PROJECT INVENTORY MANAGEMENT

Prof.Milind Jagtap

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An engineering and contracting project may be represented as a sequence of macro-phases (engineering, procurement, construction, etc.).

Project logistics is the crucial link between procurement and construction.

At an aggregate level, the project life-cycle may be represented by a sequence of 'S’ curves describing the expected progress of each phase as function of time.

INTRODUCTIONINTRODUCTION

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Expected progress of E,P,C phases during project life cycle

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The problem arises from the obvious fact that the beginning of a construction activity in a given area of the building site requires the availability of the necessary materials. Orders for these should have taken account of procurement and transport lead times and all possible sources of uncertainty in the construction schedule. On the one hand, a safety stock must be available to prevent the interruption of the construction process at the site, while, as in work-in-progress in manufacturing processes, the size of this safetystock must be so evaluated as to limit the financial exposure and the costs involved in the storage.

ISSUE OF INVENTORY PLANNING AT SITE

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The problem may thus be formulated as: how much material should be available at the site at a given time in order to guarantee a desired level of protection against interruptions due to the shortage of materials?

PROBLEM FORMULATION

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CONSTANT SAFETY LEAD TIME MODEL

It does not take into account the different stages ofthe construction process, in that it considers everyplanning period in the same way;

It does not take explicit account of the uncertaintyfactors that influence the delivery and the construction processes, causing delivery delays and variability in productivity.

The construction progress curve is anticipated by a constant safety lead time.

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It should be noted that construction progress curve must be defined at the very beginning of the project with the overall plan and take account of the main project milestones. From this construction progress curve, a delivery progress curvecan be derived, which acts as a reference for the detailed expediting and transport plans.

INTEGRATION OF CONSTRUCTION AND PROCUREMENT

The starting dates of the construction activities should depend on the time constraints deriving from the actual delivery dates. In this way, it is possible to identify the activities that will be held up by delays in materials deliveries. Obviously, the most critical delays are those involving activities on the critical path.

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Relation between construction required availability and delivery progress curve

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The relationship between procurement and construction may be analysed by expressing both progress values in the same unit of measure. To this end, the cumulative amount of material progressively delivered to the site will be evaluated in terms of equivalent standard man hours of construction (SMh). Thus, each delivery of materials will be translated into an equivalent amount of SMh, using standard rates which convert physical units into standard man hours. Once materials have been installed, the equivalent amount of SMh will be 'earned'.

CONSISTENT UNITS OF MEASUREMENT

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Consider the following "ideal' assumptions concerning a construction work package (WP)

• the construction progress rate is definite;• materials are delivered to the site in compliance with the construction sequence;• materials are delivered to the site in compliance with the established delivery dates;• materials delivered to the site are immediately available for construction.

If these assumptions hold, there is no need for asafety lead time for the deliveries to the site, sinceevery aspect of the problem is known definitely.

ASSUMPTIONS OF CONSTANT SAFETY LEAD TIME MODEL

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IDEAL SYNCHRONIZATION BETWEEN DELIVERY AND CONSTRUCTION

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Since it is impossible to synchronize materials delivery with construction scheduling fully, a safety stock of materials should be provided at the site, in order to ensure the continuity of the construction process. This corresponds to the determination of the above-mentioned 'required availability' progress curve, which anticipates the construction progress curve with a given safety lead time and provides for delivery planning.

The problem then is to evaluate the safety lead time (ST) with which materials should be delivered in advance of the time they are scheduled for use, or, alternatively, calculate the size of the material safety stock (SM). Both parameters, ST and SM, should be defined as a function of time.

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Assuming that the materials delivery sequence isconsistent with the construction sequence and that the materials delivered to the site are immediately available for construction, the values of SM and ST at a given planning period depend on the variability of delivery dates with respect to scheduled dates and the variability of the rate of construction progress (variability of labour productivity and operating conditions at the site, etc.). The values of SM and ST will also depend on the level of protection necessary to offset the risk of work interruption due to material shortages.

ASSUMPTIONS FOR STOCHASTIC MODEL

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It presents a stochastic model which evaluates the safety stock and the corresponding safety lead time required for the delivery of materials to the site in each planning period, taking account of variability in delivery dates and the rate of progress of construction. The model is a basic tool for the aggregate management of the procurement, expediting and transport functions. At the very beginning of the project, when information is scarce and detailed analysis based on network technique is not yet available.

STOCHASTIC MODEL OF INVENTORY MANAGEMENT

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1. Divide the planning horizon, i.e. the duration of theconstruction process, into planning periods withduration tu, e.g. months or weeks (see Figure 4); theindex i will refer to the generic planning period (e.g.March 1997) with i = 1 . . . . . n;

2. Assess the expected progress rate of the constructionprocess for each planning period (ri - SMhi);

3. Decide the level of stock out protection which safetystocks should guarantee (LSi);

4. Determine the value of the materials safety stock(SMi) which in each period ensures the continuityof the construction process at the required level ofstock out protection and consequently determine thesafety lead time (STi).

STEPS TO APPLY STOCHASTIC MODEL

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MATERIAL AVAILABILITY IN ANY GIVEN PERIOD

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OVERALL STANDARD DEVIATION

Variance of delivery schedule

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RELATION BETWEEN SAFETY STOCK AND SAFETY LEAD TIME

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Develop a procurement plan for a project having project duration 12 months with generic planning period of 1 month each. The construction progress rate (SMh) for entire project along with the desired protection level against stock out is provided to you. You can account for the productivity changes on construction schedule with dispersion index of productivity as 0.25 and changes in delivery schedule with standard deviation of delivery schedule as 0.2 months. Procurement plan must describe the safety stock and safety lead time and material availability for the entire project schedule.

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Planning period Construction progress rate(SMh)

Protection against stock

out(%)

0 98

1 2500 98

2 7300 98

3 8700 98

4 15800 98

5 21000 98

6 20300 98

7 18500 98

8 18400 100

9 6500 100

10 3000 100

11 500 100

12 500

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