Professional Documents
Culture Documents
CII 257 - 3 Materials Management Planning Guide
CII 257 - 3 Materials Management Planning Guide
Prepared by
Global Procurement & Materials Management Research Team
November 2010
© 2010 Construction Industry Institute™
CII members may reproduce and distribute this work internally in any medium at no cost to internal recipients. CII members
are permitted to revise and adapt this work for their internal use, provided an informational copy is furnished to CII.
Available to non-members by purchase; however, no copies may be made or distributed and no modifications may be made
without prior written permission from CII. Contact CII at http://construction-institute.org/catalog.htm to purchase copies.
Volume discounts may be available.
All CII members, current students, and faculty at a college or university are eligible to purchase CII products at member
prices. Faculty and students at a college or university may reproduce and distribute this work without modification for
educational use.
Chapter Page
Introduction 1
Conclusion 33
1
I. Materials Management
and the Project Execution Plan
Elements
The Materials Management Plan must fit within the overall framework of the Project
Execution Plan and take into account the following considerations:
The following are among the general project descriptions and parameters that
define the Project Execution Plan:
• project type
• project size
• project location
• facilities to be constructed
• existing facilities.
Following are some of the more significant strategic elements that affect the
Materials Management Plan:
3
I. Materials Management and the Project Execution Plan
Responsibilities
It is important to realize that the owner and contractor on a project must participate
in the activities that make up the materials management cycle. A major effort of project
materials management planning is the establishment of specific responsibilities for
materials and equipment. Owners must determine these responsibilities in the front end
planning phase, in conjunction with project priorities, goals, and contract strategies.
• owner
• prime contractor or managing contractor
• engineering contractor
• construction contractor
• shop fabricators
• suppliers
• field subcontractors.
4
I. Materials Management and the Project Execution Plan
• developing specifications
• materials take-off
• inquiries
• purchasing
• inspection
• expediting
• shipping
• invoicing
• close-out.
Developing a detailed matrix that is based on input from all participants can have
a significant impact on the success of the project. The benefits this matrix provides
for the project include the following:
Organizational Structure
The responsibility and position of all key personnel for each project participant is
best illustrated on organizational charts developed for the specific project. These charts
promote a better understanding of the different organizational groups participating in
the work. They also allow a clearer understanding of the authority of key personnel,
including the line of command.
5
I. Materials Management and the Project Execution Plan
Material Types
To appropriately manage materials acquisition activities, project materials are
categorized into three groups: engineered materials, bulk materials, and prefabricated
materials.
Engineered Materials
Broadly defined as items with uniquely assigned numbers, or tags, that permit
identification and location throughout the entire life of the project, this group is often
further divided into two subcategories:
Bulk Materials
Bulk items are materials that are manufactured to industry standards and purchased
in quantity. These materials include such items as pipe, fittings, wiring, and cable.
Prefabricated Materials
Prefabricated items are typically engineered and fabricated according to engineered
specifications at a fabrication shop/site that is separate, sometimes distant, from the
construction site.
6
II. Preparing the Materials Management Plan
• project size
• contracting strategy and schedule
• type and volume of materials
• site location
• availability of advanced material management IT systems.
7
II. Preparing the Materials Management Plan
The first step in planning for engineered items is a determination of the engineered
items required for the project. Although equipment specifications may not be completed
until the detailed engineering phase, it is important that planning for these items begin
during conceptual engineering, since these items will drive the entire project schedule.
During the conceptual engineering phase, a major equipment list should be developed
to which lead times for supplier data, fabrication, and delivery should be added. This
list can be used as input to the development of the engineering schedule so that long
lead items can be specified early, and the overall project schedule can be optimized.
Another item that must be accomplished early on is the development of the actions
required in the acquisition cycle of engineered items. Establishing these in the most
precise terms possible is important to meeting project needs and should be a joint
effort between the owner and contractor. A method of monitoring and reporting against
these milestones must also be planned.
During planning for acquisition of major equipment, the team should consider the
acquisition of the materials related to the basic equipment. Such ancillary materials
acquisition involves special considerations, including the following:
All of these items will become specific at inquiry and purchase order time. However,
contractual arrangements between owner and contractor should establish the ground
rules for many of them, and the overall philosophy should be set during the planning
stage. As specific items reach the inquiry stage, specific terms and conditions should
be selected with inputs from the owner and contractor.
8
II. Preparing the Materials Management Plan
Once the basic plan, approach, and philosophy are all established, the details of
specific forms and procedures should be planned and established. The owner and
contractor will generally use forms that are already in place or that have been used
on previous projects—perhaps modified to meet the specific needs of the project.
• availability
• market conditions
• storage facilities
• transportation
• material sourcing
• cash flow.
Experience and judgment play a significant role in planning bulk materials acquisitions
for a project. The use of strategic suppliers may also provide significant advantages
in acquiring bulk materials and reducing surplus materials at the end of the project.
In an optimal environment for bulk materials planning, all engineering will have
been completed and the actual bills of material will have been created. The overall
project schedule would allow sufficient time for consolidating the required materials
and then getting them purchased and delivered to the jobsite before construction even
begins. This optimal environment, however, is far from the reality on most projects.
Frequently, construction begins long before total engineering is complete. Materials
requirements’ planning is caught in a schedule window that requires a significant
amount of front end planning.
The starting point for planning bulk materials acquisition begins with an examination
of the project schedule and an assessment of the bulk materials required over time.
As with engineered items, the steps required in the acquisition of bulk materials,
including the review and approval points, must be planned. Once all project parties
are in agreement, the steps should be documented and published as part of the
Materials Management Plan.
9
II. Preparing the Materials Management Plan
The degree of control required will affect all aspects of planning for bulk materials
and can range from little or no control to maximum control. When little or no control
is required, all bulks are established as min-max items, with minimum quantities
maintained in stock. Quantities are also issued to construction craft workers with no
verification of actual requirements and no record of items issued. When maximum
control is required, all bulks are taken off from “issued for construction” drawings and
issued materials are verified against the take-off and then recorded.
Obviously, the best approach to establishing the proper level of control for a given
project is somewhere between the two extremes. Materials that are readily available
and inexpensive will require fewer controls than materials that are less available, have
longer lead times, and are more expensive. The degree of control to be exercised must
be determined so that appropriate resources (procedures, systems, and people) can
be planned. Volume also will have an impact on the selection of the right approach to
controlling bulk materials. A small project may be handled adequately through manual
record-keeping and summarizing. Greater volume requires the use of a computerized
materials control system.
10
II. Preparing the Materials Management Plan
In the case of a pipe fabrication shop, the usual, most economical approach is to
have the spool sheet developed by the fabricator from the engineer’s drawings. These
drawings become the basis for development of required bulk material quantities in
the same manner and with the same considerations as planning for bulk materials.
There are three approaches to acquiring bulk materials for prefabricated materials:
1. The prime contractor buys the bulk materials and delivers them to the
fabricator.
2. The fabricator supplies the bulk materials in the same way it supplies
fabrication services.
3. A mix of the above two approaches.
11
II. Preparing the Materials Management Plan
• cost of materials
• materials availability and lead times
• volume of quantities required
• uniqueness of materials (e.g., fiberglass, plastic-lined pipe)
• level of control desired (especially for high-cost materials)
• auditability and record keeping.
Whether the prime contractor or the fabricator supplies the material, the same
considerations apply to determining bulk requirements and initial buying as apply to
other bulk materials.
Global Sourcing
The highly competitive nature of the construction business has forced companies
to consider alternative sources from low-cost countries. Ignoring global sourcing could
be devastating to the future viability of an organization; therefore, it is an issue that
needs special attention. The opportunities to strengthen an organization’s position
through global sourcing are available if the company will invest in them.
12
II. Preparing the Materials Management Plan
capacities, and taking advantage of specific geographical talent pools. The associated
risks include the following:
• use of hazardous material
• quality issues
• currency fluctuation
• uncontrolled or unpredictable labor costs
• transportation cost and delays
• intellectual property issues
• inadequate foreign governmental support
• foreign laws
• cultural differences.
13
II. Preparing the Materials Management Plan
D. Purchasing
The first phase of preparing the purchasing section of the Materials Management
Plan is defining the buying responsibilities of the different project team members.
After defining purchasing responsibilities, the Approved Manufacturers List (AML)
and/or Approved Suppliers List (ASL) must be prepared. This list should be reviewed
and approved by both the owner and contractor(s). Many companies have basic
ASLs prepared, but each project’s ASL must be refined to account for its specific
requirements. Factors to be considered include the following:
Following a thorough consideration of the T&Cs and a legal review, final approval
should be obtained from the owner and contractor for implementation. Purchasing
should discuss the invoice payment procedures with accounting personnel to
eliminate misunderstandings.
14
II. Preparing the Materials Management Plan
All forms and required approval levels must be formalized by the owner and
contractor before the purchasing phase begins. This will minimize procedural problems
during project plan implementation.
Field Purchasing
The basic split between home office and construction site purchasing responsibilities
needs to be indicated. Normally, procurement at the construction site should be
limited to non-engineered bulks and consumable materials. The often fast pace of
the construction process does not usually accommodate the value engineering or
planned negotiations required for capital and engineered items. Blanket purchase
orders should be established ahead of field construction needs and should be based
on estimated materials requirements. It is imperative that, during the project planning
stage, a clear buying responsibility between the groups be established.
E. Subcontracting
When the Materials Management Plan is developed, it is important to itemize the
services and materials to be subcontracted. A subcontracting strategy can then be
developed for each item. The subcontracting planning process is similar to that of
purchasing. An Approved Suppliers’ List first must be prepared, terms and conditions
should then be reviewed, and forms and procedures should be updated and reviewed.
15
II. Preparing the Materials Management Plan
Many of the terms of the prime contract between owner and contractor are passed
along to the subcontractor even though there is no direct responsibility between
subcontractor and the owner. Work schedules of the subcontractor must be monitored
to ensure that the project schedule needs are met.
Projects for which most field activities are subcontracted have unique scheduling
requirements that must be considered in the Materials Management Plan. Engineering
should be completed in work packages according to the subcontracting strategy,
thus allowing for timely inquiries and release of subcontracted work. Materials and
equipment identified and purchased for the subcontractor must be delivered to meet
subcontractor mobilization and field need dates to avoid subcontractor claims for
delays. The level of and approach to monitoring subcontractor purchased materials
must also be considered and planned. Not planning properly for these needs can have
disastrous impact on delays and cost overruns in project execution.
F. Expediting
The primary goal of expediting on the project is to ensure that materials are
delivered to the construction site when needed. The construction schedule and its
material requirements must be reviewed in depth to evaluate the project’s need for
expediters. The level of expediting required will depend on materials types, project
characteristics, market economic conditions, and shop loads. There are three basic
approaches to expediting: status reporting, Level 1 expediting, and Level 2 expediting.
Status reporting is the least labor intensive of the three types of expediting. Telephone
contact is made with the supplier on a scheduled basis to ascertain any problems, with
the resulting information being disseminated as required. By definition and practicality,
this method is not actual expediting. Rarely does utilization of the telephone contact
with the status update technique result in accelerating the process or progress of the
purchase order. If progress is achieved, it stems from making occasional contact as
opposed to not calling or expediting at all, as is the practice with some companies.
This technique is commonly utilized when supplier-promised materials delivery dates
are significantly in advance of the construction effort.
Level 1 expediting is more labor intensive than status reporting. Contact is made
with the supplier during the manufacturing phase of the materials, but the activity tends
16
II. Preparing the Materials Management Plan
While Level 2 expediting is the most labor intensive of the three approaches, it
is also the most productive. In this approach, the expediter initiates early supplier
contacts and maintains these contacts throughout the project. Supplier shop visits are
scheduled to monitor the early phases of the materials engineering and manufacturing
processes. The expediter sees that engineering drawings are submitted according
to the schedule and that critical materials are ordered in a timely manner by the
supplier. The expediter often expedites the other project personnel to resolve supplier
questions that may impede manufacturing progress. The expediter monitors delivery
of subcomponents or other critical operations (e.g., casting or forging) to determine
whether the supplier can remain on the promised delivery schedule. Assistance may
be given to the supplier in expediting sub-suppliers as necessary. Level 2 expediting
may, therefore, be quite labor intensive and, thus, potentially more expensive; but on
certain projects or for specific critical materials, the cost of these activities may prove
minor compared to the potential cost of disruption to construction or fabrication at
the work site due to the unavailability of materials.
Two viable options are possible for preparing the expediting plan. One approach
is for the entire expediting plan to utilize one of the above categories exclusively. The
approach chosen should be based upon overall project requirements. The second
approach is to use a combination of the three, whereby different strategies are
established for each purchase order, depending on its criticality.
Project Interaction
Expediting provides a significant data gathering and data distribution function
for the project. Functionally falling between engineering and construction, expediting
requires a strong interface between both organizations. Expediting must be made
aware of any changes to the project schedule. Since the schedule ultimately directs
the expediter’s workload and efforts, any schedule change may have a significant
impact on the expediting function. Since supplier data as well as materials delivery
can affect the engineering and construction efforts, the dialogue between expediting
activities and engineering and construction supervisors must be two-way. In addition
to updates to the Materials Management Plan, expediting information should provide
specific problem notification and alternatives.
17
II. Preparing the Materials Management Plan
Design Phase
Project quality requirements start in the specifications, where designers must employ
current, realistic standards that reflect the needs of the owner. Quality specifications
rely on recognized industry standards, but for specific projects, engineers must read
the standards, determine whether they are still in effect, and be certain they fit the
project requirements. Design quality reviews are needed and submittal requirements
must be clearly delineated.
Pre-award Phase
On certain purchases, particularly those involving equipment, formal supplier
quality evaluations are needed. These consist of surveys that include visits to supplier’s
plants. Owner/engineer evaluators must agree on the basis for ratings before entering
into an evaluation process. Suppliers should be informed that their quality program is
a major factor in award selection.
18
II. Preparing the Materials Management Plan
Post-award
It is essential that supplier coordination continue into post-award, prior to fabrication.
Several points need to be clarified:
19
II. Preparing the Materials Management Plan
A coordination meeting at the supplier’s shop is one technique to help ensure that
quality requirements are understood and followed by supplier shop personnel.
20
II. Preparing the Materials Management Plan
Following are some of the more important transportation and logistics planning
considerations:
Because not having the necessary material and documents onsite when they are
needed is so costly, early transportation planning should consider field need dates of
materials and equipment. The more complete and detailed the planning, the greater
the likelihood that delivery will be on time and that expenditures for transportation
and logistics service will be within the budget. Care should be taken to consult local
governmental authorities about initial logistics plans to ensure that those plans do not
adversely affect local transportation patterns. Additionally, early involvement of local
authorities often ensures cooperation throughout the project’s schedule. Moreover,
coordination, cooperation, and alignment are as important with customs officials as
they are with the local authorities.
Special Loads
Special loads include oversized/excessive weight shipments and shipments
requiring delicate handling or a controlled environment. The latter requirement is
often the byproduct of site location (e.g., polar or desert regions). Needs should be
identified and compared with available transport equipment. Intermediate warehousing
and marshalling areas must also be suitable in all respects for their intended use.
21
II. Preparing the Materials Management Plan
In order to determine the maximum size envelope for special loads (i.e., vessels,
skids, packaged equipment, and modules), it is necessary to determine requirements
for route permits and/or clearances from manufacturers’ facilities to the jobsite. Utilizing
the services of reputable transportation (truck and rail) company personnel who are
familiar with the routes can greatly reduce the time required to accomplish this task.
Specialized truck and rail equipment is usually available in only limited quantities
and must be reserved months, perhaps a year, in advance. Planning and design of
oversized shipments of plant equipment should be reviewed for compatibility with
loading plans and transportation equipment. The cost and risks of moving extremely
large modules may offset many of the anticipated advantages of modularization, and
thus should be considered during the project’s front end planning, its engineering
phases, and its prefabrication planning.
International Shipments
The United States, its principal trading partners, and other countries have rules
governing exports from their borders. Government regulations sometimes prohibit
exports of certain goods and sometimes prohibit shipments to certain countries.
Governments require special export license applications and approval prior to
exporting certain commodities and equipment. Pariah states are sometimes the
targets of international trade embargoes. Export control rules and regulations must
be carefully observed, since violations of export administration regulations carry
both civil and criminal penalties. These can include large fines, loss of a company’s
privilege to export, and prison sentences. One can be held criminally liable for export
control law violations.
22
II. Preparing the Materials Management Plan
Site Access/Security
The project’s load limits and the access highways, roads, and bridges it will use
all play an important part in pre-construction planning. The immediate adjoining
access road may have to be upgraded, widened, and/or have turning lanes and traffic
signals installed. The roads that this road connects with may also have to be altered.
23
II. Preparing the Materials Management Plan
Some adjoining roads may have to be declared off-limits to heavy loads to preclude
obligating the owner for their maintenance or rebuilding. If bridges cannot handle
the expected delivery loads, it may be necessary to build a new bridge or apply for a
grade crossing, which could involve signals. The height of underpasses should also
be checked for trailer clearance.
The railroad(s) nearest to the project should be checked for general condition and
load limits on bridges. It is also important to know about spur availability. The proximity
of the main line and number of tracks will determine whether a track for switching can
be on railroad company trackage or on site.
• depth
• water current velocity restrictions
• waves created by ships
• boats
• barges
• environmental impact.
A map of the project site in relation to local, state, and/or federal highways, large
towns, or airports should also be developed. The project map can be scaled if the
project is close enough to fairly well known landmarks and if a large scale map is
available. If no map is available, an aerial photograph should be used. This is important
not only for directing personnel to the site but also as an effective document to be
included with bidding inquiry packages.
In order that security during construction can be effectively enforced, site security
planners should determine the best location for perimeter fencing, gates, security
lighting, parking, and other facilities. The main security concerns of site materials
control are protection of tools, equipment, and materials from theft; admittance and
direction of delivery vehicles to receiving areas; and procedure for removal of materials,
tools, and equipment from the site (i.e., the project’s gate pass procedure). Materials
personnel should be involved in the development and review of security procedures
to make certain their concerns are adequately addressed.
24
II. Preparing the Materials Management Plan
Receiving
Thorough receipt inspections of critical equipment and materials can be valuable in
preventing costly schedule delays. Although it is not practical or desirable for the quality
control organization to inspect all materials, certain critical items should be identified
during project planning to ensure that inspection is part of the receiving process. On
the surface, the materials receiving process would appears to be a routine activity,
but is in fact one that can cause a multitude of problems if not properly planned and
executed. Incorrect, missing, or damaged materials that are undetected at receiving
will go unnoticed until needed for construction, at which time they are likely to have
a severe impact on the construction schedule. Also, enforcing warranties and back-
charging suppliers for necessary field rework may depend on a well-documented,
timely receiving report.
Shipping bills of material (manifests), packing lists, and purchase order copies are
probably the ideal itemized documents to have for receiving; however, other documents
such as piping spool sheets, pipe hanger sketches, bar bending schedules, materials
lists, and valve lists are all useful and, in most cases, absolutely necessary for receiving.
In order to get required documents from suppliers, it will be necessary to make them
a purchase order requirement.
Storage Facilities
25
II. Preparing the Materials Management Plan
26
II. Preparing the Materials Management Plan
The plan should be comprised of general guidelines, methods and techniques, and
specific procedures covering all permanent plant equipment and materials.
• dehumidification
• oil coating
• lubrication
• oil filling
• heating
• nitrogen blankets.
Once storage methods and preservation techniques have been defined, periodic
maintenance and inspection requirements should be specified for each equipment
item or materials category, as applicable. These inspections and checks may include
the following considerations:
27
II. Preparing the Materials Management Plan
Preparations for start-up are also an important component of the protection plan
for rotating or reciprocating equipment and include some of the following activities:
28
II. Preparing the Materials Management Plan
O&M materials management for the project typically include the following activities:
29
II. Preparing the Materials Management Plan
Spares Management
It is critical to have the right O&M input during a project’s design stages to leverage
real-life experience into the spares philosophy. Bringing a maintenance planner onto
the contractor’s team early in the planning process often adds significant value to a
project; maintenance planners should take the lead in designing the materials transition
strategy—from construction to commissioning to start-up—and provide insight into
and expertise on rationalizing the quantity of spares ordered.
The owner should identify the recommended listings of spares for two-year
operations. Doing so typically requires that the owner interface with the contractor
and/or the original equipment manufacturer (OEM). The contractor may procure spares
on behalf of the owner, or the owner may procure them directly from the OEM. The
amount of spares required depends on several factors including the following:
In addition, the contractor is typically tasked with identifying and procuring spares
for commissioning and start-up. Depending on the type of contract and the facilities
handover plan, the contractor may also need to identify and procure early operations
spares or consumables. Prior to handover, joint owner and contractor reconciliation
should ensure that all required and surplus spares are catalogued and procured.
K. IT Systems
One of the tasks of the planning phase of materials management is to define
the materials management systems that will be utilized on a project, specifying how
they are to be used. Typically, these automated tools should be an integrated set
of computer systems or programs that identify, track, report, and facilitate control
of project materials, from quantity take-off through the engineering, procurement,
construction, and start-up phases of the project.
30
II. Preparing the Materials Management Plan
The automated materials management system should include the following primary
project capabilities for the following project phases:
31
II. Preparing the Materials Management Plan
32
Conclusion
The project materials management process begins with the Materials Management
Plan, a document that is incorporated into the Project Execution Plan. Decisions on
purchasing and controlling materials that are made in the early stages of a project are
critical to project success and, if properly executed, present considerable opportunity
for cost savings. Materials planning is continuous and extends through the entire project
life cycle—from the front end planning requirements to the day-to-day operation at
the plant.
Materials management planning will vary from project to project, but certain
planning functions are applicable to all materials—whether engineered, fabricated,
or bulk. Although engineered equipment is the most visible, costly, complex, and
quality-critical, bulk materials planning is more difficult. The difficulty is due to the
problem of controlling quantities and to the labor-intensive nature of bulk materials
installation. (Indeed, installation of bulk materials can consume 80 percent of the direct
labor effort-hours.) Project management must make important decisions regarding
lead times, bulk materials purchases, and the extent of line item control.
33
RT 257 Participating Organizations
Owners
AES Corporation NASA
Amgen Nova Chemicals
Anheuser Busch In-Bev Ontario Power Generation
Air Products Petrobras
BP America Progress Energy
Cargill Sasol Technology
Chevron Sunoco
ConocoPhillips Technip
Eastman Chemical Company Tennessee Valley Authority
Intel The Procter & Gamble Company
International Paper Company U.S. General Services Administration
Eli Lilly and Company U.S. Steel
Marathon Oil
Contractors
35
Global Procurement & Materials Management
Research Team
* Principal authors