•E i g h t h E d i t i o n
Purchasing
Selection and Procurement for the Hospitality Industry
ANDREW HALE FEINSTEIN AND JOHN M. STEFANELLI
© 2011 John Wiley and Sons, Inc.
All Rights Reserved
CHAPTER
The Optimal Price
© 2011 John Wiley and Sons, Inc.
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10
YOU SHOULD BE ABLE TO:
• Explain how purchase prices influence
buyers.
• Describe how suppliers determine their
purchase prices.
• Identify methods buyers employ to reduce
purchase prices.
© 2011 John Wiley and Sons, Inc.
All Rights Reserved
YOU SHOULD BE ABLE TO
(CONT.):
• Calculate cost information, including edible
portion cost, servable portion cost, and
standard cost.
• Evaluate qualitative aspects of a potential
opportunity buy.
© 2011 John Wiley and Sons, Inc.
All Rights Reserved
WHAT IS THE OPTIMAL
PRICE?
• The optimal price is the price that, when
combined with optimal quality and
supplier services, produces the optimal
value.
• It represents the lowest possible EP cost
consistent with the optimal value of the
product.
© 2011 John Wiley and Sons, Inc.
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EP COST CALCULATION
EP cost = AP price ÷ edible
yield percentage
© 2011 John Wiley and Sons, Inc.
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HOW DO ATTITUDES AFFECT
THE PURCHASING PROCESS?
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•
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•
•
•
Novice buyers overrate AP prices
Price normally follows quality
Derived demand
Sometimes price is secondary
Requesting itemized bills
A particular product represents a huge
expense
• Tight materials budget
© 2011 John Wiley and Sons, Inc.
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HOW ARE AP PRICES
DETERMINED?
•
•
•
•
A function of the suppliers cost
A function of supply and demand
A function of competitive pressure
Buyer pricing
© 2011 John Wiley and Sons, Inc.
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WAYS TO REDUCE AP PRICE
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Make or buy analysis
Provide your own supplier services
Provide your own economic values
Shop around
Lower your quality standard
Blanket orders on miscellaneous items
Improved negotiations
Substitutions © 2011 John Wiley and Sons, Inc.
All Rights Reserved
WAYS TO REDUCE AP PRICE
(CONT)
•
•
•
•
•
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Cash Discounts
Hedging
Economical packaging
Odd-hours deliveries
Co-op purchasing
Cost-plus purchasing
© 2011 John Wiley and Sons, Inc.
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WAYS TO REDUCE AP PRICE
(CONT.)
•
•
•
•
Promotional discount
Exchange bartering
Introductory offers
Reevaluate EP cost
Calculate PF, PD, and EP costs
• Opportunity buys
Evaluate their benefits
© 2011 John Wiley and Sons, Inc.
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OPPORTUNITY BUYS
• Rules for taking the opportunity
Purchase in large quantity
Pay in advance or on delivery
• Buyers must analyze true costs
Quantitative analysis
Qualitative analysis
© 2011 John Wiley and Sons, Inc.
All Rights Reserved