MATERIALS MANAGEMENT

H. L. CHAWLA

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Definitions of MATERIALS MANAGEMENT

• Embraces all functions of acquisition, standards, quality

control and surplus/ remaining materials management.

• The creation of conditions to bring about the optimum use

of all materials available for the construction of a project to
ensure availability at the right time and control of inventory.

• Taking care of waste proper disposal of waste materials

and also hazardous materials.

• Utilisation of surplus materials as bye-products from

various industrial unit.

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 WHAT IS MATERIALS MANAGEMENT

A successful engineering and construction project fulfills the

client’s needs while generating profit for the construction
company. But when money is tight, clients look for construction
companies that can provide the best product at the lowest cost.
Materials management is often overlooked as method of cutting
costs. Considering that for a typical construction project, 40 to
60%(sometimes even more) of the total cost is for materials,
companies obtaining those items at the lowest possible cost will
provide the greatest savings.
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Contd..
Materials management is a management system that integrates
the traditional areas of purchasing, expediting and controlling
the progress of the supplier. An essential part of project
management, materials management can be integrated with
engineering to provide an end product that meets the client's
needs and is cost effective. A typical engineer-procure-
construct (EPC) project can be divided into seven distinct
stages: planning, preliminary design, final design, procurement,
supplier/ vendor control, construction and closeout.

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Poor materials management can also result in large and
avoidable costs during construction. First, if materials are
purchased early, capital may be tied up and interest charges
incurred on the excess inventory of materials. Even worse,
materials may deteriorate during storage or be stolen unless
special care is taken. For example, electrical equipment often
must be stored in waterproof locations. Second, delays and
extra expenses may be incurred if materials required for
particular activities are not available. Accordingly, ensuring a
timely flow of material is an important concern of project
managers.
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 Materials management is a coordinating function
responsible for planning and controlling materials flow. Its
objectives are as follows:

• Maximize the use of the firm's resources.

• Provide the required level of customer service.

Materials management can do much to improve a

company's profit.

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 What is meant by Materials management? It can be
defined as:

1. The creation of conditions to bring about the optimum use

of all materials available for the construction of a project to
ensure availability at the right time and control of inventory.

2. The organizational functions responsible for the planning,

sourcing, stocking and logistics activities of materials used
in the internal and external fulfillment of demand.

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One can also state that “Materials management is a process, or
an art and science put together. It is how a project is designed
and how the materials are estimated. It is how materials are
acquired and how even the packaging is specified. It is how the
delivery schedule is designed. It is how contractors plan use of
the materials and how they manage previously used materials.
It also includes how waste is managed for use elsewhere or
than being discarded or in landfill”.

It can also be termed as a culture; it is how the client expects

the contractor and the contractor its subcontractors and the
subcontractors its workers-to care for and properly manage the
materials. 8
Resources for a Project are:

• People
• Facilities
• Equipments
• Money
• Materials

As stated earlier, materials constitute a very major

component for the project and therefore a major outgo-
sometimes in the range of 40-60% of the project cost.
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The role of the Project manager is to get the right materials, at
the right time and at the best prices.

What is required and when is it required. Involve all the

potential users and get their requirements. The requirements
given originally are bound to change by the time the order is
placed.

Do not tie up the organisation’s money for a long time, do

phase- wise requirement planning.

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CENTRALISED PURCHASING:

Materials management is also a problem at the organization

level if central purchasing and inventory control is used for
standard items. In this case, the various projects undertaken
by the organization would present requests to the central
purchasing group. In turn, this group would maintain
inventories of standard items to reduce the delay in providing
material or to obtain lower costs due to bulk purchasing. This
organizational materials management problem is analogous to
inventory control in any organization facing continuing demand
for particular items. 11
Steps in procurement:

 Gathering requirements
 Identifying probable vendors/suppliers
 Requests for proposals
 Managing responses from vendors/suppliers
 Selecting vendors-based on criteria for selection
 Placing purchase orders
 Managing supply contracts
• Delivery dates
• Regular status meetings-may be on weekly basis
 Follow up for delivery
 Inspections
 Receipt of goods.
 Distribution to work sites 12
The challenge before the materials/logistics managers is that of
optimising price and quality and making a product or service
available at the right time.

Management of logistics is an art and this professionalism can

be gained through proper training.

In a booming economy, the requirement for a vast human

resources pool for logistics and materials management is urgent.

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MATERIALS PROCUREMENT & DELIVERY

The materials for delivery to and from a construction site may

be broadly classified as:

1. Bulk materials,
2. Standard off-the-shelf materials, and
3. Fabricated members or units.

The process of delivery, including transportation, field

storage and installation will be different for these classes of
materials. The equipments needed to handle and haul these
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classes of materials will also be different.
Bulk materials refer to materials in their natural or semi-
processed state, such as earthwork to be excavated, wet
concrete mix, etc. which are usually encountered in large
quantities in construction. Some bulk materials such as
earthwork or gravels may be measured in bulk (solid in situ)
volume. Obviously, the quantities of materials for delivery
may be substantially different when expressed in different
measures of volume, depending on the characteristics of
such materials.

Standard piping and valves are typical examples of standard

off-the-shelf materials which are used extensively in the
water supply, sewerage, oil and gas pipe line projects,
chemical processing and refineries etc. Since standard off-
the-shelf materials can easily be stockpiled, the delivery15
Fabricated members such as steel beams and columns for
buildings are pre-processed in a shop to simplify the field
erection procedures. Welded or bolted connections are
attached partially to the members which are cut to precise
dimensions for adequate fit. Similarly, steel tanks and
pressure vessels are often partly or fully fabricated before
shipping to the field. In general, if the work can be done in
the shop where working conditions can better be controlled, it
is advisable to do so, provided that the fabricated members
or units can be shipped to the construction site in a
satisfactory manner at a reasonable cost.
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As a further step to simplify field assembly, an entire wall
panel including plumbing and wiring or even an entire room
may be prefabricated and shipped to the site. While the field
labour is greatly reduced in such cases, "materials" for
delivery are in fact manufactured products with value added
by another type of labour. With modern means of transporting
construction materials and fabricated units, the percentages
of costs on direct labour and materials for a project may
change if more prefabricated units are introduced in the
construction process.

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Inventory Control
Once goods are purchased, they represent an inventory used
during the construction process. The general objective of
inventory control is to minimize the total cost of keeping the
inventory while making tradeoffs among the major categories of
costs:

(1) purchase costs,

(2) order costs,
(3) holding costs, and
(4) unavailable costs.

These cost categories are interrelated since reducing cost in one

category may increase cost in others. The costs in all categories
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generally are subject to considerable uncertainty.
MATERIALS MANAGEMENT AND COMPUTERS

Computers can be advantageously used in materials

management. The materials management functions can be
subdivided into:

1. Forecasting prices
2. Materials planning
3. Purchasing
4. Inventory management.

These functions are inter-related. 19

The data in respect of

(i) nature of projects

(ii) items and quantities
(iii) materials used
(iv) prices
(v) storage costs
(vi) transporting costs, wastage etc.

are carefully recorded and form the basis of all calculations.

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CAPABILITIES OF COMPUTERS ARE

1. Automatic
2. Speed
3. Accuracy
4. Repetitiveness
5. Storage of data, instructions and results

LIMITATIONS
limitations are

1. Computers can not think; they do not have any intelligence

(even common sense)

2. Computer can not correct wrong instruction. 21

From the above two, it would be clear that the computers
entirely depend on the human beings for instruction, data
feeding. On its own, computer cannot do anything. In short,

"Computer is a device or a tool invented to put into use by

man for his convenience.”

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 CODIFICATION

One item should be represented by one code and one code

must indicate only one item. Codification system should be so
designed as to form a logical method of unique identification for
each and every item in the raw material ware house. The
system must be logical, unique and simple, so that cyphering
expert is not needed to decode the items every time. Alphabets
or numerals or a combination of both can be used for
codification purposes. There are quite a few systems of
codification being used all over the world.
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Standardisation:

In product design, a standard is a carefully established

specification covering the product’s material, configuration,
measurements etc. Therefore, all products made to a given
specification will be alike and interchangeable. A range of
standard specifications can be established so that it covers most
uses for the item. A smaller variety of components is needed, as
the product standardization allows parts to be interchangeable.
Standardisation is the orderly and systematic formulation,
adoption, application and review of industrial standard which
leads to simplification or variety reduction. There are a large
number of benefits of standardisation.
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The warehousing and inventory manager must have an
unambiguous nomenclature for identifying the items, in
order to serve the customer promptly.

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 INVENTORY

Inventories are the materials and supplies that a business or

institution carries either for sale or to provide inputs or supplies
to the production process. All businesses and institutions require
inventories. Often, they are a substantial part of total assets.
Inventories are very important to manufacturing companies and
construction sites. As inventories are used their value is
converted into cash which improves cash flow and return on the
investment. There is a cost for carrying inventories which
increases operating costs and decreases profits. Good inventory
management is, therefore, essential. Inventory management is
responsible for planning and controlling inventory from the raw
material stage to the customer.
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Safety Stock (Fluctuation Inventory)

Fluctuation inventory is held to cover random unpredictable

fluctuations in supply and demand or lead time. If demand or
lead time is greater than forecast, a stockout will occur. Safety
stock is carried to protect against this possibility. Its purpose is
to prevent disruptions in manufacturing or deliveries to
customers. Safety stock is also called buffer stock or reserve
stock. Safety stock is a calculated extra amount of stock
carried and is generally used to protect against quantity
uncertainty.
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ABC (Always Better Control) Inventory control

Control of inventory is exercised by controlling individual

items called stock-keeping units (SKUs). In controlling
inventory, four questions must be answered:

1. What is the importance of the inventory item?

2. How are they to be controlled?

3. How much should be ordered at one time?

4. When should an order be placed?

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 Control Based on ABC Classification

Using the ABC approach, there are two general rules to follow:

1. Have plenty of low-value items. C items represent about 50%

of the items but account for only about 5% percent of the total
inventory value. Carrying stock of C items adds little to the
total value of the inventory. C items are really only important if
there is a shortage of one of them-when they become
extremely important-so a supply should always be on hand.
For example, order a year's supply at a time and carry plenty
of safety stock. That way there is only once a year when a
stockout is even possible. 29
2. Use the money and control effort saved to reduce the

inventory of high-value items. An item represents about 20%

of the items and account for about 80% of the ­value. They

are extremely important and deserve the tightest control and

the most frequent review.

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ABC Curve: Percentage of Value versus Percentage of Items

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 Different controls used with different classifications might be
the following:

• A Items: high priority. Tight control including complete

accurate records, regular and frequent review by
management, frequent review of demand forecasts, and
close follow-up and expediting to reduce lead time.

• B Items: medium priority. Normal controls with good records,

regular attention, and normal processing.

• C Items: lowest priority. Simplest possible controls-make

sure there are plenty. Simple or no records; perhaps use a
two-bin system or periodic review system. Order large
quantities and carry safety stock.

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 ECONOMIC - ORDER QUANTITY (EOQ)

In the demand-certain situation, the total ordering charges are a

direct function of the number of orders. Demand from

consuming centres is fairly well established. The demand can

be met by either having a few orders resulting in a large

inventory, or by holding low inventories and correspondingly

increasing the orders. Since ordering and carrying charges

move in opposite directions, we have to balance the two costs in

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order to get the optimum or economic order quantity.

Reorder point:

The reorder point is the sum of buffer, safety & reserve stock.

When this order point is reached, a prudent materials

manager will go on for ordering Economic Order Quantity.

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 LEAD TIME

It is the span of time needed to perform a process. In

manufacturing it includes time for order preparation, queuing,
processing, moving, receiving and inspecting, and any expected
delays.

From the view point of the supplier this is the time, from the
receipt of an order to the delivery of the product whereas from
customer’s view point it may also include time for the order
preparation and transmission. The customer will always want
shortest possible delivery lead time and the manufacturer/
supplier must design a strategy to achieve this. The following
are the four basic strategies: 35
Service Level:

The efficiency of a warehouse is normally measured on a

negative scale i.e. in terms of stock outs. Stockouts costs are

difficult to establish. Usually the decision about what the service

level should be is a senior management decision and is a part of

the company’s corporate and marketing strategy. The only time it

is possible for a stockout to occur is when the stock is running

low, and this happens every time an order is to be placed.

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The service level is directly related to the number of standard

deviations provided as safety stock and is usually called the

safety factor. A service level is a statement of the

percentage of time there is no stockout. If a higher service

level is needed, safety stock must be provided to protect

against those times when the actual demand is greater than

the average.

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 STORES MANAGEMENT

The objective of the store/ warehouse is to minimize cost

and maximize customer service. For doing this, efficient
stores operations perform the following:

• Provide timely customer service.

• Keep track of items so that they can be found readily and

correctly.

• Minimize total physical effort to reduce cost of moving goods

in and out of the stores.

• Provide communication links with the customers.

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The cost of operating a warehouse consists of the following:

• Capital Cost

• Operating Cost

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 STORES ACTIVITIES

Efficient operation of a store (warehouse) depends on how

well the following activities are performed.

1. Receive goods

a) Check the goods against an order and BL (Bill of Lading)

b) Check the quantities

c) Check for damage

d) Inspect goods, if required.

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2. Identify the goods: Identification with appropriate stock –
keeping unit (SKU) No. (Part No.) and the quantity received
recorded.

3. Dispatch goods to storage

4. Hold the goods

5. Pickup the goods

6. Bring all the goods required as per single order together

7. Dispatch the segment

8. Operate an efficient information system

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 To maximize productivity and minimise cost stores

management must work with the following:

1. Maximum use of space.

2. Effective use of labour and equipment.

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