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Notes for IDM 13

Materials Management
-

Materials form the single largest component of the total cost


Material cost being in the range of 40% to 50% of the total cost, their input on the total
project cost is enormous
With increasing competition and squeezing profit margins, it is even more important ti
minimize costs for clients and contractors
This can be achieved through application of Materials Management
Time
o Materials Management is very important for timely completion of projects. A delay in
providing materials for construction will naturally put the project behind schedule
from which it can never recover or cost of bringing it back on schedule may be very
high
o These delays are not a matter of weeks or days, they have a cascading effect on the
entire project performance
o Due to delay in construction, the billing gets held up and affects the cash flows. Over
and above, there are additional overheads required to carry on the project to its final
completion and the liquidated damages that a contractor may have to pay for
exceeding the time limit
o Invisible effects such as friction among the various departments generate widespread
discontent among the employees are much more devastating. Externally, delays may
cause embarrassment to the organization and dissatisfaction among its customers
Cost
o Construction is an activity which is highly uncertain and risky, where changes are
part and parcel of life. If the shortages occur very frequently and that too commonly/
normally used materials, there is a cause of concern and it indicates management
failure
o Procuring materials at a short notice is a costly affair as the choice of supplier, price
and even quality becomes a secondary consideration
o The solution to avoid such shortages is to carry stock materials so that they are
available at site long before they are actually needed
o This entails capital investment and the opportunity cost of such an investment or
interest charges, add on to the project cost
o Also, it requires storage area, security guard and other administrative expenses
Quality
o Quality of construction is obviously dependent on the quality of materials
Materials Management has the most important role to play for fulfilling the project objectives
of cost, quality and time
Materials Management is the responsibility which begins with the selection of suppliers and
ends when the material is delivered to its point of use

Scope of Materials Management


-

Includes procuring materials, their transportation, storage, issuing material to various sites,
maintaining records and data for effective control and to provide useful guide for future
Procurement
o Deals with acquiring materials necessary for construction from suitable sources
o Aims to contribute to the overall reduction in material cost through efficient
procurement processes
Transportation
o Materials undergo considerable movement
Transport from source to stores

Transport from main stores to site stores


Transport from site stores to place of processing
Transport from processing place to work place
o It has to be ensured that there is no adverse change in characteristics or performance
of the material due to transportation
Inventory Control
o Concerned with laying the policies regarding how much quantity of a material should
be held in stock so that the aim of materials management i.e. ensuring continuity of
the construction with minimum investment in materials is fulfilled
Storage
o Certain materials have to be held in stock before they are used, it is necessary to store
them properly to guard against deterioration, etc
o Nature of material decides the type of storage (open, closed, etc)

Aim of Good Materials Management


-

Forecasts probable needs of materials


Ensure adequate quantity of materials of the specified quality are received on the worksite at
appropriate time
Procurement schedules are made for materials taking into consideration the time required for
placing orders
Through maintenance of proper records, useful data can be generated, which serves as a guide
in future
Studying market conditions can help in forecasting fluctuations in availability, price, etc and
also help in identification of substitute materials

Integrated Approach to Materials Management


-

The purchasing department is interested in by as large quantity as possible to avail the


discounts offered by supplier for purchasing large quantities
However, this results in storage of large quantities of materials which entails capital
investment
In order to achieve the overall goal of materials management, there has to be an integrated
approach
This concept is based on principles of coordination. All the departments concerned must
extend full cooperation and work in coordination to achieve the desired goal

Classification of Materials
-

Grouping together of materials


Classification can be done in a number of ways based on characteristics such as names, sizes,
strength or end use which will help certain functions of Materials Management to be
performed efficiently and effectively
It helps in creating and allocating proper storage places for different materials
S. No.
1.

Classification
ABC (Always Better Control)

Criteria
Annual Value of Consumption

2.

HML (High Medium Low)

Unit Price

3.

VED (Vital Essential Desirable)

Critical Nature

4.

Availability

7.

SDE (Scarce, Difficult to Obtain,


Easy to Obtain)
GOLF (Government Ordinary Local
Foreign)
FSN (Fast moving, Slow moving,
Non moving)
SOS (Seasonal, Off-Seasonal)

8.

XYZ

Inventory Value

5.
6.

Source
Issues from Stores
Seasonality

ABC Analysis
-

ABC analysis, is a technique, which helps the management in classifying and controlling the
inventories in terms of their cost
It helps materials management concentrate its efforts more where the results are more
important
Materials are classified into three categories A, B and C , according to their costs
It is particularly useful in dealing with projects when a large number of items of varying costs
are used
o Procedure
For a given project, a list of materials along with their quantity requirements
is prepared and the cost of each material is also worked out
S. No.

Material

Quantity

Unit Rate

Percentage

This gives the information about


Different materials required with their quantities and cost
Total cost of the materials
Proportion of total cost formed by the cost of each material
Now the above is rearranged in decreasing order of their cost
S. No.

Material

Quantity

Cost

10% of materials
20% of materials
70% of materials

Cost

Cumulative
Cost
70% of cost
20% of cost
10% of cost

Based on above, ABC categorization is as below


S. No.

% of items

% of cost

Category

Cumulative
%
70%
90%
100%

1.

10

70

2.

20

20

3.

70

10

The analysis does not depend on the unit cost but its total cost
Features
ABC analysis enables us to give a classification as A, B, C depending on its
cost in proportion to the total cost
Usually in a project, a small percentage of items account for a high
proportion of cost. A large number of items make up a small cost of materials,
while remaining materials form the middle order
Implications
Since A class items account for a major cost of the material, these items need
very careful control. The investment on the inventory of these items should
be reduced as much as possible. Planning should be done on a long term basis
as emergency purchasing may be costly. The buying should be as frequent as
possible. Safety stock should be calculated very carefully and should be as
small as possible
C class items, though large in number constitute a small proportion of cost of
materials. These materials may be purchased locally and bulk orders can be
placed. Large stocks can be held in reserve
ABC analysis not only helps in exercising selective control when dealing
with a large number of items of varying costs, but it also enables the material
manager to rationalize the number of orders and reduce the overall inventory
by readjusting the number of orders for the materials of different categories
Example
Item
P
Q
R

Annual Cost Orders per Year


60,000
4
4,000
4
1,000
4
Average Inventory

Value per Order


15,000
1,000
250

Average Inventory Value


7,500
500
125
8,125

Value per Order


7,500
1,000
1,000

Average Inventory Value


3,750
500
500
4,750

Revised as per ABC analysis


Item
P
Q
R

Annual Cost Orders per Year


60,000
8
4,000
4
1,000
1
Average Inventory

Coding
-

Necessary for easy identification of materials. Helps in two ways


o If codes have been adopted, it is not necessary to write lengthy description of
materials
o By evolving suitable codes, it can be ensured that right type of material is issued to
the user
Coding can be of different types
o Numerical
o Alphabetical
o Alphanumeric
o Colour
Coding must satisfy the following to be effective

o
o
o
o

Should cover range of all materials, not only present but also those likely to be used
in future
Must be consistent and logical
Should be simple and easy to understand
Should be flexible to accommodate new items

Need for Material


-

Purchase is initiated by the need felt by the user


An organization invites information about requirements of various materials needed on its
different construction projects
Such requirements are collected from various sites and are known as requisitions
The format for the requisition and number of copies are standardised in order facilitate easy
analysis
After analysing all requisitions and comparing the total requirement of a material with actual
stock, a decision to purchase the material is taken. Accordingly, intimation is then sent to the
purchase department and accounts department
Need of materials has three aspects
o Total quantity of materials required
o Phasing of the requirement
o Quality of the material

Source of Supply
-

Selection of an appropriate supplier is the main responsibility of purchase department. The


management polices lay down the procedures
Selection of the source would naturally begin with the knowledge of the sources of supply
Information about the sources of supply can be collected from a number of sources
o Personal knowledge of the purchase officer
o Catalogues, trade journals and trade directories
o Advertisements of the manufacturers or suppliers
o Advertisement by the purchasing organization
It is desirable that an organization maintains a register of suppliers for different materials

Source Selection: Selection of Suppliers


-

The purchasing department is interested in buying materials of the required quality in the
required quantity at a particular time and at the most competitive price
Though price is an essential criteria, it cannot be the only criteria for selecting a supplier
An objective approach to this problem is to introduce a quantitative assessment of the various
factors other than price into purchase formula. This is known as vendor rating
It helps in evaluating the factors of quality and delivery time offered by the supplier and
evolving an objective rating for the supplier
Rate of rejection can also be noted and the supplier can be assigned suitable rating
Qualities of a Good Supplier
o Provide materials of specified quality
o Adhere to the delivery schedules
o Caution the user ahead of time of the shortages
o Keep client aware of new/ substitute materials
o Help the client in the event of unexpected situations
o Promptly attend to the complaints
Qualities of a Good Purchaser
o Realistic quantity of the material to be purchased
o Prompt payment of suppliers bill
o Avoid frequent changing of suppliers

Price of the Material


-

Price refers to the amount paid for materials and is expressed as Rs per unit
Cost covers other relevant expenses over and above price. Thus, price is a component of cost.
The relevant expenses would be transport, storage, etc
Value would depend on the need of the material, its urgency and availability

Centralized and Decentralized Purchasing


-

Centralized purchasing indicates that the entire purchase is done at one place
Beneficial when various projects are located within a reasonable distance as discounts are
available for bulk purchase and better control over quantity and quality
However, may not yield desired benefits if the works are scattered over a larger area or
different materials are needed for different works
Decentralization indicates that materials are purchased at different places
Involves purchasing of smaller quantities and entire procedure is duplicated at each
purchasing centre
Decentralization may be necessary because of the scattered works, dissimilar nature, etc

Factors to be considered for Purchasing


-

Decision to purchase materials involves factors such as


o Quantity
Depends on the stocks in hand and inventory policies
o Time of Delivery
Depends on time the purchaser needs to complete the formalities
Time the supplier needs to arrange for the supply
Time involved in loading, transporting and unloading
o Place of Delivery
Would be the main storage, regional storage or site storage
o Price
Aim of the purchaser is to purchase the materials at most competitive prices
Usually achieved by inviting quotations
o Receiving and Inspection
Person responsible for this function must closely compare the materials
received with the details mentioned in the orders placed with the supplier, or
the samples of the same
o Transportation
Materials obtained from the supplier will have to be transported to the place
of storage. Purchase department has to organize transportation

Scrutiny of Offers
-

It is necessary to look for the conditions for payment, place of delivery and any other
modifications in conditions

Various Departments involved in Procurement of Materials


-

Purchasing department
Engineering/ Design department
Tendering/ Planning department
Stores department
Transportation department

- Accounting department
- Stock/ Inventory
Contract
-

Defined as an agreement enforceable by law or a legally binding agreement between two or


more parties by which, rights are acquired by one or more to act or forbearance on the part of
each other or others
Elements of a contract are: Agreement and Legal Enforceability
Agreements, which cannot be enforced legally, do not become a contract. All contracts are
agreements but all agreements may not necessarily be contracts
Contract is valid if it satisfies the following conditions
o Offer
o Acceptance
o Legal Relationship
o Legal Consideration
o Competency
o Lawful Object
o Possibility of Performance
o Formalities
An agreement to sell/ purchase materials for the payment of a price, constitutes a contract of
sale
o Standing Offer
In some contracts, the rate is agreed but the quantities to be supplied from
time to time have to be intimated by the purchaser
Contract is valid for a certain period
Purchaser does not bind to buy a specific minimum quantity at a time
Contract is considered as a standing offer for the stated period
Supplier is free to withdraw his standing offer at anytime so far as future
orders are concerned
o Binding Contract
Some contracts of sale have a stipulation as regards the quantity and time
Some contracts of sale have a stipulation which may not bind the purchaser to
a specific quantity but he commits to buy all the quantity needed by him
during a specific period
o Time of Payment
Time of payment is not the essence of the contract. This is because the delay
of payment does not render the contract without any consideration
However, if the contract envisages supply of materials in instalment and each
instalment is to be paid within a certain period after its delivery and failure to
pay for an instalment may be sufficient cause for the supplier to withdraw the
contract as in this case, time is the essence of the contract
To determine whether time was essence of the contract
The intention of parties to the contract
The course of details between parties to the contract
Usage, surroundings, circumstances, etc
When a specific time is stipulated in the contract, it is considered as essence
of the contract
o Sales by Description
Many orders are based only on description of the material
Such description should be clear, precise and to certain extent this purpose
can be achieved by explaining details such as finish, tolerances or even end
use

There is an implied warranty that in case the materials do not fulfil the
intended use, the purchaser can claim damages
Sample based Contract of Sale
Materials to be supplied on the basis of sample have many advantages form
purchasers point of view
Authentic samples must be signed by all the parties and must be preserved
properly like any other contract document
Payment for Materials Supplied
Time of Payment
Place of Payment
Mode of Payment
Guarantee and Warranty
Guarantee: The promisor undertakes to be answerable to promise for any
default either of his own or any other person whose primary liability exist or
is contemplated
Warranty: Only of a collateral nature to the main purpose of the contract. The
breach of condition gives rise to claim for the damages but does not make the
contract liable to be rejected

Settlement of Disputes: Whenever any dispute arises between the parties to a contract,
generally arbitration is resorted to. Arbitration is less time-consuming than litigation. It is,
therefore, desirable to include a clause for arbitration in the conditions of sale

Law of Agency
o This law is relevant to materials purchased
o A person or a party who is legally competent to enter into a contract with another
person/ party can do so either by himself or through a third person/ party. If he
employs third person/ party for entering into a contract he is said to have employed or
be acting through an Agent
o The person on whose behalf the agent acts is known as Principal
o As per Law of Agency, person/ party who does anything through another principal/
party does it by himself
o Agreement between agent and principal may not necessarily involve any
consideration
o Relationship between the agent and the principal may be express or implied
agreement

Inventory Control
-

Inventory Control has to be based on the formal consideration of various factors such as
o Demand of the material
o Lead time
o Price of the material
o Minimum size to be offered at a time
o Discounts available on bulk purchase
o Mode of transport
o Minimum quantity that can be economically transported
o Uncertainty associated with availability of material
o Cost of handling and storage
o Deterioration due to handling and storage
There has to be a compromise between understocking and overstocking as both will have
adverse effects on project economics
Types of Inventory
o Consumable/ Raw Material: Goes into construction and forms part of the structure
o Supporting Consumables: Petrol, diesel, etc
o Purchased Items: Plumbing fixtures, fixtures for doors and windows, etc
o Items Produced on Site: Bricks, tiles, etc
o Spares
Classification helps in identifying the characteristics of the material and arrange for its proper
storage

Necessity of Inventory Control


-

As the inventory/ stock represents idle locking up of the capital, one would desire that there
should preferably be no inventory/ stock. The materials should be so procured that they are
directly consumed in the construction
One of the factors to be considered in procurement of material is lead time. It is the period
that elapses between the point of time when the need for material is contemplated and the
point of time the material is actually available on the site of construction for use

Inventory Costs
-

Cost of Ordering: Comprises the expense incurred on


o Analysing the demand
o Decision to purchase
o Selecting source
o Placing the order
o Inspection and testing
Cost of Holding
o Includes costs associated with storage and include watch and ward, insurance rental
for warehouses, indirect cost of pilferage, etc
Total Inventory Cost
o As the inventory cost is made up of ordering cost and holding cost, the aim should be
to arrive at the size of order and number of orders, for which the total inventory cost
is minimum

Wilson Harris Square Root Formula


-

The Economic Order Quantity can be arrived at analytically. The relation is based on
following assumptions
o The demand over the period of cycle is constant and is known in advance
o Consumption of materials occurs at a uniform rate
o The price of the material is independent of the order
o There is no lead time in replenishment
Let
o A be the annual demand in terms of units
o Q be the lot size ordered at a time in units
o P be the price of the materials
o H be the inventory holding cost expressed in Rs
o S be the ordering cost in Rs
Q = Square root of (2AS/ PH)
Example from Study Material

Discount on Bulk Purchase


-

If the EOQ is less than the quantity, which can attract discount, then it needs to be examined
what will be the total cost if a bulk quantity is ordered. In this event, the ordered size being
more, the inventory holding cost will be reduced and the number of orders will also be
reduced, thus reducing the ordering costs
Example from Study Material

Sensitivity of the EOQ Model


-

A little variation or rounding up of either the costs or the EOQ will not have adverse effect on
the total cost
An approximation of 10-15% may not affect the cost by more than 1%
This is an advantage as EOQ can be suitably rounded off to the nearest unit available in the
market
EOQ may work out to 57 but the material may be sold in the market in packs of dozens. In
such a case the EOQ can be 60 without affecting the economy of purchase and storage
EOQ is mainly governed by the ordering cost and holding cost irrespective of the description
of the material. Therefore, for a project after working out ordering cost and holding cost, a
ready reckoner table can be prepared for EOQ. For any material whose cost of annual demand
is known, we can find out EOQ value from which the physical quantity can be worked out

Inventory Control Systems


-

The assumptions of simple deterministic model are too simple to be realized in actual practice
o Rate of consumption will always be varying and never be constant
o Lead time can never be zero
It is not possible to wait till the stocks are completely exhausted but start replenishment
earlier to cover the consumption during the lead time. Hence, there must be a provision for
safety stock
Inventory systems designed to cover the two possibilities mentioned above are
o Reorder Point System or Fixed Order Quantity System
An inventory level is fixed known as reorder level or reorder point
If the stock of material touches this level, an order of predetermined fixed
quantity (generally EOQ) is placed
The fixed level of stock is created to cater to
Average consumption during lead period
Fluctuations in rate of consumption
The system works satisfactorily if two conditions are satisfied. If not, safety
stock will be depleted and there may be stock out position
Lead time in not prolonged
Fluctuations in the consumption are not wide
A check for the working of this system would be that at any time stock at
hand plus the orders pending should be equal to or more than the lead time
consumption
o Periodic Review System: Varying Lead Time and Varying Consumption Rate
For materials which are not very costly or do not deteriorate appreciably on
stocking, safety stock is generally worked out on adhoc basis and is as far as
possible on the safer side
For materials that are costly and likely to deteriorate, the approach has to be
more scientific. In both methods a continuous review is taken
P-System
o Number of orders to be placed are fixed but the quantity
ordered every time varies based on the results of the review
Q-System
o Quantity ordered is fixed
o Period of order is not the same
Economic Lot Size of Production
o Some items are produced at site rather than purchasing from the market, hence there
is economic lot size to be produced per batch
o Rate of production should match the consumption when no stocks pile up
o At times, the same set up is used for manufacturing different items. In such cases, a
certain quantity of an item is manufactured and held in stock and the set up is
changed over for some other item, till the time stock of first item is depleted
o Set up cost in this case is similar to ordering cost and is considered constant per set up
o Let
D be the rate of demand (constant)
P be the rate of production (constant)
Q be the quantity produced in the batch
M be the maximum inventory held
H be the inventory cost per day in Rs
S be the set up cost

o
o
o
o
o
o
o

t be the batch period


T be the total cost
C be the production cost per unit
Rate of Inventory Building = P D
Maximum Inventory (M) = (P D) t
Average Inventory = M/ 2
Batch Quantity (Q) = P t
Therefore, average inventory = ((P D) * Q)/ 2P = Q/ 2 * (1 D/ P)
Total Cost = Set up cost + Holding cost = (SD/ Q) + (Q/ 2 * (1 D/ P)) * HC
Q2 = 2DS/ ((1 - D/ P) * HC)

Types of Storage
-

Open Space Storage


o Materials are more or less stable and do not deteriorate due to exposure to atmosphere
o They are comparatively less costly
Closed Storage
o Where costly materials are stored
o To be kept under lock and key
Intermediate Storage
o Material is stored in open but the storage is enclosed by a protective fencing

Function of the Stores Department


-

Receiving the materials


Checking the materials received
Proper classification and codification
Stacking the materials conveniently so that materials can be made available as and when
necessary
Protecting and preserving the materials during storage
Maintaining the records as regards issue and arrival of items
Sending reports to stock particularly regarding the reorder levels
To take appropriate action in respect of obsolete materials, scrap and empties in stores

Layout of the Stores


-

For the construction work this involves two aspects


o Locating the store on site while preparing the site layout
o Store layout whatever be its location
While locating the store a number of factors need consideration
o Location
o Size
Store has to be located in such a place that
o It can be seen from site office as well as the main watch and ward
o It should also be convenient from the point of view of unloading of materials
o It should have an easy access to different parts of the site
o It may be necessary to have more than one stores on the site and all the stores should
be properly coordinated
o It should have a fairly wide approach road permitting all types of vehicles to be
brought in
o It should have a scientific layout and be equipped with necessary amenities such as
weighing scale, lifting devices, etc
o Storekeeper should exhibit at a suitable place the up-to-date position of stock

Storekeeper His Responsibility and Duties


-

Mainly responsible for the administration of the storage of materials entrusted to his charge
He should know to handle materials even if not aware of technical qualities
He should be aware of the problems such as dampness, temperature effects, fire hazards, etc
associated with the storage
He should be fully aware of the stocks of the materials he has in the store and must be able to
lay hands on it when there is demand
He deals not only with materials but also people from different sources. He should develop
good relations with all concerned
He should be honest and dependable

The main responsibility relates to holding the materials in good condition and making it
available when needed on the construction site. Maintaining up to date records and
submission of timely reports

Transportation
-

Concerned with movement of materials from one place to another


Often the supplier is not expert in transportation and takes help from transporting agencies.
The supplier does not pay careful attention to the economics of transport
Often construction organizations have to transport from its main store/ regional store to work
sites and hence the materials management department has to be particular about the
transportation of materials
Functions to be considered for transportation of materials
o Selection of the carriers and routings
o Ascertaining rates
o Payment of transportation charges
o Allocation of transportation charges to materials
o Follow up in respect of the shipments which are lost/ due
o Lodging claims for delays, shortages, damages, etc
Transport costs
o Refers to expenditure incurred in entire process of movement of material from one
place to another
o It depends on the quality of material, mode of transport, distance of transport,
frequency, permits or licenses, etc
o Transportation costs form 10-15% of the materials cost and hence the choice of
transporting method must be done judiciously
Factors for Selection of Mode of Transport
o Service: Efficient, Safe and Reliable
o Quality: Regularity
o Price: Value paid for the services rendered. Also indirect components like cost
involved in delays, etc

Analysis in Materials Management


-

By analysing the data of the materials transactions, useful information can be generated which
can serve as the basis for estimation or tendering for new construction works
This analysis can be carried out in the Engineering department, Accounts department or
Materials department depending on the size of the organization
Data to be analyzed will be
o Cost of Materials
o Cost of Transport
o Storage
o Consumption
o Miscellaneous
The above data can be combined to work out useful information
o Overall unit cost of material
o Cost of transporting unit material over a unit distance
o Cost of storage of unit material
o Cost of placing an order
o Requirement of materials

Reports and Records


-

Proper coordination and control can be implemented through a well designed system of
reports and records
o Requisition Form
o Advice note to Purchase
o Inviting quotations
o Scrutiny of the quotations
o Placement of Order
o Rejection of Materials

Comprehensive Materials Management on a Project


-

Classification of Materials
o Materials in a project can be broadly classified into three categories
Capital equipments
One-off type of materials and are required in limited numbers
Performance of these equipments ultimately governs the benefits
from the implementation of the project
Construction machinery
Procured in initial phase of the project
Include earthmoving equipments, cranes, compressors, etc
Consumables
Materials which are consumed at different rates throughout the entire
span of the project such as cement, steel, etc
Codification of Materials
o Codification serves two purposes
Proper and Easy identification
Material accounting and Control
o Following codification system may be adopted for different classes of materials
Capital equipment
Capital equipments are associated with particular activity and this
needs to be incorporated in the coding of these materials
The same code as the activity can be used with the advantage of easy
identification of the capital equipment
110013/V1, 110013/M1
Construction machinery
Construction machinery is used as a resource in project
Code for these materials are used for the allocation of these resources
and for procurement of relevant spares for the machinery
Project Code/BD1, Project Code/COMP1
Consumables
Not worth spending much time in codification as the life span is
limited by project duration
A simple three to five digit code is preferable to be used for these
materials
1-50 (steel plates), 51-100 (steel rods)
Material Planning
o Capital equipments are to be planned in such a way that these are available at the site
just before the erection/ installation of these. Since different equipments are to be
erected/ installed at different periods, a sequential arrival of capital equipments based
on their respective installation period is desired
o Demand for construction is known as soon as the resource requirement for the project
is finalized. The construction machinery is required before the construction can start
and are to be planned for availability prior to construction phase of the project
o To take into account the varying demand rate in the planning of consumable materials
it is desirable to draw the aggregate demand pattern of the material for the entire
project duration. The concept of EOQ can be used in planning for consumables
Procurement
o Vendor selection plays an important role
o Contingency procurement plans are also necessary to minimize the effect of
undesirable performance by vendors

Capital equipments are revenue generating assets on the completion of the


project. They are also procured for the first time by the organization. As a
result the organization has enough flexibility for the selection of capital
equipment with regard to technology, capacity, prices and performance. One
of the common practice for the procurement of capital equipment is to ask for
bids in two stages, technical bid and financial bid
Suitability of construction machinery for the particular construction site
should be evaluated. Also maintenance requirement is an important factor in
the selection of construction machinery. It may be desirable to procure these
from reputed manufacturers even at a slightly higher price
Consumables are standard materials and are usually available from many
resources. It is desirable to enter into contracts with the suppliers for the
entire requirement with staggered delivery
Storage and Logistic system for Materials
o At a project site, most of the available space is open and very little covered area is
available
o Materials which are needed to be stored are the consumables and the capital
equipments prior to their erection
o Construction machinery are put to use as soon as they are received
o Consumables are received in lots at different periods and used over the entire period
of the project
Material Accounting and Reconciliation
o Capital equipments are associated with particular activity and are charged to those
o Construction machinery are usually charged to general project expenses
o Consumables are used by different activities. The cost of these materials are charged
to various activities based on actual quantity used in these activities
o Periodic reconciliation of materials is done and normally these show unfavourable
variance. These are due to handling losses and wastages. Variance beyond permissible
limits need to be investigated for taking necessary corrective actions
Disposal of Surplus Materials
o Aim of the exercise is to get maximum possible value of the surplus material and not
to dispose off the materials for the sake of disposal
o All projects end up having sizable quantity of surplus materials, mostly consumables.
In addition, the construction machinery are also available for disposal
o Some of the options available for disposal are
Use during the on-going operation after the completion of the project
Return to the supplier
Loan to other projects for return at a later date
Sale by tender or auction
Transition from Situation to On-going Structure
o Planning for the materials management function on completion of the construction
activity needs to be carried out much before the completion of the project for smooth
transition from project to on-going operation
o Tasks to be performed are
Identification of the materials required for on-going operations
Assessment of consumption rates
Codification and classification of materials
Assessment of storage requirement, store layout, etc

Materials Management and Computers


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Computers can be used in materials management for


o Forecasting
o Materials Planning
o Purchasing
o Inventory Control
The data in respect of following is carefully recorded and forms the basis of all calculations
o Nature of projects
o Items and quantities
o Materials used
o Prices
o Storage costs
o Transporting Costs
o Wastage, etc