PROCUREMENT PLANNING IN CONSTRUCTION

PROJECT

By- Divanshu Bhargava

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 Contents…

1 INTODUCTION………..…………………….………………………………………………..…4
1.1Background …………………………………………………………………………..4
1.2What is procurement..…………………………………………………………..5
2 Research Methodology…………………………………………………………………….6

3 Review of Literature……………………………………………………………..…………..8
3.1 Summary of literature of Review………………………………………….11

4 Study of concept
4.1 What to procure………………………………………………………………….15
4.1.1 Inventory and it's control techniques……………………..18
4.2 When to procure………………………………………………………………….22
4.2.1 Types of material procurement
4.2.2 Inventory models……………………………………………………23
4.2.3 Reorder point………………………………………………………….24
4.3 Where to procure………………………………………………………………..25
4.3.1 Source selection analysis……………………………………..25
4.4 How to procure……………………………………………………………………31
4.4.1 Forecasting………………………………………………………….31
4.4.2 Simple forecasting methods………………………………..32

5 Observations……………………………………………………………………………………36
6. REFERENCES…………………………………………………………………………………..37

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 List of Table and Figure

S.No List Page No.

1 Table 1 17
2 Table 2 20
3 Table 3 21
4 Table 4 19
5 Table 5 19
6 Figure 1 11
7 Figure 2 24

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INTRODUCTION
Background of the topic
The traces of procurement can be seen throughout ancient history, including the Egyptians in
3,000 BC. Though there was no designated procurement function, materials management is
aided in the building of the pyramids. The Egyptians used scribes to manage the supply of these
massive projects. Scribes played as a clerical role, recording and keeping the amounts of
materials and workers needed on papyrus rolls. These scribes would track orders through
fulfillment and was one of the first known in history to be in the procurement profession.

Today, procurement professional is an instrument to the success of organizations. They are

responsible for an initiatives from the development of a solicitation to the evaluation of and
working with qualified suppliers, and everything that is in between. Ultimately, procurement
have a significant impact on an organization’s bottom line – building its spot at the management
roundtable. Back In the 1960’s a CPO (Chief Procurement Officer) was unheard of; today, more
and more procurement heads are helping their organization develop and help to reach strategic
and operational goals.

New technologies continue to develop procurement. E-procurement solutions, like Source Suite,
are creating a more optimize approach to strategic sourcing. With the shift towards strategic
sourcing, e-procurement bid and vendor management software, save the organization time so that
it can focus on organization initiatives and supplier relationships. Source Suite cloud-based bid
and supplier management platforms configure to meet the purchasing needs of virtually any
organization. Currently, Source Suite streamlines the purchasing process for over multiple
buying organizations across the country.

Though procurement has a long history, its role as a strategic part of organizational structure is
still relatively new. Procurement’s rapid evolution through the last 30 years can be credited to
many of the professionals. In the years to come, it can be expected that the procurement function
will continue to develop and expand its ability to directly impact successful organizations and
society.

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Objective
1. The objective of this project is to give the basic understanding about the project procurement
planning in the Construction industry with the help of plain methodology and literature survey.

2. The study would help to develop a better perspective to answer the questions which comes to
one’s mind after hearing the word procurement planning which are what to buy, when and from
what source and how to plan to buy.

What is procurement
Procurement planning is the process of identifying and consolidating requirements and
determining the timeframes for their procurement with the aim of having them as and when they
will be required.
A procurement plan will describe the process in the identification and selection of
suppliers/contractors/consultants.
Procurement planning has various benefits, such as:
- It provides an opportunity for stakeholders to meet and discuss procurement requirements and
objectives. The stakeholders could include from end users to technical experts and members of
the procurement department. Ensuring relevant parties are involved in the planning process aids
the development of a robust plan and ensures that procurement activities are effectively
executed.
- The planning process enables to establish procurement requirements, assign them individual
timeframes and award contracts. It also enables to determine whether timeframes set by
requesting parties are realistic or not.
- Through procurement planning will be to identify whether additional support is needed in order
to fulfil certain requirements, for example, if require a technical export to help develop
procurement specifications

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Research Methodology
The research methodology comprises into four parts as shown below. They are Data collection,
Studying, Analyzing, Final output.

Initially in the data collection different articles and journals are collected related to procurement
planning from different sources like websites and books etc. After the collection the next step is
studying of important articles from the collected data. In the procurement process the main
stages are What to procure,When to procure, Where to procure, How to procure. After the
studying the next step is Analyzing. Here from the above four stages related objectives are
identified and their methodology is taken and the last and final step is observations or findings.
Here the observations noted from the different stages of procurement process and how to proceed
for the procurement by different methods is taken.

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 Fig(1): Research Methodology

This research methodology is explained in pictorial form as below and the different parts are
shown in different boxes and their relationship is shown by arrows.

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Review of Literature
Sr Name of Paper Journal/ Year Authors Major Key
No. /Article Published in Findings/New Takeaways
Concepts from
the paper
1 PROCUREMENT American 1984 Delon 1) Methods to 1)
ISSUES Society of Hampton conduct the Qualifications-
Civil procurement based selection
Engineers a) On the basis is the best
of qualifications; available
(b) on the basis method of
of price; and (c) procuring.
a two-envelope
system.
2 Comparing American 2006 Marwa A. El Study of Different
Procurement Society of Wardan; correlation procurement
Methods for Design- civil John I. between procedures and
Build Projects engineering Messner; performance of their
Michael J. different design performances
Horman build projects

3 Optimizing Material American 2010 Hisham and 1) Importance of 1) Minimize

Procurement and Society of Khaled El- Material material
Storage on Civil Rayes, procurement and logistics costs
Construction Sites Engineers storage on by using an
construction integrated
sites. approach.
2)Identify the 2) Material
dynamic layout procurement
decisions.
3) Dynamic
layout
decisions.
4 VENDOR American 2011 Leonhard E. 1) Critical 1) Criteria
ANALYSIS FOR Society of Bernold, and criteria of useful for
BEST BUY IN Civil John F. performance. analyzing
CONSTRUCTION Engineers Treseler 2) Vendor vendors
performance is 2) Purchase
not a one-time price.
but rather of 3)
ongoing process. Responsiveness
to solving
4) Servicing of
the order.
5 Forecast of safety Science 2012 XU Yabo, Methods of Forecasting

8
 situation in Direct WANG forecast where models:
construction Tong, SONG demand is non 1)Moving
5industry based on Bingxue, linear average
composite model PANG Lei, method
XIE Yushu 2)exponential
smoothening
3)Accuracy
evaluation

6 BEST PRACTICES American 2013 Dennis 1) Procurement1) Data

FOR Society of Bausman, and contract
collection and
PROCUREMENT Civil Ph.D; administrationanalysis is the
AND Engineers Mashrur are significant
most important
MANAGEMENT Chowdhury, and important factor.
OF Ph.D., P.E., components of 2) Best
PROFESSIONAL F.ASCE; and the practices for
SERVICES Lee Tupper, infrastructurethe
CONTRACTS Ph.D. delivery process.
procurement
and
administration.
7 REVIEW OF American 2014 Rajeev 1) Construction 1) Three key
CONTEMPORARY Society of Ruparathna, procurement is a developments
CONSTRUCTION Civil S.M.ASCE1 multidisciplinary in the
PROCUREMENT Engineers ; and procedure. contemporary
PRACTICES KasunHewa construction
ge procurement.
2)
Construction
procurement
practices.
3) Strengths
and
weaknesses of
traditional
construction
procurement;
4) Emerging
trends in
construction
procurement

8 Critical review of Science 2015 ShamilNaou Use of various Latest

procurement method Direct m, Charles procurement developments
research in Egbu methods during and trends in
construction journals procuring procurement
method

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9 An Overview of International 2016 Saminu Sani Methods of Procurement
Procurement Journal of Bako procurement in mainly depends
Methods and Advanced construction on type of
Techniques for Research in industry construction
Effective Delivery Engineering and volume of
of Construction work
Projects
10 Construction International 2018 V.Rathina Materials Control
Material Journal of Kumar, planning and techniques:
Management Engineering K. inventory 1)ABC
through Inventory & LalithaPriya, control analysis
Control Techniques Technology Prasannakum 2) EOQ
ar.I, analysis
C. 3) S- curve
Ravekumar analysis
11 Comparison of International 2018 Z. Various Comparision of
Inventory Models journal of Benmamoun, procurement economic order
for Optimal engineering H. Hachimi, methods in the quantity, the
Working Capital A. Amine industry. Interval order
quantity and
the minimum
maximum
inventory.
12 Material International 2018 T.Subramani, Finding different Different
Procurement in Journal of A.Prabhu problems in methods like
Construction Engineering construction frequency
Industry Problems & industry analysis,
and Solutions Technology correlation.

13 A literature review Business - Serhii Studying Inventory

on models of systems and ZIUKOV different management,
inventory economics inventory models under
management under vol5 models. uncertainty,
uncertainity EOQ, EPQ.
14 Effects of - - Mats Studying of procurement,
procurement on westerberg, different project
construction project Per Erik performance performance,
performance Erikson indexes for collaboration
construction
projects

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Major findings from literature review:
Hampton, 1984 said there is a lot of contingency in the process of procurement, if the
procurement is at a local level there is not a big issue the system is very transparent but when the
procurement is on a large scale and various parties and stakeholders are involved then there can
be chance of losing. A lot of risk is involved in this.The few methods to conduct the
procurement in a very professional way can be- (1) On the basis of qualifications; (2) on the
basis of price; and (3) a two-envelope system, which involves the submission of a technical
proposal in one envelope and a price (or hours of effort) proposal in a second one.

Wardan,Messber&Horman, 2006 said that construction projects throughout the world are
increasingly being delivered using the design-build delivery method. The design-build delivery
system was identified as averaging the best project performance currently, both public and
private owners consider the design-build delivery approach due to the numerous advantages it
can offer. The design-build delivery system is increasingly used by both public and private
owners due to the potential time and cost savings it can offer. The selection of the most
appropriate procurement method can often be crucial to the successful performance of a design-
build project. Such that the projects may deliver better results.

Hisham and Khaled 2010 said that material procurement and storage on construction sites need
to be properly planned and executed to avoid the negative impacts of material shortage or
excessive material inventory on-site. The present CLP model is designed to help contractors
minimize material logistics costs by using an integrated approach that simultaneously optimizes
two categories of decision variables: (1) material procurement decisions that affect materials
inventory levels and storage needs; and (2) dynamic layout decisions that identify the dynamic
locations of material storage areas and other temporary facilities over the project duration. The
planning of material procurement and supply in the present model is accomplished by
identifying the optimal ordering period of each material that is changing dynamically to consider
the fluctuating demand. In the present model, dynamic layout decision variables are designed to
identify the dynamic layout (i.e., locations and orientations) of (1) material storage areas; and (2)
temporary facilities on-site.

Leonhard and john 2011 said that as materials are a crucial element for almost all construction
processes the performance of a vendor impacts the construction in many ways. Some of the
more critical criteria of performance include: (1) Quality of delivered products; (2) number of
warranty calls and customer satisfaction; (3) timeliness not only of product delivery but of key
documents; (4) responsiveness to solving difficulties during the procurement process; (5)
servicing of the order prior to the sale, after the sale, and all the way through the warranty
period; and (6) purchase price.

Good vendor performance is not a one-time issue, but rather of ongoing importance throughout
the construction process.

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Many possible criteria useful for analyzing vendors can be grouped into five categories: (1) Pre-
consideration (e.g., financial stability of vendor); (2) pre-bid performance (e.g., responsiveness
to requests for bids); (3) past project performance; (4) past post-installation performance; and (5)
present bid price.

WANG Tong and SONG Bingxue 2012 said that this journals mainly deal with forecasting of
quantity of resource required. Forecasting is a process of finding what amount resources are
required to in next period of time based on current and previous period.

Forecasting methods:

1) Moving average model

2) Exponential smoothening model
3) Composite model

Bausman and mashrur 2013 said that professional services consultant procurement and contract
administration are significant and important components of the infrastructure delivery process
for most state DOTs. These professional services contracts are procured and managed have a
substantial impact on organizational resources, personnel efficiency and effectiveness, consultant
performance, and infrastructure cost and quality.

Data collection and analysis is the most important factor for the finding of best practices for the
procurement and administration. There are 12 best practice which is adopted in this paper, they
are

1) development of a strategic plan

2) Quality Management
3) Professional Services (Procurement) Manager
4) Standardization
5) Operations Manual
6) Training and Certification
7) Automation
8) Contract-Specific Procurement Plans
9) Contract-Specific Procurement Plans
10) Lump Sum Contracting
11) Performance Metrics
12) Performance Evaluation

These proven best practices, which provided the desired outcomes with the organizational and
resource constraints, could be adapted to a DOT professional

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Ruparathna and hawage 2014 said that procurement isn't the simple exchange between supply
and demand. Construction procurement is a multidisciplinary procedure that ranges all through
the venture life cycle of the project. A definitive goal of a procurement ought to be to fulfill the
project through understanding the undertaking targets. Procurement is recognized as an ideal
medium to incorporate elements for example, esteem for money, manageability, and
construction safety into a development project. Construction industry improvements show that
current development acquisition rehearses are beginning to recognize the significance of
environmental and social components of stability. Three key developments in the contemporary
construction procurement. The key areas of interest were 1. Construction procurement practices,
including procurement methods, procurement processes, and procurement procedures; 2.
Strengths and weaknesses of traditional construction procurement; and 3. Emerging trends in
construction procurement services contract management business practices.

Naoum and Egbu 2015 said that use of various procurement methods for projects such as
management contracting, project management and design and build. With the growth in the use
of these methods, a number of researchers have investigated the criteria for their selection and
their performance in terms of time, cost and quality.

Critical appraisal of modern issues related to procurement methods:

1) Buildability/ Constructability 2) Supply chain

3) Innovation 4) Lean Construction

5) Sustainability 6) Value Engineering

Bako 2016 said that in the construction industry suitable one depends on the type of construction,
volume of work to be done, availability of resources and client experience. In this journal
examines procurement strategies for an effective project delivery with a view to provide
solutions to problems encountered in making selection.

This journal mainly deals with:

1) Procurement strategies
2) Factors influencing procurement strategy selection
3) Analysis of the procurement route
Advance procurement practices.

Rathina Kumar,LalithaPriya, Prasannakumar and ravakumar 2018 said that efficient material
planning plays a major role in the successful handing over of a project within the estimated cost
and schedule.

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Methods of inventory control are:

1) S-curve analysis
2) ABC analysis
3) EOQ analysis
4) Sensitivity analysis

Benmamoun, Hachimi, Amine, 2018 said that supply chain management is to provide products
with best quality, low costs and shortest delay of delivery corresponding to customers’
expectations. To meet such expectations companies are constantly improving their procurement
methods. In that some inventory models are Economic order quantity, Interval order quantity,
Minimum and maximum inventory. They are taken some examples and explained above 3
inventory models with that example.

Subramniyam, Prabhu,2018, they divided material classification into two types, native material
and non-native material. Material demand problem sometimes occurs due to external events,
such as delays in permit, inspection, material quality, availability of material, labor, weather etc.
They done different tests like control charts,correlation, frequency analysis.

Ziukov ,2016 inventory control problem is one of the most important in organizational
management. As a rule, there is no standard solution, the conditions at each company or firm are
unique and include many different features and limitation. The research object is models of
inventory control under uncertainty. Most of the analytical models addressed only one type of
uncertainty and assumed a simple structure of the production process. The most common
dimensions to be considered as demand and the cost of acquisition.

Eriksson & Westerberg, 2009 research efforts in the field of construction management have been
limited to the investigation of how a single or a few specific procurement alternatives affect one
or two project objectives. In order to achieve efficient governance of construction projects a
systemic and holistic approach to procurement procedures is however crucial. This paper
proposes that collaboration works in two ways. First, as collaborative procurement procedures it
acts as means to directly achieve better project performance. Second, as collaborative tools and
collaborative climate, it acts as a moderator influencing the relationship between collaborative
procurement procedures and project performance.

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DISSCUSSION
For getting the better understanding we divided our study in to four basic questions regarding
procurement which are what to procure, when to procure, where to procure and how to procure
and started our discussion in the similar manner.

What to procure?
According to project management book of knowledge procurement management is defined as
Project Procurement Management includes the processes necessary to purchase or acquire
products, services or results needed from outside the project team

Still the Question which runs through the mind during the procurement planning in construction
industry is what to procure?

Projects works on the basis of scope baseline which contains the scope statement, Work
breakdown structure (WBS).In the budding days of the project, the project scope may still be
evolving. The elements of the scope that are known are used to develop the statement of work
(SOW) and the terms of reference (TOR). Which helps us to plan what all things we have to
procure for a particular project.

Procurement can be of any of the particular entity such as-

1. Materials

2. Human Resource

3. Machines

The answer to this question lies in the various relative factors which play the major key role in
putting a full stop to the query.

1. Materials - Materials include manufactured products such as components, fittings, items of

equipment and systems; naturally occurring materials such as stone, timber and thatch; and
backfilling for excavations in connection with building work.

1.1 Economy
Economy or cost choice could be made about what to procure based on the fact what is the Initial
cost of the product, life span of the product, frequency of maintenance of the product procured ,
Cost of maintenance, salvage value, transportation cost, cost of placing etc.

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1.2 Availability
Availability of material play a vital role in the procurement planning as some of the material
which are essential and are difficult to procure may cause a permanent break to the project.so
more focus is been given on procuring the local material.

1.3 Construction Properties

It is to be seen that the material which has been selected is a easy going one in terms of
construction and would not cause any sort of problem while erecting the building with the major
focus on strength, durability, workability.
1.4 Mechanical and Non-Mechanical Properties
Mechanical Properties are physical properties that a material exhibits upon the application of
forces. Examples of mechanical properties are the modulus of elasticity, tensile strength,
elongation, hardness and fatigue limit.
Non-Mechanical properties or the Physical properties are things that are measurable. Those are
things like density, melting point, conductivity, coefficient of expansion, etc.

1.5 Aesthetic considerations

Materials are to be selected considering the fact of the aesthetic or architectural point of view so
that appropriate material could be filled in the bag while procuring.

2. Human Resource - Human resource or man power is another major key holder category in
procurement planning as without procuring the needful people in the project all other things
would go in vain. The factors which affect the human resource procurement planning are as
follows-

2.1 Type of Organization

The sort of association is a significant thought since it deter-mines the creation forms included,
number and kind of staff required, and the administrative and administrative work force required.
Construction associations are more intricate in this regard than those that render services.

2.2 Organizational Growth cycles and planning

The phase of an association's development can have extensive impact on human asset arranging.
Small associations in the undeveloped stage might not have staff arranging.

Requirement for arranging is felt when the association enters the development stage and more
emphasis is been laid about whom to select and vice versa

2.3 Time Horizons

Another major factor affecting personnel planning is the time horizon. A plan cannot be for too
long on a time horizon as the operating environment itself may undergo charges. On one hand,
there are short-term plans spanning six months to one year. On the other hand, there are long-
term plans -which spread over three to twenty years.

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2.4 Labor Market
Labor market comprises people with skills and abilities that can be tapped as and when the need
arises. Thanks to the mushrooming of educational, professional and technical institutions
adequately trained human resource is always available on the market.
The internal judging factors for which labor to procure are-
1 Size, age, sex of the labor procured.
2 The nature of construction to be done.
3 literacy and skills of the workers

3. Machines
Procurement of machines is cost consuming and most important part of any construction project,
as for heavy infrastructure project major work won’t be fulfilled without the use of the machines.
Some major factors which could be responsible for procurement of machines

3.1 QUALITY
There will be times when you should work in a far off area, where the climate conditions could
be flighty, new or cruel. For instance, you could encounter steady rain, day off hail. These
conditions can debilitate and harm the hard work hardware on the off chance that they stay
presented to the brutal components for a drawn out timeframe all the time. The undermined gear
can demonstrate perilous to the representatives chipping away at the site and effect the
uprightness of the structure being developed.

3.2 Innovation
Hold onto innovation as it is a partner you need on your side. In the event that you have
overwhelming hardware that has the most recent innovation, it will definitely effect and upgrade
the general execution of your business. These machines will complete more work in less time
and with less labor when contrasted with their 'non-tech' partners.

3.3 Eco-friendliness
Overwhelming development gear doesn't come modest. In addition to the fact that it is costly at
first, you should dish out high upkeep costs down the line. One approach to cut down your
expenses is by deciding on eco-friendly machines. Since fuel is one of the significant expenses in
a development business, machines that expend less fuel will spare you a ton of cash in the long
haul.

3.4 Expenses
For the most part, development ventures length over quite a while — going from a couple of
months to even years or decades. Not arranging and allotting resources and ventures intelligently
will influence the general task and the business. Putting resources into truly difficult work
machines is a noteworthy piece of the allotted financial plan. Since a portion of the truly difficult
work apparatus is huge in size and gloats of refined innovation, it can make the buy a costly
issue for your business. Regardless of the costs, it is fitting to put resources into them instead of
settling on unacceptable machines as it will profit you over the long haul. Plan appropriately and
think about the distributed spending plan as an essential factor before purchasing these machines.

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5. Vendor
Guarantee that you generally purchase from a respectable vendor. Take as much time as is
needed and look at various sellers before making the buy. One approach to distinguish a
trustworthy and solid seller is if responds to any question you toss his direction; on the off
chance that he doesn't have an answer, he will be straightforward and hit you up later with the
important data. Ensure you additionally get some information about the after-buy administrations
being advertised.

Inventory and its control

The answer to what to procure could also be given by some of the inventory control models as
these models are responsible to answer our question in form of inventory. The term ‘inventory’
originates from the French word ‘Inventaire’ and Latin word “Inventariom” which implies a list
of things found.The term ‘inventory’ can be defined as “The term inventory includes materials
like – raw, in process, finished packaging, spares and others; stocked in order to meet an
unexpected demand or distribution in the future.”
A set of policies and controls that-monitors levels of inventory and determines what levels
should be maintained, when stock should be replenished how large orders should be placed.

Some of the inventory control models which could answer our question of what to
procure can be
1. ABC Analysis
Always Better Control (ABC) analysis works upon the basic 80:20 principle that means 20% of
the items accounts for 80% of capital. What we have to do is to segregate all items into three
categories- A B and C on the basis of their annual usage value.

Table 1
MANAGEMENT
CATEGORY NO.OF IEMS(%) ITEM VALUE(%)
CONTROL
A 15 70 (HIGHEST) MAXIMUM
B 30 20(MODERATE) MODERATE
C 55 10(LEAST) MINIMUM
TOTAL 100 100

A items account for 70-80% of the annual usage value and merit maximum attention whereas
C items do not demand any control, they can be suitably placed in stock rooms. From the
economy point of view, the safety stock for A and B category items should be kept low. For C
items which annual usage values are low, such care is not called for.

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2. VED Classification

V- Part is VITAL (high stock level)

E- Part is ESSENTIAL(moderate stock level)
D- Part is DESIRABLE (minimum stock level)
This type of classification is needful in judging what to procure according to the importance
segregated into three different parts which emphasis on the stock level of the material as well.

3. HML Classification
HML or High- Medium- low price Analysis is used to focus the price criterion,
The items under this analysis are classified into three groups which are called “high”, “medium”
and “low”. Which is been decided by the management to classify which price to which slot and
differ from organization to organization
The major benefit of HML is it evolve buying strategies to control purchases, for example excess
supply than the order quantity may not be accepted for H and M groups while it may be accepted
for L group.

4. SDE Analysis
SDE analysis classifies the procurement into three groups- Scarce, Difficult and Easy. It
Focuses on ease of procurement as the criterion scarce group is taken care by the experienced
senior managers while the easy group procurement is the responsibility of junior and
inexperienced personnel.

5. GOLF Analysis
GOLF analysis is based on the nature of the suppliers which determine quality, delivery, lead
time, payment terms, continuity of supply and administrative work involved. It is categorised
into basic four classifications as-
G group covers items procured from government suppliers such as the State Trading corporation
, the Metals and Minerals Trading corporation and the Govt. set ups or public sector companies.
O group of items are procured from “ordinary suppliers”. Transactions with this category of
suppliers involve moderate delivery time and availability of credit, usually it is in the range of
twenty days to two months.
L group indicates local suppliers. The items bought from local suppliers are those which are
instant through cash or credit.
F group contains those items which are purchased from “Foreign suppliers”. It involves lot of
formalities, procedural work and legal complexities.

6. XYZ Analysis
XYZ analysis is calculated by dividing an item's current stock value by the total stock value of
the stores. The items are first sorted on descending order of their current stock value. The values
are then accumulated till values reach say 60% of the total stock value. These items are grouped
as 'X'. Similarly, other items are grouped as 'Y' and 'Z' items based on their accumulated value
reaching another 30% & 10% respectively. The XYZ analysis gives an immediate view of which
items are expensive to hold. Through this analysis, firm can reduce its money locked up by
keeping as little as possible of these expensive items
Combination of different Matrices

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Combination of various Analysis

1. Combining ABC Analysis with VED Analysis

On combining the ABC Analysis with VED Classification we can classify material on bothe i.e.
Consumption value and the criticality because of which we can come into nine different
inferences which would differ from each other on the basis of the degree of above two
parameters
An item belongs to A and V class is costlier, at the same time higher criticality, the management
should see that it is available at any time the need arises and the stock level to be kept under
control.

Table 2
V E D

A AV AE AD

B BV BE BD

C CV CE CD

2. Combining ABC Analysis with XYZ Analysis

On the very similar grounds as we have combined the ABC analysis with VED analysis, we may
also combine ABC analysis with the XYZ Analysis consumption value and the stock value.

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 Table 3

A B C

X Reduce stock to Z Convert to Y Dispose of surplus

category

Y Reduce stock to Z Good Control More stringent

control

Z Good Control Monitor Good Control

3. Requirement Traceability Matrix

The Requirements Traceability Matrix (RTM) is a tool to help guarantee that the Project's scope,
prerequisites, and expectations stays as in when contrasted with the base line. Consequently, it
traces the expectations by building up a string for every prerequisite from the project’s initiation
to the final implementation.
The RTM can be utilized during all phases of a project to:
3.1 Track all prerequisites and whether they are being met by the current procedure and structure
3.2 Aid the making of the RFP, Project Plan Tasks, Deliverable Documents, and Test Scripts
3.3 Help guarantee that all framework prerequisites have been met during the Verification
procedure.
The Matrix ought to be made at the earliest reference point of a project since it shapes the
premise of the task's degree and joins the particular necessities and expectations that will be
delivered.
The Matrix is viewed as bi-directional. It tracks the necessity forward by inspecting the yield of
the expectations and "in reverse" by taking a gander at the business prerequisite that was
determined for a specific component of the item. The RTM is likewise used to confirm that all
necessities are met and to recognize changes to the extension when they happen.

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When to Procure- When the procurement stage comes in construction industry: An
authorized purchase request is sent to the head materials manager, who coordinates with site
engineer and organizes for the materials.

Two types are there for material procurement:

1) Early procurement

2) Late procurement

Early procurement:
In early procurement the stocks are maintained before the start of the work. It has both advantages and
disadvantages
Advantages:
1) Materials availability is assured and hence, work will not suffer.
2) Proper quality and price of materials can be assured as there is time to look around and shop.
Disadvantages:
1) Materials may be stolen or may deteriorate during storage.
2) Materials will require space for storage, which may also be needed for other uses.
3) They need to be guarded and accounted for.
4) Money locked up in the purchase of materials does not get interest and other works may suffer due to
this.
In this type warehouses are must be needed and favorable weather conditions also required. But this type is
good for sites located in the remote areas and the materials are which are not supposed to deteriorate.
Late procurement:

In this type procurement is done prior to the job to be done at the site.

Advantages:

1) There is no extra money for security and storages.

2) There is no problem of theft or deterioration.

3) The money to store can be used in other areas.

Disadvantages:

1) There may be chances of delay in the project due to non-availability of resources at the
required time.

2) There may be price escalation will occurs.

3) Good quality of materials cannot be found in the limited time.

But if correct relationship maintained with the supplier then we can get the materials in the
required time and within the cost in the late procurement type. If ware houses are not there then
late procurement is the best type to proceed for the procurement process.

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 The early procurement or late procurement also depends on the transportation facility at the
project site. In some construction companies, materials are first received in central stores, from
where they are dispatched to the project stores located at project sites and then finally to the
workplace. The construction materials could be in the form of raw materials such as aggregate,
sand and plywood, or they may be in semi-finished form such as mortar, mixed concrete and
dressed stones.

In the procurement process when the materials or inventory is ordered based on

1) Cost of storage

2) Storage space availability

3) Order placing

4) Risk of loss due to

5) Prices evaporation (reduction)

6) Theft.

Inventory models:

Inventory models are used to find how much quantity to order and when to order the
materials based on two different models. This is carried after the material resources planning.

1) Deterministic inventory model

2) Probabilistic inventory model

Deterministic inventory model in which demand rate of an items is assumed to be constant

Probabilistic inventory model in which demand for an item fluctuates and is divided into two
models

- Single period decision model:

All inventories must be ordered prior to start of the time period. In this model desicion is taken
once

- Multi period decision model:

More decisions taken at a given time period and in this either quantity is fixed or time is fixed.

How much to order is calculated using different methods, in which one of the method is EOQ
model. After quantity is determined the next process is when to order. Orders must be placed

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before inventory reaches to zero due to order lead time. Lead time is the time from placing the
order until it is received. The reorder point depends on the lead time.

Reorder point
The reorder point (ROP) is the level of inventory which triggers an action to replenish that
particular inventory stock. It is a minimum amount of an item which a firm holds in stock, such
that, when stock falls to this amount, the item must be reordered. The reorder point is calculated
using the formula

ROP = (Demand per day) *(Lead time for a new order in days)

= d*L

Where;

d=Total demand/no.of working days in a year.

Fig(2):EOQ Inventory Order Cycle

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Where to procure
After selection of material the process which is done is to know from where to get the material.
Where to procure is a process of determination of the position or place from which the selected
material can be obtained. Selection of any place is an important factor in the procurement stage.
Where to procure mainly is dependent on the scope of the project. Every project is different and
unique in its own way, first we should identify scope of the project. . The scope management
plan describe how the scope of work by the contractors will be managed through the execution
phase of the project.

The various contractual agreement used by the organization are also affect and influence the
decisions for the Plan of the Procurement Management process.

1)Preapproved seller lists: provide the list of sellers those who have been proper knowledge
and experience in that we want from them can shorten the timeline for the seller selection
process.

2)Formal procurement policies, guidelines: Most organizations make procurement policies

during buying for certain time period with the seller. When such polices are made the seller will
supply the required good for that time.

3)Traditional Method: In this method the buyers will see the relationship with the old seller if
the old sellers are able to meet the requirements of the buyer then the buyer will approach to the
old seller.

4)Design and Build Method: In this method if the buyer want new product then will approach
design and build type where he can get the product with his specification.

5)Contact type: These are mainly two types of

⮚ Fixed-price contracts: This category of contracts involves setting a fixed total price for a
defined product, service, or result to be provided. The contract is to be used when the
requirement is well defined and there is no significant changes to the scope.
⮚ Cost-reimbursable contracts: This category of contract involves payments to the seller for
all legitimate actual costs incurred for completed work, plus a fee representing seller
profit. This type should be used if the scope of work is expected to change significantly
during the execution of the contract.
SOURCE SELECTION ANALYSIS

It is necessary to review the prioritization of the competing demands for the project before
deciding on the selection method. Since the competitive selection method may require the seller
to invest in a large amount of time and resources, it is a good to include the evaluation method in
the procurement document so bidders know how they will be evaluated. Commonly used
selection methods includes-

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Least cost. The least cost method is an appropriate for procurement of a standard or routine or
general in nature where well established/ default practices and standards exist and from which
there is specific and well-defined outcome is expected, which can be executed in different costs.

Qualifications only. The qualifications of the selection method applies when the time and cost
of a full selection process would not make sense because the value of the procurement is
relatively small. The buyer establish a short list and select the bidder with the best of its
credibility, qualification, experience, resources, expertise, areas of specialization, and references.

Quality-based/highest technical proposal score. The selected firm will be asked to submit a
proposal with both technical and financial details and after it invited to negotiate the contract. If
the technical proposal proves acceptable. Using this method, technical proposals are first seen
and evaluated based on the quality of the technical solution offered. The seller who has
submitted the highest-ranked technical proposal is selected if their financial proposal can be
negotiated and accepted.

Quality and cost-based. The quality and cost-based method allow the cost to be included as a
way in the seller selection process. In general, when the risk and uncertainty are greater for a
specific project, quality should be a key element when compared to cost.

Sole source. The buyer should ask for a specific seller to prepare a technical and a financial
proposals, which will be negotiated. As there is no competition at all, this method is accepted
only when it is fairly justified and should be viewed as an exception.

Fixed budget. The fixed-budget method requires opening of the available budget to invited
sellers in the RFP and selecting the highest-ranking technical proposal within the budget.
Because sellers are matter to a cost value constraint, they will have the scope and quality of their
offer to that in a budget. The buyer should therefore ensure that the budget is compatible with the
seller will be able to perform the tasks within the budget. This method is appropriate only when
the SOW is precisely defined, no changes are anticipated, and the budget is always kept as fixed
and cannot be exceeded.

Classification based on decision

Single period Inventory Models

Decision is made once

The single period model takes a single period of a time. All the inventories should be ordered
prior to the start of the time and it cannot be replenished during the time. Any inventory left at
the end of the time period is scrapped and it cannot be used at a later time. If there is extra
demand which is not satisfying during the period, it is also lost.

Multi Period Inventory Models

More decisions are taken at a given time period
for the single period model we are actually maximizing the profitability. We generally consider a
multi period inventory model with raw material procurement carried out. Bids in this are multi-
dimensional in nature, and they consist of all the supplier information of shortage, quantity and

26
lead time. This work is extension of our earlier work that has to be focused on multi-dimensional
procurement auctions in single-period inventory models, to multi-period settings. The new model
is based on the hybrid approach combining stochastic dynamic programming and simulation.
Two costs are associated with single period problems
• Excess cost (ce) when DQ ($/unit) i.e. too little product
If we assume continuous distribution of demand
• ceP[X≤Q] = expected excess cost of the unit ordered
• cs(1-P[X≤Q]) = expected shortage cost of the unit ordered

Classification based on Vendor selection

Source selection

Source selection is a set of condition desired by the buyer which a seller is required to meet or
exceed to be selected for a contract. Project management, source selection criteria are included as
part of the procurement documents.

5 Successive Stages of Source Selection

1. Searching

2. Selection

3. Negotiations

4. Trial order

5. Rating

Searching

The search is to find out the most suitable supplier. This process begins with finalization of
specifications in consultation with technical departments. Trade Journals, newspaper
advertisements and other sources of information. The routine sales-calls by suppliers’
presentations are a very important source of information.

Selection

Specific information on the supplier’s financial strength, quality, efficiency, industrial relations,
technical excellence and position in industry have to be collected. Meeting between buyers and
the supplier’s representative brings to know each other more intimately.

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Negotiation

Negotiation starts after the completion of screening and selection of the suppliers. The
negotiations ensure correct and cordial relations between the buyer and the supplier and this is
very essential for mutual cooperation.

Trial order

Through negotiation both the parties the buyer and the vendor come to mutual understanding,
trial orders are placed. This is generally done with a view to test the vendor’s capability in
meeting the buyer’s needs.

Rating

Continuous rating is an important function of material management.

There are different rating systems. Based on a periodic basis, vendor rating enables the buyers to
compare the vendors

Thus proceeds the process of source selection.

SOURCE SELECTION CRITERIA

The Procurement Management section of PMBOK identifies source selection criteria as an

output of the process where procurement planning is performed.

The project manager and project team must make decisions around what criteria will be
considered when selecting a vendor to perform some of the project work.

Possible selection criteria

In choosing evaluation criteria, buyer seeks to ensure that the proposal selected will offer the best
quality for the services required. The source selection criteria may include but are not limited to:
1. Capability and capacity;
2. Product cost and life cycle cost;
3. Delivery dates;
4. Technical expertise and approach;
5. Specific relevant experience;
6. Adequacy of proposed approach and work plan in responding to the SOW;
7. Key staff’s qualifications, availability, and competence;
8. Financial stability of the firm;
9. Management experience; and
10. Suitability of the knowledge transfer program, including training.

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 Table 4

S.NO CRITERIA WEIGHT

1
2
3
TOTAL 100%

Table 5

Proposal 1 Proposal 2 Proposal 3

CRITERIA Weight Rating Score Rating Score Rating Score
Technical
approach 30%
Management
approach 30%
Past
performance 20%
Price 20%
Total Score 100%

VENDOR DEVELOPMENT

Vendor development is the techniques of strategic sourcing, which improves the value we
receive from suppliers.

Vendor Development can be defined as the activity that a Buying Firm do to improve a
Supplier's performance and capabilities to meet the Buying Firms' supply needs.

Classification on the basis of Material

In the context of a large construction sector, having countrywide domestic as well as overseas
operations, the set-up for performing materials management can be quite big.
For a sector that has regional offices throughout the country and a head office in a major of the
country, the material management department is normally headed by a person of vice president
cadre and is supported by a general manager.
There may be a central and regional department.

29
Centralized procurement

When there is Low unit price due to large volume. For some materials there can be an agreement
on rate for the country as a whole, valid for a particular period during which the rates are fixed
irrespective of general increase observed in the same item.

Advantages

1. Smoother purchasing action due to well laid out process.

2. Specialized person having better market knowledge involved in the process.
3. Dealing with regular suppliers and hence, better negotiated price.

Local

When the procurement is on urgent basis or when the carrying cost of the material is much more
then, then in that case we use local procurement It is faster response to material requirement for
the project.

Better project control and regulated expense towards expenses. In centralized procurement, the
indirect cost of purchasing cost may be debited in wrong proportion to a particular project.

Classification on the basis of Transportation

Construction material used on project sites undergo considerable movement right from their
point of origin to storage point to the actual point of consumption.
In some construction firms, materials are first received in central stores, from where they are
dispatched to the project stores located at project sites and then finally to the site.
The construction materials could be in the form of raw materials such as aggregate, sand and
plywood, or they may be in semi-finished form such as mortar, mixed concrete and dressed
stones.

In general, raw materials procurement is within the scope of materials management team .The
procurement of semi-finished material comes under the purview of construction team. Proper
care should be taken while planning for transportation of raw and semi-furnished materials so as
to avoid any adverse effect on the characteristics or performance of materials.

30
How to Procure
Imagine you own construction materials how many cement bags are you going to have in your
store for tomorrow or how many nut and bolts demand you going to have tomorrow?
Procurement planning have answer of all these.

It's the foundation of Procurement planning. Sourcing, operations and logistics, all of which
depend on the accurate prediction of demand. A system of forecasting is necessary for any
business. One need to figure out what customers are going to buy and forecasting is the way to
get there.

Defining forecasting:
Forecast is the process of estimating how much material that are required in future.

There are several types of forecasting approaches, what we're going to use here is time series and
time series relies on historical data. We have demand recorded over time from past until the
future
this demand data is going to be recorded in equal size intervals of time. So that maybe a day, it
maybe week, it maybe a month or even a year. So, we have this equal size periods of time
and we are going to forecast in those same intervals into the future.

Our goal is to build forecasting model based on past demand, which we denote as d typically
and we are going to forecast into the future and we denote that as F. Once future data comes in,
we're going to continuously refine our forecasting approach and have a forecasting method that
minimizes the error and gets us the best prediction possible.

Time series are made up of several different patterns and Noise. The different types of patterns
that we typically see in time series are a base level of demand gives us a starting value, any trend
that might persist. So, either demand goes up over time or it goes down over time.\

Seasonality
Seasonality is a pattern that repeats every month, every quarter or every year.

Longer range cycles

Everything that's longer than a year, we call a cycle. It works like seasonality.

Noise
Noise is random. It follows no rhyme or reason, but it's always there. Good forecast will try to
resolve all of the pattern without trying to forecast noise. We cannot forecast randomness, so the
best forecast does not even try.

31
.The best forecast is not always the most complicated one. In fact an equally good forecast that
is more simple, it's a better one to use. Now when it comes to forecasting, it's equally art and
science.
We have scientific methods available, but using it right and picking the right one is equally
important and it takes a lot of work to continuously monitor how different methods are doing
and picking the right one at the right time.

Therefore, forecasting is one of the critical pieces of supply chain management.

Simple Forecasting Methods

There are four forecasting methods:

● Naive Forecast
● Cumulative Mean
● Moving Average
● Exponential Smoothing

There are three forecast accuracy measures:

● Mean Error
● Mean Absolute Percent Error
● Mean Squared Error
Naive Forecast:
In this type of forecast predictions are done based on the previous period data and they assume
same amount of material will be required on the next period also. The naive forecast works very
well in certain situations and it sometimes works even better than other more complicated
methods.

In this case the period may be days, months, years which have fixed interval. In this type
whatever value of present period data will be transferred to the next forecast period.

Now the naive forecast is very noisy because it doesn't consider fluctuations. That makes it very
nervous but also responsive to changes in demand. Nervous means we have a very volatile
forecast. That may not be in our best interest when we're trying to plan for a smooth
production. Therefore, we have to understand that typically, only the last period is used for our
forecast.
That is a big assumption, and it may not be very realistic.
However, the naive method can be used as a benchmark to more complex methods and it tells
you whether a more complex method is clearly superior\

32
 The formula

Cumulative Mean:
In this type of method forecast based on the average of all prior demand.
In this type of forecast fluctuations will be less because since the forecast is not based on single
value it considers all the previous values and the forecast is the mean of these values.

Moving average method:

This method of forecast first we should decide certain constant period so that next period
forecast is avg of these period values.

MA(3) represents the present period forecast is average of last previous 3 periods demand

∑ Demand in previous ‘n’ periods

Moving average = ────────────────────────────────

Exponential smoothening: This type of fore cast is similar to moving average method but
here during calculation of forecast a constant(α) value is added
Ft = Ft – 1 + α(At – 1 - Ft – 1)

Ft = New Forecast

Ft – 1 = Previous Forecast

α = Smoothing (or Weighting) constant (0 ≤ A ≤ 1)

At – 1 = Actual forecast of last period

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Forecast Accuracy Measures
Forecast accuracy. How do we know how good a forecast is? we can measure how far away it is
from the actual demand, which is defined as accuracy, but also have to consider bias, and bias
means is a tendency to over forecast or under forecast.
we don't want to be too biased in either direction because that degrades the ability to properly
forecast the future just as much as accuracy does.

Mean error:
The simplest form of a forecast accuracy measure is the mean error. We take our demand, we
subtract the forecast from it, and, then, all we need to do is average up all of these time periods
that we have forecasted so far, and that gives us our mean error.

Both over forecasting and under forecasting are bad. If we over forecast, that means we have
more product than you really needed, so we are going to have stuff left over.
If we under forecast, you're not going to have enough product, and customers are going to come
to store, not have anything to buy.

Mean absolute percent error:

And unlike the mean error, which was more of a measure of bias, we are going to actually get
that accuracy. So we have our demand, minus our forecast.so we have to divide by demand to get
a percentage and we're going to take the absolute value of that. So that we don't have pluses and
minuses canceling each other out and then, all we need to do is take this sum of over that and
divide by how many periods we have, and then we have it Make mean absolute percent error.

A very important forecasting accuracy measure is the mean squared error or MSE. What we're
trying to achieve with that is, that we're trying to give more weight to large errors. Large errors
are the ones we want to avoid at all costs because small errors we can plan for. Large errors are
going to surprise us and make our life and planning much more difficult. So our demand minus
our forecast actually will get squared and then we take the average of that. So the MSE is
squared errors, and we take the average over all of the forecasted periods.

34
Means Squared Error:
Because we're squaring the error terms, what happens when we have a large error, it becomes
much larger because we multiply it by itself. Small errors remain small, but large errors become
huge! and those huge errors are going to significantly affect our mean squared error, therefore we
will be much more sensitive to those large errors.

So which forecasting accuracy measure should we look at?

The short answer is, all of them.

Each one has something different to tell us, and we should consider each one for different
reasons. In the end, we want to pick the best forecast and only if we look at each forecast that we
consider, from various measures of curacy, we'll be able to obtain the best forecast possible.

35
Observations/Findings

This project mainly focuses on four major stages during procurement phases in construction
industry

What to procure: What to procure majorly depends on the scope of work. Most of construction
projects will have material, human resource and machinery as major requirement and the factors
effecting during each item should be considered during planning what to procure and Inventory
and control techniques also will give information what to procure during planning stage.

When to procure: When to procure mainly deals with at what time we should keep purchase
request to the material manager. There are two types of material procurement Early procurement
and Late procurement and each have their own advantages and disadvantages. When to procure
also depends on single period decision model and multi period decision model and reorder point.

Where to procure: After selection of what material to procure then we should deal with where to
procure. Where to procure is a process of determination of the position or place from which the
selected material can be obtained. There are various factors to be considered during selection
process it include source selection analysis, period of inventory, vendor relationship,
transportation cost. Based on these factors we will conclude where to procure.

How to procure: How to procure mainly deals with how much amount of resources to procure. It
mainly depends on forecast that planning department made initially. Forecast may not correct
every time. Factors effecting forecast are seasonality changes and non uniform fluctuations.
There are four forecasting methods Navie forecast method, Cumulative mean method, Moving
average method, Exponential smoothening method and there are three forecast accuracy methods
Mean error, Mean absolute percent error, Mean squared error.

36
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