Presentation on theme: "Principles of Food and Beverage Management Product Purchasing Chapter 3."— Presentation transcript:
Principles of Food and Beverage Management Product Purchasing Chapter 3
Learning Objectives After completing this chapter, you should be able to: State the objectives of an effective purchasing process. Define quality, and review purchasing procedures that help ensure that operations obtain products of the proper quality. Describe basic procedures for determining the quantity of products to purchase. Identify concerns important when selecting product vendors.
Learning Objectives continued: After completing this chapter, you should be able to: Explain basic product ordering procedures. Describe basic payment methods and the management of credit memos and petty cash funds.
Chapter 3 Product Purchasing IMPORTANCE OF PURCHASING Objectives of Effective Purchasing
Chapter 3 Product Purchasing Perpetual Inventory System
Chapter 3 Product Purchasing Minimum–Maximum Inventory System
Chapter 3 Product Purchasing Managers Math Answer the Questions: A. 28 cases usage rate + 8 cases safety level = 36 maximum cases B. 6 cases lead time + 8 cases safety level = 14 cases at order point C. 28 cases (usage rate) [Proof: 14 cases order point − 6 cases lead time = 8 cases at delivery, which equals the safety level] D. Step A: 20 cases in storage − 14 cases order point = 6 excess cases; Step B: 28 cases usage rate − 6 excess cases = 22 cases to order [Proof: 20 cases in Storage − 6 excess cases = 14 cases at delivery] 14 cases available + 22 cases ordered = 36 maximum cases)
Chapter 3 Product Purchasing Par Inventory System
Chapter 3 Product Purchasing SELECTING VENDORS Determining Supply Sources Traditional Vendors Wholesale Buying Clubs Range of Vendor Sources Cooperative (Pool) Purchasing
Credit Memos Petty Cash Purchases Other Purchasing Issues
Chapter 3 Product Purchasing - Summary 1. State the objectives of an effective purchasing process. Purchasing has five basic objectives: to purchase the right product from the right source at the right price in the right amount, and at the right time. These objectives drive purchasing activities in large operations with centralized purchasing systems and smaller operations using decentralized purchasing systems. Managers are responsible for many tasks including identifying and selecting vendors, negotiating prices, ensuring that products of the proper quality and the correct quantities are ordered. Follow-up activities include managing purchase documents and facilitating payment of delivery invoices.
Chapter 3 Product Purchasing - Summary 2. Define quality, and review purchasing procedures that help ensure that operations obtain products of the proper quality. Product quality relates to intended use. Managers must determine what products will be used for and then select a product that is suitable for that purpose. Purchase specifications describe quality requirements. They should be given to vendors with the instructions that the prices they quote should be for products meeting these requirements. Specifications should be developed with input from the operation’s employees and vendors, who can provide suggestions and ensure that the operation does not limit the number of vendors who can provide products.
Chapter 3 Product Purchasing - Summary 3. Describe basic procedures for determining the quantity of products to purchase. Buying too much ties up capital, impacts cash flow, and requires additional storage space. It also increases the risk of theft and quality deterioration. Buying too little can create stock outs that impact production and, potentially, disappoint customers. Primary factors that impact purchase quantity decisions involve estimated production volumes, discounts, storage space, and cash flow. Order quantities are also influenced by minimum orders established by vendors, anticipated price changes, and discounts and rebates offered. Many managers determine quantities to order using a minimum– maximum inventory system.
Chapter 3 Product Purchasing - Summary 3. Describe basic procedures for determining the quantity of products to purchase continued… This system indicates the minimum quantity below which inventory levels should not fall and the maximum quantity above which levels should not rise. Purchase quantities for perishable products are often determined using a simple par inventory system. This system involves determining the maximum amount of products that should be available based on product usage. Then an amount is ordered that will bring the quantity available to the maximum amount when the products are delivered.
Chapter 3 Product Purchasing - Summary 4. Identify concerns important when selecting product vendors. Many concerns other than lowest price are important when selecting vendors. Those selected should consistently provide the required product quality, meet delivery schedules, and provide support and information. Information about potential vendors can be learned through reputation, trade publications and electronic marketing, vendors of noncompeting products, trade shows and other meetings, and employee suggestions. In addition to traditional broad line and specialty line vendors, some managers purchase from wholesale buying clubs or participate in cooperative (pool) purchasing.
Chapter 3 Product Purchasing - Summary 5. Explain basic product ordering procedures. Vendors’ prices are an important concern in product ordering decisions. The prices buyers pay are influenced by product cost, consumer demand, service and information provided, and quality. Some vendors offer discounts, which are deductions to established prices, and rebates, which are deductions that are taken after payment. Small operations typically allow department heads to order products based on the operation’s policies. Larger-volume establishments use a more centralized system. Purchase requisitions are sent from each department to a manager who sends a request for price quotation (RFP) to approved vendors. Those interested respond, and a PO is used to summarize the purchase agreement.
Chapter 3 Product Purchasing - Summary 6. Describe basic payment methods and the management of credit memos and petty cash funds. Payment documentation is important. Managers can pay by invoice where payment is made separately for each delivery invoice, or they can pay based on a vendor’s statement of account that summarizes several invoices. Vendors issue credit memos to reflect pricing differences created when the amount of product reported on the delivery invoice differs from the amount actually received. Problems can occur when products are rejected for quality or other reasons and when incorrect quantities are delivered. Managers must handle and process credit memos carefully because they represent reductions in the amount due to vendors.
Chapter 3 Product Purchasing - Summary 6. Describe basic payment methods and the management of credit memos and petty cash funds continued… Many properties use petty cash funds to purchase inexpensive items. A cash advance system should be used in which money is taken from the petty cash fund and then, after purchase, the purchase receipt and change are replaced in the fund. The value of the petty cash fund should always be the amount of current cash plus paid-out vouchers, which should equal the approved petty cash fund amount.
Chapter 3 Product Purchasing Key Terms: “A” item A very expensive item. Broad line vendor A vendor that sells a wide range of products, often with few alternatives in each category. Capital The amount of an owner’s money invested in a business that could be used for other purposes. Cash flow The amount of money needed to pay bills when due. Centralized purchasing A system in which purchasing requests are routed to those with specialized responsibilities, who then purchase the products. Close-out A short-term promotional discount to introduce new products or to quickly sell products with outdated packaging. Competitive bidding The comparison of vendors’ prices for products of acceptable quality to determine the least expensive alternative.
Chapter 3 Product Purchasing Key Terms continued: Decentralized purchasing A system in which department heads may do the purchasing, often with input and approval by the manager, especially for high-cost or large-quantity purchases. Expediting Interacting with vendors about purchase orders that have been placed but for which products have not been delivered. High check average An operation in which high selling prices offset the labor costs needed to process fresh food items. Minimum–maximum inventory system An inventory system that indicates the minimum quantity below which inventory levels should not fall and the maximum quantity above which levels should not rise. Net price The total or per-unit amount paid for products after all discounts have been applied. Ordering A process that occurs when a buyer makes specific commitments to a vendor for a specific purchase.
Chapter 3 Product Purchasing Key Terms continued: Order period The time in days or weeks for which an order is normally placed. Par inventory system An inventory system that specifies the quantity of products needed to bring the inventory level to an allowable maximum or “par.” Perpetual inventory system A continuous count of the number of items in inventory. Petty cash A fund with a limited amount of money that is used to make infrequent and low-cost purchases. Petty cash voucher A slip signed by the person responsible for the petty cash fund that authorizes the withdrawal of cash from the fund for a purchase. Physical inventory system An inventory system that involves manually counting the number of each product on hand.
Chapter 3 Product Purchasing Key Terms continued: Purchase order (PO) A document that informs a vendor that the vendor’s proposal was accepted and that the order should be delivered. Purchase requisition A request to purchase products required by a department. Purchase specification A description of the quality requirements of the products that are purchased. Purchase unit (PU) The standard size of the package or container in which a product is typically purchased. Purchasing The series of activities that begins when needs are determined by the menu, and ends after products are served. It includes an emphasis on vendor interactions. Request for proposal (RFP) A document that requests prices from vendors for products of a specified quality.
Chapter 3 Product Purchasing Key Terms continued: Safety level The minimum number of purchase units that must always remain in inventory in case of late deliveries or unexpected increases in product usage rates. Specialty line vendor A vendor that provides a narrow product line, but a deep selection within the line. Stock out A situation in which a product is no longer available in inventory.
Chapter 3 Product Purchasing Chapter Images
Chapter 3 Product Purchasing Chapter Images continued