1. © 2011 John Wiley and Sons, Inc. All Rights Reserved Selection and Procurement for the Hospitality Industry Purchasing ANDREW HALE FEINSTEIN AND JOHN M. STEFANELLI E i g h t h E d i t i o n

2. © 2011 John Wiley and Sons, Inc. All Rights Reserved CHAPTER An Overview of the Purchasing Function 5

3. © 2011 John Wiley and Sons, Inc. All Rights Reserved YOU SHOULD BE ABLE TO: Describe the purchasing activities in a hospitality operation. Determine the purchasing requirements of a hospitality operation using value analysis and make-or-buy analysis. Outline the objectives of the purchasing function and the potential problems that buyers encounter when pursuing those objectives.

4. © 2011 John Wiley and Sons, Inc. All Rights Reserved PURCHASING ACTIVITIES Determine when to order Control inventory levels Establish quality standards Determine specifications Obtain competitive bids

5. © 2011 John Wiley and Sons, Inc. All Rights Reserved PURCHASING ACTIVITIES (CONT.) Investigate vendors Arrange financial terms Oversee delivery Negotiate refunds Handle adjustments Arrange for storage

6. © 2011 John Wiley and Sons, Inc. All Rights Reserved SPECIFIC PURCHASING ACTIVITIES Recipe development Menu development Specification writing Approval of buying source Designation of approved brands Supplier evaluation

7. © 2011 John Wiley and Sons, Inc. All Rights Reserved SPECIFIC PURCHASING ACTIVITIES (CONT.) Negotiation Change of suppliers Change of brands Substitution Approval of new products Invoice approval Payment Order placement with supplier

8. © 2011 John Wiley and Sons, Inc. All Rights Reserved MINIMUM PURCHASING ACTIVITIES Selection and procurement plan Determine requirements Supplier selection Sourcing

9. © 2011 John Wiley and Sons, Inc. All Rights Reserved MINIMUM PURCHASING ACTIVITIES (CONT.) Maintain a convenient and sufficient inventory Conduct negotiations Research activities Value analysis Forecasting What-if analysis Make or buy Plant visits

10. © 2011 John Wiley and Sons, Inc. All Rights Reserved MINIMUM PURCHASING ACTIVITIES (CONT.) Maintain supplier diplomacy Educate the suppliers Purchase, receive, store and issue products Disposal of excess and unsaleable items Recycling

11. © 2011 John Wiley and Sons, Inc. All Rights Reserved MINIMUM PURCHASING ACTIVITIES (CONT.) Record-keeping controls Organize and administer the purchasing function Self improvement Help competitors

12. © 2011 John Wiley and Sons, Inc. All Rights Reserved PURCHASING OBJECTIVES Maintain an adequate supply Minimize investment Maintain quality Obtain the lowest EP cost Maintain the company’s competitive position

13. © 2011 John Wiley and Sons, Inc. All Rights Reserved PROBLEMS OF THE BUYER Backdoor selling Wastes of time Ethical traps Responsibility vs. authority Lack of time

14. © 2011 John Wiley and Sons, Inc. All Rights Reserved PROBLEMS OF THE BUYER (CONT.) Difficulties with other departments Unreasonable demands Late deliveries, substitutions, and back orders Receiving and storage inadequacies Returns and allowances Lack of appreciation

15. © 2011 John Wiley and Sons, Inc. All Rights Reserved EVALUATION OF THE PURCHASING FUNCTION How much should company spend to achieve the purchasing objectives? Salaries and other costs jump out at management Benefits of a conscientious purchasing agent not always so visible