Mass production came in much the same way in the refining and dis- tilling industries as in continuous-process mechanical industries, though in a less dramatic manner and at an earlier period in time. It appeared earlier because of the ease in integrating the flow of liquids through the processes of production and because the chemical nature of these processes permitted the application of more intense heat to expand the volume of throughput from a set of facilities. As in the case of the mechanical industries, these new high-volume, large-batch, or continuous-process production methods had a profound impact on the growth and organization of the enterprises and the structure of the industries in which they were used. But precisely because of the ease of controlling and coordinating throughput, their operation had only a little more impact on the development of modern systematic or scientific management methods than did the supervision of the processes of production in the non-heat-using mechanical industries.
Of all the refining and distilling industries, the development of the tech- nology of mass production is best documented in petroleum. A review of the history of petroleum technology helps to identify the elements of mass production. The decade following Colonel Edwin L. Drake’s discovery of oil in 1859 in Titusville, Pennsylvania, was, understandably, the most innovative in the improvement of the refining process. In the 1860s, the rapid building of railroad lines into the oil regions of northwestern Penn- sylvania and the equally quick development of the railroad rack car per- mitted bulk movements of refined and crude petroleum.
The refiners initially increased output per facility by applying heat more intensively. They developed the use of superheated steam distillation, which they borrowed from recent innovations in the refining of sugar.15 Next they devised the “cracking” process, a technique of applying higher temperatures to higher boiling points to reshape the molecular structure of crude oil. Such cracking permitted as much as a 20 percent increase in yield from a single still. The output of stills was further expanded by the use of seamless, wrought iron and steel bottoms; by improving cooling as well as heating operations; and by changing the fundamental design of stills so as to increase further the temperature used.
As the individual units were enlarged and made more fuel-intensive, the operation of the units within a single refinery was more closely integrated. Steam power was increasingly used to move the flow of oil through the plant from one refining process to another. In the late 1860s and early 1870s P.H. Van der Weyde and Henry Rogers began to develop and then Samuel Van Sickle perfected continuous-process, multiple-stage distillation. This innovation permitted petroleum to flow through the refinery at a steady rate and separate products to be distilled out at different stages—first gasoline, then kerosene, and then the heavy fuels and lubrication stock. Because so much of the demand for refined petroleum in the 1870s was for kerosene, Van Sickle’s innovation was not fully used by American refineries. Instead, refineries continued to handle one line of products, with the large stills producing kerosene and heavy fuels and lubricants being made in smaller ones. Although most American refineries continued to use what was essentially a large-batch rather than a continu-ous-process, they were designed to permit a regular and steady flow of material through the works (see figure 5). Labor was needed only to package the product. As the industry’s historians, Harold F. Williamson and Arnold Daum, have explained:
Figure 5. Flow chart, Pratt Refinery, 1869
Source: Harold F. Williamson and Arnold R. Daum, The American Petroleum Industry: The Age of Illumination, i8yỹ-i8ỹỌ (Evanston, 111.: Northwestern University Press, 1959),p.280.
By 1870, elimination of nearly all manual movements of oil distinguished not only large refineries like Charles Pratt’s in New York City. The smallest decently appointed refinery with less than 1,000 barrels weekly capacity likewise had six steam pumps: to move the crude from tank car to storage tank and all other points; to pump water, distillate, and refine oil; and to power the air compressor for treating.16
Increased size of still, intensified use of energy, and improved design of plant brought rapid increase in throughput. Early in the decade, normal output was 900 barrels a week;it reached 500 barrels a day by 1870. Large refineries already had a charging capacity of 800 to 1,000 barrels a day and even more. At the same time, unit costs fell from an average of 6$ to 3^ a barrel, and cost of building a refinery rose from $30,000-140,000 to $6O,OOO-$9O,OOO. The size of the establishment was still small, in terms of capital invested, costing no more than two miles of well-laid railroad track. But the economies of speed were of critical importance. And one does not need to be an economic historian to identify the senior partner of the fastest refinery in the west in 1869. The high speed of throughput and the resulting lowered unit cost gave John D. Rockefeller his initial advantage in the competitive battles in the American petroleum industry during the 1870s.18
Similar, though less dramatic, developments occurred in other distilling and refining industries in these same years. The coming of steam refining and the expansion of the railroad network brought a revolution in sugar- making during the 1850s.18 The innovation of superheated steam and a vacuum process (both were borrowed by petroleum refiners) and a steam- driven centrifugal machine for crystallizing sugar all greatly accelerated the velocity and volume of throughput in a single refinery. Many new large refineries were built in the 1850s and 1860s to use the new processes. Output soared, prices dropped, but until the 1870s an expanding market assured continuing profits.
Comparable high-volume production technology appeared for the processing of cotton and linseed oil; for the production of alcohol, sul- phuric and other acids, and white and red lead and other pigments; for the distilling of liquor; and for the brewing of ale and beer. According to the testimony of one producer of sulphuric acid, a product essential in the refining of petroleum, output in 1882 had “increased nearly a 1,000 percent in the past ten years. In 1866, the price was 5 cents per pound, today it is cents.”20 Coal and railroad transportation permitted enormous expansion in the output of individual breweries producing beer and ale. In i860 the largest breweries averaged an output of 5,000 to 8,000 barrels a year. By 1877 they were producing over 100,000 and by 1895 from 500,000 to 800,000 barrels a year.21 Careful use of piping and then assembly-line bottling machines helped to make the process more contin- uous. In the making of beer and distilled liquors, as in the production of sugar and margarine, taste requirements demanded sets of skills by the brewmaster, sugar master, and their counterparts. Such requirements put a constraint on the volume permitted by the application of new technology, the intensified use of energy, and improved plant design.
The history of these distilling and refining industries demonstrates the basic axiom of mass production. Economies and lower unit costs resulted from an intensification of the speed of materials through an establishment rather than from enlarging its size. They came more from organization and technological innovations that increased the velocity of throughput than from adding more men and machines. The potential for mass production thus reflected the basic nature of the processes of production. Cost savings comparable to those achieved by increased velocity of throughput in the petroleum, sugar, and other large-batch, continuous- process industries were not possible in apparel, wood-working, leatherworking and similar small-batch and craft industries. By 1883, two-fifths of the world’s production of petroleum products was being produced in three large refineries. An attempt to place two-fifths of the nation’s production of cotton textiles, men’s suits or shoes, or furniture in three facilities would have been absurd. The diseconomies of scale would have far outweighed any possible economies.
As in the case of continuous-process mechanical industries, such as cigarettes, matches, milling, and canning, increased velocity of throughput in refining and distilling made production capital-intensive and energy- intensive. In oil refineries, where workers were employed primarily to package the product, the average number of laborers rose from 11 o in 1880 to 189 in 1899, and the total number of workers in the industry from 9,869 to 12,199; in the same two decades, the number of refineries dropped from 89 to 75 and value of the output rose from $43.7 to $123.9 million.22
In these industries, too, efficient production resulted more from or- ganizational improvements in layout of plants and works than from the development of new administrative structures and procedures. Supervision of the working force required little more in the way of systemic procedures than with the much larger force in textile and shoe factories. Nor was costing much more of a problem. Crude oil, coal, and sulphuric acid were the main materials used by an oil refinery. Their costs were easily calculated. The overall capital investment and fixed costs were still only a small part of the total costs. They were tiny compared with those of a railroad. So although the leading refiners appeared to have kept a close watch on prime costs, they paid little attention to accounting for overhead costs or determining depreciation. For example, after the formation of the Standard Oil Trust in 1882, senior executives received monthly cost statements of prime costs that permitted calculation of unit costs.23 They were soon using comparative costs-and-yield statements to evaluate the performance of their refineries and to make their decisions to concentrate production in large units. Yet there is no evidence that they began to de- velop sophisticated methods to account for overhead expense and for de- preciation in their costs calculations. Nor do the excellent records of the Pabst Brewing Company, the largest brewing enterprise in the United States, reveal the use of modern accurate cost accounting, although in the 1880s executives gave some thought to depreciation in evaluating the worth of plant and equipment for inventory, tax, and insurance purposes.24 Mass production came even more quickly and at an earlier period in refining, distilling, and other industries employing chemical processes than it did in mechanical industries able to adopt continuous-process ma- chinery. The resulting increase in output led to the formation of giant integrated enterprises. In both types of industries, however, the fact that effective coordination and control could be achieved by improved design of plants and works lessened the challenge to innovate in methods and pro- cedures to regulate and systematize the movement of workers and man-agers, that is, lessened the challenge to innovate in factory management.
Source: Chandler Alfred D. Jr. (1977), The Visible Hand: The Managerial Revolution in American Business, Harvard University Press.