The Purchasing Function: An Overview

1. The Purchasing Function: An Overview Chapter 1

2. Objectives • Describe commerce • Outline the purchasing function • Analyze the optimal goals of selection and procurement • Describe the desired attributes and knowledge required of a buyer

3. Objectives (cont’d.) • Describe a storeroom policies and procedures manual • Differentiate among the various types of sellers and how to best work with them

4. Objectives (cont’d.) • Distinguish among the various purchasing options and contracts available to buyers • Identify the benefits of a healthy buyer–seller relationship

5. Historical Perspectives in Trade • Early humans were hunter-gatherers • Agriculture (seed planting) began later • Trade (commerce) is the voluntary exchange of goods or services • First form of trade was bartering • When currency was invented, selling and buying became separate transactions

6. The Goals of Selection and Procurement • Selection • Choosing from available alternatives • A spec and a detailed description of what is needed guides selection • Procurement • Systematic exchange of payment for goods or services between buyer and seller

7. An Optimal Goal • Optimal purchasing • Matches the specific characteristics of the product with the specific needs of the business

8. An Optimal Goal (cont’d.) • Considerations that are evaluated • Product attributes • Supplier attributes • Delivery requirements • Sanitation • Dependability

9. The Buyer • Line position: e.g., chef • Directly involved in food preparation 1-2 Organizational Chart of a Small Restaurant

10. 1-3 Organizational chart of a larger hotel food service operation

11. Required Attributes and Knowledge • Ethical standards • Honest and fair treatment of all • Conceptual skills • Understands relationships between functions and how actions affect society • Communication skills • Listen to and articulate needs

12. Required Attributes and Knowledge (cont’d.) • Mathematical skills • Computer skills • Market awareness • Understand laws of commerce • Product knowledge • Obtained by exposure to various forms of food products

13. Storeroom Policies and Procedures • Develop a policies and procedures manual • Addresses who does what and when in purchasing • Includes supplier selection criteria • Guidelines on sales calls and accepting gifts from suppliers

14. The Seller • Buyer must establish mutually satisfying relationships with sellers (purveyors) • When sellers are successful: • They can broaden their product line • There are more to choose from, ensuring competitive pricing

15. Selecting Sellers • Respect is important • Research food service resources • Internet commerce • Local suppliers • National distributors • Broadline distributors have wide product range

16. Selecting Sellers (cont’d.) • Set up an introductory meeting • Prepare a list of questions to ask • Keep the meeting to one hour • Inspect the purveyor’s facilities • Look for sanitary conditions and practices

17. Establishing Purchasing Options and Contracts • Inquire about purchasing options • Formal or informal arrangements • Depends on size and structure of seller’s organization or buyer’s business • Cooperative buying • Group formed to buy directly from source in large quantities

18. Purchasing Service and Maintenance Contracts • Food service operators enter into contracts with outside service vendors • Some examples: • Pest control, waste removal and recycling, cleaning, facility and equipment maintenance, laundry and linen supply, bookkeeping, legal, insurance, utilities, advertising, flowers and plants, and vending machines

19. Informal Buying Practices • Practiced by smaller operations where chef or owner does the buying • Advantages of informal buying • Takes little time away from daily operations • Varying quantity needs can be addressed • Urgent needs may be addressed quickly • Take advantage of price fluctuations

20. Formal Buying Practices • Bid buying • Buyer requests price quotation from sellers • Cost plus fixed fee buying • Agreement with distributor for fixed markup above their costs

21. Formal Buying Practices (cont’d.) • Volume buying and warehousing • Goods are held by supplier and delivered as needed • Prime vendor contracts • Similar to cost plus fixed fee but multiple vendors are used

22. Formal Buying Practices (cont’d.) • Long term contracts • Based on fixed prices; delivered as needed • Hedging (forward buying) • Buying quantities before they are needed to avoid price increases • If price falls, buyer loses

23. The Buying Process • Buying occurs after menu planning is completed • Buying consists of three major steps • Identifying the need • Planning for the purchase • Making the purchase

24. Identifying the Need • Determine stock levels • Consider shelf life • Minimum quantity known as safety stock • Consider normal usage rates • Determine whether additional quantities are needed for special events

25. Planning for the Purchase • Determine rate at which operation uses the items • Compare quantities needed with stock on hand • Prepare an order sheet • Consider urgency of needing products

26. Making the Purchase • List of selected and approved suppliers • Identify local retailers that carry product • Create an order record • Column for each vendor on the form • Completed order forms saved in a secure location • Use purchase order or blanket P.O.

27. Making the Purchase (cont’d.) • Standing orders • Volume commitment for daily delivery • Daily orders • Delivered within 24 hours • Drop shipments • Seller arranges for wholesaler or manufacturer to deliver to buyer directly

28. Buyer-Seller Relations: A Win-Win Approach • Relationships between buyers and sellers should be mutually beneficial • When both parties consider relationship advantageous, future business together is sought after and encouraged

29. Conducting Sales Meetings • Regularly scheduled and planned in advance • Negotiate purchases • Create partnerships • Understand the needs of both parties • Know yourself

30. Supplier Performance Evaluation • Evaluate both the product and the process • Develop a cross-functional team to identify priorities that should be evaluated • Define most important factors to evaluate • Determine a rating scale

31. Ethical and Professional Standards and Practices • Management should articulate ethical standards of the organization • Management may not benefit personally from the company’s financial gains • Do not allow conflict of interest • Avoid tips, supplier gifts, or bonuses

32. Summary • Buyers and sellers should strive for a mutually beneficial relationship • Many different types of purchasing exist • Developing a policies and procedures manual is important • Evaluating suppliers and maintaining ethical standards key for success