingup the plan." The WPB's RequirementsCommittee stood at the apexof the CMP pyramid.That Committee,under Eberstadt's chairmanship, was composed of major governmentusers of controlledmaterials, the so-calledclaimant agencies.They includedthe War and Navy Departments,the Maritime Commission,the Aircraft SchedulingUnit, the Office of Lend-Lease Administration, the Board of Economic Warfare, and WPB's Office of CivilianSupply. (Otherswere soonadded.) The Committeepassed on the ultimatebalance--of exactly how muchof a controlledmaterial went to each claimant.These agencies were the WPB customers.They had responsibility for collectingbills of materialsfrom prime contractors,who, in turn, obtainedinformation from sub-contractors."Your circle gets constantly wider," Eberstadtnoted, "with the burdenof your work beingdivided." On the demandside of the applicationprocess, prime contractors submitted bills of materials to the Controlled Materials Branches of WPB (iron and steel,aluminum, copper) and to the RequirementsCommittee's staff. Each material branch also containeda miniature Requirements Committeeof commodityspecialists from different claimants. After analysis, statementsof demandwent to a ProgramAdjustment Committee, a working sub-committeeof the RequirementsCommittee. PAC made final recommendations. Then the chairman, in consultation with the RequirementsCommittee, would considerlast minute claimant appeals, before cuttingthe materialspie. 106

FLOW OF REQUIREMENTS FOR DEMAND SECONDARYCONSUMERS tBILLS OFMATERIALS PRIMECONSUMERS t BILLSC•MATERIALS

CLAIMANT AGENCIES

tDEMANO =PROOUCTIONBILLS OFMATERIALS SCHEDULE• x

SUIa•LY ] ADJUSTMENTS

(AOJI.,I•'•S& ALLOTS)

FLOW OF ALLOTMENTS FOR SUPPLY REQUIREMENTSCOMMIt'FEEI • ALLOTMENTSCXJA.qTERLY

CONTROLLEO MATERIALS PROOUCER 107

The supply processthen began. Once in receipt of allocations, claimantspassed tickets to prime contractors,who passedthem to producers'subs. Orderswent to controlledmaterials--the steel, aluminum, and brassmills. A WPB allotmentnumber was "the certified check to get basic controlledmaterials." A companywith a check for controlled materials also received a preferencerating for additional materials. Throughoutthe process,WPB's ControlledMaterials Branches had the informationnecessary to ensurebalanced production at eachmill, as well as overallbalance between material demand and materialsupply. The plan, Eberstadtemphasized, would increaseself-consciousness about programplanning among claimant organizations. "It will force an Army program, a Navy program, a Maritime Commissionprogram, a constructionprogram, a CivilianSupply program. Theserequirements are submittednot simplyfor a quarterbut theyare submittedfor the periodof eighteenmonths." He alsocited the plan'sflexibility. Additional materials couldbe includedas conditionsrequired. Suppliersand contractorswould have time to adjust. Though announcedin November1942, CMP wouldbecome mandatory on July 1, 1943,after a transitionperiod during the secondquarter [24, 16].

A New Structure for a New Distribution Strategy

CMP'sinstallation transformed the strategicpositions of the iron and steel, aluminumand copperbranches in WPB. They gained a more strategicrole in central administration. Eberstadthad determinedfrom the startto bringthem "into full partnershipin futureoperations." He also insistedthat each branch-now division--have"a permanentindustry committeetied right in with it, so that industrycan be made a permanent full partnerin the war enterprise"[10]. Eberstadt also established a Controlled Materials Plan Division to superviseCMP operations.He canvassedprivate firms for staff;he also appealedto the BusinessAdvisory Council, a majorvoice of the corporate community in Washingtonpolicy debates. He recruited Harold Boechenstein,president and generalmanager of Owens-CorningFiberglass Corporation,to directthe division.He appointedas assistantdirector W.C. Skuce,former supervisor of materialsprocurement, priorities, and inventory control for General Electric. By 1944, the CMP Division had 145 employeesand an estimatedbudget of $600,000.Later in 1943,Julius Krug, took over as divisionhead. Krug, a thirty-sixyear old publicmanager had spenthis entire career in governmentservice, including a stint at the TennesseeValley Authority[28].

CMP's Impact

When in July 1943, Harold Boeschensteinreported to WPB's executivecommittee on the plan'sfirst monthof full operation,he notedits successas "a mechanismfor implementingderisions made at the policylevel of the government."He alsoassured WPB directorsthat if policydecisions were "promptand sure,"then CMP gave"every promise of gettingthe right 108 materialsinto the right quantitiesof end productsat the right time. The result will be not only good distributionof materialsbut also increased outputof the productsessential to victory"[6, p. 254]. Boeschensteinwas correct. CMP's effectivenessas a methodof implementationis clear. CMP's contributionto lifting overall munitionsoutput, however, is more difficultto measure. This is so becauseof the range of variables involved in production changes--incapacity expansion,technological innovation,variation in laborproductivity, and sudden alterations in military programs.CMP's contribution is alsodifficult to estimatebecause aggregate munitionsproduction had leveledoff by the time the plan becamefully operational. The dollar value of munitionsproduction in 1944 surpassed 1943,but it is likelythat "forsheer physical volume, output in 1943may well havesurpassed that of anyother year of the war"[7, p. 115]. Ironically,the infamousPRP guided metals distributionduring the nation's steepest productionincreases. It is likely,however, that insofaras metalsdistribution gainedflexibility under CMP, governmentplanners could more easilyshift supplyamong military programs[15, p. 124]. The plan'simpact on specificmaterials producers is clearer. Reports from WPB Materials Divisionswere uniformly positive. Since these divisionsdrew industryadvisory committees and personnelinto their work, we can assumethese observations reflected private supplier opinion. Major metal producersliked CMP's coherenceas a planningsystem. The WPB Steel Division claimedthat with CMP it could more accurately balanceraw materialsand meltingcapacity, with capacityin the finishing mills, a problemwhich had previouslyconfounded both companymanagers and their colleaguesin WPB's steelbranch. CMP administrationalso compelled more effectivereconciliation of supplyand demandby individualproduct. The RequirementsCommittee made final allotmentsfor controlledmaterials in terms of total tonnage--of carbonand alloy steel in the caseof steel--butthat tonnagecame to be basedon f'meranalysis of specificproduct needs. The aluminumdivision, for example,in order to plan fabricatingfacilities and to make its recommendationsof allotments to claimant agencies,demanded more precisestatements about the quantitiesof specificaluminum forms, alloys, sizes,and shapes[29]. Under CMP, meetingson orderly distributionbecame pervasive acrossgovernment agencies, a major strength of the plan from the perspectiveof central administration.Its operationcompelled dialogue amongpotentially competing governmental organizations. This wastrue of policydiscussion--and bitter battles--amongclaimant representatives in the RequirementsCommittee. It wasalso true at lowerlevels of administration. Operatingbranches of the materialsdivisions met their oppositenumbers in claimantagencies to assessperformances and settle disputes. CMP operationsproduced a latticework of committeesacross WPB and military agencies. In contrastto supplieropinion, which was enthusiastic from the start, majordefense manufacturers initially gave CMP mixedreviews. Confusion during the second-quarterstart-up--the transitional period--brought complaintsfrom both Detroit andWest Coastaircraft manufacturers. As 109 prime contractorsthey were responsiblefor gatheringinformation from sub- contractors.Inauguration of CMP for them meant, "Christ,More Paper." Representativesof GM, Chrysler,Ford and Borg-Warner,who went public with their criticismin March 1943, cited continuingimbalance between allotmentsand productionschedules, as well as generaldelay in material allotments. West Coast aircraft manufacturersagreed. Their collective complaintssuggested a need for improvedcoordination decision-making amongWPB's steel, aluminum,and copperdivisions [3, pp. 19-20; 17, p. 27]. The initial skepticismeventually subsided. An advertisingblitz helped. So did a series of CMP clinicsin major industrialcenters and subsequentoperational adjustments designed to meet industrycomplaints. Detroit's resistanceto paper work, for example,may have convinced Eberstadtto make materialsallotments on a quarterlyrather than monthly basisas first proposed. In April 1943, after an extensivefield trip to defensecontractors in the New York-New Jerseyregion, CMP divisionofficials claimed that materialsprocurement for inventoryhad "virtuallydisappeared" [19]. In May, after on-sitevisits to RemingtonArms, WorthingtonPump, Singer, Sperry, Bendix, International Harvester, Lincoln Electric, and other manufacturingplants, investigators reported that, "thebenefits to be derived from advanced planning were universally evident and cannot be overemphasized. The practical guarantee of material delivery when authorizedcontrolled material orders are acceptedby the mills has proven to be one of the mostoutstanding features of the plan. Alreadythere is a generalattempt on the part of manufacturersto reduce inventoriesand guaranteeend productdeliveries with a greaterdegree of assurance."Bills of Material were sloppy,especially among sub-contractors,and debate persisted over which manufacturedproducts to bring under CMP procedures.But thoseresponsible for CMP in individualplants were found to be knowledgeable,and althoughcompany officials had been forcedto appointextra administrativepersonnel, "they feel that suchwill be justified by the economiesof peace-timeoperations" [27; 20, pp. 55ff]. By July 1943, approximately70% of all controlledmaterials flowed under CMP. Washingtondistributed the bulk of the nation's steel, aluminum,and copper to centrallyapproved military and civilianproduction programs. Firms withoutaffiliation to a prime contractor,and without materialsallotment numbers under CMP, couldface hard times. But firms with defensesub-contracts could finally count on steadymaterials flows. In February1944, Business Week reported that "evenCMP's criticsagree that it has hung up an impressiverecord since it went into operationin April 1943. It has not provedthe answerto all productionproblems, as someof its sponsorshoped, but it has becomethe mainspringof WPB's control system"[2, p. 21].

Conclusion

CMP represents an unprecedented experiment in national administrativecontrol. As a systemfor decision-makingit linked actionin 11o four areas:national production goals; specificmilitary programs; supply- demandbalances of criticalmaterials; and plantproduction schedules. As a managerialsystem it combinedcoordinated central policy making with decentralizedoperations. As an operationalsystem it combinedcentral materialsaccounting control with comparativelyflexible use of allocated materialsbudgets among claimants. CMP gaveorganizational content to the idea of the wartimeindustrial economy as a multidivisionalfirm. As an experimentin central planning,CMP operatedthrough verticallyintegrated fLrms and not throughassociations of producersand industrialconsumers organized along cartel lines. It linkedthem--both the suppliersand consumersof criticalwar materials--intoan even larger verticalchain on a nationalscale. At the apex of this verticalchain, as Eberstadthad explainedin November1942, stood WPB's Requirements Committee.Had the UnitedStates possessed either a structureof cartel- basedindustrial organization, or a groupenterprise along Japanese lines, it possiblywould have followed an alternativeorganizational path to metals allocation. The point deservesconsideration. Eberstadthimself touched upon the cross-nationaldimension during hispress conference in November1942. A reporterquestioned him on how CMP comparedto the plan usedin Germany. Eberstadtresponded that "themost fundamental difference... liesin the factthat theydo not enjoy the advantagesof quite so strictan antitrustlaw as we have here. Their industriesare permittedto combine--infact, have been encouragedto combinefor manyyears--so that in the industrygroup they have a cell whichis ableto take on verygreat burdens of distribution." Then he added,less discretely: "We, unfortunately, do not havethat at the moment;therefore, we have to devisea mechanismwhich is a little bit more complicated,if you will, and certainlymuch newer than theirs. But, basically,the reportsof their plan,which I haveread and studiedin connectionwith this,meet the samerequirements that thisplan does--the schedule--and,in additionto the schedule,I would like to emphasize, gentlemen,among other things,what this plan doesis to force programs" [24]. Two spectershad hauntedCMP from its inception,and they may havemade the U.S. system"a little bit more complicated"than Eberstadt mighthave liked. On the one hand,the visionof cartelizationunder the New Deal'sNational Industrial Recovery Administration (1933-1935), a modelpopularly associated with the Germanbusiness experience, alarmed thosewho remained wedded to the competitiveideal, even in wartime. This ideal in political terms translatedinto demandsfor small business opportunityand anxietyover competitive markets in postwarAmerica. The earliestattempts to imposeadministrative control, including PRP in its early stages,were accompaniedby one of the fiercestand longestrunning antitrustcrusades in the country'shistory. The crusadepersisted into the springof 1942, and it shapedsubsequent mobilization procedures for coordination and control. A concerteddrive to stampout cartelslay at the heart of this campaign.Cartels, antitrusters claimed, had subvertedeconomic recovery from depression,and confoundedattempts to accelerateindustrial 111 productionfor war. In someinstances they were a resultof prewarpatent and licensingagreements with German firms. From this perspective, governmentcould not give authorityfor managingwar productionto businessenterprise. There couldbe no more NRAs. In the fall of 1942, as the Kanzler Plan for Materials Schedulingreached the public press, BusinessWeek predicted "plenty of outsideopposition." "Labor, the New Dealers,the TrumanCommittee (a Congressionalinvestigation committee chairedby SenatorHarry S. Truman)will be deeplysuspicious of a scheme whichsmells of militarydominance and, by throwingmost of the controlof industryinto the handsof the big contractors,also smacks of NRA" [13, p. 17; 25, pp. 430-33]. Accountabilityalso had to be to civilian rather than to military organizations,because the secondspecter that hauntedCMP was a Nazi or fascistmilitary state. Organizingindustrial war productionexclusively under military commandwas simplybeyond the ideologicalpale in a democracy with a historicsuspicion of both centralmilitary and economicpower. This was so even thoughcontracting authority placed great economicpower in militaryhands. U.S. metalsdistribution, therefore, could not be organizedaround decentralizedindustrial or industrial-militarygroupings such as the productionrings characteristicof Germanyor the zaibatsuand Industrial ControlAssociations characteristic of Japan. Nor couldit rest in military units. It is thiskind of ideologicaland politicalcontext that helpsto explain why Nelsonimposed the so-calledhorizontal approach to metalsallocation in the springof 1942. Despiteits weaknesses,that schemeat leastretained control of metals distributionin civilian,WPB hands. But it provedinsufficient. Washingtonrequired a plan that could combinecentral, civilian control with decentralized,operating responsibility to both large-scalecorporate enterprise and militaryorganizations. In the end, Eberstadt'sanswer--and ultimately America's answer--was,through CMP, a variationon the verticallyintegrated, multidivisional form [11, pp. 201-217]. It was an attemptin wartimeto combinecentral policy making at the apexwith decentralizedresponsibility through claimants agencies and their prime contractors,with materialsaccounting techniques providing one meansof retainingoverall control. The ironymay well be that by late 1943, as a result of CMP, more central industrialcontrol had becomeavailable to governmental administratorsin the U.S. economy than to the governmentsof its major enemies.

References

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