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VENDOR MANAGED INVENTORY IN INDIAN

CONSTRUCTION INDUSTRY
Successful project management involves efficient management of project
resources such as materials and labors. Material management is focusing
on material handling and delivery.
This study looks into vendor-managed inventory as a potential solution for
reducing inventory problems at site. There is potential of successful
application of VMI in India but it will depend on the response of the
industrial players.
Vendor-managed Inventory is an inventory control system that shifts the
responsibility of taking care inventory at site to contractors. The first signs
of VMI were perceptible in manufacturer that used to reduce the cost of
holding inventory.
The objectives of this project are to study the inventory and its problem in
undertaken construction project and analyzing the potential of VMI in local
construction industry. Other objective is to investigate the extent of
expected barriers and benefits from the viewpoint of construction
personnel. Based on the survey, there are two major problem faced by
construction personnel including inaccurate measurement that lead to
wastage problem and site inventory records (spreadsheet application)
which tends to be flawed due to manual process. The survey shows that
there are few more steps for local construction industry to reach the
concept of VMI.
Finally the thesis reveals that lack of cooperative culture and increased
repeat business with the key suppliers or contractors has identified as
major expected barrier and benefit from viewpoint of construction
personnel.

Vendor-Managed Inventory in Construction

A lot of survey and research have been done on application of VMI and
benefits on manufacturer industry. The scarce survey and research
conducted on application of VMI system on construction field. Why VMI
system still less applicative on construction industry? To answer this
question,

one

must

look

at

the

perspective

from

the

logistics

management; construction industry difers from repetitive manufacturing


and consumer goods in several aspects:
Each construction project is diferent.
The final product if one-of-a-kind.
The production take place at its final use of the building thus
the place, where production takes place changes each time
when a new project starts.
The production of the construction firm take place in a
number of diferent locations.
The site organization may stay relatively stable but the
external organization (designers, engineers, and suppliers) is
diferent in every project, and the project typically has a lot
power to decide about its own practices such as production
methods, purchasing and material delivery.
There are a lot of companies (Developers, Consultants,
Quantity Surveyor, and Suppliers) operating simultaneously at
each site.
Product specifications are usually for the most outside the
control of the contractors
These features of the construction industry make the integration and
coordination of supply chains challenging both in vertical and horizontal
dimensions. As mentioned early in Chapter 1, vertical dimension refers to
the integration of site and upstream supply chain, and is challenging
because of the uniqueness of each site. Each site is diferent in term of

sizes, ground and subsoil conditions, access to site, and the proposed
project. The scarce literature conducted about logistics and supply chain
management in construction has mostly related to this challenge.
Meanwhile, managing the horizontal dimension is challenging because of
the large number of suppliers and sub-contractors in each project,
constantly

changing

production

locations,

characteristically

high

uncertainty and variability, and high freedom of each site to decide about
its own practices. Horizontal integration is an issue that is discussed more
in context of production strategies of multinational companies and less in
supply chain management context (Turkulainen and Ketokivi, 2006).
The lack of horizontal integration in construction companies can be
considered an important reason why the eforts to apply advanced logistic
and supply chain management practices in construction have often been
not achieved great success. Many successful pilots never been turned into
company-wide established practice because the horizontal integration has
been weak at the outset.
So far, there is not much research done to explore the applicable of VMI in
construction industry. One of the studied of application of VMI in
construction following is a must discussion section. This is because the
data gain from the case study is very important to convince that the VMI
suitable in construction industry. Let us proceed to the mentioned case
study below.

Application of VMI system in India Construction Industry


From the above discussion, it is obviously the VMI system is a concept
that shifts the responsibility of replenishment to supplier. In order to
enable this concept can successful being implemented in construction

sites, there are several enablers that need to be implemented as well.


Such enablers include probably a development manager needed to
control the material logistics, an information system that needed for bar
coding and scanning materials, and probably an database that consist
of all items code at site store.
In our opinion, such enablers are always not easy to implement especially
because of the complexity of local construction sites. In local construction
industry, the major concerns of constructing a structure are time, cost,
and safety. Usually, the parties

involved

in

local

construction

site

trends to focus on the design of the structure in order to ensure its


safety. This is because of the whole life liability for relevant authority who
in charge of the structure.
Besides, there are several obstacles that preventing the implementation
of VMI system in local construction industry. First, there is better to hire a
development manager to control all the process involved in VMI system
include keep on communicate with supplier with the real time information
and control the site store usage from being destroyed.
However, how to clearly identify the responsibility of this development
manager is a challenging task. Obviously the development manager
only will concern with the way to better implement VMI system. For
instance, the development manager will decide the location of the store
at site for its own convenient. However, is it the location of store agreed
by site manager is another issue?
Furthermore,

for

those

small

companies

which

unable

to

get

development manager, will probably shift the responsibility to site


manager. This will increase the workload of the site manager. And the
efectiveness of VMI system will also being afected.
Second obstacle to prevent implementing of VMI system in local site is

the complexity of local site in term of the combination of multi racial


worker at site. Usually, India construction site consists of diferent
countrys worker especially those who come from Bangladesh, and as well
as diferent states. In this situation, it is a dificult task to ensure that all
workers follow the VMI system rules especially when they are taking
items form inventory store. Is it they will properly scan the items or
just take and leave? This is a problem that related to personal
attitudes that was very hard to deal with.
Third obstacle is the financial considering when implement the above
enablers.

Beside get a development manager, there is necessity to

provide information system tools and database inventory system before


the VMI system can successfully being implemented. Most of the small
scale of construction firm cannot aford the expenditure. And isnt it there
is a necessity to spend the money? At the same time, for lower class of
contractors, the net profit gained probably even cannot cover up the
expenditure for implementing VMI enablers.
The fourth obstacle is the mutual consent between the contractors and
suppliers.

As

mentioned

above,

the

information

sharing

is

an

important concern during the implementation of VMI system. There is a


possibility of one of the party breaks the origin mutual consent by turning
their partners back to find another new partner for better profit. If this
happen, the side who being betrayed will generate the loss not only in
term of financial but also the information related to company being
exposed.
However, the VMI system has been proven that its advantages for
reducing inventory holding. This is depending on how the suppliers and
contractors being link together to provide the greater benefit for both
side. Before any action taken to implement the VMI system, there is a
necessity to carry out a detail assessment on the financial of company,

expected benefits, and the level of confident toward the potential partner
for implementing the system.
The above discussion is focusing on the expected obstacles and benefits
gain from application of VMI in local construction industry. This is the third
objective in this project that investigates the expected obstacles and
benefits from construction personnel perspective. The brief summary
comes next to end this chapter.

Summary
As a conclusion, the VMI system has been proved that helps to reduce the
holding of inventory at site. However, only the small items (bolts and
nuts) have been studied in detail. And the result show that the workability
of VMI system. But there is no study conducted on the feasibility of
VMI system towards the construction material (cements, formworks, and
steel bars).
Therefore, further study and research should focus on the feasibility of
VMI program on construction materials. This is because the implementing
of VMI system have been proved that can gain benefits in term of
reduce holding inventory and avoid unnecessary cost of managing
excessive inventory at site.