Evaluation of Materials Management Information System

Executive Summary

The purpose of this report is to assess the effectiveness of the existing Materials Management System (MMS) in “ABC Construction”, identify the gaps in business processes and define user needs and stakeholders expectations concerning the implementation of new Information System (IS) proposed by the Modernization Committee of the Company.

Field study and research through questionnaires showed that there were major failures in the existing MMS in the field of planning, tracking and inventory of materials and equipment. There was no integrated automated control over the materials planning process. Vendors and Suppliers databases were poor. Tracking of materials was processed through MS Excel spreadsheet making the expediting of Suppliers submissions inefficient as sometimes the data was simply lost which led to mismatch between the Company and Suppliers data in the context of delivery status.

The control and monitoring of the materials in stock was characterized by inefficient inventory paperwork. The overall MMS documentation was not comprehensive enough provoking heavy workload, manual verification of the data and unsatisfactory reporting which consequently caused failures to meet construction completion deadlines.

The proposed IS SAP MM was critically evaluated as a potential solution for the automation of MMS in “ABC Construction”. Taking into consideration principle business objectives the success of IS was diagnosed by means of IS Success Framework developed by DeLone and McLean (see Appendix 1).

The outcome of the analysis showed that IS proved to be applicable and could meet the expectations of either Senior Management or Materials personnel, and to align with the Company’s strategy and business objectives. The main processes of Materials Management and the relations between “ABC Construction” and Vendors/Suppliers can be efficiently managed and coordinated if proposed IS is implemented.

The recommendation to utilize the proposed SAP MM for efficient Material Management was supported. Professional MM IS and speed of execution can provide the Company faster time to market, potential growth as a long-term objective and thus, sustainable future of the business. Further comprehensive financial analysis for IS implementation project will be conducted by the Financial Department and presented to stakeholders in order to make final investment decision.

Introduction

“ABC Construction” is a medium Russian Construction Company founded in 1995 specializing in general construction, construction management, and design services. It is a material-intensive business in which control over materials required for construction has a major impact on the revenue of the company.

In order to access the current performance of Material Management System, identify its inefficiency and define user needs and expectations of the stakeholders with regards to implementation of new proposed Information System (IS) a field study and research through questionnaires were conducted.

Based on the results of the interviews and data from the questionnaires of 1 Project Director, 4 Project Managers, 4 Contracts Managers, 5 Chief Engineers, 3 Material Managers and 10 Materials Coordinators the major drawbacks of the existing MMS were identified in the field of planning, tracking and inventory of materials and equipment.

The following implications are summarized to describe the outcome of the research with regards to MMS utilized in the Company:

• There is no efficient automated control over the materials planning process. Vendors and Suppliers database is poor, not up-to-date, not all the required information included. Vendor Data requirements are not defined in terms of requisitions, package and purchase orders (PO), no materials specifications available and deliveries timelines indicated. No comprehensive pricing information available in the system.
• Tracking process of status of materials and equipment deliveries is done through MS Excel spreadsheets making the expediting of Vendor submissions inefficient. A number of Materials Specialists and Coordinators are working on one spreadsheet at the same time and due to human element while transferring data information may be lost. This causes the mismatch between the Company and the Contractors data in terms of materials status.
• Inefficient control over the materials in stock. Inventory reports are not detailed; shortages of materials are not specified and can be depicted by means of PIVOT tables only. Materials Coordinators working in various projects of the Company sometimes do not have enough time for monitoring the stock which can cause such major problems as failures to meet construction completion deadlines and initial budget deficit due to incidental expenditures caused by damaged/lost or undelivered materials which were not properly indicated in craftwork database.
• The overall MMS documentation is not comprehensive: process sheets, inventory records, material requisitions, material call-off schedules, shortage notes, lot tickets, delivery notes and quality test sheets provide incomplete information and you have to take time and refer to another documents and spreadsheets to find the required information. There are no procedures on document standards between the Company and its vendors/suppliers. Contract Managers are not satisfied with the reporting system which is not transparent enough and is to be developed to better standards.

Due to the Company’s Modernization Strategy and taking into account the gaps in the existing MMS a standard integrated IS – SAP MM (Materials Management) was proposed for implementation within the Company.

The main objectives of IS Implementation set by the Senior Management are as follows:

• To ensure that “ABC Construction” has the right material, in the right place, at the right quantity and price.
• To develop and unify materials related procedures and make materials purchase, transfer and receipt clear for all involved parties.
• To stay competitive in construction market and build a sustainable future.

Analysis and Implications

In order to assess the integral ERP solution SAP MM (module that is used for Procurement Handling and Inventory Management) was reviewed to evaluate the applicability of IS to meet the requirements of the stipulated business objectives. IS was inspected through the application of the success metrics specified in Updated IS Success Model developed by DeLone and McLean.

SAP MM success evaluation based upon success metrics aligned with stakeholders expectations is indicated in the table below.

One of the main objectives of the capabilities of described IS is to improve streamline collaboration between the Materials Department and its suppliers while drastically decreasing procurement and inventory costs and maximizing the value of relationships on both sides. Thus, the supplier participation and automation of cross-company processes are increasing which leads to enhancing the supply chain visibility, to increasing the overall speed accuracy, and adaptability of Vendors which is vital for construction field.

Proposed IS can improve and simplify the inventory procedures and control over stock in the Company. IS Supplier portal component is available. That eliminates manual data entry, improves internal and external communications and reduces errors and process costs. IS provides the required transparency of the Material Management processes and Supplier/Vendor base visibility enabling companies to monitor and evaluate suppliers with real-time performance feedback.

The following expectations of the Company can be met if proposed IS is implemented:

• Automation, simplification and acceleration of Material Management processes.
• Less mismatching between Supplier/Vendor and the Company’s status documentation
• Accurate and detailed information on Supplier/Vendor abilities and rates.
• Improved reporting system and configuration of the reports per requirements of Senior Management, Materials Staff and Financial Dept.
• Lowered procurement and inventory costs; improved asset utilization.
• Reduced risk of supply and delays through the efficient IS electronic tracking.
• Reduced downtime & overtime; paperwork, adjustment and compilation of the forms.

Recommendations

Based on the results of SAP MM critical evaluation the IS proves to be applicable in order to develop or replace the existing MMS in “ABC Construction” and to meet the expectations of either Senior Management or Materials personnel, and to align with the Company’s strategy and business objectives. The principal processes of Materials Management can be fully monitored and controlled if proposed IS is implemented.

Therefore, the recommendation to utilize the proposed SAP MM for efficient Material Management is supported. To build a sustainable future and to remain competitive in construction market the materials and equipment as well as relations of “ABC Construction” with Vendors/Suppliers can be efficiently managed and coordinated through proposed SAP MM. Professional MM IS and speed of execution can provide the Company with faster time to market and potential growth of business as a long-term objective.

Further comprehensive financial assessment in terms of costs and commercial value, benefits and risks of the IS implementation project is to be conducted by the Financial Department and presented to stakeholders in order to make final investment decision. Microsoft Rapid Economic Justification (REJ) Framework can be recommended for further reference see Figure below.

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