1. © Copyright 2011 by the National Restaurant Association Educational Foundation (NRAEF) and published by Pearson Education, Inc. All rights reserved. Chapter 5 Purchasing and Inventory

2. Purchasing Overview  The purchasing process is everything involved in buying products and services for an operation: 1.Determine what an operation wants and needs to buy. 2.Identify quality standards. 3.Order products and services. 4.Receive deliveries. 5.Store and issue products. PURCHASING GOALS 2 5.1 Chapter 5 | Purchasing and Inventory

3. Maintaining Supplies and Quality Standards  Tools to help purchasers buy the right amount of product:  Customer-count histories  Popularity index of items sold  Vendor delivery schedules  Availability of items from vendors  Recognizing outside influences that might affect an operation  Every item an operation produces must meet that operation’s standards for quality:  Consistency is the key to drawing repeat customers.  An operation must have established quality standards for each item or service.  Specifications are set by the chef, manager, and/or owner, and are easy to follow when purchasing brand-name items. 3 5.1 Chapter 5 | Purchasing and Inventory

4. Minimizing Expenditures and Staying Competitive  To minimize spending, an operation needs to consider:  Customer-count forecasts  Available storage capacity for new product  Forecasts of future costs of particular products  For any operation, all costs must be controlled and the restaurant must be able to attract customers.  For an operation to stay competitive, it must:  Shop around for vendors who will provide the best combination of price and service for the operation’s needs.  Try to get the lowest possible edible-portion (EP) price or as- served (AS) price.  Try to get the maximum yield, or the total utilization, from products purchased. 4 5.1 Chapter 5 | Purchasing and Inventory.

5. Channels of Distribution Flow  A channel of distribution includes the particular businesses that buy and sell a product as it makes its way from its original source to a retailer.  There are three main layers in any channel of distribution:  Primary sources include the farmers and ranchers who raise produce and livestock.  Intermediary sources include wholesalers, distributors, and suppliers.  Retailers sell their products directly to the public. All restaurants are considered retailers. 5 5.1 Chapter 5 | Purchasing and Inventory

6. Goods and Services: What’s Being Purchased  Food and Beverages: These are items that operations actually prepare and sell.  Nonfood Items: These items are directly tied to the sale of food and beverages.  Smallwares and Equipment: These are items that an individual can generally move from location to location easily and that require replacement fairly often.  Technology: Management and employees use technology throughout the modern operation.  Furniture, Fixtures, and Equipment (FFE): This category is also known as capital expenditures. An operation might purchase or lease some of the items in this category, such as big-ticket appliances. 6 5.1 Chapter 5 | Purchasing and Inventory

7. More Goods and Services  Business Supplies and Services: These supplies and services support the management or marketing of an operation.  Support Services: These support services are tied to the operational aspect of the business.  Maintenance Services: These services help keep the facility in good shape. Many of these services are essential to the efficient functioning of an operation.  Utilities: In many areas of the country, operations can choose among competing utility suppliers. Careful negotiation of the various utilities in a given area will end up saving an operation money. 7 5.1 Chapter 5 | Purchasing and Inventory

8. Buyers: Who’s Doing the Purchasing  In independent or single-unit operations, the buyer of an operation’s product might be the owner or manager.  The purchasing structure in chain operations might include an individual to perform or review all purchasing activities.  Hotels, large restaurants, and chains use the formal- purchasing method to order goods and services.  A buyer must know everything about the operation—from the items on the menu and their current prices to the expected volume of business.  For an operation to run effectively, buyers must have a full understanding of the purchasing process.  A buyer must have integrity. 8 5.1 Chapter 5 | Purchasing and Inventory

9. Section 5.1 Summary  There are five basic steps to the procurement process: determine what an operation wants and needs to buy; identify quality standards; order products and services; receive deliveries; and store and issue products.  There are four major goals of purchasing: maintain the right supply of products and services, maintain the quality standards of the operation, minimize the amount of money the operation spends, and stay competitive with similar operations.  There are three main layers in any channel of distribution: Primary sources are the producers; intermediary sources include wholesalers, distributors, and suppliers; and retailers sell their products directly to the public. 9 5.1 Chapter 5 | Purchasing and Inventory

10. Section 5.1 Summary (Cont.)  There are nine major categories of goods and services: food and beverage; nonfood items; smallwares and equipment; technology; furniture, fixtures, and equipment; business supplies and services; support services; maintenance services; and utilities.  A buyer must know everything about an operation—from the items on the menu and their current prices to the expected volume of business.  Buyers must have integrity to avoid forming relationships with vendors that could either compromise the relationship with that vendor or compromise the best interests of the operation. 10 5.1 Chapter 5 | Purchasing and Inventory

11. Determining Quality Standards  Quality refers to the value or worth that customers place on a product or service.  Establishing solid quality standard specifications helps an operation create the consistency that customers expect.  Factors to be addressed when defining an operation’s quality standards include:  The Item’s Intended Use: Knowing how an item will be prepared and served is the most-influential factor in determining quality standards.  The Operation’s Concept and Goals: The overall concept and goals of the operation guides all decisions.  The Menu: The buyer must specify in the quality standard exactly how the item is described on the menu. 11 5.2 Chapter 5 | Purchasing and Inventory

12. Quality Standards (Cont.)  Employee Skill Level: If an operation offers items that require extensive preparation, the operation will need highly skilled employees.  Budgetary Constraints: Operations in highly competitive markets may need to include cost limits in their quality standards.  Customers’ Wants and Needs: It’s very important to look closely at what customers want and why they choose to eat at an operation.  Seasonal Availability: The seasonal nature of produce and other items affects price and availability.  Storage Capacity: An operation’s storage space limits the amount of product it can purchase, which may then affect the quality of some menu items. 12 5.2 Chapter 5 | Purchasing and Inventory

13. Writing Product Specifications  Product specifications, or specs, describe the requirements for a particular product or service that an operation wants to buy.  Specifications include the details that help a product or service meet the operation’s quality standards.  Operations should always document product specifications.  Buyers should always work with approved, reputable suppliers.  Buyers must be very familiar with the operation’s quality standards and product specifications and communicate these standards and specifications to both staff and vendors. 13 5.2 Chapter 5 | Purchasing and Inventory

14. Ordering  Buyers conduct make-or-buy analyses to decide if an operation should make an item from scratch or buy a ready-made version.  Knowing exactly what and when to order is at the center of purchasing.  Buyers and managers use production records to forecast their buying needs.  A production sheet lists all menu items that the chefs will prepare on a given day.  Buyers use production sheets to spot signs of stockouts and overproduction. 14 5.2 Chapter 5 | Purchasing and Inventory

15. Figuring Out What to Order  One of the most important ways managers try to limit food waste is by keeping accurate daily food cost sheets.  Managers keep sales mix records that track each item sold from the menu. This record shows which items sell well, called leaders, and ones that don’t sell well, called losers.  Par stock levels are the ideal amounts of inventory items that an operation should have at all times: Par stock – Amount in stock = Amount to be ordered  Another way to ensure that an operation always has the proper level of stock on hand is to establish a reorder point, or ROP, for each item. A reorder point is like a warning bell; it alerts an operation to make orders immediately. 15 5.2 Chapter 5 | Purchasing and Inventory

16. Ordering Forms  Buyers can place purchase orders by phone, fax, or the Internet.  Keeping track of the information on the purchase order helps the buyer control products and services.  When a chef believes that a piece of expensive equipment should be purchase or replaced, the chef must first fill out a requisition and send it to company headquarters.  Once headquarters approves the purchase and notifies the buyer, the buyer can place the order. 16 A purchase order is a legally binding, written document that details exactly what the buyer is ordering from the vendor. 5.2 Chapter 5 | Purchasing and Inventory

17. Knowing Food Prices  A buyer must understand and keep track of the factors that affect food prices.  Factors that affect a product’s value:  Time value: The price retailers pay for the convenience of selecting the time of delivery from suppliers.  Form value: The price savings created when a buyer purchases bulk quantities of food instead of individually portioned servings.  Place value: The differences in price of a product depending on where it needs to be shipped.  Transportation value: The cost of choosing a quick but expensive form of transport to get goods delivered.  Service value: Additional convenience services that a vendor provides to its customers. 17 5.2 Chapter 5 | Purchasing and Inventory

18. Section 5.2 Summary  Quality standards refer to the value or worth that customers place on a product or service.  Product specifications describe the requirements for a particular product or service that an operation wants to buy.  Buyers conduct a make-or-buy analysis to decide if an operation should make an item from scratch or buy a ready-made version.  Buyers use production sheets, daily food cost sheets, and sales mix records to help with purchasing decisions.  There are many economic factors that influence the price of an item. 18 5.2 Chapter 5 | Purchasing and Inventory

19. Receiving Orders  Guidelines for efficient receiving procedures include:  Plan ahead for shipments.  Inspect and store each delivery before receiving another one.  Inspect deliveries immediately.  Record items on a receiving sheet.  Correct mistakes immediately.  Put products away as quickly as possible.  Maintain the receiving area.  Receivers have the right to refuse any delivery that doesn’t meet the operation’s standards. 19 Receiving means inspecting, accepting, and, in some cases, rejecting deliveries of goods and services. 5.3 Chapter 5 | Purchasing and Inventory

20. Storing Orders  Perishable products are food products sold or distributed in a form that will spoil or decay within a limited period of time.  Nonperishable products are items that, generally due to packaging or processing, do not readily support the growth of pathogens.  When storing items in refrigerated storage:  Set refrigerators to the correct temperature.  Monitor food temperature regularly.  Schedule regular maintenance of coolers.  Don’t overload coolers.  Use open shelving.  Keep cooler doors closed as much as possible.  Wrap or cover all food properly. 20 5.3 Chapter 5 | Purchasing and Inventory

21. Frozen and Dry Storage  When storing items in frozen storage:  Set freezers to the correct temperature.  Check freezer temperatures regularly.  Place frozen food deliveries in freezers once inspected.  Ensure good airflow inside freezers.  Defrost freezers on a regular basis if necessary.  Clearly label food prepared on-site that is intended for frozen storage.  When storing items in dry storage:  Keep storerooms clean and dry.  Make sure storerooms are well ventilated.  Store dry food away from walls and at least 6″ off of the floor.  Keep food out of direct sunlight. 21 5.3 Chapter 5 | Purchasing and Inventory

22. Taking Inventory  In the physical inventory method, the entire stock is physically reviewed on a regular basis.  In the perpetual inventory method, employees record items when they are received and then when they are used up.  A physical inventory is an actual count of all items in stock, while a perpetual inventory is an estimate of stock on hand based on data entry.  Issuing refers to the official procedures employees use when taking an item out of the storeroom and putting it into production. 22 An inventory is a record of all products an operation has in storage and in the kitchen. 5.3 Chapter 5 | Purchasing and Inventory

23. Calculate Usage, Food Costs, and Loss  Using an inventory system helps a buyer calculate product usage, food cost, and losses.  Tracking the amount of a product used during a period of time helps the buyer calculate how much needs to be ordered.  Buyers calculate the total cost of food the same way they calculate item usage, except that they use the figures for total restaurant food inventory value.  If sales of food for the period are less than the cost of food sold, then the operation is operating at a loss.  Another type of loss is inventory shrinkage, or the difference between the total cost of food and the cost of goods issued during the period. 23 5.3 Chapter 5 | Purchasing and Inventory

24. Section 5.3 Summary  Receiving means inspecting, accepting, and, in some cases, rejecting deliveries of goods and services.  Perishable products are food products sold or distributed in a form that will spoil or decay within a limited period of time.  Nonperishable food is generally purchased in large quantities and less often than perishable food.  Food should be stored according to whether it’s perishable or nonperishable.  There are three types of storage available in most foodservice establishments: refrigeration, freezer, and dry storage.  An inventory is a record of all products an operation has in storage and in the kitchen. 24 5.3 Chapter 5 | Purchasing and Inventory