Chapter 5 Purchasing and Inventory

1. Chapter 5 Purchasing and Inventory

2. Purchasing Overview • The purchasing process is everything involved in buying products and services for an operation: • Determine what an operation wants and needs to buy. • Identify quality standards. • Order products and services. • Receive deliveries. • Store and issue products. PURCHASING GOALS 5.1 Chapter 5 | Purchasing and Inventory

3. Maintaining Suppliesand Quality Standards • Tools to help purchasers buy the right amount of product: • Customer-count histories • Popularity index of items sold • Vendor delivery schedules • Availability of items from vendors • outside influences that might affect an operation (weather, etc.) • Every item an operation produces must meet that operation’s standards for quality: • Consistency is the key to drawing repeat customers. • An operation must have established quality standards for each item or service. • Specifications are set by the chef, manager, and/or owner, and are easy to follow when purchasing brand-name items. 5.1 Chapter 5 | Purchasing and Inventory

4. Minimizing Expendituresand Staying Competitive . • When ordering, the restaurant’s cash position (amt. of funds available to it at any given time) must be considered Ex. if a large amount of food inventory sits in storage for a while, the restaurant may need that money to pay other bills • To minimize spending, an operation needs to consider: • Customer-count forecasts • Available storage capacity for new product • For any operation, all costs must be controlled and the restaurant must be able to attract customers. 5.1 Chapter 5 | Purchasing and Inventory

5. Staying competitive • For an operation to stay competitive, it must: • Shop around for vendors who will provide the best combination of price and service for the operation’s needs. • Try to get the lowest possible edible-portion (EP) price or as-served (AS) price.

6. Channels of Distribution Flow • A channel of distribution includes the particular businesses that buy and sell a product as it makes its way from its original source to a retailer. • There are three main layers in any channel of distribution: • Primary sources include the farmers and ranchers who raise produce and livestock. • Intermediary sources include wholesalers, distributors, and suppliers. • Retailers sell their products directly to the public. All restaurants are considered retailers. 5.1 Chapter 5 | Purchasing and Inventory

7. Goods and Services: What’s Being Purchased • Food and Beverages: quality and consistency are key to delivering a desirable product that will attract repeat customers • Nonfood Items:linens, bar supplies, paper goods, cleaning supplies • Smallwares and Equipment: require replacement fairly often; china and glassware, blenders, food processors • Technology: computers, POS, security systems • Furniture, Fixtures, and Equipment (FFE):This category is also known as capital expenditures; tables and chairs, lighting fixtures, etc. 5.1 Chapter 5 | Purchasing and Inventory

8. More Goods and Services • Business Supplies and Services: before using an outside marketing service, the amount of capital (assets) has to be considered • Support Services: linen and uniform rental; garbage removal, flower services, pest control • Maintenance Services:help keep the facility in good shape; plumbing repair, painting and carpentry • Utilities: gas, heat, electricity, telephone, Internet 5.1 Chapter 5 | Purchasing and Inventory

9. Buyers: Who’s Doingthe Purchasing • In independent or single-unit operations, the buyer of an operation’s product might be the owner or manager. • Some restaurants use the formal-purchasing method to order goods and services (written specifications sent to suppliers) Suppliers then send restaurant bids (specialized, written price lists) • Smaller operations may use informal purchasing methods (verbal price quote) from suppliers. Suppliers then give quotes, a notice of price charged for food products • A buyer must have integrity to prevent kickbacks (money received in exchange for purchasing from a specific vendor) 5.1 Chapter 5 | Purchasing and Inventory

10. Determining Quality Standards • Quality: the value or worth that customers place on a product • Factors to be addressed when defining an operation’s quality standards include: • The Item’s Intended Use:Knowing how an item will be prepared and served (determines what grade to buy) • The Menu:The buyer must specify in the quality standard exactly how the item is described on the menu. • Employee Skill Level:if a menu offers items that require extensive preparation, the operation will need highly skilled employees. • Seasonal Availability:The seasonal nature of produce and other items affects price and availability. • Storage Capacity:An operation’s storage space limits the amount of product it can purchase, which may then affect the quality of some menu items. 5.2 Chapter 5 | Purchasing and Inventory

11. Writing Product Specifications • Product specifications, or specs, describe the requirements for a particular product or service that an operation wants to buy; for example: • Form value: shredded vs. whole cheese • Acceptable trim • Place of origin (only LA seafood) • Buyers should always work with approved, reputable suppliers. • Buyers must be very familiar with the operation’s quality standards and product specifications and communicate these standards and specifications to both staff and vendors. 5.2 Chapter 5 | Purchasing and Inventory

12. Ordering • Buyers conduct make-or-buy analyses to decide if an operation should make an item from scratch or buy a ready-made version. • Buyers and managers use production records to forecast their buying needs. • A production sheet lists all menu items that the chefs will prepare on a given day. • Buyers use production sheets to spot signs of stockouts and overproduction. 5.2 Chapter 5 | Purchasing and Inventory

13. Figuring Out Whatto Order • One of the most important ways managers try to limit food waste is by keeping accurate daily food cost sheets. • Determine the daily food cost %: Requisitions from the storeroom + daily purchases daily sales figure Most managers try to stay at 33% or below on daily food cost • Managers keep sales mix records that track each item sold from the menu. This record shows which items sell well, called leaders, and ones that don’t sell well, called losers. • Par stock levels are the ideal amounts of inventory items that an operation should have at all times: Par stock – Amount in stock = Amount to be ordered 5.2 Chapter 5 | Purchasing and Inventory

14. Figuring out what to order cont. • Another way to ensure that an operation always has the proper level of stock on hand is to establish a reorder point, or ROP, for each item. A reorder point is like a warning bell; it alerts an operation to make orders immediately. • Used when suppliers do not deliver regularly

15. Ordering Forms A purchase order is a legally binding, written document that details exactly what the buyer is ordering from the vendor. P. 317 • Buyers can place purchase orders by phone, fax, or the Internet. • When a chef believes that a piece of expensive equipment should be purchase or replaced, the chef must first fill out a requisition and send it to company headquarters. • Once headquarters approves the purchase and notifies the buyer, the buyer can place the order. 5.2 Chapter 5 | Purchasing and Inventory

16. Knowing Food Prices • A buyer must understand and keep track of the factors that affect food prices. • Factors that affect a product’s value: • Time value:The price retailers pay for the convenience of selecting the time of delivery from suppliers. • Form value:The price savings created when a buyer purchases bulk quantities of food instead of individually portioned servings. • Place value: The differences in price of a product depending on where it needs to be shipped. • Transportation value:The cost of choosing a quick but expensive form of transport to get goods delivered. • Service value:Additional convenience services that a vendor provides to its customers (24 hour, toll-free number) 5.2 Chapter 5 | Purchasing and Inventory

17. Receiving Orders Receiving means inspecting, accepting, and, in some cases, rejecting deliveries of goods and services. A written invoice must accompany all deliveries • Guidelines for efficient receiving procedures include: • Plan ahead for shipments. • Inspect and store each delivery before receiving another one. • Record items on a receiving sheet. • Correct mistakes immediately. • Put products away as quickly as possible. • Maintain the receiving area. Receivers have the right to refuse any delivery that doesn’t meet the operation’s standards. A credit memo is written to ensure the vendor will credit the restaurant for rejected item. 5.3 Chapter 5 | Purchasing and Inventory

18. Storing Orders • Perishable products are food products sold or distributed in a form that will spoil or decay within a limited period of time. • Nonperishable products are items that, generally due to packaging or processing, do not readily support the growth of pathogens. • When storing items in refrigerated storage: • Monitor food temperature regularly. • Don’t overload coolers. • Use open shelving. • Keep cooler doors closed as much as possible. • Wrap or cover all food properly. • Store meat and produce in proper humidity levels (closer to blower, higher humidity level) 5.3 Chapter 5 | Purchasing and Inventory

19. Frozen and Dry Storage • When storing items in frozen storage: • Check freezer temperatures regularly. • Place frozen food deliveries in freezers once inspected. • Ensure good airflow inside freezers. • Clearly label food prepared on-site that is intended for frozen storage. • When storing items in dry storage: • Keep storerooms clean and dry. • Store dry food away from walls and at least 6″ off of the floor. • Storeroom should be between 50-70 degrees • Store staples (items with high demand) in airtight containers 5.3 Chapter 5 | Purchasing and Inventory

20. Taking Inventory An inventory is a record of all products an operation has in storage and in the kitchen. • In the physical inventory method, the entire stock is physically reviewed on a regular basis. • In the perpetual inventory method, employees record items when they are received and then when they are used up. • A physical inventory is an actual count of all items in stock, while a perpetual inventory is an estimate of stock on hand based on data entry. • Issuing refers to the official procedures employees use when taking an item out of the storeroom and putting it into production (used to prevent pilfering) 5.3 Chapter 5 | Purchasing and Inventory

21. Calculate Usage,Food Costs, and Loss • Tracking the amount of a product used during a period of time helps the buyer calculate how much needs to be ordered. • If sales of food for the period are less than the cost of food sold, then the operation is operating at a loss. P. 336 5.3 Chapter 5 | Purchasing and Inventory