UK Professional Development

Academy

Module – Material Management

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Introduction
Materials management is one of the basic functions of any business. Economic success
of any organisation has a direct relationship with the efficiency of the materials
management. Material management can also be viewed as function which aims for
integrated approach towards the management of materials in an organisation. Its main
object is cost reduction and efficient handling of materials at all stages and in all
sections of the organisation. Material management's functions include several
important aspects connected with materials such as purchasing, storage, inventory
control, material handling, standardisation etc. Hence, now-a-days this subject has
become increasingly important and requires a keen attention. Materials management
covers a very wide field and deals with materials cost, material supply, utilisation and its
handling. It is primarily concerned with the planning and programming of materials and
equipment, market research for purchase, procurement of materials, storage and
inventory control, and transportation of materials etc.

Definition and Scope

Materials management can be defined as "the function responsible for the coordination
of planning, sourcing, purchasing, moving, storing and controlling materials in an
optimum manner so as a pre-decided service can be provided at a minimum cost". By
another definition, "materials management can be said to be that process of
management which coordinates, supervises and executes the tasks associated with the
flow of materials to, through, and out of an organisation in an integrated fashion". Lee
and Dobler define materials management as, "a confederacy of traditional materials
activities bound by common idea - the idea of an integrated management approach to
planning, acquisition, conversion, flow and distribution of production materials from the
raw material state to the finished product state." From the above definitions, it is clear
that the scope of materials management is vast. It has, directly or indirectly, impact on
the activities of many related departments in the organisation. Broadly, following can be
identified as its main functions:

Materials Planning and Control

Based on the sales forecast and production plans, the materials planning and control is
done. This involves estimating the individual requirements of parts, preparing materials
budget, forecasting the levels of inventories, scheduling the orders and monitoring the
performance in relation to production and sales.

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Purchasing

This includes selection of sources of supply, finalisation of terms of purchase, placement

of purchase orders, follow-up maintenance of smooth relations with suppliers, approval
of payments to suppliers, evaluating and rating suppliers.

Stores and Inventory Control

This involves physical control of materials, preservation of stores, minimisation of

obsolescence and damage through timely disposal and efficient handling, maintenance
of stores records, proper location and stocking. Stores are also responsible for the
physical verification of stocks and reconciling them with book figures. The inventory
control covers aspects such as setting inventory levels, ABC analysis, fixing economical
ordering quantities, setting safety stock levels, lead time analysis and reporting.

Importance of Materials Management

The fast developing economies have placed before the materials manager a tremendous
challenge and responsibility. In many organisations, materials form the largest single
expenditure item. An analysis of the financial statements of a large number of private
and public sector organisations indicate that materials account for nearly 60% of the
total expenditure.

Thus, the importance of materials management lies in the fact that any significant
contribution made by the materials manager in reducing materials cost will go a long
way in improving the profitability and the rate of return on investment. Such increase in
profitability, no doubt, can be affected by increasing sales. But with the increased
competition in the market, this alternative is not very easy to achieve. Besides, some
increase in the profitability can be achieved by concentrating on the materials cost
which is typically a major rupee item for most organisations. In fact, as market pressure
intensifies, organisations will be forced to cut down the costs and here, the materials
management steps in to play its role.

Since materials form major part of total cost, these offer a very good scope for
reduction of total cost. A small percent in materials cost can result in large percent
increase in Consider, for example, a small company has total sales of £1000. Total cost is
£900. Thus, the profit is £100 which amount to 10% of the sales. Suppose, out of total
cost of £900, materials cost is £600. Now if one percent saving in materials cost can be
achieved, then the resultant saving is £6 (1 percent of 600) which directly adds to the
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profit, thus, profit becomes £106. Therefore, in this case, we can see that 1 % saving in
materials cost results into 6% increase in profit.

Issues in Materials Management

As per major activity groups involved in materials management in any organisation,
several issues emerge which need to be considered while discharging its functions.
Some of these are as follows:

• Issues relating to materials planning,

• Issues relating to purchasing, and
• Issues relating to storage and material handling.

Issues Relating to Materials Planning

Materials Identification

Materials management department closely and continuously coordinates with the

engineering and design, production and process to help identify the materials, sub-
assembly, spare parts tool and equipments needed in the process and manufacture of
end products. It provides information with respect to various options alternative
materials available or could be made available to meet the needs of production. The
engineering and design, production and process departments assess these alternatives
for suitability to the design from functional point of view, from processing point of view,
i.e. whether it will help in easier/faster/more efficient performance of process
operations? Through meticulous assessment each of the material, components etc is
identified. This assessment is a continuous process depending on new materials,
substitutes, supply conditions or internal changes in the products, process methods,
designs or schedules.

Standardisation

Basic purpose of standardisation is to achieve inter-changeability of parts/components

internally in the organisation or even across industry. Second purpose is to reduce the
number of varieties of parts used in the production process of the organisation. For
example, in manufacture of motor car a large number of nuts and bolts of different
dimensions, different specifications may be in use, suitable for various applications in
the product. Suppose there are 100 different types of nuts and bolts being used.

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Through proper standardisation, this number of different types can be brought down to
20 or 30 without compromising on functional quality and requirement of the product.

Make or Buy

Large organisations usually are not in a position to manufacture all parts or components
required to be used in the product manufactured by them. This is because:

• It may not be economical to manufacture internally.

• In house expertise/technical skill may not be available.
• Additional capital required to set up facilities for the manufacture of the
component may not be available.
• Specialised manufactures-suppliers of the specialised components may be
operating in the market. The components of the right quality may be available at
competitive rates.

Coding or Classification

A system of classification and codification for all items/parts/components needs to be

devised and implemented. So that detailed descriptions need not be referred to every
time. The code assigned to an item is uniquely identified. It should be uniformly
understood by all concerned in the organisation. The following factors need to be
considered while devising a classification and codification system:

• The basis of classification and codification should be same and consistently

applicable to all items.
• It should cover all items presently in use and should be capable to take up any
new items in future.
• Every item should have a unique code/or number such that there is one-to-one
correspondence between code and the item. No Two codes should refer to the
item, and no two or more items should have same code.
• The code should be uniformly used and understood throughout the organisation
by the concerned persons. It should be simple to understood and apply. It should
normally be self explanatory.

Quality – Specification

Materials department, engineering and design department, production department,

collectively decide on required quality standards for every item so as to achieve the

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desired quality of the end product at the same time meeting the cost target of the end
product. Agreed upon quality is precisely specified and becomes part of the item
description and also integral part of the code used to identify the item. Usually, it is in
the form of physical, chemical or performance specifications. Where Engineering
Drawing is provided for the part, the quality specifications become integral part of such
Drawing or Blue Print. Other ways of specifying quality (which may be used single or in
combination) are:

• by providing samples or prototype, Management

• by providing manufacturing operation specifications,
• by Brand or Trade name,
• by specifying well accepted market grades,
• by specifying testing procedures and relevant standards, and
• by specifying providing engineering drawing/blue prints. Proper quality
specifications are of great help to the purchase department, the suppliers, and
the inspection and testing sections.

Issues Relating to Purchasing

Centralised Vs Decentralised Purchasing

This issue is comparatively more important and relevant to large corporations operating
multiple plants may or may not be located at different places. For a single place,
organisation decentralisation might be feasible on a very limited scale. There are
advantages relevant to both the policies. At times, better results can be achieved
through combining the two and specifically demarking the items or volumes for which
central or local purchasing is responsible. Some of the possible advantages of
centralisation are as follows:

• Favourable price and terms can be negotiated because of large volume

purchases.
• Specialised vendors can be encouraged to take up manufacture and supply of
items/components of required and specified quality.
• Administration and control is comparatively more easy and efficient.
• Number of personnel required is comparatively less, resulting into reduced
overhead costs of purchasing.
• Paper work, record keeping is consolidated.

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 • It is easier to maintain the quality of purchased parts/items through centralised
testing and inspection. It is also possible to conduct testing and inspection at the
vendors facilities.
• It is beneficial to the vendor also, in case the size of order constitutes major
proportion of his total production capacity.

Some of the possible advantages of decentralisation are as follows:

• Coordination between purchase department and the user department in the

plant is quicker and simple.
• It is possible to develop local suppliers, which can result into lower '
transportation costs and also lower levels of holding inventors.
• Availability of local supplier’s facilities, quicker readjustment of the internal
requirements is feasible.
• Better quality coordination between local supplier and the plant can be
maintained.
• Local control, local coordination, and local rescheduling become easy and
quicker.

Single Source Vs Multiple Source Purchasing

The purchase department can decide to choose and depend on a single source for each
of some selected items. In the extreme case, the department can decide to use single
source for each of the item. On the other extreme, the policy may be to have multiple
sources for each of the item. Each policy - single source or multiple sources has its own
advantages and disadvantages. Advantages due to single source are as follows:

• For small total annual requirement of an item multiple sources tend to increase
clerical and other expenses.
• Due to bulk purchases from single source, it becomes possible to avail of
discounts of prices or freights or other services.
• Supplier tries to cooperate, update and improve his services because of long term
relations.
• Scheduling of deliveries or long term contract is feasible.
• If supplier is the only producer or owns the patent or his quality is far superior to
other suppliers or priced are highly competitive, one has to depend on single
supplier.

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Advantages of multiple sources are as follows:

• Dependency on single supplier is reduced.

• Breakdown, strike, stoppage of work with one supplier does not unduly affect the
working of the company.
• Competitions among suppliers keep them alert.
• It provides flexibility in the choice of placing an order.

Vendor Development

This is somewhat similar to single/multiple supplier decision and also an outcome of

make/buy decision. When total annual requirement is large and item is to be bought
from the market, then it is worth to encourage vendors to take up the production and
supply of the item to a parent company. The ancillary supplies a major portion of its
production to parent company and remaining production is offloaded in the market.
Parent company can also decide to help develop more than one ancillary for the same
item if requirements of item are very large. Vendor/ancillary development can be
encouraged by parent company through any one or combination of the following:

• Providing item design drawings,

• Providing technology for production,
• Helping in arrangement of finance,
• Helping by loaning of its technical persons,
• Extending credit facilities,
• Extending quality control/resting facilities, and
• Indirectly/directly helping in getting raw materials.

Size and Timing of Purchase Orders

This is an integrated issue. Stores and inventory, production schedules, suppliers

capability, time lag, reliability, cost of holding inventory, and cost of placing orders, etc.
all have an important bearing on how-much to order and when to order. Relative
importance of material or an item to the organisation is also an important issue, since all
items need not be considered equally for inventory management and control. Some of
the techniques used to classify items with respect to their relative importance are as
follows:

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ABC Analysis: All items in use are classified in respect to importance to their total value
of annual consumption. A complete list in descending order of consumption value of
items is created.

It has been observed, in general, about 10%-15% of the items account for 60%-80% of
total annual consumption value of all items these are termed as 'A' class items.

About 15%-20% of items account for 15%-20% of the total annual consumption value of
all items - these are termed as 'B' class items. The remaining approximately 10% of the
items are classified as 'C' items

'A' Class items are subjected to highest level of control supervision and management.
'B' Class items are subjected to medium level of control, supervision and management.
'C' Class items usually are not subjected to elaborate control management. Since the
cost of effort is not worth it.

For 'A' and 'B' class items, precise mathematical models for determination of economic
order quantity (EOQ), frequency of purchase; safety stock/buffer stock level etc. can be
used.

HML Classification: High, Medium and Low classification is done on the basis of
importance of price/unit unlike ABC where total consumption value was considered. It is
for the management to decide beyond which level of price/unit, the items would be
classified as 'H', 'M' and 'L'. Accordingly, 'H' classified items are required to be subjected
to highest level of control, supervision and management. The general guidelines are
accordingly devised by the management in respect to each of the classification.

VED Classification: The classification, i.e. VITAL, ESSENTIAL and DESIRABLE is done on
the basis of importance of an item to the production process. Those which are highly
important and whose non-availability may render the stoppage of production are
classified as 'V', whereas those because of which, if not available, the production may be
affected or hampered are classified as 'E' and others classified as ‘D’. In this
classification, the opinion of technical people in the production process plays very
important role. One can formulate a matrix considering ABC and VED analysis.

FSN Classification: The FAST, SLOW AND NO -MOVING classification is based on rate of
movement of items from the s re. The time elapsed since last issue from the stores
becomes one of the indicators to be used for this classification. The fast moving items

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(F) need to be reviewed frequently for placing the purchase order whereas non-moving
(N) items needed to be reviewed for disposal consideration.

Vendor Performance
Poor vendor performance can result into creating uncertainties with respect to delivery
schedules, quantity and quality. This may often interrupt the production schedules,
quantity performance of the producing company. The company may have to resort to
emergency purchasing - thus, resulting into the increased cost of production. It becomes
an important issue for the purchasing company to develop proper/objective vendor
performance evaluation procedures which should act as an instrument to help both the
parties. Continuous and close vendor performance evaluation helps in improving the
performance of the materials management and also that of the production department
and the company. Several vendor rating techniques are prevalent. Vendors are assessed
on a specified set or factors. Selection of factors depends on the item, production
process, production schedules etc. Some of the factors are as follows:

• Adherence to delivery schedules, quantity schedules and quality specifications,

• Price competitiveness and long term financial strength,
• Flexibility and cooperativeness,
• Technical potential and capability,
• Service attitude,
• Packaging, freight and delivery capability and costs,
• In-house testing facilities and reliability of test certificates.

Some of the rating methods are briefly discussed as follows:

Weighted Point Method

Under this method, purchasing company assigns relative weights to some important
factors identified in respect of an item. Then performance of vendors is evaluated on
each of the factors and overall rating arrived at by combining this evaluation in
proportion to weights.

For example, with respect to an item and the vendor, the company may decide that
price, quality and delivery schedules are the three important factors for performance
evaluation. The company may decide the weights 40:40:20 respectively. The overall
rating may be arrived at:

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 𝐎𝐎𝐎𝐎𝐎𝐎𝐎𝐎𝐎𝐎𝐎𝐎𝐎𝐎 𝐑𝐑𝐑𝐑𝐑𝐑𝐑𝐑𝐑𝐑𝐑𝐑
Lowest price Available in Market
= x 0.40
Price quoted by the vendor
Number of the lots accespted
+ x 0.40
Number of lots supplied
Delivery time allowed in days
+ x 0.20
Actual time taken for delivery

Check List Method

In this method, with respect to factors identified a check list is circulated amongst
concerned departments. The concerned departments have to give their evaluation in
respect of each question in the check list. Based on the compilation on overall
rating/score can be arrived at.

Critical Incidents Method

A record of significant events occurred in the past with respect to dealings with each of
the vendor are maintained and overall assessment arrived at. For example, a particular
lot may contain extremely high percentage of rejects; a particular delivery might have
been unduly delayed affecting the production schedules.

Quality Assurance of Incoming Materials

Purchase function has major responsibility, in consultation with production and
engineering function to assure the quality of purchased material. Proper specifications
have to be decided and finally conveyed as part of purchase orders. The
characteristics/standards need to be put down in purchase orders in unambiguous
items. The technical terms should uniquely be understood by the supplier. The testing
and inspection methods/procedures, the type of tests that are required to be
conducted; all need to be specified accurately:

The purchase department can achieve required quality of incoming material by:

• Conveying correct specifications,

• Assessing quality capability of supplier before placement of purchase order,
• Frequent testing and inspection at the suppliers production facilities, if
considered necessary,

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 • Insisting on proper certification of dispatched material from the supplier's facility,
• Proper packaging and transportation to avoid deterioration/damage/breakage
during transition,
• Testing and inspection at the receiving end. Insisting on approved quantity and
quality certificate by receiving point so as to release the payment,
• Proper storage in the warehouse/store so as to avoid deterioration/damage
during storage,
• Revising and conveying the quality specification as and when needed well in
advance so as to avoid stockpiling and or getting mixed up of 'old' quality items
with 'new' quality items.

Issues Relating to Storage and Material Handling

Location and Layout of Store

Location of store should be convenient from point of view of receipt and inspection of
material and also from the point of view of easy accessibility to internal users. It also
depends on the type of items handled, e.g. heavy material requiring rail head etc.
Layout depends on following factors:

• Safety from theft and pilferage,

• Damage etc.,
• Easy and safe storage,
• Minimising unnecessary handling within the stores,
• Efficient use of space,
• Easy physical verification.

Storage System

A good storage system keeps in mind easy location and withdrawal of items when a
required; easy to physical counting/verification; easy to readjust to allow storage of new
arrival/receipt of materials, minimising use of specialised material handling equipment
etc. There are usually following three material location systems prevalent:

Fixed Location: Items of particular type have pre-specified location and space. When
this space is vacant other items usually are not placed here. Codification system earlier

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discussed can be used by extending the code of an item to include its location in the
stores.

Random Location: The items are stored wherever space is available, as and when the
item arrives in the stores. It creates difficulties in terms of locating the item when
needed, same item may be placed at more than one place, physical verification to assess
the present stock position etc.

Zoned Location: Items of a particular group type are stored in an area earmarked for
that group. Individual items of the group may be stored with respect to fixed or random
location. Group codes can be used effectively.

Receiving Inspection and Record Keeping

All the material received at the store should be inspected as per procedure specified
with respect to quantity as well quality. It should tally with the specifications contained
in the purchase order issued by the purchase department, and also with the document
received along with the material received. Agreed upon sampling techniques and testing
procedures can be effectively used. Bad and damaged items not meeting the quality
specification should be segregated from the good ones.

Proper and correct records for all receipts and issues need to be maintained for stores
accounting, for checking present stock position, help the accounts and cost accounting
functions in the organisation, to help compile and provide information for planning and
decision making to all relevant levels and sections.

Material Handling and Equipment

The total system should be designed to minimise the unnecessary handling throughout
the plant including the interior of stores specifically. The main objectives of material
handling and equipment are as follows:

• To minimise the total material handling cost,

• To maintain proper flow of material throughout the plant, though all sections,
• To ensure safety of material during movement and to minimise damage and to
reduce accidents,
• To reduce inter-movement time, and

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Compatible with material handling equipment. Different groups of equipment are
various types of conveyors, various types of elevators, Icranes, transporting and storing
equipment, pneumatic fluidising equipment, and earth moving equipment etc.

Integrated Materials Management Approach

Having recognised the importance of the materials management function, let us now
see why an integrated approach towards the materials management is necessary. As ,
mentioned earlier, the various functions served by materials management include the
materials planning, purchasing, receiving, stores, inventory control, scrap and surplus
disposal etc. If some of the functions were to be separately handled, normally, a conflict
of interests occurs. Purchasing department, if allowed to operate independently, may
take decisions which result in sub-optimisation. For example, under a separate set up,
by the purchase department may treat discount as a very important factor and buy large
quantities to avail of the discount without taking into account its impact on the
warehousing and carrying costs. In other words, we need to balance the conflicting
objectives from a total organisation viewpoint so as to achieve optimum results for the
organisation as a whole. An expansion, for example, will require planning for the
increased requirements, developing new sources, revision in inventory levels, apart
from the increased load in receipt of materials, inspection and storing.

In an integrated set-up, the materials manager who is responsible for all such inter-
related functions, is in a position to exercise control and coordinate with an overview
that ensures proper balance of the conflicting objectives of the individual function.
Integration also helps in the rapid transfer of data, through effective and informal
communication channels. This is crucial as the materials management function usually
involves handling a vast amount of data. Therefore, integrating the various functions
ensures that message channels are shortened and the various functions identify
themselves to a common materials management department which, in turn, results in
greater coordination and better control. Thus, the task involved requires a sound
approach in principle and its applications to obtain the desired result. It is this thinking
which has given rise to an "integrated materials management approach".

Advantages in Integrated Materials Management Approach

Organisations which have gone in a big way for the integrated materials management
usually enjoy the following advantages:

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Better Accountability

Through centralisation of authority and responsibility for all aspects of materials

function, clear cut accountability is established. Various user departments can direct
their problems with regard to materials to one central point so that the action can be
taken immediately. This helps in evaluating the performance of materials management
in an objective manner.

Better Coordination

When a central materials manager is responsible for all functions, the departments
under the materials manager create an identity which is common. This results in better
support and cooperation in the accomplishment of the materials function. The user
departments also find that they have to approach one department for discussing and
solving their materials problems. This creates an atmosphere of trust and generally,
better relations between the user departments and the materials management
department.

Better Performance

As all the inter-related functions are integrated organisationally, greater speed and
accuracy results in communication. Need for materials are promptly brought to the
notice by materials planning. Purchase department is fed with stock levels and order
status by stores and inventory control departments. All this calls for judicious decisions
leading to lower costs, better inventory turnover, reduced stock-outs, reduced lead
times and a general reduction in paper work.

Adaptability to EDP

The centralisation of the materials function has made it possible to design data
processing systems. All information with regard to materials function is centralised
under the integrated materials management function. This has facilitated the collection,
collation and analysis of data, leading to better decisions. Advanced and efficient
electronic data processing (EDP) systems can be economically introduced under an
integrated set up.

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Materials Management in Construction
Construction is the process by which a structure is made or put in place with the
purpose of facilitating further development activities by people. The main aim of each
structure is to serve a definite purpose. Generally, the construction of a simple structure
needs simple materials. But in some cases, it may require specialised goods or materials
or goods already processed using manual labour or sophisticated machinery and
equipment.

The essential components which go to make a construction are materials, labour and
fuel either to transport goods or to run machinery to assist construction activity.
Without the materials, the labour cannot produce any work and therefore, to keep the
labour engaged without loss of time or money, there should be a good and optimum
flow of materials.

Sometimes, these three components are called as resources, as they finally ensure a
product. The flow of materials involves expenditure and therefore, all materials required
for the complete work cannot be purchased right at the beginning. This would mean
locking up the money for the materials not required until a long time later and spending
away the money which might be utilised for other works.

The materials which account for a high percentage of the cost are bricks, cement, steel,
wood, doors and windows of steel and aluminium, fittings, flooring tiles, paints, sanitary
and plumbing items, glass items and electrical cables and fittings. Many times, the
contract is given to a contractor who has to do the materials management. In a few
cases, the client chooses to do the material procurement himself. But the task of
materials management is usually associated with large organisations that keep doing a
lot of constructions at different locations and maintain a steady flow of materials from a
centrally located store from where the individual works are supplied with materials.

The art of phasing the purchase or acquisition of materials in the right quantities at the
right moment or in other words, the skill of phasing the purchases and procurement of
construction materials in a planned manner is called Construction Materials
Management. The basic need for any construction is the material which is to be
incorporated in the work. For instance, stones and stone aggregate, bricks, cement,
steel, timber are some of the essential items which are to be acquired in adequate
quantities and at proper rates. Since no construction agency would like to purchase the
materials at any rates or costs, the procurement of Materials is to be planned keeping

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the need in view. The reliability of the supply is an important factor so that there is a
continuous flow of materials and no stoppage of work takes place for the want of
materials causing wastage of expenditure on v idle labour, tools and plant.

The material component in all the works is not the same. Normally, the cost of some
important items in construction is known by experience. The component of materials
cost varies from work to work. In normal buildings, the cost of bricks account for about
14% to 16% of the cost. Cement and steel account for as much as 40% to 45% of the
cost in normal building works. In roadwork, the cost of stone aggregate may contribute
to about 50% of the total cost. In a concrete bridge, the component of cost of steel and
cement is as high as 50% to 55% and in a steel bridge the cost component of steel is
likely to be 75% to 80%. In a water supply distribution work, the cost of pipes and other
joining accessories can be as high as 80%. The percentage of cost contributed by
materials in a work underlines the importance of ensuring an efficient materials
planning and procurement policy suiting the expected output of the work. The main
purpose of planning the cost component of materials is to plan out the phases in which
they are required and follow up the work ensuring a proper flow of funds.

The idea is also to ensure supply of quality goods in time. It is a fact that in a situation
where the money flow is easy and materials of good quality are always easily available
'on the shelf' and there is good competition among the vendors supplying the materials,
the construction material planning becomes an easy task and perhaps, it is not even
needed. After understanding the importance of planning the inputs in construction, let
us first know the essential construction components which are given in subsequent
paragraphs.

Materials Costs
Modem constructions need many materials, some in raw condition and others in semi-
processed or well-processed condition. For instance, one of the basic materials for
construction, i.e. sand is procured in raw condition so also rough stones for many works.
Semi-processed items like timber sections, stone slabs and lime also account for some
cost in construction. Well-processed materials use much of a manufacturing process
using energy and made in highly sophisticated plants or factories. Such materials are
cement, steel, glass, tiles, aluminium sections, cables, bitumen, paints, sanitary ware,
boards etc. The costs of these items depend on the sophistication in the process.

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The cost of the items also depends on the government policies, taxation and other
levies, and their demand. The grade of quality also accounts for the cost. The cost of
work depends on the efficiency and care with which the materials are procured, utilising
an optimum cash flow. Greater care is to be exercised on the materials which contribute
to the maximum cost but at the same time, also continuously required for ensuring the
desired output of the work.

Each type of work needs a different material procurement approach. In a road work
where supply of stone is to be made continuously along the length of road, it may need
an expenditure of about 70% on supply of aggregate. The identification of quarries for
supply of stone aggregate becomes important. For work involving bitumen for road
construction, a tie up with a petroleum product agency is necessary as the cost of
bitumen might account for as much as 65% of the work. Thus, each work has its
uniqueness in deciding the principal material components and therefore, it is necessary
to establish the manner in which the flow of materials to the site is to be ensured.
Sometimes, the necessity of material is not evident from the bill of quantities in the
contract. For instance, an agency doing a road work, using a fleet of trucks, might need
to plan supply of tubes to keep the vehicles on the road always, just like a road
contractor doing a hill road has to form his material processing policy for the supply of
explosives and drill bits regularly.

Thus, materials like cement, steel and bricks which may account for as much as 65% of
the total cost need carefully planned procurement action. At the same time, indirectly
required items also need careful attention. Previous experience of similar works in each
situation will be of great help.

Labour Costs
Labour accounts for an expenditure differently on different works. Usually, by labour
costs, we mean those costs which the particular contractor spends himself on
employment of the labour engaged on the work. For instance, to a road contractor, the
cost of labour engaged on stone breaking at the quarry site is not of any material
importance though the labour costs on spreading of material on road is of importance
to him. The cost of labour depends on the extent of mechanisation on the work or the
quantum of processing done on the building components. For instance, the cost of
labour on a precast housing would be much less as compared to a conventional

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construction. Now-a-days, because of the management problems, stress is being laid on
more and more mechanisation.

At the same time, the basic unit costs on more sophisticated construction have not
gained wide acceptability. Normally, the labour cost components on finishing works are
more. Though the labour cost component in normal works is in the range of 20% to
25%, the costs on labour in different subheads is different. Following table gives a
general idea of the break up.

Different Category Percentage

Skilled labour 45%

Unskilled labour 25%

Plumbing labour 3%

Glazing labour 1.7%

Electrical engineering labour 7.8%

Mechanical engineering labour 10.3%

Steel work labour 7.2%

Total 100%

Therefore, it is necessary to plan the category of workers for each work, judging the
quality of work needed, importance of work and the quality of raw materials procured
for the work.

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References and Further Reading
Allen, E. and Iano, J., 2013. Fundamentals of building construction: materials and
methods. John Wiley & Sons.

Halpin, D.W., Lucko, G. and Senior, B.A., 2017. Construction management. John Wiley &
Sons.

Radosavljevic, M. and Bennett, J., 2012. Construction management strategies: A theory

of construction management. John Wiley & Sons.

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