Material Management PDF - Indian Institute of Technology Roorkee

INDIAN INSTITUTE OF TECHNOLOGY ROORKEE CEN 411 Construction Planning and Management Material Management Prof. Anjaneya Dixit Room 331A; [email protected]; +91 133228 5106 Material Management Mater...

INDIAN INSTITUTE OF TECHNOLOGY ROORKEE CEN 411 Construction Planning and Management Material Management Prof. Anjaneya Dixit Room 331A; [email protected]; +91 133228 5106 Material Management Materials accounts 40 % of project cost. Even 5% saving in material cost through efficient management results in large contribution if profit margins are 5-10 %. 2 Material Management 3 Material Management Objectives of Material Management –Economy in material cost –Efficient control of inventory –Ensure uniform flow of material –Ensure appropriate quality and price –Maintain cordial relations with the suppliers/customers –Judicious consumption of materials 4 Material Management When materials arrive, they are: – Counted – Inspected – if necessary, Tested Too many materials stored on the site can lead to problem of: – Space allocation – Weather damage – Theft 5 Steps for Material Provisioning 1. Study contract document to identify items for purchase. Bid documents, specifications of material 2. Estimate quantities to be purchased By quantity surveyor from contract drawings for an activity. IS 10067: 1982 include standard wastage, Cement: 2%, Sand: 10 % Wastage: inaccuracy in leveling, transportation, breakage etc., Material to be provisioned = Theoretical quantity x (100 + standard wastage)/100. 3. Float enquiry to locate the sources of supply. Quantity, specifications, delivery times 4. Invite quotations from selected vendors 5. Analyze quotations received & vendors prequalification 6. Client or Consultant Approval 7. Negotiation with vendors and final supply 8. Place purchase order and monitor order execution 9. Monitoring material delivery schedule Conduct pre-transportation inspection Obtain periodic information on shipment/ transportation status. Keep documents ready for custom clearing. Plan in advance for receiving material at site: unloading place, storage arrangement Persons for inspecting material in quality & quantity and insurance or compensation claims 6 Material Inventory Inventory: stored material, that is used for construction. Inventory management -- determine how much to order? When to order? Purpose: – Smooth-out variations in operation performances – Avoid stock out or shortage – Safeguard against price changes and inflation – Take advantage of quantity discounts 7 Material Inventory Inventory Cost, C = Holding Cost Includes insurance, storage, investment, pilferage, etc. = Average stock x Holding cost per unit rate (Ci) = Quantity per order/2 x Holding cost per unit rate (Ci) where quantity per order= Total Consumption(A)/Number of orders (N) Ordering Cost Includes material inspection, follow ups etc. = Cost per order (Co) x number of orders (N) 𝑪𝑪𝒊𝒊 𝑨𝑨 Inventory Cost has 𝑪𝑪 = + 𝑪𝑪𝑶𝑶 𝑵𝑵 a variation with ‘N’ 𝟐𝟐𝟐𝟐 8 Example Problem Total Consumption (A) = 480 tons over 6 months Unit rate = P= Rs. 80/ton Holding Cost Ci = 25 % of unit rate Ordering Cost Co= Rs. 50/order Calculate the Number of Orders in 6 months for least inventory Cost No. of Quantity Q/2 Holding Cost Ordering Inventory orders per order Ci = 0.25P.Q/2 Cost, Co.N Cost, C (N) (Q) 4 6 8 10 12 16 20 9 Example Problem Total Consumption (A) = 480 tons over 6 months Unit rate = P= Rs. 80/ton Holding Cost Ci = 25 % of unit rate Ordering Cost Co= Rs. 50/order Calculate the Number of Orders in 6 months for least inventory Cost No. of Quantity Q/2 Holding Cost Ordering Inventory orders per order Ci = 0.25P.Q/2 Cost Co.N Cost (N) (Q) 4 120 60 0.25 x 80 x 60= 1200 6 80 40 0.25 x 80 x 40= 800 8 60 30 0.25 x 80 x 30= 600 10 48 24 0.25 x 80 x 24 = 480 12 40 20 0.25 x 80 x 20 = 400 16 30 15 0.25 x 80 x 15 = 300 20 24 12 0.25 x 80 x 12 = 240 10 Example Problem Total Consumption (A) = 480 tons over 6 months Unit rate = P= Rs. 80/ton Holding Cost Ci = 25 % of unit rate Ordering Cost Co= Rs. 50/order Calculate the Number of Orders in 6 months for least inventory Cost No. of Quantity Q/2 Holding Cost Ordering Inventory orders per order Ci = 0.25P.Q/2 Cost Co.N Cost (N) (Q) 4 120 60 0.25 x 80 x 60= 1200 200 1400 6 80 40 0.25 x 80 x 40= 800 300 1100 8 60 30 0.25 x 80 x 30= 600 400 1000 10 48 24 0.25 x 80 x 24 = 480 500 980 12 40 20 0.25 x 80 x 20 = 400 600 1000 16 30 15 0.25 x 80 x 15 = 300 800 1100 20 24 12 0.25 x 80 x 12 = 240 1000 1240 11 Minimizing Inventory Cost For the inventory cost to be minimum 𝑪𝑪𝒊𝒊 𝑨𝑨 𝒅𝒅𝒅𝒅 𝑪𝑪 = + 𝑪𝑪𝑶𝑶 𝑵𝑵 = 𝟎𝟎 𝟐𝟐𝟐𝟐 𝒅𝒅𝒅𝒅 𝒅𝒅𝒅𝒅 𝑪𝑪𝒊𝒊 𝑨𝑨 = 𝑪𝑪𝑶𝑶 − 𝟐𝟐 = 𝟎𝟎 𝒅𝒅𝒅𝒅 𝟐𝟐𝑵𝑵 𝑪𝑪𝒊𝒊 𝑨𝑨 𝑵𝑵 = 𝑪𝑪 = 𝟐𝟐𝑪𝑪𝑶𝑶 𝑪𝑪𝒊𝒊 𝑨𝑨 𝟐𝟐𝑪𝑪𝑶𝑶 There exists an ‘Economic’ number of orders The corresponding ‘Economic’ Order Quantity = Total Material Requirement/Economic number of orders 12 Example Problem Total consumption of sand = 6000 t Ordering Cost = Rs. 40 /order Unit Rate of sand = Rs. 100/ton Inventory carrying or Holding cost = 20 % of unit rate Find Economic Number of Orders, Order Quantity & Inventory cost Ordering cost, 𝐶𝐶𝑂𝑂 = 40 Holding cost, 𝐶𝐶𝑖𝑖 = 0.2 × 100 = 20 Total Consumption, 𝐴𝐴 = 6000 𝐶𝐶𝑖𝑖 𝐴𝐴 20×6000 Economic number of orders, 𝑁𝑁 = = = 38.73~38 2𝐶𝐶𝑂𝑂 2×80 𝐴𝐴 6000 Economic order quantity = = = 157.9 tons 𝑁𝑁 38 Inventory Cost, 𝐶𝐶 = 2𝐶𝐶𝑂𝑂 𝐶𝐶𝑖𝑖 𝐴𝐴 = 2 × 20 × 40 × 6000 = 𝑅𝑅𝑅𝑅. 3098 13 Safety Stock, Lead Time & Reorder level Safety Stock: The material stock maintained to handle –Excess consumption during procurement lead time. –Delivery delays by vendors. Lead time: –Time required for procurement of a material –It is the time gap between point of initiation of procurement process to receipt of ordered materials at stores. Reorder Point/level: –Point/level at which the stock is ordered to ensure its availability in future. 14 Inventory Replenishment Model 15 Reorder Point Reorder point is the stock level of a material below which procurement process for that material needs to be initiated in order. Reorder Point = (A x B) + C A – Average daily consumption Number of units (of material) consumed per day. B – Procurement lead time Time required for procurement of a material. It is the time gap between point of initiation of procurement process to receipt of ordered materials at stores. C – Safety stock (equals to ‘average daily consumption x safety time’) Buffer stock to be maintained at stores in order to handle excess consumption during procurement lead time and or delivery delays. 16 Example Problem In the last one year 3650 Nos of 3-Phase 25KVA DTR were drawn or consumed. Based on the previous procurement experience, on an average of 100 day is required to procure it. Considering field emergencies (based on previous experience) and delivery delays encountered during the previous procurement cycles, a safety stock equal to 20 days consumption is required. Calculate the Reorder Point for the 3-Phase 25KVA DTR A – Average daily consumption = 3650/365 = 10 Nos B – Procurement lead time = 100 days C – Safety stock = 10*20 = 200 Nos Reorder point = (A x B) + C = 10*100 + 200 = 1200 Nos 17 Example Problem 18