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 BUSINESS AND ECONOMIC HISTORY, SecondSeries, Volume Nineteen, 1990. Copyright(c) 1990 by the BusinessHistory Conference.ISSN 0849-6825. 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