1. © 2011 John Wiley and Sons, Inc. All Rights Reserved Selection and Procurement for the Hospitality Industry Purchasing ANDREW HALE FEINSTEIN AND JOHN M. STEFANELLI E i g h t h E d i t i o n

2. © 2011 John Wiley and Sons, Inc. All Rights Reserved CHAPTER An Overview of the Purchasing Function 5

3. © 2011 John Wiley and Sons, Inc. All Rights Reserved YOU SHOULD BE ABLE TO: Describe the purchasing activities in a hospitality operation. Determine the purchasing requirements of a hospitality operation using value analysis and make-or-buy analysis. Outline the objectives of the purchasing function and the potential problems that buyers encounter when pursuing those objectives.

4. © 2011 John Wiley and Sons, Inc. All Rights Reserved PURCHASING ACTIVITIES Hotel Purchasing Activities Determine when to order Control inventory levels Establish quality standards Determine specifications Obtain competitive bids

5. © 2011 John Wiley and Sons, Inc. All Rights Reserved PURCHASING ACTIVITIES Hotel Purchasing Activities (cont.) Investigate vendors Arrange financial terms Oversee delivery Negotiate refunds Handle adjustments Arrange for storage

6. © 2011 John Wiley and Sons, Inc. All Rights Reserved PURCHASING ACTIVITIES Food Service Purchasing Activities Recipe development Menu development Specification writing Approval of buying source Designation of approved brands Supplier evaluation

7. © 2011 John Wiley and Sons, Inc. All Rights Reserved PURCHASING ACTIVITIES Food Service Purchasing Activities (cont.) Negotiation Change of suppliers Change of brands Substitution Approval of new products Invoice approval Payment Order placement with supplier

8. © 2011 John Wiley and Sons, Inc. All Rights Reserved MINIMUM PURCHASING ACTIVITIES Selection and procurement plan How to select/procure products and services Policies and procedures Purchasing trends Revise as necessary Determine requirements Variety of products, services, ff&e Work with staff on those decisions

9. © 2011 John Wiley and Sons, Inc. All Rights Reserved MINIMUM PURCHASING ACTIVITIES (CONT.) Supplier selection Dependable and consistent Approved supplier list Sourcing Process in which a supplier is selected Supplier can handle all products Maintain Inventory Optimal Inventory Management

10. © 2011 John Wiley and Sons, Inc. All Rights Reserved MINIMUM PURCHASING ACTIVITIES (CONT.) Conduct negotiations Everything is negotiable Buying Power = Negotiating Power Research activities Value analysis – cheaper alternative Forecasting – predicting the future What-if analysis – possible outcomes Make or buy – raw or convenience food Plant visits – evaluate facilities

11. © 2011 John Wiley and Sons, Inc. All Rights Reserved MINIMUM PURCHASING ACTIVITIES (CONT.) Maintain supplier diplomacy Trade Relations with suppliers Educate the suppliers Inform to improve services Obtain industry trends from them Purchase, receive, store and issue products

12. © 2011 John Wiley and Sons, Inc. All Rights Reserved MINIMUM PURCHASING ACTIVITIES (CONT.) Disposal of excess and unsaleable items Recycling Record-keeping controls Receipts, Invoices, Inventory records Organize and administer the purchasing function Plan, organize, hire staff

13. © 2011 John Wiley and Sons, Inc. All Rights Reserved MINIMUM PURCHASING ACTIVITIES (CONT.) Self improvement Association Meetings, seminars Trade Shows Continuing Education Help competitors Lending in an emergency Learn about trends, rumors, etc. “Keeps friends close, enemies closer”

14. © 2011 John Wiley and Sons, Inc. All Rights Reserved PURCHASING OBJECTIVES Maintain an adequate supply Minimize investment Maintain quality Obtain the lowest EP cost Maintain the company’s competitive position

15. © 2011 John Wiley and Sons, Inc. All Rights Reserved PROBLEMS OF THE BUYER Backdoor selling Excessive time spent Ethical traps Responsibility vs. authority Lack of time Internal team members/departments

16. © 2011 John Wiley and Sons, Inc. All Rights Reserved PROBLEMS OF THE BUYER (CONT.) Unreasonable demands Late deliveries, substitutions, back orders Purchasing as a profit-making department Lack of attention by supplier Receiving and storage inadequacies Returns and allowances Lack of appreciation

17. © 2011 John Wiley and Sons, Inc. All Rights Reserved EVALUATION OF THE PURCHASING FUNCTION How much should company spend to achieve the purchasing objectives? Salaries and other costs jump out at management Benefits of a conscientious purchasing agent not always so visible