The Purchasing Function: An Overview Chapter 1

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

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

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

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

The Goals of Selection and Procurement 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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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.

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

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

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

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

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

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