UNIT 6 PURCHASE AND STORES

MANAGEMENT
Structure
6.1 Introduction
Objectives
6.2 Elements of Purchasing
6.3 Materials Purchasing System
6.3.1 Indenting
6.3.2 Enquiry Stage
6.3.3 Offer Processing Stage
6.3.4 OrderingSystems
6.3.5 Receipt of Material. Transportation and Inspection
6.3.6 Material Procurement Cycle
6.4 Warehouses or Stores
6.4.1 Objectives and Functions of Stores
6.4.2 Location and Layout of Stores
6.5 Preservation of Store Materials
6.6 Stores Systems and Procedures
6.6.1 Management of Receipts
6.6.2 Issue Control
6.6.3 Stores Documentation
6.7 Stock Valuation and Verification
6.7.1 Methods of Valuation
6.7.2 Stock Verification
6.8 Waste ~ a n a ~ e m e-nDisposal
t of Surplus,
Obsolete and Scrap
6.9 Summary
6.10 Answers to SAQs

6.1 INTRODUCTION ---- -

Purchasing has come to stay as the most important function of materials management.
The moment purchasing department places an order, it commits a considerable portion of
the finance of the organisation which affects the working capital and cash flow position.
The basic purpose of the purchasing and procurement function is to ensure continuity of
supply of raw materials, sub-contracted items and spare parts of equipment and at the
same time reduce the overall cost of the project. In other words, the objective is not so
much to procure the raw materials at the lowest price but to reduce the cost of final
product.
After purchasing and procuring the materials, the question of effective storing comes.
Stores play a vital role in the materials management operations of the organisation. The
most important purpose served by the stores is to ensure unitermpted service to the user
departments of the organisation.
In this unit, we will study the various aspects involved in material purchasing and
procurement activity. We will also see how to evolve effective stores systems and
procedures for an efficient stores management.

Objectives
After studying this unit, you should be able to
describe the various parameters of purchasing,
discuss complete materials procurement cycle from indent to issue,
explain stores systems and procedures, and
use stock valuation methodologies effectively.
Materials
6.2 ELEMENTS OF PURCHASING
As mentioned earlier, the basic objective of the purchasing function is to ensure the
continuity of supply of raw materials, sub-contracted items, and spare parts and at the
same time to reduce the overall cost of the project. To achieve this, there are a large
number of well defined elements such as right price, right quality, right contractual terms,
right time, right source, right material, right place, right mode of transportation, right
quantity, and right attitude. For effective purchasing function, all these elements need to
be considered jointly. A diagram indicating these elements is shown in Figure 6.1. The
details of some of the important elements are given in subsequent paragraphs.

Figure 6.1 :Elements of Furchasing

Right Price
It is the primaty concern of any organisation to get an item at the right price. But
the right price need not be the lowest price always. While it is very difficult to
determine the right price, general guidelines can be had from the cost structure of
the product. The tender system of buying is normally used in most of the
organisations but the objective should be to identify the lowest responsible bidder
and not the lowest bidder. The concept of "learning curve" also helps the purchase
agent to determine the price of items with high labour content. Sometimes, price
negotiation also helps to determine the right prices.
Right Quality
Right quality implies that quality should be available, measurable and
understandable as far as practicable. The quality particulars are normally obtained
from the indents. Drawings are also attached to the indents, particularly for spare
parts.
Right Time
For determining the right time, the purchase manager should have lead time
information for all products and analyse its components for reducing the same.
Lead time is the total time elapsed between the recognition of the need of an item
till the item arrives and is provided for use. While determining the purchases, the
buyer has to consider emergency situations like floods, strikes etc. However, rush
purchase should be resorted to only in exceptional.
Right Source
The source from which the material is procured should be dependable and capable
of supplying items of uniform quality. The buyer has to decide which item should
be directly obtained from the manufacturer.
Techniques such as value analysis enables the buyer to locate the right material.
Right mode of transportation have to be identified as this forms a critical segment
 in the cost profile of an item. It is an established fact that the cost of the shipping Purehase and
of ore, gravel, sand etc. is normally more than the cost of the item itself. Stores Management

Right Quantity
The right quantity is the most important parameter in buying. Concepts such as
economic order quantity, fixed period and fixed quantity systems serves as broad
guidelines to ensure right quantity. But still, the buyer has to use his knowledge,
experience and commonsense to determine the quantity after considering factors
such as price stnicture, discounts, availability of the item, favourable reciprocal
relations, and make or buy consideration.
Right Place
Right place means the right place of delivery. Every purchase contract, in addition
to time of delivery, must clearly state the place of delivery and such other terms
like free delivery or ex-factory delivery. Generally, FOB (Free on Board), FOR
(Free on Rail), CIF (Cost, Insurance and Freight) paid terms are part of the price
agreement.
From these basic elements of purchasing, fundamental objectives of purchasing is given
in subsequent paragraph. ,
Fundamental Objectives of Purchasing
Fundamental objectives of purchasing may be enumerated as follows :
(a) to maintain continuity of supply to support the scheduling of the project,
(b) in doing so, minimum investment in stores and materials inventory must be
ensured, consistent with safety and economy,
(c) duplication of purchases, wastes, obsolescence and costly delays must be
avoided,
(d) proper quality standards based on suitability criteria, must be maintained,
(e) materials must be procuredaatthe lowest possible cost, consistent with
quality and service requirements, and
(f) it must maintain, in-so-far as materials costs are concerned, organisation's
competitive position in the market.

SAQ I
(a) Discuss the various elements of purchasing with the help of suitable case
examples.
(b) What are the main objectives of purchasing ? What are the various prerequisites
for becoming a good purchase manager ?

6.3 MATEWLS PCTRCHASINC SYSTEM

In organisations, depending on the size and its nature of operation, the quantum of
purchase varies anywhere between a few thousands of rupees to hundreds of crores of
rupees. Naturally, this necessitates some formalised systems and procedures for the ease
of operation and accountability. Formal procedures have to be laid down in initiating
purchase, selecting suppliers, placing purchase orders, follow-up, receiving materials and
so on. in this section, we will deal with various systems that are used in a purchase
department. In fact, these systems follow a definite cycle from indent to issue. It is called
"material procurement cycle". At the end of the section, this cycle is also illustrated.
Now, different stages of this cycle is described one-by-one in subsequent paragraphs.

6.3.1 Indenting
-- - - - -

The purchase order should be typed without mistakes with all terms & conditions duly Purchase and
mentioned in it. Copies of this should be made available to the end-user department, Stores Management
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Construction Materials An indent typically has the following points oi exp!anation :
Management
(a) Name of the item,
(b) Description of the item,
(c) Item code (if it is a standard item),
(d) Quantity of the item,
(e) Specifications,
(f) Dateltime by which the item is desired,
(g) End user department's name and location where the item is desired or is to be
delivered,
(h) Indent originator's name (for coordinating delivery or for clarifications),
(i) Other related information, if the item is budgetted, and
(j) Signature of the Authority for normal procurement, and/or signature of Senior
Management Personnel, if it is not budgetted.
6.3.2 Enquiry Stage
In this stage, the enquiry for quotations is sent to the vendors. Details of the indent
applicable are included here. It is usually sent to the approved vendors and typically
contains the following :
(a) Name of the item,
(b) Description of the item,
(c) Quantity of the items,
(d) Time till which the offer is to be valid,
(e) Specifications,
(f) Dateltime by which the item is desired,
(g) End user department's name and location where the item is desired or is to be
delivered, and
(h) Standard terms and conditions which the company follows and desires for its
vendors to accept these conditions regarding insurance, warranty and gaurantee
expected, payment details, mode of transportation, point of transfer of goods
from vendor to company etc.
6.3.3 Offer Processing Stage
At this stage, the focus is on viewing offers on a platform which is fair and objective
oriented while comparing it to the the ideal one. It is necessary to have the ideal one
handy (one can use the enquiry stage to convey to the vendor, the ideal terms &
conditions and even the prices that one is looking forward to).
However, determining the best one is problematic for following reasons :
(a) Somebody might accede to all the standard terms & conditions mentioned in the
enquiry, but be too expensive on the price,
(b) A vendor's price may seem less, but that may be because he has not included
insurance and freight in his price, and
(c) Another vendor's price may seem the least, but he has imported material and no
service centre in India or the place where service is desired.
The basic aim at the offer processing stage is to "COMPARE APPLES WITH APPLES".
This work could involve asking for requoting from some vendors or calculating the
implications in terms of cost to "level" the playing field. Sometimes, for this purpose,
negotiations may also be required.

6.3.4 Ordering Systems

After deciding on the vendor to whom the order is to be placed, the Purqhase Order (PO)
is to be drafted. Since this is a legal contractual document that binds both the seller and
the buyer to certain conditions, this has to be carefully and thoughtfully done.
Inconvenient terms may have to be renegotiated.
The purchase order should be typed without mistakes with all terms & conditions duly Purchase and
mentioned in it. Copies of this should be made available to the end-user department, S t o w mnagement
stores and accounts. Since the whole process of preparing purchase order is long and
cumbersome, many organisations have removed this process for any item which is very
occasionally required and has value less than a specified amount.
The purchase order typically should contain the following items :
(a) The order number, serial number and date of order,
(bj TWname and'hddress of the ordering company,
(c) Consignee's name and address,
(d) General terms & conditions of order,
(e) Description of goods, its specifications and quantities,
(f) Supplier's quotation reference and any other correspondence or MOM (Minutes
of Meeting) in this regard,
t : . - ,
(g) Pricing terms and its billing terms,
(h) Payment terms,
(i) Delivery date and schedule,
(j) Packing instructions,
(k) Transport instructions,
(1) Freight payment terms,
(m) Insurance terms,
(n) Warranty and guarantee terms,
(0) Cancellation provisions and liquidatory damage clauses,
(p) Incoming inspection details and removal of rejections,
(q) Bonus for early despatch or zero rejections etc., and
(r) Other special terms and conditions.
Normally, the vendor acknowledges the order placed stating perhaps the terms not
acceptable to him or the particular terms acceptable in modified form. Once the order is
acknowledged, the vendor is legally bound to honour it, At the same time, the seller is
also bound to honour it once it reaches the vendor.
While the ordering method followed is largely what has been mentioned earlier, the
actual ordering system are varied. Generally, the purchase officers take following systems
into account while ordering :
Cash Purchase
Sometimes, the whole process is not followed and the items are purchased off the
shelffrom the market or across the counter. This may be because the whole normal
and formal method of ordering may be too expensive as compared to the value of
the items being purchased or it may be an emergency item, whose stockout could
have catastrophic ramifications in terms of costs or reputation of the company. Or
it may be a 'once in a while' purchase having low financial implications. To take
care of such eventualities, all departments normally have some imprest amount
with them sanctioned by a senior department official for the purpose. '
Tender System
The tender system is adopted fo procure materials at the most competitive rates and
to eliminate chances of undue favour to any supplier. Buying should be as
impersonable as possible and should foster a spirit of healthy competition so that
the prices quoted are most competitive. Private sector normally uses this method
for large value items. The disadvantages of this method are - the large lead time
required for procurement, the probability of nepotism creeping through by
inputting the specifications or terms & conditions favourable to a party. This can
be avoided by loading objectively. Loading is the process by which the
advantagesldisadvantageswhich are not implicitly stated in the specifications1
enquiry are also accounted for. For example, a machine may be more expensive
than the other, but have four times the economy. Comparing on costs only is bad
economics for the company. As a rule, however, the specifications should be
Construction Materials
ana age&! .
Rate and Running Contract
detailed and loading conditions should be minimised if not eliminated altogether as
they give source to a feeling of nepotism and take the objectivity out of the whole
tendering process.
There are following three broad tendering methods :
I
(a) Open Tender
(b) Limited Tender
(c) Single Tender
Open Tender
In an open tender, advertisements are placed in leading newspapers and the
Indian Trade Journals. These are typically called NITS- Notice Inviting
Tenders. The tenderers usually have to quote in the prescribed formats and
deposit the earnest money (signifying earnestness to quote and fulfil contractual
obligations). The tender documents are normally priced documents and contain
the specifications, terms & conditions of supply and erection or commissioning,
terms of payment etc. Sometimes, the offers are received as technical and
commercial bids. The intent is to evaluate if all the people have satisfied the
minimum desirable terms and conditions technically. Moreover, deviations in
quantum of supply, terms & conditions etc. are noted and discussions and
negotiations are held to arrive at a settlement. This also helps in loading the
offer during the price bid opening.
Global tenders are normally issued for very costly items requiring high
technology inputs and normally being financed by international financing
agencies like World Bank, International Monetory Fund etc. Since offers are
expected from all over the world, the tender must involve simplicity in language
and clarity and follow international guidelines. It is advisable to have an
exhaustive checklist before starting the tender process of any kind.
One of the major problems in the tendering process is the "rogue" bidder. The
rogue bidder quotes very low (much below the known coststprices at times)
prices. He knows that once the contract gets underway, he can arm twist the
buyer into giving him a better deal as by then, both the parties would have made
substantial investments into the project or supply.
Limited Tender
One way of avoiding known rogue bidders is to limit the number of bidders by
a set of pre-qualification rules. It is called limited tender. Care should be taken
that the pre-qualification methodology does not eliminate genuine bidders or
should not be misused to favour certain organisations only. Limited tenders also
mean reduced lead time.
Single Tender
For proprietary items, single tender systems are used. Since competition puts an
organisation in a position to get the best value for money, single tender is at best
avoidable and can lead to the price blackmail. However, single tender if used
should be preferably for long term with repeat order facility to prevent undue
lead times in negotiations.
In rate contracts, the rate for the item procured is fvted for a particular time period.
Sometimes, it is fixed for a set of defined quantity sizes. Normally, a running
contract is a rate contract and means that the validity regarding the quantity is
flexible. Normally, it is around f 25%. Usually, a rate and running contract is used
by a centralised procurement agency like DGS&D or any centralised store to
procure items from various approved and contracted sources. More than one source
is used to negotiate a good price and also so as not to "keep all the eggs in one
basket". Sometimes,'it is done as one supplier may not be able to meet their
variable needs. Some rate contracts also enable their branches to procure their
requirements from the approved rate contract vendors directly at the contracted
prices. Thus, the centralised operations in fixing rates save negotiations across the
organisation, while at the same time, the large quantities enable a good price. The
user departments now can order items with shorter lead times as the rigmarole of
procedures has already been dealt with.
Sub-contracting Purchase and
xnh. 3Mmagement
Sometimes, the most commonly used method of procuring the item is to c.
sub-contract the manufacture of the item to a few properly chosen sources. A good
example is selecting a few competent brick manufacturers to supply for the project.
In this instance, the intent is to obtain high quality items while taking commitment
from the manufacturer to earmark a minimum capacity to their work. Thus, in
sub-contracting, the items are available at short notice. This is another variant of
the rate contract.
Systems Contract
In this method, the seller acts as the material planner for the buyer. The buyer
concentrates on the costly and critical items but leaves the rest of the items to the
systems contractor to replenish as they get to the reordering point. The assumption
here is that the seller has been given some idea of the consumption pattern and any
change in pattern shall be reported to him. The drawbacks of this system are that
the company figures are available to outsiders, thus, is a security concern.
Secondly, the company has no control or when the need to regain control arises,
they find themselves limited by lack.of knowledge since they are not in touch.
Quality effects which occur after a certain period of time are not detected and
nipped immediately.
The major objectives of the systems contract are as follows :
(a) It simplify ordering procedures,
(b) It improves stocking of repetitively used material,
(c) It reduces administrativeexpenses,
(d) It maintains adequately.controlled service levels, and
(e) It improves profitability of both buyer and seller, and, at the same time,
inspires more confident relationship between them.
Stockless Purchase
This method is used for large and long duration projects. The vendor is given a
clear idea of what the consumption is going to be. The vendor puts up his outlet at
the site itself and the buyer can draw from this site as much as he wants. The rates
are already agreed upon. The decreased costs of the warehouse or stores
maintenance is offset by the slightly higher price which the vendor charges for
building his installation at the site. In this system, the lead time is zero and
paperwork is negligible. The specialised services of the vendor are utilised to set
up the facility and he takes responsibility for the same. The drawback of this
system is the near monopolistic attitude which the vendor can get.
Blanket Order
In this method, blanket orders are placed for items which are low cost or are MRO
items (required for Maintenance, Repair and Operation). The intent is to prevent
cost increase of the item by repeated ordering. These items are ordered on a time
period commitment basis rather than on quantity commitment basis.
Blanket orders are normally for around a year and are either fixed price or some
another mutual agreed mechanism. The seller has to work more at servicing the
customer rather than trying to convince the buyer. In this method, the buyer's
paperwork is reduced considerably and he can concentrate his efforts on more
productive work.
Seasonal Buying
Items which are seasonally available (not all round the year) need to be procured
earlier or at least need to be arranged to be supplied when required. Sometimes,
this needs to be done because the stores has no storage facilities currently. This is
also resorted to when the prices are probably going to fluctuate when the items are
actually required.
6.3.5 Receipt of Material, Transportation and Inspection
Chasing and following up ordered items is an essential part of the ordering scenario in
India where planning and commitments are not strictly followed or enforced. While
transporting the goods from the sellers to the buyer's premises, formalities like Sales Tax,
Octroi and Insurance have to be completed by contacting the necessary agencies and
Construction Materials filling up the necessary forms. Coordination between end user, quality assurance and
Mamigemant r other departments is necessary to ensure timely supplies in the smoothest possible manner.
In inspection, we shall restrict ourselves here to quality aspects. Quality is defined as that
aspect or feature of the product or service which defines any of the following :
(a) Dimensions andor weight,
(b) Physical andor chemical properties,
(c) Design andlor performance characteristics,
(d) Surface textures,
(e) Aesthetic values,
(f) Packaging characteristics,
(g) Defectives allowable, and
(h) Service andor operating characteristics.
Certain qualities are measurable and universal standards exist for these. Certain qualities
are not measurable. These must be defined and mutually agreed beforehand. Ambiguity
while ordering itself should be avoided. For example, the device should look "nice and
shiny", can be subjected to "Beauty lies in the eyes of the beholder". This can be more
appropriately defined in terms of :
(a) Colour(s) used,
(b) Surface finish parameters, and
(c) Lacquer or varnish coat and its thickness.
To have a quality circle in the organisation, the following processes have to be actively
pursued in the organisation :
(a) Setting quality standards,
(b) Comparing performance of the product with the standard,
(c) Take immediate corrective action for deviations, and
(d) Continuously plan improvement by communicating to all concerned.
Figure 6.2 ,explains ..
how quality
.
systems can come about in an organisation.

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Relnbrcl~
M a i M quality dodumentation as an
organization necessity as Quality
W r a n m manual EL Pmcedurer Manual

*)I"" Take membership ofoganizations as BIS

etc.
Qualitv versus cost awareness I

Analyse records and susasst 4

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Seleclion procedure
for right vendor
-. .
Settina uo lns~edion
equipment

Reward quality achievers

- Aim 8 plan f0~ze-mdef-

Quantify new qualw levels
, .-
, ,
Immediate acllon on
deviates and rejeds
Maintaindatabase of
Inspection records
Convey information to aN
wnalmd

Figure 6.2 :The Quality Circle

Quality inspections can be done at even the vendors place on a periodic basis to eliminate Purchase and
on inspection costs at the user's end. Stores Management

6.3.6 Materialprocurement Cycle

After satisfactory quality inspections, the due payments are made to the vendor(s) and
tems are sent to the warehouse or store of the company for storage purposes from where
.hey are ready for issue to the user department. Once the material reaches in the stores, it
can be issued to any user department through a laid down stores systems and procedures.
The concept and objectives of stores and their associated systems and procedures have
been discussed in Sections 6.4, 6.5 and 6.6.
Before going into the details of stores, we will see all the stages of materials purchase
system in nutshell. As mentioned earlier, all the stages of materials purchase system form
a cycle called "material procurement cycle". Figure 6.3 shows this material procurement
cycle initiating from indent of material to issue of items.

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Figure 6.3 :Material Procurement Cycle

SAQ 2
(a) What necessitates a formalised system for procuring of materials ?
(b) Discuss the different stages of "material procurement cycle".
(c) Explain the various tendering system used for ordering the material.
(d) What is "quality circle" ? What does it incorporate ?
Construction Materials
Management 6.4 WAREHOUSES OR STORES
Warehouses or stores play a vitai role in the operations of a company. It is in direct touch
with the user department in its day-to-day activities. The most important purpose served
by the stores is to provide uninterrupted service to a construction site. Further, stores are
often equated directly with money as money is locked up in the stores.

6.4.1 Objectives and Functions of Stores

The simplest (and very outdated) definition of the warehouses or stores is that it is the
place where one keeps (or offloads) material for some time before its use.
ow ever, according to a more functional definition of stores, it is a place where
following activities are carefully undertaken :
Receipt of goods, timely procurement of materials, accounting the transactions,
minimising obsolescence, surplus & scrap by proper identification and using
correct preservation methods, ensuring good housekeeping by accurately and
timely updation, issue of receipts, ensuring issues and other documentation and
handling other issues pertaining to storage and cleanliness.
In some cases, the procurement and optimisation of inventory is also added to the
functions of stores. For example, the stores manager may be given the additional powers
to procure urgently required items.
In other words, the functions of stores can be classified as follows :
(a) To receive raw materials, components, tools, equipment and other items and
account for them,
(b) To provide adequate and proper storage and preservation to the various items,
(c) To meet the demands of the user departments by proper issues and account for
the consumption,
[d) To rninimise obsolescence, surplus and scrap through proper codification,
preservation and handling,
(e) To highlight stock accumulation, discrepancies and abnormal consumption and
evolve effective control measures,
(f) To ensure good housekeeping so that material handling, material preservation,
stocking, receipt and issue can be done adequately, and
(g) To assist in verification and provide supporting information for effective
purchase action.

6.43 Location and Layout of Stores

Location of stores can follow a centralised or decentralised or a mixed concept. In a
decentralised concept, the stores are located near to the scene of work, while a centralised
store may cater to many projects or work sites. Sometimes, further decentralisation may
be done at site based on areas of operations. For example, there may be an electric
department store and a mechanical department store separately. However, depending on
the organisation size and complexity of work a mixed concept to determine location of
stores could be evolved.
The decision of adopting centralised or decentralised location of stores depends on the
following factors :
(a) Fasr moving - If the items are fast moving, it is preferable to locate them near
the sites. Hence, a decenrralised method would be preferred.
(b) Cost of item - If the item is expensive, required at many sites and not so fast
moving, it is preferable to centralist them to prevent inventory pileup.
(c) Special storagefacilities - Items requiring special storage facilities require a
central storage to prevent high storage costs.
(d) C o m n a l i t y ofrequirement of i t e m at muny projects - If items are commonly
required, it is easier to store at one cenu-alised place to monitor its usage.
(e) Tmnsport costs - If an item is expensive to transport like special storage vessels
etc., it is easier and cheaper to take their deliveries at the site of usage and store.
it there.
 (f) Costs aspects - Balance between the cost of investment, cost of transporting
and supplying the materials, cost of storage across a time period should be
made before arriving at the decision to have a decentralised, centralised or
mixed option.
(g) Life of the item - A short life item is best to be stored at the site of usage to
prevent delays in transit.
However, actual decision making is not so simple. Many contradicting variables come
into play and this has to be dealt on a case-to-case basis.
Location Determinants of Stores
Generally, the location determinants of stores are as follows :
(a) They should be located nearest to the user with the central stores keeping high
value items and items common to more than one project.
(b) There may be some environment considerations also. Storage and transit or
preparation of some items release lots of dust or other inconveniencing or
dangerous substances. They should be located far from populated areas.
(c) Easy access to modes of transit like road or rail both while bringing the material
in and for sending to project sites.
(d) Flexibility for expansion and with adequate facility and comfortable working
conditions.
(e) Balance between the cost of investment, cost of transporting and supplying the
materials, cost of storage across a time period should be made before arriving at
the decision to locate.
(f) Items handled frequently must be located at site to minimise distance travelled
in procuring.
(g) Location of firestation or hospital plays an important role, if dangerous
chemicals are involved. Sometimes, it may be mandatory by law to locate a
first-aid station at the storage facility itself.
General Criteria for Layout of Stares
The general criteria considered for the layout of stores are as follows :
(a) The stores function must be organised so as to meet the primary objective of
serving the user by easy identification.
(b) Within the constraints of location of the physical facility, the materials must be
so located to enable quick and easy retrieval.
(c) Layout should ensure easy movement of materials, good housekeeping,
sufficient space for men and materials, optimum use of storage space and
judicious use of equipment such as shelves, racks, pallets etc.
(d) Proper preservation to protect the materials from rain, sun, humidity, moisture,
insects, white ants and other biological, physical and natural sources of
deterioration should be ensured.
(e) Clear and adequate lighting should be there to ensure better and safe working
environment.
(f) Safe working conditions and adequate fire-fighting arrangements should be
made.
(g) Provision for toilets, smoking areas, routine maintenance of equipment and its
repair bays, safe electrical wiring etc. should ne provided.
(h) Adequate space for moving material around, fork truck movements should be
created.
(i) Balance between the cost of investment, cost of moving the material should be
made before arriving at the optimum layout plan. The aisle widths have to be
properly determined and marked.
Utilisation of heights has to be determined by ease of access, ease of storage,
retrieval, type and size of package, load characteristics of the flooring, roofing,
gantry crane, beam pressures, exhaust arrangements, installation and usage of
fire prevention systems and provision of moving ladders.
ConstructionMaterials Cj) The available floor area should be clearly demarcated as receiving bay,
Management inspection area, bulk storage area, storage space, issue area, scrap yard etc.
(k) Items handled frequently must be the most conveniently located compared to
others.
(1) Store space should be optimised for cubic space and not just floor area to
economise.
(m) In block stacking, it is difficult to access if a particular required item is lying in
between. Thus, the type of method of issue of material (FIFO, LIFO etc.)
determines the layout pattern.
(n) For individual item, the storage racks, bins, pigeon holes built into wooden or
metallic structures are easy and preferred.
(0) The racks can be stacked against the wall or back to back. The size of each
compartment can be determined according to the size of the equipment being
stored. Revolving racks with castors may also be used.
(p) Small but costly items should have adequate special locking and security
arrangement.
(q) To facilitate loading and unloading, trucks and wagons are parked against a
wall. Ramps with sufficient maneuvering space should be provided.
(r) Normally, warehouses are designed for standard loading conditions. These '

should be seen or determined beforehand and heavier loadings should have

added support.
(s) Doors should be built large enough for the worst case situations. Columns in
stores should be sufficiently apart. Storage of bulk commodities can create
plenty of wastage of space. '

(t) Security is a prime consideration. Security devices and personnel need should
be adequately planned and nearest police station availability should be h o w n
beforehand.
(u) Good Communication is a must for receiving indents, informing of supply or
inventory status and security considerations. Access to storage issue areas must
be restricted and confined only to authorised stores personnels to prevent
pilferage, theft, accident or damage.
(v) Fire-fighting equipment should be available and all personnels should be
trained to use it properly.
SAQ 3
(a) What are the objectives and functions of stores ?
(b) How stores are located ? Give the details of factors affecting the location of
stores.
(c) Describe the general criteria adopted for the layout of stores.

6.5 PRESERVATION OF STORES MATERIAL

Proper preservation of materials adds directly to the profits of the balance sheet.
Preservation procedures take the following aspects into consideration :
(a) Economic Aspects - The costs incurred in the preservation effort and the
amount preserved from these efforts should be compared with that of the costs
of not doing any preservation efforts. If the costs incurred in the preservation
effort is as much as the cost of the procurement of the material itself, it is not
wb'hh to go for that effort.
(b) Period qfldleness of the Part - Long term methods may be different from short
term methods.
 (c) Condition of the Spare Part or Material - If the part is not expected to survive P u m k e and
long or has deteriorated so much that preservation shall have only a marginal StcwesMasagemnt
effect, the efforts to preserve may not be worth it.
(d) EfSertiveness of the Preserving Method - If a preserving method gives a
marginal improvement in the life of a product, the costs involved in applying it
may make it not worthwhile.
It is always desirable to have a separate "Preservation Manual", which is available to all
concerned in an organisation. This manual should be as exhaustive as possible.
Some preservation methods widely used are as follows :
(a) Bearings should be greased and packed in grease proof papers.
(b) Expensive delicate instruments should be kept in their boxes with bags of silica
gel to absorb the moisture.
(c) Electronic equipment or electronic cards may be required to kept in anti-static
bags in order not to damage its components which are highly susceptible to
electrostatic charge. Anti-charge belts may be used for handling them.
(d) Rubber articles should be dusted with French Chalk.
(e) Sintered bush bearings should be dipped in warm oil for 24 hours once in an
year.
(0 Valves should be kept open to avoid metal to metal contact causing charge
corrosion.
(g) Electrodes should be kept in original contaii~ersin a cool dry place.
(h) Grinding wheels should be stocked vertical with separators in between.
(i) Cement should not be stocked in open or damp places.
) Machines faces of components should be grease protected and plugged in
whenever necessary.
t
(k) Carbon steel exchanges are protected by filling gas, oil or clean fresh water.
I
(1) Switch gear components should be enclosed in plask bags.
(m) Strip hcaterddry air should be used for protecting large electric panels with
components or big size switch gear.
(n) Oil bearings should be cleaned and filled with suitable ensis oils, while grease
lubricated bearings should be cleaned and regreased and stored properly.
(0) Steel wire ropes should be properly cleaned and protected with a double coat of
ensis fluids.
1 (p) Copper and its alloys must be protected against ingress of ammonia or ammonia
based compounds. Copper is also highly susceptible to atmospheric corrosion
r especially where humidity hay be high.
I

(q) Silver and lead parts should be cleaned with fresh weater.
(r) Corrosive chemical containers should be boldly labelled and storage areas
I should be demarcated by signs. Incompatible chemicals like acetone and a
mixture of nitric acid with sulphuric acid should not be stored together.
(s) Cylinders containing gases like Oxygen, Hydrogen, Argon etc. are to be kept on
shock absorbing coir pads and should be away from sources of heat.
I
(t) Vegetable oils and paints should be protected from air, light and moisture.
I (u) Wood is susceptible to termites. Therefore, a coating of paint, anti-termite
I varnish or coaltar must be used.
(v) Glass sheets should always be seperated from one another by paper or plastic
sponge separators. They should always be stacked vertically.
(w) Batteries must not be stored in warm or humid conditions and it should be
I warmed before usage.
I
(x) Cloth and paper should be protected from white ants, moisture, rats etc.
i (y) Rubber goods must be prntected from sunlight, heat, moisture, oil, dust, and
Construction Materials
Management 6.6 STORES SYSTEMS AND PROCEDURES
Broadly, the systems in stores can be studied under three areas namely, receipt, issue and
documentation. It may be seen that at every stage a great deal of information is required
for checking, controlling and feedback purposes. Well designed stores systems and
procedures ensure timely information for decision making, particularly because stores is
the starting point of all activities for control.
Let us briefly consider the systems and procedures in each area.

6.6.1 Management of Receipts

The inputs into stores or receipts can emanate fron internal as well as external sources.
The procedures start even before the material reaches the stores when a Purchase Order
(PO) is placed on the vendor. In certain organisations, the stores and purchase activities
are bifurcated, but care should be taken to ensure close coordination.
The details should be maintained in a chronological order to enable the ease of
understanding. The scope of work involves following functions :
(a) Requirement determination,
(b) Raising purchase requisition,
(c) Chasing purchase orders to expedite supplies,
(d) Scheduling arrival of materials,
(e) Receiving the materials physically and planning for storage,
( f ) Quantity & quality inspection,
(g) Checking input documents like invoice, lorry receipt, delivery challans and
other challans, invoices etc.,
(h) Taking stock of material received and also of rejected material,
(i) Endorsing the suppliers bills and quantities and forwarding for pzyment to
accounts,
u) Provisional goods inwards in case of later inspection,
(k) Final goods inwards in case of final acceptance of goods,
(1) Informing indenting departments of arrival of goods,
(m) Sending paperwork to purchaselaccounts for payment,
(n) Updating insurance paperwork for latest goods arrival, and
(0) In case of demurrages, arrange for insurance company visit.
All this demands a clearly laid out procedure which all concerned are informed about. In
addition to these functions, other functions are as follows :
(a) Regularise miscellaneous items like samples & cash purchases by raising
receipt notes,
(b) Complete record keeping formalities for returnable items and items received
from feeder shops for later internal or external consumption,
(c) Keeping record of scrap received, and
(d) Keeping record of other bulk material supply items which may not be
physically received or stored in the warehouse, like fuel oil etc.
6.6.2 Issue Control
We now come to the stage namely, issues. Issues can be further divided into issues to
consuming departments, and issues to outside suppliers for processing or conversion.
In both cases, there are certain common system requirements. The first aspect is the
control of issues. Issues are based on scheduling of project. The second aspect is
delegation of authority.
Here, in this unit, we are concerned only with the first aspect. The scope of this issue
control involves the issue of the right material, in the right quantity, to the right
personnel, at the right time and place on receiving the right authorisation, maintaining the
records for the same.
 Based on consumption schedules/production programs, listing for each material, quantity Purcbesed
to be issued for each project for that material is made and circulated to all concerned. Stoma Management
This automatically controls consumption as the work order issued gikes details on the
quantity of material to be issued by the stores and the stores personnel are not authorised
to issue beyond these quantities. Thus, for routine work, operations get streamlined and
free of bureaucracy. Adhoc issue should be separately accounted for and done only on
proper authorisation.
The stores also keeps check on inventory and raises alarms or raises purchase orders (as
the case may be) from time to time. Care should be exercised that work is not held up for
the want of materials.
One time issues like bathtubs, furniture, almirahs etc. are to be accounted for separately.
Proper weighing and counting equipment should be used for issuing bulk materials. Thus,
- these instruments need to be calibrated frequently.
Provision should be made for emergency issue and procedures should be clearly defined
for all concerned to regularise this.

6.6.3 Stores Documentation

All the documents received or generated inhouse should be properly categorised and a
numbering system should be developed for proper storage and quick retrieval. Besides
the receipt and issue documents, some other methods of documentation necessary are
given below :
(a) Bincard or kardex,
(b) Stores transfer voucher (from one stores to another),
(c) List of slow moving/fast moving/obsolete items,
(d) Scrap disposal,
(e) Rejection notes,
(f) Acceptance notes,
(g) Delivery notes,
(h) Travel requisitions,
(i) Tour and expense reports,
(j) Imprest details,
(k) Indents,
(1) Codification methodology, and
(m) Material requirement planning.
Note :
All the above functions require proper organisational procedures and constant
updating of documents. In fact, materials planning is very necessary to reduce the
costs. Therefore, computerisation is a big help in these matters. Standard software
are now available for handling these issues.
SAQ 4
(a) What do you understand by preservation of stores material ? Discuss the
various preservation methodologies adopted for the items required in
construction industry.
(b) How econo&c feasibility of preservatidn is determined ?
(c) Prepare a schematic layout plan of a cement and steel stores where the supplies
are delivered by trucks.
(d) Describe the stores system and procedure of your organisation in terms of issue
control and stores documentation.
ConstructionMaterlats
Management
6.7 STOCK VALUATION AND VERIFICATION
There is a distinct difference between the two terms "valuation" and "verification".
Valuation is the monetary equivalent of the stock or material in hand whereas verification
is the determination or quantification of the material in stock and checking its deviation
from the figures shown in the books.
Valuation becomes necessary to assess the assets of the company for sale, determining
insurance cover to be taken, during acquisition and mergers, get an idea about the
difference between book and actual depreciation etc. Since the procurement price or sale
price of a material does not remain constant, it is necessary to valuate the stocks regularly
or during specific occasions. For example, if the price of an item in inventory which is
required for producing something has gone up during its storage period, selling it by
basing its selling price on the past purchase price can mean lesser margins. Similarly, if
the price has gone down during the stocking period, selling it at a higher price can mean
being outpriced by competition.
Since valuation methods can increase or decrease assets, companies occasionally resort to
manipulating the valuation methods to present rosy or drastic pictures as the case may be.
For instance, the gross profit is the difference between net sales and costs of production.
Since materials cost is a part of production, the valuation basis can determine whether the
company is going to have profits or losses. Frequent unauthorised changes are illegal.
Under the companies act, a change in the method of valuation has to be approved by the
Board of Directors of the company and must be reported alongwith the effect of changes
in the profitability due to the changes in method of valuation duly certified by the
auditors.

6.7.1 Methods of Valuation

The methods of valuation are many. In actual practice, there may be more than one
method being followed; one for taxation purpose and the other for control purpose. The
details of some of the important methods are given in subsequent paragraphs.
FIFO (First in First out) Method
FIFO method assumes that material purchased axe ibsued in strict chronological
sequence, i.e. the material which comes in first is issued first. This method ensures
that the materials are issued at the actual cost and the valuation is done at the latest
price paid. So long as the cost of the material does not fluctuate much, the
assessment works fine.
The disadvantages are that in very highly fluctuating costs periods, every batch
will have different costs and the comparison between batches becomes
meaningless. Moreover, in an inflationary scenario, the time lag from the period
the material is inward to that when it is issued results in the material being issued
at a lesser price than its current price which wrongly indicate the higher profits.
An illustrative example of a FIFO method is shown in Table 6.1.

Table 6.1 :FIFO Method of Valuation

= Nett stock valuation

IJFO (Last in First out) Method Pnrchase and
Stem M ~ m g e a m d
This method assumes that the material coming in last are the first to be issued. The
advantage of this method is that the costs are reckoned closest to the latest price
and thus, reflecting the latest market positions (if receipts are recent). But the
stocks are still evaluated at the old prices for valuation purpose. In times of falling
prices, the LIFO system (due to lag) charges a cost to production or cost at the time
of issue, a value which is lower than the actual market price, unlike FIFO system
which could have charged a price which might be lesser/more/same depending on
the price at the time of the first purchases. Thus, while FIFO is a conservative
approach and suffers from time lag, LIFO is directed at the latest market
conditions so that the pricing conditions are up-to-date as much as possible.
An illustrative example of a LIFO method is shown in Table 6.2.
- -- - -

Table 6.2 :LIFO Method of Valuation

= Nett stock valuation

Other Variations of FIFO and LIFO Methods

The variations of these methods such as HIFO (highest in first out), NIFO (next in
first out) are modifications of the FIFO and LIFO methods but are not commonly
used due to the extra monitoring work involved.
Simple Average Price Method
In this method, the issues are valued on the basis of a simple average price of the
inward items. The prices of purchases prior to any issues are summed and the
average is obtained by dividing by the number of purchase prices used. An
example is shown below :
Let the prices in the last three issues be 1.0, 1.1 and 1.2. Therefore, the average
(1.0+ 1.1 + 1.2)
price would be = 1.1
3
This method is simple and easy to use and gives reasonable values for not so fast
varying items. However, approximations in calculations can give rise to errors.
Moreover, the variations in the past prices may be due to the different quantities
procured and thus, the discounts availed. So if the procurement quantities ar&not
the same, the figures do not genuinely compare "apples to apples". Moreover, a
temporary price fluctuation, say rise in price of cement in an area due to floods,
can give erroneous results in the valuation.
Periodic Average Price Method
The lacunae of the simple average method is attempted to be overcome in this
method by considering prices for a defined large enough period to make the
variations in price more uniform. The prices considered for valuation can be the
past six months, quarter or year. The problem with this method is the extreme
amount of calculations involved by referring to past records. It also suffers from
the same drawbacks as that of the simple average price, but can be easily used for
batch type productions by suitably adjusting the periods and remove the high
fluctuations in prices.
Construction Materlale Weighted Average Price Method
Management
The variation in prices due to different quantities in the simple and periodic price
methods is overcome largely in this method. The issues to the user department are
split into equal batches from each shipment at stock. Here, the rate is arrived by
dividing the total cost by the total items. This new rate is applied for consumers.
As new items are procured, the new average is computed for further issues.
In actual usage, the weighted average is derived for a given period instead of doing
everytime for every issue or procurement as this tends to be too time consuming.
The weighted average method is quite popular as it is not tiresome and gives a
fairly accurate tracking of the market conditions. The values reflected in this
method do not "jerk" the balance sheets as the weighted averages prevent it.
An illustrative example of weighted average price method is shown in Table 6.3.
Table 6.3 :Weighted Average Price Method

= Nett stock valuation

= weighted average rate = ((200*1)+ (300*1.2))/500

Standard Cost Method

In this method, a forecasted unit price for a specific period of one year or more is
used to evaluate the issues. Some of the factors taken into consideration for
calculating the standard cost are as follows :
(a) Market conditions,
(b) Depreciating nature of the item,
(c) Usage rate,
(d) Storage conditions,
(e) Handling facilities,
( f ) Obsolescence, and
(g) Losses in storage.
The actual cost of procurement is thus different from the standard cost, but this
figure helps in providing guidelines to purchase unit for correct buying prices and
negotiating goals. In addition, this top-down approach tries to mould the
procurement and inventory department to bring in line their thinking to the
management goals. The success of computing the standard cost is thus, very
important in terms of predicting actual values. The procurement department thus,
has a guideline. The smaller the gap between the standard value and actual costs,
the better the management has control over finances.
If variation exists between the standard and actual costs, the variance can be taken
care of in the actual market selling or project pricing costs. Efficient use of the
materials is truly reflected as accounting is now separated from fluctuations in
rates, thus saving the manpower accounting hours.
 An illustrative example of standard cost method is shown in Table 6.4. Purchase and
Stores Management
able-6.4 : Standard Cost Method

= Nett stock valuation

= standard cost = 1.1

As can be seen this method is applicable if a very strong analytical team is

available to compute the standard costs.
Replacement Price
This method is very suitable for a relatively high inflationary economy. In this
method while purchases are valued at the price paid for, the issues are valued at the
price required to replace them at the current prevalent prices. This ensures that the
final product is priced at market prevalent rates.
The problem with this method is that the replacement value is not available at all
times. Thus, a very strong system to keep updated prices has to be evolved which
in turn costs money. The issue material follows market price but since the instock
material is evaluated at the actual prices, in an inflationary economy, the stock in
hand is always underevaluated. Conversely, when the prices are falling the stocks
in hand are always overevaluated leading to frequent writeoffs.
The rate of depreciation or appreciation of all materials in stock is also not the
same. Thus, balancing stocks can be problematic.
6.7.2 Stock Verification
As mentioned earlier, the stock verification is the determination or quantification of the
material in stock and checking its deviation from the figures shown in the books.
The stores manager hnlds the responsibility for all happenings in the store. He must
periodically verify all stocks to reconcile the books with the physical presence of the
material. The problems mount as the number of items or the number of transactions
increase. Stock verification also checks for pilferage and shows the qualitative upkeep of
the stores. The causes for discrepancy in stock can be due to the following reasons :
(a) The scales or weighing machines etc. have not been properly calibrated or are
not of good quality or being maintained improperly,
(b) Issues without indents or proper paperwork,
(c) Delays in updating paperwork,
(d) Untrained individuals handling paperwork,
(e) Pilferage,
(f) Obsolescence,
(g) Deterioration and damage due to natural causes like corrosion, insect damage,
rodent damage or seepage of rainwater etc., and
(h) Deterioration and damage due to unnatural causes like theft, sabotageetc.
Construction Materials The process of verification is the physical counting, weighing or measuring the stock of
Managemeat materials that is in stock and making a record of these figures.
The persons who normally supervise these operations are responsible people from :
(a) accounts department,
(b) internal audit department of large companies,
(c) sometimes, auditors from the bankers or loan givers, and
(d) .in case of mergers, the representatives of the other company.
The verification process is normally started only after a clear cut guidelines for the
process is written down and approved by the concerned authorities. To prevent overwork
or stoppage of normal work for inconvenient time periods, the verification process must
be carried out over a long period switching from one area to another. Sometimes, this is
not possible and all verification has to be done at one go.
The stores personnel should be actively involved in the verification process to make it
stop seem like a witchhunt. If the discrepancy between actual figures and the book values
are substantial enough ahd not properly explicable, it is necessary to start an immediate
investigation as the organisations will gain if the stores personnel are motivated by proper
development of an atmosphere of good values and quick justice.

SAQ 5
:a) Differentiate between stock valuation and verification.
(b) Why stock valuation and verification is necessary for an organisation ?
(c) Discuss the various methods of stock valuation with the help of illustrative
examples. Give their merits and demerits.

-
-

6.8 WASTE MANAGEMENT DISPOSAL OF SURPLUS,

OBSOLETE AND SCRAP
Before going into the details of waste management, some of the important terms, i.e.
surplus, obsolete and scrap etc. need to be defined.
SurpIns ?hcks : These are materials which have no immediate use or at
least in the foreseable future. They have accumulated due
to faulty planning, forecasting and purchasing.
Sometimes, they may have accumulated since they are
standardly bought in quantities only and not in loose form
where they would be more expensive. In short, surplus
stocks are the items which are in excess of their
requirement.
Obsolete Stocks : They are those items which are not damaged and have
economic worth but are not suitable for the company's
specific operations. For example, the spare parts of
machines that have been phased out. Changes in product
design, technological advancements, rationalisation, food
and drugs whose effectiveness has lapsed over time,
wrong codification etc. are some of the reasons why
obso~escenceoccurs. As the name implies, they are
non-moving items of the inventory.
: The difference in obsolete and surplus lies in the potential
for usage. Surplus items are only in excess of what is
required, obsolete items cannot be used at all.
Salvageable Items : n e s e are items which cannot be used for the original
purpose but out of which certain parts may be removed
and used either with or without rework. For example, the
 motor of a spoilt air-conditioner may be used for other Purchase end
air-conditioners. While removing, thses motors should Stores Management
again be regularised as spares for inventory purpose.
Reclaimable Items : These are items which have worn out by use but their life
can be extended by some specialised processes. An
example is worn out tyres which can be retreaded. Before
reclaiming items, their extended life should be properly
determined as sometimes~reclaimingis expensive and the
extended life is not commensurate to the cost incurred.
' Scrap : This is another term which is used to describe material
not useful to the organisation (sometimes, used also for
obsolete and surplus items when these are not useful to
the organisation). Scrap can be defined as the residue
from a construction or manufacturing process which
cannot be used economically within the organisation.
Typical scrap material in the construction industry are
empty tins, drums, and packing material etc.
Reasons for Obsolescence
I
Following are some of the reasons of obsolescence :
I
I (a) Development of better and more efficient or cost economic technology,
1
(b) Advent of new Automation technologies and design changes,
(c) Standardisation of items within the organisation,
(d) Cannibalisation of equipment to obtain spares for the other,
(e) Incorrect purchase practices like buying in bulk, and
(f) Faulty store keeping or inefficient material handling.
Control of Obsolescence
Computerised maintenance of records can help largely in identifying potential
obsolete items. Market intelligence should be practiced as a norm. Using the FSN
analysis, the non-moving (N) items can be tracked. Care should be taken that the
critical or insurance items are not be included in this list.
This method can also be combined with the XYZ analysis to identify obsolete
items.
X -items account for 70% of value but about 10% of stock items,
Y -items account for 20% of value but about 20% of stock items, and
Z - items account for 10% of value but about 70% of stock items.
Here, items coming in Y and Z category need attention whereas X category items
are very critical as they constitute a large value. Other than very necessary or
insurance items, the excess items should be used or disposed quickly.
One way of controlling can be to introduce buyback clause or having centralised
purchase which can better plan to keep a low spares level as it can divert these to
other sites.
Control of Scrap
It may seem odd that scrap requires control. But the following aspects need to be
addressed effectively :
(a) Proper storage and dumping places of scrap need to be identified. It is
usual in India to see that all construction sites or warehouses are littered
nearby with scrap.
(b) Assess the performance of staff by assessing the cleanliness of the place.
(c) Fix tolerance limits itself on the production of scrap. Explaining the
efficient use can control the use of cloth.
(d) Scrap should be segregated and sold as this fetches better value. They can
be separated as drums of cement, gunny bags, tin of paints etc.
(e) Reclamation should be used wherever possible by seeing the economics.
ConstructionMaterials Responsibility for Disposal
Management
If the procurement department is located nearby or in the same premises, they
should be given the responsibility of disposal. Otherwise, the stores manager is the
best person for the job. Since the procurement or purchase manager has brought
the material, it is likely that he keeps track of the market value of the scrap. The
salesmen who interact with him can provide him the feedback for this purpose. It is
needless to add here that the purchase, stores and accounting department have to
function as a team. A typical format of "Form of Request for Write-off &
Disposal" is given in Appendix A.
Disposal Methods
Depending on the nature of scrap, various methods can bc prescribed. Before
disposal action can be initiated, the "paperwork" for the same has to be initiated as
the stock levels as well as its value change after this.Scrap disposal can be done in
the form given below :
.
(a) By inviting offers from time to time,
(b) By auction, and
(c) By annual contract.
Scrap should be segregated and kept compactly and separately. Some scrap like
glass wool is dangerous and should be collected and covered. To save even the
scrap collection costs, the rate contracts or annual contracts can include even the
collection of scrap from the sites. However, care should be exercised when the
collection is going on that no good material leaves the site. In this way, the scarce
manpower and its associated costs can be utilised for other constructive work.
Sometimes, the scrap (like bad earth) is not collected by anyone. In such cases, the
disposal is the responsibility of the organisation and the legal and valid dumping
place should be determined before the material is dumped there.
SAQ 6
(a) Differentiate between surplus and obsolete stock.
(b) What are the reasons for obsolescence ?
(c) What do you understand by scrap control ? How it is done ?

6.9 SUMMARY
In this unit, two important aspects of construction materials management, i.e. purchase
management and stores management have been covered.
In general, the term "purchasing" means the process of buying - learning a need,
selecting a supplier, negotiating a price, and fixing terms for delivery and payment
whereas "procurement" is a generic term, much broader than purchasing which includes
purchasing and all additional functions connected with the acquisition of goods such as
inspection upon arrival, supervision and inventory control and salvage operations. In the
.unit, particularly purchase management has been dealt with in terms of its elements and
systems and procedure. However, a complete procurement cycle has been shown
covering other additional functions from indent to issue.
The stores play a vital role in the functioning of company. The main fbnction of a store in
a construction site is to provide uninten-upted supply of items to help meet the schedule
of the project.
Storage system can be viewed broadly from three classified systems approaches, i.e.
management of receipts, issue control and stores documentation. Well designed storage
system not only matches present requirements with the existing supplies, but also take
care of the future growth potential and demands. It is, therefore, important that the system
should be flexible enough to change with the changing environment and demands.
The unit covers two important components of stores management, i.e. stock valuation and Purchase and
verification. These two terns have two distinct meanings. Valuation is the monetary Stores Management
equivalent of the stock or material in hand whereas verification is the determination or
quantification of the material in stock and checking its deviation from the figures shown
in the books. Stock valuation is done by different methods according to prevailing
situations. Some of the important valuation methodologies are FIFO (First in First out)
method, LIFO (Last in First out), simple average price method, periodic average price
method and weighted average price method.
Waste management is another important aspect of stores management which deals with
surplus, scrap and obsolete stock of items and their proper disposal.

6.10 ANSWERS TO SAQs

Refer the relevant preceding text in the unit or other useful books on the topics listed in
the section "Further Reading" given at the end of the block to get the answers of the
self-assessment questions.
 Appendix
constructionMaterials
Management

Form of Request for Write-off& Disposal

Date :
Case initiated by :
Originating Department : __I

Originating Department Code:

End User Department :
End User Department Code :
Material or Equipment Code :

I Description
- :
Book Date of Not used
Standard Annual Values Manufactured/ Resaleable
Quantihi since
Cost (Rs.) Costs (Rs.) Purchased

(a) Reasons for Disposal ( Is it surplus, obsolete or scrap ?)

(b) 1s there scope for usage in other sites/location ?
(c) If it is defective material, can it be repaired, salvaged or reclaimed ?
(d) If yes, what is the cost of doing so ?
(e) Has there been any attempt to return to vendor ?
(f) When was the material noted as defective and the action taken ?
(g) If the item is surplus due to design changes, why the existing stock in hand was
not considered ?
(h) When was the item last purchased and what was the stock in hand then ?
(i) What action has been taken to prevent similar occurrences ?
(i) What is the estimated price of the item on an as-is-where-is basis 7

II
Comments of End User Department

Comments of Finance Department

I Comments of Disposal Committee

I Comments of Purchase Department

Note : Three copies shall be made of this note. One copy shall be returned to the originator, the
second shall go to A C C O Ufor
~ ~regularisation
S and the third shall remain with Purchase
Department for action.