Chapter 6

Material Management
 INTRODUCTION
•Construction materials cover all types of materials used in construction
including electrical and mechanical fittings, fixtures, devices and instruments
that are incorporated during the construction of permanent works and
temporary supporting works at site.

•Efficient materials management is an integrated approach covering

numerous functions, such as materials planning, purchasing, inventory
control, store-keeping and warehousing, handling and transportation,
codification and standardization and the disposal of surpluses.

•Construction materials planning involves identifying the materials,

estimating their quantities, defining the specifications, forecasting the
requirements, locating the sources for procurement, getting the samples of
materials approved, designing the materials inventory, developing the
procurement plans and monitoring the flow of materials, till the connected
construction works are completed.
 Introduction to Material Management

• Material management is an approach for

planning, organizing, and controlling all
those activities principally concerned with
the flow of materials into an organization.
• It is a business function for planning,
purchasing, moving, storing material in an
optimum way which helps organization to
minimize the various costs like inventory,
purchasing, material handling and
distribution costs.
• Material management is a scientific
technique, concerned with planning,
organizing and control of flow of materials,
from their initial purchase to destination.
 Importance of Material Management
Proper material
management ensures
It develops reliable that resources, such
alternate sources of as raw materials,
Materials availability at supply to promote a equipment, and
the right place and at the competitive atmosphere labor, are utilized
right time. in performance and optimally.
pricing.

It helps to maintain a high

inventory turnover, by reducing
extra storage, carrying costs
and inventory losses occurring It involves optimizing material
due to deteriorations, usage to reduce waste
obsolescence and pilferage. generation

It helps to maintain
continuity of supply, It helps to maintain the
preventing specified material quality
interruption of the level and a consistency of
flow of materials and quality which permit efficient
services to users. and effective operation.
 Objectives of Material Management
To maintain a high inventory
turnover, by reducing excess To maintain continuity of
To buy at the lowest price,
storage, carrying costs and supply, preventing interruption
consistent with desired quality
inventory losses occurring due of the flow of materials and
and service.
to deteriorations, obsolescence, services to users.
and pilferage.

To maintain the specified

To develop reliable alternate To minimize the overall cost of
material quality level and a
sources of supply to promote a acquisition by improving the
consistency of quality which
competitive atmosphere in efficiency of operations and
permit efficient and effective
performance and pricing. procedures.
operations.

To develop and maintain good

supplier relationships to create To maintain good records and
To achieve a high degree of
a supplier attitude and desire controls that provides an audit
cooperation and coordination
furnish the organization with trail and ensures efficiency and
with user departments.
new ideas, products, and better honesty.
prices and service.

To participate in make or buy decisions.

 Stages of MM
Material requirement planning

Material purchasing

Expediting

Transportation

Stores and inventory control

Materials handling

Dealing with surplus and scrapes

Material management flow chart for the mega project
 “uncontrolled inventory is the project's cancer”
It means that poor management of materials, equipment, and supplies can slowly
degrade the project's health, leading to cost overruns, delays, inefficiencies, and
even failure—just like cancer destroys the body if left untreated.

Why Uncontrolled Inventory is Harmful in Construction?

Cost Overruns – Excess Schedule Delays – Wasted Labor – Workers

or mismanaged inventory Missing or misplaced spend unnecessary time
ties up capital, increases materials can halt work, searching for materials or
storage costs, and leads to causing delays and waiting for deliveries
waste (theft, spoilage, or disruptions in the instead of productive
obsolescence). construction timeline. work.

Poor Space Utilization –

Cash Flow Problems –
Storing excess materials
Money locked in unused
on-site can clutter the
inventory could have been
workspace, leading to
spent on critical project
safety hazards and reduced
needs.
efficiency.
 •Overstocking – Ordering too much steel, cement, or
Overstocking bricks that later rust, expire, or occupy valuable site
space.
•Understocking – Running out of critical materials
(e.g., rebar, electrical conduits), forcing work
stoppages.
•Mismanaged Deliveries – Materials arriving too
Theft & Examples in early (cluttering the site) or too late (delaying work).
Understocking
Damage Construction •Theft & Damage – Lack of tracking leads to loss of
high-value items like copper wiring or tools.

Mismanaged
Deliveries
Solution: Just-In-Time (JIT) & Inventory Control
• Real-time tracking (Barcodes, digital logs)
• Accurate forecasting (avoid over/under-ordering)
• Secure storage (reduce theft & damage)
• Supplier coordination (timely deliveries)

• Uncontrolled inventory slowly kills a construction project by increasing costs,

causing delays, and reducing productivity.
• Proper inventory management is crucial for project health, just as early detection
and treatment are vital in fighting cancer.
 CLASSIFICATION OF MATERIALS
The primary purpose of classifying materials is to control their quality, cost and timely
supply. There are many factors that need consideration while classifying materials. Factors
considering classification of materials are:

Storage space Useful life Supply reliability

Ease in Transportation
Inventory cost
construction factor

Procurement time
Prices Life of project
and sources
 CLASSIFICATION OF MATERIALS
In general, the construction materials can be grouped into any one or a
combination of the following categories:
(a) Bulky, one-time purchases, repetitive use and minor materials.
(b) Vital, Essential and Desirable materials (VED).
(c) Indigenous and imported materials.
(d) High-priced, Medium-priced and Low-priced materials (HML).
(e) High usage value, medium usage value and low usage value materials
(ABC).
ABC Classification / Analysis
– ABC analysis is the method of classifying items involved in
a decision situation on the basis of their relative importance.
– The most commonly used method for classifying
construction materials is to group them into high usage
value, medium usage value and low usage value materials.
– ABC analysis suggests that inventories of an organization are
not of equal value. Thus, the inventory is grouped into three
categories (A, B, and C) in order of their estimated
importance.
 ABC CLASSIFICATION OF MATERIALS Contd..

ABC Grouping (in general)

Group Total Inventory
class items costs
A 10% 70%
B 20% 20%
C 70% 10%

(a) Group A Items: These are the high usage value items, which account for 70% of the inventory cost.
The number of items is about 5% to 15% of all the items.
(b) Group B Items: These are the medium usage value items, which account for 20% of the inventory
costs. Their number is in the range of 15% to 25% of the total number of items.
(c) Group C Items: These are the remaining (about 65% to 75%) items, which account for hardly 10%
of the inventory costs.
 Methodology used in ABC Analysis (Procedural steps)
The ABC grouping of construction materials can be carried out as under:
• Identify all the materials required in construction project. Care should be take that
none of the item are missed.
• List all the items as per their value. The value (annual valued) is determined as:
Annual (consumption or inventory or usage) value = unit cost * annual consumption
rate.
• Arrange these items in a descending order on the basis of their respective consumption
/usage/annual/inventory value.
• Express the annual value of each item as percentage of the total value of all items. i.e
% annual value of item = annual value of that item / summation of annual value of all
items. Also compute cumulative percentage of annual consumption value.
• Obtain the % value of each item. i.e If the number of items are 20, then each item
would represent 100/20 = 5 % of the total items. Also find the cumulative of these
values.
• Draw a graph between % on X-axis and annual % value on Y-axis and mark cut off
point where the slope of graph is changed.
• In general case it can be seen that 70 % of the total inventory value cover 10 % of the
total items i.e A group. Similarly 20 % of inventory value is covered by 20 % of the
total items i.e B group and remaining 10 % of inventory value by bulk represents 70
% of the total item regarded as C group.
 Numerical Examples
In a construction project following items are required annually, classify these items in ABC control.
Item Number of unit Unit price

1 1000 2.50
2 250 0.55
3 150 6.50
4 300 1.00
5 100 1.50
6 700 1.43
7 500 7
8 15 4.98
9 1000 0.75
10 600 1.62
11 25 33
12 4 15.50
13 1000 5.0
14 2850 2.50
15 10 0.83
16 355 0.98
17 50 1.37
18 393 1.85
Item No. of Unit Annual Rearrange Rearranged % of Cum % % item Cum. %
Col- unit price value in item usage usage col8 col9 = of item
1 Col-2 Col-3 Col- descending Col-6 Col7=r Ʃcol7row 100/18 col10=Ʃc
4=2*3 order col-5 ow/Ʃ ol19
1 1000 2.50 2500 7125 14 29.05 29.05% 5.55% 5.55%
2 250 0.55 137.5 5000 13 20.38 49.43% 5.55% 11.10%
3 150 6.50 975 3500 7 14.27 63.7% 5.55% 16.55%

4 300 1.00 300 2500 1 10.20 73.9% 5.55% 22.20%

5 100 1.50 150 1001 6 4.08 77.98% 5.55% 27.75%
6 700 1.43 1001 975 3 3.98 81.96% 5.55% 33.30%
7 500 7 3500 972 10 3.96 85.92% 5.55% 38.85%
8 15 4.98 74.7 825 11 3.36 89.28% 5.55% 44.40%
9 1000 0.75 750 750 9 3.05 92.33% 5.55% 49.95%
10 600 1.62 972 727.05 18 2.96 95.29% 5.55% 55.50%
11 25 33 825 347.9 16 1.42 96.71% 5.55% 61.05%
12 4 15.50 62 300 4 1.22 97.93% 5.55% 66.60%
13 1000 5.0 5000 150 5 0.8 98.54% 5.55% 72.15%
14 2850 2.50 7125 137.5 2 0.56 99.10% 5.55% 77.70%
15 10 0.83 8.3 74.7 8 0.03 99.13% 5.55% 83.25%
16 355 0.98 347.9 68.5 17 0.028 99.148% 5.55% 88.80%
17 50 1.37 68.5 62 12 0.025 99.158% 5.55% 94.35%
18 393 1.85 727.05 8.3 15 0.0038 100% 5.55% 100.00%

Σ=24523.95
 C
A B
14,13,7 1,6,3 2,4,5,8,9,10,11,12,15,16,17,18
 Purchase Management
• It involves
– the selection of source of supply,
– finalization of terms of purchases,
– placement of purchase orders,
– follow-up,
– maintenance of smooth relations with suppliers,
– approval of payments to suppliers,
– evaluating and rating suppliers.
• It holds the responsibility for procuring goods for the project in
alignment with specifications, standardization and in compliance with
the project schedule and budget.
• The functions of purchasing management are as follows:
– To select proper suppliers for the materials requisitioned before placing an
order.
– To negotiate about the price of the materials from the suppliers.
– To assure the quality of materials and should not be compromised with the cost.
– The materials should be purchased in right quantity and quality at proper time
and at cheapest cost as possible.
 MATERIALS INVENTORY BASICS
Inventory Definition
• The term inventory implies the cost of the materials in stock at a given time. This stock
of materials is held to act as a cushion between supply and demand

Need for Planning Inventory

• Generally, each project starts with zero material stock. After the left-outs are disposed
off, it ends up with zero stock. Ideally, for zero inventory, each construction activity,
prior to commencement, should have zero stock; it should get replenished regularly and
finally, it should end up with zero stock when the activity is completed

Inventory management
• It is a technique to maintain the optimal level of stock of goods. Efficient inventory
management helps to determine what to purchase, how to purchase, from where to
purchase and where to stock / store , etc. In a construction site, overstocking of
construction materials will mean high handling cost and understocking will result in
stoppage of work due to lack of inventory.

Types of inventory
– Construction materials, equipment
– Work in progress
– Finished goods
 Types of inventory cost
Inventory ordering cost
– It is the cost of placing and receiving an order. It is charged as per
order. Communication cost, customs and duty charge, labor cost for
loading and unloading, transportation cost all falls under this.
– Total ordering cost (TOC) = Number of order * ordering cost per order
– TOC = N * O

Inventory carrying cost

• Cost of holding an inventory. Storage charges including rent, lighting,
heating. Storage staffing, equipment, maintenance and running cost,
materials handling cost, insurance and security, etc. It is charged in per
unit of item.
• Total carrying cost (TCC) = Average quantity * Carrying cost per unit ( it
is given in % of per unit price of an item)
 Types of inventory cost
Cost of Safety Stock (SS) :
It is the cost that incurs to maintain a certain amount of stocks in order
to avoid interruption in construction and delay in construction schedule
due to shortage of inventories.

Total Cost of Safety stock (TSS) =

Safety stock in units * carrying cost = S.S x C

Total inventory cost (TIC):

Combination of inventory ordering cots, carrying cost and cost of safety

stock (if any)
Economic order quantity (EOQ)

EOQ refers to the quantity of single purchase order, which gives maximum
economy in purchasing inventories. It is also known as reordering quantity. It is that
level of inventory where the total ordering cost is equal to cost of storage. It is the
quantity at which the stock level will be optimum.
EOQ is that quantity at which TIC is minimum as far as possible. For this the total
carrying cost must be equals to total ordering cost. i.e. TCC = TOC
 Methods of calculating EOQ
Formula or Algebraic Approach
TCC = TOC
On solving,
 Methods of calculating EOQ
Graphical Approach
TCC = TOC
Under this method, the carrying cost, ordering cost, and total cost are shown in the
graph. Cost data are plotted on the vertical axis and horizontal axis. It is based on
the principle that the total carrying cost increases as the order size increases.
However, the ordering cost decreases as the order size increases. The ordering cost
curve slopes down from the left to right but the carrying cost curve slopes upwards
from the left to right as the carrying cost increases with the number of orders. The
point where ordering cost curve and carrying cost curve intersect each other, there
is a minimum total cost. That point is called the economic order point. It may be
presented in a diagram as follows:

Total Inventory Costs (TIC)

Total Carrying Cost (TCC)

Total Ordering Cost (TOC)

0 EOQ Ordering Size (Units)

 Methods of calculating EOQ
Trial and Error Approach

Under this approach, the total cost (ordering cost and carrying
cost) for each order size is calculated. The order size is obtained
by dividing the annual requirement by no. of orders. The size of
materials where the total cost is lowest will be the economic
order quantity.
Before preparing the trial and error approach, the following consideration is to be
taken into mind according to this:
No. of order = A/EOQ
Order = A / No. of orders
Average inventory = order size / 2
Ordering cost = No. of order × Ordering cost per order
Carrying cost = Average inventory × Carrying cost per unit
Total cost = Ordering cost + Carrying cost
 Inventory Level

Minimum Inventory = Safety Stock (S.S)

Average Inventory = Safety Stock (S.S) + EOQ/2
Maximum Inventory = Safety Stock (S.S) + EOQ
 Example work out
Take the following case of stocking of 'an
imported stock' at a project site organized by SA
construction company:
Site requirement = 480 tons spread uniformly over a year
Ordering cost = Rs. 60 per order
Carrying cost = 20% of purchase price
Purchase price = Rs. 100 per ton
Determine the 'EOQ' at various level of orders
[4, 6, 8, 10, 12, 16, 20], also show in the graph.
 Solution

Number Quantity Total ordering cost Total carrying cost Total inventory cost
of per order TOC = N × O T.C.C = Q/2 × C TIC = TOC + TCC
orders Q = A/N
N
4 120
6 80
8 60
10 48
12 40
16 30
20 24
 Solution

Number Quantity Total ordering cost Total carrying cost Total inventory cost
of per order TOC = N × O T.C.C = Q/2 × C TIC = TOC + TCC
orders Q = A/N
N
4 120 200 1200 1400
6 80 300 800 1100
8 60 400 600 1000
10 48 480 480 960
12 40 600 400 1000
16 30 800 300 1100
20 24 1000 240 1240
1800
1600
1400
TIC
1200
T.C.C
1000
980
EOQ
800
600
400
TOC
200

10 20 30 40 48 50 60 80 100 120
Graphical Presentation
Calculate EOQ of cement with following details.
• Total quantity = 12000 bags
• Carrying cost = 15%
• Ordering cost = Rs.10000
• Purchase Price = Rs.750 per bag
 Calculate economic order quantity of cement with following
details; total quality = 12000 bags; Ci = 15%, Co = 10000; P =
750 Rs. per bag.
• Soln.
– Here, the Annual requirement of cement (A) = 12,000 bags
– Ordering cost per order (O) = 10000
– Carrying cost (C) = 15%
– Purchase price (P) = Rs. 750 per bag

• Calculate EOQ and reorder point if rebar required is 1000

tones; Ordering Cost is Rs. 10,000, Carrying Cost is 15%
rebar rate is Rs. 90,000 per tone; Safety Stock is 50 tones;
lead time is 4 day and consumption per day is 50 tones.
Heritage book center must order Drawing Sketch Book from its supplier and following
are the necessary information.
• Annual requirements (A) = 50000 pieces
• Cost per order (O) = Rs. 25
• Carry cost (C.C.) = 20%
• Price per pieces (P.P) = Rs. 15.00
• C. C. per unit (C) = 20% of P.P. = Rs. 3
Requirements:
(a) What is the EOQ ? =
approx. 913 pcs
(b) What are the numbers of order ? =
approx. 55 times
(c) What is book center’s maximum and average inventory be ?
913 and approx. 457 pcs
(d) What is the length of inventory cycle, take 52 weeks in a year ?
Length of inventory cycle (ordering frequency)(OF) =
days or weeks or months in year / Number of order = 52/55 = 0.945 (approx. 1
week)
(e) What is the total cost of EOQ ?
Rs. 2738.60
 Planning Inventory of Repetitive Materials (ROP/ROL)
• The inventory planning for the repetitive construction materials involves determining the
economic order quantity, fixing the maximum and minimum stock limits and the lead time for
stock replenishment and reordering point (ROP) for each item of A and B category construction
materials, i.e., high value materials.
• The basic simplified model of inventory replenishment pattern as shown in Figure.

The inventory replenishment model shows the number of cycles of replenishment during the usage period.
The initial inventory of materials at the start of the work, consists of working stock (Q) and safety stock
(S).
 ROL = Safety stock + Lead time * average consumption - Goods in transit

Lead time: The term lead time refers to the time normally taken in receiving the
delivery of inventory after placing orders with the suppliers.
Goods in transit (GIT): Goods which have been ordered but have not yet been
received. There will be goods in transit at the time of re-order if the lead time is longer
than the order periods (ordering frequency). Good in transit can be calculated as:
•First calculate ordering frequency

Compare with lead time:

If lead time is greater than order frequency, there will be, GIT which is equal to Number
of goods in transit * EOQ
•If Lead time is greater than order frequency up to two times, there will be one good in
transit. i.e. GIT = 1 * EOQ
•If the lead time is greater than order frequency up to three times, there will be two
goods in transit. i.e GIT = 2 * EOQ
•And so on.
Er. Bishnu is responsible for Nepal power solution, a leading
private company in the field of Renewable Energy. On an
average NPS needs 4000 units of steel pole for the installation
of streetlights. The cost of placing an order is Rs. 200. The cost
of holding an inventory is Rs. 10 per steel pole in an inventory.
A fifteen days lead time is required for delivery of goods ordered
from the supplier and required maintaining 20 days
consumption in safety stock, Determine:
(a) EOQ of NPS?
(b) Minimum, Average and Maximum inventory level
(c) What is RoL (take 360 days in a year) ?
• EOQ = Sqrt (2 * 4000 * 200/10) = 400 units
• Min= (A/360) * 20 = approx 223 units. , Avg = 223 +
400/2 = 423 units and Maximum inventory of NPS =
223+400 = 623 units ?
• ROL= SS + LT * Avg consumption – GIT
= 223 + 15 * 4000/360 – 0 = 389.67 = approx. 390 units

FOR GIT, compare LT with OF, here OF > LT or LT <

OF, therefore, NO GIT
LT = 15 days
OF = days in a year / N = 360 /10 = 36 days
Where N = A/EOQ = 4000/400 = 10
SB Ready Mix Concrete Company requires 20000 bags of cement per year to
produce concrete. Each bag of contains 50 kg. cement and purchase price per
kg is Rs. 18. It costs 20 percent for holding the inventory of cement in stock
per year and ordering costs per order is Rs 300. The company requires 7 days
of lead time to receive the order placed and requires maintaining 10 days
consumption in safety stock. Determine the EOQ, safety stock, avg, min and
maximum inventory . How frequent do you place an order and what is the
ROL (take 360 days in a year) ?. Also Determine the TIC with and Without
S.S.
If the supplier of cement offers 0.2 percent quantity discount for the order
size of 20000kgs of cement, would you accept the order?
 EOQ with Quantity Discount
• In business, the seller of goods offers quantity to the purchaser. The
quantity discount will affect the unit price of goods. Generally, the
larger the size of the order, the greater the quantity discount and
lower the purchase price per unit. It also affects the EOQ decision.

• If the materials supplier offers a certain percent quantity discount

for the order placed as offered, this will affect the total inventory
cost. The quantity discount offer could significantly affect the
optimal order quantity. To calculate the inventory cost of the
discount offer, we use the following equation:
Total Inventory Cost (TIC) = TOC + TCC - Discount on purchase value
TIC with discount = (A/Qo) * O + (Qo/2) * C – Discount on purchase value
TIC with EOQ (hamro order quantity) = sqrt(2AOC)
Decision:
If TIC with discount < TIC with EOQ, accept the offer !
• Total Inventory Cost (TIC) = TOC + TCC - Discount on purchase value
• TIC with discount = (A/Qo) * O + (Qo/2) * C – Discount on purchase
value
• =( 20000*50)/20000)) * 300 + (20000/2+27728) * (100-0.2%) of 3.6 – 0.2%
* 20000*50*18 =
• TIC with EOQ (hamro order quantity) = sqrt(2AOC)
• Decision:
• If TIC with discount < TIC with EOQ, accept the offer !
 Types of Construction Garbage
Construction Garbage
a) Demolished debris: Materials such as concrete,
• Construction garbage, also bricks, wood, asphalt, metals, and other building
known as construction waste components that result from the destruction or
or construction debris, is the dismantling of structures are included in this
byproducts, wasted materials, category.
and waste produced during b) Excavated wastes: Excavation waste is made up
construction, restoration, of soil, boulders, stones, and other debris that were
demolition, or excavation excavated during site preparation or foundation work.
activities. c) Packaging and wrapping materials:
• It consists of a wide range of Construction materials are frequently provided in
packaging materials such as plastic wrapping, pallets,
items that are no longer cardboard boxes, and foam sheets which create
required or become garbage after the products are unloaded.
unsuitable throughout the d) Scrap materials: Metal scraps, electrical wiring,
construction process. pipes, plumbing fixtures, and surplus construction
• Construction waste can vary materials are all produced by various construction
in type, size, and activities.
composition, and it must be e) Hazardous waste: Construction sites may
managed effectively to have generate hazardous waste, such as paint and solvent
the least impact on the containers, asbestos-containing materials, lead-based
environment and public paint, chemicals, oils, and other things that must be
health handled and disposed off properly.
 Surplus materials

• Surplus materials are defined as the

excess or unused construction
materials that are left over at the
completion of a project.
• These surplus materials can arise due
to various reasons such as:
– overestimation of material quantities,
– changes in design or scope,
– revised construction plans, or errors in
procurement and inventory management.
THANKS