UNISA SBL – PRACTICAL PROJECT MANAGEMENT 2017
MODULE – LABOUR LAW AND CONTRACTS
COURSE CODE – PPMLLC25
ASSIGNMENT 2
TEAM – RED017A (REDIS DYNAMIC TEAM)
Lecturer:Prof. AA Okaredia
Authors: Eugene Botes, Karabo Mashifane, Dickson Paso, Theodore Baloyi, Lillian Mazibuko, Nompumelelo Teffo, Vuyiswa Dube, Lopez Lukula
GROUP ASSIGNMENT CONTRIBUTION
Name Cell No. % Contribution
1 Eugene Botes 2 Karabo Mashifane 3 Theodore Baloyi 4 Dickson Paso 5 Lillian Mazibuko 6 Vuyiswa Dube 7 Lopez Lukula 8 Nompumelelo Teffo Table of Content
Introduction……………………………………………………………………………………………3
Question 1. …………………………………………………………………………………………..3
Question 2.(i) ………………………………………………………………………………………….4
Question 2.(ii) …………………………………………………………………………………………4
Question 2.(iii) ………………………………………………………………………………………….4
Question 2.(iv) …………………………………………………………………………………………. 4
Question 2.(v) …………………………………………………………………………………………. 4
Question 3 ……………………………………………………………………………………………. 5
Question 4. (i) …………………………………………………………………………………………5
Question 4. (ii) …………………………………………………………………………………………5
Question 4. (iii) …………………………………………………………………………………………5
Question 5. ……………………………………………………………………………………………..5
Question 6. ……………………………………………………………………………………………..5
Question 7. (i) …………………………………………………………………………………………..6
Question 7. (ii) ………………………………………………………………………………………….6
Question 8. (i) …………………………………………………………………………………………..6
Question 8. (ii) …………………………………………………………………………………………6
Conclusion .…………………………………………………………………………………………….. 6
References ……………………………………………………………………………………………..7
QUESTION ONE (1)
Introduction
1980s and beyond, identifying and engagement of suppliers was an easy task, as was based on price, flavor or the supplier whereabouts and preference. However, as the global market competition and environmental factors, came in and put a lot of greater emphasis on safety and quality, evaluating and selecting the right supplier today, has become much more critical and complex.
Literature has highlighted that currently, supply chain management has developed as a principal component in advancing the global effectiveness of organizations in the exceedingly cut-throat global economy (Othman & Ghani, 2008; Gunasekaran & Ngai, 2005). One of the main crucial complications in supply chain management is supplier selection (Wu and Barnes, 2011; Huang and Keskar, 2007, meaning the search of a needle in a haystack, to find the best vendor between numerous alternatives according to diverse criteria, such as cost, service, risk and others.
The business world markets in which organizations compete have been highly influenced by global environmental forces, coupled by influence by international competitors, with the vast rapid change in demand of customers and sourcing. Business strategic management and streamlined organization structures has led to some entities oriented internationally, fuelling the evolutionary growth, with also rapid information technological change and increased technical capabilities, as well as shorter products life cycles (Krause, Handfield and Scannell, 1977).
In today global markets, the functional department of sourcing, has been influenced, and came up as the pillar of the business, contributing to the competitive edge, ensuring customer satisfaction. As a consequence many global firms have embarked on concentrating on core competences and to outsource to suppliers, which has led to dependence on these suppliers. One major aspect of the purchasing and supply function of sourcing, is supplier selection, the acquisition of the required supplies under the guidance of inventory control management and satisfying or above quality specifications.
Vendor selection is the process by which the buyer identifies, assesses and contracts with suppliers. A lot of time and commercial resources are used in this practise, and in return the organization anticipate to maximize benefits and gains from contracting suppliers contributing high value. The buyer is the chief negotiator and expect negotiator, bringing the supplier and aligning him/her with legal, technical and operation of the organization. Willem and Hannie (2011), were of the opinion that,
“this entails search and identification of possible suppliers, the elimination of unsuitable suppliers and in-depth study and ensuing evaluation of shortlisted suppliers against the key criteria which culminates in the selection of supplier.”
This paper describes the application process to the supplier selection decision for the strategic development of Redis Construction Afrika Pty) Limited on Botswana Letlhakane Diamond project from 15th May 2015 to 28th August 2017. The elaboration has been done on the relevant literature in review with practical situation that was applied on the ground. The discussion has been also centred further on the criteria used to select suppliers for the project, and inclusion is the emphasis on supplies inventory control methods and quality control measures.
BACKGROUND TO THE PROJECT
Redis Construction has recently completed the Letlhakane Mine Treatment Project in association with their Joint venture partners NTR, which consisted of supplying and fabricating Structural steel and Piping materials contracted to Debswana mine. We utilise a substantial list of Redis approved vendors, both South African and offshore, with whom we have a proven track record in terms of quality and on time delivery
INFORMATION
The procurement value chain was entirely dependent on the EPCM (Engineer) providing appropriate drawings and specifications timeously. This both for equipment and fabrication. This wasn’t always the case on this project. As a result both the procurement and expediting functions were considered inadequate (poor performance) on this project. However it is apparent that our systems are adequately robust, more especially where we apply the ‘high care’ remedial activities.
Redis Construction Afrika (Pty) Limited, is a privately owned, multi-disciplined structural steel, mechanical, electrical, instrumentation, piping and platework construction, delivering High Performance contracting, focusing on construction opportunities across Africa. The Letlhakane project is on close-out phase and is to be handed over before 28th August 2017 to Debswana.
Redis successful competing in this global market environment has been excelled by the strategic management decisions to focus on core competences and highly seconded by a pool of qualified and capable suppliers. One of the most important functions of this department is the selection and maintenance of that pool of supplies. Howard Lewis (1948), on his one of purchasing texts, stated that “it is probable that of all the responsibilities which may be said to belong to purchasing officers, there is none more important than the selection of a proper source. Indeed, it is in some respects the most important single factor in purchasing”. In-order for Redis Construction to execute the task at hand it has to ensure that materials or services are delivered on time on site. All purchases of materials, consumables, services and sub-contracted work, have an effect on the quality of service that the firm supplies.
On Debswana Letlhakane project, suppliers were sourced locally in Botswana, majority South Africa and small pool internationally. Supplier selection decisions have not been complicated as various criteria had to be met before, on other projects, streamlining the smooth operations of supply chain. Only one local (Botswana) and another in South Africa suppliers had problems with their supplies to site in contrary to the contract and put the firm in a precarious situation.
The procurement department through the procurement manager played a pivotal role in supplier selection, as they identified qualified potential suppliers, evaluate them, contract terms defined, offer negotiation process tabled, determined the best supplier, and analysis on vendor research who was awarded the contract. In developing the methodology for supplier selection and evaluation in a supply chain, firm competitive strategy was identified using strengths weaknesses opportunities threats (SWOT) analysis. Based on the competitive strategy, the criteria and indicators of supplier selection were chosen to establish the supplier selection framework. Subsequently, potential suppliers were screened through data envelopment analysis and technique for order preference by similarity to ideal solution
SELECTION PROCESS
According to Willem and Hannie (2011), are of the opinion of centring the supplier assessment criteria around cost, quality, delivery and environmental issues as the main consideration in this regard. They went on to mention that, “many successful organizations base their operational expertise on the key performance objectives of speed, dependability, flexibility and service, financial status, systems, geographical location, technology, supply chain management and there often form the foundation for the criteria for the selection and evaluation of suppliers”. They also high-lighted three (3) stages of the selection process as pre-assessment phase, assessment stage and post-assessment phase. Seven (7) steps involved in process of selection were mentioned as identify possible suppliers, pre-screen to reject unsuitable suppliers, conduct research on suitable suppliers, choose the assessment method and analyze the suppliers, select supplier, ongoing measurement of supplier performance and supplier accreditation.
Redis purchasing and supply function are of the opinion that they considered suppliers who offered goods or services matched or exceeded their needs of business. The best business need was highly recommended and the reason of what to achieve after procurement of that product or service. Firm priorities and strategy evolved around value for money quality, reliability and service. Some selected suppliers met the demand of the client with high quality materials and services
IDENTIFYING POTENTIAL SUPPLIERS
The organization survived in this competitive global economy by suppliers’ development as well as discovering new suppliers. The requirements in the process of identifying to awarding a contract to a supplier is costly and time consuming, thus procurement managers developed a long-term supply base of qualified vendors. Debswana Letlhakane after awarding the contract, they came up with specifications of their requirements, which in turn the firm used also to source potential suppliers. The site functional team raised an internal requisition to Head Office procurement manager, who in turn sourced for supplies.
It was of paramount importance to gather opinions of stakeholders and define the criteria for the selection process favourable to the organization. The team composed of stakeholders from operations, quality, commercial, purchasing, health safety and environmental, other functional departments that also adjudicate the supplier selection process
Supplies were identified through a variety of channels as procurement managers drew lists with a combination of the following sources:
Recommendations from business partners, individuals and other organizations
Trade associations of particular industry or trade house most related companies
Local support organizations of Business advisors locate potential supplies
Exhibitions offer opportunities of discussion with potential suppliers under one roof same time.
Trade press usually features adverts of potential supplies and specialists trade magazines can assist in this category.
Willem and Hannie (2017), mentioned internet search engines, chambers of commerce or business, Embassies and consular general officers, National associations, Industrial trade fairs, Credit bureaus, Reputation, and Trade directories, trade journals and business directories.
Reason for Supplier qualification screening
The Letlhakane project production schedule of the western wing structure over the ten (10) tanks was significantly affected by shortage of special type self-locking nuts (7). These production delays caused by noncompliant suppliers have cost the firm hundreds of dollars, and inflicted untold damage on the company reputation.
1,3Screening process
Purchasing manager actively took steps to verify a vendor’s qualifications prior to awarding them a contract, to reduce the likelihood of supplier non-performance like late delivery, non-delivery or delivery of non-conforming goods. With the current competitiveness in markets, the supplier is expected to be a responsible and responsive partner. These screen checks involves the following:
Reference checks- enquire on previous customers and adherence to contract terms
Financial status checks- check on the supplier financial viability in the short to medium term.
Surge capacity availability- The supplier’s capacity to increase delivery quantities within short lead times
Indications of supplier quality- The buyer might require that suppliers have ISO 9000 4 certification (or similar), indicating that the supplier has policies, procedures, documentation, and training in place to ensure continuous adherence to quality standards. However, in some cases the certification documents can be misleading and/or easily forged. To actually see if an adequate level of quality is achievable, the buyer may have to look deeply into the supplier’s organization to ensure the supplier is capable and competent to meet the buyer’s specifications.
Ability to meet specifications- samples of products were requested and sent for test to ensure conformance as per specifications. Interviews to the staff responsible for the products were done to gather relevant information on understanding of the product in their charge. Supplier production facilities were visited for audit purposes (Vendor Audit Report Supplier Doc.No. QMS-VAR-001, 2016).
Buy-In from internal customers- arrangement of respective meetings with the concerned functional department, who will use the product to advance to final specifications
However this process was very expensive and time consuming as some of the suppliers like Midvaal Workshop are in Vaal almost 160 kilometres away. Any meetings undertaken by the firm on the suppliers selection process constituted a quoram of more than eight members of staff, and any consultation meeting exceeding 45 minutes eats up on other projects in terms of overheads. Two (2) senior members of function departments had to fly to Durban KZN South Africa to do audits (see Vendor Audit Report 23.08.2017). The screen process also involved the suppliers’ current and former customers, which actually blows away precious time to consider other business task decision making or firm problem solving on project. The screen process could take more than six (6) months without concrete decisions being made
1.4 Creating a supply base – Suppliers who had passed the qualification requirements and eligible for contract awarding competed for these contracts. The supply base reduced qualification screening costs but also allows for the development of standardized contracts, terms and conditions for pre-qualified suppliers, thereby streamlining administrative processes involved in contracting.
2 Information requests to suppliers
On this stage, a request was forwarded to suppliers to provide information about their goods or services. Through the request for information (RFI), request for proposal (RFP) and request for quote (RFQ), developing statement of work that states the exact specifications of the good or service needed.
3 Contract terms
The supplier selection process culminated in contract between the buyer and one or more suppliers. The contract specified what the supplier should do and how they will be paid by the buyer. Contract terms related to either monetary transfers (payment terms) or how the contract was to be executed (non-payment terms).
4 Negotiation process
A supplier’s reputation is based on historical performance and not alterable in the short term. Contract terms, on the other hand, could be “negotiable” between the buyer and supplier. In a negotiation the buyer attempts induce favourable terms from suppliers, and likewise the suppliers attempt to induce favourable terms from the buyer. There are many different possible negotiation processes.
Supplier Evaluation and contract award
The supplier was evaluated, determined the contract winner and follow up made to advise future supplier selections. Contract specified the provision of goods over extended duration of time, thus monitoring supplier performance ensured they conformed to quality specifications and supported cost containment.
SUPPLIER RELATIONSHIP MANAGEMENT
The business management to operate in today’s global competitive environment has supported the sourcing function, which has produced successfully low cost, high quality products with satisfactory supplies. As a result a determination have been built on the networks of suppliers and a relationship of trust element realized (Liker ; Choi 2006). Monczka et al. 2010, were of opinion that the relationship has recognized the need for collaborations as the way of improving cost, quality, delivery, and other measures of performance.
In nutshell Redis Construction Afrika supplier selection is based on previous project experience with suppliers, lessons learned and ultimately on supplier Audits. Recommended suppliers have to be vetted via the audit process prior to become an approved supplier. Based on the Audit Outcomes, the supplier was either added to the approved suppliers list or was recommended for inclusion onto the list.(Typical Fabricator Audit report attached). Lessons learned were in the case where a supplier either underperformed; this supplier was not considered for work, or met the requirements of the contract and was highly considered for business based on their proven track record. Suppliers which have gone through assessment selection and evaluation process successfully are classified in three groups, approved suppliers, preferred supplies and certified supplies.
QUESTION TWO (2)
Question 2 (Summary you can elaborated depending on the environment)
a) The use of inventory control procedures is critical to maintaining accurate, reliable numbers for your operation. Control can be a complicated balancing from the time a stock order is placed, received at your warehouse, counted, verified, labelled, put away, picked and shipped out or picked up.
Knowing where your product is with accuracy at all times is vital to your success.
You can control your stock of products by installing a system of inventory control procedures. Follow your inventory from the first moment the product arrives at your door until it leaves your facility.
It is important to involve other members of your staff to be extra eyes and hands to keep your stock safe and organized.
Receiving
The path of documentation for inventory starts with the receiving order that is signed when is first delivered.
Personnel in charge of receiving must fully check every single delivered order for accurate quantity and usability. Do not accept items that are not documented and never allow for signing for orders that are incomplete. Receiving is the inventory gateway and it must be well controlled to properly manage the flow of product.
Storage
All products have optimal storage conditions that must be met to sustain usability. Carefully consider every item in your inventory to be sure that you are providing a safe environment or temperature for long-term storage. Design efficient storage zones of related products with similar needs. This will reduce waste due to early expiration and contamination. Organize your storage areas so all items are visible and turned so labels easily read. Make restocking heavy items easier by storing them at lower if possible.
Rotation(if applicable)
Keep your inventory on a steady rotation to reduce spoilage and waste. Clearly label all perishable items that are made in house with dates that correspond to their creation and estimated expiration.
Instruct your staff to always take the items from storage that are closest to expiration. Also ask that any items that are beyond expiration be evaluated and thrown out if they are spoiled.
Schedule
Set a schedule of regular counts and check-ups to keep a close record of your fluctuating inventory. Making regular inventories of your stock will give you an insight into the regular of flow of product through your storage. This will help you understand and predict ordering needs and reduce the shortages. Enlist employees so they feel involved in keeping an organized record of the inventory.
Security
A major source of inventory discrepancies is employee and customer theft. Evaluate the safety of your inventory storage and consider improving your systems to reduce loss.
Install cameras along with signs that announce their existence. Limit the number of people who have access to your more expensive inventory items by storing them in a separate locked area.
Create an employee theft policy that must be signed by each employee explaining the consequences of legal action for offenders. Having an anonymous method (such as email or drop box) of reporting other employees to management will greatly deter theft from within your organization.
b) Quality control measures as follows.( Brief summary)
The supplier QMS will be vetted and approved prior to any work commencing.
Quality control plans will be drawn up , agreed and approved prior to work commencement and interventions for the management of such will be identified on the QCP`S.
All drawings, specifications and additional client requirements will have to be approved, prior to official transmittal to the supplier for execution of the order.
Inspections will be carried out In house by the supplier QA/QC and documented for the their quality control interventions.
Further inspections will be carried out by the Customer, Redis, for further verification of conformance to the order requirements.
NCR process will be used to manage non-conforming product.
LILIAN
Supply Chain
Managers must first decide whether each task will be performed by a responsive or efficient source then whether the source will be internal to the company or third party. Sourcing decisions should be made to increase the size of the total surplus to be shared across the supply chain. Outsourcing to a third party is meaningful if the third party raises the supply chain surplus more than the firm can on its own.
1.Quality
•Refers to the specification that a user desires in an item (technical specifications, chemical, or physical properties or design for example).
•Quality includes additional factors such as :-Life of the product.
-Ease of repair.
-Maintenance requirements.
-Ease of use.
-Dependability.
2.Reliability
•Comprises delivery and performance history.
•The buyer requires on time delivery.
•The performance life of the procured product.
•The manufacturer’s warranty claims and repeat sales.
3. Capability
•Considers the potential vendor’s production facilities and capacity, technical capability, management and organisational capabilities and operating controls.
•The vendor’s capability to provide the material user needs over an extended period.
•The record of vendor’s labour unrest.
4.Financial considerations
-the buying firm considers the vendor’s financial position.
-Financially unstable vendors pose possible disruptions in a long-run.
– By declaring bankruptcy the vendor that supplies the material could stop the buyer’s production.
5. Desirable qualities example a negative attitude for example may eliminate a vendor for buyer’s considerations
•The vendor’s image.
•Vendor’s geographic location.
•Price/Cost.
Question 2
Inventory Control methods
•There are various approaches to managing inventory.
Dependent versus Independent
-demand for a given inventory is termed independent when such demand is unrelated to demand for other items.
-defined dependent when it’s directly related from the demand of another inventory item. Example demand of automobiles dependent on the demand for tyres.
-JIT, MRP, MRPII and EOQ associated with items having a dependent demand.
Pull approach example McDonald
-Sometimes called a reactive system.
-When order cycle/ demand levels are uncertain.
-Relies on customer demand to pull through a logistics system.
-Responds quickly to sudden/ abrupt changes in demand.
Push approach
-Uses an inventory replenishment to anticipate future demand.
– May also be referred to as a speculative process because they referred to speculated or forecasted rather than actual demand.
-Push processes operates in uncertain environment
JIT
-This is a pull approach system, since firms place orders for more inventory only when the amount on hand reaches a certain level.
Quality control measures
-Quality is the third category of metrics.
-Several dimensions in the quality category are important to logistics and supply chain management.
-Overall Customer satisfaction.
-Processing accuracy.
-Perfect Order fulfilment.
-On time delivery.
-Complete order.
-Accurate Product Selection.
-Damage free.
-Accurate Invoice
Case study
Redis Construction Afrika is a multi-disciplined company which focuses in delivering High Performance Contracting throughout Afrika. Redis has submitted a tender proposal for the complete WOL Project. KCC/Senet engaged with Redis to give a further proposal for ten acid tanks, piping, structural steel and mechanical items extracted out of the main WOL Project. Redis Construction has its main head office situated in Bedford view and the client is based in Kolwezi in the DRC.
The procurement department is responsible for setting up and maintaining an approved suppliers list. Evaluation of approved suppliers will be conducted at the intervals of twelve months. The procurement department is responsible for ensuring that orders are placed on capable suppliers who can deliver on time.
A supplier’s audit is conducted before a contract is signed to confirm that the supplier does not have any compliance or quality system failures that could affect the ability to produce top-quality products. Another reason this is done is to understand the supplier’s strength and weaknesses before the relations.
An important input to the supplier selection process are the guidelines for the types of suppliers you want. These guidelines are impacted by your Sourcing Strategy; which we will explore in another article.
The output of the supplier selection process is creating your first order for that lucky supplier. You will then move into the Relationship Management phase, which will be covered in a future article.
5 Step Process
Step 2 – Identify Suitable Suppliers
Once you have the selection criteria in place, you must create the pool from which you will select a supplier. During this part of the process you will want to consider:
Current suppliers – Starting with suppliers you have experience with and established relationships is generally a good idea.
Past suppliers – Depending upon the reasons why they are ‘past’ and not ‘current.’
Competitors – You may be in a position to buy from a competitor if it is ethical and low-risk.
Industry groups – many of which are non-profit and maintain data bases of member companies.
Recommendations and prior business relationships – perhaps created while working at other companies.
Compare potential suppliers
When you’ve got the quotation, compare the potential suppliers in terms of what matters most to you. For example, the quality of their product or service may be most important, while their location may not matter.
Price is important, but it shouldn’t be the only reason you choose a supplier. Lower prices may reflect poorer quality goods and services which, in the long run, may not be the most cost effective option. Be confident that your supplier can make a sufficient margin at the price quoted for the business to be commercially viable.
Check that the supplier you employ is the one that will be doing the work. Some suppliers may outsource work to subcontractors, in which case you should also investigate the subcontractor to determine if you are happy with this arrangement.
Wherever possible it is always a good idea to meet a potential supplier face to face and see how their business operates. Understanding how your supplier works will give you a better sense of how it can benefit your business.
And remember that your business’ reputation may be judged on the labour practices of your suppliers. It makes good business sense to consider the ethical dimensions of your supply chain.
Negotiate terms and conditions
Once you’ve settled on the suppliers you’d like to work with, you can move on to negotiating terms and conditions and drawing up a contract. See our guide on how to negotiate the right deal with suppliers.
GETTING THE RIGHT SUPPLIER FOR YOUR BUSINESS
Know your needs
Make sure you know what you need. Don’t be tempted by sales pitches that don’t match your requirements. Understand the difference to your business between a strategic supplier, who provides goods or services that are essential to your business – such as high-value raw materials – and non-strategic suppliers who provide low-value supplies such as office stationery. You will need to spend much more time selecting and managing the former group than the latter.
Spend time on research
Choosing the right suppliers is essential for your business. Don’t try to save time by buying from the first supplier you find that may be suitable.
Ask around
People or other businesses with first-hand experience of suppliers can give you useful advice.
Credit check potential suppliers
It’s always worth making sure your supplier has sufficiently strong cash flow to deliver what you want, when you need it. A credit check will also help reassure you that they won’t go out of business when you need them most.
Price isn’t everything
Other factors are equally important when choosing a supplier – reliability and speed, for example. If you buy cheaply but persistently let down your customers as a result, they’ll start to look elsewhere.
Agree on service levels before you start
It’s a good idea to agree on service levels before you start trading so you know what to expect from your supplier – and they know what to expect from you. See our guide on how to manage your suppliers.
Don’t buy from too many suppliers…
It will be easier for you to manage – and probably more cost-effective – if you limit the number of sources you buy from. This is particularly the case with low value-added suppliers.
…but don’t have just a single supplier
It’s always worth having an alternative supply source ready to help in difficult times. This is particularly important with regard to suppliers strategic to your business’ success
Customers select suppliers based on the relative importance of different attributes such as quality, price, flexibility, and delivery performance. This study examines the difference between managers’ rating of the perceived importance of different supplier attributes and their actual choice of suppliers in an experimental setting. We use two methods: a Likert scale set of questions, to determine the importance of supplier attributes; and a discrete choice analysis (DCA) experiment, to examine the choice of suppliers. The results indicate that although managers say that quality is the most important attribute for a supplier, they actually choose suppliers based largely on cost and delivery performance
Question 2 A
3 Significance of material management in a construction
projectMany studies have revealed that effective
management of construction materials plays a significant
role in the performance of construction projects (e.g. 18;
19). Authors in 20 state that in the process of the flow
of materials from suppliers to construction sites, the focus
should be on coordination and communication between
project participants.
Question 2 B
There are usually plenty of material inventories in a construction site. More inventories can meet unexpected demands, and also they may have an economical advantage by avoiding a probable escalation of raw material costs. On the other hand, these inventories also cause negative aspects to increase costs for storing redundant inventory as well as decreasing construction productivity. Therefore, a proper method of deciding an optimal level of material inventories while considering dynamic variations of resources under uncertainty is very crucial for the economical efficiency of construction projects. This research presents a stochastic modelling method for construction operations, particularly targeting a work process involving on-site fabrication of raw materials like iron-rebar process (delivery, cut and assembly, and placement). To develop the model, we apply the concept of factory physics to depict the overall components of a system. Then, an optimal inventory management model is devised to support purchase decisions where users can make timely actions on how much to order and when to buy raw materials. Also, optimal time lag, which minimizes the storage time for pre-assembled materials, is obtained. To verify this method, a real case is applied to elicit an optimal amount of inventory and time lag. It is found that average values as well as variability of inventory level decreased significantly so as to minimize economic costs related to inventory management under uncertain project condition.
Material costs constitute more than 40% of the total construction cost, so materials are an important factor for the success of a construction project (Lee, 2004). In general, it is common practice to keep plenty of material inventories in a construction site, because it is too difficult and troublesome to make a small order for construction materials each and every time on demand. These surplus inventories can meet unexpected demands, and also may have economical advantages by avoiding an escalation of raw materials. However, they also have negative aspects; (1) increase financial costs, so-called inventory holding
application of lean concepts and techniques for efficient management of certain type of materials (Arbulu et al. 2003, Pheng and Chuan 2001, Tommelein and Li 1999). Those concepts and techniques include value-adding, value stream, waste removal, just-in-time, and kanban. Their highest priorities are to attain nearly zero waste and inventory. There also has been research that analyzed the influence of material inventory and experimentally attempted to find out optimal inventory levels (Horman and Thomas 2005, Han et al. 2006, Polat et al. 2007). Construction projects have many changes and variations through the construction process, so a certain level of material inventory is essential. Moreover, construction firms are increasingly adopting a modularization process involving on-site fabrication of raw materials like the iron-rebar process. This is a more complex system composed of a manufacturing factory of raw material, a temporary assembly shop near the construction site, and a construction site that consumes preassembled products. In this process, there are two kinds of inventories: raw materials delivered from a factory and pre-assembled parts in a temporary shop. To the best of our knowledge, there is no modelling effort that optimizes inventory management for this type of projects. By virtue of all previous efforts, this research aims to present a proper method of deciding an optimal level of material inventories for this emerging process while considering dynamic resource variations under uncertainty from the perspective of site managers.
production planning tool is the “reorder point policy”, which classifies issues on inventory control into two parts (Anupindi et al. 2005); (1) the decision on order quantity or inventory quantity that will be either purchased or produced at every time of supplement; and (2) the decision on reorder point or inventory level when a supplement is required
PUSH AND PULL SYSTEM A push system schedules the release of work based on demand, while a pull system authorizes the release of work based on system status (Hopp and Spearman 2000). This definition means that a push system release materials or a job to the site precisely when called to do so by an exogenous schedule, and the release time is not modified according to what is happening in the site. In contrast, a pull system only allows ordering materials or a job onto the site when a signal is generated by calling for it. In terms of inventory management, however, a pull system can be more effective in that it is easy to meet unexpected changes and allows low inventory into the system. The concept of a pull system is implemented in the modelling feature on the whole in this paper.
In particular, under a situation where everything happens to come together, if the inventory level reaches the reorder point (ROP), the order quantity (Q) needs to be measured based on the lead time (L) and the slope of inventory utilisation (R). Here, the solution is to determine adequate Q and ROP. Also, in determining Q and ROP, a safety level of inventory (Is) should be considered to avoid any possible stoppage due to lack of inventory. The model to deal with such issues is called the (Q,r) model (Hopp and Spearman 2000). This model, however, primarily deals with the steady and deterministic nature of inventory management
In general, jobs relating to materials procurement are divided into two sections: (1) largescale procurements performed in the head office (centralized purchases), and (2) ondemand procurements related to work progress (jobsite purchases). In this paper, we focus on the works related to the site material management. Particularly, rebar inventory management that requires the fabrication/assembly process for materials within a temporary processing shop near the site is the focus of our study. This type of material processing has steadily increased in large-scale civil and industrial projects because it can satisfy demands from the relevant construction site in a timely and effective manner in the nature of temporary construction operations.
DIAGNOSING PROBLEMS OF THE SYSTEM Considering the objectives and scope of this analysis, problems on the current system are derived through the established process. The current system involving the processing process for raw materials is composed of flows of materials and information among the manufacturing factory; temporary assembly shop for processing raw materials; and the construction site where processed materials are installed. Through site investigations and field observations, it is found that inventory management on such a process has the following problems: 1) In general, the concept of an optimal inventory is deemed lacking, so inventory management primarily relies on the field manager’s experience and intuition. It brings difficulties to the management thereof and causes to disburse unnecessary expenses. 2) There is a lack of tools to predict accurate demands in the locale of uncertain construction sites, so that it produces a difficult situation for a temporary assembly shop to timely respond to variable changes in the demand of the works. 3) Theoretically, it is not necessary to store assembled materials because it is on the “make-to-order (MTO) basis from the construction site. However, the amount of assembled inventory tends to increase by holding additional products that were processed earlier than the schedule of installation on the site.
Material control procedures also allow for effective raw material traceability which is essential for guaranteeing product quality and health claims. We have a close rapport with our preferred suppliers who understand our quality requirements and work with us to assure materials meet our high standards.
SOPs detail the regularly recurring work processes that are to be conducted or followed
within an organization. They document the way activities are to be performed to facilitate
consistent conformance to technical and quality system requirements and to support data quality.
They may describe, for example, fundamental programmatic actions and technical actions such
as analytical processes, and processes for maintaining, calibrating, and using equipment. SOPs
are intended to be specific to the organization or facility whose activities are described and assist
that organization to maintain their quality control and quality assurance processes and ensure
compliance with governmental regulations.
Once goods are purchased, they represent an inventory used during the construction process. The general objective of inventory control is to minimize the total cost of keeping the inventory while making tradeoffs among the major categories of costs: (1) purchase costs, (2) order cost, (3) holding costs, and (4) unavailable cost. These cost categories are interrelated since reducing cost in one category may increase cost in others. The costs in all categories generally are subject to considerable uncertainty.
Purchase Costs
The purchase cost of an item is the unit purchase price from an external source including transportation and freight costs. For construction materials, it is common to receive discounts for bulk purchases, so the unit purchase cost declines as quantity increases. These reductions may reflect manufacturers’ marketing policies, economies of scale in the material production, or scale economies in transportation. There are also advantages in having homogeneous materials. For example, a bulk order to insure the same color or size of items such as bricks may be desirable. Accordingly, it is usually desirable to make a limited number of large purchases for materials. In some cases, organizations may consolidate small orders from a number of different projects to capture such bulk discounts; this is a basic saving to be derived from a central purchasing office.
The cost of materials is based on prices obtained through effective bargaining. Unit prices of materials depend on bargaining leverage, quantities and delivery time. Organizations with potential for long-term purchase volume can command better bargaining leverage. While orders in large quantities may result in lower unit prices, they may also increase holding costs and thus cause problems in cash flow. Requirements of short delivery time can also adversely affect unit prices. Furthermore, design characteristics which include items of odd sizes or shapes should be avoided. Since such items normally are not available in the standard stockpile, purchasing them causes higher prices.
The transportation costs are affected by shipment sizes and other factors. Shipment by the full load of a carrier often reduces prices and assures quicker delivery, as the carrier can travel from the origin to the destination of the full load without having to stop for delivering part of the cargo at other stations. Avoiding transshipment is another consideration in reducing shipping cost. While the reduction in shipping costs is a major objective, the requirements of delicate handling of some items may favor a more expensive mode of transportation to avoid breakage and replacement costs.
Order Cost
The order cost reflects the administrative expense of issuing a purchase order to an outside supplier. Order costs include expenses of making requisitions, analyzing alternative vendors, writing purchase orders, receiving materials, inspecting materials, checking on orders, and maintaining records of the entire process. Order costs are usually only a small portion of total costs for material management in construction projects, although ordering may require substantial time.
Holding Costs
The holding costs or carrying costs are primarily the result of capital costs, handling, storage, obsolescence, shrinkage and deterioration. Capital cost results from the opportunity cost or financial expense of capital tied up in inventory. Once payment for goods is made, borrowing costs are incurred or capital must be diverted from other productive uses. Consequently, a capital carrying cost is incurred equal to the value of the inventory during a period multiplied by the interest rate obtainable or paid during that period. Note that capital costs only accumulate when payment for materials actually occurs; many organizations attempt to delay payments as long as possible to minimize such costs. Handling and storage represent the movement and protection charges incurred for materials. Storage costs also include the disruption caused to other project activities by large inventories of materials that get in the way. Obsolescence is the risk that an item will lose value because of changes in specifications. Shrinkage is the decrease in inventory over time due to theft or loss. Deterioration reflects a change in material quality due to age or environmental degradation. Many of these holding cost components are difficult to predict in advance; a project manager knows only that there is some chance that specific categories of cost will occur. In addition to these major categories of cost, there may be ancillary costs of additional insurance, taxes (many states treat inventories as taxable property), or additional fire hazards. As a general rule, holding costs will typically represent 20 to 40% of the average inventory value over the course of a year; thus if the average material inventory on a project is $ 1 million over a year, the holding cost might be expected to be $200,000 to $400,000.
Unavailability Cost
The unavailability cost is incurred when a desired material is not available at the desired time. In manufacturing industries, this cost is often called the stockout or depletion cost. Shortages may delay work, thereby wasting labor resources or delaying the completion of the entire project. Again, it may be difficult to forecast in advance exactly when an item may be required or when an shipment will be received. While the project schedule gives one estimate, deviations from the schedule may occur during construction. Moreover, the cost associated with a shortage may also be difficult to assess; if the material used for one activity is not available, it may be possible to assign workers to other activities and, depending upon which activities are critical, the project may not be delayed
SECTION TWO – PROCEDURES MANUAL
PROCEDURE MP 7.4.3 Revision 1 Date September 30, 2010 Page 1 of 2
VERIFICATION OF PURCHASED PRODUCT
SCOPE
This management procedure defines the method by which the Company and its clients requirements for verification of purchased product shall be planned and implemented.
REQUIREMENTS
1. The clients requirements for verification of product purchased by the Company shall be ascertained at the time of contract review in accordance with procedure MP 7.4.3 and shall be accommodated in all purchase orders.
2. The supplier shall be required to work to an approved Quality Control Plan where a product has a special requirement as identified at contract review. Refer MP 5.4.
3. Non-conformance reports (F109) shall be generated and issued to the supplier where products do not conform to requirements.
4. Where the need is identified the supplier shall progressively compile a quality control data book the manufacturing period containing all relevant documents and provide the company with at least one copy of the data books at the time of hand over / delivery of the product.
5. All products purchased by the Company shall be subject to receipt inspection on delivery. Refer MP 8.1 and WI 05.01 for goods received.
6. WI 16.01 is an established standard to cover the control of receiving, identification, trace ability, storage/handling of materials received from suppliers.
7. WI 17.01 is an established a standard procedure to cover the control and identification of all stock material requested, ordered and delivered on site.
High-quality starting materials are a prerequisite for any
construction quality control/quality assurance plan” in that Materials qualification testing will be done prior to construction to verify that the materials comply with requirements of the specifications. The contractor will obtain representative samples of the materials designated as the proposed source of the materials. Test samples will be sent by the contractor to the Testing Laboratory.
This law prescribes compulsory use of quality materials and providing a proof of quality of the construction products used 4. More specifically, the use of quality products is one of the necessary prerequisites for ensuring compliance with the basic requirements for the whole structure:
Our Quality Control Team only releases materials for use in production upon compliance with the established specifications and criteria. … Material controlprocedures also allow for effective raw material traceability which is essential for guaranteeing product quality and health claims.
Our Quality Control Team only releases materials for use in production upon compliance with the established specifications and criteria. This assures that no substandard, rejected, expired or obsolete material is used during production.
Study duties responsibilities, Tender specification, standards, codes of practice and work instruction.
Evolve effective acceptance/rejection procedures for construction materials in coordination with the project purchase department
Implementation of materials production quality control procedures is vital for ensuring that the electoral management body has sufficient quantities of useable, quality materials for the election.
An effective quality control plan needs to be developed by the electoral management body. Unfortunately, in the effort to complete other urgent election tasks, this is a matter that can often be overlooked.
The practical objectives of, and guiding principles underlying, the quality control plan need to be clearly defined and understood by materials contractors and electoral management body staff.
Materials quality control can be more effective where:
• clear, accurate design specifications are provided to all suppliers by the electoral management body;
• materials are ordered from reputable suppliers;
• suppliers’ production methods hold quality accreditation under International Standards Organisation (ISO) or similar standards;
• there is some on-site production monitoring by electoral management body officials. For this reason it will be preferable to use supply contractors within the country.
Quality Control Plan Elements
There are a number of basic steps that need to be included in quality control plans for print and materials production. These include:
• formal sign-off and approval of materials design specifications;
• provision of sample materials, testing of these against the design specifications, and formal approval of samples before full production is commenced (random samples drawn from each production run is advisable, especially print materials, to ensure print legibility and correct print positioning;
• monitoring of materials production quantities and production rates;
• controls over materials movement and security;
• creation of a proper audit trail of decisions on specifications, acceptance of product, and materials movements.
Maintenance of Materials
Where unused materials can be used for future elections, maintenance plans need to be implemented to ensure their future availability and reliability.
Appropriate storage conditions (addressing issues such as security, the effects of heat, dust, dampness, or humidity) and locations must be considered. Particular care needs to be taken with the storage of paper-based materials.
Regular inspections of the condition of materials and inventory of all materials should be scheduled as part of a formal materials quality control plan
CONCLUSIONS This paper discussed the supplier selection methodology and criteria used in selecting them in a project. developed a probabilistic optimal inventory management model on the process of construction works that involves on-site fabrication of raw materials like the iron-rebar process. It is a unique system composed of a manufacturing factory of raw material, a fabrication or assembly shop, and a construction site. This process is characterised by distinctive inventory flows. To reduce inventory quantity and costs, it is required to maintain an optimal level of raw materials at the temporary shop. More to the storage of raw materials, the inventory of assembled products occurs when they are lined up in the temporary shop prior to delivery to the construction site. Accordingly, it should be required to elicit an optimal time lag for the start of assembly jobs that can minimize the inventory of assembled products. The proposed model was applied to an actual case to verify its performance and advantages. Without a systemized tool, the current inventory flow was ineffective with the irregular patterns by displaying unnecessary large quantities of raw materials as well as higher levels of time lag buffers. This inefficiency was significantly improved by the proposed model. Results from the case application are summarized as follows; (1) By applying the pull system to the phase of raw material inventory management, the amount of inflow and outflow iron-bars at the temporary shop achieved a balance, and accordingly, average inventory quantity and inventory management costs were also evidently reduced, and (2) By eliciting optimal time lags relating to the start of fabrication/assembly works, it was possible to reduce the holding time of assembled products, and accordingly, inventory management costs could be reduced around a total of 25%. However, there were many assumptive views in relation to such cost factors as inventory storage cost, delivery cost, and additional costs when the materials are exhausted. It is recommended to conduct future research to quantify those cost aspects under different project conditions in a more realistic way. Moreover, such areas to reduce the level of variance of influential factors that affect the level of inventory will be central parts of our future research.
18 Ala-Risku, T.; Kärkkäinen, M. Material delivery problems in construction projects: A possible solution. // International Journal of Production Economics. 104, 1(2006), pp. 19-29. DOI: 10.1016/j.ijpe.2004.12.027 19 Sobotka, A.; Czarnigowska, A.; Stefaniak, K. Logistics of construction projects. // Foundations of Civil and Environmental Engineering. 6, (2005), pp. 203-216. 20 Agapiou, A.; Clausen, L. E.; Flanagan, R.; Norman, G.; Notman, D. The role of logistics in the materials flow control process. // Construction Management and Economics. 16, 2(1998), pp. 131-137. DOI: 10.1080/014461998372420
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supply chain management (SCM) is one of the most important competitive strategies used by modern enterprises. The main aim of supply chain management is to integrate various suppliers to satisfy market demand. Meanwhile, supplier selection and evaluation plays an important role in establishing an effective supply chain. Traditional supplier selection and evaluation methods focus on the requirements of single enterprises, and fail to consider the entire supply chain. Therefore, this study proposes a structured methodology for supplier selection and evaluation based on the supply chain integration architecture.
This study facilitates the improvement of collaborator relationships and the management of potential suppliers to help increase product development capability and quality, reduce product lifecycle time and cost, and thus increase product marketability.
“It is unwise to pay too much, but it is worse to pay too little”. – John Ruskin The relationship of quality to cost is often expressed in the saying that „you get what you pay for.? Regardless of Ruskin?s advice, cost is a critical factor in most building projects and some clients will seek a low price. Low price and maximum price competition, however, often have negative impacts on quality standards and achieving best value for money overall. The cost of the building will depend on its particular characteristics and these are largely determined by the architect.
Audit report and control of outsourced processes attached.
Question 1
NON-CONFORMANCE SUPPLIERS
Reliability And Quality
The firm got a letter of intent for the Letlhakane project with partial specifications, with a note in the contractual agreement stating the detailing that Redis engineer was supposed to carry it out. A haste dash was executed to scout for reliable suppliers, to offer faster delivery rate turn around. Amabhubhesi, a once reliable supplier failed to deliver on detailed structural drawings and the firm let their client down, with structures which were not aligned. The quality of firm suppliers did not remain consistent, as client associate poor quality with the firm not the suppliers
