1 Construction Materials Management
Content
ACM PA17
Construction Materials Management – 1
(Prof. Rajiv Gupta, NICMAR)
Topics in this Session
• Importance
• Definition & Scope
• Objective and Function of MM
• Integrated approach to MM
Importance of MM
• Materials constitute a major cost of construction projects
• What is the usual range of material costs?
• Flow of materials into a project is essential to ensure timely
completion. A stock-out (shortage) disrupts work and its effects are
both visible and invisible.
EFFECTS OF MATERIAL STOCK-OUT OR SHORTAGE
VISIBLE EFFECTS
INVISIBLE EFFECTS
Project work stops – partially or fully
Loss of reputation – affects future
ability to get orders as well as future
funding for this or other projects
Delay in Project delivery
Lower workforce morale – can result in
attrition
Men and equipment become idle
Directly attributable financial loss due
to shortage or stock-out
Imposition of penalties for delay by
client
• Study of HCC Income & Expenditure 2009-10 (in bold), in relation
to materials expenses
1
Work out the percentage of material used during the year as a percentage of Income.
Work out the average investment in inventory of stores and embedded goods consumed
• HCC – Inventory Valuation Policy
2
• HCC, Fixed Assets in Rs.crores (procurement of capital equipment
and assets is done by the materials management department)
3
• IVRCL (Rs. million) YE 2007 & YE 2008
• Take the case of IVRCL, what does a simple analysis of comparing
the net purchase of construction and other materials to sales for YE
’07 and YE ’08 reveal?
Sales (yoy 58%)
Materials
Materials as % of Sales (r/o)
PAT
PAT as % of sales
YE 2008 (Rs. Crores)
3665.12
1239.35
34%
210.48
5.73
YE 2007 (Rs. Crores)
2313.20
930.80
40%
141.46
6.04
4
• 20% = 3% ?
• In the case of IVRCL suppose for the year ending 2007 you were
given the task of increasing profits (PAT) by 20%. How would you go
about it?
• 20% increase in profits = 20% of Rs.141 crores = Rs.28 crores
Two major options occur
- increase sales or
- decrease input costs
•
First Option – Increase profit by increasing sales
•
Second option - decrease inputs (materials) costs
• Assumption: company’s profitability remains the same.
• In the IVRCL 2007 figures, PAT is 6 % of Sales,
• To increase PAT by Rs.28 crores we have to increase our sales by
467 crores (28 x 100/6). An increase of 467 crores in sales is
equivalent to a 20% increase in sales (467/2313 x 100)
• To obtain a PAT increase of Rs.28 crores how much savings
(decrease in material cost) do you have to show in materials ?
• 28/930 x 100 = 3%
• Even though the profit increase is the same for both the options but
for achieving a 20% increase in sales the efforts are much more than
achieving a 3% reduction in materials consumption.
• Materials Savings
• This forms the basis of good materials management, as savings can
be achieved in various forms like, good inventory control, reducing
wastage, good negotiations, timely purchasing, bulk purchasing,
minimising investment in inventories etc. This illustration is used to
highlight the importance of aiming at more efficiency in managing
materials. In a real life situation companies aim at both increasing
yearly sales turnover and efficient materials management.
• Definition of Materials Management
Materials management is that process of management which coordinates, supervises and executes the tasks associated with the flow
of materials to, through and out of an organization in an integrated
fashion.
• Another Definition
Materials Management is an integrated process of planning and
controlling all necessary efforts to make certain that the quality and
5
quantity of materials and equipment are appropriately specified in a
timely manner, are obtained at a reasonable cost and are available
when needed. The materials management systems combine and
integrate the off-take, vendor evaluation, purchasing, expediting,
warehousing, distribution and disposing of materials functions.
A simple definition
• Materials Management is the line of responsibility which begins with
the selection of supplies and ends when the material is delivered to
its point of use. Note: In the contemporary context this text book
definition has its own limitations, as explained in the class.
•
•
•
•
•
Objective of Materials Management – 5 Rs
Right Time
Right Quantity
Right Quality
Right Place (from/to)
Right Price
•
•
•
•
•
Scope of Materials Management
Procurement (including Planning & Scheduling)
Inspection & QC
Stores & Inventory Control
Transportation & handling
Distribution (logistics)
•
•
•
•
•
•
•
•
•
Functions of the Materials Management Dept.
Identification and Estimation of materials requirement.
Procurement and allied functions
Stock or inventory control
Storage
Disposal of surplus, obsolete, scrap and empties.
Control & analysis through a well designed information system.
Integrated approach to MM
Efforts are made to coordinate effectively the end objective of various
departments, divisions and projects so that optimization in
procurement and usage takes place.
More specifically – Planning and estimation, marketing, finance,
quality control
*****
6
Construction Materials Management – 1
(Prof. Rajiv Gupta, NICMAR)
Topics in this Session
• Importance
• Definition & Scope
• Objective and Function of MM
• Integrated approach to MM
Importance of MM
• Materials constitute a major cost of construction projects
• What is the usual range of material costs?
• Flow of materials into a project is essential to ensure timely
completion. A stock-out (shortage) disrupts work and its effects are
both visible and invisible.
EFFECTS OF MATERIAL STOCK-OUT OR SHORTAGE
VISIBLE EFFECTS
INVISIBLE EFFECTS
Project work stops – partially or fully
Loss of reputation – affects future
ability to get orders as well as future
funding for this or other projects
Delay in Project delivery
Lower workforce morale – can result in
attrition
Men and equipment become idle
Directly attributable financial loss due
to shortage or stock-out
Imposition of penalties for delay by
client
• Study of HCC Income & Expenditure 2009-10 (in bold), in relation
to materials expenses
1
Work out the percentage of material used during the year as a percentage of Income.
Work out the average investment in inventory of stores and embedded goods consumed
• HCC – Inventory Valuation Policy
2
• HCC, Fixed Assets in Rs.crores (procurement of capital equipment
and assets is done by the materials management department)
3
• IVRCL (Rs. million) YE 2007 & YE 2008
• Take the case of IVRCL, what does a simple analysis of comparing
the net purchase of construction and other materials to sales for YE
’07 and YE ’08 reveal?
Sales (yoy 58%)
Materials
Materials as % of Sales (r/o)
PAT
PAT as % of sales
YE 2008 (Rs. Crores)
3665.12
1239.35
34%
210.48
5.73
YE 2007 (Rs. Crores)
2313.20
930.80
40%
141.46
6.04
4
• 20% = 3% ?
• In the case of IVRCL suppose for the year ending 2007 you were
given the task of increasing profits (PAT) by 20%. How would you go
about it?
• 20% increase in profits = 20% of Rs.141 crores = Rs.28 crores
Two major options occur
- increase sales or
- decrease input costs
•
First Option – Increase profit by increasing sales
•
Second option - decrease inputs (materials) costs
• Assumption: company’s profitability remains the same.
• In the IVRCL 2007 figures, PAT is 6 % of Sales,
• To increase PAT by Rs.28 crores we have to increase our sales by
467 crores (28 x 100/6). An increase of 467 crores in sales is
equivalent to a 20% increase in sales (467/2313 x 100)
• To obtain a PAT increase of Rs.28 crores how much savings
(decrease in material cost) do you have to show in materials ?
• 28/930 x 100 = 3%
• Even though the profit increase is the same for both the options but
for achieving a 20% increase in sales the efforts are much more than
achieving a 3% reduction in materials consumption.
• Materials Savings
• This forms the basis of good materials management, as savings can
be achieved in various forms like, good inventory control, reducing
wastage, good negotiations, timely purchasing, bulk purchasing,
minimising investment in inventories etc. This illustration is used to
highlight the importance of aiming at more efficiency in managing
materials. In a real life situation companies aim at both increasing
yearly sales turnover and efficient materials management.
• Definition of Materials Management
Materials management is that process of management which coordinates, supervises and executes the tasks associated with the flow
of materials to, through and out of an organization in an integrated
fashion.
• Another Definition
Materials Management is an integrated process of planning and
controlling all necessary efforts to make certain that the quality and
5
quantity of materials and equipment are appropriately specified in a
timely manner, are obtained at a reasonable cost and are available
when needed. The materials management systems combine and
integrate the off-take, vendor evaluation, purchasing, expediting,
warehousing, distribution and disposing of materials functions.
A simple definition
• Materials Management is the line of responsibility which begins with
the selection of supplies and ends when the material is delivered to
its point of use. Note: In the contemporary context this text book
definition has its own limitations, as explained in the class.
•
•
•
•
•
Objective of Materials Management – 5 Rs
Right Time
Right Quantity
Right Quality
Right Place (from/to)
Right Price
•
•
•
•
•
Scope of Materials Management
Procurement (including Planning & Scheduling)
Inspection & QC
Stores & Inventory Control
Transportation & handling
Distribution (logistics)
•
•
•
•
•
•
•
•
•
Functions of the Materials Management Dept.
Identification and Estimation of materials requirement.
Procurement and allied functions
Stock or inventory control
Storage
Disposal of surplus, obsolete, scrap and empties.
Control & analysis through a well designed information system.
Integrated approach to MM
Efforts are made to coordinate effectively the end objective of various
departments, divisions and projects so that optimization in
procurement and usage takes place.
More specifically – Planning and estimation, marketing, finance,
quality control
*****
6
