construction Material & Equipment Management

7/30/2019 construction Material & Equipment Management

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Gautam Arora

Construction Material

&

Equipment ManagementPersevering the Scope across projects: Global Perspective

Presented by

Gautam Arora


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Gautam Arora

PRESENT SCENARIOPRESENT SCENARIO


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THE PROJECT CHARTERTHE PROJECT CHARTER

ProjectImplementation

Unit / PMO /PortfolioManagement

DesignersArchitects .

Engineers .

Sub-contractors /

Specialist Contractors

General Contractor/ Management

ContractorContract

Administration

ProcurementManagement

Adm

inistr

ation

Man

agem

ent Ma

nagement

Execution


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THE PROJECT LIFETHE PROJECT LIFE -- CYCLECYCLE


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One Kiosk to IntegrateOne Kiosk to Integrate

KnowledgeArea

BidManagement

DetailedEngineering

ContractManagement

ConstructionManagement

Delivery

Management

FeasibilityStudies

MasterPlanning

Quality

Management

Proof

Checking

Value

Engineering

DueDiligence

Environmental& Social Studies

RiskManagement


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MATERIAL MANAGEMENTMATERIAL MANAGEMENT


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MATERIAL MANAGEMENT

Materials management is a coordinating function responsible for planning and

controlling materials flow. Its objectives are as follows:

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.

If the right materials in the right quantities are not available at the righttime the process can not produce what it should. Labour and

machinery will be poorly utilized. The profitability and even the

existence of the company will be threatened.


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PRELIMINARIESPRELIMINARIES

PrePre ConstructionConstruction

Feasibility StudiesFeasibility Studies

TechnicalTechnical DesignDesign

Competitive Authority ApprovalsCompetitive Authority Approvals

Risk EvaluationRisk Evaluation

CommercialCommercial TenderTender

Selection of Contractor / Vendors / ConsultantsSelection of Contractor / Vendors / Consultants

Award of WorkAward of Work

FinancialFinancial

ResourcesResourcesInternal / External (FDI / Equity)Internal / External (FDI / Equity)

Market / InvestorsMarket / Investors

IRRIRR

Delivery of ProductDelivery of Product

Statutory ApprovalsStatutory Approvals


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DuringDuring ConstructionConstruction

Statutory ApprovalsStatutory Approvals

Construction ManagementConstruction Management

Schedule / Time Lines / MilestonesSchedule / Time Lines / Milestones

ProcurementProcurement

BufferBuffer

ManpowerManpower

Assurance of Financial PlanningAssurance of Financial Planning

Assurance of DrawingsAssurance of Drawings Budgetary CompliancesBudgetary Compliances

Risk MitigationRisk Mitigation


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Planning of MaterialPlanning of Material

zz BasicsBasics

zz ObjectivesObjectives

zz Nature of the ProjectNature of the Project

zz

Who all are InvolvedWho all are Involvedzz ChallengesChallenges

zz What do we doWhat do we do

Quantum of Work / Material required to be clearly definedQuantum of Work / Material required to be clearly defined

Drawings & Designs to be availableDrawings & Designs to be available

BOQBOQ -- SpecificationsSpecifications

SoftwareSoftware

Rate AnalysisRate Analysis

Conditions of the Contract to be clearly defined & followedConditions of the Contract to be clearly defined & followed

GCCGCC

SCCSCC

EMD, BG, Defect Liability Period, InsuranceEMD, BG, Defect Liability Period, Insurance


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Vendors to be short listed & informed about the Project requiremVendors to be short listed & informed about the Project requirementent

Categorization as per Projects Completed, InCategorization as per Projects Completed, In--hand & Inhand & Infuturefuture

Expected Response period in the same scenario, with in company oExpected Response period in the same scenario, with in company orrfrom outsidefrom outside -- Source & Destination Analysis.Source & Destination Analysis.

Quality of delivered ProductQuality of delivered Product -- Variation from the requirementVariation from the requirement Check for the requisite CompliancesCheck for the requisite CompliancesSupply / Supply & InstallationSupply / Supply & Installation

available with Vendor.available with Vendor.

Payments & issuance of Purchase OrderPayments & issuance of Purchase OrderMethodologyMethodology freezedfreezed..

Risk Assessment: Seasonal effect over the availability of MateriRisk Assessment: Seasonal effect over the availability of Materialalalsoalsoeffect on Cost.effect on Cost.

CementCement

SteelSteel

SandSand AggregatesAggregates

FOS & FOR AnalysisFOS & FOR Analysis

Buffer maintenanceBuffer maintenance

Develop Methodology for the events to followDevelop Methodology for the events to follow ChecklistChecklistQuality & QuantityQuality & QuantityMethodologyMethodology

Upon deliveryUpon delivery -- Variation from the requirementVariation from the requirement


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Procurement ManagementProcurement Management


Review Methodology / availability of front as per the ChronologyReview Methodology / availability of front as per the Chronology of theof theevents / Milestones reference to Construction Scheduleevents / Milestones reference to Construction Schedule

Review for any Procurement to be delayed for the Scope of Work iReview for any Procurement to be delayed for the Scope of Work involvingnvolving

Management perspective.Management perspective.

Review of the Market Demands / change in requirement of Stake hoReview of the Market Demands / change in requirement of Stake holders.lders.


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Contracting PlanContracting Plan

Contract statement of workContract statement of work

zz Review Contractual obligation of Client & VendorReview Contractual obligation of Client & Vendor

zz Confirmation of the order to be delivered as per ScheduleConfirmation of the order to be delivered as per Schedule

zz Review for the Supply & Installation Scope of Work.Review for the Supply & Installation Scope of Work.

zz FOS & FOR AnalysisFOS & FOR AnalysisReviewReview

Bid managementBid management

zz ReviewReviewof the short listed Vendors & information of the current scenarof the short listed Vendors & information of the current scenario aboutio about

the Project requirement.the Project requirement.

zz Review the current scenario in MarketReview the current scenario in MarketBulk / byBulk / by--partsparts

zz Final negotiationFinal negotiation


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Contract AdministrationContract Administration

Inspection & auditInspection & audit

zz Special task team to be appointedSpecial task team to be appointed

zz Method Statement to be reviewedMethod Statement to be reviewed

zz Review for Change in Drawing / design / specificationsReview for Change in Drawing / design / specifications

zz ReviewReview -- Check for the requisite CompliancesCheck for the requisite CompliancesSupply / Supply & Installation.Supply / Supply & Installation.

Performance reportingPerformance reportingzz Source & Destination AnalysisSource & Destination Analysis

zz Review the expected Response time in which Vendor has facilitateReview the expected Response time in which Vendor has facilitated the service.d the service.

zz Review for Change in Specs after delivery at ProjectReview for Change in Specs after delivery at Project

Corrective actionsCorrective actions

zz Plan for Issuance of NCR / NCN, Payment CertificatePlan for Issuance of NCR / NCN, Payment Certificate

zz Review Rate AnalysisReview Rate Analysis

zz Reviews of the budgetary compliances with the Material to be proReviews of the budgetary compliances with the Material to be procured.cured.

zz Review of the availability of Manpower with reference to the proReview of the availability of Manpower with reference to the procurement.curement.zz Management MISManagement MISReview of the VendorReview of the Vendor


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zz Claim administrationClaim administration

Interpersonal / Hospitality ManagementInterpersonal / Hospitality Management -- Obligations provide to the Client in case of DelaysObligations provide to the Client in case of Delays

in the Construction Schedule, provision of additional facilitiesin the Construction Schedule, provision of additional facilities (Category, Budget, Availability,(Category, Budget, Availability,

and Satisfaction.and Satisfaction.

Review with the Auditor / arbitrator.Review with the Auditor / arbitrator.

ReviewReviewBGBGs, Contract Period, Conditions of Contract, Services to be offers, Contract Period, Conditions of Contract, Services to be offered withed with

reference to Defect Liability Period.reference to Defect Liability Period.

zz Contract ClosureContract Closure final inspections testsfinal inspections tests

zz Plan Methodology for Joint evaluation ( Client / Consultant / ArPlan Methodology for Joint evaluation ( Client / Consultant / Architect /chitect /

Contractor)Contractor)

zz Plan Methodology for SignPlan Methodology for Sign--off on the Payment Certificate.off on the Payment Certificate.

As build inspection & submission of recordsAs build inspection & submission of records

zz Plan Methodology for Joint evaluation with the competitive authoPlan Methodology for Joint evaluation with the competitive authority / Client /rity / Client /

Contractor / Consultant.Contractor / Consultant.


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Closure of contractClosure of contract

zz Plan Methodology for Handing over & taking over of RecordsPlan Methodology for Handing over & taking over of Recordszz Plan Methodology for Compliances to be recorded & maintainedPlan Methodology for Compliances to be recorded & maintained

zz InformationInformationassurance from the representative for not sharing the recordsassurance from the representative for not sharing the records

except with in the company.except with in the company.

zz Plan Methodology for Certificate for final SignPlan Methodology for Certificate for final Sign--off perceiving no obligations inoff perceiving no obligations in

future except to what have been agreed in the Contractfuture except to what have been agreed in the Contract for a certain period offor a certain period of

time.time.


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Delivery ManagementDelivery Management


Review the availability of Storage / Buffer Maintainaied at theReview the availability of Storage / Buffer Maintainaied at the Project.Project. Review the Project condition with reference to the ConstructionReview the Project condition with reference to the Construction MilestoneMilestone

Develop Methodology for the eventsDevelop Methodology for the events

ChecklistChecklistQuality & QuantityQuality & QuantityMethodologyMethodology

Upon deliveryUpon delivery -- Variation from the requirementVariation from the requirement

Plan review from the prepared AsPlan review from the prepared As--Built DrawingsBuilt Drawings

Plan review from the prepared Operation & Maintenance HandPlan review from the prepared Operation & Maintenance Hand--over,over,

ManualsManuals

Plan for timely Payments & review the planned conditions of ContPlan for timely Payments & review the planned conditions of Contractract

Closure.Closure.

Plan review from the Achieving ( what has been done)Plan review from the Achieving ( what has been done)

Finally HandFinally Hand--over to Stakeholdersover to Stakeholders


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Contracting PlanContracting Plan

Contract statement of workContract statement of work

zz Confirm the facilitation of Contractual obligation of Client &Confirm the facilitation of Contractual obligation of Client & VendorVendorzz Confirmation of the order delivered as per ScheduleConfirmation of the order delivered as per Schedule

zz Confirmation of the Start as per Schedule for the Supply & InstaConfirmation of the Start as per Schedule for the Supply & Installation Scope ofllation Scope of

Work.Work.


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Contract AdministrationContract Administration

Inspection & auditInspection & audit

zz Perform the Analysis as expected by Special task team appointedPerform the Analysis as expected by Special task team appointed at the Project.at the Project.

zz Follow the Method StatementFollow the Method Statement

zz Review/ Confirm for Change in Drawing / design / specificationsReview/ Confirm for Change in Drawing / design / specifications with referencewith reference

to the product delivered.to the product delivered.

zz Maintain the requisite CompliancesMaintain the requisite CompliancesSupply / Supply & Installation &Supply / Supply & Installation &

correspondingly inform the requisite authority.correspondingly inform the requisite authority.

Performance reportingPerformance reporting

zz Confirm the movement of Material as per ScheduleConfirm the movement of Material as per Schedule -- Source & DestinationSource & Destination

Analysis.Analysis.

zz

Confirm the final Response time in which Vendor has facilitatedConfirm the final Response time in which Vendor has facilitated the service.the service.zz Confirm for Change in Specs after delivery at ProjectConfirm for Change in Specs after delivery at Project


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Corrective actionsCorrective actions

zz Issue NCR / NCN, Payment CertificateIssue NCR / NCN, Payment Certificatezz Confirm the present Rate AnalysisConfirm the present Rate Analysis

zz Confirm the effect on the budgetary compliances with the MateriaConfirm the effect on the budgetary compliances with the Material procured.l procured.zz Confirm the available Manpower to initiate the work accordingly.Confirm the available Manpower to initiate the work accordingly.

zz Management MISManagement MISReview of the VendorReview of the Vendor

zz Confirm for the additional resources required in the same pretexConfirm for the additional resources required in the same pretext.t.

zz Confirm for the additional Material required which says the calcConfirm for the additional Material required which says the calculation done earlier isulation done earlier is

matching or not.matching or not.

Claim administrationClaim administration

zz Facilitate with the Interpersonal / Hospitality ManagementFacilitate with the Interpersonal / Hospitality Management -- Obligations provide to theObligations provide to the

Client in case of Delays in the Construction Schedule, provisionClient in case of Delays in the Construction Schedule, provision of additional facilitiesof additional facilities(Category, Budget, Availability, and Satisfaction).(Category, Budget, Availability, and Satisfaction).

zz Record the decision taken with the Auditor / arbitrator & work iRecord the decision taken with the Auditor / arbitrator & work in future to be carried outn future to be carried outaccordingly.accordingly.

zz Confirm the viability / remaining durationConfirm the viability / remaining durationBGBGs, Contract Period, Conditions of Contract,s, Contract Period, Conditions of Contract,Services to be offered with reference to Defect Liability PeriodServices to be offered with reference to Defect Liability Period..


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Contract ClosureContract Closure

final inspections testsfinal inspections tests

zz Joint evaluation ( Client / Consultant / Architect / Contractor)Joint evaluation ( Client / Consultant / Architect / Contractor)

zz SignSign--off on the Payment Certificate.off on the Payment Certificate.

As build inspection & submission of recordsAs build inspection & submission of records

zz Joint evaluation with the competitive authority / Client / ContrJoint evaluation with the competitive authority / Client / Contractor / Consultant.actor / Consultant.

Closure of contractClosure of contract

zz Confirmation of Handing over & taking over of RecordsConfirmation of Handing over & taking over of Records

zz Compliances to be recorded & maintainedCompliances to be recorded & maintained

zz InformationInformationassurance from the representative for not sharing the records eassurance from the representative for not sharing the records except with inxcept with inthe company.the company.

zz Certificate for final SignCertificate for final Sign--off perceiving no obligations in future except to what have beenoff perceiving no obligations in future except to what have beenagreed in the Contract for a certain period of time.agreed in the Contract for a certain period of time.


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The advantages of unique identification and disadvantages of ambiguousnomenclature can never be overstated.

Long description by tongue twisting long names must be avoided.

Systematic grouping of similar items is facilitated by codification.

Codification automatically leads to the process of standardization

Ordering becomes more economical as like items are ordered together.

Price advantage can be availed out of the resultant bulk ordering with discounts.

The procured item may have a trade name of its own, and the stores executivehas to correlate the two names, with the problem going out of hand if the numberof items is very large.

Codification helps to uniquely identify the item by having one-to-onecorrespondence.


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Location problems of items in bins are reduced by codification.

Service levels can be improved for the same level of investment.

Servicing time is less due to easy identification.

Stock levels are less as duplication has been eliminated by codification.

Obsolescence is less as the number of items is less.

Codification facilitates computerization.

The records, entries and transactions are less as less number of items arehandled per person.

The overall efficiency of warehouse staff is much better with higher level ofmotivation.

Logical grouping of items 'facilitates variety reduction easily.


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Procurement operations become easy as the purchase people, even if they arenon-technical, can understand the requirements easily.

Communication between different departments is smoother by process of

codification as they know what they are talking about.

The simplicity of codification enables even unskilled workers to distinguish oneitem from another and trace where the wanted item is kept.

Codification introduces discipline and reduces inventory by removing non-stockitems and reducing items on temporary codes. After all we live in a coded worldconsisting of permanent account number of income tax, telephone number,postal index number, ration card number etc.

Codification aims at maximum service to users with minimum input resources,

after identifying items uniquely and classifying them into major class, subclass

group, subgroup and minor groups.


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Standardisation:

In product design, a standard is a carefully established specification covering the

products material, configuration, measurements etc. Therefore, all products made to

a given specification will be alike and interchangeable. A range of standard

specifications can be established so that it covers most uses for the item. A smallervariety 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.

BENEFITS OF STANDARDISATION


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BENEFITS OF STANDARDISATION

The warehousing and inventory manager must have an unambiguousnomenclature for identifying the items, in order to serve the customer promptly.

In this process, standardization which reduces the variety plays a vital role by

reducing the number of varieties of the same item held in the warehouse.

More than any other executive, the stores-incharge comes into direct contactwith a variety of materials. He can gain knowledge on the uses of the material inthe store and can contribute significantly to achieve standardisation.

Standardisation enables one to concentrate on large quantity of fewer items.

It is possible to place economic order quantity or orders of staggered deliveries

with bulk discount.

Economic lot size at manufacturing will not be a problem as items-can bemanufactured with the same set up timings for standard items.


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Lower cost of production through continuous manufacturing run with materialhandling problems and increased capacity utilisation is achieved bystandardisation.

The workers at all levels and departments become more efficient by repeatedhandling of items and it is possible to utilise less skilled workers for standardoperations.

Standardisation enables reduced number of maintenance tools and improves

maintenance practices.

Standardisation aims at maximum variety of finished products with minimumcategories of assemblies, subassemblies and components.

In general, standardisation results in simple operations, minimum paper work,improved inter departmental coordination, ease of computer application andpinpoints areas involving inefficiency. In short, standardisation is a means tofaster and better understood communication, with fewer mistakes and hence

smoother life.

INVENTORY


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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.

Inventory and Flow of Material


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Inventory and Flow of Material

Raw Materials

Work-in-process (WIP)

Finished goods

Distribution inventories

Maintenance, repair, and operational supplies (MROs)

Function of inventories


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Function of inventories

In batch manufacturing, the basic purpose of inventories is to decouple supplyand demand. Inventory serves as a buffer between:

Supply and demand.

Customer demand and finished goods.

Finished goods and component availability.

Requirements for an operation and the output from the preceding operations.

Parts and materials to begin production and the suppliers of materials.


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Based on this, inventories can be classified according to the function they

perform. These are:

Anticipation Inventory

Fluctuation Inventory

Lot-size Inventory

Transportation Inventory

Hedge Inventory

Safety Stock (Fluctuation Inventory)


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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.

ABC Inventory control


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ABC Inventory control

Control of inventory is exercised by controlling individual items called stock-keeping units (SKUs). In controlling inventory, four questions must beanswered:

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?

Control Based on ABC Classification


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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.


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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.

ABC Curve: Percentage of Value versus Percentage of Items


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Different controls used with different classifications might be thefollowing:

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.

ECONOMIC - ORDER QUANTITY (EOQ)


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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 order to get the optimum or economic order quantity.

Assumptions


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p

The assumptions on which the EOQ is based are as follows:

1. Demand is relatively constant and is known.

2. The item is produced or purchased in lots or batches and not continuously.

3. Order preparation costs and inventory-carrying costs are constant and known.

4. Replacement occurs all at once.

Reorder point:


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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.

LEAD TIME


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It is the span of time needed to perform a process. In manufacturing it includes timefor order preparation, queuing, processing, moving, receiving and inspecting, and any

expected delays.

From the view point of the supplier this is the time, from the receipt of an order to the

delivery of the product whereas from customers view point it may also include time for

the order preparation and transmission. The customer will always want shortest

possible delivery lead time and the manufacturer/ supplier must design a strategy to

achieve this. The following are the four basic strategies:

Engineer-to-order


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Make- to-order

Assemble-to-order

Make- to-stock

One can also define Lead Time as the duration that lapses between the

recognition of the needfor an item and its fulfillment


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Service Level:


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The efficiency of a warehouse is normally measured on a negative scale i.e. in terms

of stock outs. The only time it is possible for a stockout to occur is when the stock is

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

The service level is directly related to the number of standard deviations provided as

safety stock and is usually called the safety factor. A service level is a statement of the

percentage of time there is no stock out. If a higher service level is needed, safety stock

must be provided to protect against those times when the actual demand is greater than

the average.

STORES MANAGEMENT


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The objective of the store/ warehouse is to minimize cost and maximize

customer service. For doing this, efficient stores operations perform thefollowing:

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 thestores.

Provide communication links with the customers.

The cost of operating a warehouse consists of the following:

Capital Cost

Operating Cost

STORES ACTIVITIES


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Efficient operation of a store (warehouse) depends on how well thefollowing activities are performed.

1. Receive goods

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

Check the quantities

Check for damage

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

Principles of Stores Organisations


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The following principles should be followed by the storesmanager to create a effective stores organisations

Define and clearly spell out responsibilities to each manager according to the

company objectives and the managers specialisation.

Responsibility should be commensurate with authority.

There should be no change in the scope and responsibility of a position withoutprior discussion.

No employee should be subjected to orders from more than a single source ofauthority so that unity of command is preserved.


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Orders should never be given to subordinates superseding a responsibleexecutive.

Criticism should be done privately and not in open meetings.

All major/minor disputes between departments should be sorted out in

coordination meetings.

The immediate superior should approve promotion, disciplinary action,

increments, etc.

No employee should be the assistant as well as critic at the same time.


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The quality of the assistant's work should be periodically checked and mistakes

pointed out so that corrective action can be taken at once.

For carrying out the above tasks effectively, the span of control or number of

employees reporting to an executive should not be too large.

Adequate delegation of powers commensurate with the responsibility must begiven.

It is advantageous to develop an organisation warehousing manual describing all

aspects of the storage function.

REASONS OF FAILURE


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The primary purpose of stock verification is to check that the physical stock

agrees with book balance. If these fail to match, as often is the case, then it

could be due to the following reasons:

Failure of the system because the paper system is in error.

The item may be incorrectly labelled due to mistakes in packing or inspection as

the wrong issue could lead to less stock.

Stock could have been binned in the wrong location.

Poor warehousing as boxes containing items may be in gangways.

Items may have been mislaid or lodged between shelves and dislocated later

on.

Regular theft of valuable items in collusion with the stores personnel


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Bad handwriting and figures copied incorrectly account for a majority of errors.

Loss of documentation and elimination of the number of copies to be made.

Deteriorating accuracy of records.

Transferring the paper work from first shift to the second shift has not beenproper.

Receiving by weight and issuing by number, in the case of items like nuts,bolts, screw etc. could cause discrepancies.


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Inaccuracy of weighing scales at receiving or issuing or both. If the scales indicate

1 kg less every time and if there are 100 issues in a period, but with one receipt

only - then the differences will be (100- 1) = 99 kg in the actual quantity.

Issuing machinery spares without authorisation or indents or issue vouchers when

the mechanics claim that the machines are idle.

Urgent issues made when the store is closed, without posting entries.

Delays in inspection, posting the goods receipt note and other receipt documents.


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Using rejected material during emergency and not accounting properly.

Improper communication with user/indentor, inspection, external vendors etc.

Each bin containing more than one item leading to mixing and confusion atissue.

Indentor using suppliers part numbers and not internal codification, leading toconfusion.

Stores personnel unable to identify the item and issuing wrong material.

Too many users coming to take material particularly in the morning creating

confusion at the issue counter.


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Issuing without documentation as al1 the users are in a hurry.

Direct delivered items and bulk items are received and removed without adequatedocumentation.

Understaffed stores and presence of unskilled stores personnel.

Improper records on the transfer from one store to another, lead to discrepancies.

Lorries with materials are received when the store is closed, resulting in delays inposting.

In spite of the above difficulties, the warehouse manager should ensure the properreceipt, issue and accounting of the items adequately by placing the items in theirproper location.

MATERIALS AUDIT


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Two basic methods of checking of the inventory records:

Periodic (usually annual)

Cyclic (usually daily)

It may be important to audit record accuracy but it is more important to

audit the system to ensure the causes of record inaccuracy and eliminate

them.

Periodic Inventory


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The primary purpose of this is to satisfy the financial auditors that the inventory

records represent the value of the inventory. The planner would like to correct

any inaccuracy in the records. The process of taking a physical inventory is asunder:

Counting of the items and recording the same on a ticket left on the item. Verifying the count by recounting or by sampling.

On completion of the verification, collect the tickets and list the items in each

department.

Reconciliation of the inventory records for difference between physical countand the inventory. This is to enable the material personnel to check in case of

any major discrepancy.

Cyclic Inventory


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Some items are counted frequently throughout the year depending on

their importance.

Timely detection leads to finding the cause of error and to ensure that the error is

less likely to happen again.

Compete or partial reduction or lost production.

Use of personnel trained and dedicated to do cyclic counting


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EQUIPMENT MANAGEMENTEQUIPMENT MANAGEMENT


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The most important aspect of planning & building a construction project isdetermining production & cost, and controlling both during the progress of thework.

The ability to win contracts and to perform them at a profit is determined for theconstruction contractor by two vital assets: people and equipments.

Therefore, it is most essential to have effective management policies

for effective manpower and equipments required for the project.

To be economically competitive, a contractors equipment must be competitive,both mechanically and technologically.

New machines have lower repair costs and give higher production rates. Incomparison, old/used machines require costly repairs and there is down timeso they cannot compete with new machines.


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The construction contractor has only a limited number of projects at a giventime. This limits the companys ability to spread the risk by volume and,

thereby, protect itself from that one bad project that can send the company into

bankruptcy. On the other hand, a manufacturing company can spread the costof production mistakes across the volume of individual pieces produced and

can adjust and fine tune the production line manufacturing process when the

product does not meet specifications.

Equipment-intensive projects are usually the ones that present the greatest

financial hazard. Such projects require an equipment commitment that is

greater than the amount a contractor will be paid for completing a single project.

Such a situation forces a contractor into a continuing sequence of jobs in order

to support the long-term equipment payments. The profit margins get reduced.


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Additional risk factors facing equipment-intensive work are as under:

Financing structure Construction activity levels

Labor legislation and agreements Safety regulations.

Cash flow is the critical factor in any equipment purchase decision.

The contractor, by being in the direct chain of action used by government tocontrol economic cycles, gets affected, in whatever manner the cycle is moving.During inflation periods, funds are withheld. In case of slow or stagnant times,

funds are pumped into projects to stimulate the economy.


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During such swings, a company with long-term equipment notes may be forced tobid for projects at a low price or sometimes with no margin even

Almost all the work in heavy equipment-intensive fields is awarded on tender

basis, either through open bid basis or on selective basis. Recently, the method ofdesign-build method of bidding has also been resorted to. In this the contractorhas a control on the project design.

Each construction project represents a custom-built situation that is subject to a

new set of governing cost conditions, and a typical estimating situation. There areno accurate cost records available. In most cases, the systems fail to allocateexpenses to the proper sources, and therefore cause false conclusions whenused as the historical database for estimating future works.


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A contractor who, with the same contract volume as the competition, is able to

achieve a more rapid project completion, and therefore a higher turnover rate

while maintaining the revenue-to-expense ratio will be able to increase the firms

profits. If the contractor can improve production and increase turnover he has a

very effective construction management.

EVALUATING INVESTMENT ALTERNATIVES


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An analysis should be made of each financial-investment alternative todetermine how to best use a companys assets.

Cost of capital: -

The interest rate a company experiences is usually a weighted average rate

resulting from the combined cost associated with all external and internalsources of capital funds. These are as under:

Debt or borrowing Equity (sale of stock) Internally generated (retained earnings)


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EQUIPMENT -INTENSIVE OPERATIONS & RISKS


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Construction project is entirely different from a manufacturing facility.

Manufacturing company has a permanent factory.

Construction Company carries its factory from job to job.

At each construction site, a factory is setup to produce one of a kind project.

A manufacturing company can spread the cost of production mistakes acrossthe volume of production. It can also analyze and rectify the problem within theclosed environment of the factory.

Construction Company on the other hand will have only a limited number ofprojects at any given time, and therefore can not spread the risk.

Equipment intensive projects like highways, dams, irrigation canals etc.present the biggest financial hazards.


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The cost of equipment for certain projects is very high and unless there are

repeated projects of the same nature the contractor will go bankrupt.

Control and management of equipments become very difficult, if the project is

spread over a large area/ length.

Cash flow is the critical factor in any equipment decisions.

Construction activity level variations are another risk factor.

In a Construction Contract, Contract Volume (value of work awarded to a

contractor) is a guide to the magnitude of resources a company has committed

at a particular time.


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Upkeep of accurate record of the equipments for evaluating performance,

establishing operating cost, analyzing replacement options, and managing

projects.

Whether the machine has useful working on a particular day or was idle?

Reasons for its being idle?

PLANNING AND ESTIMATING EQUIPMENT UTILIZATION

Must match the right machine or group of machines to the job at hand


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Must match the right machine or group of machines to the job at hand.

First determine the machine productivity.

It is not always obvious which machine/ equipment is best for a particular project

task.

The equipment planner must keep in mind the following before Planning /Selecting any equipment

1. Study the plans and specs2. Visit the project site3. Perform a quantity take off


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OWNERSHIP COST


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Purchase value Salvage value Depreciation allowable Major repairs/ overhauls

Taxes on holdings if any Insurance

Storage etc

Operating cost includes

Fuel Lubricants, lube oils, filters, grease

Repairs Tyres Spare parts Operator wages


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Alternatives for investment evaluation


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It is always good economic sense to make analysis of each financial investmentalternative.

Money has value. This is forgotten most of the time.

The cost of capital should be worked out by weighted average rate -by takinginto account borrowings, equities and retained earnings.

A discounted present worth analysis - to calculate equivalent present worthshould be carried out to determine the present worth of the proposed alternative.

Rate of return analysis gives an indication of the interest rate that makes thediscounted present worth of the investment equal to zero.


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Thank youThank you

construction Material & Equipment Management

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