PROJECT MANAGEMENT for a Turnkey Project Contract
By, Shyamal Dey Technical Manager, Materials Handling. Hyder Consulting India Pvt Ltd (GEC)
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INDEX 1. Introduction. 2. Literature Review. 3. Practical Problems in Executing a Turnkey Project. 4. Maintenance Management of Critical Construction Equipment at Project Site. 5. Strategic Procurement Policy. 6. Physical Distribution Management. 7. Improving Procurement System. 8. Materials Coding System for Efficient Execution of a Turnkey Project. 9. The Project Planning through software. 10. Discussion. 11. Conclusion. 12. References.
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1. Introduction: We all know about the importance of planning in our life and all of our work and activities. As, society becoming modern and modern, planning become essential for getting success. Here all our work has been considered as a project and how to cope up the overrun is tried to explain. To develop a procedure to execute a turnkey project by implementing conventional and non-conventional methods of management technique, which is effective and will enhance the productivity. It is always better by developing a software which should be interactive, take less time with no draw back & user's friendly. The intention is by developing above system, overall Turnkey project time, cost and man power requirement can be reduced considerably, which is sought in every project. Saving in fund other words control on funds, self-financing a turnkey project and easy handling etc. are the main advantage of executing a turnkey project through a methodical way.
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2. Literature Review: All of us know about Project & Project Management, but I am defining below for recalling the definition. What is a Project? Any work that has a well-defined objective or goal and it is the sequence of the multitudinous activities required to be performed, can be defined as project. In short, a project has an end. Technically speaking, the end is termed as the sink. The various starting points of the project are called the sources. A project can have a number of sources, but only one sink.
Every Project has several phases, such as: • • • • • • • • • •
Conceptualization, Feasibility Study, Evaluation, Financial arrangement, Contracting, Engineering, Procurement, Construction, Start-up production, Stabilization of operation and Maintenance etc.
After finalization of a project, it may be executed by the owner themselves or off loaded as single contracts or divided into several contracts. These small divided portion of the projects are comes under Turnkey project contracts. As an example, I am giving below a typical Flow Diagram (FIG.-1) of a Coal Handling Plant for a Power Plant and a Plan (FIG.-2) of a Coal Handling Plant.
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Executing a Turnkey Project contract having following stages:
Estimation, Marketing, Product design, Process / System Design, Manufacturing / Fabrication, Procurement, Storing, Installation / Erection, Commissioning, Trial Production, Supply of spares, Maintenance of the plant up to certain period, as per the contract. Handing over the plant to the owner.
The above activities involve large manpower, finance and time. To keep control over a project, TIME, COST and QUALITY needs close monitoring and effective control. The projects often complete late and over budget. Actually delay in time leads to high cost because of the followings: 1) Increase in idle time. 2) A Chain of Interactions, Conflict and difficulties in taking decision. 3) The longevity of some important items may lapse. 4) Interest on the borrowed capital increases. To avoid the above causes, a Project Management is essential for execution of a project / Turnkey contract.
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What is a Project Management? It is a scientific way of planning, implementing, monitoring and controlling the various aspects of a project for time, materials, manpower, machine and other resources like methods, mentors, monitoring & money etc. can be controlled effectively for efficient utilization. Project Management is continuous learning experience. It prevents the occurrences of repeated mistakes in the future projects. The ultimate objective of Project Management is planning, then timely and economical implementation.
3. Practical Problems in Executing a Turnkey Project: Any Turnkey project execution fails, due to one or more of the following reasons: I. II. III. IV. V. VI. VII. VIII. IX. X.
Lack of integration in planning and implementation effort. Absence of commitment on the part of people responsible for implementation. Non-involvement by the top management in the monitoring and trouble shooting. Wrong direction from the part of management, i.e., wrong corporate decision. Sudden price escalation of Materials & Equipment etc. Due to strikes. It may be inside labor, political or transport etc. Irregular fund flow. Act of God, such as setting of monsoon, flood, drought, earth quake and cyclone etc. Geological soil structure may not be very clear in the beginning and may cause delay for digging foundation, tunnel and bore well etc. The comments, advice and approval of owners’ or their consultants’ comes late.
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XI. XII. XIII. XIV.
Delay in handing over the fronts to the contractor by the project owner. Land acquisition problem or delay for the same. Improper communication and co-ordination among different departments and sites. Non-availability of construction equipment and machinery or materials etc., in time.
Apart from the planning, a contingency Plan side by side, can solve many of these problems.
4. Maintenance Management of Critical Construction Equipment at Project Site. In today’s liberalized market, to achieve competitive dominance in the field of work, a scientific approach takes ahead of competitors by up grading of existing control system and operation. Here an attempt has been made to highlight the criticality of the construction equipment maintenance, in project execution and management. To complete a project / turnkey contract in schedule time, a scientific approach is required in the area of planning, quality and cost, construction, procurement and execution activities etc. Most of the time it is found that everything is under control, even the construction equipment reached at the site, but equipment cannot work due to sudden break-down. Author has made an attempt to investigate the influence of preventive maintenance of the construction equipment on the execution of project / turnkey contract. The maintenance of the construction equipment should be considered as daily routine job for success in project execution. In designing a preventive maintenance program, the failure statistics have much importance. The break down failure frequency, repair time of each break down, requirements of extra materials / spare parts for maintenance etc. should be recorded. Analysis of these recorded data, will give a fair idea regarding planning of future preventive program.
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Among the many functions of project management like financial arrangement, contracting, engineering, procurement and construction etc. and controlling these and planning, most neglected part is maintenance of construction equipment at site. Many times, it was noticed that when everything progressing satisfactorily but just at the moment of erection, the crane, which is essential for the above activity goes wrong; as a result erection cannot be done in time. The spare parts required for repairing the crane is also not readily available at the store, so that it can be repaired immediately. This may be observed in construction site where neither rule of preventive nor predictive maintenance is followed. Truly speaking all the construction equipment at most of the site is depends upon the age old practice of breakdown repairs. Due to the above, many problems are faced while executing a project / turnkey contract. Though everything is under control but due to breakdown or failure of construction equipment further work cannot be proceeded, and as a result project / turnkey contract could not be completed in time. This happens often, though labor is available and craftsmanship also good, but lack of planning and control, above problems are faced. Due to lack of facility and negligence, this area is left unattended. As maintenance work is never uniform, so sometimes the workmen are very busy in attending the breakdowns and for chasing after the spares. To reduce the uncertainty of equipment failure or breakdown, a systematic preventive maintenance should be adopted by the site in-charge to keep up the target date as per the schedule. While studying an engineering company which execute turnkey project at different location, it has been observed that the company failed to complete the project in schedule time, due to break down of cranes at the nick of time. While erecting the structures, after completion of civil work and fabrication work, the crane failed and all the people go on running for repairing the same and for the spares which is not available shortly. As a result the project exceed the time limit of completion and company had to bear the liquidity damages. Therefore for such companies, if the maintenance of construction equipment is not managed properly and personnel including operator of the equipment is not trained, the matter may deteriorate further. But due to tradition and attitude this part is always avoided and the problem faced at sites when breakdown of some important equipment occurs and construction is stopped further till it gets repaired again. This is not problem of ignorance but negligence. In one side maintenance Page 10 of 30
personnel are idle and they are not assigned for preventive maintenance and when sudden breakdown occurs everybody jumps on to repairing the equipment. If preventive maintenance is not conducted properly, it leads from one breakdown to another and compounding the problem as the machinery and equipment become old. It has been observed that the causes of failure of equipment and machines are as follows: a. Misuse or over usage of equipment / machinery, b. Faulty operation, c. Untrained operator (as he starts & stops without following the instruction), d. Omission of preventive maintenance, e. Short cut maintenance in previous instance, f. Defective parts, g. Non-exchange of oil or coolant and lubricant after specified operating hours, etc. As the primary objective of maintenance management is to maximize the availability to facilitate the optimum use of capital investment for construction equipment through replacement, repair, services and modification of the components of the equipment and machineries, so that this can continue to operate at a specified capability in a particular period of time. Productivity of the equipment and machineries can be increased by improving the condition by i. ii. iii. iv. v.
Finding the faults or failures as soon as possible, Reducing crisis situation by appropriate preventive maintenance, To have a good control over breakdown, a standard procedure to be adopted, To motivate the maintenance people by adequate incentive schemes. To train personnel to increase skill and efficiency.
As the equipment may fail any point of time, therefore a chart-based preventive maintenance should be adopted, so that construction equipment should not fail off and on, and affect the progress at sites. Page 11 of 30
Now, as site in-charge knows the total system, facilities at site and ultimately he is responsible to maintain the schedule time of completion of the project, he has to plan the periodic preventive maintenance for each equipment at site, based on the strength and efficiency of the maintenance personnel available. Operators of the equipment may help the maintenance people by informing how he operates the equipment. As operator is the first person to realize that there is something wrong in the equipment, so operator should enter the problem with the equipment and the problem faced by him during operation in LOG BOOK kept especially for this purpose. Operators’ inefficiency, increases chances of breakdown. When a machine fails, the costs of idle labor also comes to the equipment maintenance accounts. Sometimes this cost is very high, as the entire production is stopped for the equipment’s breakdown. Sometimes it is found that the down time cost is huge due to lack of spare parts. So, stocks of regular items for replacement of the worn-out and failed parts to be kept at site’s stores. After preventive maintenance of the equipment during night, next day it is supposed to work well and productivity is expected to increase. Routine checking definitely reduces the number of breakdowns. Advantages: This methodology can be adopted for any project execution, turnkey contract, maintenance of plant etc. If equipment is maintained well, then quality is maintained in better control, less defective occur and definitely productivity will improve. Spare parts of vital importance must be kept in the stores. Arrangements should be there to procure some parts at short notice also. HISTORY CARD should be prepared for various equipment, which should be mandatory to fill in periodically so that data can be analyzed easily.
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5. Strategic Procurement Policy: It’s a methodology for procurement of materials more efficiently during execution of a project: The algorithm has been designed based on Priority index depending upon categories of materials. Categories has been decided based on their importance, urgency, quantity, value, time taken for delivery etc. 1) ABC category: Always Better Control the materials. It is based on value of the items for a project / Turnkey contract. A = Large number of items covers a small function of the total consumption value. B = It’s middle one i.e. between two, previous and next. C =A small number of items covers a large portion of the project items. 2) FSO Category: It is based on the movement of the materials, on their speed of consumption. F= Fast moving/consumption of materials. S= Slow moving/consumption of materials. O= other i.e., medium flow of items. It is sometimes called FIM = Frequency of Issue the Material. This is to reduce unnecessary inventory.
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3) SDE Category: It is based on the availability of the materials in the market. S= Scarce items D= Difficult items E= Easily available items.
4) VED Category: It is as per criticality of the items. V=Vital items. E=Essential items. D=Desirable items
5) XYZ Category: This Item categorized based on bulk versus weight of materials. X= Bulky materials Y= Medium bulky materials Z= Non bulky materials.
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6) LMN Category: This category based on time required for procurement. L = Long delivery items, M= Medium time required for delivery the items, N= practically no time required for delivery i.e. readily available items.
7) PQR Category: This category based on the perishability or obsolescence of materials. P = Long life/long longevity of items. Q = Medium life/medium longevity of items. R = Short life / low longevity of items.
COMBINED ANALYSIS TECHNIQUE (CAT): CAT is to draw the attention of the manager’s selectivity for procurement of the items. Better control of the materials and fairly good dividends is the aim of this classification. In CAT system, the individual analysis are combine together. Protection factor of each item is decided. By the priority and importance of the items. Priority Index = Protection factor of (Individual Analysis).
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Then rank of each item is decided and control of the item can be decided. This may be proved a very important decision making tool.
6. Physical Distribution Management: Procurement of materials and their distribution at site in appropriate places are also complex system. Purchasing materials and their freight in optimum prices also plays an important role for success of a project. As mentioned below, the various practical conditions appear while procuring the materials for construction purposes: 1) Demand is more than availability, 2) Demand is equal to availability, 3) Demand is less than availability, 4) Transportation cost varies from place to place, and 5) Varying cost of material etc. To cope up of the above situation, one can apply conventional stepping stone method. An examples has given below:
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7. Improving Procurement System: Transportation and storing plays an important role for the project execution. To make a turnkey contract self-financing, the procurement of raw materials like Steel, Cable, and Cement etc. should be planned properly. It is required to decide the Economic Order Quantity (EOQ) for the materials which required in mass. Storing may put into high loss for perishability. Then, by following JIT (Just in Time) it is supplied to the project sites at different places. Economic Order Quantity is the most essential process, so that neither old stock is depleted nor excess stock would be there in the store. Excess stock also costs excess, as it has interest on the purchase price. So, EOQ can balance between the excess stock and the minimum stock. By the universal formula, one can decide Economic Order Quantity, E.O.Q = √ 2.N.A / C.I N=Total Consumption C=Unit Cost A=Procurement Cost I=Inventory Carrying Rate.
Next, one can follow the “Distribution Method”, based on availability with requirement and then “Freight Consolidation Policy” is to be applied.
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Example: Say, a small turnkey contract requires about of 6000 t steel along with other construction materials, has to be executed in 14 months’ time period. In that case, Economic Order Quantity is calculated, Q = √ 2.N.A / I. C Where, N = Quantity = 6000 t A=Preparation cost + Procurement Cost. =Paper work + Inspection of Raw materials + Transportation + Fabrication + Erection. = Rs (100+150+1000+3500+2250) = Rs 7000/-. C = Material Unit Cost = Rs. 17,000/I = Inventory Holding cost, say 10%=0.1 Therefore, Q = √ 2x6000x7000 / 0.1x17000 = 222.28T≈ 225 t No of cycles = 6000 / 225 = 26.66 ≈ 27run So, EOQ is 26 Times of 225 t and 27th supply will be of 150 t. Duration = 14/27 ≈ 0.5 i.e., 15 days interval. Now 225 t of steel of different section has to be procured and to be supplied at project site in 15 days interval in 27 runs. Then from Supplier “A” = Qty. of (ISMC +ISMB+ ISA + Plate + Sheets)
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Then truck is selected based on Truck capacity and availability. 1. Tata - 407 Capacity = 2.5 t. 2. Tata - 608 Capacity = 4.0 t. 3. Truck of 6 Wheel, Capacity = 9.0 t. 4. Trailor, Capacity = 15.0 t 5. Truck, 10 Wheel, Capacity = 18.0 t. 6. Trailor, Capacity = 20.0 t. 7. Special Trailer, Capacity = 40.0 t. As, the cost of Transportation is very high and this can be minimized by using the above concept.
8. Materials Coding System for Efficient Execution of a Turnkey Project: Storing system of incoming materials has to be planned properly, otherwise in real time materials will not be available for use. Reduction of Transportation cost, by avoiding less than truck load (LTL), consolidation of materials for shipment from different suppliers to form a large shipment is essential. Based on Freight Consolidation Policy (FCP), the LTL of shipment converts to FTL (Full Truck Load). Truck should be loaded with the concept of Last In First Out (LIFO), so materials bigger and heavier are loaded first, and comparatively smaller and lighter items are loaded at the last.
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The major benefits of a well-designed classification and coding system is as follows. 1. 2. 3. 4. 5.
It facilitates the formation of part families and assemblies. It helps in quick retrieval. It reduces procurement duplication. It provides reliable items’ statistics. It facilitates accurate estimation, requirement and logical engagement. 6. It helps in rationalization of items, reduce searching time, so reduces delay in Project Progress. 7. It aids Progress Planning and Scheduling Procedure. 8. It improves cost estimation and facilitates cost accounting procedures. 9. It provides better manpower utilization. 10. It facilitates in data process etc.
9. The Project Planning through software: To facilitate the planning and scheduling, also handle risk and uncertainty of projects; a software is required. This program should be simple, very handy, easy to use and user friendly. Our experience says how essential a software requirement is for executing a project / turnkey contract. Many software are available in the market, however, Project Manager can develop a software on his own, as per requirement of his project. The criteria for selection or developing of a software, for execution of a Turnkey Project are:
Capacity, Network Notation, Input features, Editing features, Output features,
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Graphic Output, Programming language, Suitability with hardware, Training requirement, Special requirement of the project.
The project activity to be progressed as planned and based on the Critical path achieve from the software. A sample PERT network diagram for a Coal Handling Plant is attached for reference. Periodically, every project has to be reviewed by the stake holders. The updates, to be uploaded on the program. The Critical path, may change this time due to the updated progress. Next, progress on activities to be done based on new Critical path. This process should be continued for timely execution of the project. The above system, is similar to PDCA (Plan-Do-Check & Act). Here, new critical path is a check, it will show, where the project progress is lacking behind and activity to be increased or strengthen in those areas. The tendency for a project overrun is natural, and unless stringent measures are taken it becomes inevitable.
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10. Discussion: 1) To control over a project, a contingency plan/supporting schedule in addition to the master schedule devised by PERT/CPM should be kept ready to meet any exigency Program. To make a project self-financing, proper JIT purchase and supply system is to be adopted. To save in funds by adopting freight consolidation and material collection policies etc. & reduction in the transportation costs, are the additional advantage during the project execution. With the help of computer programming for up gradation of existing control system & operation, minimize the delay and ultimately reduction on the cost of the Project. 2) For Brown field Projects, the extension or interfacing areas, to be handled more carefully than the green field projects and plant relocation. Because, any lack of information may upset the execution program. The problem may also may arise due to miss-matching or wrong supply of equipment or component, due to non-availability of existing standards and norms etc. 3) The advantage for utilizing “Physical Distribution Method” for procurement of Steels, Cement, Cables & other raw materials etc., helps in reducing the project cost during execution of a project. Aim is to execute the project in optimum cost, without compromising in quality, also save in funds & time. 4) Strategic sourcing methodology to be used, to make a bridge over the existing system gap, of materials management during execution of a project. As, the inventory control system & materials management had been more confined to manufacturing sectors here those have been extended to the project execution also, through this methodology. The above methodology has been implemented in a material handling project and achieved a satisfactory result. 5) The project planning software can be utilized in executing any kind of projects, Turnkey Project Contract, Maintenance work etc., very conveniently and in very less time. Also, it provides all the vital information regarding a Project, systematically. 6) Planning the execution schedule for a Project and following the same during the execution and reviewing the progress periodically, updating the schedule immediately with the program, and thereafter following the Page 25 of 30
schedule further, will minimize the time and consecutively control the cost overrun also. 7) The Maintenance Management of Construction Equipment during execution of any project should be adopted in any type of project execution, Turnkey contract and maintenance of the plant for reducing the total time taken and cost reduction through systematic approach in executing the works. Use of History Card can indicate the performance of the each equipment, maintenance spares required, Equipment life etc., also. 8) Total transportation cost for the execution of a project, is very high. To minimize the same, the JIT concept and freight consolidation policy to be applied in a Turnkey project, during procurement of steels and it is found that about INR.600,000 could be saved during procurement of 4000 t steel in a particular case experienced by the author. 9) The coding / classification system designed for the materials required in a project help in removing duplicity of items, shortage of materials can be avoided. Materials can save from loss and pilferage and time loss for searching during urgency also. It helps in easy retrieval of the materials from the stores at project sites. 10) With the proposed model of JIT purchasing and supply of materials for a project, the project can be made self-financing and funds also can be saved in the area of transportation cost, through the freight consolidation. Following above system benefits are, standardization of jobs, smoothing of progress, less mistakes, less interaction required, less materials excess or shortage and good quality of materials can be procured. It improves competitive position by reducing transportation cost and optimizing material costs and also reducing in inventory etc. It further protects the materials from natural deterioration and accidental damages e.g. fire and flood, attrition due to huge materials dumping at a place etc. It leads to systematic work and proper monitoring of the progress. 11) Application of above Project Planning methodology: 1) 2) 3) 4)
Aerospace Projects. Research development Programs. Project of developing New Technology. Maintenance jobs.
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5) 6) 7) 8) 9)
Stable Technology which is relatively risk free. Process Industries. Construction Work. Single Project Industrial Activities, and For project time overrun and cost control.
11. Conclusion: 1. Through the above procurement practices, the materials can be procured with optimum cost of quality goods and about 17% loss in the materials procurement with following the storing system, can be saved. 2. The time and cost saved in executing coal handling plant turnkey project is about 22% using the proposed technique. 3. In case, the site in-charge follows the policy of the maintenance management technique for keeping standard performance of the construction equipment, then 95% problem of maintenance of the equipment automatically will be solved. 4. Saving in transportation during procurement of materials, is around 20% for raw materials and 12% in other equipment. 5. The developed procedure will guide as a practical job oriented literature for handling the execution of a turnkey project management efficiently. 6. The above procedure provides frame work for continuous improvement in the efficiency on the performance. 7. Through the developed procedure, one can be able to improve the performance standards, during execution of a project. Dependable services also can be provided by the project manager by minimizing time and cost overrun. 8. If the procedure is consistently adhered to, the productivity and quality of work can be enhanced during execution of a project. The procedure actually enhances skills of execution.
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