Agenda

1. Agenda Chapter 5 – Ordering Products: Pricing Decisions Chapter 6 – Ordering Products: Effective Procedures Group Projects Yields and Culinary Math Review Portion Worksheet Expanding recipes & conversion to purchase units Purchase Order Worksheet Purchase Order, Food & Equipment Spec Sheet Next Week – Off Site

2. Ordering Products:Pricing Decisions • Purchasing 5 OH 3-2

3. Chapter Learning ObjectivesAfter completing this chapter, you should be able to: • Explain the factors that affect product pricing. • Summarize the importance of and the steps useful in effective negotiation. • Describe several types of pricing discounts and explain rebates.

4. Case Study • Let’s review the case study on page 117 of the text book

5. Understanding Pricing • The objective of effective purchasing is to obtain the right quality of products at the right price from the right source in the right quantity at the right time. • Buyers must know how to obtain the right price when they purchase food and beverage products. • Let’s look at how vendors establish their product selling prices.

6. Factors affecting Selling Prices • Four primary factors influence the prices vendors charge their customers: • Prices reflect costs • Prices reflect consumer demand • Prices reflect service features • Prices reflect vendor quality • Let’s look at each of these individually

7. Prices Reflect Costs • Vendors are entitled to make a fair profit on what they sell. • Vendor competition is good and keeps prices down • A “Win-Win” partnership between buyers and vendors. • A fair price that includes a profit in return for products, services, and information is part of the relationship.

8. Prices Reflect Consumer Demand • What is consumer demand? • The total amount of a product or service that buyers want to purchase at a specific price. • When products are in limited supply and are highly desired, the prices for those products will generally be high • Sometimes consumers willingness to pay that most influence prices • .

9. Prices Reflect Service Features • A hamburger sandwich at Crave vs. at Wendy’s • Added features and services add value to the product being sold. • Full Service Distributor • Accurate invoicing and payment processing, order accuracy, payment and credit terms and ease of placing orders are all ‘add-on” features.

10. Prices Reflect Vendor Quality • Reputation for quality food and outstanding service allows vendors to charge a higher price. • Higher prices generally means higher profit. • “Value” goes beyond the product, it may provide ‘peace of mind’.

11. What’s Your Footprint • Someone please read page 119

12. Pricing: The Buyer’s View • Traditional Views of Pricing – Vendors have priced their items to make a fair profit • Increased price=Increased quality • Example on page 120 – Someone please read • Make sure you compare apples to apples • Increased price=Scarcity and value • This is not always true, there has to be a market and buyer to sell

13. Pricing: The Buyer’s View • Traditional Views of Pricing – Vendors have priced their items to make a fair profit • Increased price=Increased image • “Brand” – important when the image is truly appreciated or demanded by customers • Pricing is related to costs incurred • Let’s review the value of using a multiplier page 121 of the text book

14. Pricing: The Buyer’s View • Less Traditional Views of Pricing: Let’s consider • Price and costs are not related • Advertising dollars can influence purchasing • Sell outs or discontinued product • Cost plus value=Price • Cost + Value to buyer=Selling Price • Value perception is the customer’s opinion of a product’s value

15. Pricing: The Buyer’s View • Cost plus value=Price continued • n the long run only buyers-not growers, manufactures, distributor, or brokers-determine the prices that buyers are willing to pay. • Customers make decisions based on value to them • Example – The price you pay to have a plumber fix a leaky toilet on New Year’s Eve

16. Pricing: The Buyer’s View • Different prices are normal • Differential pricing involves charging different customers different pricing for the same product. • The pricing difference should never be about discrimination • Reasons that influence different pricing structure • Frequency of delivery • Dollar volume of purchase • Payment terms

17. Other Pricing Concerns • Governmental Controls • Prices may be governmentally regulated, i.e. alcohol • Contract Terms • Free Market: the prices paid for products and services are determined by the vendor and the buyer who voluntarily enter into a contract. • Number of Vendors • Preferred vendor/customer relationship • Cherry picker

18. Other Pricing Concerns continued • Number of Vendors • Preferred vendor/customer relationship • Cherry picker is a term used by vendors to describe buyers who request bids from several vendors and then buy only those items “on sale” or for the lowest price. • Payment History • Slow payment means the buyer is actually purchasing products with the vendors money • COD Cash on Delivery

19. Lowest Price is Not Always the Best Price • Quality of product • Fresh vs canned • Lowest price of a product of proper quality • Service • Delivery, carry inventory, etc. • Provide information • Trends, seasonal, food safety

20. Negotiating Prices • Negotiation is a process by which parties with mutual interests try to reach an agreement about something. • The end in mind that an agreement benefits both parties • Three possible outcomes: • An acceptable agreement is made • The parties fail to compromise “agree to disagree” • Negotiation may continue under different circumstances.

21. Negotiating Prices continued • “WIN-WIN” Negotiation is Important • More than price can be considered • Extra services may be added • Benefits to both parties • In a Win Lose situation, who wins???? • Let’s look at the difference, page 128 of the text

22. Win-Win and Win-Lose Approach

23. Negotiation and Value • There are costs behind the costs if services and product do not meet specified standards. • Late delivery, Out of Stock, etc. • The better the relationship between two parties, the greater the benefits to both will be.

24. Successful Negotiation Traits • Important factors: • The personality and skill of the negotiators • The extent to which the personalities of the negotiators are compatible • Each negotiator’s expectations about the party’s strengths and weakness, intentions and goals, and commitments to positions. • The ability of each negotiator to use persuasion and other strategies to modify the other party’s position and to move both side toward a mutually beneficial outcome.

25. Successful Negotiation Traits • The best negotiators are good listeners, problem solvers and decision makers. They can also spot shortcomings in the logic used by the other party. “On the other hand…..” or ‘incorrect information. • Professional is the key word in successful negotiation

26. Negotiation Procedures page 131 of text

27. Negotiation Procedures continued • Step 1: Negotiation preparation • Identify the objective of the negotiation • Identify negotiation strategies • Establish going-in positions (prioritize the desired outcome of the sessions) • Consider fall-back positions (negotiations on a certain point must be concluded) • Collect information and input from product users • Purchasers should use “common ground” agreements as a foundation for negotiation.

28. Negotiation Procedures continued page 133 of text

29. Negotiation Procedures continued • Step 2: Negotiation Participation Three Parts: • Begin the meeting • Undertake discussions • Reach a conclusion

30. Negotiation Procedures continued Begin the meeting • Meeting introduction: • Be on time • Professional and positive • Assign someone to take notes

31. Negotiation Procedures continued Undertake discussions • Arguments are never helpful • Summarize agreed upon points periodically • Body language speaks louder than words.

32. Negotiation Procedures continued page 135 of text

33. Negotiation Procedures continued • Let’s turn to page 136-137 and read the special characteristics and principles of negotiators Reach a conclusion • Review major points and agreement • Summary • Implementation plan

34. Negotiation Procedures continued Step 3: Negotiation Follow Up • Ensure that persons in the purchasers organization will act according to the negotiated agreements. • Prepare a written contract • Evaluate for future negotiations

35. Pricing Discounts • Discounts are deductions from the normal price that is paid for something. • Understand the difference between a discount and a lowered price. • BOGO • The lowest possible net price: the total after all discounts have been applied.

36. Pricing Discounts continued • Prompt Payment Discount • Quantity Discount • Customer Status Count (preferred customer) • Special and Promotional Discounts • Rebates

37. Pricing Discounts continued page 140

38. Key Terms: • Cash on delivery (COD) A requirement that a buyer pay the full amount owed in cash or other acceptable payment form at the time products are delivered. • Cherry picker A buyer who requests bids from several vendors and then buys only those items each vendor has on sale or for the lowest price. • Demand The total amount of a product or service that buyers want to purchase at a specific price. • Differential pricing Charging different customers different prices for the same product such as, for example, giving a discount for purchasing larger quantities.

39. Key Terms: continued • Discount A deduction from the normal price that is paid for something. • Fall-back position (negotiation) An alternative position that is not the buyer’s first choice in negotiations, but one that is acceptable. • Free market A situation in which the prices paid for products and services are determined by the vendor and the buyer who voluntarily enter into a contract. • Going-in position (negotiation) A position that prioritizes the desired outcomes from a negotiation session. • Negotiation A process by which parties with mutual interests try to reach an agreement about something.

40. Key Terms: continued • Net price The total or per-unit amount paid for something after all discounts have been applied to the original purchase price. • Purchase unit (PU) The weight, volume, or container size in which a food product is normally purchased. • Rebate A deduction offered after a purchase has been made at the normal selling price; also referred to as a “cash back” offer. • Value perception The customer’s opinion of a product’s value to him or her.

41. Let’s take a break Return in 15 minutes

42. Ordering Products: Effective Procedures • Purchasing 6 OH 3-42

43. Learning ObjectivesAfter completing this chapter, you should be able to: • Summarize the ordering process. • Explain the basic steps in the ordering process. • Identify special ordering concerns involving bidding. • Explain the types of purchase contracts, elements in contracts, and common terms and conditions used in contracts.

44. Learning ObjectivesAfter completing this chapter, you should be able to: • Describe the procedures to hasten the delivery of products that have been ordered but not yet delivered. • Explain how technology can impact the ordering process.

45. Case study • Let’s turn to page 145 to review the case study

46. Overview of the Ordering Process • The ordering process occurs when a purchaser makes a commitment to a vendor relating to a specific purchase. • Series of activities • No single step in more important than any other.

47. Internal Communication • Purchasers must determine several things: • Exactly what products must be purchases • Proper quality requirements for the products • Which products can be made by employees and which one should be purchased • The quantity of products needed, which is impacted by the length of time for which products should be purchased • It is ultimately the purchaser’s responsibility to know and tell vendors exactly what is required.

48. External Communication • Relationship between purchaser and approved vendors • Company policies and procedures must be understood and followed consistently • Cooperation is needed to resolve problems, no finger pointing

49. Basic Steps in the Ordering Process Ordering in small operations • Decentralized purchasing, a representative of each department orders products for their department. • Purchasing authority is defined and communicated • Approved vendors should still be established by management. • Specifications are written specific to an approved vendor • Policies and procedures established, communicated and trained and followed consistently.

50. Basic Steps in the Ordering Process continued Ordering in small operations • Purchase orders must be given to receiving staff to ensure all items ordered have been received and quality is stated and confirmed.