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Unit IV Material Management _ Contracts.pptx
1. Material Management & Contracts
• Introduction
• Materials are the inputs to the construction activity
• Many operations are performed using other resources to create this
facility
• Materials forms the single largest component of the total cost
• Cost range is 50% to 60% of the total cost
• Materials are key resources
• Major constituent of any construction
• Material Management
• It is process which involves all the activities concerning materials
right from the time the need for the materials until they are issued to
the construction site
• Material Mgmt – Planning, organizing directing controlling and
coordinating related to materials
• Material Mgmt is very important for timely completion of the
project
• Delay in providing materials for construction will put the project
behind the schedule
• Increases cost
2. Introduction
• Material management - is process of buying storage and
supplying at right time
• Material management is related to planning, procuring, storing and
providing the appropriate material of right quality, right quantity at
right place in right time
• 60 to 70% cost incurred in material
• Rest is only labour, overheads and profits
• Reduction in very less percentage of material cost will give more
profit
• Definition- Material management is the management of the flow
of materials into an organization to the point , where those
materials are converted into the firm’s end product
• Process of planning, sourcing, purchasing, moving, storing
inventory control, scheduling production, physical distribution and
marketing
3. Objectives
• Primary Objectives:
– Efficient material planning
– Buying or purchasing
– Procuring & receiving
– Storing & Inventory Control
– Supply & Distribution of materials
– Quality Assurance
– Improved Departmental efficiency
4. Objectives
• Secondary Objectives:
– Efficient Production Scheduling
– To take , make or buy decisions
– Prepare Specifications & Standardization of materials
– Forecasting Demand & Quantity of material required
– Quality Control
– Developing skills of workers in material management.
– Smooth flow of materials in and out of the organization.
5. Primary Functions
• Material Requirements planning:
– To plan the materials startinf from raw materials, semi
finished ,finished items.
– Latest tecnique used is called Just-in-time (JIT).
• Purchasing:
– There should be economic purchasing.
– To select proper suppliers
– To negotiate about the price
– To assure the quality
– Right quantity at proper time
6. Primary Functions
• Primary Functions
• Inventory Planning & Control:
– Inventory cost should be reduced
– Enough material should be stored
– To maintain continuity in construction
• Ascertaining & Maintaining the flow of materials.
• Quality Control of material :
– The specifications, size & quality of materials must be reffered.
– Standard should be followed for specifications and sizes
• Departmental Efficiency :
– MIS and Feedback control must be adopted.
– Awareness to the employees.
8. Buyer and Seller relationship
• Trust forms between people, between individuals.
• Commitment forms between firms.
• A positive feedback loop can be the result.
• Once people begin to trust one another across the buyer-seller
firms, they begin to take actions that begin to achieve balances
in the contract terms on a routine basis
• A buyer could be a manufacturer purchasing raw materials
• A customer buying a finished product from a retailer.
• The relationship between the buyer and seller can be either
short term (one off or low commitment purchases) or long term,
involving regular purchases based on established agreements.
9. Buyer and Seller relationship
• Types of Buyer – Seller Relationships
• Broadly three types (in a range) of exchanges or relationships
between buying and selling firms:
• Transactional (distant) relationship.
• Value – added (continuing) relationship.
• Partnering / Collaborative (close) relationship.
10. Material codification and classification
• What is classification and codification of materials?
• Such a process of giving distinct names and symbols to
different items of materials is called codification of materials.
• Good store-keeping requires proper classification and
codification of various items of stores on stock.
• Classification and codification of materials are steps in
maintaining stores in a systematic way. –
• Materials are classified in such way that storing, issuing and
identifying of materials become easy. –
• Generally, materials are classified on the basis of their nature
11. • Coding and Classification of Materials
• Important function of material mgmt
• Helps in production & purchasing
• It uses its own method of classification of materials used production or selling
various goods
• ABC analysis is a standard method used
• What are the types of codification?
• Systems of Codification
• Alphabetic system,
• Simple numeric or sequence system,
• Combination system,
• Block system,
• Decimal system,
• Numerical system,
• Mnemonic system and.
• Six letter – nine letter codes.
Material codification and classification
12. • Classification of materials
• Raw Materials
• Components
• Consumables
• Spare Parts
• Supplies
• Tools
• Packing Materials
• Work-in-progress items
• Finished Good
Material codification and classification
14. • Advantages of codification
• Long names & description of items need not to be repeated every time once
coded
• Accurate identification of particular item
• Duplication of material is avoided
• Helps in standardization of materials
• Storing , sorting & documentation becomes esay
• Helps in locating material
• Helps in accounting & costing of materials
• Helps purchase dept to select suppliers
• Useful for communication of information about materials
• Disadvantages of codification
• The mistakes may be in writing codes & it is difficult to find out correct codes
• Codes may be understood
• If codes are in large number then may be confusion in locating a particular
material
Material codification and classification
15. Concept of Logistics & Supply Chain Management
• Write a note on ‘Concept of Logistics’
• Logistics means, “ the branch of military science having to do with procuring,
maintaining and transporting material , personnel and facilities”
• Logistics is the part of supply chain process that plans, implements and controls the
efficient, effective flow and storage of goods and related information from the point
of origin to point of consumption to meet consumers requirements
• Logistics management is that part of supply chain management that plans,
implements, and controls the efficient, effective forward and reverses flow and
storage of goods, services and related information between the point of or
• What is the concept of supply chain management?
• Supply chain management is the management of the flow of goods and services
and includes all processes that transform raw materials into final products. It
involves the active streamlining of a business's supply-side activities to maximize
customer value and gain a competitive advantage in the marketplace
• Origin and the point of consumption in order to meet customers' requirements
16. Concept of Logistics & Supply Chain Management
• Is Logistics and Supply Chain Management same?
• "SCM is a business philosophy, while logistics refers to the activities that
facilitate the flow of goods through the supply chain." "Logistics focuses on
movement, whereas SCM encompasses much more, including production,
manufacturing, transportation, and supplies." ... In short, logistics is a sub-set
of SCM
• What do you mean by logistics management?
• Logistics management is a supply chain management component that is used
to meet customer demands through the planning, control and implementation
of the effective movement and storage of related information, goods and
services from origin to destination.
• What are the types of logistics?
• Types of Logistics
• Logistics Fields.
• Procurement Logistics: Procuring Raw Materials and Parts.
• Production Logistics: Materials Management, Distribution in Factories,
Product Management, Shipping.
• Sales Logistics: Delivery from Warehouse to Wholesalers, Retailers, and
Consumers.
•
17. Concept of Logistics & Supply Chain Management
• What is supply chain with example?
• A supply chain is comprised of all the businesses and individual
contributors involved in creating a product, from raw materials to finished
merchandise. ... Examples of supply chain activities include farming,
refining, design, manufacturing, packaging, and transportation.
•
Distribution
network
Industry
Production
system
Management
activities
18. Inventory Models/ EOQ Models
• Inventory model is a mathematical model that helps business in determining the
optimum level of inventories that should be maintained in a production process,
managing frequency of ordering, deciding on quantity of goods or raw materials
to be stored, tracking flow of supply of raw materials and goods to provide ...
• List the models of inventory management?
• Three inventory management models are studied; the Economic Order Quantity
(EOQ), the Activity-Based Costing (ABC), and Just-in-time (JIT).
• What is the EOQ model?
• The Economic Order Quantity (EOQ) is the number of units that a company
should add to inventory with each order to minimize the total costs of
inventory—such as holding costs, order costs, and shortage costs. ... The EOQ
model finds the quantity that minimizes the sum of these costs
• State the important of EOQ
• Its main purpose is to help a company maintain a consistent inventory level and
to reduce costs. EOQ uses variable annual usage amount, order cost and
warehouse carrying cost
•
19. Inventory Models/ EOQ Models
• What is EOQ and its formula?
• Definition of EOQ
• The formula to calculate the economic order quantity (EOQ) is the square
root of [(2 times the annual demand in units times the incremental cost to
process an order) divided by (the incremental annual cost to carry one unit in
inventory)].
• State the objective of EOQ?
• The objective of the economic order quantity (EOQ) model is to minimize
the total costs associated with the carrying and ordering costs as the mount
ordered gets larger, average inventory increases and so do carrying costs.
• What is the importance of EOQ in inventory management?
• EOQ is one of the most prominent models used widely for effective
inventory management. EOQ calculates the ordering quantity of inventory
using inputs of carrying cost, ordering cost, annual usage of the said
inventory. Working Capital Management is an important specialized
function of financial
20. Tenders & Contracts
• To tender is to invite bids for a project or accept a formal offer such as a takeover bid. ...
Key Takeaways ... For projects or procurement, most institutions have a well-defined
tender process, as well as processes to govern the .work...
• A tender is a submission made by a contractor in response to an invitation to tender. It
makes an offer for the supply of goods or services. Tender documents are prepared to
seek offers.
• Tender documents may be prepared for a range of contracts, such as equipment supply,
the main construction contract (including design by the contractor), demolition, enabling
works, etc.
• What is a tender and how does it work?
• A business tender is an offer to do work or supply goods at a fixed price. The tender or
bid process is designed to ensure that the work to be done is given out in a fair way.
There are a number of policies (known as 'procurement policies') which are used as
guides on how to make decisions on which tender to accept.
• What is the purpose of a tender?
• A tender is a submission made by a prospective supplier in response to an invitation to
tender issued by an employer. It makes an offer for the supply of goods or services.
There are two purposes in tendering: To select a suitable contractor at a suitable time
• Why tender is required?
• Some of the key benefits and advantages of the tendering process are as follows: No
Nepotism: Tenders or bids are evaluated on the basis of certain predetermined criteria,
such as price, quality and value for money. ... Encourages Competition: The process of
tendering helps promote a competitive market
21. Tenders & Contracts
• What does a tender mean in business?
• Tendering usually refers to the process whereby governments and financial
institutions invite bids for large projects that must be submitted within a finite
deadline. The term also refers to the process whereby shareholders submit
their shares or securities in response to a takeover offer
• What does tender process mean?
• A tender is a submission made by a prospective supplier in response to an
invitation to tender. It makes an offer for the supply of goods or services. In
construction, the main tender process is generally for the selection of the
contractor that will construct the works.
• What does a tender mean in business?
• Tendering usually refers to the process whereby governments and financial
institutions invite bids for large projects that must be submitted within a finite
deadline. The term also refers to the process whereby shareholders submit
their shares or securities in response to a takeover offer.
• What is meant by open tender?
• A bidding process that is open to all qualified bidders and where the sealed
bids are opened in public for scrutiny and are chosen on the basis of price and
quality. Also called competitive tender or public tender.
22. Tenders & Contracts
• What documents are required for tender?
• Copies of the tender documentation should be kept for records.
Tenders documents may include:
• A letter of invitation to tender.
• The form of tender.
• Preliminaries: including pre-construction information and site waste management plan (if
required).
• The form of contract, contract conditions and amendments
• Tenders documents may include:
• A letter of invitation to tender.
• The form of tender.
• Preliminaries: including pre-construction information and site waste management plan (if
required).
• The form of contract, contract conditions and amendments. This might include a model
enabling amendment for building information modelling (BIM), making a BIM protocol a
contractual document.
• A tender pricing document (or contract sum analysis on design and buildprojects).
• Employer's information requirements for BIM.
• Design drawings, and perhaps an existing building information model.
• Specifications. Tender return slip.
23. Tenders & Contracts
• What is a tender in government?
• Government Tender refers to the process whereby these government
organizations invite bids for projects that must be delivered within a given
deadline set by their organization and by fulfilling the given criteria of the project
• What is a tender in government?
• Government Tender refers to the process whereby these government organizations
invite bids for projects that must be delivered within a given deadline set by their
organization and by fulfilling the given criteria of the project
• What is EMD in tender?
• Earnest Money Deposit (EMD) is used in Tender and Bidding Process and is
also used in Real Estate transactions. ... It can either be submitted in the
form of Demand Draft or a Bank Guarantee in government tenders
• What is the purpose of EMD?
• # EMD or Earnest Money Deposit - To ensure that a Bidder does not submit
a Dummy Bid or back out at time of tender opening, Government
Department collects a small refundable fee from each bidder, which is called
EMD. ... EMD is returned when all Bids are opened & tender is awarded.
24. Tenders & Contracts
• Contract - An agreement enforceable by law is a contract. An agreement not
enforceable by law is said to be void. ... Examples• I promise to bring
chocolates to the whole
• What is difference between tender and contract?
• The term 'tender' means an invitation to trade under the terms on offer.
'Contract' refers to any agreement entered into between the buyer and another
party. This could also be on behalf of the buyer and another party. This is for
the execution of any work for the supply of goods, works or services
31. Tenders & Contracts
• The Indian Contract Act, 1872
• The Indian Contract Act, 1872 defines what we mean by “Agreement”. In
its section 2 (e), the Act defines the term agreement as “every promise and
every set of promises, forming the consideration for each other
• What is a contract Indian Contract Act 1872?
• The Indian Contract Act, 1872 prescribes the law relating to contracts in
India and is the key act regulating Indian contract law. The Act is based on
the principles of English Common Law. ... It determines the circumstances in
which promises made by the parties to a contract shall be legally binding.
• What are the salient features of Contract Act 1872?
• Section 11 of the Indian Contract Act, 1872 is: “Who are competent to
contract — Every person is competent to contract who is (1) of the age of
majority according to the law to which he is subject, and who is (2) of sound
mind and is (3) not disqualified from contracting by any law to which he is
subject.”
•
• What is agreement in law of contract?
• Definition.An agreement between private parties creating mutual obligations
enforceable by law. The basic elements required for the agreement to be a
legally enforceable contract are: mutual assent, expressed by a valid offer
and acceptance; adequate consideration; capacity; and legality.
32. Tenders & Contracts
• Types of Contract
• Item rate contract
• Percentage rate contract
• Lump- sum contract
• Labour contract
• Materials supply contract
• Cost plus percentage contract
• Cost plus fixed fee contract
• Cost plus sliding or fluctuating fee- scale contract
• Target contract
• Negotiated contract
