1. OH 5-1 Controlling Food Costs in Purchasing and Receiving 5 OH 5-1

2. OH 5-2 Learning Objectives After completing this chapter, you should be able to: Explain the purchase process and determine who should make purchasing decisions. Describe the importance of par levels and how to establish them. Explain different types of purchasing methods and their uses. Describe the parts of a purchase specification and of a purchase order. Explain the importance of maintaining an ordering system.

3. OH 5-3 Who Purchases? Purchasing agent Manager Chef Head cook Trusted staff member The buyer maintains quality standards!

4. OH 5-4 Who Purchases? continued The buyer is responsible for ensuring that quality standards are met during the purchasing and delivery process.

5. OH 5-5 What to Buy Avoid buying the “cheapest.” Use purchase specifications. Buy at the best cost from sellers who meet or exceed the purchase specifications. Consider both AP price and EP cost.

6. OH 5-6 Two Kinds of Costs As purchased (AP)—the cost of food as delivered to the restaurant Edible portion (EP)—the cost of food as served to the guest

7. OH 5-7 AP vs. EP Form Items, such as fresh whole fish, will weigh much less in their EP form than in their AP form.

8. OH 5-8 Calculating EP Cost Two steps Step 1 – Calculate product’s yield percentage. Edible portion (EPQ) weight ÷ As purchased (APQ) weight = Yield percentage 8.00 ÷ 9.5 =0.842 or 84.2%

9. OH 5-9 Calculating EP Cost continued Step 2 – Calculate EP cost. Example—the EP cost of one pound of onions As purchased (AP) Cost ÷ Yield percentage = Edible portion (EP) cost $0.39/lb AP ÷ 0.842= $0.46/lb EP

10. OH 5-10 The Product Specification Is a control device Lists the product’s name Lists its intended use Identifies the desired brand and grade Identifies the desired size Identifies the desired variety Identifies packing requirements Details delivery requirements Explains payment terms

11. OH 5-11 Chapter 5 Controlling Food Costs in Purchasing Example of a Product Specification

12. OH 5-12 The Product Specification continued Specifications should describe exactly what buyers want to buy. Product substitutions identify what is “acceptable” to send if a vendor is out of or short on the product ordered.

13. OH 5-13 When to Buy Purchase perishable items daily or every few days. Purchase nonperishable items weekly or monthly.

14. OH 5-14 Determining Product Usage 1. Determine the amount of product that will be used between deliveries. 2. Count what is on hand. 3. Subtract the amount on hand from the amount that will be used. 4. The result is the amount to purchase.

15. OH 5-15 Establishing Par Levels Steps 1. Determine the amount of time between deliveries. 2. Determine the estimated amount used during this period. 3. Add a safety factor (cushion) to cover unexpected changes in volume or availability 4. Add the estimated amount of product used and the safety factor together to get the par stock. 5. Set par levels for all ingredients and supplies and adjust by season. 6. Include the par level numbers on the order guide and place label on storeroom shelf

16. OH 5-16 Chapter 5 Controlling Food Costs in Purchasing

17. OH 5-17 Calculating How Much to Buy Need ten pounds of onions. Yield percentage of onions is 84.2%. How many pounds will you buy? EPQ (amount needed) ÷ Yield percentage = APQ (amount to purchase) 10 ÷ 0.842= 11.87, or 11.9

18. OH 5-18 Calculating How Much to Buy Amount to Purchase Determine your par stock (includes safety factor) Consider Current Inventory and Usage before Delivery Par stock-Inventory+ Usage before Delivery = Amount to Purchase

19. OH 5-19 Catering Purchases Step 1 – Determine the servings per purchasing unit (SPU). Purchasing unit ÷Portion size= Servings per purchasing unit (SPU)

20. OH 5-20 Catering Purchases continued Step 2 – Determine the purchase factor. Recall the formula for EP percentage. SPUx EP percentage =Purchase factor (PF) Edible portion (EP) weight ÷ As purchased (AP) weight = EP percentage

21. OH 5-21 Catering Purchases continued Step 3 – Determine the amount to purchase. Number of guests to serve ÷ Purchase factor (PF) = Amount to purchase

22. OH 5-22 Purchase Methods  Competitive quotes  Standing order  Prime Vendor or One-stop shop  Cost-plus  Sealed bids  Commissary

23. OH 5-23 Factors Affecting Purchasing Level of service needs Quality specification needs Prime vendor relationship needs

24. OH 5-24 Vendor Selection Choosing a vendor List potential suppliers Review suppliers quality, consistency, variety, price and service Check references Maintaining + relationships Sales representative Honor terms of contract Pay on time Alert when problems occur

25. OH 5-25 Chapter 5 Controlling Food Costs in Purchasing IMPLEMENTING THE ORDERING SYSTEM The Order Guide

26. OH 5-26 Purchase Orders The official written record of the items the buyer wants to purchase

27. OH 5-27 Chapter 5 Controlling Food Costs in Purchasing

28. OH 5-28 Purchase Order Information A unique identification number The name and address of the restaurant Date of the order Signature of the buyer The supplier’s contact information Date of delivery The name, quantity, and delivery unit of each item ordered Total (extended) cost of the order

29. OH 5-29 Chapter 5 Controlling Food Costs in Purchasing IMPROVING THE ORDERING SYSTEM Record-Keeping Basics Security Concerns Employee Training

30. OH 5-30 Chapter 5 Controlling Food Costs in Purchasing

31. OH 5-31 How Would You Answer the Following Questions? 1. A purchase order is best prepared by the ( buyer/ seller ) of the items to be purchased. 2. With effective purchasing techniques in place, a restaurant's EP costs can often be lower than its AP costs. ( True/False ) 3. EP weight divided by AP weight results in A. AP percentage B. AP cost C. EP cost D. EP percentage 4. A butcher’s test is a test of ( yield/quality ).

32. OH 5-32 Chapter 5 Controlling Food Costs in Purchasing Key Terms: Acceptable substitutions Substitutions previously agreed upon by both buyer and vendor. Blanket purchase order A purchase order that allows the buyer to purchase a certain amount of goods, usually indicated by a dollar amount, at the stated terms within a given time period. Buyer The sole person responsible for purchasing particular goods. Invoice A receipt for items delivered; it is a legal document that reinforces the terms of a purchase order. Nonperishable goods Products that have a relatively long shelf life. Order guide A form used as a tool for counting and tracking all the products an operation uses and must reorder. Par level The amount of stock necessary to get the kitchen through until the next order is delivered. Perishable goods Products that have a relatively short shelf life—usually one to three days.

33. OH 5-33 Chapter 5 Controlling Food Costs in Purchasing Key Terms continued: Perpetual inventory A theoretical count based on goods received and issued, which exists on paper only. Prime vendor A purchasing method that involves purchasing most, if not all, of an operation’s goods from one supplier; also called the one-stop shop. Purchase order (PO) A form issued by a buyer and sent to a vendor that indicates the items and quantities to be purchased. Sales representative A supplier’s salesperson who would be assigned to an operation. Quotes An offer made by a supplier. Specification A description of the desired product’s name, intended use, grade, size, and other product characteristics; it can include general instructions regarding delivery, payment procedures, and other pertinent data.

34. OH 5-34 Chapter 5 Controlling Food Costs in Purchasing Key Terms continued: Standing order The replenishment of stock by a vendor made on a regular basis. Supplier A company that provides products purchased for use in restaurant and foodservice operations, also called a vendor.