A Project Report on “CURRENT INVENTORY PRACTICES OF REAL ESTATE DEVELOPERS” Submitted by: T.SHREEDHAR Roll No. 233084 U.RAJESH KUMAR Roll No. 233085 D.RAVINDER REDDY Roll No. 233092 A Thesis submitted in partial fulfillment of academic requirements for the award of Post-Graduate Program in Advanced Construction Management UNDER THE ESTEEMED GUIDANCE OF Prof Rajiv Gupta, Head of A.C.M NICMAR, Hyderabad. & B.Sudharshan Reddy General Manager (Projects) Radha Infra Projects Ltd Hyderabad. PGPACM XXIII BATCH 2009-11 NATIONAL INSTITUTE OF CONSTRUCTION MANAGEMENT AND RESEARCH HYDERABAD.
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A Project Report on
“CURRENT INVENTORY PRACTICES OF REAL
ESTATE DEVELOPERS”
Submitted by:
T.SHREEDHAR Roll No. 233084
U.RAJESH KUMAR Roll No. 233085
D.RAVINDER REDDY Roll No. 233092
A Thesis submitted in partial fulfillment of academic requirements for the award of
Post-Graduate Program in Advanced Construction Management
UNDER THE ESTEEMED GUIDANCE OF
Prof Rajiv Gupta, Head of A.C.M
NICMAR, Hyderabad.
&
B.Sudharshan Reddy General Manager (Projects)
Radha Infra Projects Ltd
Hyderabad.
PGPACM XXIII BATCH 2009-11
NATIONAL INSTITUTE OF CONSTRUCTION MANAGEMENT AND RESEARCH
HYDERABAD.
C E R T I F I C A T E
This is to certify that the thesis titled “CURRENT INVENTORY PRACTICES OF
REAL ESTATE DEVELOPERS – A CASE STUDY” is the bonafide work of:
T SHREEDHAR (Roll No. 233084), U RAJESH KUMAR (Roll No. 233085) and
D RAVINDER REDDY (Roll No. 233092) in partial fulfillment of academic requirements for
the award of Post-Graduate Program in Advanced Construction Management. This work is
carried out by them under my guidance and supervision.
Date: Signature of the Guide
Hyderabad Prof. RAJIV GUPTA,
HEAD OF A.C.M
NICMAR, Hyderabad.
Prof. K.R.Ramana,
Dean-In-Charge
NICMAR’s-CISC
DECLARATION
We declare that the thesis titled “CURRENT INVENTORY PRACTICES OF REAL
ESTATE DEVELOPERS – A CASE STUDY” is a bonafide work carried out by us under the
guidance of Prof. Rajiv Gupta. Further, we declare that this has not formed the basis of award of
any degree, diploma, associate ship or other similar degree or diploma and has not been
submitted anywhere else.
SHREEDHAR.T Roll No.233084 Signature
RAJESH UBA Roll No.233085 Signature
RAVINDER REDDY.D Roll No.233092 Signature
Date:
Place: Hyderabad
ACKNOWLEDGEMENT
The research thesis is a team work and the satisfaction that accompanies the successful
completion of this task would be incomplete without the mention of the people who made it
possible. Though it is possible to thank them personally, we take this opportunity to express our
gratitude to them.
We are deeply indebted and highly obliged to our thesis
guide Prof. Rajiv Gupta, Head of ACM, NICMAR, Hyderabad, without whose help we
couldn’t have started the thesis and would not have got any lead for whom to approach and
the methodology to be followed and for guiding and correcting us on the right track.
We also extend our deep gratitude to N.Govardhan Reddy, Executive
Director & B.Sudharshan Reddy, GM-Projects, Radha Realty, Hyderabad, for his valuable
suggestions and support in carrying out the thesis work in the right path.
We would also thank Prof. K. R. Ramana, Dean-In-Charge, NICMAR’s-CISC,
Prof.Sri Hari, Deputy Dean, NICMAR’s-CISC for their supporting nature.
We would like to thank our friends studying in various institutes all
over the country in providing us with the relevant data and the references required for the
successful completion of the thesis
Last but not the least we would like to thank our parents for reposing so much
faith and care in us, giving us the financial and mental support to strive through and complete the
thesis.
Their constant encouragement and guidance provided us infinite motivation
throughout the thesis work.
Regards,
SHREEDHAR.T
RAJESH UBA
RAVINDER REDDY.D
ABSTRACT
We framed our project ‘Current Inventory practices of real estate developers’ with Radha
Realty's one of the ongoing project 'Maple Town' in Hyderabad. During the course of our project
we were able to study the material flow in the construction sector as per the scheduled activity
and requirement. As per our project's focus we made a positive attempt to analyze the flow of
materials throughout the project in terms of its usage as per the oncoming requirement of the
proposed activity.
Primarily Inventory management is about specifying the size and placement of stocked goods at
various stages of the project. Inventory management is required at different locations within a
facility or within multiple locations of a supply network to protect the regular and planned course
of production against the random disturbance of running out of materials or goods yielding in
profits.
The material layout also avoids confusion and risks thereby creating a safe atmosphere in the
construction site. The role of material management in various organizational functional activities
such as material purchasing decision, material forecasting, material planning and budgeting,
selection of potential information from sources are identified as key learning’s of the project.
Also, inventory management with direct linkage with other functional areas of management such
as TMQ, HRM, IT etc and application of tools & techniques of inventory classification in the
real life situation that elaborates on stock levels and rating analysis.
We also took a stand to find out the techniques to select vendors and various aspects in source
selection stressing on the local source who is in a reachable limit from the construction site, with
its positive and negative analysis since the key to successful analysis is to identify the important
characteristics of the particular purchase.
The graphical representation of our analysis is a result of the work we carried through our
project. It educates the trigger points, the point which helps the staff in charge creating an order
for the material so that the work shall not stop.
Index
S.NO CONTENTS Page. No
1.0 Chapter 1
1.1 Introduction 1
1.2 Case study objective 2
2.0 Chapter 2
2.1 Introduction 3
2.2 Leadership team 4
2.3 Current project 5
2.4 Contact address 5
3.0 Chapter 3
3.1 About maple town 6
3.2 Amenities 6
3.3 Club facilities 7
3.4 Facilities 8
3.5 Roads & landscaping 9
3.6 Specifications 10
3.7 Area statement 10
3.8 Floor plans 11
3.9 Layout map 12
3.10 Location map 13
4.0 Chapter 4
4.1 To study how inventory management practices 14
4.2 To find out the techniques for vendor selection 17
4.3 Applying tools and techniques 20
4.4 Finding inventory requirement at different stages 27
4.5 Study of reliable local material ‘utilization’ 38
4.6 Stock maintenance 44
5.0 Chapter 5
5.1 Conclusion 47
6.0 Suggestion 48
7.0 References 52
National Institute of Construction Management and Research, Hyderabad.
Current inventory practices of Real Estate Developers – A case study 1
CHAPTER l
INTRODUCTION
Current Inventory Management Practices of Real Estate Developers
(A Case Study)
As a part of NICMAR's PGP ACM program, we had an opportunity to study an important aspect of
the construction process which is inventory management. The project encouraged us to build our
skill towards the material management and its trigger areas.
The Opportunity to visit construction site encouraged us to correlate between the book and practices,
where the required materials are placed properly in their respective yards making it feasible for the
staff in collecting them for the proposed use and educated us that the Inventory Management consists
of a series of processes on the multiple functions with reference to the tracking, handling and
managing of goods and materials that are held in stock.
Through this platform we were not only exposed to inventory management and its database, but also
able to understand that the costs can be substantial to store and move inventory. Innovative methods,
such as Just-in-Time inventory control, can save costs and move products and services to customers
with less wait time.
The experience encouraged us to learn the tricks and traits of the inventory practices of the
developer. Thus, enabling ourselves to face the relevant challenges after the completion of our PGP
program.
CASE STUDY OBJECTIVE
Current Inventory Management Practices of Real Estate Developers (A Case Study)
In the due course of the project life cycle inventory management plays a major role in
controlling the project cost. In order to carry forward the project as scheduled and keep it within the
scheduled budget, Risk management gears up in minimizing the damage that might cause in the
project life cycle.
The purpose of inventory management is to ensure availability of materials in sufficient
quantity as and when required and also to minimise investment in inventories.
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Current inventory practices of Real Estate Developers – A case study 2
Inventory management is necessary for every management to give proper attention to
inventory management. A proper planning of purchasing, handling, storing and accounting should
form a part of inventory management. An efficient system of inventory management will determine
four vital factors.
1. What to Purchase?
2. How much to purchase?
3. From where to purchase?
4. Where to store and so on?
The purpose of inventory management is to keep the stocks in a manner that neither there
shall be over-stocking nor under-stocking. The investments in inventory should be kept in reasonable
limits so that he primary purpose shall be accomplished and it is „let the work shall not stop‟.
In the initial stage of the construction project, the organization has to plan, schedule and
implement for materials, machinery and resources required. When it comes to the materials for a
scheduled project, planning engineer and the project manager must derive the materials required
using the relevant techniques available. Let‟s say, the (EOQ) economic order quantity for a particular
activity can be calculated and meet the requirements.
This frame work is about the case study on the inventory and risk management in the
project‟s life cycle. The ABC analysis, vendor rating, selection criteria, financial comparisons
through procurement and other techniques used in controlling the project cost and its timely
completion in the ongoing project of Radha Realty located in Hyderabad.
The main objectives of our project study are :
1. To study how inventory management practices play an important role in supporting other
activities of an organization.
2. To find out the techniques for vendor selection.
3. Applying tools and techniques of inventory classification in real life situation.
4. Finding inventory requirement at different stages of construction project or over Project
Life Cycle (PLC).
5. Study of reliable local material „utilization‟ in a construction project.
6. Stock maintenance: Practice of A class Inventories.
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Current inventory practices of Real Estate Developers – A case study 3
CHAPTER 2
INTRODUCTION OF THE COMPANY
Radha Realty Corp Pvt. Ltd
2.1 Overview
Founded in 1997 with more than a decade of empicable track record to its credit, Radha Realty Corp
Pvt Ltd contributed to realty boom in Hyderabad. Every customer is an inspiration to us and we
endeavor to keep that inspiration intact by creating healthier, happier communities. Truly, building
enduring relationships is much more than a slogan to us. With a passion for creating value to the
customers Radha Realty has come up with one successful real estate development after another in
Hyderabad.
Radha Realty has undertaken some of the largest projects in plotted development and gated
communities so far in Hyderabad and Bangalore. Some of the prestigious projects Oxygen City,
Maple Town and Town Homes, Dews Ville speak for what Radha Realty stands for.
Radha Realty is planning to take up signature villa developments aimed at premium segment of the
market as well as apartments for first time buyers. The affordable housing segment would be tailor-
made for the requirements of urban communities providing lifestyle amenities to make them feel
comfortable. They are built with unique contemporary living spaces utilizing the best practices in
design and construction. Radha Realty has significant investments in sister concerns focusing on
infrastructure for commercial and hospitality sectors.
Radha Realty strongly believes that the communities we live in should be vibrant spaces. Towards
that end, Radha Realty is the principal sponsor of Hyderabad 10K run and half marathon. The 10K
run represents people coming together in large numbers to raise awareness about health and fitness
related issues. Radha Realty is the principal benefactor of “Project 511” aimed at improving the
quality of instruction in the Government schools. Tens of thousands of children are benefited through
this program.
Radha Realty is a corporation found on the core values of integrity and innovation. The company is
poised to make giant waves in the real estate development sector in the years to come.
2.2 Vision
To be the first choice of the customers for all their space requirements.
2.3 Mission
To provide quality spaces where people of all ages can live, work and play.
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Current inventory practices of Real Estate Developers – A case study 4
2.4 Core Values
Customer delight, to deliver the product promised on time and with the best quality, to be sensitive
towards the environment and surrounding communities and to be the employer of first choice known
for its innovation and professional approach for real estate development.
2.5 Innovation and Creativity
Being into constructions, innovation and creativity are our core values. Delivering the magnificent
exteriors that are architecturally fabricated is our constant effort. We strive to add luxury, style and
comfort to your ambience.
2.6 Client Satisfaction
Understanding client‟s requirements and delivering solutions is what we value. We value our people
and cherish our customers in enduring relationships.
2.7 Integrity
Integrity of workforce makes the foundation of any organization. Our team is zealous and
responsible in contributing positive results. A group of professional individuals can make large
difference in escalating the organizational growth.
The team at Radha Realty consists of highly professional personnel having deep industry knowledge
and vast experience with companies, not just in India but across the globe.
2.8 Leadership Team
1. Mr. Ravindranath Reddy - Managing Director
2. Mr. K Ramakrishna Rao - Director
3. Mr. N Govardhana Reddy - Executive Director
4. Mr. D Anil Prabhu Kumar - Director, Strategic Planning Sales and Marketing
5. Mr. J Rajasekhara Reddy – Director
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Current inventory practices of Real Estate Developers – A case study 5
2.9 CURRENT PROJECTS
Gated Communities
1. Dews Ville
2. Maple Town
3. Maple Town –II
4. Mulberry Meadows
5. U31
Plotting Ventures
1. Green Lands
2. Oxygen city
3. Fortune Meadows
4. Creep Town
5. Dew Drops
6. Mukund Meadows
Apartments
Carnival
2.10 CONTACT ADDRESS:
Radha Realty Corp Pvt. Ltd.
Plot No: 824,
8-2-293/82/A/824,
Road No. 40, Jubilee Hills,
Hyderabad - 500 033.
- 91-40-23607090.
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Current inventory practices of Real Estate Developers – A case study 6
CHAPTER 3
MAPLE TOWN PROJECT
3.1 About Project “Maple Town”
Radha Realty launches Maple Town Phase II, a gated community of 198 villas located near APPA
junction with direct access from the Outer Ring Road and situated just 20 minutes drive from the
International airport & 15 mins drive from Gachibowli the hub of Hyderabad‟s globally renowned IT
Industry. Famous Educational institutions such as the Glendale Academy and Shadan Medical
College are located less than 5 mins away Maple town is designed with perfect mix of latest
international design and local requirements, best of specifications and high-end materials and
offering world class amenities at a very affordablebprice.
At this 20 acres integrated gated community with its luxury villas & Plots dotting the exquisite
landscape; you have the luxury of choosing if you want to live or invest. The message of our unique
creation is profound: Space matters. Welcome and define the edges of your space with the grand
living at Maple Town.
3.2 Amenities
An aesthetically designed swimming pool with a filtration plant will be provided with separate hinge
rooms for men and women. There will be a provision for toddler‟s pool too. An ideal location for
evening gathering of the residents to spend their leisure in style. The club house would have facilities
like the Health Club with Sauna and Jacuzzi. Maple Town is designed to sway you off our feet with
its architectural excellence. The open spaces between the Villas and within the gated community
would be covered with green landscapes making this place a Garden of Eden. The Perimeter of this
project would be protected like a fortress with an 8 feet wall with solar fencing. Professional
security personnel would mean the campus 24X7, ensuring the safety of the residents. CC TV,
intercom connection between each dwelling unit and the main gate, Wi-Fi connectivity and so on are
also a part of the security plans of the project.
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Current inventory practices of Real Estate Developers – A case study 7
3.3 CLUB FACILITIES
3.3.1. Air –conditioning Gym
3.3.2. Spa
3.3.3. Swimming Pool
3.3.4. Library
3.3.5. Party Hall
3.3.6. Café
3.3.7. Guest Rooms
3.3.8. WI-FI
3.3.9. Lounge
3.3.10. Children Recreation zone
3.3.11. Tennis
3.3.12. Squash
3.3.13. Indoor Badminton
3.4 FACILITIES
3.4.1. Landscaped Gardens
3.4.2. Tree Lined Vistas
3.4.3. Street Lighting
3.4.4. Underground Cabling
3.4.5. Underground Drainage
3.4.6. Broad Band Connectivity
3.4.7. Sewerage Treatment Plant
3.4.8. Generator Back-up
3.4.9. Black Topped Roads with side walks
3.4.10. Jogging Track
3.4.11. Water Purification Plant
3.4.12. Polyclinic/Convenience Store
3.4.13. Solar Fencing
3.4.14. Intercom Facility
3.4.15. Round the Clock Security
3.4.16. Wi-Fi Enabled
3.4.17. Centrailised Gas
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Current inventory practices of Real Estate Developers – A case study 8
3.5 ROADS & LANDSCAPING
60‟ & 40‟ wide internal roads with avenue plantation lead you to houses built on plot areas of 2,
67,355 yards with areas ranging from 2400 -3300 sft. What truly sets this residential cluster apart is
the landscaping, integration of technology at your behest, with most of the area being Wi-Fi enabled.
3.6 SPECIFICATIONS
3.6.1. R.C.C. FRAMED STRUCTURE
a) Earthquake resistant foundation with R.C.C. M20 grade concrete designed for Seismic
zone 2.
3.6.2. SUPER STRUCTURE
a) Brick masonry with good quality bricks in cement mortar.
3.6.3. PLASTERING
a) Internal Double coat cement plaster with smooth finish.
b) External Double coat sand faced cement plastering.
3.6.4. DOORS
a) Main door Best Teak Wood door-frame & shutter aesthetically designed with
melamine polishing and designer hardware of reputed make. Internal doors:
b) Frames: Best Teak Wood frame.
c) Shutters: Molded & paneled shutters with Melamine polishing & standard hardware.
3.6.5. WINDOWS
Window Frames & shutters in Best Teak Wood {polished inside and painted outside) or
uPVC, with glass panels & provision for mosquito mesh, fitted with elegantly designed
M. S. Painted grills, and standard hardware.
3.6.6. PAINTING
a) External Sandtex Mat/ Exterior emulsion paints of Asian / ICI make or
equivalent
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Current inventory practices of Real Estate Developers – A case study 9
b) Internal Smooth finish with good quality putty over a coat of primer finished
with two coats of Acrylic emulsion paint Servant Quarters & Service Areas: Two
coats of Acrylic OBD over one coat of primer.
3.6.7. FLOORING
a) Vitrified porcelain tiles of 24"x24" with 4" skirting of Johnson or equivalent.
b) Bathrooms :Ceramic non-slippery, acid resistant tile flooring of Johnson/Kajaria or
equivalent-Staircase: Polished Marble/granite with skirting.
c) Covered Terrace & Balconies: Rustic series ceramic tiles of Naveen/ J Johnson or
equivalent.
d) Parking Area: Best quality cement based parking tiles over PCC bed.
3.6.8. TILES CLADDING & DADOING
a) Elevation cladding: Granite/slate cladding.
b) Kitchen: Glazed ceramic tile dado up to 2'0" height above
c) Kitchen platform: Johnson or equivalent make
d) Bathrooms: Glazed ceramic tile dado of Johnson / Kajaria / Bell or equivalent tiles up
to full height
e) Utilities / Wash: G glazed ceramic tile dado up to 30" height.
3.6.9. KITCHEN
a) Granite platform with Stainless steel sink / Crystal sink with bath municipal provision
for bore water.
b) Provision for fixing Aqua-guard. Provision for cabinets, exhaust fan & chimney-
Modular kitchen is optional at extracost.
3.6.10. UTILITIES / WASH
Provision for washing machine, dish washer & wet area for washing utensils etc.
3.6.11. BATHROOMS
All the bathrooms consist of
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Current inventory practices of Real Estate Developers – A case study 10
a) Granite counters top wash-basin with hot and cold mixer valve.
b) E WC with flush tank of Hindustan/ Parry make.
c) Hot and cold wall mixer with shower (exposed).
d) Bath-tubfor master bedroom.
e) Provision forgeysers in all bathrooms.
f) All C.P. fittings are chrome plated of Jaquar / Mark / ESS
g) ESS or equivalent make.
3.6.12. ELECTRICAL:
a) Concealed copper wiring in PVC conduits.
b) 33KV substation to ensure quality power.
c) Power outlets for Air-conditioners In all bedrooms.
d) Power outlets for geysers in al I bathrooms.
e) Power plug for cooking range chimney, refrigerator, micro ovens, mixergrlnder In
kitchen.
f) Plug points for refrigerator, T.V. & audio systems etc, wherever necessary.
g) 3 Phase supply for each unit and Individual meter boards. Miniature Circuit Breakers
<MCB> & ELCB of MDS / Merlinger or equivalent make.
h) All electrical fittings of M l< / Northwest or equivalent make. Solar water heating system
is optional at extra cost
3.6.13. TELECOM
a) Telephone points in all bedrooms, drawing & dining areas.
b) Provision for internet connection In study room/bedrooms.
c) Intercom connectivity to security from all houses.
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Current inventory practices of Real Estate Developers – A case study 11
3.6.14. CABLE TV
Provision for cable in all bedrooms & living-room.
3.6.15. INTERNET
Internet CAT 6 cable for internet connectivity.
3.6.16. GENERATOR
100% back-up for all electrical points excluding geysers and air conditioners.
Note: The developers reserve the rights for any additions in plans and elevations. All details are
subject to change and all optional amenities other than the above specifications are all extra cost.
3.7 Area Statement for EAST PLOT
East Facing-1 (40' x 80')
Plot Area 355.50 Sq.Yds.
Ground Floor Area 1712 Sft.
First Floor Area 1620 Sft.
Terrace Floor Area 100 Sft.
Total Area 3432 Sft.
Table 1: East Facing-1 Plot Dimensions
East Facing-2 (40' x 80')
Plot Area 355.50 Sq.Yds.
Ground Floor Area 1687 Sft.
First Floor Area 1590 Sft.
Terrace Floor Area 155 Sft.
Total Area 3432 Sft.
Table 2: East Facing-2 Plot Dimensions
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Current inventory practices of Real Estate Developers – A case study 12
3.8 Area Statement for WEST PLOT
West Facing-1 (40' x 80')
Plot Area 355.50 Sq.Yds.
Ground Floor Area 1617 Sft.
First Floor Area 1485 Sft.
Terrace Floor Area 100 Sft.
Total Area 3202 Sft.
Table 3: West Facing-1 Plot Dimensions
West Facing-2 (40' x 80')
Plot Area 355.50 Sq.Yds.
Ground Floor Area 1617 Sft.
First Floor Area 1485 Sft.
Terrace Floor Area 100 Sft.
Total Area 3202 Sft.
Table 4: West Facing-2 Plot Dimensions
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Current inventory practices of Real Estate Developers – A case study 13
3.10 LOCATION MAP
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Current inventory practices of Real Estate Developers – A case study 14
CHAPTER 4
DATA ANALYSIS & INTERPRETATION
4.1 OBJECTIVE 1: To study how inventory management practices play an
important role in supporting other activities of an organization.
Connectivity of work is predominant in any form of activity and it is proved to be a backbone for the
construction process. The case study on the ongoing construction project has hooked up with various
connections with one and other activity and the one above playing an important role is the subject
„material management.
The subject is important because the project has to reap higher returns which is a challenging task yet
achievable through inventory management. Hence our primary objective is to study how inventory
management practices play an important role in supporting other activities of an organization.
Table 5: Role of Materials Management in Various Organizational Functional Activities
Role of Material Management Description
Decision on making the material or buying. Such a decision may be taken if:
i) Supplies are not adequately obtained
successfully in the past
ii) The quality of supplied goods is not of
standard
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Current inventory practices of Real Estate Developers – A case study 15
iii) The volume requirement of sales is
exceeding the possible manufacturing
capacity
iv) The material fails in the cost analysis
Materials Forecasting
The materials management needs to forecast the
requirements. Some of the questions that need to
considered for it are:
i) Is this material being needed for longtime?
ii) Will there be any requirement after 10 years
for this material? Will the supplier exist after
10 years
iii) Are there any changes or technological
break- though for this material?
iv) · Are the prices going to rise in the future?
Materials Planning and Budgeting
Materials‟ planning is of the major control activity
that an organization needs to put in place. It is
feasible because of materials management.
Selection of Potential information sources
This will include selection of suppliers, and other
market research information such as price trends,
corporate environment etc. The materials
management data may help this task.
Purchasing commits a lot of capital of an
organization. Materials management information
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Current inventory practices of Real Estate Developers – A case study 16
Purchasing with a difference allows very creative purchasing by organization as it
sees most of the trends. It also helps while
purchasing in uncertain situation.
Forecasting of Price
This is most essential function thus, has been kept
separately also. A good price forecasting system
based on material management and market research
information may bring an organization into a win-
win situation.
Store Management and inventory control with
a difference
Materials management helps in the store functions
such as: control of material being received, proper
storage, minimization of obsolescence, highlighting
of unused stocks, ensuring good housekeeping,
verification of stock, timely delivery of goods,
proper storage and presentation of materials, dealing
with scrap materials etc.
LINKAGE WITH OTHER FUNCTIONAL AREAS OF MANAGEMENT
The Materials Management can be directly connected to the functional areas of customer
satisfaction through Total Quality Management (TQM), Human Resources Management
(HRM); environmental issues in material management, cost and finance issues and IT related
issues.
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Current inventory practices of Real Estate Developers – A case study 17
4.2 OBJECTIVE 2: To select various vendors from the available techniques
Source selection encourages the company from the competitors through the quality of
materials supplied and by maintaining the required stock for the project.
Some important aspects in source selection:
4.2.1. Local Sources
Generally local sources are preferred, provided they meet the requirements of the
buyer in terms of quality, delivery, and price. A personal follow-up or a local “phone
call” is enough for effecting quicker deliveries. In fact, some organisations prefer
local suppliers even though they may not compare favorably with outside suppliers.
This local goodwill is sure to pay in the long run. It is not uncommon to find big
organisations in India encouraging ancillary suppliers in and around their plants
through technical and financial assistance.
4.2.2. Subcontracting
Selection of sources for subcontracting is another special issue. The manufacturer
may decide to „off-load‟ some products to suppliers so as to facilitate scheduling of
production in the plant. It also enables better utilisation of human resources. This
happens because subcontracting is just an extension of the plant‟s activities and since
subcontractors are generally small,they may be in need of technical assistance.
4.2.3. Choice between Small and Large Suppliers
Often in selecting suppliers, the materials manager is faced with this question. If-the
requirements are small, the small supplier is the obvious choice. A personalised
contact can be established and because he is small, he is likely to have fewer
customers, be more loyal and meet even unusual requests. Big suppliers are equipped-
to meet larger requirements. They usually have reserve facilities and may thus be able
to meet additional requirements. They may have R & D facilities which will enable
the buyer to obtain technically superior products.
4.2.4. Sole Source versus Multiple Sources
The buyer must decide whether to place all orders with one supplier, or to give them
to two or more suppliers. Using more than one supplier has several advantages,
providing there is enough business to keep all genuinely interested. Multiple sources
provide a broader technical base. Competition is kept alive as suppliers seek to
increase their share of the business. The buyer company is protected against failure at
one supplier‟s plant. However, if the policy of the buyer company to have sole
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Current inventory practices of Real Estate Developers – A case study 18
sourcing for its products and supplies wherever feasible, and this policy is
implemented successfully, there is guarantee of long-term and lasting buyer-seller
relationship.
4.2.5. Inside Source
There are occasions when the buyer company may have to decide if the needed part or
component can be manufactured within its own plant, or procure it form outside. This
is known as the make-or-buy decision. The advantages and disadvantages must be
evaluated in each case in terms of the individual company‟s situation.
4.2.6. Buyer-Seller Relations
Developing, establishing, and maintaining good buyer-seller relationships must be the
goal of any progressive purchasing function. It is essential that the seller‟s
representative is treated fairly and honestly in all transactions. When the seller has
confidence in the buyer, the buyer‟s task can be accomplished more effectively. When
goodwill exists, negotiations are shorter, terms and conditions are simpler to agree
upon, and disputes are kept at a minimum because of good communications. As an
added bonus, the buyer‟s company has a better image, not merely as a customer, but
as a good company to do business with.
The aim of source selection is to find the one most satisfactory source, or a group of
alternative sources with adequate and reasonably comparable qualifications. Thus
succeeding orders for the same item can be placed with these same suppliers with
confidence in the original selection. In other words, the decision as to a source of
supply contemplates a continuing and long-lasting mutually productive relationship.
4.2.7. Loyalty to Suppliers
A continuing buyer-seller relationship, based on mutual confidence and satisfaction,
implies a policy and, a responsibility of loyalty to suppliers. This is the antithesis of
opportunism and constant “shopping around” in purchasing. It is true that some cost
savings can be made by such methods, but it is usually at the sacrifice of uniformity
and continuity of supply. Especially, it sacrifices the assurance of supply that is the
first responsibility in purchasing. Without established and loyal sources of supply,
every recurring requirement presents a procurement problem of the first order, and the
work of the purchasing department is magnified beyond all reason and proportion.
National Institute of Construction Management and Research, Hyderabad.
Current inventory practices of Real Estate Developers – A case study 19
Financial strength and stability of the supplier company may be essential to assure continuity
of supply and reliability of product quality. A competent buyer should be able to read and interpret
financial reports and make intelligent conclusions from the data.
Past performance provides an excellent insight into probable future success. The key to
successful analysis is to identify the important characteristics of the particular purchase.
Usually, three important factors are evaluated.
i) Quality Evaluation is simply reviewing the supplier‟s record in respect to meeting the
required specifications, which is measured as a percentage of acceptable shipments or
delivery. It should be the policy for the quality-control section to inform the purchasing
department of the facts concerning each shipment/delivery.
ii) Price Evaluation in its simplest form is the net price quoted in each instance for conforming
goods compared to the prices quoted by competitors. Consistency of success and integrity in
price behavior would provide a measure criterion.
iii) Service Evaluation includes prompt submission of data, response to inquiries, delivery
performance, special services rendered, and other intangibles. Most of the elements in this
factor are subjective in nature.
National Institute of Construction Management and Research, Hyderabad.
Current inventory practices of Real Estate Developers – A case study 20
4.3 OBJECTIVE 3: Applying tools and techniques of inventory classification in
real life situation.
As per the inventory management theory there are various tools and techniques emerged in order
to control the material flow yet maintaining minimum stock level. In our study we witnessed the
application of tools and techniques of inventory classification in real life situation.
A record for every work shall be carried at the site and periodic reports in the form of electronic and
paper are prepared and sent to the head office of the financial affairs and database maintenance. This
process ensures transparency in the work flow and avoids bottlenecks in the due course of the
project.
4.3.0 TOOLS AND TECHNIQUES OF INVENTORY MANAGEMENT AND CONTROL
The following are the important tools and technique of inventory management and control.
4.3.1. Determination of stock levels.
4.3.2. Determination of safety stocks.
4.3.3. Selecting a proper system of ordering for inventory.
4.3.4. Determination of economic order quantity(EOQ).
4.3.5. A.B.C. Analysis.
4.3.6. V.E.D. Analysis.
4.3.7. Inventory turnover ratios.
4.3.8. Classification and codification of inventories
4.3.9. Preparation of inventory reports.
4.3.1. Determination of stock levels:
Carrying of too much and too little of inventories is detrimental to the firm. If the inventory
level is too little, the firm will face frequent stock-outs involving heavy ordering cost and if
the inventory level is too high it will be unnecessary tie-up of capital. Therefore, an affective
inventory management requires that a firm should maintain an optimum level of inventory
National Institute of Construction Management and Research, Hyderabad.
Current inventory practices of Real Estate Developers – A case study 21
where inventory costs are the minimum and at the same time there is no stock-out which may
result in lost of sale or stoppage of production. Various stock levels are discussed as such.
4.3.1.1. Minimum Level: This represents the quality which must be maintained in hand at all
times. If stocks are less than the minimum level then the work will stop due to shortage of
materials.
Following factors are taken into account while fixing
i. Lead Time: The time taken in processing the order and then executing it is known as
lead time. It is essential to maintain some inventory during the period.
ii. Rate of Consumption: It is the average consumption of material in the factory.
iii. Nature of Material: If a material is required only against special orders of the customer
than minimum stock will not be required for such materials. Minimum stock level can be