CHAPTER 1

1. INTRODUCTION

1.1 GENERAL

Materials constitute a major cost component for any Industry. The total cost of installed
materials (or Value of Materials) may be 60% or more of the total cost (Stukhart 2007, Bernold
and Treseler 1991), even though the factory cost may be a minor part of the total, probably less
than 20-30%. This is because the manufactured item must be stored, transported, and restored
before it is put in place or "consumed" at the site. The total cost of materials will include, in
addition to the manufacturer selling cost, the cost of procurement (cost of placing processing
and paying the material, physical distribution, the distributor's cost, and the transportation of
materials), and the site-handling costs (cost of receiving, storage, issuing, and disposal). The
efficient procurement and handling of material represent a key role in the successful
completion of the work. It is important for the contractor to consider that there may be
significant difference in the date that the material was requested or date when the purchase
order was made and the time at which the material will be delivered. These delays can occur if
the contractor needs a large quantity of material that the supplier is not able to produce at that
time or by any other factors beyond his control. The contractor should always consider
procurement of materials is a potential cause for delay (Willis, 2008). Poor planning and
control of materials, lack of materials when needed, poor identification of materials, re-
handling and inadequate storage cause losses in labor productivity and overall delays that can
indirectly increase total project costs. Effective management of materials can reduce these costs
and contribute significantly to the success of the project.

Materials management is defined as a management system that is required in planning

and controlling the quality & quantity of the material, punctual equipment placement, good
price and the right quantity as required. Material management is a management system that
integrates purchasing, shipping and material control from suppliers. Based on those definitions,
generally materials management can be defined as a process of planning, executing, and
controlling the right source of materials with the exact quality, at the right time and place
suitable for minimum cost construction process. Capability to coordinate and integrate
purchasing, shipping and material control from suppliers is required for material cost control.
Three important phases that holds the key to a successful materials management are materials

1
purchasing, materials usage, and storage .It is used to reduce the cost, which increases
profitability and streamlines the production. Apart from management of material cost and its
supply it helps in its proper utilization, transportation, storage, handling and distribution.
Selection of personnel for marketing, purchasing, inventory control, stores management and
materials handling and their training and placement is also to be seen by the materials
management department .This indicates that it is very essential to have a materials management
department in any organization to support the management in the production activities. It also
helps in the marketing, sales promotion and control of all the types of materials for its quantity,
quality and cost. Thus, the objective of this paper is to clarify the roles and possibilities of
material management in construction.

1.2 BACKGROUND
The Webster's dictionary defines materials as "the elements, constituents, or substances of
which something is composed or can be made." Ballot (2006) defines materials as the
physical materials that are purchased and used to produce the final product and does not
suggest that materials are the final product. In other words, materials are the parts used to
produce the final product. Bailey et al. (2009) define materials as the goods purchased from
sources out of the organization that are used to produce finished products. Stukhart (2007)
defines materials as the items that are used to produce a product and which include raw
materials, parts, supplies and equipment items.
Dobler and Burt (2009) classify manufacturing materials into five categories. These
categories are:
 Raw materials- materials that the company converts into processed parts. This
might include parts specifically produced for the company and parts bought
directly off the shelf (i.e. bolts, nuts).
 Purchased parts- parts that the company buys from outside sources (i.e. rubber
parts, plastic parts).
 Manufactured parts- parts built by the company (i.e. tower case for a computer).
 Work in process- these are semi-finished products found at various stages in the
production process (i.e. assembled motherboard).
 MRO supplies- maintenance, repairing, and operating supplies used in the
manufacturing process but are not part of the final products (i.e. soap, lubricating

2
 oil). Chandler (2001) states that construction materials can be classified into
different categories depending on their fabrication and in the way that they can be
handled on site. He classifies the materials into five categories. These categories
are
 Bulk materials- these are materials that are delivered in mass and are deposited in
a container.
 Bagged materials- these are materials delivered in bags for ease of handling and
controlled use.
 Palleted materials- these are bagged materials that are placed in pallets for
delivery.
 Packaged materials- these are materials that are packaged together to prevent
damage during transportation and deterioration when they are stored.
 Loose materials- these are materials that are partially fabricated and that should be
handled individually.
Stukhart (2007) states that the main categories of materials encountered in a
construction project are engineered materials, bulk materials, and fabricated
materials.

Table 1: Classification of Materials (Adopted from Chandler, 2001)

Material Bulk Bagged Palleted Packaged Loose

Sand x
Gravel x
Topsoil x
Paving Slabs
Structural X
Timber
Cement x X x X
Concrete x
Pipes x X
Tiles x
Doors x
Electrical x

3
 Fittings

 Bulk materials- these are materials manufactured to standards and are purchased in
quantity. They are bought in standard length or lot quantities. Examples of such
materials include pipes, wiring, and cables. They are more difficult to plan because
of uncertainty in quantities needed.
 Engineered materials- these materials are specifically fabricated for a particular
project or are manufactured to an industry specification in a shop away from the site.
These materials are used for a particular purpose. This includes materials that require
detailed engineering data.
 Fabricated materials- these are materials that are assembled together to form a
finished part or a more complicated part. Examples of such materials include steel
beams with holes and beam seats.

1.3 Importance of Materials for a Project:

Problems related to managing the flow of materials can be found in every organization.
The efficient management of materials plays a key role in the successful completion of a
project. The control of materials is a very important and vital subject for every company
and should be handled effectively for the successful completion of a project. Materials
account for a big part of products and project costs. The cost represented by materials
fluctuates and may comprise between 20-50% of the total project cost and sometimes more.
Some studies concluded that materials account for around 50-60% of the project cost
(Stukhart, 2007 and Bernold and Treseler, 1991). Materials are critical in the operations in
every industry since unavailability of materials can stop production. In addition,
unavailability of materials when needed can affect productivity, cause delays and possible
suspension of activities until the required material is available. It is important for a
company to consider that even for standard materials, there may be significant difference in
the date that the material was requested or date when the purchase order was made, and the
time in which the material will be delivered. These delays can occur if the quantities
needed are large and the supplier is not able to produce those materials at that time or by
any other factors beyond the control of the company. The company should always consider
that purchase of materials is a potential cause for delay (Willis, 2008). Unavailability of
materials is not the only aspect that can cause problems. Excessive quantities of materials

4
could also create serious problems to managers. Storage of materials can increase the costs
of production and the total cost of any project. When there are limited areas available for
storage, the managers have to find other alternatives to store the materials until they are
needed. Some of these alternatives might require 35 re-handling of materials, which will
increase the costs associated with them. Provisions should be taken to handle and store the
materials adequately when they are received. Special attention should be given to the flow
of materials once they are procured from suppliers.

It is obvious that materials should be obtained at the lowest cost possible to provide
savings to the company (Damodara, 2008). In the late 1970's, construction companies
experienced an increase in costs and a decrease in productivity. Owners of these companies
thought that these increases in cost were due to inflation and economic problems. Further
research concluded that these companies were not using their resources efficiently and that
the decrease in productivity was also attributable to poor management (Stukhart, 2007).
Material Management has been an issue of concern in the construction industry. 40% of the
time lost on site can be attributed to bad management, lack of materials when needed, poor
identification of materials and inadequate storage (Baldwin et al, 2004).

The need for an effective materials planning system becomes mandatory. Some
companies have increased the efficiency of their activities in order to remain competitive
and secure future work. Many other firms have reduced overheads and undertaken
productivity improvement strategies. Considerable improvement and cost savings would
seem possible through enhanced materials management. Timely availability of materials,
systems, and assemblies are vital to successful construction. Materials management
functions are often performed on a fragmented basis with minimal communication and no
clearly established responsibilities assigned to the owner, engineer or contractor. Better
material management practices could increase efficiency in operations and reduce overall
cost. Top management is paying more attention to material management because of
material 36 shortages, high interest rates, rising prices of materials, and competition. There
is a growing awareness in the construction industry that material management needs to be
addressed as a comprehensive integrated management activity.

5
CHAPTER 2: LITERATURE REVIEW

Research in the area of materials management both at the Macro and the Micro
levels remains conspicuously absent in India as adequate indigenous literature is not
available on this subject. However, of late, on account of its growing importance, few
research studies have been conducted at various universities in our country which
highlight some of the problems faced by the selected central and the state public sector
undertakings. Apart from the above research work, few Studies Conducted by
Administrative Staff College of India, Hyderabad and by some individual authors focus
attention on the existing policies, procedures and problems of industrial organizations
in the field of materials management. Besides the above studies, there are a number of
reports submitted by governmental committees from time to time particularly on
inventory management in India.

Bansal(1) in his study on Materials Management: A case Study of Bharat Heavy

Electricals Limited, Bhopal Unit, (BHEL), has evaluated the existing systems of
inventory management. He emphasises.
The need for automatic replenishment system in the undertaking offer studying
the application of ABC analysis and EOQ technique of inventory control. He also
points out the accumulation of surplus stores and non-moving items in the organization
and recommends that the surplus and absolute stores which are no longer required
should be disposed off as early as possible at the best available price. Further, he
suggests the preparation of monthly class wise statements on inventories for effective
control over them and the introduction of reconciliation system of stores ledgers with
account ledgers to avoid misappropriation of stores, and spares for production and
operation are above their actual consumption level. The inventories in general are found
to be above their routine requirements. The holdings of stores and spares corresponding
to two to three years requirements should be considered excess.

Sambasiva Rao. K(2) In his Study on Materials Management in Public Sector

Ship Building Industry evaluates. The performance of materials management and
identifies some problems faced by materials management in the heavy engineering

6
industry. The method of investigation involves the 68 documentary evidence and
survey of expert opinion. He evaluates the existing purchase systems and lead time
involved in procurement of materials and suggests that the long lead time should be
reduced. His study points at the excess inventory in terms of number of months cost of
production in all the engineering units. He also highlights some of the problems in the
area of materials management such as delay on the part of customers in supplying their
own materials, existence and disposal of surplus and non-moving items, excessive lead
times and excessive dependence on imports. According to him the administrative and
procurement lead times of the company are on the higher side due to the peculiar nature
of the industry. He suggests liberalized purchase procedures, increased financial powers
to the personnel, Opening up of liaison offices in various countries to reduce the lead
time.

Phaniswara Raju(3) has conducted a research study on materials management in

Andhra Pradesh State Road Transport Corporation (APSRTC) in 2006. In his study, he
examines the materials management practices and purchasing systems in APSRTC on
the basis of various parameters like material consumption per vehicle, material
consumption per kilometer, inventory per vehicle, inventory in terms of number of
months consumption etc. He highlights some major problems in the procurement of
materials. The study is primarily based on the secondary data collected from the
published annual reports of APSRTC, the records of MIS, the reports on performance
of National Road Transport Undertakings of CIRT, Pune etc., In addition to the
personal discussions held with various officials of the corporation. The study reveals
the increasing levels of materials consumption in APSRTC. As compared to other 69
undertakings. The study points to the absence of the use of important analytical
techniques like value analysis and network techniques in the purchasing system of
APSRTC.
The inventory control system in APSRTC is critically examined in respect of stock
out pattern, reordering and review policies, Lead time patterns, stock out levels etc. He
suggests the reclassification of stores stems based on the criticality, the refixation of
reorder level and reorder quantities. The study has also indicated the wastage caused by
maintenance of unnecessary stock records relating to stems which are not in use.

7
 Hari R. Swami(4) in his research work materials management in public
undertakings evaluates the performance of materials management in the central public
undertakings in Rajasthan Viz., Instrumentation Limited, Kota Unit, HMT, Ajmer Unit,
Hindustan Zinc Limited, Debari Unit, Hindustan Copper Limited, Khetri Unit and
Sambhar salts limited. The study covers various aspects of materials management in
these enterprises from 1977-78 to 1981-82. The methods of investigation includes
questionnaire interview, on the spot study and desk work techniques etc. It is observed
that the cost of materials accounts for more than 50 percent of the total cost of
production in the selected units of the study. The importance of proper materials
management has not been fully realized by the public undertakings in Rajasthan and
very little attention has so far been paid to the task of controlling investment in
inventories through the application of various scientific techniques of materials
management. The researcher expresses the view that materials management should not
cover the inspection function and that an autonomous and independent cell be created
in 70 the organization for this purpose. The study reveals that the lead time in the
selected public enterprises is considerably long and suggests reduction of administrative
lead time by expediting purchase matters. The study also reveals that the inventory of
selected public enterprises has accumulated due to faulty purchases, heavy rejections,
long lead time, in-cohesive organization, nonadoption of scientific and modern
techniques of materials management and defective inventory control. He suggests that
the inventory holdings could be reduced by adopting an integrated system of materials
management, appointing qualified and trained inventory managers, reducing lead time,
setting and regulating consumption and stocking norms of raw materials and other
goods, applying modern techniques of materials management and identifying slow and
non moving items. He concludes that the public enterprises had suffered losses or
earned low level of profits due to the inefficient management of materials. Had public,
enterprises followed standard techniques of materials management, they would have
generated adequate resource for their own expansion and increased production resulting
in more profits.
Similarly, the IFMR’s survey “Inventory management summarises briefly the
findings of four important surveys it conducted in the area of inventory management
practices in the Indian industry. A study on control practices in Indian industry
conducted by the faculty members of the Jamnalal Bajaj Institute 72 of Management
Studies, University of Bombay concludes that most of the companies are still guided by

8
rules of thumb and intuition in deciding on the capital to be invested in inventory. Of
the 224 companies approached, 36 responded and among them only 13 reported using
inventory control techniques. Only 6 out of the 13 companies took into account
inventory costs in controlling inventories.
The study by the faculty members of the Administrative staff college of
India on inventory management practices with a focus on the Tandon committee
recommendations concerning inventory norms indicates that industries are found to
carry, by and large, More stocks of raw materials including spare parts and imported
items than the suggested norms of the committee. It has reveals that industries except in
the engineering and the textile sectors are managing the work-in-progress inventory
within the specified norms.
The IFMR conducted an empirical study on inventory management
practices in public sector undertakings and public limited companies in the private
sector in 1979 to highlight the range of problems of inventory management and to
appreciate the value of techniques and practices adopted in the Indian context to tackle
these problems. While it intended to cover two hundred or organizations, response is
actually received only from 48 organisations of whom a majority gave high priority to
inventory management. It also reveals that there is a considerable scope for reducing
the spares inventory in the engineering and process industries, There is a general lack of
appreciation of the benefits that accrue from the integrated materials management. Most
of the respondents treated the materials management function as a service centre 73
except for a few who conferred on it has status of a profit centre. In most instances
there is a very strong case to elevate the materials management function and accord to it
much higher status with close scrutiny from the top management.

9
CHAPTER 3: METHODOLOGY

3.1. Objectives of Material Management

Material management system can bring following objectives:
 Efficient material planning
 Buying or Purchasing
 Procuring and Receiving
 Storing and Inventory Control
 Supply and distribution of material
 Quality and assurance
 Improved efficiency
 Good supplier relationship

To fulfill all these objectives, it is necessary to establish a good coordination

between all the employees of material management department.

3.2 Benefits of Material Management

An effective material management system can bring following benefits:

 Reducing the overall costs of material

 Better handling of material
 Reduction in duplicated orders
 Material is on site when needed and in the quantities required
 Improvements in labour productivity
 Improvements in project schedule
 Quality control
 Better field material control
 Better relations with suppliers.

3.3 Process of Material Management

10
 Material management process initiates from need generated from site then this
information conveyed to store department and material is ordered in the store, indent is
generated. Vendor selection is to be carried out for the least value and best items. Materials are
received at store department and inspection is carried out.

Material need generated from site

Material ordered in store Indent is generated

Check availability in the store

Check for the Balance Items

Vendor Selection from the approved list

Material Inspection from received stock

Issue of material to the department

Fig 1: Process of Material Management

3.4 Research Methodology

In this research the current material management practices are investigated.

Material management is not just a concern during the monitoring stage in which construction is
taking place. Decision about material procurement may also be required during initial planning
and scheduling stage. Secondly during execution inventory control technique should be
monitored periodically so as to maintain flow of material to avoid the delays. Basically this

11
research is divided in two parts such as first one Qualitative analysis & second Quantitative
analysis. Qualitative analysis: This analysis is carried out using MSP software for analyzing
planned and actual material consumption through S curve analysis. Reasoning over the
deviations curve is the s shaped graph produced by the the cumulative expenditure of certain
parameters (man-hours cost) against time and it is the representation of project path. This
analysis is carried for comparison of planned and actual cost for material. This analysis is
carried out to study the deviation planned and actual material cost.

3.4.1 Quantitative Analysis:

This study mainly focuses on Inventory Control techniques which includes ABC
analysis, EOQ analysis and Calculation of Stock levels. “Inventory control refers to a system,
which ensures the supply of required quantity and quality of inventory at the required time and
at the same time prevent unnecessary investment in inventories.”

3.4.2 Objectives of Inventory Control

 Maintain sufficient stock of raw material in period of short supply and anticipate price
changes.
 Control investment in inventories and keep it at an optimum level.
 Protect inventory against deterioration, obsolescence and unauthorized use.
1. ABC Analysis:
The ABC inventory control technique is based on the principle that a small portion of
the items may typically represent the bulk of money value of the total inventory in
construction process, while a relatively large number of items may from a small part of
the money value of stores. The money value is ascertained by multiplying the quantity
of material of each item by its unit price. The items
“A” Category – 5% to 10% of the items represent 70% to 75% of the money value.
“B” Category – 15% to 20% of the items represent 15% to 20% of the money.
“C” Category – The remaining number of the items represent 5% to 10% of the money
value.
The relative position of these items show that items of category A should be under the
maximum control, items of category B may not be given that much attention and item C
may be under a loose control.

12
2. EOQ analysis:
The EOQ refers to the order size that will result in the lowest total of ordering and
carrying costs for an item of inventory. If a firm place unnecessary orders it will incur
unneeded order costs. If a firm places too few order, it must maintain large stocks of
goods and will have excessive carrying cost.

13
 CHAPTER 4: CONCLUSION

 Material Planning and scheduling can be done at every stage using construction
software such as MSP.
 Hit office also a very good software for maintaining material inward, issue records
which gives the accurate results in terms of Reconciliation Report.
 An effective Inventory Control model can be developed using Regression Analysis is
further scope of study.

14
CHAPTER 5: REFERENCES

1. L.C. Bell, G. Stukhart “Attributes of material management systems”, ASCE, Vol.112, No.
1, March 1986

2. K.V. Patel, C.M. Vyas “Construction material management on project sites”, national
conference on recent trends in engineering and technology,1314 May 2011

3. E.A. Haddad “Construction material management system for gaza strip building
contractors”, Dec 2006. [4] D.U. Kini “The material management is key to successful project
management”, journal of management in engineering/January/February 1999.

4. Khalid, S. (2008). Trend forecasting for stability in supply chains. Journal of Business
Research (61), 1113–1124.

5. Kros, J. F., Falasca, M. & Nadler, S. S. (2006). Impact of just-in-time inventory systems on
OEM suppliers. Industrial Management & Data Systems, 106(2), 224-241.

6. Lewis, C. D. (1970). Scientific inventory control. London: Bottleworth Ltd.

7. Macbeth, D. (1989). Not purchasing but supply chain management. Purchasing & supply
management. Journal of the Institute of Purchasing & Supply 1(9), 11-20.

8. Mantho, V. (1994). Concepts and applications of inventory management in northern Greece.

International Journal of Production Economics, (35), 149-52.

15