The Integral Role of Construction Inventory in Procurement Management
The Integral Role of Construction Inventory in Procurement Management

The Integral Role of Construction Inventory in Procurement Management

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In managing construction, inventory management is one of the highlights of procurement management that brings the whole process in the supply chain full circle. While more logistics and activities are involved when inventory management is included, it enables the procurement team more control over their work.

For instance, the building materials or equipment purchased in procurement will not always be immediately sent to the departments that requested them. Most times, the procurement team will be responsible for maintaining and monitoring the inventory and supply that they procure for a specific project or the whole construction company, for that matter.

This goes without saying that inventory and procurement are tied to project management in construction— one cannot flourish and work effectively without the other.

If you want to learn more about the ways to build a stable inventory, the way to monitor an existing one, and the different ways you can manage existing inventory, read on below.

Related: Construction Inventory 101 – Common Terms You Need To Know

What is Inventory Management?

In the simplest explanation, inventory management is a collection of practices and processes that intersect with supply or procurement chain management. An extended explanation states that it’s a way of optimizing and streamline the inventory of a construction business or procurement team to facilitate uninterrupted production, procurement, sales, and service without compromising cost. 

Some of the common construction inventory management systems in procurement involves the following:

  1. Conventional Manufacturing Strategy
  2. WRS: Warehouse Management System
  3. JIT: Just-In-Time Method
  4. Q: Economic Order Quantity
  5. MRP: Materials Requirement Planning Method
  6. Push or Pull Method

Generally, there are four primary areas in construction project management wherein inventory management can be applied to. The first area is procurement or supply chain management, which is what has been discussed throughout this article. The other three areas and their relationship with inventory management are discussed below:

1. Inventory Control

The most significant portion of inventory management involves inventory control. This involves all of the supervision and coordination in managing inventory. All the items in the construction inventory— building materials, tools, equipment, or machinery— need to be adequately maintained until it is time for their usage. These items also need to be stored and recorded in the master list of stocks.

So if an item requires being kept at a specific temperature in order to maintain its quality— such as glass for windows and sliding doors— any actions to make sure that that happens would fall under the inventory control in the management process. This may also include purging and organizing an old inventory, such as broken items or no longer needed for the specific construction project. However, all actions involved in inventory control need to be accounted for early on, just like the inventory itself.  

2. Demand Forecasting

As the term implies, demand forecasting is estimating the state of the construction market as it relates to inventory and procurement management based on current information at hand. Demand forecasting is a strategy that procurement teams have already been using for years as a resource for negotiating since supply and demand can dictate costing for anything in the economy. 

A higher demand often implies that costs are lower, and construction businesses will usually wait until that happens before ordering and purchasing frequently used items in a project. The role of inventory management is identifying exactly what those items are and the frequency of their usage, and how often do these supplies need to be replenished. When applied correctly, demand forecasting can help prevent company inventories from running out by establishing a purchasing cycle that coincides with high-demand items. An inventory management software can also help in making this possible and exponentially easier.

3. Reverse Logistics

The third and final area is reverse logistics, which is the flow of nonessential items back into the supply chain for reuse elsewhere. Since you can’t return parts of an order back to the supplier, most construction businesses do not have many purposes for excess inventory unless it’s a regularly used item. 

Instead of eating or wasting the cost of the excess inventory, the procurement team can resell it back to other companies and services that can typically benefit from reverse logistics inventory. This could be resale or refurbish businesses, recycling centers, and fulfillment services. It could also be other departments or other ongoing company construction projects elsewhere, depending on what those items are.

What Are the Criteria for Establishing a Stable Inventory?

Building a stable inventory where good management can be applied requires a solid understanding of how the procured items are used. If a certain item is rarely used and/or has a short shelf life, it will make no sense to build up its supply. Similarly, an item that is regularly used but at rates that are too fast to keep track of won’t be something that you can constantly carry in your construction inventory list. Just because an item is used in a construction project operation doesn’t imply that it’s something that should be kept in massive quantities. 

Now, the key criteria that should be used to set up a stable basis for your inventory should be the following:

  1. Regularity of use,
  2. Shelf life or stability, and 
  3. Budget-friendly even when procured in large amounts. Even if there are a few extras in between orders, it’s not enough to be considered wasteful.

Key Factors to Achieve an Organized Inventory

 

Maintaining a stable inventory also involves the art of organization and storage. These two actions ensure that all the other aspects of inventory management discussed here will work as intended. It is rather challenging to manage something when it’s all in one great big mess. Tackling organization and storage greatly requires doing two things:

1. Keep Record of All Things

Just as documentation serves a critical role in other areas of procurement, so does it in inventory management. An organized record-keeping, in any form, allows procurement staff to calculate their stock levels and monitor information effectively. This can be done with an automated and digital system, with online inventory software, or a manual one where data is encoded by hand. These records should include information regarding details of the items when it was procured or used, and its quantity. They should also be evaluated and updated regularly to ensure that the data effectively represents inventory.

2. Categorize Things

Dividing the items in your large inventory by category makes it easier to locate and track them in the overall picture. It groups things based on commonalities or identifying features, such as material type or usage. There can even be sub-categorization presented within those groups to allow for tighter and more detailed organization. 

For large and diverse inventories, a categorization is a valuable tool that keeps everything clear and straight to the point. However, that does not mean that smaller construction inventories can’t benefit from categorization; it all depends on the items in the inventory.

Ways to Monitoring Existing Inventory

 

Inventory management in construction requires that whatever inventory you have should be monitored, with no exceptions. You can’t do much of anything regarding your inventory if you have no clear idea of the items you have. Taking the time and effort to monitor your inventory closely can help make it possible to ensure the continued quality of the items and to manage them easily. 

Active monitoring of this overwhelming list of construction items can undoubtedly be extensive, depending on the size of your inventory for a project or of your whole business at that. However, there are a few steps that can make the process so much easier for your procurement team:

1. Make Things Simple

A complicated and intricate system is likely to be more of a hassle than the time and effort than it’s worth. Simple systems that keep an updated total of what’s in stock and where it’s located are sometimes all you need. Most construction inventory monitoring systems are digitally automated, so all you need to do is hit a few buttons on your mobile phone, and the program does most of the work. 

2. Consult With the Experts

In some instances, you might need to get someone who knows what they’re doing. Like how any other industry will hire managers for their staff, you can also hire managers for expertly monitoring inventory. These are usually construction professionals whose job is to maintain stock items actively. They already know how to operate programs associated with inventory management, interpret information used in demand forecasting, and organize products most efficiently. 

Even if additional staff is not hired just for this role, current staff who are given the task of handling construction inventory should still receive the appropriate training.

3. Incorporate the Right Tools

Digitally monitoring systems are just one of the intelligent tools that can be used to monitor inventory, even though many of them will be based on digital technology. Typical software used in monitoring and managing inventory is integrated with other programs and systems used in procurement, such as automatic ordering. Ensuring that your company is using the right tools can significantly make things easier for your team and help prevent any issues from arising further down the construction operations.

Construction management software with inventory management features involved, like Pro Crew Schedule, does the leg work for you. This way, you can streamline most of your inventory management tasks so you can focus on other areas of your construction projects.

Start your 30 days free trial today.

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