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

- Costo 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

- Procuremento Deals with acquiring materials necessary for construction from suitable sourceso 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 Controlo 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

- Storageo Certain materials have to be held in stock before they are used, it is necessary to store

them properly to guard against deterioration, etco 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. Classification Criteria1. ABC (Always Better Control) Annual Value of Consumption2. HML (High Medium Low) Unit Price3. VED (Vital Essential Desirable) Critical Nature4. SDE (Scarce, Difficult to Obtain,

Easy to Obtain)Availability

5. GOLF (Government Ordinary Local Foreign)

Source

6. FSN (Fast moving, Slow moving, Non moving)

Issues from Stores

7. SOS (Seasonal, Off-Seasonal) Seasonality8. XYZ Inventory Value

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 usedo 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 Cost 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 costS. No. Material Quantity Cost % Cumulative

CostCumulative

%10% of materials 70% of cost 70%20% of materials 20% of cost 90%70% of materials 10% of cost 100%

Based on above, ABC categorization is as belowS. No. % of items % of cost Category

1. 10 70 A2. 20 20 B3. 70 10 C

The analysis does not depend on the unit cost but its total costo 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

o 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

o ExampleItem Annual Cost Orders per Year Value per Order Average Inventory Value

P 60,000 4 15,000 7,500Q 4,000 4 1,000 500R 1,000 4 250 125

Average Inventory 8,125 Revised as per ABC analysis

Item Annual Cost Orders per Year Value per Order Average Inventory ValueP 60,000 8 7,500 3,750Q 4,000 4 1,000 500R 1,000 1 1,000 500

Average Inventory 4,750

Coding

- Necessary for easy identification of materials. Helps in two wayso If codes have been adopted, it is not necessary to write lengthy description of

materialso 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 Numericalo Alphabeticalo Alphanumerico Colour

- Coding must satisfy the following to be effectiveo Should cover range of all materials, not only present but also those likely to be used

in futureo Must be consistent and logicalo Should be simple and easy to understando 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 aspectso Total quantity of materials requiredo Phasing of the requiremento 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 officero Catalogues, trade journals and trade directorieso Advertisements of the manufacturers or supplierso 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 qualityo Adhere to the delivery scheduleso Caution the user ahead of time of the shortageso Keep client aware of new/ substitute materialso Help the client in the event of unexpected situationso Promptly attend to the complaints

- Qualities of a Good Purchasero Realistic quantity of the material to be purchasedo Prompt payment of supplier’s billo 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 aso Quantity

Depends on the stocks in hand and inventory policieso 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/ InventoryContract

- 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 Offero Acceptanceo Legal Relationshipo Legal Considerationo Competencyo Lawful Objecto Possibility of Performanceo 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 concernedo 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

o Sample based Contract of Sale

Materials to be supplied on the basis of sample have many advantages form purchaser’s point of view

Authentic samples must be signed by all the parties and must be preserved properly like any other contract document

o Payment for Materials Supplied Time of Payment Place of Payment Mode of Payment

o 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 Agencyo This law is relevant to materials purchasedo 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 himselfo Agreement between agent and principal may not necessarily involve any

considerationo 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 aso Demand of the materialo Lead timeo Price of the materialo Minimum size to be offered at a timeo Discounts available on bulk purchaseo Mode of transporto Minimum quantity that can be economically transportedo Uncertainty associated with availability of materialo Cost of handling and storageo 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 Inventoryo Consumable/ Raw Material: Goes into construction and forms part of the structureo Supporting Consumables: Petrol, diesel, etco Purchased Items: Plumbing fixtures, fixtures for doors and windows, etco Items Produced on Site: Bricks, tiles, etco 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 ono Analysing the demando Decision to purchaseo Selecting sourceo Placing the ordero Inspection and testing

- Cost of Holdingo 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 advanceo Consumption of materials occurs at a uniform rateo The price of the material is independent of the ordero There is no lead time in replenishment

- Leto A be the annual demand in terms of unitso Q be the lot size ordered at a time in unitso P be the price of the materialso H be the inventory holding cost expressed in Rso 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 practiceo Rate of consumption will always be varying and never be constanto 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 areo 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-Systemo 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 fixedo Period of order is not the same

- Economic Lot Size of Productiono Some items are produced at site rather than purchasing from the market, hence there

is economic lot size to be produced per batcho Rate of production should match the consumption when no stocks pile upo 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 upo 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 t be the batch period T be the total cost

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

Types of Storage

- Open Space Storageo Materials are more or less stable and do not deteriorate due to exposure to atmosphereo They are comparatively less costly

- Closed Storageo Where costly materials are storedo To be kept under lock and key

- Intermediate Storageo 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 aspectso Locating the store on site while preparing the site layouto Store layout whatever be its location

- While locating the store a number of factors need considerationo Locationo Size

- Store has to be located in such a place thato It can be seen from site office as well as the main watch and wardo It should also be convenient from the point of view of unloading of materialso It should have an easy access to different parts of the siteo It may be necessary to have more than one stores on the site and all the stores should

be properly coordinatedo It should have a fairly wide approach road permitting all types of vehicles to be

brought ino It should have a scientific layout and be equipped with necessary amenities such as

weighing scale, lifting devices, etco 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 materialso Selection of the carriers and routingso Ascertaining rateso Payment of transportation chargeso Allocation of transportation charges to materialso Follow up in respect of the shipments which are lost/ dueo Lodging claims for delays, shortages, damages, etc

- Transport costso Refers to expenditure incurred in entire process of movement of material from one

place to anothero It depends on the quality of material, mode of transport, distance of transport,

frequency, permits or licenses, etco 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 Reliableo Quality: Regularityo 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 beo Cost of Materialso Cost of Transporto Storageo Consumptiono Miscellaneous

- The above data can be combined to work out useful informationo Overall unit cost of materialo Cost of transporting unit material over a unit distanceo Cost of storage of unit materialo Cost of placing an ordero Requirement of materials

Reports and Records

- Proper coordination and control can be implemented through a well designed system of reports and records

o Requisition Formo Advice note to Purchaseo Inviting quotationso Scrutiny of the quotationso Placement of Ordero Rejection of Materials

Comprehensive Materials Management on a Project

- Classification of Materialso 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 Planningo 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

- Procuremento Vendor selection plays an important roleo 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 Materialso At a project site, most of the available space is open and very little covered area is

availableo Materials which are needed to be stored are the consumables and the capital

equipments prior to their erectiono Construction machinery are put to use as soon as they are receivedo 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 thoseo Construction machinery are usually charged to general project expenseso Consumables are used by different activities. The cost of these materials are charged

to various activities based on actual quantity used in these activitieso 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 Materialso 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 disposalo All projects end up having sizable quantity of surplus materials, mostly consumables.

In addition, the construction machinery are also available for disposalo 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 Structureo 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

- Computers can be used in materials management foro Forecastingo Materials Planningo Purchasingo Inventory Control

- The data in respect of following is carefully recorded and forms the basis of all calculationso Nature of projectso Items and quantitieso Materials usedo Priceso Storage costso Transporting Costso Wastage, etc