Addis Ababa University

EiABC
Program: Construction
Technology and management
Course code: CoTM 5202
Course name: Construction
Materials Management
 Course Content

1. Introduction to construction materials management

 Definition
 Importance of construction materials management
 Management of Permanent and Temporary Materials

2. Management of construction Materials Production

 Management at: Quarries, Plants and Industries
 Course Content

3. Construction Materials Supply Management:

Supply chain management in construction

Procurement of Construction materials
Transportation of Construction Materials
Construction Materials Handling
Storage and Inventory Management
 Course Content

4. Construction Materials Standard and Quality

management.

 Evaluation and Requirements for the completion of the course

 Assignment 10 %
 Class participation 10 %
 Written examinations 80%
 Attendance requirement 75%

 Reference
 Lecture note
 Any related materials to the subject
Introduction to construction materials
management
 Introduction Contd…
• Materials management is part of logistics and
refers to the location and movement of the
physical items or products. There are three
main processes associated with materials
management: spare parts, quality control, and
inventory management.
 Introduction Contd…
Definition
Materials Management
“Materials management is a process: It is how a
building is designed and how materials are
estimated. It is how materials are acquired and even
how the packaging is specified. It is how the delivery
schedule is designed. It is how contractors plan
materials use and how they manage previously used
materials and cuts. It is how waste is managed for
use elsewhere or recycling rather than being
discarded in a landfill.” [Construction Materials
Management Guideline, A Chapter of the American
Institute of Architects]
 Introduction Contd…
• Materials Management is The planning and control of
the functions supporting the complete cycle (flow) of
materials, and the associated flow of information.
These functions include (1) identification, (2)
cataloging, (3) standardization, (4) need determination,
(5) scheduling, (6) procurement, (7) inspection, (8)
quality control, (9) packaging, (10) storage, (11)
inventory control, (12) distribution, and (13) disposal.
 Introduction Contd…
 Materials management in construction is the efficient use of
goods and equipment before, during and upon completion of
a building process.
 It deals with material cost, material supply material storage,
utilization and handling
 The scope of materials management applicable to
construction industry involves the planning of materials,
procurement of materials, packaging, storage, inventory
control, transportation of materials, material handling,
disposal of scrap and surplus
 Successful materials management requires the participation of
all persons involved in a construction process.
 Objectives of Materials Management
• Economy in Materials Cost
• Efficient control of inventories
• Ensure Uniform flow of Materials for
production/construction
• Ensure right quality at right price
• Establish and Maintain good relations with
customers
• Economical consumption of important items
and finding their substitutes
 Why is CMM important?
• One of the three cost components in Construction is Material . Hence,
Materials management is an important element in project planning and
control to make construction projects cost efficient.
• Materials represent a major expense in construction, so minimizing
procurement or purchase costs presents important opportunities for
reducing costs.
• Poor materials management can also result in large and unavoidable
costs during construction.
• First, if materials are purchased early, capital may be tied up and interest
charges incurred on the excess inventory of materials.
• Even worse, materials may deteriorate during storage or be stolen unless
special care is taken.
• Second, delays and extra expenses may be incurred if materials required
for particular activities are not available. Accordingly, insuring a timely
flow of material is an important concern of project managers.
 Why is CMM important?
• Materials management is not just a concern during the
monitoring stage in which construction is taking place.
• Decisions about material procurement may also be
required during the initial planning and scheduling stages.
For example, activities can be inserted in the project
schedule to represent purchasing of major items such as
elevators for buildings.
• The availability of materials may greatly influence the
schedule in projects with a fast track or very tight time
schedule: sufficient time for obtaining the necessary
materials must be allowed.
• In some case, more expensive suppliers or shippers may
be employed to save time.
 Who are involved in CMM?
• Many People are Involved
Successful materials management like
any successful project relies on the skills of many
professionals from the architect and designers
through project management to the trade
contractors.
At Pre-construction phase, people Involved In materials
management:
Team Member Role in Materials Management
Architect Designs for best use of standard sizes, for multiple applications and
for their recyclability.
Engineer Ensures appropriate structural component dimensions, quality and
spacing for use of standard fasteners and materials for multiple
applications and recyclability.
Estimator Uses latest materials takeoff technologies and exercises accuracy in
estimates.
Purchaser Plans purchases and deliveries to reduce
surplus and to balance materials maintenance
during on-site storage versus transportation
 On Construction site people involved In materials
Management:
Team Member Role in Materials Management
Site Applies the materials management plan to the site and oversees its
construction implementation. Takes into consideration physical space available
management and ensures subcontractors are familiar with and committed to the
plan
Site materials Keeps track of new materials, cuts and used materials; organizes and
manager stores them for availability by the various trades throughout
the project in accordance with the materials management plan.
Communicates with site management and Materials Manager
Subcontract regarding the types of materials they may be able to use for various
management purposes. Ensures trades follow the Plan's practices.
Trade workers. Use materials properly, store new materials properly, handle and cut
them carefully for maximum use and minimum waste. Consider
using cuts before new pieces
Management of Construction Materials,
Permanent and Temporary
Classification of Construction Materials
 Management of construction materials
 Construction materials cover all types of materials used in construction including
electrical and mechanical fittings fixture, devices and instruments that are
incorporated during the construction of permanent works and temporary
supporting works at site.
 permanent works: Materials used for the construction of permanent works are
named as permanent materials
 temporary supporting works: those materials used for the construction of
temporary works are categorized under here. ( engineers facilities, offices, false
works, formworks…)
 In construction projects, materials account more than 40% of the project cost.
 Hence a small saving of material cost through efficient management result in a large
contribution in overall cost saving/profit maximization
 Efficient materials management in project environments calls for an integrated
approach covering numerous functions such as materials planning, purchasing,
inventory control, store-keeping and warehousing, handling and transportation,
codification and standardization, and the disposal of the surplus.
 * Materials planning, which is the key function of materials management, is closely
linked with project planning and control set-up.
 aim to develop a plan for procurement and stocking of construction materials so
as to provide at the site materials of the right quality in right quantity at the right
prices from the right sources at the right time.
 ABC Classification of construction Materials
 The primary concept purpose of classifying materials is
to control quality, cost and timely supply. There are
many factors that need consideration while classifying
materials. These include storage space, shelf life,
supply reliability, inventory costs, ease of identification,
construction sequence, transportation requirement,
price, procurement time, procurement source and
project life. Some of the general categories are;
(a) bulky, one –time purchase, repetitive use, and minor
materials
(b) Vital, essential and desirable materials
(c) Indigenous and imported materials
(d) High price, medium price and low price materials
(e) High usage value, medium usage value and low-usage
value materials
 The most commonly used method for classifying construction
materials is to group them into high-value, medium-value and
low-value materials. * this classification is achieved using
the ABC analysis. The prerequisite for applying the ABC
analysis technique is that the project should have a
standardized bill of materials listing the physical quantities
(including standard usage), unit rate and total cost for each
item.

BILL OF MATERIALS

S.No. Item of Unit Quantity Rate Amount

materials
The materials Group Total Inventory
management technique Class Items Costs
of ABC analysis is based
on the principle of
“control by selection” A 10% 70%
which implies that is not
necessary to give the
same degree of B 20% 20%
attention to
procurement , storage,
issue and control of all C 70% 10%
types of materials.
 ABC Classification
• Class A
– 5 – 15 % of units
– 70 – 80 % of value
• Class B
– ˜30 % of units
– ˜15 % of value
• Class C
– 50 – 60 % of units
– 5 – 10 % of value
Methodology
(a) Identifying materials required and estimate
quantity of each material.
(b) Obtaining the approximate unit rate for each
item.
(c) Assessing the requirement during the period
under consideration, i.e. yearly or project
completion basis.
(d) Determine the usage value of each type by
multiplying the quantity required with the
corresponding unit rate.
 Methods contd…

e. Calculate the percentage usage of each

material with respect to total project cost
f. Arrange the items in the descending order of
usage value and then compute cum. Usage
value against each item.
g. Draw two horizontal demarcating the
descending order of the cum purchase value
at 70% level and 20% level
 ABC Classification: Example
PART UNIT COST ANNUAL USAGE
1 $ 60 90
2 350 40
3 30 130
4 80 60
5 30 100
6 20 180
7 10 170
8 320 50
9 510 60
10 20 120
 ABC Classification: Example (cont.)

TOTAL % OF TOTAL % OF TOTAL

PART PART
VALUE UNIT
VALUE COST ANNUAL% USAGE
QUANTITY CUMMULATIVE
9 1
$30,600 $ 60
35.9 6.0 90 6.0
8 16,000
2 18.7350 5.0 40 11.0
2 14,000 16.4 4.0
A 15.0
3 30 130
1 5,400 6.3 9.0 24.0
4 4
4,800 5.680 6.0 B60 30.0
3 5
3,900 4.630 % OF10.0
TOTAL 100 % OF40.0
TOTAL
6 6
3,600
CLASS 4.220
ITEMS 18.0
VALUE 180 QUANTITY
58.0
5 3,000
7 3.510 13.0 170 71.0
10 A
2,400 9, 8,2.8
2 71.0
12.0 C 15.0
83.0
7 B8
1,700 3320
1, 4,2.0 16.5
17.0
50 25.0
100.0
C9 510
6, 5, 10, 7 12.5 60 60.0
$85,400
10 20 120
Example 10.1
 Plant and equipment management in Material
production

• Introduction
– Construction Materials produced at quarries and plants: masonry, concrete
aggregate, sand, concrete, asphalt, etc
– Machineries and plants are required (such as batching plants, dozers, excavators,
loaders, dump trucks,…)
– Plant and machineries, if poorly managed on construction projects, suffers from low
utilization rates. Therefore the principal contractor needs to concentrate efforts on
the removal of non-value-adding activities.
• Plant and equipment Management
– Considerable care is necessary when purchasing plant and equipment of any kind.
The person charged with making the purchase needs to thoroughly investigate the
various aspects identified below.
– The successful and profitable operation of plant is dependent not only on the price
paid but also on the necessity to conduct a critical evaluation of its suitability.
– This is an activity that should not be left solely to a plant department but should
involve consultation with the operational and user personnel.
– The plant department should not function in isolation or this will impact upon
operational effectiveness and efficiency.
 Plant and equipment management in...
 If due consideration is given during consultations between plant department and
operations the benefits available include:
● simple installations
● minimum commissioning time
● rapid training of operators (learning curve theory)
● high utilization with the minimum of ‘down time’
● longer life of plant (doing the job for which it was designed)
● lower operational costs
● ease of maintenance with the minimum investment in spare parts.
 During purchasing plants and equipments one can ensure an adequate return on
investment by paying attention to:
● maintainability
● reliability
● installation and commissioning
● product support
● costs.
• Down time is the non-operational time of equipment/plants that results from lack of
maintenance.
• Stand by time is the idle time that an equipment/plant spends because of the reason
that there is no activity to engage plants/equipments or lack of operators…
Plant and equipment management in...
Maintainability
• The designers of all industrial plant should ensure that their designs
provide:
– a minimum maintenance requirement
– rapid fault diagnosis and repair
– low maintenance and repair costs.
– Equipment which conforms to these three objectives has maintainability.
Reliability
• This is demonstrated by the length of time between breakdowns in
operational service.
Installation and Commissioning
• The signs of an unsatisfactory purchase usually become obvious
during the installation and commissioning period. This is the time
when plant is delivered and put into operation.
Product Support
• This includes the following:
Plant and equipment management in...
• operating, installation and maintenance manuals
• maintenance schedules
• training aids
• special tools
• technical assistance
Cost
– The total cost is the cost of the equipment plus
the cost of delivery, installation, servicing and
product support (life-cycle cost).
 Plant and equipment management in...

• Some of the benefits to be obtained through

careful procurement of plant and equipment
are explained below.
Plant and equipment management in...
Commissioning
• This can be a long process if the purchaser selects the wrong vendor or
incorrect equipment. A competent vendor arrives on site with proof in
the specification that the plant meets set objectives Installation, testing
and operator training should not take long if the plant attains the
required performance and if the technical information for training is
available.
Minimum Down Time
• This is the time in which the plant is not available for production
because of a need for maintenance or repair. Down time can be caused
by a breakdown of plant or by a shutdown period for preventive
maintenance.
Long Life
• The purchasers must assure themselves of the ability of the plant to
attain long service. This is closely linked with ‘reliability’.
 Plant and equipment management in...
Low Operating Costs
 A vendor should be asked for predictions of
operating costs and its approach to this problem
will indicate whether it has adequately assessed
this before selling its product. Operating costs in
each year could include:
 cost of fuel
 cost of operating labor
 cost of maintenance
 cost of down time
 Plant and equipment management in...

• During Operation of plants and equipments

procedures that has to be followed to ensure
efficiency in materials production:
 Setting hourly/daily performance standards
Evaluating outputs against standards
Identifying reasons for recorded production below
minimum performance threshold, if any.
Take remedial measures
Supply chain management in
construction
 SCM
Definitions
A supply chain is a system of organizations,
people, technology, activities, information
and resources involved in moving a product
or service from supplier to customer.
Supply chain activities transform natural
resources, raw materials and components
into a finished product that is delivered to
the end customer
 Supply chain Management…

Internal Supply Chain

Suppliers Purchas Producti Distrib

Customers
ing on ution

An illustration of a company's supply chain; the arrows stand

for supplier-relationship management, internal SCM and
customer-relationship management
 Supply chain Management…
• SCM has been defined as “the network of
organizations that are involved, through
upstream and downstream linkages, in the
different processes and activities that produce
value in the form of products and services in
the hands of the ultimate customer” (Vrijhoef
and Koskela, 1999).
 Supply chain Management…
● Handfield and Nichols (1999) have also expanded the supply chain definition to
include upstream supplier networks and downstream distribution channels.
They have argued that SCM is not as simple as materials demand and supply
networks; it also includes the management of information systems,
procurement, production scheduling, order processing, inventory management,
warehousing, customer service and after-market disposition of packaging and
materials. The supplier network consists of all organizations that provide inputs,
either directly or indirectly, to the host firm. Thus a supply chain includes
internal functions, upstream suppliers and downstream customers, defined as:
● a firm’s internal functions include the different processes used in transforming
the inputs provided by the supplier network
● the upstream supplier network consists of all organizations that provide inputs,
either directly or indirectly, to the host company
● the external downstream supply chain encompasses all the downstream
distribution channels, processes and functions that the product passes through
on its way to the customer.
 Supply chain management in construction
The Emergence of SCM
• Supply chain management (SCM) is a concept that has flourished in
manufacturing, originating from Just-In-Time (JIT) and logistics; it represents
an autonomous managerial concept.
• SCM endeavors to scrutinize the entire scope of a supply chain and offers a
methodology for addressing the myopic (narrow) control in supply chains that
has been reinforcing wastage problems in construction (Vrijhoef and
Koskela,1999).
• The first signs of SCM were perceptible in the JIT delivery system as part of the
Toyota Production Process which aimed to regulate supplies to the Toyota
motor factory (noted previously under JIT).
• The main objective of Toyota was to drastically decrease inventory and to
regulate the suppliers’ interaction with the production line more efficiently
and effectively (Vrijhoef and Koskela, 1999).
• After its emergence in the Japanese automotive industry as part of a
production system, the conceptual evolution of SCM has become a distinct
subject of scientific research.
 Supply chain Management…
• SCM combines particular features from various
concepts including Total Quality Management
(TQM), JIT, Value Management, Risk Management
and Partnering.
• The traditional way of managing is essentially
based on a conversion (or transformation) view on
production, whereas SCM is based on a flow view
of production.
• The conversion view suggests that each stage of
production is controlled independently,
• whereas the flow view focuses on the control of
the total flow of production (Koskela 1992).
 A comparison of traditional Management
and SCM views
Elements Traditional management Supply chain management
Inventory management Independent efforts Joint reduction of channel
approach inventories
Total cost approach Minimize firm costs Channel-wide cost
efficiencies

Time horizon Short-term Long-term

Amount of information Limited to needs of current required for planning and
sharing and monitoring transaction monitoring processes

Amount of co-ordination of Single contact for the Multiple contacts

multiple levels in the between transaction between levels
channel channel pairs in firms and levels of
channel

Breadth of supplier base Large, to increase Small, to increase

competition and spread co-ordination
risks
 SCM
• Although contractors, engineers, construction managers do
not typically consider SCM, they deal with SCM on a daily
basis.
• In construction supply chain refers to the end-to-end-chain of
stakeholders and partners that come together both on
individual projects and during the firms business life.
• In projects, it includes the owner, the contractor, the
consultant(the architect, planner, designer,..), the
construction manager, subcontractor, supplier, distributor,
manufacturer..
• In a firm`s business it also include accounting, human
resource, equipment fleet operations
 SCM
• With in the construction project, SCM is conceived with the
owner at the top, followed by the designer, contractor,…
forming various levels of supply chain
• Demand can be seen as flowing down the chain in terms of
information, eg project brief, drawings, schedule, work
orders…
• And materials flowing in the opposite direction.(McCafer
and Root 2000)
• However; the management of this supply chain is often
problematic due to the fragmentation in the construction
industry and increasing the complexity of the projects and
the demand of greater performance at lower costs from
clients
 Advantages of Deploying SCM
● The theoretical advocated advantages of deploying SCM
within a construction operational environment may be
summarized as follows:
● cost savings for all members of the supply chain
● increased effectiveness of information transfer
● a drive for continued quality improvements
● enhanced client satisfaction
● a reduction in the number and severity of disputes
● the company embarks upon a learning curve, leading to its
continued existence based on stakeholder satisfaction
● increased technical and process innovation
● a reduction in overall project duration
● increased intrinsic motivation related to enhanced job satisfaction.
 Methods in SCM
• A generic methodology of SCM can be deduced
combining and generalizing the commonalities of
different SCM methods. In a way, the SCM
methodology bears resemblance to the Deming Cycle .
• Generically, the methodology of SCM consists of four
main elements:
(1) Supply chain assessment,
(2) Supply chain redesign,
(3)Supply chain control, and
(4) Continuous supply chain improvement
 SCM
• The first step is to assess the current process across
the supply chain in order to detect actual waste and
problems. The issue here is to find the causality
between the waste and problems, and locate their
root causes.
• Once the causality is understood, and having found out
about the root causes, the next step is to redesign the
supply chain in order to introduce structural resolution
of the problems. This includes redistribution of roles,
tasks and responsibilities among the actors in the
supply chain, and a review of procedures.
 SCM
• The next step is to control the supply chain according to its
new configuration. An important part of the control is the
installation of a monitoring mechanism to continuously
assess how the supply chain operates. This includes
systems to measure and estimate waste across the supply
chain process, and feedback systems to discuss and
evaluate underlying problems.
• The objective is to continuously identify new
opportunities, and find new initiatives to develop the
supply chain. In fact, this continuous improvement implies
the ongoing evaluation of the supply chain process, and
the recurring deployment of the previous three steps:
assessment, redesign and control
SCM-Generic Supply chain Management
Methodology

Act Plan

Improve Assess

Control Redesign
Check DO

SCM methodology Deming Cycle

 SCM
ROLES OF SUPPLY CHAIN MANAGEMENT IN CONSTRUCTION
• The generic concepts, methods and lessons learnt, which have
been developed in the framework of SCM, can be used in
different ways for the improvement of construction supply
chains. In the following, illustration of how the methodology of
SCM can contribute to the understanding of construction supply
chain problems, and in giving direction to improvement efforts.

SUPPLY CHAIN MANAGEMENT’S CONTRIBUTION TO RESOLVE

BASIC PROBLEMS IN CONSTRUCTION: UNDERSTANDING
CONSTRUCTION SUPPLY CHAIN PROBLEMS
• Based on the insight gained by means of supply chain
assessment, the SCM methodology needs to be fully applied to
resolve the problems that were found in the construction
supply chain.
 SCM
• Because most problems spread across (a
considerable part of) the supply chain,
solutions are needed that equally cover
multiple stages of the supply chain, including
the actors involved. The range of the solutions
and the part of the supply chain involved
depend on the scale of the problems.
 SCM
• After having assessed the supply chain, the SCM
methodology suggests redesign (reconfiguring the
supply chain’s structure), control (coordinating the
supply chain according to the new configuration) and
continuous improvement. For instance, towards
suppliers, the methodology could include
reengineering the procurement process, installing joint
coordination of logistics and recurring product
development programs. Typically, such activities
include joint activities between separate actors in the
supply chain.
 SCM
• Supply chain arrangements counteracting adversarial relations
with other actors (e.g., partnership) are needed to enlarge the
magnitude of the SCM methodology, and clear the way for
resolution of interdependency-based problems and myopic
control. In fact, actors are dependent on each other for
implementing the supply chain methodology successfully.
• Supply chain development should take place in co-operation with
a growing number of actors tackling a growing number of issues.
• The actors involved should have a common development goal,
share the same view on the development, and adopt the same
approach to issues such as grasping concrete and objective
performance information, and searching for improvement
opportunities cooperatively (Wegelius-Lehtonen and Pahkala
1998).
 SCM-Conclusion
• The concept of SCM represents a logical
continuation of previous management
developments.
• It has been influenced by other management
concepts such as JIT, TQM, Value Management and
Partnering.
• The most critical issue in SCM is the achievement of
a co-operative relationship between all supply chain
partners. SCM would enable the efficient and
effective utilization of both plant and materials.
 Procurement of Construction materials
INTRODUCTION
 Construction of materials needed for a project
work vary with the nature of the project.
 In road projects-materials required may be few in
number
 In building-may be counted in hundreds
 The determination of the type, quantity and
specification of construction materials needs a
detailed study of the contract document , including
The BOQ, Drawings, Specifications, pretender
estimates, preliminary vendor enquiries
 INTRODUCTION
• Materials provisioning to the site should be
planned in the sequence of their requirement
on the site.
• For example materials that are required for site
development, foundation work, superstructure
frame, which are needed in the early stages of
construction, are considered first.
• The procurement management , the provision
of construction materials to construction
projects, have the following processes.
 INTRODUCTION
1. Study contract documents to Identify items for purchase.
2. Estimate quantities to be purchased
3. Float inquiry indents to locate sources of supply
4. Invite quotations from selected vendors
5. Submit proposals for technical, financial and client`s approval
6. Negotiate with vendors and finalize supply orders
7. Place purchase orders and monitor order execution.
8. Conduct pre shipment inspection, where necessary
9. Inspect goods received at site and initiate action where
warranted for in-transit losses(theft) damages, short
shipments, and rejection of substandard supply items.
10. Close material supply contract after confirming no further
demand from concerned site manager. Inform accounts,
planning, costing and the project manager accordingly.
 Material Procurement Management
• Procurement management is one of the
important factors to be considered on
construction projects since it is the major source
of expenditure that is incurred .
• It converts plans and programs in to
commitments to utilize resources.
• Materials of poor standard and ineffective quality
control will cause delay in the implementation of
the project and the resources may get wasted,
thus increasing the overall cost of the project
Saturday Lecture
 Material Procurement Management
Identification of materials and materials package
 Materials break down can be determined from the BOQ
which contains work items with quantities involved
 Details regarding finishes can be read from the architectural
drawings/engineering drawings.
 In case of electrical and mechanical items, a detailed scrutiny
is required to identify the items and its components. In some
cases these items may have to be designed.
 Materials package includes all types and qualities of materials
needed to perform a given activity or a work item . For
Example a work package of Concreting of foundation requires
cement, sand, aggregate, water, formwork.
 Material Procurement Management
Materials Quantity Estimation and scheduling of materials
 Materials quantities estimates are based on the abstract of quantities of
work calculated by the quantity surveyors from the contract drawings.
 Total material quantity required = work quantity x quantity of materials
required for a unit item of work.
 Example: Let the concrete requirement of a project is 3500 m3, and the concrete
is C-25 concrete. 360 Kg of OPC cement is required to prepare 1m3 of C-25
concrete . Hence the quantity of OPC cement required for the project is =
3500m3 x 360 Kg/m3= 12,600 qtls
 Material estimates should include standard wastages which occur during
work execution.
 The final material quantities of major cost items ( that falls in the category
of type A & B materials as per ABC materials classification) should be
compared with the preliminary material estimates prepared during
tendering to check variations, if any. If there is a significant variation, it
has to be communicated with the responsible body at a project/ a firm
level before ordering the purchase of materials.
 Material Procurement Management
Materials Usage Standard
 Some wastage is inevitable in actual work. This wastage in
materials is generally expressed as a percentages of
materials calculated theoretically from the quantities of
the work involved, and are termed as ‘standard wastage'.
The total quantity of materials to be provisioned should
cater for the standard wastage by increasing the theoretical
quantity, proportionally.
 Materials to be provisioned;
=Theoretical quantity of materials X
[{100+standard Wastage(%)}/100]
 It may be noted that standard wastage caters for wastage
during utilization only for causes considered beyond
control at the site. In addition to the controllable wastage,
there is wastage which falls in the category of
uncontrollable wastage. The main cause of controllable
wastage are;
 Material Procurement Management
Materials Usage Standard
(a) Wastage on account of designers specifying non-standard
materials having unattainable specifications.
(b) Wastage due to incorrect purchasing resulting in over buying,
wrong buying, unnecessary buying and untimely buying.
(c) Wastage in transpiration and handling including breakage
and pilferage.
(d) Wastage during storage resulting from deterioration,
improper storage, breakage, obsolescence and theft.
since, controllable wastage falls under the purview of the
materials management staff the additional provisions to
compensate for such wastage should be made by them so as
to ensure that the right quantity of materials are available at
the right time.
Material Procurement Management
Construction materials wastage planning norms.
I/No. Type of Materials Planned Wastage
in %
1 Cement 2
2 Sand 10
3 Aggregate 5
4 Structural Concrete 2
5 Lean concrete 10
6 Reinforcement Steel Bars 3
7 Reinforcement Steel Bars 10
8 Stone Masonry 5
9 Paints 5
 Material Procurement Management
Materials Quantity Estimation and scheduling of
materials
 After materials required for the work are
evaluated, a usage schedule at the site based
on the project construction plan is prepared
with a view to evolve their delivery schedules
and the stocking policy.
Material Procurement Management
Materials Procurement Enquiries
• Investigation for developing sources for procurement of
materials are made by floating enquiry indents (floating
tender and inviting vendors to offer their price).
• Material inquiry indents containing quantities,
specifications and delivery times are jointly prepared by
the project planning cell and material procurement
department
• Inviting of tenders for quotations with samples of
materials, where applicable is carried out by material
procurement department
 Material Procurement Management
Materials Procurement Enquiries
 On receipt of the quotations, a comparative study of
the price, quality, delivery time, terms of delivery,
payment terms is made jointly by both materials and
project planning in charges
 Vendors proposal are compared with enquiry
specification and stipulated requirements for and the
resulting deviations are examined for acceptability.
 Vendors enlistment is based on its size, capability,
past performance, market reputation and if
necessary this may be confirmed by a visit to the
vendor`s works.
 Material Procurement Management
Materials Procurement Enquiries
 Criteria's for evaluating vendors is:
 Quality of the material-its past records, recent test
reports, performance reports, performance reports from
old users,…
 Company`s financial status
 Company`s management team and their professional
competency and engineering skills
 Support services
 If there is deviation from stipulated specifications
and delivery timings it should be discussed with the
project manager/ manager concerned and if
required with the consultants
 Material Procurement Management
Finalization of Source of Materials Procurement
The following activities has to be undergone before placing of
purchase order
a. Approval in principle for processing proposals
 effect of prices on profitability
 in case of changes in offers, approval by project management
prior to commencing further negotiations with the suppliers.
b. Client`s approval of proposed materials- as per the terms of
agreement and standard construction practices, the
contractor submits proposals to the client/consultant for
approval of the materials.
 The proposals can be in the form of :
 Samples of materials
 The manufacturers write up on the materials
 The materials test results…
 Material Procurement Management
Finalization of Source of Materials Procurement
C. Negotiations of terms of supply-final negotiations with the vendor
prior to the placing of order are carried out to evolve mutually
agreed terms for supply particularly, with respect to the following:
 To finalize prices through negotiations by securing a better price offer
 To finalize mode of transportation of materials up to site
 To finalize payment terms including the opening letter of credits, if
required
 To finalize prior delivery and post delivery inspection/quality control
procedures with particular reference to contract stipulations and design
specifications
 To finalize the material delivery schedule
 To finalize guarantees and penalties
 Before finalizing negotiations, a recheck is done to ensure that
the necessary documents needed for manufacturing
 Material Procurement Management
Monitoring Materials delivery Schedule
After the purchase order is placed with the vendor, steps
necessary to ensure that right quantity and right quality
materials arrive at the site at the right time are:
i. Preparation and monitoring materials movement schedule
ii. Conduct pre-transportation inspection where necessary
iii.Obtain periodic information on shipment/transportation status
iv. Keep ready the documents necessary for clearing customs and
other formalities during transit
v. Plan in advance for receiving materials at the site
vi. Checking the quality and quantity as per requirement and
bringing out discrepancies, if any, for further action including
timely replacement/reordering and claiming
insurance/compensation if applicable
 OPERATIONS RESEARCH
Transportation Problem
• Introduction: The objective of the
transportation problem is to transport
various quantities of a single homogenous
commodity, which are initially stored at
various origins to various destinations in such
a way that the total transportation cost is
minimum
 Transportation Problem
Definitions:
• Basic Feasible solution: A feasible solution to a m-
origin, n-destination problem is said to be basic if the
number of positive allocations are equal to (m+n-1).
• Feasible Solution: A set of positive individual
allocations which simultaneously removes
deficiencies is called a feasible solution.
• Optimal Solution: A feasible solution (not basically
basic) is said to be optimal if it minimises the total
transportation cost.
 Transportation Problem
• Mathematical Formulation of Transportation Problems
• Suppose there are ‘m’ ware houses (w1,w2,w3, _, _, wm),
where the commodity is stocked and ‘n’ markets where it is needed.
• Let the supply available in ware houses be a1, a2, a3, _,_,_ am and
• The demands at the markets (m1, m2, m3, _, _, mn) be b1, b2, b3, _,
_ , _ bn.
• The unit cost of shipping from ware house i to a market j is Cij
(C11,C12,_, _ Cn),
• Let X11, X12,X13,_, _, Xmn be the distances from warehouse to the
markets
• we want to find an optimum shipping schedule which minimises the
total cost of transportation from all warehouses to all the markets
 Transportation Problem
• The total minimum transportation cost is
Z = X11C11 + X12C12 + _ _ _ + XmnCmn
• Types of Transportation Problems
1. Minimisation Balanced Transportation Problems
2. Minimisation Unbalanced Transportation Problems
3. Maximisation Balanced Transportation Problems
4. Maximisation unbalanced Transportation Problems
5. All the above models with degeneracy.
 Transportation Problem
• Methods of solving Transportation Problems
1. North- West Corner Rule method
 Begin with x (starting from the northwest corner).
11

 If x was the last basic variable selected, then next select xi,j+1 (move
i,j

one column to the right) if source i has any supply remaining.

Otherwise, next select xi+1,j (move one row down).
2. Row-minima Method
3. Column minima method
4. Matrix Minima Method or least cost method
5. Vogel's Approximation method (VAM)

• Methods for checking Optimality

1. Modified Distribution Method, UV or MODI method
• For allocated cells Cij – (Ui +V ) = 0
j

• For unallocated cells Cij – (Ui +Vj)> 0

 Transportation Problem
Steps in VAM method
Step-I: Against each row and column of the matrix, denote the
difference between the two least cost in that particular row
and column.
Step-II: Select the maximum value noted as per step-I, in this
row or column select the cell which has the least cost
Step-III: Allocate the maximum possible quantity
Step-IV: After fulfilling the requirements of that particular row
or column, Ignore that particular row or column and
recalculate the difference by the two lowest cost for each of
the remaining rows or columns, Again select the maximum of
these differences and allocate the maximum possible quantity
in the cell with the lowest cost in that particular
/corresponding row or column.
Step-V: Repeat the procedure till the initial allocation is
completed
 Transportation Problem
• PROBLEMS:
1. Solve the following transportation problem
by North-West corner rule, Row Minima,
Column Minima, Matrix Minima and VAM
Method:
 Transportation Problem
Factories W1 W2 W3 W4 Supply
F1 6 4 1 5 14

F2 8 9 2 7 16
F3 4 3 6 2 5

Demand 6 10 15 4 35
 Transportation Problem : Problem 2.

Factories W1 W2 W3 Supply
S1 90 100 130 20

S2 100 140 100 15

S3 100 80 80 10

Demand 5 20 20 45
 Planning materials Inventory
 The term ‘Inventory’ implies the cost of materials in stock at a
given time. This stock of materials is held to act as a cushion
between supply and demand. The monetary value of
inventory indicates the extent of investment required to
maintain minimum stock of materials for smooth running of
the project. Higher inventory implies higher investment, and
less inventory carries the risk of supplies falling behind
demand. A balanced inventory act as a cushion between
supply and site requirement till supplies are received. This
include predetermined safety stock to cater for slippages in
delivery schedules. It is therefore, necessary to hold a planned
stock of construction materials at the project site to ensure a
timely supply of the expected quantity of materials at the
appropriate time for smooth execution of planned
construction activities with least investment on inventory.
 Costs of inventory
The effective management of inventory involves a tradeoff between having
too little and also too much inventory.
Inventory costs:
i. Ordering Costs: requisitioning, preparation of purchase order, expediting,
transport and receiving and placing in storage, set-up costs
ii. Carrying Costs: interest on capital locked up in inventory, storage and
handling costs, insurance, depreciation, and property taxes.
iii. Shortage Costs: arise when inventories are short of requirement for
meeting the needs of production or the demand of customers.
 Loss of sales, loss of customer goodwill, disruption of production
schedules.
 Inventory Management – Minimizing Costs

• The goal of effective inventory management is to

minimize the total costs that are associated with
ordering and holding inventories.

• Choose the level of inventory with the lowest total

cost after estimating the different expenses with
varying inventory levels.
 Economic Order Quantity (EOQ)
Models

• EOQ
– optimal order quantity that will
minimize total inventory costs
• Basic EOQ model
• Production quantity model
 EOQ Cost Model (cont.)
Annual
cost ($) Total Cost
Slope = 0

CcQ
Minimum Carrying Cost =
2
total cost

CoD
Ordering Cost =
Q

Optimal order Order Quantity, Q

Qopt
Inventory Management – Minimizing Costs (Cont’d)

TC Total Cost
Costs

QCc/2 (holding
cost)

DC (demand cost)
DCo/Q (Ordering Cost)
0 10 20 30 40 50 60 Units
Optimum
Level

The two basic questions relating to inventory mgt

 Size of the Order: Q optimal
 The Level to Order: Q level
 i) Order Quantity
Economic Order Quantity (EOQ)

 The Economic Order Quantity refers to the order size that

will result in the lowest total of order and carrying costs
for an item of inventory.
 Order costs increase as number of orders increase
 Carrying costs increase as large stocks are kept
Variables in the EOQ model:
D: The forecast usage/demand for goods or raw materials for a
year is known,
Q: Quantity Ordered,
Co : Cost per Order,
Cc: Holding cost
C : Price per Unit (other than carrying and ordering costs)
TC: Total Costs of ordering and carrying
 i) Order Quantity
Economic Order Quantity (EOQ)
By adding the item holding and ordering costs together we
can determine the total cost curve, which is used to find
the Oopt inventory order point that minimizes total costs.
Using calculus we take the first derivative of the total cost
function with respect to Q, and set the derivative (slope)
equal to zero., solving for the optimized (cost minimized)
value of Oopt. D Q
TC  DC  Co   Cc 
Q 2
dTC  DCo Cc 2 DCc 2 DCo
 0  0 Q 
2
Q
dQ Q 2
2 Cc Cc
 i) Order Quantity
Economic Order Quantity (EOQ)

D=Annual demand
Co=Order cost
Cc=Annual holding cost
Example: Given the following for a company:
D= Annual Demand= 20,000 Units
Co= Cost to place an order= Birr 2,000
Cc=Holding cost=Birr1200

2 DCo
Q 2 x 2,000 x 20,000
Cc Q  258.2units
1200
 ii) Order Level
Economic Order Quantity (EOQ)

 We also need a reorder point to tell us as what

inventory level we need to place an order. If the usage
rate of materials and lead time for procurement are known
with certainty then;

The ordering level = Lead time in days for procurement X

Average daily usage
_
R=L x d
_
L=Lead time, Average daily usage= d
 Assumptions of Basic EOQ
Model
Demand is known with certainty and is constant over time
No shortages are allowed
Lead time for the receipt of orders is constant
Order quantity is received all at once
 Inventory Order Cycle
Order quantity, Q
Demand
rate
Inventory Level

Reorder point, R

0 Lead Lead Time

time time
Order Order Order Order
placed receipt placed receipt
 EOQ Example
Cc = $0.75 per yard Co = $150 D = 10,000 yards

2CoD CoD CcQ

Qopt = TCmin = +
Cc Q 2
2(150)(10,000) (150)(10,000) (0.75)(2,000)
Qopt = TCmin = +
(0.75) 2,000 2

Qopt = 2,000 yards TCmin = $750 + $750 = $1,500

Orders per year = D/Qopt Order cycle time = 311 days/(D/Qopt)

= 10,000/2,000 = 311/5
= 5 orders/year = 62.2 store days
 Production Quantity
Model
• An inventory system in which an order is received
gradually, as inventory is simultaneously being
depleted
• p - daily rate at which an order is received over time,
production rate
• d - daily rate at which inventory is demanded
 Production Quantity Model
(cont.)
Inventory
level

Maximum
Q(1-d/p) inventory
level

Average
Q inventory
(1-d/p)
2 level

0
Begin End Time
order order
Order
receipt receipt
receipt period
 Production Quantity Model
(cont.)
p = production rate d = demand rate

Q
Maximum inventory level = Q - d
p
d
= Q1-
p 2CoD
Qopt = d
d
Average inventory level Q= 1- Cc 1 - p
2 p

CoD C cQ d
TC = + 1-
Q 2 p
 Production Quantity Model: Example

Cc = $0.75 per yard Co = $150 D = 10,000 yards

d = 10,000/311 = 32.2 yards per day p = 150 yards per day

2CoD 2(150)(10,000)
Qopt = = = 2,256.8 yards
32.2
Cc 1 - d 0.75 1 -
p 150

CoD C cQ d
TC = + 1- p = $1,329
Q 2

Q 2,256.8
Production run = = = 15.05 days per order
p 150
Production Quantity Model: Example (cont.)

D 10,000
Number of production runs = = = 4.43 runs/year
Q 2,256.8

d 32.2
Maximum inventory level = Q 1 - = 2,256.8 1 -
p 150
= 1,772 yards
 Quantity Discounts

Price per unit decreases as order quantity

increases

CoD CcQ
TC = + + PD
Q 2
where

P = per unit price of the item

D = annual demand
 Quantity Discount Model (cont.)
ORDER SIZE PRICE
0 - 99 $10 TC = ($10 )
100 – 199 8 (d1)
200+ 6 (d2) TC (d1 = $8 )

TC (d2 = $6 )
Inventory cost ($)

Carrying cost

Ordering cost

Q(d1 ) = 100 Qopt Q(d2 ) = 200

12-99
 Quantity Discount: Example
QUANTITY PRICE
Co = $2,500
1 - 49 $1,400
Cc = $190 per computer
50 - 89 1,100
D = 200
90+ 900

2CoD 2(2500)(200)
Qopt = = = 72.5 PCs
Cc 190

For Q = 72.5
CoD CcQopt
TC = + + PD = $233,784
Qopt 2

For Q = 90
CoD CcQ
TC = + + PD = $194,105
Q 2
 Reorder Point
Level of inventory at which a new order is placed

R = dL

where

d = demand rate per period

L = lead time
 Reorder Point: Example

Demand = 10,000 yards/year

Store open 311 days/year
Daily demand = 10,000 / 311 = 32.154 yards/day
Lead time = L = 10 days

R = dL = (32.154)(10) = 321.54 yards