Material Tracking and Cost Control for Subcontractors#

Executive Summary#

Materials represent a significant portion of project costs for ICI subcontractors. Insulation, jacketing, ductwork, fittings, and supplies all contribute to project expenses. Effective material tracking ensures materials are properly allocated to projects for accurate job costing, that waste is minimized, and that purchasing decisions are informed by actual usage data. This guide covers material tracking practices for subcontractors.

The Context for ICI Subcontractors#

Material costs on ICI projects can range from 20% to 40% or more of total project cost, depending on the trade and project type. A mechanical insulation project might involve thousands of dollars in insulation materials, jacketing, adhesives, bands, and fittings.

For accurate job costing, these material costs must be allocated to the projects that use them. For cost control, material usage should be tracked and compared to estimates. For inventory management, subcontractors need to know what materials they have and where.

Material Flow#

Purchasing#

Material purchases originate from:

Project-specific purchases: Materials ordered for a specific job based on that project's requirements.

Stock purchases: Materials purchased to maintain inventory for future use.

Emergency purchases: Unplanned purchases to address immediate needs.

Each purchase should be documented with:

What was purchased (description, quantity, specifications)
Vendor and pricing
Which project (if project-specific)
Who authorized the purchase
Delivery information

Receiving#

When materials arrive, receiving documentation should capture:

Verification: Does what arrived match what was ordered?

Quantity check: Is the quantity correct?

Condition: Are materials undamaged and usable?

Documentation: Delivery ticket, packing slip, or receipt

Job coding: Which project will these materials be used for?

Receiving is the point where materials enter the tracking system. Materials received but not documented create tracking gaps.

Storage#

Materials not immediately used require storage:

Location tracking: Where is the material stored? (Warehouse, jobsite, trailer)

Organization: Can materials be found when needed?

Protection: Are materials protected from damage, weather, theft?

Accessibility: Can materials be retrieved efficiently?

Consumption#

Materials are consumed when installed or used on projects:

Installation: Materials incorporated into the work

Cutting and fitting: Materials transformed during installation

Waste: Material lost to cutting, damage, or spoilage

Returns: Unused materials returned to inventory or vendor

Transfer#

Materials may move between locations:

Jobsite to jobsite: Excess from one project used on another

Warehouse to jobsite: Inventory deployed to projects

Jobsite to warehouse: Unused materials returned to stock

Each transfer should be documented to maintain accurate location and cost allocation records.

Job Cost Allocation#

Direct Purchases#

Materials purchased for a specific project should be coded directly to that project:

At purchase: Code the purchase order to the project

At receiving: Confirm coding when materials arrive

In accounting: Post invoice to correct job cost code

Direct allocation is straightforward when materials are purchased for identified projects.

Inventory Usage#

Materials drawn from inventory require allocation when used:

Requisition: Document what materials are being taken and for which project

Pricing: Value the materials at appropriate cost (typically average cost or FIFO)

Job charging: Post the value to the project's material costs

Inventory usage tracking requires discipline—someone must document what is taken for which project.

Transfers#

When materials move between projects:

From project: Credit the original project for materials transferred out

To project: Charge the receiving project for materials transferred in

Documentation: Record the transfer with quantities and values

Transfers should net to zero—the company-wide material position does not change, but project allocations shift.

Waste and Yield#

Understanding Waste#

Construction materials inherently involve waste:

Cutting waste: Material lost when cutting to size

Fitting waste: Material lost when fitting around obstacles

Damage: Material damaged in handling, storage, or installation

Measurement error: Extra material ordered beyond what was needed

Waste in Estimating#

Estimates should include expected waste:

Waste factors: Add percentage to net quantities for expected waste (often 5-15% depending on material and conditions)

Complex areas: Higher waste factors for complex configurations

Material-specific: Different materials have different waste characteristics

Tracking Actual Waste#

Comparing actual waste to estimated helps improve future estimates:

Yield tracking: Material installed vs. material consumed

Waste analysis: Why did waste occur? Avoidable or inherent?

Estimating adjustment: Revise waste factors based on actual experience

Inventory Management#

Why Track Inventory#

Subcontractors maintain inventory for several reasons:

Efficiency: Materials on hand avoid project delays for ordering

Bulk purchasing: Buy in quantity for better pricing

Common items: Standard items used across many projects

Inventory Challenges#

Inventory creates challenges:

Capital tied up: Money invested in materials not yet used

Storage costs: Space and handling for stored materials

Obsolescence: Materials that become outdated or specifications change

Tracking burden: Knowing what is on hand and where

Inventory Practices#

Effective inventory practices:

Right-sizing: Carry enough for efficiency but not excess

Turnover focus: Move inventory through, do not let it sit

Organization: Know what you have and where it is

Regular counts: Periodic physical verification of inventory records

Minimum Inventory Approach#

Some subcontractors minimize inventory:

Project-specific purchasing: Order for projects as needed

Supplier relationships: Rely on suppliers for quick delivery

Reduced carrying costs: Less capital tied up in materials

This approach trades ordering efficiency for reduced inventory investment.

Cost Control Practices#

Purchase Authorization#

Control starts with purchase authorization:

Authority levels: Who can authorize purchases of what size?

Project budgets: Are materials within budget?

Approval workflow: Review before committing to purchases

Vendor Management#

Effective vendor relationships support cost control:

Competitive pricing: Get quotes, negotiate rates

Quality consistency: Reliable quality reduces waste and rework

Delivery reliability: On-time delivery prevents project delays

Credit terms: Favorable payment terms support cash flow

Budget Monitoring#

Compare actual material costs to budget throughout projects:

Variance tracking: Are material costs on target?

Early warning: Identify overruns before they become severe

Cause analysis: Why are variances occurring?

Theft Prevention#

Material theft is a reality on construction projects:

Secure storage: Lock materials when possible

Documentation: Track what is delivered and used

Awareness: Workers alert to suspicious activity

Site security: Fencing, lighting, cameras where appropriate

Documentation Requirements#

What to Document#

Complete material documentation includes:

Purchases: Purchase orders, quotes, invoices

Receiving: Delivery tickets, packing slips, receiving logs

Usage: Requisitions, installation records

Transfers: Transfer documentation between projects

Returns: Credit memos, return documentation

Why Documentation Matters#

Documentation supports:

Job costing: Accurate allocation of material costs

Billing: Support for billing customers for materials

Disputes: Evidence for pricing or quantity disputes

Analysis: Data for waste analysis and estimating improvement

Technology for Material Tracking#

Manual Tracking#

Paper-based tracking is possible but challenging:

Forms and logs: Paper requisitions, delivery logs

Manual entry: Data entered into accounting or job costing systems

Filing: Paper records stored for reference

Manual approaches work but require discipline and create delays in information availability.

Digital Tracking#

Digital approaches offer advantages:

Real-time entry: Document materials when received or used

Immediate availability: Data visible without waiting for processing

Reduced errors: Less manual transcription

Integration: Direct connection to job costing and accounting

Barcode and QR Systems#

For high-volume operations:

Item identification: Scan materials when received and used

Automated tracking: Reduce manual entry requirements

Accuracy: Eliminate transcription errors

How Appello Supports Material Tracking#

Appello enables documentation of materials as they are received and allocated to projects. The system connects material costs to jobs for accurate job costing visibility. By capturing material information from the field, Appello reduces the delay between material usage and job cost reporting.

Integration with Job Costing & Budgets provides visibility into material costs compared to budget, enabling variance identification while projects are still in progress.

Conclusion#

Material tracking is essential for accurate job costing and effective cost control. While materials may seem straightforward compared to labor complexity, the volume of transactions and movement between locations creates tracking challenges.

Subcontractors who track materials effectively understand their true project costs, identify waste opportunities, and make better purchasing decisions. Those who do not may find their job cost reports missing significant cost components or allocating costs to wrong projects.

The investment in material tracking discipline pays returns through improved cost visibility and control.

Related Reading: