Planning – Construction Materials

• Materials involve – all purchased items utalised at project site including construction materials,

• Construction materials cover all types of materials used in construction including electrical, mechanical fixtures

• Materials account for 40% cost, hence small saving in material cost can result in large contribution especially when profit margins are less in competitive bidding

• Material planning involves – identifying materials, estimating quantities,

defining specifications, forecasting requirements,

– locating sources for procurement, getting samples of materials approved, designing materials inventory

– Monitoring flow of material till the works are completed

– Involves variety of materials

ABC Classification of Construction Materials

• Materials are Broadly divided in to – Repetitive and non repetitive – Primary purpose of classifying materials is to control quality, cost

and timely supply– Factors to be considered during classification of materials are

storage space, inventory costs, ease of identification, construction sequence, transportation requirement price, procurement time, source

– In general construction materials can be grouped in to any one or combination of the following categories

• Bulky, one time purchases, repetitive use and minor materials• Vital, essential and desirable materials• Indigenous and imported materials • High price, medium price and low price materials • High usage value, medium usage value and low usage value

ABC analysis

• Pre requisite for applying ABC technique is that project should have a standardised bill of materials, quantities, unit rate and cost

• Material management technique of ABC analysis is based on the principle of ‘control by selection’ which implies that it is not necessary to give same degree of attention to procurement, storage, issue and control of all types of materials

• Generally used for control of regular stock items

Methodology • Identify materials required and estimate quantity of each material• Obtain approximate rate for each item • Assess requirement during project period • Determine the usage value by multiplying quantity with unit rates• Calculate % usage value of each material with respect to total

project / yearly and write % against each item • Arrange items in decending order of usage value • Compute cumulative usage value against each item • Draw the horizontal lines demarcating the descending order of

cumulative % values at 70% and 20% level • Three groups separated by above two horizontal lines starting in

descending order of usage value can be grouped as A, B and C groups

• Fig 8.1

Applications

• ABC technique assist in developing policy guidelines for exercising control

Policy consideration A Items B Items C Items

Degree of Control requirerd Strict moderate Loose

Forcast accuracy Accurate quantities Approximate Quantities Rough Quanatities

Authority fpr ordering Senior Level Middle level Junior level

Suppliers to be contacted Maximum suppliers 3 to 5 reliable suppliers 2 to 3 reliable suppliers

Safety stock Low moderate Adequate

Ordering Frequency When required EOQ basis Bulk Ordering

Follow Up required Maximum Moderate When required

Monitoring Inflow and Stock status Weekly    

Control reports Weekly Monthly stock taking Quarterly

MATERIALS USAGE STANDARD

• Generally materials and labour costs in a project are conceptualised during inception stage

• While contracting quantities of work involved in a project are detailed in the contract bill of quantities

• There is inherent materials wastage associated with all types of materials

• Wastage of materials is generally expressed as percentage of the materials calculated theoretically from the quantities of work involved and are termed as ‘Standard wastage’

• Materials to be Provisioned = Theoritical Quantity of materials x{ ( 100+ standard wastage %)/100}

• Standard wastage depends upon many variables such as nature of work, type of materials, method of application etc

• Standard wastage best be specified from experience

• Standard wastage caters for wastage during utalisation only for causes considered beyond control

• In addition to this Uncontrollable wastage there is wastage / pilferage which falls under controllable wastage at various stages

• Controllable wastage can be due to following – Wastage on account of designers specifying non

standard materials having unattainable specifications – Wastage due to incorrect purchasing resulting in

overbuying, wrong buying, unneccessary buying and untimely buying

– Wastage in transportation and transportation including breakage and pilferage

– Wastage during storage resulting from deterioration, improper storage, breakage and theft etc

Materials Provisioning Process

• Involves – Identification of materials package ( includes

all types and qualities of materials needed to perform)

– Materials Quantity estimation– Scheduling materials requirement – Materials Procurement Enquiries – Finalisation of Source of Procurement – Monitoring Materials delivery schedule

Planning Materials Inventory

• Need for Planning inventory

• Inventory cost

• Inventory Planning approach

• Planning Inventory of Repetitive Materials

• Planning Inventory for Non Repetitive Materials

• Minor materials Items Inventory

Need for Planning Inventory

• Each project starts with zero material stock and after left-outs are disposed off, it ends up zero stock

• During Construction there should be working stock sufficient for a very short period and should get replenished regularly

• Construction material stock costs money, it locks up the capital invested for making purchases and occupies built in accomdation and open storage space

• The variety of items and their value pattern can be conceptualised using ABC analysis

• Total number of items of materials at any one time during peak stock may run in to hundreds and corresponding value may be of the order of 5-15% of materials cost

• Therefore it is necessary to hold a planned stock for smooth construction of planned activities with least investment on inventory

• ‘Inventory’ implies cost of materials in stock at a given time

• This stock is held to act as a cushion between supply and demand

• Higher inventory implies higher investment and less inventory carries the risk of supplies falling behind demand

Inventory Cost

• Cost Components Inventory Cost C = Ordering Cost + Inventory carrying cost Where Ordering Cost = Cost per order x number of orders

Co. N

Inventory Carrying cost = Carrying cost of an Item x Average stock = Ci P Q /2 = (Ci P Q N) / 2N = Ci A / 2N

Ci = Carrying cost expressed as % unit price of an item P = price per item Q = Qty per order N = Number of orders A = Total consumption cost = Total consumption quantity x unit price = Q N P

Inventory Cost C = Ordering Cost + Inventory carrying cost = Co N + (Ci A) / 2 N

Inventory Planning Approach

• Inventory plan aims at evolving materials stock holding levels to meet project execution plan with minimum investment on inventory

• If all the items with similar characteristics are stored under similar conditions and are procured from a similar source Then Co and Ci generally considered to be constant

• In reality Ci is not constant for all types of materials but varies with consumption value, volumetric size of materials, type of storage

• Co depends on location of source• While planning inventory material with similar source,

and storage characteristics can be grouped together and Co and Ci can be determined separately

Planning Inventory of Repetitive Materials

• Involves Determining Economic Order Qty

• Fixing maximum and Minimum Stock limits

• Lead time for stock replenishments and Reordering Point for each type of A and B

• Fig 8.2

Economic Order Quantity ( Q)

• Two important decisions to be taken while planning repetitive materials are – How much to order at one time – When to order this quantity

• Least Inventory Cost = √ 2Co Ci A

• N = √{ Ci . A} / 2Co

• C= √ { 2 Co Ci A}

• Working Stock – Q = Total Quantity during the period / Number of

replenishment cycles – Equal to normal consumption quantity during each

cycle • Safety Stock:

– Floating stock held to cater for changes in rate of consumption

– Delays in material deliveries – Other unforseen causes– Can be equal to consumption quantity in lead time

period

• Lead Time : – total time required for replenishment of an item of material from

the time of indent is submitted to purchase department to the time that ready for use materials are received at the stock yard or delivered at the site of work

• Maximum stock level – Adding working stock and safety stock and minimum stock

level. – Other factors considered for fixing maximum stock level include

rate of consumption of materials, lead time to obtain new deliveries, risk of deterioration, storage space of available, cost of storage, market fluctuations, seasonal considerations and funds earmarked

• Re Order Level – It is level at which stock is ordered – Is determined by adding assessed

consumption during lead time period to the minimum stock level

• Replenish Level – It is the desired level of inventory – Qty to be ordered is determines with

reference to this level

Practical Applications of repetitive Inventory model

• Instead of Ordering Irregularly, Orders can be placed thrice a month / weekly and quantities adjusted accordingly

• Order in terms of standard lot supply ( eg.cement 20tonnes )

• Adjust order quantity in case of better discount offers, seasonal variations, weather conditions etc

• Reduce the number of Orders for low value items as they do not effect overall inventory cost appreciably, provided if storage space permits

Planning Inventory of Non repetitive One time

Purchase Materials