4.8 Inventory Control

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.

4.9 Tradeoffs of Costs in Materials Management.

To illustrate the type of trade-offs encountered in materials management, suppose that a particular item is to be ordered for a project. The amount of time required for processing the order and shipping the item is uncertain. Consequently, the project manager must decide how much lead time to provide in ordering the item. Ordering early and thereby providing a long lead time will increase the chance that the item is available when needed, but it increases the costs of inventory and the chance of spoilage on site.

Let T be the time for the delivery of a particular item, R be the time required for process the order, and S be the shipping time. Then, the minimum amount of time for the delivery of the item is T = R + S. In general, both R and S are random variables; hence T is also a random variable. For the sake of simplicity, we shall consider only the case of instant processing for an order, i.e. R = 0. Then, the delivery time T equals the shipping time S.

Since T is a random variable, the chance that an item will be delivered on day t is represented by the probability p(t). Then, the probability that the item will be delivered on or before t day is given by:

4.1

If a and b are the lower and upper bounds of possible delivery dates, the expected delivery time is then given by:

4.2

The lead time L for ordering an item is the time period ahead of the delivery time, and will depend on the tradeoff between holding costs and unavailability costs. A project manager may want to avoid the unavailable cost by requiring delivery on the scheduled date of use, or may be to lower the holding cost by adopting a more flexible lead time based on the expected delivery time. For example, the manager may make the tradeoff by specifying the lead time to be D days more than the expected delivery time, i.e.,

4.3

where D may vary from 0 to the number of additional days required to produce certain delivery on the desired date.

In a more realistic situation, the project manager would also contend with the uncertainty of exactly when the item might be required. Even if the item is scheduled for use on a particular date, the work progress might vary so that the desired date would differ. In many cases, greater than expected work progress may result in no savings because materials for future activities are unavailable.

Example 4-7: : Lead time for ordering with no processing time.

Table 4-1 summarizes the probability of different delivery times for an item. In this table, the first column lists the possible shipping times (ranging from 10 to 16 days), the second column lists the probability or chance that this shipping time will occur and the third column summarizes the chance that the item arrives on or before a particular date. This table can be used to indicate the chance that the item will arrive on a desired date for different lead times. For example, if the order is placed 12 days in advance of the desired date (so the lead time is 12 days), then there is a 15% chance that the item will arrive exactly on the desired day and a 35% chance that the item will arrive on or before the desired date. Note that this implies that there is a 1 - 0.35 = 0.65 or 65% chance that the item will not arrive by the desired date with a lead time of 12 days. Given the information in Table 4-1, when should the item order be placed?

Table 4-1  Delivery Date on Orders and Probability of Delivery for an Example

Suppose that the scheduled date of use for the item is in 16 days. To be completely certain to have delivery by the desired day, the order should be placed 16 days in advance. However, the expected delivery date with a 16 day lead time would be:

= (10)(0.1) + (11)(0.1) + (12)(0.15) + (13)(0.20) + (14)(0.30) + (15)(0.10) + (16)(0.05) = 13.0

Thus, the actual delivery date may be 16-13 = 3 days early, and this early delivery might involve significant holding costs. A project manager might then decide to provide a lead time so that the expected delivery date was equal to the desired assembly date as long as the availability of the item was not critical. Alternatively, the project manager might negotiate a more certain delivery date from the supplier.

4.10 Construction Equipment

The selection of the appropriate type and size of construction equipment often affects the required amount of time and effort and thus the job-site productivity of a project. It is therefore important for site managers and construction planners to be familiar with the characteristics of the major types of equipment most commonly used in construction.

Excavation and Loading

One family of construction machines used for excavation is broadly classified as a crane-shovel as indicated by the variety of machines in Figure 4-3. The crane-shovel consists of three major components:

The type of mounting for all machines in Figure 4-3 is referred to as crawler mounting, which is particularly suitable for crawling over relatively rugged surfaces at a job site. Other types of mounting include truck mounting and wheel mounting which provide greater mobility between job sites, but require better surfaces for their operation. The revolving deck includes a cab to house the person operating the mounting and/or the revolving deck. The types of front end attachments in Figure 4-3 might include a crane with hook, claim shell, dragline, backhoe, shovel and piledriver.

Figure 4-3  Typical Machines in the Crane-Shovel Family

A tractor consists of a crawler mounting and a non-revolving cab. When an earth moving blade is attached to the front end of a tractor, the assembly is called a bulldozer. When a bucket is attached to its front end, the assembly is known as a loader or bucket loader. There are different types of loaders designed to handle most efficiently materials of different weights and moisture contents.

Scrapers are multiple-units of tractor-truck and blade-bucket assemblies with various combinations to facilitate the loading and hauling of earthwork. Major types of scrapers include single engine two-axle or three axle scrapers, twin-engine all-wheel-drive scrapers, elevating scrapers, and push-pull scrapers. Each type has different characteristics of rolling resistance, maneuverability stability, and speed in operation.

Compaction and Grading

The function of compaction equipment is to produce higher density in soil mechanically. The basic forces used in compaction are static weight, kneading, impact and vibration. The degree of compaction that may be achieved depends on the properties of soil, its moisture content, the thickness of the soil layer for compaction and the method of compaction. Some major types of compaction equipment are shown in Figure 4-4, which includes rollers with different operating characteristics.

The function of grading equipment is to bring the earthwork to the desired shape and elevation. Major types of grading equipment include motor graders and grade trimmers. The former is an all-purpose machine for grading and surface finishing, while the latter is used for heavy construction because of its higher operating speed.

Figure 4-4  Some Major Types of Compaction Equipment

Drilling and Blasting

Rock excavation is an audacious task requiring special equipment and methods. The degree of difficulty depends on physical characteristics of the rock type to be excavated, such as grain size, planes of weakness, weathering, brittleness and hardness. The task of rock excavation includes loosening, loading, hauling and compacting. The loosening operation is specialized for rock excavation and is performed by drilling, blasting or ripping.

Major types of drilling equipment are percussion drills, rotary drills, and rotary-percussion drills. A percussion drill penetrates and cuts rock by impact while it rotates without cutting on the upstroke. Common types of percussion drills include a jackhammer which is hand-held and others which are mounted on a fixed frame or on a wagon or crawl for mobility. A rotary drill cuts by turning a bit against the rock surface. A rotary-percussion drill combines the two cutting movements to provide a faster penetration in rock.

Blasting requires the use of explosives, the most common of which is dynamite. Generally, electric blasting caps are connected in a circuit with insulated wires. Power sources may be power lines or blasting machines designed for firing electric cap circuits. Also available are non-electrical blasting systems which combine the precise timing and flexibility of electric blasting and the safety of non-electrical detonation.

Tractor-mounted rippers are capable of penetrating and prying loose most rock types. The blade or ripper is connected to an adjustable shank which controls the angle at the tip of the blade as it is raised or lowered. Automated ripper control may be installed to control ripping depth and tip angle.

In rock tunneling, special tunnel machines equipped with multiple cutter heads and capable of excavating full diameter of the tunnel are now available. Their use has increasingly replaced the traditional methods of drilling and blasting.

Lifting and Erecting

Derricks are commonly used to lift equipment of materials in industrial or building construction. A derrick consists of a vertical mast and an inclined boom sprouting from the foot of the mast. The mast is held in position by guys or stifflegs connected to a base while a topping lift links the top of the mast and the top of the inclined boom. A hook in the road line hanging from the top of the inclined boom is used to lift loads. Guy derricks may easily be moved from one floor to the next in a building under construction while stiffleg derricks may be mounted on tracks for movement within a work area.

Tower cranes are used to lift loads to great heights and to facilitate the erection of steel building frames. Horizon boom type tower cranes are most common in highrise building construction. Inclined boom type tower cranes are also used for erecting steel structures.

Mixing and Paving

Basic types of equipment for paving include machines for dispensing concrete and bituminous materials for pavement surfaces. Concrete mixers may also be used to mix portland cement, sand, gravel and water in batches for other types of construction other than paving.

A truck mixer refers to a concrete mixer mounted on a truck which is capable of transporting ready mixed concrete from a central batch plant to construction sites. A paving mixer is a self propelled concrete mixer equipped with a boom and a bucket to place concrete at any desired point within a roadway. It can be used as a stationary mixer or used to supply slipform pavers that are capable of spreading, consolidating and finishing a concrete slab without the use of forms.

A bituminous distributor is a truck-mounted plant for generating liquid bituminous materials and applying them to road surfaces through a spray bar connected to the end of the truck. Bituminous materials include both asphalt and tar which have similar properties except that tar is not soluble in petroleum products. While asphalt is most frequently used for road surfacing, tar is used when the pavement is likely to be heavily exposed to petroleum spills.

Construction Tools and Other Equipment

Air compressors and pumps are widely used as the power sources for construction tools and equipment. Common pneumatic construction tools include drills, hammers, grinders, saws, wrenches, staple guns, sandblasting guns, and concrete vibrators. Pumps are used to supply water or to dewater at construction sites and to provide water jets for some types of construction.

Automation of Equipment

The introduction of new mechanized equipment in construction has had a profound effect on the cost and productivity of construction as well as the methods used for construction itself. An exciting example of innovation in this regard is the introduction of computer microprocessors on tools and equipment. As a result, the performance and activity of equipment can be continually monitored and adjusted for improvement. In many cases, automation of at least part of the construction process is possible and desirable. For example, wrenches that automatically monitor the elongation of bolts and the applied torque can be programmed to achieve the best bolt tightness. On grading projects, laser controlled scrapers can produce desired cuts faster and more precisely than wholly manual methods. Possibilities for automation and robotics in construction are explored more fully in Chapter 16.

Example 4-8: Tunneling Equipment

In the mid-1980's, some Japanese firms were successful in obtaining construction contracts for tunneling in the United States by using new equipment and methods. For example, the Japanese firm of Ohbayashi won the sewer contract in San Francisco because of its advanced tunneling technology. When a tunnel is dug through soft earth, as in San Francisco, it must be maintained at a few atmospheres of pressure to keep it from caving in. Workers must spend several hours in a pressure chamber before entering the tunnel and several more in decompression afterwards. They can stay inside for only three or four hours, always at considerable risk from cave-ins and asphyxiation. Ohbayashi used the new Japanese "earth-pressure-balance" method, which eliminates these problems. Whirling blades advance slowly, cutting the tunnel. The loose earth temporarily remains behind to balance the pressure of the compact earth on all sides. Meanwhile, prefabricated concrete segments are inserted and joined with waterproof seals to line the tunnel. Then the loose earth is conveyed away. This new tunneling method enabled Ohbayashi to bid $5 million below the engineer's estimate for a San Francisco sewer. The firm completed the tunnel three months ahead of schedule. In effect, an innovation involving new technology and method led to considerable cost and time savings.

4.11 Choice of Equipment and Standard Production Rates

Typically, construction equipment is used to perform essentially repetitive operations, and can be broadly classified according to two basic functions: (1) operators such as cranes, graders, etc. which stay within the confines of the construction site, and (2) haulers such as dump trucks, ready mixed concrete truck, etc. which transport materials to and from the site. In both cases, the cycle of a piece of equipment is a sequence of tasks which is repeated to produce a unit of output. For example, the sequence of tasks for a crane might be to fit and install a wall panel (or a package of eight wall panels) on the side of a building; similarly, the sequence of tasks of a ready mixed concrete truck might be to load, haul and unload two cubic yards (or one truck load) of fresh concrete.

In order to increase job-site productivity, it is beneficial to select equipment with proper characteristics and a size most suitable for the work conditions at a construction site. In excavation for building construction, for examples, factors that could affect the selection of excavators include:

1. Size of the job: Larger volumes of excavation will require larger excavators, or smaller excavators in greater number.
2. Activity time constraints: Shortage of time for excavation may force contractors to increase the size or numbers of equipment for activities related to excavation.
3. Availability of equipment: Productivity of excavation activities will diminish if the equipment used to perform them is available but not the most adequate.
4. Cost of transportation of equipment: This cost depends on the size of the job, the distance of transportation, and the means of transportation.
5. Type of excavation: Principal types of excavation in building projects are cut and/or fill, excavation massive, and excavation for the elements of foundation. The most adequate equipment to perform one of these activities is not the most adequate to perform the others.
6. Soil characteristics: The type and condition of the soil is important when choosing the most adequate equipment since each piece of equipment has different outputs for different soils. Moreover, one excavation pit could have different soils at different stratums.
7. Geometric characteristics of elements to be excavated: Functional characteristics of different types of equipment makes such considerations necessary.
8. Space constraints: The performance of equipment is influenced by the spatial limitations for the movement of excavators.
9. Characteristics of haul units: The size of an excavator will depend on the haul units if there is a constraint on the size and/or number of these units.
10. Location of dumping areas: The distance between the construction site and dumping areas could be relevant not only for selecting the type and number of haulers, but also the type of excavators.
11. Weather and temperature: Rain, snow and severe temperature conditions affect the job-site productivity of labor and equipment.

By comparing various types of machines for excavation, for example, power shovels are generally found to be the most suitable for excavating from a level surface and for attacking an existing digging surface or one created by the power shovel; furthermore, they have the capability of placing the excavated material directly onto the haulers. Another alternative is to use bulldozers for excavation.

The choice of the type and size of haulers is based on the consideration that the number of haulers selected must be capable of disposing of the excavated materials expeditiously. Factors which affect this selection include:

1. Output of excavators: The size and characteristics of the excavators selected will determine the output volume excavated per day.
2. Distance to dump site: Sometimes part of the excavated materials may be piled up in a corner at the job-site for use as backfill.
3. Probable average speed: The average speed of the haulers to and from the dumping site will determine the cycle time for each hauling trip.
4. Volume of excavated materials: The volume of excavated materials including the part to be piled up should be hauled away as soon as possible.
5. Spatial and weight constraints: The size and weight of the haulers must be feasible at the job site and over the route from the construction site to the dumping area.

Dump trucks are usually used as haulers for excavated materials as they can move freely with relatively high speeds on city streets as well as on highways.

The cycle capacity C of a piece of equipment is defined as the number of output units per cycle of operation under standard work conditions. The capacity is a function of the output units used in the measurement as well as the size of the equipment and the material to be processed. The cycle time T refers to units of time per cycle of operation. The standard production rate R of a piece of construction equipment is defined as the number of output units per unit time. Hence:

4.4

or

4.5

The daily standard production rate Pe of an excavator can be obtained by multiplying its standard production rate Re by the number of operating hours He per day. Thus:

4.6

where Ce and Te are cycle capacity (in units of volume) and cycle time (in hours) of the excavator respectively.

In determining the daily standard production rate of a hauler, it is necessary to determine first the cycle time from the distance D to a dump site and the average speed S of the hauler. Let Tt be the travel time for the round trip to the dump site, To be the loading time and Td be the dumping time. Then the travel time for the round trip is given by:

4.7

The loading time is related to the cycle time of the excavator Te and the relative capacities Ch
and Ce of the hauler and the excavator respectively. In the optimum or standard case:

4.8

For a given dumping time Td, the cycle time Th of the hauler is given by:

4.9

The daily standard production rate Ph of a hauler can be obtained by multiplying its standard production rate Rh by the number of operating hours Hh per day. Hence:

4.10

This expression assumes that haulers begin loading as soon as they return from the dump site.

The number of haulers required is also of interest. Let w denote the swell factor of the soil such that wPe denotes the daily volume of loose excavated materials resulting from the excavation volume Pe. Then the approximate number of haulers required to dispose of the excavated materials is given by:

4.11

While the standard production rate of a piece of equipment is based on "standard" or ideal conditions, equipment productivities at job sites are influenced by actual work conditions and a variety of inefficiencies and work stoppages. As one example, various factor adjustments can be used to account in a approximate fashion for actual site conditions. If the conditions that lower the standard production rate are denoted by n factors F1, F2, ..., Fn, each of which is smaller than 1, then the actual equipment productivity R' at the job site can be related to the standard production rate R as follows:

4.12

On the other hand, the cycle time T' at the job site will be increased by these factors, reflecting actual work conditions. If only these factors are involved, T' is related to the standard cycle time T as:

4.13

Each of these various adjustment factors must be determined from experience or observation of job sites. For example, a bulk composition factor is derived for bulk excavation in building construction because the standard production rate for general bulk excavation is reduced when an excavator is used to create a ramp to reach the bottom of the bulk and to open up a space in the bulk to accommodate the hauler.

In addition to the problem of estimating the various factors, F1, F2, ..., Fn, it may also be important to account for interactions among the factors and the exact influence of particular site characteristics.

Example 4-9: Daily standard production rate of a power shovel

A power shovel with a dipper of one cubic yard capacity has a standard operating cycle time of 30 seconds. Find the daily standard production rate of the shovel.

For Ce = 1 cu. yd., Te = 30 sec. and He = 8 hours, the daily standard production rate is found from Eq. (4.6) as follows:

In practice, of course, this standard rate would be modified to reflect various production inefficiencies, as described in Example 4-11.

Example 4-10: Daily standard production rate of a dump truck

A dump truck with a capacity of 6 cubic yards is used to dispose of excavated materials at a dump site 4 miles away. The average speed of the dump truck is 30 mph and the dumping time is 30 seconds. Find the daily standard production rate of the truck. If a fleet of dump trucks of this capacity is used to dispose of the excavated materials in Example 4-9 for 8 hours per day, determine the number of trucks needed daily, assuming a swell factor of 1.1 for the soil.

The daily standard production rate of a dump truck can be obtained by using Equations (4.7) through (4.10):

Hence, the daily hauler productivity is:

Finally, from Equation (4.12), the number of trucks required is:

implying that 8 trucks should be used.

Example 4-11: Job site productivity of a power shovel

A power shovel with a dipper of one cubic yard capacity (in Example 4-9) has a standard production rate of 960 cubic yards for an 8-hour day. Determine the job site productivity and the actual cycle time of this shovel under the work conditions at the site that affects its productivity as shown below:

Using Equation (4.11), the job site productivity of the power shovel per day is given by:

The actual cycle time can be determined as follows:

Noting Equation (4.6), the actual cycle time can also be obtained from the relation T'e = (CeHe)/P'e. Thus:

Example 4-12: Job site productivity of a dump truck

A dump truck with a capacity of 6 cubic yards (in Example 4-10) is used to dispose of excavated materials. The distance from the dump site is 4 miles and the average speed of the dump truck is 30 mph. The job site productivity of the power shovel per day (in Example 4-11) is 504 cubic yards, which will be modified by a swell factor of 1.1. The only factors affecting the job site productivity of the dump truck in addition to those affecting the power shovel are 0.80 for equipment idle time and 0.70 for management efficiency. Determine the job site productivity of the dump truck. If a fleet of such trucks is used to haul the excavated material, find the number of trucks needed daily.

The actual cycle time T'h of the dump truck can be obtained by summing the actual times for traveling, loading and dumping:

Hence, the actual cycle time is:

The jobsite productivity P'h of the dump truck per day is:

The number of trucks needed daily is:

so 8 trucks are required.