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ERIE - LACKAWANNA MERGER STUDY
Material and Supplies Stocks and Purchases and Stores Organizations
Study IX
The purpose of this study was to estimate the savings that could be realized, as a result of merger, from reductions in inventories, elimination of storehouses, and savings in the purchases and stores organizations.
Data was prepared for all points at which store stocks were maintained showing material balances by classes and stores department forces. Stores and purchasing department staffs reviewed this material in the light of decisions taken in other studies to determine what storehouses might be abandoned or consolidated and to set up a proposed organization for the merged company.
It was assumed that the purchasing department would be located in Cleveland, the headquarters of the merged company. The General Store for the merged company would be located in the Erie facility at Hornell and the Lackawanna store at Scranton would be reduced to divisional stores level. Principal stores supporting car and locomotive repair shops would follow the recommendations in Study VIII, as follows: car shops, Meadville (Erie); locomotive shops, Hornell (Erie) and Scranton (DL&W). Scrap and reclamation operations would be conducted at the Erie Meadville plant, while stationery stores material and facilities would be concentrated at the DL&W store at Scranton.
Reductions in Material and Supplies Stocks
Based on inventories as of October 31, 1956, for Erie and September 30, 1956, for Lackawanna, combined store stocks were as follows:
Erie $10,581,500
Lackawanna 4.596,021
Total $15,177,521
Inventory balances in each material classification vere analyzed in the light of changes proposed under merger. It is estimated that the elimination of some storehouses, the consolidation of stocks at comon points, and standardization of materials-would permit a reduction of $2,177,521 in inventory balance.
Savings were computed on the basis of 5% interest on the reduction in stock and an additional 1% representing obsolescence and deterioration. The total annual saving would be $129,371.
Improved Scrap Prices
Location of the combined scrap and reclamation operations at Meadville near the Mahoning Valley Steel Area would enable the merged company to obtain the traditionally high scrap prices of that area. On the basis of 1956 quantities which were lover than normal, and average prices for scrap, added income of approximately $100,000 annually could be expected.
Physical Changes in Storehouses
Physical changes required by relocation or the necessity for increased capacity would be necessary at Meadville and Hornell. All other changes have been covered in Studies I and VIII.
Savings in Organization
The proposed executive organization would result in a reduction of three in the supervisory forces with a consequent saving of $29,736 annually before payroll taxes. The present and proposed organizations are compared below:
Merged
Title Erie DL&W Total Company
Manager, Purchases and Stores 1 1 2 1
Ass't. Mgr., Purchases and Stores - 1 1 -
Ass't. to Mgr., Purchases and Stores - 1 1 -
Ass't. Purchasing Agent 3 - 3 3
Ass't. to Purchasing Agent 1 - 1 1
Supervisor, Timber and Treatment 1 - 1 1
Purchasing Agent - - - 1
Chief Clerk 1 1 2 1
Totals 7 4 11 8
Net Saving 3
The various changes described in previous paragraphs result in a net reduction of 24 other employees for the merged company with an annual saving of $153,060 before payroll taxes. The following table shows the detail of this reduction:
Merged Net
Location Erie DL&W Total Company Change
General Office
Hoboken - 13 13 - 13 D
Cleveland 17 - 17 19 2 I
Stores
East Buffalo 7 9 16 13 3 D
Scranton - 43 43 38 5 D
Keyser Valley - 46 46 24 22 D
Taylor - - - 1 1 I
Elmira-Utica - 1 1 1 -
Port Morris - 1 1 1 -
Hoboken - 9 9 8 1 D
Jersey City 26 - 26 27 1 I
Susquehanna-Port Jervis 18 - 18 4 14 D
Hornell 78 - 78 76 2 D
Salamanca 5 - 5 5 -
Meadville 106 - 106 138 32 I
Non-study area 46 - 46 46 -
Totals 303 122 425 401 24 D
D - Decrease
I - Increase
The estimated savings from the merger reflecting all of the changes proposed above amount to $428,777 annually, and the detail is shovn in the table below:
A. Net Cash Realized From Merger
1. Salvage from property retired $ -------
2. Reduction in material and supplies stocks 2,177,521 G
3. Cost of property acquired 26,782 L
4. Cost of relocating property ---
5. Non-recurring income tax saving 1,187 G
6. Total net cash realized $2,151,926 G
B. Revenues Gained
1. Improved scrap prices $ 100,000 G
C. Expenses
Maintenance of Way and Structures
1. Cost of normalized maintenance $ 2,474 L
2. Depreciation 1,060 L
Purchases and Stores Organization
3. General office - supervisory 29,736 G
4. General office - non-supervisory 83,796 0
5. Stores forces - supervisory 17,076 G
6. Stores forces - non-supervisory 52,188 G
7. Total expenses $179,262 G
D. Payroll Taxes, Vacations, etc. $ 2,474 G
E. Interest
1. 5% on net cash realized $107,596 G
2. 1% on reduced stocks 21,775 G
3. Total interest 129,371 G
F. Total Net Savings $ 428,777 G
G - Gain
L - Loss
