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Gautam Arora
Construction Material
&
Equipment ManagementPersevering the Scope across projects: Global Perspective
Presented by
Gautam Arora
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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
zz What do we doWhat do we do
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
zz What do we doWhat do we do
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