Vendor-Managed Inventory in Malaysia Construction Industry

Wai Soon Han1, Associate Prof Dr Aminah Mohd Yusof2

1 Student, Construction Management, University Technology Malaysia, Skudai, Johor Bahru, Malaysia

2 Lecturer, Department of Structure and Material, University Technology Malaysia, Skudai, Johor Bahru, Malaysia

Abstract: 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 will
look into vendor-managed inventory as a potential solution for reducing inventory at site. It is expected
that the study will reveal the low level of application VMI in construction industry in Malaysia. There is
potential of successful application but it will depend on the response of the industrial players.
Keywords: Project Management, Delivery process of material, Site inventory, Vendor-managed
Inventory.

10 Introduction

Effective project management is important in ensuring the successful delivery of a construction

project. Project management activities include scoping, planning, organizing, controlling, and corrective
measure of important project resources. Among important resources in project are labor and material.
Construction material management normally focuses on delivery and handling them, for example
applying Just-In-Time in material delivery. Other studies address wastage problem in construction. Little
focus on treating construction material as inventory in construction process. This is due to various reasons
such as inventory theory has long embedded in manufacturing sector. The logistics and supply
management literature usually deal with the issue in the context of goods, repetitive manufacturing, and
retailing.

From the logistics management perspective, construction industry differs from repetitive
manufacturer and consumer goods in several aspects include each construction project is different, the
final product is one-of-a-kind, there are a lot of companies and staff working at each site, and the
production of the construction firm take place in a number of different locations.

In order to apply the logistics management concept in construction industry, there are several
requirements needed to place for the material delivery. First, the transparency of material availability is
needed for site inventory. And second, the collaborative between suppliers and contactors in term of
sharing information. Thirdly, the mutual consent between both parties in order to provide a location for
storing inventory that under technically monitoring.

Therefore, the aim of this project is to explore the potential solution for managing material
logistics of construction projects. The solution is called Vendor-managed inventory. This approach shifts
the responsibility of taking care inventory at site from contractor to supplier. The aim is supported by the
objectives of analyzing the potential of Vendor-managed inventory in construction industry in Malaysia
by assessing the level of VMI’s implementation and exploring the barriers and benefits from applying this
method. In the first section, will review literature step by step which related to inventory management,
material management, and vendor managed inventory in local construction. In the second section, a
questionnaire will be distributed to obtain the information related to the level of VMI’s implementing in
local industry. The analysis and result of the questionnaire will be discussed in third section.

20 Background

According to Ingo Morgenstern (2007), Inventory Management or inventory control is the

volitional break of the operative material flow; and thus deliberately composed stocks develop. Inventory
Management needs a storage that means a room, building or area to store the item. The in-pouring items
are called storage input, the outpouring items storage output.

Timo and Mikko (2007) present a potential solution for managing delivery of construction
material. In their paper, they present the delivery model and its linkages to Last Planner type project
management. They will present their proposal into two parts. First, they address the transparency needed
for determining material constraints. Then they demonstrate how the near term scheduling of project tasks
can be used to help the supplier to provide timely deliveries.

Tanskanen, Holmstrom, Elfving, and Talvitie (2009) proposea solution to describe the challenge
of managing logistic at corporate level in construction industry and to present and evaluate vendor
managed inventory (VMI) as a potential solution for small item (bolts and nuts) logistics. They present a
design science approach. It describes and tests a possible solution design for small item logistic in
construction.

30 Methodology
 In this project, there are three sections. The first section deal with the literature review related to
the inventory management, material management in site, and vendor managed inventory in construction.
The second section deals with information gather through a questionnaire that distribute to site personal
and supplier. The ideal copies of questionnaire will be between 30 to 40 copies. The questionnaire
consists of three parts. The first parts related to personnel particulars, and second part related to Vendor-
managed Inventory practices and concern. The last part related to barriers and benefits of VMI. And final
section will be the analysis and discussion of the data gather through questionnaire. And recommendation,
further development, and conclusion also included in third section of this project.

Personnel Particulars

VMI Practices and concerns

Barriers and benefits of VMI

Figure1.0: Project’s methodology

40 Expected Findings

VMI system has been implemented quite widely in foreign construction industry especially the
western construction industry in recent years. This is because a lot of literature and finding found that
VMI system as effective tools to reduce inventory.

However, there is starting point for Malaysia construction industry to adapt VMI system. Very
little research related to local construction context has been done to explore the effectiveness of VMI
system. Taking this into consideration, one can expect that the level of VMI’s implementing in local
construction industry has not yet reached a trend. There are a lot of reasons and causes leading to the low
level of VMI’s implementation in local construction industry. The following are the expected causes and
reasons:
 • Suppliers and contactors do not realize the effectiveness of VMI system;
• The relative high cost to implement VMI enablers;
• Lack of confident to work in a way that sharing the information with suppliers or contactors;
• There is no necessity for a small construction company to adapt VMI system;

50 Tentative Research Schedule

Date Jan 09 Feb 09 Mar 09 Apr 09 May 09 Jun 09 Jul 09

Task
Article finding
Problem
Formulation
Literature
reviewing
Questionnaire
distributing and
gathering
Analysis and
discussion
Project
presentation
Final draft
submission

Figure 1.0: Tentative research schedule

Reference

Kari Tanskanen, Jan Holmstrom, Jan Elfving, Ulla Talvitie (2009), “Vendor-managed-inventory (VMI) in
construction,” International Journal of Productivity and Performance Management Vol 58, pp. 29-40
Timo Ala-Risku, Mikko Karkkainen (2007), “Material Delivery Problems in Construction Projects: A
Possible Solution,” International Journal of Production Economics.

Ingo Morgenstern (2007), “Introduction Theory of Inventory Control,” Faculty of Physics University of
Regensburg.