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

• 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

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

1-2 Organizational Chart of a Small Restaurant

• Line position: e.g., chef–Directly involved in food preparation

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