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UNIVERSITY OF MICHIGAN

SHIPBUILDING SHORT COURSE

October 27-31, 1980

MATERIAL PROCUREMENT AND CONTROL

Y. Okayama

Ishakawa jima-Harima Heavy Industries, Co . , Ltd.

tT'-R!a~r.

(IHI)

Sit Y Offw4 4VT- g

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Department of Naval Architecture*and Marine EngineeringCollege of Engineering

The University of MichiganAnn Arbor, Michigan 48109

Ur7I

UNIVERSITY OF MICHIGAN

SHIPBUILDING SHORT COURSE

October 27-31, 1980

MATERIAL PROCUREMENT AND CONTROL

Y. Okayama

Ishakawajima-Harima Heavy Industries, Co., Ltd. (IHI)

IAN I

Sit r VgC

ft 1011 odm O

Department of Naval Architecture

and Marine Engineering

College of EngineeringThe University of Michigan

Ann Arbor, Michigan 48109

CONTENTS

I. FUNCTIONS OF MATERIAL CONTROL. . . . . . . . .. ." I

1-1. Information Flow among Shipbuilding Functions. . . .

1-2. Functional Flows . . . . . . . . . . . . . . 1

1-3. Organization Chart of Material Control Functions . 1

II. MATERIAL CONTROL SYSTEM. ..... "................... 8

2-1. Concept of Grouping for the Material Control System. 8

2-2. Planning Material-by-Material. .. ......... 8

2-2-1. Material Identification.. . . ....... 11

2-2-2. Material Listing . . . . ... 11

2-2-3. Material Requisition Classification. . 16

2-2-4. Material Control Classification..... ... 18

2-2-5. Material Purchasing Classification ..... 20

2-3. Planning Ship-by-Ship....... .. . "........22

2-3-1. Plan-Do-See Meeting among Sections Concerned 22

2-3-2. A-material Procurement . . . .. . . . . . 22

2-3-3. AS-material Procurement... . . . . ..... 26

2-3-4. Palletizing for Material Issue..... . . . 26

III. SOME PROCESSES OF MATERIAL PROCEREMENT . . . . ..... . .29

3-1. Leveling and Balancing for Material Requisition. . . 29

3-2. Assurance of Requisitioned Material... .........29

3-3. Lead Time Calculation for Determining Delivery Date. 33

IV. COMPUTER-AIDED MATERIAL CONTROL AND RELEVANT SYSTEMS . . 36

4-1. Flow of Material Control System...... . ..... ... 36

4-2. Rationalization Before Computerization.... .... 36

4-3. Advantages of Computerization. .......... ..... 38

I. FUNCTIONS OF MATERIAL CONTROL

1-1. INFOMATION FLOW AMONG SHIPBUILDING FUNCTIONS

Three distinct material procurement and control functions, namely,

material control and requisition, purchasing and subcontracting, and ware-

housing and palletizing, hold key positions among the shipbuilding functions.

Figure 1-1 shows the relations between material control functions and other

shipbuilding functions and the information flow among the various functions.

Material procurement and control may also be categorized into "control"

and "execution" functions. The former category includes material control

and requisition which determines scheduling, purchase costs and delivery of

the material, and the latter includes purchasing and subcontracting which

actually executes the material purchasing from the vendors, and warehouse

and palletizing which executes receiving, palletizing and delivery of the

materials to the production departments.

1-2. FUNCTIONAL FLOWS

Figures 1-2, 1-3, 1-4, and 1-5 show functional flows of "material control

and requisition," "purchasing," "subcontracting," and "warehousing and pal-

letizing." Each flow chart indicates:

- The goal of the function.

" Input data for the jobs of the function.

- Common data filed for the jobs of the function.

- Job description of the function.

- Outputs generated by the jobs.

1-3. ORGANIZATION CHART OF MATERIAL CONTROL FUNCTIONS

Figure 1-6 shows the orgaization chart and job descriptions of the pro-

duction control department, which includes specific sections to execute the

functions described in 1-1. The purchasing and subcontracting section and the

material control and warehouse section are further divided into groups to exe-

cute and control the jobs in smaller meshes.

-1-

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II. MATERIAL CONTROL SYSTEM

2-1. CONCEPT OF GROUPING FOR THE MATERIAL CONTROL SYSTEM

In order to maintain high production efficiency and low production cost,

classification of various materials should be standardized in the fields of

cost estimation, design, material control, warehouse, purchase, and production

to suit each function of material procurement. By applying standard classi-

fications, high performance can be maintained in procuring materials.

Furthermore, by starting material procurement with sufficient lead time,

the production period could be shortened and the ship could be delivered

earlier. The shortening of the production period reduces the total cost due

to time savings in material storage and material outfitting. With sufficient

lead time, not only can procurement begin earlier, but total procurement time

can be reduced.

Figure 2-1 is a chart showing the concept of IHI's material control

system. The non-shaded portion shows material identification and scheduling

of issuance of material specifications by the design department, taking

necessary lead time for delivery to the work site for palletizing. The

shaded portion shows the activity of the material procurement department

which will be detailed hereafter.

2-2. PLANNING MATERIAL-BY-MATERIAL

To attain high performance in material procurement, the following

procedures should be rationalized and standardized:

- What materials are to be identified? (Material identification.)

- At which design stage are the materials to be specified? (Material

listing.)

. In what form are the materials to be specified in the purchase order

specifications? (Material requisition classification.)

- How are materials controlled for procurement? (Material control

classification.)

How are materials purchased? (Material purchasing classification.)

The logic and principles of these procedures are illustrated in the judgment

block chart, Figure 2-2.

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Percentages

2-2-1. Material Identification

The first step is to clarify what materials are to be identified. The

identification of materials is necessary, especially for zone outfitting, for

the following purposes:

' Estimating, classified by each ship, by each system, and by each

material.

- Engineering, classified by each ship, by each system, by each

material, and by each zone.

- Material control and purchasing, classified by each material.

" Production, classified by each ship, by each zone, by each system,

by each piece, and by each material.

- Cost reporting, classified by each ship, by each system, and by each

material.

To fulfill these purposes, the following codes are utilized at IHI:

" Material code, which identifies what the material is, with detailed

descriptions of what kind, type, size, grade, etc.

- Piece number, which identifies, serially in each system, at what

part of the system the material is to be assembled.

- Pallet code, which identifies at which level, on which zone, in

what area, and at which stage the material is to be assembled for

each particular ship.

- Material cost classification number, which classifies in which system

of each ship the material will belong.

Figure 2-3 shows the identification codes for material, which illustrate

the categorization of the material code, the outline configuration of the

material code, and the piece number. Figure 2-4 shows the structure of

material cost classification, which illustrates the structural categorization

for cost reporting and estimating of the material.

2-2-2. Material Listing

This is to identify at which design stage and in which material list the

materials are to be specified. The time schedule for issuing design and pur-

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NOTE: "XX" OF 3RD AND 4THDIGITS INDICATES AFAMILY MATERIAL CODE.

Figure 2-4. Structure of material cost classification.

chase order specifications is dependent on the lead time required by the vendor

for material procurement. Therefore, the design schedule is dependent on the

material procurement schedule which, in turn, is dependent on the delivery

date required by production. As illustrated in Figure 2-2 and extracted as

Figure 2-5, material specifications and lists are prescribed at each design

stage, i.e., at the basic design stage, functional design stage, and work

preparation design stage. These specifications are prepared in two ways,

i.e., as "not finalized" or "finalized." The former is tentatively prepared

if the details are not yet finalized, and it will be replaced with the latter

when the details are finalized at a subsequent stage. The survey of required

vendors' lead time for each material should be made beforehand to establish

a standard for lead times.

It is very important to start material procurement with specifications

that give clear and accurate particulars, exact quantities and required

delivery dates. Accordingly, specifications should be finalized as early

as possible to allow enough lead time for purchasing. When preparing the

specifications, priority is given to longer lead time materials so that

procurement can take action before the deadline, dated back from the

required delivery date to production for palletizing.

Based upon these considerations, IHI has standardized the priority of

materials that should be procured at the stages of basic design, functional

design, and work preparation design.

Material specifications are listed in the following material lists:

" Pre-MLS which is to be used only for listing materials based on prelim-

inary specifications prepared at the basic design stage, and this will be

replaced by the following lists at subsequent design stages.

- MLS (abbreviation of Material List for pecification) which is to

be used for listing materials classified by "T," "P.," or "D" at the functional

design stage and this will be updated, as necessary, at the work preparation

design stage.

" MLF (abbreviation of Material List for OutFitting) which is to be

used for listing materials for each pallet, classified by "T," "P," or "D"

at the work preparation design stage.

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Figure 2-5. Material listing.

The definitions of "T," "P," and "D" are detailed in the following

section on Material Requisition Classification.

2-2-3. Material Requisition Classification

This classification indicates in which form the materials should be

specified. One way to prolong the lead time for procurement is to shorten

the time to prepare the specifications. To attain a compatible solution,

one of the most effective means is to standardize:

- Materials.

- Specification forms.

- Material lists.

The above standardization permits the procurement procedure to be

shortened, leaving a longer lead time for negotiations with the vendor and/or

a longer time for production.

The judgement block chart illustrated in Figure 2-2 and extracted as

Figure 2-6 indicates how each type of drawing ("standard," "vendor's," or

"shipyard's") at each design stage should be documented, that is:

- What types of specifications.

- Which stage of material list.

Earlier commencement of work and lower production cost can be attained

by requisitioning by accurate specifications, standardiztion of material, and

simplification and expedition of procurement. For this purpose, IHI has stan-

dardized materials as well as the procurement procedure.

Materials are specified in the following documents:

- Prq-specification, which is to be used only to specify material

particulars for issuing the letter of intent.

- T-list (T is abbreviation of Table), which is to be used to list the

materials registered as shipyard's standard. A T-list is actually the

MLS or MLF, whichever is applicable.

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which is to be used to specify the materials that should be manu-

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based upon the shipyard's specification.

- D-specification (D is abbreviation of manufacturing Drawing), which

is to be used to specify the materials that should be manufactured

in accordance with the shipyard's specifications and drawings.

2-2-4. Material Control Classification

This classification indicates how to control material for procurement

based upon the characteristic of the material. The target is to minimize

the stock quantity while maintaining a suitable margin to avoid lack of

material when requested.

For this classification, the following procedures are standardized:

- Which way is the material quantity to be requisitioned, with or without

anticipation?

- Which material should be kept, with (or without) surplus stock?

" Which way is the material requisitioned, by design or by past

statistical data?

For the materials requiring surplus stock, quantity and lead time are fixed

but should be updated as necessary.

The judgement block chart is illustrated in Figure 2-2 and extracted as

Figure 2-7.

Even if the specifications or quantity or the required date could be

precisely planned, it is possible that the actual consumption will differ from

the original plan due to unforeseen factors and/or changes. To compensate for

these differences, an intermediate material control classification, "AS-

material," is classified between "A-material" and "S-material.'"

A-material - means Allocated material that should be requisitioned by the

quantity specified by the design.

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AS-material- means commonly Allocated Stock material that should be

requisitioned by the quantity specified by design, plus

some surplus for unforeseen changes.

S-material - means Stock material for common consumption that should

be requisitioned in most economical quantities, based upon

estimates from past statistical data and/or forecosts.

R-material - means Remaining material which are leftovers from previous

jobs, formerly A-material.

2-2-5. Material Purchasing Classification

This classification indicates how to purchase material by standardization

of purchasing procedures, which, in effect, speeds up purchasing decisions,

shortens the lead time, and reduces the purchaser 's paperwork and manpower.

In order to take full advantage of the above, long term agreements should be

made as much as possible with the vendors. Figure 2-8 illustrates how to

classify the material purchase procedures, and shows how much of the manpower

required for tenders and negotiations could be reduced by standard purchasing

procedures.

The standard purchasing procedures applied at IHI are as follows:

Spot Order - Purchasing takes action only when the purchase requisition

is released. Based upon the price of one order, spot orders are split into:

. Simplified Procurement Procedure - price less than 30,000 yen

- Ordinary Procurement Procedure - price more than 30,000 yen

Long Term Agreement - Purchasing based on an agreement with the vendor

for a certain period, containing some terms and conditions. Depending on the

terms and conditions, the agreement is split into:

- Order Base Contract - To fix the vendor's price.

- Consignment Base Contract - To fix the vendor's unit price and secure

appropriate stock for the shipyard, based upon the shipyard's con-

sumption forecast. There are two alternatives for storage, one is

to store the stock at the vendor's warehouse, and the other is to

store it at the shipyard's warehouse.

-20-

How toPurchas

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Figure 2-8. Material purchasing classification.

As shown in Figure 2-9, these procedures enable omission of part of the

usual material procurement process required for ordinary spot orders.

2-3. PLANNING SHIP-BY-SHIP

Material procurement is basically processed and planned material-by-

material, because of the vendor 's expertise, convenience in common use of

the material and material handling. But planning ship-by-ship is con-

stantly required to take measures to comply with any changes in production

progress and/or scheduling.

2-3-1. Plan-Do-See Meeting among Sections Concerned

This meeting helps to check the material procurement from the viewpoint

of planning ship-by-ship. Every section in charge can recognize beforehand

the status of progress (ahead or late), or changes in design, material pro-

curement and/or production.

The users can obtain information on whether the material is on schedule

or not, and, if necessary, revise the schedule in advance to meet the required

delivery date. The triangle shown in Figure 2-10 illustrates the departments

concerned and the items to be communicated. It is normally unnecessary to

discuss routine jobs among the departments, because drawings, output from

computer, etc., enable the persons in charge to work together smoothly. The

meeting is held once a month and is grouped into four units:

- Interior Fitting.

- Deck Fitting.

- Machinery Fitting.

- Electric Fitting.

2-3-2. A-Material Procurement

A-material is procured under the control of material-by-material planning.

However, the requisition and issuing is made ship-by-ship. To keep the mate-

rial issue on schedule, checks for procurement progress and revisions are

always executed ship-by-ship. Figure 2-11 illustrates the above logic.

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2. Informaation-Progress of drawings issue-Progress of materialreceivi:-Progress of production

Fitting Work Shop

.Figure 2-10. Figue 210. P lan-do-see meeting.

Material control

Allocation

RequisitionRelease

- Purchasing control

Pirchasing

Check System

Allocation lobs to be carried outby ship-by-ship

Requisition release to be carried outby material-by-material. referringto lead time.

Purchasing jobs to be carried out

by material-b':-material

A-material controllist t

- Ship

- Material code

Delivery controllist

Person in charge- Ship- Material code- Delivery date

- Warehousing control

Warehousing

Storage

Warehousing jobs to be carried out bymaterial-by-material

-Material -Material

-SoP -Ship

No. i Srorage No. 2 Storage

Figure 2-11. A-material control.

2-3-3. AS-Material Procurement

AS-material is characteristically the same as A-material. But, as

shown in Figure 2-12, the routine and check systems are different from those

for A-material.

2-3-4. Palletizing for Material Issue

The process stated so far is based upon receiving the materials on

schedule. This is most important for production control. Since unit and/or

zone outfitting will be smoothly performed by palletization of material, any

lack of material will entail decline in productivity, confusion in the pro-

duction schedule, and loss of manpower.

Palletizing is the last function of material procurement, and it is

the connecting process between material procurement and production. Accord-

ingly, the planning of functions switches over from material-by-material to

ship-by-ship and pallet-by-pallet .

Figure 2-13 shows the flow of palletization between the warehouse and

the palletizing shop. Notable points are:

- Fabricated components, e.g., ladders, tanks, etc., are delivered

directly to the storage area of the palletizing shop.

' Final palletization is executed by the palletizing shop.

-9Partial palletization of materials in warehouse is executed by the

warehouse.

-26-

- Material control

Allocation

Leveling & Balancing

Allocation jobs to be carriedour bir ship-by-ship

Leveling and balancing jobs to becarried out by material-by-material

Requisition ReleaseI

Requisition release to be carriedout by material-by-material iI

- Purchasing control

Purchasing &Check System

Purchasing jobs to be carriedout by material-by-material

- Warehousing control

Warehousing &Storage

Warehousing jobs to be carriedt by material-by-material

Materi -Mater

Figure 2-12. AS-material control.

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III. SOME PROCESSES OF MATERIAL PROCUREMENT

In this section, some principles for minimizing stock requirements are

introduced.

3-1. LEVELING AND BALANCING FOR MATERIAL REQUISITION

The logic flow of leveling and balancing, shown in Figure 3-1, gives

a procedure for calculating the quantity of requisitioned material that must

be purchased. This logic is practically applied only for AS-material, but

the same general idea is also applied for A and/or S-material.

For A-material, the requisition is made subject to the input of design

data, without considering any margins in quantity. In contrast, for

S-material the requisition is based upon statistical data regardless of

design data.

If AS-material, which includes some margin in the quantity required for

each ship, is purchased ship-by-ship and system-by-system, the possibility

of over-purchasing will increase, causing undesirable dead stock by accumula-

tion of the margins. The solution is to frequently check and level the

quantity of the purchased material for all ships under construction. The

leveled quantity is obtained by summing up the estimated quantity and the

consumed quantity, per month, per ship, referring to the quantity estimated

by the design.

By leveling the stock, the following advantages are obtained:

- Suitable margin for "safety stock."

" Minimize inventory value.

- Economic purchasing lots.

3.2 ASSURANCE OF REQUISITIONED MATERIAL

With the progress of design, the accuracy of material consumption estima-

tion becomes higher and higher. The following are procedures to assure higher

-29-

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*.......QTY (t )n

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Operation sse(t

ordered fnor?ED

Calculationi of

Margipuimc i ty

Figure 3-1. Logic flow of leveling arnd balancing,

accuracy at earlier stages. Figure 3-2 shows the relationship and the

updating sequence among drawings, material lists, and purchase orders.

Purchasing based upon definite final drawings cannot make purchasing

and production periods shorter. So, in order to purchase necessary materials

as early as possible, purchasing is based on anticipated quantities, and

updated with the progress of design.

The anticipated quantity often differs from the actual consumed quantity.

To avoid these differences, the quantities are compared and adjusted in

advance at the check points upon completion of:

- Functional design.

" Work preparation design.

The quantity obtained in work preparation design replaces that of func-

tional design at the following time, whichever comes first:

- Completion of the work preparation design.

- When the quantity of material developed in work preparation design

exceeds that of functional design.

For the purposes of early requisition of materials, decisions on quantity

should be made at the following stages based on the user's required date as

yardsticks:

- Functional drawing. Date of fabrication start of the earliest pallet

of each zone for hull construction.

- Work preparation drawings. Date of fabrication start of each pallet.

The dates fixed at the preceeding stage will be replaced, as necessary,

by the ones of the subsequent stage.

As mentioned before, three types of material list will be issued. An MLS

is issued earliest but its data will be based on anticipated quantities and,

thus, will not be so accurate. An MLF is issued later but the data are accu-

rate. An MLCP is also issued later with the data relating to MLS and MLF.

As these material lists are issued at different stages, with different accu-

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racy, and with different characters, they are checked among each other and

adjusted, as necessary, to make them valid.

3-3. LEAD TIME CALCULATION FOR DETERMINING DELIVERY DATE

One of the important functions of material procurement is the standard-

ization of timing for various actions of material procurement. As a result,

easy forecasting and scheduling of subsequent actions can be made, and

action can be taken earlier.

Figure 3-3 shows "material procurement - timing" as a model, and

Figure 3-4 shows "material timing control and lead time" as the basis of the

former model.

To shorten the required period a careful survey of lead time should

be made and the possibility of shortening the time required for each factor

should be examined.

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)CLS completion>N\-Input of outfitti'standard asedule

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Figure 3-3. material procurement timing..

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IV. COMPUTER-AIDED MATERIAL CONTROL AND RELEVANT SYSTEMS

4-1. FLOW OF MATERIAL CONTROL SYSTEM

The flow chart shown in Figure 4-1 represents the outline of IHI's

material control system which covers the functions of material control and

relevant systems. The system is aimed at:

- Eliminating repetitive writing jobs in the subsequent functions.

- Leaving writing, sorting, calculating, and other clerical jobs

to the computer, and letting the computer generate final clerical

printouts.

- Leaving controlling, judging, and other managerial tasks to the

human being, and letting the computer generate necessary reference

data.

4-2. RATIONALIZATION BEFORE COMPUTERIZATION

Material control

1. Classification of material:

- Material Code.

- Material Control Classification.

- Material Supply Form Classification.

2. Effectiveness of material control:

- To study and settle material control classification for avoiding

material shortage at minimum stock.

Desic n

1. Standardization of design:

- To standardize design and formats.

To minimize varieties of standards considering prices and handling.

2. Standardization of suppliers:

- To make long term agreements with certain vendors material-by-

material, selected by cost and quality.

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3. Clarification of exceptional cases:

- Owner' s special requirements.

- Expedited delivery.

Purchasing

1. Standardization of purchasing procedures:

- To contract long term agreements.

- To contract delivery and payment terms.

To contract procedures for drawing approval.

2. Classification of purchasing procedures:

- To clarify purchasing procedure material-by-material.

- Spot order.

- Long term agreement.

- Consignment base contract.

3. Propagate long term agreements.

Warehouse

1. Receiving, issuing, and storing of material in accordance with

material control classification.

2. Standardization of material palletizing procedures.

4-3. ADVANTAGES OF COMPUTERIZATION

1. The following instructions can be easily made to meet progress in

production:

- Expedited delivery.

- Sequence of issuing of drawings.

Quantity and delivery date of material.

- Issuing materials.

2. Job control can be easily planned based on control data.

3. Purchased quantity can be easily identified.

4. Delivery date can be calculated both from user's request date and

lead time.

5. Reduction of manual calculation and posting of:

- Payment order.

- Cost accounting.

- Bookkeeping.

6. Production cost can be rapidly identified.

7. Ccmparison between budget and cost.

8. Early discovery of exceptional or emergency matters.

- Late issue of drawings.

-Late issue of purchase orders.

- Late delivery of materials.

*0Mis-issue of material.

9. Prevention of errors owing to manual calculation and writing.

10. Standardization of job procedures.

11. Less skill required for job procedures.

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