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
• Line position: e.g., chef
–Directly involved in food preparation
1-2 Organizational Chart of a Small Restaurant
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