Construction Material & Equipment Management
Construction Material & Equipment Management
&
Equipment Management
Persevering the Scope across projects: Global Perspective
Presented by
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PRESENT SCENARIO
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Project Framework
You got to choose between tightening your belt or losing your pants
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Decisions
Dynamic
Policies
SOP
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Information Framework
We'll take the cake with the red cherry on top
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Me or You -
Responsible
Interpretation
Mitigation
Reasoning
INFORMATION
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en
Ma
na
ge
m
Project
Implementation
Unit / PMO /
Portfolio
Management
.
General Contractor
/ Management
Contractor
Contract
Administration
Procurement
Management
Ad
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Ex
in
ist
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Designers
Architects
Engineers
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Ma
Sub-contractors /
Specialist Contractors
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System Framework
You can't play a symphony alone, it takes an orchestra to play it
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Man or Machine
Input & Output
Conclude or Confuse
Network to ask
Budget In or Out
S Y S TE M
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SY
S Y S TE M
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SY
EM
ST
SY
SY
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SY S
TEM
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Project Management
Schedule overruns
Contractual Non-Compliances
MIS reported inaccurate / untimely
Change in Scope not assessed for
impact or are not documented
Procurement Management
Rates not consistent across Projects
Inventory cost not optimized leading to
higher inventory cost or stock outs
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Some More
Financial Management
Cash flow Management is sub optimal
credit periods are not utilized / cash
discounts are not explored
Project Budgets not monitored properly
leading to overruns
Risk Management
Project Risks are not determined
comprehensively
Risk Mitigation Plans are not consistently
applied across projects
Risk exposures are not known at
Management level
Execution issued
Design
Delivery management
How to buy land cheap
Compliances
Approvals
RFIs
NCRs
If one has the Master plan for the city than issue the MOEF
clearance for that zone too.
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MATERIAL MANAGEMENT
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MATERIAL MANAGEMENT
Materials management is a coordinating function responsible for planning and
controlling materials flow. Its objectives are as follows:
Planning of Material
Basics
Objectives
Challenges
What do we do
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Planning of Material
GCC
SCC
EMD, BG, Defect Liability Period,
Insurance
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Cement
Steel
Sand
Aggregates
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Buffer maintenance
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Procurement Management
Youve got to put the saddle on the right horse
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What do we do
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Contracting Plan
Bid management
Review of the short listed Vendors & information of the current scenario
about the Project requirement.
Review the current scenario in Market Bulk / by-parts
Final negotiation
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Contract Administration
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Performance reporting
Source & Destination Analysis
Review the expected Response time in which Vendor has facilitated the
service.
Review for Change in Specs after delivery at Project
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Cont
Corrective actions
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Closure of contract
z
Contract Closure
final inspections tests
z
Information assurance from the representative for not sharing the records
except with in the company.
Delivery Management
The biggest room in this world is the room of Improvement
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What do we do
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Contracting Plan
Contract statement of
work
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Contract Administration
z
Performance reporting
Confirm the movement of Material as per Schedule - Source & Destination
Analysis.
Confirm the final Response time in which Vendor has facilitated the service.
Confirm for Change in Specs after delivery at Project
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Corrective actions
Claim administration
Facilitate with the Interpersonal / Hospitality Management - Obligations
provide to the Client in case of Delays in the Construction Schedule,
provision of additional facilities (Category, Budget, Availability, and
Satisfaction).
Record the decision taken with the Auditor / arbitrator & work in future to be
carried out accordingly.
Confirm the viability / remaining duration BGs, Contract Period, Conditions
of Contract, Services to be offered with reference to Defect Liability Period.
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Closure of contract
z
Closure of contract
Confirmation of Handing over & taking over of Records
Compliances to be recorded & maintained
Information assurance from the representative for not sharing the records
except with in the company.
Certificate for final Sign-off perceiving no obligations in future except to what
have been agreed in the Contract for a certain period of time.
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CODIFICATION
ADVANTAGES OF CODIFICATION
The role of the warehousing and inventory controller is to serve the user
promptly
Delays lead to the building of queues at the service stations and consequent
delays in the production line.
The starting point is the consumer, who has to unambiguously identify his
requirements, through proper nomenclature
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Price advantage can be availed out of the resultant bulk ordering with discounts.
The procured item may have a trade name of its own, and the stores executive
has to correlate the two names, with the problem going out of hand if the number
of items is very large.
The records, entries and transactions are less as less number of items are
handled per person.
The overall efficiency of warehouse staff is much better with higher level of
motivation.
Procurement operations become easy as the purchase people, even if they are
non-technical, can understand the requirements easily.
Standardization:
In product design, a standard is a carefully established specification covering the
products material, configuration, measurements etc. Therefore, all products made to
a given specification will be alike and interchangeable. A range of standard
specifications can be established so that it covers most uses for the item. A smaller
variety of components is needed, as the product standardization allows parts to be
interchangeable. Standardisation is the orderly and systematic formulation, adoption,
application and review of industrial standard which leads to simplification or variety
reduction. There are a large number of benefits of standardisation.
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BENEFITS OF STANDARDISATION
The warehousing and inventory manager must have an unambiguous
nomenclature for identifying the items, in order to serve the customer promptly.
In this process, standardization which reduces the variety plays a vital role by
reducing the number of varieties of the same item held in the warehouse.
More than any other executive, the stores-incharge comes into direct contact
with a variety of materials. He can gain knowledge on the uses of the material in
the store and can contribute significantly to achieve standardisation.
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Since the inventory is likely to be less, the working capital commitment of the
organisation will also be less.
The items can be easily identified by all persons in stores as the bin location can
also be standardised.
The procurement lead time gets reduced as everyone knows the item clearly.
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Standardisation directly reduces the variety and improves the information system
of the warehouse manager.
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The workers at all levels and departments become more efficient by repeated
handling of items and it is possible to utilise less skilled workers for standard
operations.
INVENTORY
Inventories are the materials and supplies that a business or institution carries either
for sale or to provide inputs or supplies to the production process. All businesses and
institutions require inventories. Often, they are a substantial part of total assets.
Inventories are very important to manufacturing companies and construction sites. As
inventories are used their value is converted into cash which improves cash flow and
return on the investment. There is a cost for carrying inventories which increases
operating costs and decreases profits. Good inventory management is, therefore,
essential. Inventory management is responsible for planning and controlling inventory
from the raw material stage to the customer.
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Raw Materials
Work-in-process (WIP)
Finished goods
Distribution inventories
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Function of inventories
In batch manufacturing, the basic purpose of inventories is to decouple supply
and demand. Inventory serves as a buffer between:
Requirements for an operation and the output from the preceding operations.
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Anticipation Inventory
Fluctuation Inventory
Lot-size Inventory
Transportation Inventory
Hedge Inventory
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items but account for only about 5% percent of the total inventory value. Carrying
stock of C items adds little to the total value of the inventory. C items are really
only important if there is a shortage of one of them-when they become extremely
important-so a supply should always be on hand. For example, order a year's
supply at a time and carry plenty of safety stock. That way there is only once a
year when a stockout is even possible.
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2. Use the money and control effort saved to reduce the inventory of highvalue items. An item represents about 20% of the items and account for about
80% of the -value. They are extremely important and deserve the tightest control
and the most frequent review.
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B Items: medium priority. Normal controls with good records, regular attention,
and normal processing.
C Items: lowest priority. Simplest possible controls-make sure there are plenty.
Simple or no records; perhaps use a two-bin system or periodic review system.
Order large quantities and carry safety stock.
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Assumptions
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Reorder point:
The reorder point is the sum of buffer, safety & reserve stock. When this order
point is reached, a prudent materials manager will go on for ordering Economic
Order Quantity.
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LEAD TIME
It is the span of time needed to perform a process. In manufacturing it includes time
for order preparation, queuing, processing, moving, receiving and inspecting, and any
expected delays.
From the view point of the supplier this is the time, from the receipt of an order to the
delivery of the product whereas from customers view point it may also include time for
the order preparation and transmission. The customer will always want shortest
possible delivery lead time and the manufacturer/ supplier must design a strategy to
achieve this. The following are the four basic strategies:
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Engineer-to-order
Make- to-order
Assemble-to-order
Make- to-stock
One can also define Lead Time as the duration that lapses between the
recognition of the need for an item and its fulfillment
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Service Level:
The efficiency of a warehouse is normally measured on a negative scale i.e. in terms
of stock outs. The only time it is possible for a stockout to occur is when the stock is
running low, and this happens every time an order is to be placed.
The service level is directly related to the number of standard deviations provided as
safety stock and is usually called the safety factor. A service level is a statement of the
percentage of time there is no stock out. If a higher service level is needed, safety stock
must be provided to protect against those times when the actual demand is greater than
the average.
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STORES MANAGEMENT
Keep track of items so that they can be found readily and correctly.
Minimize total physical effort to reduce cost of moving goods in and out of the
stores.
STORES ACTIVITIES
Efficient operation of a store (warehouse) depends on how well the
following activities are performed.
1. Receive goods
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2. Identify the goods: Identification with appropriate stock keeping unit (SKU) No.
(Part No.) and the quantity received recorded.
3. Dispatch goods to storage
4. Hold the goods
5. Pickup the goods
6. Bring all the goods required as per single order together
7. Dispatch the segment
8. Operate an efficient information system
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Define and clearly spell out responsibilities to each manager according to the
company objectives and the managers specialisation.
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The quality of the assistant's work should be periodically checked and mistakes
pointed out so that corrective action can be taken at once.
For carrying out the above tasks effectively, the span of control or number of
employees reporting to an executive should not be too large.
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REASONS OF FAILURE
The primary purpose of stock verification is to check that the physical stock
agrees with book balance. If these fail to match, as often is the case, then it
could be due to the following reasons:
Items may have been mislaid or lodged between shelves and dislocated later
on.
Bad handwriting and figures copied incorrectly account for a majority of errors.
Transferring the paper work from first shift to the second shift has not been
proper.
Receiving by weight and issuing by number, in the case of items like nuts,
bolts, screw etc. could cause discrepancies.
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Urgent issues made when the store is closed, without posting entries.
Delays in inspection, posting the goods receipt note and other receipt documents.
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Each bin containing more than one item leading to mixing and confusion at
issue.
Indentor using suppliers part numbers and not internal codification, leading to
confusion.
Stores personnel unable to identify the item and issuing wrong material.
Too many users coming to take material particularly in the morning creating
confusion at the issue counter.
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Direct delivered items and bulk items are received and removed without adequate
documentation.
Improper records on the transfer from one store to another, lead to discrepancies.
Lorries with materials are received when the store is closed, resulting in delays in
posting.
In spite of the above difficulties, the warehouse manager should ensure the proper
receipt, issue and accounting of the items adequately by placing the items in their
proper location.
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MATERIALS AUDIT
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Periodic Inventory
The primary purpose of this is to satisfy the financial auditors that the inventory
records represent the value of the inventory. The planner would like to correct
any inaccuracy in the records. The process of taking a physical inventory is as
under:
Counting of the items and recording the same on a ticket left on the item.
On completion of the verification, collect the tickets and list the items in each
department.
Cyclic Inventory
Some items are counted frequently throughout the year depending on
their importance.
Timely detection leads to finding the cause of error and to ensure that the error is
less likely to happen again.
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EQUIPMENT MANAGEMENT
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EQUIPMENT MANAGEMENT
Contractors must be able to apply the appropriate time value analytical formula
to the decision process of machine purchase and utilization.
The planner must understand the work and coordinate use of the companys
equipment to get a profit
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The ability to win contracts and to perform them at a profit is determined for the
construction contractor by two vital assets:
people and
equipments.
Therefore, it is most essential to have effective management policies
for effective manpower and equipments required for the project.
New machines have lower repair costs and give higher production rates. In
comparison, old/used machines require costly repairs and there is down time
so they cannot compete with new machines.
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In some case the value of the equipment may be more than the contract value.
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People & equipments along with the materials are the most important
ingredients, the first two are very important assets.
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Equipment-intensive projects are usually the ones that present the greatest
financial hazard. Such projects require an equipment commitment that is
greater than the amount a contractor will be paid for completing a single project.
Such a situation forces a contractor into a continuing sequence of jobs in order
to support the long-term equipment payments. The profit margins get reduced.
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Financing structure
Construction activity levels
Labor legislation and agreements
Safety regulations.
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During such swings, a company with long-term equipment notes may be forced to
bid for projects at a low price or sometimes with no margin even.
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A contractor who, with the same contract volume as the competition, is able to
achieve a more rapid project completion, and therefore a higher turnover rate
while maintaining the revenue-to-expense ratio will be able to increase the firms
profits. If the contractor can improve production and increase turnover he has a
very effective construction management.
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Cost of capital: The interest rate a company experiences is usually a weighted average rate
resulting from the combined cost associated with all external and internal
sources of capital funds. These are as under:
Debt or borrowing
Equity (sale of stock)
Internally generated (retained earnings)
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In addition, the cost of capital interest rate is also affected by the risk associated
with its business type. To work out discounted present worth analysis, the rate that
the banks charge for borrowings cannot be the only factor for the cost-of-capital
interest rate.
Discounted Present Worth Analysis:
This type of analysis involves calculating the equivalent present worth or present
value of all the amounts involved in each of the individual alternates to determine
the present worth of the proposed alternatives. The present worth is discounted at a
predetermined rate of interest. This is often termed as the minimum attractive rate of
return (MARR).The MARR is usually equal to the current cost-of-capital rate for the
company.
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Construction Company on the other hand will have only a limited number of
projects at any given time, and therefore can not spread the risk.
The cost of equipment for certain projects is very high and unless there are
repeated projects of the same nature the contractor will go bankrupt.
Fuel consumption
Spare parts - availability and price
Fast moving
3.
4.
Slow moving
Down time
Tyres
5.
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Whether the machine has useful working on a particular day or was idle?
Reasons for its being idle?
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Must match the right machine or group of machines to the job at hand.
It is not always obvious which machine/ equipment is best for a particular project
task.
The equipment planner must keep in mind the following before Planning /
Selecting any equipment
1.
2.
3.
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4.
The type of equipment that has a lowest total cost should be selected.
Begin each project with an open mind and review all possible options.
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EQUIPMENT COST
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OWNERSHIP COST
Purchase value
Salvage value
Depreciation allowable
Major repairs/ overhauls
Taxes on holdings if any
Insurance
Storage etc
Fuel
Lubricants, lube oils, filters, grease
Repairs
Tyres
Spare parts
Operator wages
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With rental, a machine which is exactly required may be picked up. Rental
charges are however higher.
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GENERAL
Standard equipment
Special equipment
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The cost of capital should be worked out by weighted average rate -by taking
into account borrowings, equities and retained earnings.
Rate of return analysis gives an indication of the interest rate that makes the
discounted present worth of the investment equal to zero.
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FACTOR OF RISK
Material & Equipment Management
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Selective
Sizeable
Focus on speedy Project
Completion
Key Component
Cost Leakage shell life
Manipulation of Work
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Cont.
z
Variations in Contract
Equipment Mis-management
Preamble says, PM has
Licensed to Award Contracts
Non-Interference, any
Strong Control over Activities
Actual, PM has
Award Contracts to associates
More ordered than required
Hire Charges/Consumables
Invoicing,100%, used 25-30%
No due diligence on Contract
Performance
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Cont.
z
Statistical Mis-management
Idealistic Situation says
Actual
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SUMMARY
Do we need what we are
Buying?
Organization Structure
Hotlines
Risk cannot be eliminated entirely, it can be reduced with the right approach
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Thank you
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