Construction Material Management

• Materials are a major construction resource, representing 40-60% of project costs.
• Poor material management results in large, avoidable costs, and issues such as wrong materials, large inventories, damage, and shortages.

Introduction to Material Management

• Purchasing materials early can tie up capital and incur interest, risk deterioration or theft, and require special storage for items like electrical equipment.
• Purchasing materials late can result in delays and extra expenses.
• Material management involves planning and controlling efforts to ensure the right quality and quantity of materials are specified, obtained at a reasonable cost, and available on time.
• Objectives of material management, also called the "5 Rs", include acquiring materials and services of the right quality, quantity, time, source, and price.
• The Just-in-time theory focuses on delivering materials only when needed for installation, avoiding on-site storage.
• The Inventory buffer theory prioritizes purchasing, delivering, and storing all materials on-site before installation.
• Construction materials are classified into bulk materials, standard off-the-shelf materials, and fabricated members or units.
• Delivery processes, transportation, field storage and installation differ for each material class.
• Equipment needed to handle and haul materials varies by material class.

Bulk Materials

• Bulk materials are in their natural or semi-processed state, such as sand, cement, and ready-mix concrete.
• These materials are commonly found in large quantities on construction sites.
• Earthwork or gravels are examples of materials measured in bank (solid in situ) volume.
• Quantities for delivery differ based on the volume measures and characteristics of the materials.
• Examples of typical bulk materials include paving materials, fill materials, dampproofing membrane, lumber, form materials, ready-mix concrete, wire mesh, reinforcing steel, masonry, soils, piping, electrical conduit, and caulking.

Standard off-the-Shelf Materials

• These are processed materials with standard dimensions and specifications.
• Examples include valves, standard pipes, bathroom fixtures, and AC units.
• They're easily stockpiled, and the delivery process is simple.
• Mechanical and Plumbing Equipment and Materials are: Fire protection equipment, Water supply equipment, Valves, Drains, Clean-outs, Plumbing fixtures, Gas-piping accessories, Pumps, Boilers, Cooling towers, Control systems, Air-handling equipment and Refrigeration units (chillers)

Fabricated Materials

• These are custom-built to specific dimensions and specifications for projects.
• Steel connections, steel tanks, and welded or bolted connections are examples.
• Units are partly or fully fabricated in a shop and then shipped.
• Examples of fabricated materials include: Precast panels and decks, Stone veneers, Miscellaneous and special formed metals, Ornamental metals, Millwork, Custom casework and cabinetwork, Sheet metal work, Sheet metal veneers, Hollow metal doors and frames, Wood and plastic laminate doors, Glass and glazing, Storefront and Window walls and curtain walls.

Steps of Material Management

• Request for quotation (RFQ) --> Bidding & vendor selection --> Purchase order (PO) --> Tracking & Expediting --> Transportation & delivery --> Receiving and inspection --> Inventory --> Use.

Elements of Material Costs

• Major cost categories associated with construction materials are: purchase costs, order costs, holding costs, and unavailability costs.

Purchase Costs

• The price paid to the vendor includes transportation.
• Discounts are common for bulk purchases in construction, lowering unit cost as quantity increases.
• Bulk purchases ensure material homogeneity, which is desirable when items like bricks need consistent color or size.
• Large quantity purchases can lead to high holding costs.

Order Costs

• Reflect the administrative expense of issuing a purchase order to an outside supplier.
• Order costs cover making requisitions, analyzing vendors, writing purchase orders, receiving and inspecting materials, checking orders, and record maintenance.
• Order costs are a small portion of total material management costs but can require substantial time.

Holding Costs

• Costs associated with keeping materials unused, including capital costs, handling, storage, obsolescence, shrinkage, and deterioration.
• Many holding cost components are hard to predict, especially for high-tech items.
• Holding costs typically represent 20 to 40% of the average inventory value annually.
  • Average material inventory on a project is $1 million, holding cost might be $200,000 to $400,000.
• Capital costs are results from the opportunity cost or financial expense of capital tied up in inventory.
• Handling and storage represent the movement and protection charges incurred for materials.
  • Storage costs include disruption caused to other project activities by large inventories of materials that get in the way
• Obsolescence is the risk that an item will lose value because of changes in specifications.
• Shrinkage is the decrease in inventory over time due to theft or loss.
• Deterioration reflects a change in material quality due to age or environmental degradation.

Unavailability Costs

• Occurs when materials are not available on the job site by the desired time.
• Also known as stockout or depletion cost.
• Shortages may delay work, leading to wasted resources or project delays.
• The cost associated with a shortage is hard to assess.
  • The material used for one activity can be assigned for another depending on which activities are critical potentially avoiding delays.

Lead time (L)

• The time period ahead of the delivery date at which a PO should be sent to the vendor
• Depends on processing time (R) and shipping time (S), where T=R+S (uncertain)
• The project manager must decide how much lead time to provide in ordering the item
• Ordering early increases availability but also increases inventory costs and the chance of spoilage on site
• Assume T as a random variable with probability p(t) for delivery on day t.
  • The probability of delivery on or before day t is p(T ≤ t) = Σ p(u) for u=0 to t.
• Expected delivery time is E(T) = Σ t(p(t)) for t=a to b, "a" and "b" are the lower and upper bounds of possible delivery dates.
• Lead time depends on the tradeoff between holding costs and unavailability costs.
• Then, lead time (L) is calculated as follows L = E(T) + D where,
  • D may vary from 0 to the number of additional days required to produce certain delivery on the desired date.

Illustrative Example 1

• Calculate the expected time of delivery.

• Determine the appropriate lead time to ensure

  • No unavailability cost is paid.
  • No holding cost is paid.

• Determine the appropriate lead time to ensure that there is at least a 90% probability that material will not arrive late for use.

Illustrative Example 2

• This example involves using probability, holding costs, and unavailability costs to determine when to order materials to minimize costs, considering variables such as liquidated damages and potential project delays.
• In summary, the most suitable time to order the material is on day 50 after weighing all holding and unavailability costs at various delivery dates.