Mizan Tepi University

College of Engineering and technology

Department of construction technology and
management

Construction Materials Management (Cotm5292)

Lecture notes

By:- Wendmagegn Addis

March, 2019
 Course Content
1. Introduction to construction materials management

 Definition
 Importance of construction materials management
 Management of Construction Materials
 Classification of materials

2. Management of the Production of construction Material

 Management at: Quarries, Plants and Industries
 Course Content cont’d

3. Construction Materials Supply Management:

 Supply chain management in construction
 Procurement of Construction materials
 Transportation of Construction Materials
 Construction Materials Handling
 Storage and Inventory Management
 Construction Materials Standard and Quality management
 Chapter 1

Introduction to Materials management

 1.1. What is materials management?

Materials management is the process of management which

co-ordinates, supervises and executes the tasks associated with
the flow of materials to, through and out of an organization in
an integrated fashion.

Materials management is part of logistics and refers to the

location and movement of the physical items or products.
 1.1. What is materials management?
• Materials Management is an integrated process of planning
and controlling all necessary efforts to make certain that the
quality and 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

take-off, vendor evaluation, purchasing, expediting,
warehousing, distribution and disposing of materials functions.
 1.1. What is materials management?

• Materials Management is the planning and control of the functions

supporting the complete cycle (flow) of materials, and the associated flow
of information.

• These functions include identification, cataloging, standardization, need

determination, scheduling, procurement, inspection, quality control,
packaging, storage, inventory control, distribution, and disposal.
 1.1. What is materials management?
 Materials management in construction is the efficient use of
goods and equipment before, during and upon completion of a
building process.
 It deals with material cost, material supply material storage,
utilization and handling
 The scope of materials management applicable to
construction industry involves the planning of materials,
procurement of materials, packaging, storage, inventory
control, transportation of materials, material handling,
disposal of scrap and surplus

 Successful materials management requires the participation of

all persons involved in a construction process.
 Objectives of Materials Management

 Economy in Materials Cost

 Efficient control of inventories

 Ensure Uniform flow of Materials for production/construction

 Ensure right quality at right price

 Establish and Maintain good relations with customers

 Economical consumption of important items and finding their

substitutes
 Why is CMM important?
One of the three cost components in Construction is Material .
Hence, Materials management is an important element in
project planning and control to make construction projects cost
efficient.
Materials represent a major expense in construction, so
minimizing procurement or purchase costs presents important
opportunities for reducing costs.
Poor materials management can also result in large and
unavoidable costs during construction.
 Why is CMM important?

First, if materials are purchased early, capital may be tied up

and interest charges incurred on the excess inventory of
materials.

Even worse, materials may deteriorate during storage or be

stolen unless special care is taken.

Second, delays and extra expenses may be incurred if materials

required for particular activities are not available. Accordingly,
insuring a timely flow of material is an important concern of
project managers.
 Why is CMM important?

Materials management is not just a concern during the

monitoring stage only in which construction is taking place.

 Decisions about material procurement may also be required

during the initial planning and scheduling stages. For example,
activities can be inserted in the project schedule to represent
purchasing of major items such as elevators for buildings.
 Why is CMM important?

The availability of materials may greatly influence the

schedule in projects with a fast track or very tight time
schedule: sufficient time for obtaining the necessary materials
must be allowed.

In some case, more expensive suppliers or shippers may be

employed to save time.
 Who are involved in CMM?

 Successful materials management like any successful

project relies on the skills of many professionals from the
architect and designers through project management to the
trade contractors.
 At Pre-construction phase, people Involved In materials
management:

Team Role in Materials Management

Member

Architect Designs for best use of standard sizes, for multiple applications and for
their recyclability.
Engineer Ensures appropriate structural component dimensions, quality and
spacing for use of standard fasteners and materials for multiple
applications and recyclability.
Estimator Uses latest materials takeoff technologies and exercises accuracy in
estimates.
Purchaser Plans purchases and deliveries to reduce surplus and to balance
materials maintenance during on-site storage versus transportation
 On Construction site, people involved In materials
Management:

Team Role in Materials Management

Member
Site Applies the materials management plan to the site and oversees its
construction implementation. Takes into consideration physical space available
management and ensures subcontractors are familiar with and committed to the plan

Site materials Keeps track of new materials, cuts and used materials; organizes and
manager stores them for availability by the various trades throughout
the project in accordance with the materials management plan.
Communicates with site management and Materials Manager regarding
Subcontract the types of materials they may be able to use for various
management purposes. Ensures trades follow the Plan's practices.
Trade workers. Use materials properly, store new materials properly, handle and cut
them carefully for maximum use and minimum waste. Consider
using cuts before new pieces
 Management of Construction Materials,
Permanent and Temporary

 Construction materials cover all types of materials used in

construction including electrical and mechanical fittings
fixture, devices and instruments that are incorporated during
the construction of permanent works and temporary
supporting works at site.
 permanent works: Materials used for the construction of
permanent works are named as permanent materials
 Temporary supporting works: those materials used for the
construction of temporary works are categorized under here.
( engineers facilities, offices, false works, formworks…)
 Classification of materials
Why should we classify materials?
 We deal with hundreds of different types of inventory
items. With so many items, complexity of managing the
process increases.

 To manage these inventories effectively grouping is

essential.

 Grouping together of materials of similar technical affinity

is known as classification.
 Classification cont’d

 The primary purpose of classifying materials is to control

quality, cost and timely supply.
 There are many factors that need consideration while
classifying materials. These include storage space, shelf life,
supply reliability, inventory costs, ease of identification,
construction sequence, transportation requirement, price,
procurement time, procurement source and project life.
 Classification cont’d

 Some of the general categories are;

1. bulky, one –time purchase, repetitive use, and minor

materials
2. Vital, essential and desirable materials
3. Indigenous and imported materials
4. High price, medium price and low price materials
5. High usage value, medium usage value and low-usage
value materials
 Classification cont’d
• Classification can be also be based on various attributes:

 By size
 By names
 By values
 By end use
 By product category
 ABC Classification of construction Materials
 The most commonly used method for classifying construction materials
is to group them into high-value, medium-value and low-value materials.

 This classification is achieved using the ABC analysis. The prerequisite

for applying the ABC analysis technique is that the project should have
a standardized bill of materials listing the physical quantities (including
standard usage), unit rate and total cost for each item .

BILL OF MATERIALS
S.No. Item of materials Unit Quantity Rate Amount
 The materials management technique of ABC analysis is based
on the principle of “control by selection” which implies that is
not necessary to give the same degree of attention to procurement
, storage, issue and control of all types of materials.

Group Class Total Items Inventory Costs

A 10% 70%
B 20% 20%
C 70% 10%
 ABC Classification cont’d

 Class A
 5 – 15 % of units
 70 – 80 % of value
 Class B
 ˜30 % of units
 ˜15 % of value
 Class C
 50 – 60 % of units
 5 – 10 % of value
 ABC Classification cont’d
Methodology
A. Identifying materials required and estimate quantity of each
material.
B. Obtaining the approximate unit rate for each item.
C. Assessing the requirement during the period under
consideration, i.e. yearly or project completion basis.
D. Determine the usage value of each type by multiplying the
quantity required with the corresponding unit rate.
 ABC Classification cont’d

Methodology
E. Calculate the percentage usage of each material with respect
to total project cost
F. Arrange the items in the descending order of usage value and
then compute cum. Usage value against each item.
G. Draw two horizontal demarcating lines on the descending
order of the cum purchase value at 70% level and 20% level
 ABC Classification: Example

PART UNIT COST ANNUAL USAGE

1 $ 60 90
2 350 40
3 30 130
4 80 60
5 30 100
6 20 180
7 10 170
8 320 50
9 510 60
10 20 120
 ABC Classification: Example (cont.)

TOTAL % OF TOTAL % OF TOTAL

PART PART
VALUE UNIT
VALUE COST ANNUAL% USAGE
QUANTITY CUMMULATIVE
9 1
$30,600 $ 60
35.9 6.0 90 6.0
8 16,000
2 18.7
350 5.0 40 11.0
2 14,000 16.4 4.0
A 15.0
3 30 130
1 5,400 6.3 9.0 24.0
4 4
4,800 5.680 6.0 B60 30.0
3 5
3,900 4.630 10.0 100 40.0
6 6
3,600 4.220 % OF TOTAL
18.0 180%QUANTITY
OF TOTAL
58.0
CLASS ITEMS VALUE
5 3,000
7 3.510 13.0 170 71.0
10 2,400
A 9, 8, 2 2.8 12.0
71.0 C 15.083.0
8 320 50
7 1,700
B 1, 4, 3 2.0 17.0
16.5 100.0
25.0
C 9 6, 5, 10,510
7 12.5 60 60.0
$85,400
10 20 120
Example 10.1
 ABC Classification cont’d

A‟ ITEMS
Small in number, but consume large amount of resources must
have:

 Tight control
 Rigid estimate of requirements
 Strict & closer watch
 Low safety stocks
 Managed by top management
 Low ABC analysis does not stress on items those are less
costly but may be vital
 ABC Classification cont’d

B‟ ITEMS
Intermediate
Must have:
 Moderate control
 Purchase based on rigid requirements
 Reasonably strict watch & control
 Moderate safety stocks
 Managed by middle level management
 ABC Classification cont’d

• C‟ ITEMS
Larger in number, but consume lesser amount of resources must
have:
 Ordinary control measures
 Purchase based on usage estimates
 High safety stocks

Limitations of ABC analysis:

Items on the border line of the ABC classification need to be
scrutinized for placing them under A/B or B/C.
 Classification cont’d

H-M-L Classification
High, Medium, Low value of items.
Focus: Cost per unit of items.
Useful for:
keeping control -over material consumption at the
departmental level
for deciding the frequency of physical verification
controlling purchases
 Classification cont’d

V-E-D Classification
VITAL-ESSENTIAL-DESIRABLE

Focus: To determine the criticality of an item. Mainly

useful for the purchase department.
Based on critical value & shortage cost of an item

It is a subjective analysis.

 Classification cont’d

Items are classified into

 Vital: Shortage cannot be tolerated.

 Essential: Shortage can be tolerated for a short period.

 Desirable: Shortage will not adversely affect, but may be

using more resources. These must be strictly scrutinized
ABC in conjunction with VED is used for classification of
materials as shown in the table under:-
 Classification cont’d
V E D ITEM COST

A AV AE AD CATEGORY 1 10% 70%

B BV BE BD CATEGORY 2 20% 20%

C CV CE CD CATEGORY 3 70% 10%

CATEGORY 1 - NEEDS CLOSE MONITORING & CONTROL

CATEGORY 2 - MODERATE CONTROL.
CATEGORY 3 - NO NEED FOR CONTROL

VED action plan

VITAL: Maintain large stock of inventory.
ESSENTIAL: An In-between policy
DESIRABLE: Minimum stock is enough
 Classification cont’d

S-D-E Classification

 Scarce-Difficult to Obtain-Easy to Obtain

 Focus: Availability

 Useful for the procurement department, vital to the lead

time analysis, helps in determining purchasing strategies.
 Classification cont’d

S-D-E Classification

 SCARCE: items in short supply.

 DIFFICULT: items which might be available in the

indigenous market but cannot be procured easily, items
from distance places, un-reliable suppliers
 EASY: items which are easily available, possibly from the
local markets
 Classification cont’d
F-S-N Classification

 Fast Moving
 Slow moving
 Non-moving.
 Focus: Inventories
 Useful for: Stores department and inventory control.
Enables the adoption of the right type of inventory policy
to suit a particular situation. Also useful for controlling
obsolescence.
 Classification cont’d
F-S-N Classification
 Categorization is based on value, criticality and usage.
 To determine the number of months lapsed since the last
transaction, the date of receipt or the last date of issue is taken
whichever is later.
 Fast Moving items: most inventory models are aimed at
managing the fast moving goods, which exhibit a regular
consumption pattern.
 Slow Moving items: Many spare parts come under this
category; they require different management approach, (see
below).
 Non-moving items: Optimal stock disposal rules rather than
inventory provisioning rules are to be determined.
 Classification cont’d
Managing Slow moving inventory
1. If spares are required only at a pre-specified time, such as
the time of scheduled major maintenance for replacement,
then it is desirable not to stock them but to place
procurement orders sufficiently well in advance, keeping
lead times in view, so that spares arrive just-in-time.

2. If the part gives adequate warning of an impending

breakdown, then the best policy is to place an order the
moment a warning is received. Adequate warning means
when the lead time required is less than the warning time.
 Classification cont’d

Managing Slow moving inventory

3. In situations where adequate warning is not obtainable, some

stock should be kept. In general one-for-one ordering policy
is useful. This means placing an order for one spare when
one is consumed
 Classification cont’d
X-Y-Z Classification
 Is Based on the value of stocks on hand (i.e. investment in
inventory)
 Items whose inventory values are high are X items.
 Items whose inventory values are low are Z items
 Items whose inventory values are moderate are Y items.
• XYZ is used in conjunction with ABC analysis as shown under
Class of items A B C

Make efforts to reduce the Make efforts to convert to Y Steps to be taken to dispose
X
stock to Z category category off surplus stocks
Make efforts to reduce the Items are with in control, no control may be further
Y
stock to Z category further action is necessary tightened

Items are with in control, no stock levels may be reviewed Items are with in control, no
Z
further action is necessary twice a year further action is necessary
 Classification cont’d
• XYZ in conjunction with FSN analysis: This analysis helps
prevent obsolescence analysis helps prevent
obsolescence
Class of F S N
items
Dispose off immediately
Deplete stocks to very
X Tighten Control at optimum price
low level

items are within Deplete the stocks Dispose off as early as

Y control, no further further, at a good possible
action is necessary. price

items are within

Dispose off as early as
Liberalize Control (to control, no further
Z possible, even at lower
reduce clerical costs) action is necessary.
price
 Chapter 2
Construction Materials Production Management
Plant and equipment management in Material
production

Introduction
 Construction Materials produced at quarries and plants:
masonry, concrete aggregate, sand, concrete, asphalt, etc

 Machineries and plants are required (such as batching plants,

dozers, excavators, loaders, dump trucks,…)

 Plant and machineries, if poorly managed on construction

projects, suffers from low utilization rates. Therefore the
principal contractor needs to concentrate efforts on the
removal of non-value-adding activities.
 Plant and equipment Management

 Considerable care is necessary when purchasing plant and

equipment of any kind. The person charged with making the
purchase needs to thoroughly investigate the various aspects
identified below.
 The successful and profitable operation of plant is dependent
not only on the price paid but also on the necessity to conduct
a critical evaluation of its suitability.
 This is an activity that should not be left solely to a plant
department but should involve consultation with the
operational and user personnel.
 The plant department should not function in isolation or this
will impact upon operational effectiveness and efficiency.
Plant and equipment Management cont’d

 If due consideration is given during consultations between plant

department and operations the benefits available include:
 simple installations
 minimum commissioning time
 rapid training of operators (learning curve theory)
 high utilization with the minimum of ‘down time’
 longer life of plant (doing the job for which it was designed)
 lower operational costs
 ease of maintenance with the minimum investment in spare
parts.
Plant and equipment Management cont’d
 During purchasing plants and equipments one can ensure an
adequate return on investment by paying attention to:
 maintainability
 reliability
 installation and commissioning
 product support
 costs.
 Down time is the non-operational time of equipment/plants that
results from lack of maintenance.
 Stand by time is the idle time that an equipment/plant spends
because of the reason that there is no activity to engage
plants/equipments or lack of operators…
Plant and equipment Management cont’d

Maintainability
 The designers of all industrial plant should ensure that their
designs provide:
 a minimum maintenance requirement
 rapid fault diagnosis and repair
 low maintenance and repair costs.
 Equipment which conforms to these three objectives has
maintainability.
Plant and equipment Management cont’d

Reliability

 This is demonstrated by the length of time between breakdowns in

operational service.

Installation and Commissioning

 The signs of an unsatisfactory purchase usually become obvious

during the installation and commissioning period. This is the time
when plant is delivered and put into operation.
 Plant and equipment Management cont’d
Product Support
 This includes the following:
 operating, installation and maintenance manuals
 maintenance schedules
 training aids
 special tools
 technical assistance
Cost
The total cost is the cost of the equipment plus the cost of delivery,
installation, servicing and product support (life-cycle cost).
 Plant and equipment Management cont’d

Some of the benefits to be obtained through careful procurement

of plant and equipment are explained below.

 Commissioning
 Minimum Down Time
 Long Life
 Low Operating Costs
 Plant and equipment Management cont’d

Commissioning

This can be a long process if the purchaser selects the wrong

vendor or incorrect equipment. A competent vendor arrives on
site with proof in the specification that the plant meets set
objectives
Installation, testing and operator training should not take long if
the plant attains the required performance and if the technical
information for training is available.
 Plant and equipment Management cont’d

Minimum Down Time

This is the time in which the plant is not available for
production because of a need for maintenance or repair. Down
time can be caused by a breakdown of plant or by a shutdown
period for preventive maintenance

Long Life
The purchasers must assure themselves of the ability of the plant
to attain long service. This is closely linked with ‘reliability ’.
 Plant and equipment Management cont’d

Low Operating Costs

 A vendor should be asked for predictions of operating costs and
its approach to this problem will indicate whether it has
adequately assessed this before selling its product. Operating
costs in each year could include:
 cost of fuel
 cost of operating labor
 cost of maintenance
 cost of down time
 Plant and equipment Management cont’d
During Operation of plants and equipments procedures that has to
be followed to ensure efficiency in materials production:
 Setting hourly/daily performance standards

 Evaluating outputs against standards

 Identifying reasons for recorded production below

minimum performance threshold, if any.
 Take remedial measures
57
 Chapter 4
Procurement of Construction materials
 Introduction
 Construction of materials needed for a project work vary with
the nature of the project.
 In road projects-materials required may be few in number

 In building-may be counted in hundreds

 The determination of the type, quantity and specification of

construction materials needs a detailed study of the contract
document , including The BOQ, Drawings, Specifications,
pretender estimates, preliminary vendor enquiries
 Introduction cont’d

 Materials provisioning to the site should be planned in the

sequence of their requirement on the site.
 For example materials that are required for site development,
foundation work, superstructure frame, which are needed in
the early stages of construction, are considered first.
 Introduction cont’d
The procurement management , the provision of construction materials to construction
projects, have the following processes

1.Study contract documents to identify items for purchase.

2.Estimate quantities to be purchased

3.Float inquiry indents to locate sources of supply

4.Invite quotations from selected vendors

5.Submit proposals for technical, financial and client`s approval

6.Negotiate with vendors and finalize supply orders

 Introduction cont’d
6. Place purchase orders and monitor order execution.

7. Conduct pre shipment inspection, where necessary

8. Inspect goods received at site and initiate action where

warranted for in-transit losses(theft), damages, short
shipments, and rejection of substandard supply items.

9. Close material supply contract after confirming no further

demand from concerned site manager. Inform accounts,
planning, costing and the project manager accordingly.
 Material Procurement Management
 Procurement management is one of the important factors to be
considered on construction projects since it is the major source of
expenditure that is incurred .
 It converts plans and programs in to commitments to utilize
resources.
 Materials of poor standard and ineffective quality control will cause
delay in the implementation of the project and the resources may
get wasted, thus increasing the overall cost of the project
 Material Procurement Management cont’d
Identification of materials and materials package
 Materials break down can be determined from the BOQ which
contains work items with quantities involved
 Details regarding finishes can be read from the architectural
drawings/engineering drawings.

 In case of electrical and mechanical items, a detailed scrutiny is

required to identify the items and its components. In some cases
these items may have to be designed.

 Materials package includes all types and qualities of materials

needed to perform a given activity or a work item . For Example a
material package of Concreting of foundation requires cement,
sand, aggregate, water, formwork.
 Material Procurement Management cont’d

Materials Quantity Estimation and scheduling of materials

 Materials quantities estimates are based on the abstract of

quantities of work calculated by the quantity surveyors from
the contract drawings.
 Total material quantity required = work quantity x quantity of
materials required for a unit item of work.
 Example: Let the concrete requirement of a project is 3500
m3, and the concrete is C-25 concrete. 360 Kg of OPC
cement is required to prepare 1m3 of C-25 concrete .
Hence the quantity of OPC cement required for the project
is = 3500m3 x 360 Kg/m3= 12,600 qtls
 Material Procurement Management cont’d

Materials Quantity Estimation and scheduling of materials

 Material estimates should include standard wastages which

occur during work execution.
 The final material quantities of major cost items ( that falls in
the category of type A & B materials as per ABC materials
classification) should be compared with the preliminary
material estimates prepared during tendering to check
variations, if any. If there is a significant variation, it has to be
communicated with the responsible body at a project/ a firm
level before ordering the purchase of materials.
 Material Procurement Management cont’d

Materials Usage Standard

 Some wastage is inevitable in actual work. This wastage in

materials is generally expressed as a percentages of materials
calculated theoretically from the quantities of the work
involved, and are termed as ‘standard wastage'. The total
quantity of materials to be provisioned should cater for the
standard wastage by increasing the theoretical quantity,
proportionally.
 Material Procurement Management cont’d

Materials Usage Standard

 Materials to be provisioned;

= Theoretical quantity of materials X

[{100+standard Wastage(%)}/100]
 It may be noted that standard wastage caters for wastage during
utilization only for causes considered beyond control at the site. In
addition to the controllable wastage, there is wastage which falls in the
category of uncontrollable wastage. The main cause of controllable
wastage are;
 Material Procurement Management cont’d

Materials Usage Standard

A. Wastage on account of designers specifying non-standard

materials having unattainable specifications.
B. Wastage due to incorrect purchasing resulting in over
buying, wrong buying, unnecessary buying and untimely
buying.
C. Wastage in transportation and handling including breakage
and pilferage.
D. Wastage during storage resulting from deterioration,
improper storage, breakage, obsolescence and theft.
 Material Procurement Management cont’d

Materials Usage Standard

 since, controllable wastage falls under the purview of the

materials management staff the additional provisions to
compensate for such wastage should be made by them so as to
ensure that the right quantity of materials are available at the
right time.
Material Procurement Management cont’d
Construction materials wastage planning norms

I/No. Type of Materials Planned Wastage in %

1 Cement 2
2 Sand 10
3 Aggregate 5
4 Structural Concrete 2
5 Lean concrete 10
6 Reinforcement Steel Bars 3
7 Stone Masonry 5
8 Paints 5
 Material Procurement Management cont’d

Quantity Estimation and scheduling of materials

 After materials required for the work are evaluated, a usage

schedule at the site based on the project construction plan is
prepared with a view to evolve their delivery schedules and the
stocking policy.
 Material Procurement Management cont’d

Materials Procurement Enquiries

Investigation for developing sources for procurement of materials are
made by floating enquiry indents (floating tender and inviting
vendors to offer their price).
Material inquiry indents containing quantities, specifications and
delivery times are jointly prepared by the project planning cell and
material procurement department
Inviting of tenders for quotations with samples of materials, where
applicable is carried out by material procurement department
 Material Procurement Management cont’d
Materials Procurement Enquiries

 On receipt of the quotations, a comparative study of the price,

quality, delivery time, terms of delivery, payment terms is made
jointly by both materials and project planning in charges
 Vendors proposal are compared with enquiry specification and
stipulated requirements for and the resulting deviations are examined
for acceptability.
 Vendors choice is based on its size, capability, past performance,
market reputation and if necessary this may be confirmed by a visit
to the vendor`s works.
 Material Procurement Management cont’d
Materials Procurement Enquiries
 Criteria's for evaluating vendors is:
 Quality of the material-its past records, recent test reports,
performance reports, performance reports from old users,…
 Company`s financial status
 Company`s management team and their professional competency
and engineering skills
 Support services
 If there is deviation from stipulated specifications and delivery
timings it should be discussed with the project manager/
manager concerned and if required with the consultants
 Material Procurement Management cont’d
Finalization of Source of Materials Procurement

The following activities has to be undergone before placing of

purchase order
A.Approval in principle for processing proposals
 effect of prices on profitability
 in case of changes in offers, approval by project
management prior to commencing further negotiations
with the suppliers.
 Material Procurement Management cont’d

Finalization of Source of Materials Procurement

B. Client`s approval of proposed materials- as per the terms of
agreement and standard construction practices, the contractor
submits proposals to the client/consultant for approval of the
materials.
 The proposals can be in the form of :
 Samples of materials
 The manufacturers write up on the materials
 The materials test results…
 Material Procurement Management cont’d

Finalization of Source of Materials Procurement

C. Negotiations of terms of supply-final negotiations with the

vendor prior to the placing of order are carried out to evolve
mutually agreed terms for supply particularly, with respect to
the following:
 To finalize prices through negotiations by securing a
better price offer
 To finalize mode of transportation of materials up to site
 To finalize payment terms including the opening letter of
credits, if required
 Material Procurement Management cont’d

Finalization of Source of Materials Procurement

 To finalize prior delivery and post delivery inspection/quality
control procedures with particular reference to contract
stipulations and design specifications
 To finalize the material delivery schedule
 To finalize guarantees and penalties
 Before finalizing negotiations, a recheck is done to ensure that the
necessary documents needed for manufacturing
 Material Procurement Management cont’d

Monitoring Materials delivery Schedule

After the purchase order is placed with the vendor, steps

necessary to ensure that right quantity and right quality
materials arrive at the site at the right time are:

i. Preparation and monitoring materials movement schedule

ii. Conduct pre-transportation inspection where necessary

iii. Obtain periodic information on shipment/transportation

status
Material Procurement Management cont’d

Monitoring Materials delivery Schedule

iv. Keep ready the documents necessary for clearing customs
and other formalities during transit

v. Plan in advance for receiving materials at the site

vi. Checking the quality and quantity as per requirement and

bringing out discrepancies, if any, for further action
including timely replacement/reordering and claiming
insurance/compensation if applicable
82
4.2. Transportation
Problem
 Introduction

 The objective of the transportation problem is to transport

various quantities of a single homogenous commodity, which
are initially stored at various origins to various destinations in
such a way that the total transportation cost is minimum
 Characteristics
 Possess special mathematical features that enabled
development of very efficient, unique solution methods.

 A product is transported from a number of sources to a

number of destinations at the minimum possible cost.

 Each source is able to supply a fixed number of units of the

product, and each destination has a fixed demand for the
product.
 Characteristics cont’d
 The linear programming model has constraints for supply at
each source and demand at each destination.

 All constraints are equalities in a balanced transportation

model where supply equals demand.
 Definitions of Terms
 Basic Feasible solution: A feasible solution to a m-origin, n-
destination problem is said to be basic if the number of
positive allocations are equal to (m+n-1).
 Feasible Solution: A set of positive individual allocations
which simultaneously removes deficiencies is called a feasible
solution.
 Optimal Solution: A feasible solution (not basically basic) is
said to be optimal if it minimizes the total transportation cost.
 Transportation Problem
 Mathematical Formulation of Transportation Problems

 Suppose there are ‘m’ ware houses (w1,w2,w3, _, _, wm),

 where the commodity is stocked and ‘n’ markets where it is

needed.
 Let the supply available in ware houses be a1, a2, a3, _,_,_ am

 The demands at the markets (m1, m2, m3, _, _, mn) be b1, b2,
b3, _, _ , _ bn.
 Transportation Problem cont’d
 The unit cost of shipping from ware house i to a market j is Cij
(C11,C12,_, _ Cn),
 Let X11, X12,X13,_, _, Xmn be the quantities of materials to
bet transported from warehouse i markets j.
 we want to find an optimum shipping schedule which
minimizes the total cost of transportation from all warehouses
to all the markets
 Transportation Problem cont’d
 The total minimum transportation cost is

Z = X11C11 + X12C12 + _ _ _ + XmnCmn

=  XijCij

 Types of Transportation Problems

1. Minimisation Balanced Transportation Problems
2. Minimisation Unbalanced Transportation Problems
3. Maximisation Balanced Transportation Problems
4. Maximisation unbalanced Transportation Problems
5. All the above models with degeneracy.
Methods of solving Transportation Problems

1. North- West Corner Rule method

2. Row-minima Method
3. Column minima method
4. Matrix Minima Method or least cost method
5. Vogel's Approximation method (VAM)
Methods for checking Optimality

1. Modified Distribution Method, UV or MODI method

For allocated cells Cij – (Ui +V ) = 0

j

For unallocated cells Cij – (Ui +Vj)> 0

 Steps in VAM method
 Step-I: Against each row and column of the matrix, denote the
difference between the two least cost in that particular row and
column.
 Step-II: Select the maximum value noted as per step-I, in this row
or column select the cell which has the least cost
 Step-III: Allocate the maximum possible quantity
 Step-IV: After fulfilling the requirements of that particular row or
column, Ignore that particular row or column and recalculate the
difference by the two lowest cost for each of the remaining rows or
columns, Again select the maximum of these differences and
allocate the maximum possible quantity in the cell with the lowest
cost in that particular /corresponding row or column.
 Step-V: Repeat the procedure till the initial allocation is completed
 Transportation Problem cont’d
PROBLEMS

1. Solve the following transportation problem by North-West

corner rule, Row Minima, Column Minima, Matrix Minima
and VAM Method:
 PROBLEMS
To
W1 W2 W3 W4 Supply
From

F1 6 4 1 5 14

F2 8 9 2 7 16

F3 4 3 6 2 5

Demand 6 10 15 4 35
 PROBLEMS cont’d

To
W1 W2 W3 Supply
From

F1 90 100 130 20

F2 100 140 100 15

F3 100 80 80 10

Demand 5 20 20 45