�ݺ�ߣ

Unit no. 5
Resource Management
Mr. Kiran R. Patil
Assistant Professor,
Department of Civil Engineering,
D. Y. Patil College of Engineering & Technology, Kolhapur

 Definition of Materials:
• Materials refer to inputs into the production process, most of which are converted in the
finished goods being manufactured. It may be raw materials, finished goods etc., and
others, required for maintenance and repairs.
 Definition on Material Management:
• Material management deals with controlling and regulating the flow of materials in
relation to changes in variables like demand, prices, availability, quality, delivery
schedules etc.
 Objects of materials management:
1. Minimization of materials costs
2. To reduce inventory for use in production process and to develop high inventory turnover
ratios.
3. To procure materials of desired quality when required, at lowest possible overall cost.
4. To reduce paper work procedure in order to minimize delays in procuring materials.
5. To note changes in market conditions and other factors affecting the concern.
6. The purchase, receive, transport, store materials efficiently
7. To reduce cost, through simplification, standardization, value analysis etc.
8. To conduct studies in new areas e.g., equality consumption and cost of materials so as to
minimize cost of production.

 Function of Materials Management:
1. Materials planning and programming
2. Purchasing materials
3. Inspection of Materials
4. Classification, codification and standardization in stores
5. Storage of materials
6. Issuing of materials
7. Maintainece of proper inventory records
8. Materials receiving
 Inventory:
• It defined as a comprehensive list of movable items which are required for manufacturing
the products and to maintain the plant facilities in working conditions. Inventory has
defined as “The quantity of goods or the materials on hand”
 Inventory Control:
• Inventory control is the method of maintaining of stock at a level at which purchasing
and stocking costs are at the lowest possible without interference with the supply.
 Objectives of Inventory Control:
1. To support the production with materials of the right quality in the right quantity, at the
right time and the right price, and from the right supplier
2. To minimize investments in the materials by ensuring economies of storage and ordering
costs

3. To avoid accumulation of work in process
4. To ensure economy of costs by processing economic order quantities
5. To maintain adequate inventories at the required quantity to meet the market needs
promptly, thus avoiding both excessive stocks or shortages at any given time
6. To contribute directly to the overall profitability of the enterprise.
 Functions of inventory control:
• To develop policies, plans and standards essential to achieve the objectives
• To build up a logical and workable plan of organization for doing the job satisfactory
• To develop procedure and methods that will produce the desired results economically
• To provide the necessary physical facilities
• To maintain overall control by checking results and taking corrective actions.
 Inventory Management System or Level:
• The objects of inventory control is to establish level of inventory which will serve to
minimize the company‟s costs and maximize its revenue.
• It is determined by five basic variables
a) Minimum stock
b) Reorder point
c) Recorder quantity
d) Procurement lead time
e) Maximum inventory.

a) Minimum Stock:
Minimum inventory or buffer stock is needed to take care of any temporary unpredictable
increase in the demand or in the procurement lead time.
b) Reorder point:
It is sufficiently above the minimum stock to allow for issuing the purchase order and for
delivery by a vendor. Reorder point stock level is equal to the minimum stock plus the
expected consumption during the procurement lead time.
c) Reorder Quantity:
This is the fixed quantity of item for which order is placed every time the stock drops to
the reorder point. This quantity is fixed either on the basis of experience or calculated.

d) Procurement lead time:
This includes the time required for preparing the purchase order, the time gap between
placing an order and receiving material from suppliers and time required for inspection etc.
e) Maximum inventory:
It is approximately the sum of the order quantity and minimum stock. It will exactly equal the
sum of these two quantities if the ordered material is received just when the minimum stock
is reached.
 TYPES OF INVENTORY COSTS
1. Ordering (purchasing) costs
2. Inventory carrying (holding) costs
3. Out of stock/shortage costs
4. Other costs
It is the cost of ordering the item and securing its supply.
Includes-
Expenses from raising the order
Purchase requisition by user department till the execution of order
Receipt and inspection of material
Costs spend for holding the volume of inventory and measured as a percentage of unit cost of
an item.

d) Procurement lead time:
This comprises the time required for preparing the purchase order, the time gap between
placing an order and receiving supplies and time required for inspection etc.
e) Maximum inventory:
It is approximately the sum of the order quantity and minimum inventory. It will exactly
equal the sum of these two quantities if the ordered material is received just when the
minimum stock is reached.
 TYPES OF INVENTORY COSTS
3. Out of stock/shortage costs
It is the cost of ordering the item and securing its supply.
Includes-
Expenses from raising the order
Purchase requisition by user department till the execution of order
Receipt and inspection of material
Costs spend for holding the volume of inventory and measured as a percentage of unit cost of
an item.

3. OUT-OF-STOCKCOSTS:
It is the loss which occurs or which may occur due to non availability of material.
• It includes-
Break down/delay in production
Back ordering
Lost sales
Loss of service to customers, loss of goodwill, loss due to lagging behind the competitors,
etc.
 INVENTORY CONTROL TECHNIQUES:
 Inventory control techniques represent the operational aspect of inventory management
and help realize the objectives of inventory management and control.
 Inventory control techniques are employed by the control organization within the
framework of one of the basic inventory models, fixed order quantity system or fixed order
period system.
 ABC Analysis:
 ABC analysis is a technique of controlling inventories based on their value and
quantities. It is more remembered as an analysis for „Always Better Control‟ of inventory.
 Here all items of the inventory are listed in the order of descending values, showing
quantity held and their corresponding value. Then, the inventory is divided into three
categories A, B and C based on their respective values.

• A category comprises of inventory, which is very costly and valuable. Normally 70% of
the funds are tied up in such costly stocks, which would be around 10% of the total
volume of stocks. Because the stocks in this category are very costly, these require strict
monitoring on a day-to-day basis. Ex. Cement, Steel
• B category comprises of inventory, which is less costly. Twenty percent of the funds are
tied up in such stocks and these accounts for over 20% of the volume of stocks. These
items require monitoring on a weekly or fortnightly basis. Ex. Brick
• C category consists of such stocks, which are of least cost. Volume wise, they form 70%
of the total stocks but value-wise, they do not cost more than 10% of the investment in
the stocks. This category of stocks can be monitored on a monthly or bi-monthly basis.

Advantages:
 Provides a tool for identifying items that will have a significant impact on overall
inventory cost.
 It helps in economizing once effort to achieve greater results.
 It helps to segregating those items which should to be given priority to maximize results.
 The usefulness of this management tool is that, by focusing on the “A” category items,
70% results can be achieved with just 5% effort
 Once A category items are identified, it is possible to devote more attention to these items
to minimize purchase costs and exercise control over consumption in a more effective
manner.
 Proper use of valuable time of store personnel.
 Simple no confusing formulas are involved

• Disadvantages:
• Proper standardization & codification of inventory items needed.
• Considers only money value of items & neglects the importance of items for the
production process or assembly or functioning.
• Periodic review becomes difficult if only ABC analysis is recalled.
• When other important factors make it required to concentrate on “C” items more, the
purpose of ABC analysis is defeated.

 Economic Order Quantity (EOQ):
• Economic order quantity is defined that quantity of materials, which can be ordered at
one time to minimize the cost of ordering and carrying the stocks.
• In other words, it refers to size of each order that keeps the total cost low.
• Inventory costs: The inventory costs can be classified into two categories,
1) Inventory Ordering Costs (Co):
It is the cost of placing an order from a vendor. This includes all costs incurred from calling
for quotation to the point at which the item is taken into stock.
2) Inventory carrying cost (Cc):
Carrying cost which are also known as holding costs are the costs incurred in maintaining the
stores in the firm.
3) Total Cost:
It is sum of Ordering cost & Inventory carrying cost.

• Determine EOQ:
• Step1: Total Ordering cost per year = No. of orders placed per year x ordering cost per
Order
= (A/S) x O
A = Annual demand
S = Size of each order (units per order)
O = Ordering cost per order
• Step2: Total Carrying cost per year = Average inventory level x Carrying cost per year
= (S/2) x C
A = Annual demand
S = Size of each order (units per order)
C = Carrying cost per unit
• Step3:
• EOQ is one where the total ordering is equal to total carrying cost.

Where
S is the Economic order quantity,
A is the annual demand in units,
O is the ordering cost per order and
C is the carrying cost per unit
Problem1. A Construction company requires of 10,000 cement bags per annum. The cost per
bag is Rs.500 and ordering cost is Rs.400. The inventory carrying cost is estimated at 10% of
the price of the cement bag. determine EOQ and number of orders required per year.
Solution:
Annual demand (A) = 10,000 bags
Ordering cost per order (O) = Rs.400
Carrying cost per unit (C) = 10% of Cost price = 0.10 x 500 = Rs.50/-
EOQ=
𝟐𝑨𝑶
𝑪
=
𝟐 𝑿 𝟏𝟎𝟎𝟎𝟎 𝑿 𝟒𝟎𝟎
𝟓𝟎
= 400 bags

• The number of orders to be placed during the year =
Annual demand(units)
EOQ
=
10000
400
= 25 orders
• Problem 2. A Construction company requires of 1000 tons of steel per month. The cost is
Rs.50000 and ordering cost is Rs.150. The inventory carrying cost is estimated at 13% of
the average investment. determine EOQ and number of orders required per year.
• Solution:
• Annual demand (A) = 1000 tons X 12 months= 12,000 tons
• Ordering cost per order (O) = Rs.150
• Carrying cost per unit (C) = 13% of Cost price = 0.13 x 50000 = Rs. 6500/-
• EOQ=
𝟐𝑨𝑶
𝑪
=
𝟐 𝑿 𝟏2𝟎𝟎𝟎 𝑿 15𝟎
650𝟎
= 23.53 tons say 24 tones
• The number of orders to be placed during the year =
Annual demand(units)
EOQ
=
12000
24
= 500 orders

• IMPORTANT TERMS
1. Minimum Level –
• It is the minimum stock to be maintained for smooth production.
• (Minimum limit or level = Re-order level or ordering point – Average or normal usage ×
Normal re-order period)
2. Maximum Level –
• It is the level of stock, beyond which a firm should not maintain the stock.
• Maximum Level of Stock = (Reorder Level + Reorder Quantity) – (Minimum rate of
consumption x Minimum reorder period)
• Maximum Level of Stock = Safety Stock + Reorder Quantity or EOQ.
3. Reorder Level –
• The stock level at which an order should be placed.
• Reorder Level = Lead Time in Days × Daily Average Usage
4. Safety Stock –
• Stock for usage at normal rate during the extension of lead time.
• Safety Stock = (Maximum Daily Usage − Average Daily Usage) × Lead Time
5. Reserve Stock –
• Excess usage requirement during normal lead time.
• Buffer Stock – Normal lead time consumption.

 REORDERING POINT:
 The reorder point ("ROP") is the level of inventory which triggers an action to refill that
particular inventory stock.
 It is normally calculated as the forecast usage during the replacement lead time plus
safety stock.
 In the EOQ (Economic Order Quantity) model, it was assumed that there is no time lag
between ordering and procuring of materials.
 Therefore the reorder point for refilling the stocks occurs at that level when the inventory
level drops to zero and because instant delivery by suppliers, the stock level bounce back.
 Reorder point is a technique to determine when to order; it does not address how much to
order when an order is made.
 The reorder point can be different for every item of inventory, since every item may have
a different usage rate, and may require differing amounts of time to receive a replacement
delivery from a supplier.
 The basic formula for the reorder point is to multiply the average daily usage rate for an
inventory item by the lead time in days to replenish it.
 Reorder Point = Normal consumption during lead-time + Safety Stock
 There are four determinants of the reorder point quantity:
• The rate of demand (usually based on a forecast).
• The lead time.
• The extent of demand and/or lead time variability.
• The degree of stockout risk acceptable to management.

 Safety stock
 Safety stock (also called buffer stock) is a term used to describe a level of extra stock that
is maintained to mitigate risk of stockouts due to uncertainties in supply and demand
 Safety stock is an additional quantity of an item held in the inventory in order to reduce
the risk that the item will be out of stock, safety stock act as a buffer stock in case the sales
are greater than planned and or the supplier is unable to deliver the additional units at the
expected time.
 The less accurate the forecast, the more safety stock is required to ensure a given level of
service.
 A common strategy is to try and reduce the level of safety stock to help keep inventory
costs low once the product demand becomes more predictable.
 This can be extremely important for companies with a smaller financial cushion or those
trying to run on lean manufacturing, which is aimed towards eliminating waste throughout
the production process.
 Safety Stock = (Maximum Daily Usage − Average Daily Usage) × Lead Time
 Stockout
 A situation in which the demand or requirement for an item cannot be fulfilled from the
current inventory.
 Stockout costs
• Economic consequences of not being able to meet an internal or external demand from the
current inventory.

• Such costs consist of internal costs (delays, labor time wastage, lost production, etc.) and
external costs (loss of profit from lost sales, and loss of future profit due to loss of
goodwill). Also called shortages costs.
 Causes of Stock out:-
 Under-estimating the demand for a product;
 Late delivery by the supplier;
 Using the wrong lead time;
 Safety (or buffer) stock level that is too low
 Under-ordering
 Product quality issues
 Supplier refusing to deliver
 A shortage of working capital

• VED ANALYSIS:
 VED analysis is Vital (very important) , Essential and Desirable analysis.
 In VED Method (vital, essential and desirable), each stock item is classified on either vital,
essential or desirable based on how critical the item is for providing services.
 The vital items are stocked in large quantity, essential items are stocked in medium
amounts and desirable items we stocked in small amounts.
• Vital
 Items without which construction comes to idle: i.e. non- availability cannot be tolerated.
 The vital items are stocked in great quantity and require very strict control.
 These are stocked adequately to ensure smooth operation.
• Essential:-
 Items whose non availability can be tolerated for 2-3 days, because similar or alternative
items are available.
 Essential items are stocked in medium amounts, purchase is based on rigid requirements
and reasonably strict watch.
• Desirable:-
 Items whose non-availabilitycan be tolerated for a long period.
 Desirable items are stocked in small amounts and purchase is based on usage estimate.

 In a manufacturing organization, there are number of items which are very vital or critical
in production.
 Their availability must be ensured at all times for smooth production, so need to be strictly
controlled.
 Essential items follow vital items in their hierarchy of importance.
 Desirable items are least importance in terms of functional considerations, which are
loosely controlled at the lower level.
• Category I items:
 These items are the most important ones and require control by the administrator himself.
• Category II items:
 These items are of intermediate importance and should be under control of the officer in
charge of the stores.
• Category III items:
 These items are of least importance which can be left under the control of the store keeper.

 HMLAnalysis: Criterion Employed – only unit price of the item.
• Items are classified into three groups labeled as High – Medium – Low.
• The HML analysis is very similar to the ABC Analysis, the difference being instead of
usage value, the price criterion is used.
• In their classification, the items used by the company are arranged in descending orders of
their unit price.
• After this, the management of the company uses its choice and judgment to decide the cut
off lines for deciding the three categories.
• For example, the management may decide that all items of unit price value above Rs 500
should be categorized as H items, items whose, unit price falls between Rs 50 and Rs 500
should be categorized as M items and items whose unit price falls below Rs 50 should be
categorized as L items. The categorization therefore is decided by the management.
• HML analysis helps an organization to take decisions on the following:
a) It helps to assess the security requirements and the type of storage for high priced items.
For example, expensive ball bearings can be kept under lock and key in a cupboard.
b) The frequency of stock checking is decided on the basis of the cost item. In other words,
more expensive the item, more frequent will be its stock-checking.
c) A control on purchases and buying policies can be exercised by the company. This means H
and M items will not be ordered in excess of the required minimum quantity. However, in the
case of L items, they may be purchased in bulk in order to avail the benefits of bulk purchase.

 S-D-E Analysis
• This analysis is used to ascertain lead time for procurement and helps in deciding purchase
(i.e. materials procurement) strategies.
• S-D-E analysis is based on the availability of the items in the market. S-D-E are meant as
follows :
• S-stands for „Scarce Items‟ These items are in very short supply and generally imported.
Procurement of such items generally requires a lot of exercise and investment.
• D-refers to „Difficult Items‟ Such items are indigenously available but cannot be procured
easily, as there may be very few suppliers, or shortage of material, or available at far-off
places only
• E-means „Easily' Available Items‟ These items are easily available even in local market.
There will not be any problem in procuring such materials.

• Resource Allocation - Concept
• For a project, the important resources like manpower, materials, funds, etc. should be
allocated carefully. Large fluctuations in the demand for these resources may cause
problems in project execution. Thus, the project activities should be scheduled in such a
manner that the demand for various resources is fairly uniform over the entire project
duration. This can be achieved by the following two processes,
1. Resource Levelling
• Resource Levelling is a technique in which start and finish dates are adjusted based on
resource constraints with the goal of balancing demand for resources with the available
supply.
• In this process, the resources are considered to be limited. The activity start times are so
rescheduled that the peak demand for a particular resource does not cross the available
limit of the resources. In rescheduling, the available floats are first used. Thus, in resource
levelling process, the original project duration might be changed.
2. Resource Smoothing
• Resource Smoothing is a technique that adjusts the activities of a schedule model such
that the requirements for resources on the project do not exceed certain predefined
resource limits.
• In this process, the resources are considered to be unlimited. The total project duration
(i.e. duration along the critical path) is not changed. The start times of some of the
activities are so shifted within their available floats that uniform demand is created for the
resources.

3 Steps of Resource Levelling:
• For a given project, a scaled version of the network is drawn, adopting earliest start times
(EST) for all activities.
• Using this network, cumulative requirement of various resources is determined on each
day during the project period.
• Histograms are prepared for cumulative resource requirements which clearly show
fluctuations in the demand over time.
• Large variations in the demand for various resources call for resource levelling.
• Levelling of the requirement of resource is achieved by adjusting the start times of non-
critical activities.
• In Fig. the histogram in thick line shows that the requirement of bar-benders fluctuates
considerably over the project duration of 19 days. Hence, it is required to carry out
levelling of this requirement. The histogram in dotted line shows the requirement of bar-
benders after carrying out levelling.

�ݺ�ߣ

Resource Management in Civil Engineering

Recommended

More Related Content

More from D. Y. Patil College of Engineering & Technology, Kolhapur, Maharastra, India (20)

Recently uploaded (20)

Resource Management in Civil Engineering