1. © Copyright 2011 by the National Restaurant Association Educational Foundation (NRAEF) and published by Pearson Education, Inc. All rights reserved. Chapter 5 Purchasing and Inventory

2. Purchasing Overview  The purchasing process is everything involved in buying products and services for an operation: 1.Determine what an operation wants and needs to buy. 2.Identify quality standards. 3.Order products and services. 4.Receive deliveries. 5.Store and issue products. PURCHASING GOALS 2 5.1 Chapter 5 | Purchasing and Inventory

3. Maintaining Supplies and Quality Standards  Tools to help purchasers buy the right amount of product:  Customer-count histories  Popularity index of items sold  Vendor delivery schedules  Availability of items from vendors  outside influences that might affect an operation (weather, etc.)  Every item an operation produces must meet that operation’s standards for quality:  Consistency is the key to drawing repeat customers.  An operation must have established quality standards for each item or service.  Specifications are set by the chef, manager, and/or owner, and are easy to follow when purchasing brand-name items. 3 5.1 Chapter 5 | Purchasing and Inventory

4. Minimizing Expenditures and Staying Competitive  When ordering, the restaurant’s cash position (amt. of funds available to it at any given time) must be considered Ex. if a large amount of food inventory sits in storage for a while, the restaurant may need that money to pay other bills  To minimize spending, an operation needs to consider:  Customer-count forecasts  Available storage capacity for new product  For any operation, all costs must be controlled and the restaurant must be able to attract customers. 4 5.1 Chapter 5 | Purchasing and Inventory.

5. Staying competitive  For an operation to stay competitive, it must:  Shop around for vendors who will provide the best combination of price and service for the operation’s needs.  Try to get the lowest possible edible-portion (EP) price or as-served (AS) price. 5

6. Channels of Distribution Flow  A channel of distribution includes the particular businesses that buy and sell a product as it makes its way from its original source to a retailer.  There are three main layers in any channel of distribution:  Primary sources include the farmers and ranchers who raise produce and livestock.  Intermediary sources include wholesalers, distributors, and suppliers.  Retailers sell their products directly to the public. All restaurants are considered retailers. 6 5.1 Chapter 5 | Purchasing and Inventory

7. Goods and Services: What’s Being Purchased  Food and Beverages: quality and consistency are key to delivering a desirable product that will attract repeat customers  Nonfood Items: linens, bar supplies, paper goods, cleaning supplies  Smallwares and Equipment: require replacement fairly often; china and glassware, blenders, food processors  Technology: computers, POS, security systems  Furniture, Fixtures, and Equipment (FFE): This category is also known as capital expenditures; tables and chairs, lighting fixtures, etc. 7 5.1 Chapter 5 | Purchasing and Inventory

8. More Goods and Services  Business Supplies and Services: before using an outside marketing service, the amount of capital (assets) has to be considered  Support Services: linen and uniform rental; garbage removal, flower services, pest control  Maintenance Services: help keep the facility in good shape; plumbing repair, painting and carpentry  Utilities: gas, heat, electricity, telephone, Internet 8 5.1 Chapter 5 | Purchasing and Inventory

9. Buyers: Who’s Doing the Purchasing  In independent or single-unit operations, the buyer of an operation’s product might be the owner or manager.  Some restaurants use the formal-purchasing method to order goods and services (written specifications sent to suppliers) Suppliers then send restaurant bids (specialized, written price lists)  Smaller operations may use informal purchasing methods (verbal price quote) from suppliers. Suppliers then give quotes, a notice of price charged for food products  A buyer must have integrity to prevent kickbacks (money received in exchange for purchasing from a specific vendor) 9 5.1 Chapter 5 | Purchasing and Inventory

10. Determining Quality Standards  Quality: the value or worth that customers place on a product  Factors to be addressed when defining an operation’s quality standards include:  The Item’s Intended Use: Knowing how an item will be prepared and served (determines what grade to buy)  The Menu: The buyer must specify in the quality standard exactly how the item is described on the menu.  Employee Skill Level: if a menu offers items that require extensive preparation, the operation will need highly skilled employees.  Seasonal Availability: The seasonal nature of produce and other items affects price and availability.  Storage Capacity: An operation’s storage space limits the amount of product it can purchase, which may then affect the quality of some menu items. 10 5.2 Chapter 5 | Purchasing and Inventory

11. Writing Product Specifications  Product specifications, or specs, describe the requirements for a particular product or service that an operation wants to buy; for example:  Form value: shredded vs. whole cheese  Acceptable trim  Place of origin (only LA seafood)  Buyers should always work with approved, reputable suppliers.  Buyers must be very familiar with the operation’s quality standards and product specifications and communicate these standards and specifications to both staff and vendors. 11 5.2 Chapter 5 | Purchasing and Inventory

12. Ordering  Buyers conduct make-or-buy analyses to decide if an operation should make an item from scratch or buy a ready-made version.  Buyers and managers use production records to forecast their buying needs.  A production sheet lists all menu items that the chefs will prepare on a given day.  Buyers use production sheets to spot signs of stockouts and overproduction. 12 5.2 Chapter 5 | Purchasing and Inventory

13. Figuring Out What to Order  One of the most important ways managers try to limit food waste is by keeping accurate daily food cost sheets.  Determine the daily food cost %: Requisitions from the storeroom + daily purchases daily sales figure Most managers try to stay at 33% or below on daily food cost  Managers keep sales mix records that track each item sold from the menu. This record shows which items sell well, called leaders, and ones that don’t sell well, called losers.  Par stock levels are the ideal amounts of inventory items that an operation should have at all times: Par stock – Amount in stock = Amount to be ordered 13 5.2 Chapter 5 | Purchasing and Inventory

14. Figuring out what to order cont.  Another way to ensure that an operation always has the proper level of stock on hand is to establish a reorder point, or ROP, for each item. A reorder point is like a warning bell; it alerts an operation to make orders immediately.  Used when suppliers do not deliver regularly 14

15. Ordering Forms  Buyers can place purchase orders by phone, fax, or the Internet.  When a chef believes that a piece of expensive equipment should be purchase or replaced, the chef must first fill out a requisition and send it to company headquarters.  Once headquarters approves the purchase and notifies the buyer, the buyer can place the order. 15 A purchase order is a legally binding, written document that details exactly what the buyer is ordering from the vendor. P. 317 5.2 Chapter 5 | Purchasing and Inventory

16. Knowing Food Prices  A buyer must understand and keep track of the factors that affect food prices.  Factors that affect a product’s value:  Time value: The price retailers pay for the convenience of selecting the time of delivery from suppliers.  Form value: The price savings created when a buyer purchases bulk quantities of food instead of individually portioned servings.  Place value: The differences in price of a product depending on where it needs to be shipped.  Transportation value: The cost of choosing a quick but expensive form of transport to get goods delivered.  Service value: Additional convenience services that a vendor provides to its customers (24 hour, toll-free number) 16 5.2 Chapter 5 | Purchasing and Inventory

17. Receiving Orders  Guidelines for efficient receiving procedures include:  Plan ahead for shipments.  Inspect and store each delivery before receiving another one.  Record items on a receiving sheet.  Correct mistakes immediately.  Put products away as quickly as possible.  Maintain the receiving area. Receivers have the right to refuse any delivery that doesn’t meet the operation’s standards. A credit memo is written to ensure the vendor will credit the restaurant for rejected item. 17 Receiving means inspecting, accepting, and, in some cases, rejecting deliveries of goods and services. A written invoice must accompany all deliveries 5.3 Chapter 5 | Purchasing and Inventory

18. Storing Orders  Perishable products are food products sold or distributed in a form that will spoil or decay within a limited period of time.  Nonperishable products are items that, generally due to packaging or processing, do not readily support the growth of pathogens.  When storing items in refrigerated storage:  Monitor food temperature regularly.  Don’t overload coolers.  Use open shelving.  Keep cooler doors closed as much as possible.  Wrap or cover all food properly.  Store meat and produce in proper humidity levels (closer to blower, higher humidity level) 18 5.3 Chapter 5 | Purchasing and Inventory

19. Frozen and Dry Storage  When storing items in frozen storage:  Check freezer temperatures regularly.  Place frozen food deliveries in freezers once inspected.  Ensure good airflow inside freezers.  Clearly label food prepared on-site that is intended for frozen storage.  When storing items in dry storage:  Keep storerooms clean and dry.  Store dry food away from walls and at least 6″ off of the floor.  Storeroom should be between 50-70 degrees  Store staples (items with high demand) in airtight containers 19 5.3 Chapter 5 | Purchasing and Inventory

20. Taking Inventory  In the physical inventory method, the entire stock is physically reviewed on a regular basis.  In the perpetual inventory method, employees record items when they are received and then when they are used up.  A physical inventory is an actual count of all items in stock, while a perpetual inventory is an estimate of stock on hand based on data entry.  Issuing refers to the official procedures employees use when taking an item out of the storeroom and putting it into production (used to prevent pilfering) 20 An inventory is a record of all products an operation has in storage and in the kitchen. 5.3 Chapter 5 | Purchasing and Inventory

21. Calculate Usage, Food Costs, and Loss  Tracking the amount of a product used during a period of time helps the buyer calculate how much needs to be ordered.  If sales of food for the period are less than the cost of food sold, then the operation is operating at a loss. P. 336 21 5.3 Chapter 5 | Purchasing and Inventory