An Investigation of Purchases by American Businesses and Governments

Management has focused a great deal of attention and resources on improving the efficiency of direct labor employees. It has tried to increase the productivity of these workers by improving attitudes, tightening discipline, providing training, or when all this fails, eliminating workers. Unfortunately, direct labor costs exceed 10 percent of sales in only a few industries. In contrast, purchases exceed 60 percent of sales in many industries. Hence, it appears that management should accord materials expenditures an even greater level of attention than that which is currently reserved for labor expenditures. This article provides an empirical justification for that restructuring. The authors present research concerning the proportion of costs attributable to major types of purchases and to labor by all major industry categories.