1. CHRM 2480 Inventory & Purchasing
WELCOME
CHRM 2480
Inventory & Purchasing

2. Agenda Ground Rules Warm Up Activity Syllabus Review
Purchasing Website
NRAEF ManageFirst Program
Chapter One – Introduction to Inventory & Purchasing

3. Ground Rules Be on time – start on time
All cell phones, pagers and IPods should be turned off during class
No Internet use during class, unless part of classroom activity
Appreciate other points of view
Respect others’ desire to learn
End on time

4. Information Card
Please fill out the following information on the index card
Side ONE
Name
Phone
Address
Side TWO
Business affiliation & current position
Hospitality industry background

5. Warm Up Activity Break into pairs
Interview each other – 2-3 minutes each person
Name, Occupation, Why are you taking Purchasing Class, etc……
Introduce each other to the group

6. Syllabus Review Course Information Course Assessment
Schedule of Assignments
Projects (Individual & Group)
Attendance Sheets
Website

7. How can this book help me?
NRAEF ManageFirst Program Competency Guide IS REQUIRED FOR THIS COURSE
How can this book help me?
Part of a certificate program
Industry-driven
Resume builder
Institute for the Culinary Arts – Metropolitan Community College

8. NRAEF ManageFirst Program Competency Guide IS REQUIRED FOR THIS COURSE
Who is the NRAEF?
Educational arm of the National Restaurant Association
Bridge between academia and industry
Work with over 60,000 restaurant, hospitality and foodservice members companies
Institute for the Culinary Arts – Metropolitan Community College

9. Competency Guide Content
NRAEF ManageFirst Program Competency Guide IS REQUIRED FOR THIS COURSE
Competency Guide Content
Management-focused
Application-based, not just theory
Professional Profiles give you a “sneak peek” into the field
“Real world” activities help build job skills
Institute for the Culinary Arts – Metropolitan Community College

10. How will this certificate help me?
NRAEF ManageFirst Program Competency Guide IS REQUIRED FOR THIS COURSE
How will this certificate help me?
Validated by over restaurant, foodservice and hospitality organizations
Resume builder
Tangible accomplishment
Can give you a hiring advantage over peers who didn’t use ManageFirst
Institute for the Culinary Arts – Metropolitan Community College

11. ManageFirst ProfessionalTM (MFP®) Credential
The MFP credential recognizes students as having the academic and practical knowledge they need to succeed in the restaurant, foodservice, and hospitality industry.
To earn the MFP credential, students must:
Pass four Core Credential exams and one Foundation/Elective exam
Provide documentation for 800 hours of industry work experience

12. NRAEF ManageFirst Core Credential Topics
MCC & ICA
NRAEF ManageFirst Core Credential Topics
CHRM 2475 Leadership: Hospitality & Restaurant Management
CHRM 2460 Cost Management: Controlling Foodservice Costs
CHRM 2470 Supervision: Human Resources Management & Supervision
CHRM 1020 Sanitation: ServSafe Food Safety
NRAEF ManageFirst Foundation Topics
CHRM 2480 Purchasing: Inventory and Purchasing
CHRM 1140 Food Production: Food Production
CHRM 2350 Nutrition: Nutition

13. Please be back in 10 minutes
Let’s Take a Break
Please be back in 10 minutes

14. Introduction to Inventory and Purchasing1
Inventory and Purchasing
OH 1-14

15. Chapter Learning Objectives
Define purchasing, procurement, and product selection.
Outline the objectives in the purchasing function.
Describe the importance of maintaining an operation’s competitive position.
List the types of goods and services that might be purchased by a foodservice organization.
Instructor’s Notes
Indicate that these objectives (competencies) drive the information in the chapter and in this session.

16. Purchasing vs. Procurement
Purchasing – to obtain products and services of a desired quality at a desired price.
Procurement – the entire process by which products and services are selected based on quality and cost, to include: what products and services are needed, the quality specifications, when the items will be needed, from which vendors you will purchase, managing the contracts, as well as establishing all the purchasing, receiving storing and issuing policies.

17. Franchise vs. Independent
Franchise – a business purchased from a company along with the right to use that company’s name, logo and products.
Provides for purchasing through franchisor’s central commissary
Independent – stand alone operation
Cooperative buying or co-op buying occurs when independent operators combine their purchasing power to cooperatively purchase all goods and services as a collective group in order to get lower pricing

18. Economies of Scale
Franchise owners may purchase either through their commissaries or through approved vendors
Independent owners may purchase through a co-op or independently
Profit is earned after all operating expenses have been paid by either operation

19. Goals of the Purchasing Function
Maintain adequate supply.
Maintain quality standards.
Minimize investment.
Maintain an operation’s competitive position.
Obtain the lowest possible edible portion (EP) or as served (AS) price.
Instructor’s Notes
Review the five goals listed on this slide.
Ask students to provide an example of why each of these goals is important.

20. Purchasing Impacts The availability of items for sale:
Too few items means product outages
Too many items means spoilage, waste, and theft
Instructor’s Notes
To reinforce the importance of not running out of essential menu items or ingredients, ask students to role play how they, working as a counter attendant at a quick-service restaurant, would inform a customer that there were no French fries available or, if they were a server at a steakhouse, how they would inform guests that the restaurant had run out of steak.
Ask students to identify some items that will spoil or deteriorate rapidly if they are held too long in inventory. Examples of items include produce, fresh fruits, dairy products, breads, and pastries.

21. Maintain Adequate Supply
Utilize customer count histories.
Sources of data include:
The point-of-sale (POS) system
Guest checks
Physical counts
Count customers by day part.
Instructor’s Notes
Explain to students that operations that do not have advanced POS systems can still keep guest histories.
Explain that recording the number of guests served (and not merely the items ordered) on guest checks allows the number of guests served during a given time period to be tabulated and recorded.
Point out that even noncash foodservice operations such as dormitories, extended care facilities, and hospitals should record the number of students, residents, and patients served.
Point out that a day part refers to a meal or time period. Examples of day parts include breakfast, lunch, and dinner.

22. Maintain Adequate Supply continued
Monitor popularity index of items sold.
The popularity index measures the popularity of a specific menu item in relation to other items in its category.
The popularity index also measures the popularity of one menu category relative to other categories.
Instructor’s Notes
Ask students to answer the following question: “Why are popularity indexes best calculated using sales information from several weeks rather than a single day?” Answer: Too much variation can be experienced if indexes are computed only on one day’s sales.

23. Maintain Adequate Supply continued
Additional areas of concern include:
Vendor delivery schedules
Availability of items from vendors
External factors that can influence item sales
Instructor’s Notes
Explain to students that, except in very large cities, few foodservice operators receive daily deliveries from each of its vendors. As a result, inventory levels must be established by considering frequency of deliveries as well as storage capacity.
Ask students for examples of items that can be in short supply and, therefore, must be ordered very carefully. Examples include some types of fresh fish and other seasonal and perishable items.
Ask students for examples of external factors that can influence inventory levels. Their answers might include special events in the area, adverse weather conditions, and road construction.

24. Maintain Quality Standards
Foodservice managers maintain quality by:
Following the operation’s specifications (specs) on each menu item or ingredient purchased
Clearly communicating these standards to current and potential vendors
Instructor’s Notes
Explain to students that, menu item purchase specifications should be committed to writing.
Ask students to list information that should be in a specification. Answers may include size, grade, weight, brand, variety, count, pack, and color. Ask for an example of why each item listed could be of critical importance.

25. Maintain Quality Standards continued
Customers expect the same quality product each time they visit their favorite foodservice operations.
Instructor’s Notes
Ask students to give examples from their own experience of times when a foodservice operation provided them with inconsistent products.
Ask the following question, “Why is consistency such an important characteristic of a successful foodservice operation?”
Ask the following question, “How important to managers is consistency of product purchasing when they seek to achieve overall consistency in a foodservice operation?”

26. Minimize Investment
Tying up excessive dollars in inventory can damage a foodservice operation by restricting the amount of cash available for bill payment.
Ideal inventory levels are directly related to cash availability and to storage capability.
Instructor’s Notes
Explain how excessive amounts of money tied up in inventory may cause an operation to be “cash” poor, even though the operation is profitable.
Ask the following question, “When should operators actually buy more products than they know they will need?” Answers may include:
When prices are increasing
When supply is short
When an item may become unavailable for purchase
When demand for the item is likely to increase significantly

27. Minimize Investment continued
In most cases, prices increase rather than decrease. As a result, effective foodservice managers:
Minimize investment by purchasing the maximum amount of quality product available at the minimum price possible.
Negotiate reduced prices for large quantity purchases.
Instructor’s Notes
Explain to students that many vendors offer a discount for quantity purchases. However, the item(s) purchased must be stored properly with no loss of product quality or the purchase will cost, not save, the operation money.

28. Maintain an Operation’s Competitive Advantage
Shop around for best pricing
Choose vendors who:
Deliver frequently
Deliver at convenient hours
Can deliver in an emergency outage situation
Provide flexible payment options
Deliver consistent quality
Instructor’s Notes
Ask students to give one example of how each item listed on this slide can help ensure an operation’s competitive position.
Ask for examples of when a vendor did not provide one of these services and the resulting impact on the operation’s customers.

29. Obtain the Lowest Possible EP or AS Price
EP = Edible portion price
AS = As served price
EP and AS refer to the price of an item after all trim and waste has been taken into account. Example: peeled, cubed potatoes
AP= As purchased price
AP refers to the price of an item before any trim or waste are considered. Example: unpeeled, whole potatoes
Instructor’s Notes
Define EP price and AS price as the price of an item as the customer receives it.
Define AP price as the price of an ingredient or item as the foodservice operation receives it.

30. Comparison of AP and EP (AS) Methods
Instructor’s Notes
Ask students to give examples of items in which the EP and AP costs vary widely. Answers will likely include various types of fresh vegetables and fruits, fresh fish, meats, and bone-in poultry.
Ask the following question, “What are some factors that influence the amount of an AP product that actually becomes an EP product?” Answers should include spoilage, theft, variation in employee skill, and the quality of the product at the time of delivery.

31. Mismanaging the Purchase Function
Leads to product outages
Results in lost sales
Alienates customers
Ties up excessive amounts of cash
Increases operating (food and beverage) costs
Instructor’s Notes
Ask students to give examples of other ways that poor purchasing activities can damage an operation.
Discuss how the outcomes in the slide can damage a foodservice operation.

32. What to Buy Foodservice managers buy many items including: Food items
Alcoholic beverages
Nonalcoholic beverages
Nonfood items
Furniture, fixtures, and equipment (FF&E)
Business supplies and services
Support services
Maintenance services
Utilities
Instructor’s Notes
Point out that foodservice managers must be skilled in purchasing more than just food and beverages products.
Ask students if any of the categories listed on the slide are more important than any others listed.

33. Buying Food Items Meat Poultry Eggs Processed foods Fish Dairy Produce
Dry and canned goods
Instructor’s Notes
Explain that changes in the quality and variety of food products available result in the need for managers to continually update their product knowledge.
Explain that vendors are often a good source of information about new products available on the market.
Point out that the hospitality trade press is another source of current information about new product offerings.

34. Buying Alcoholic Beverages
Spirits
Beer
Wine
Instructor’s Notes
Spirits are beverage products with a very long shelf life and an alcohol content that is typically (but not always) above 15%. Examples include scotch, gin, and vodka.
Beer is a grain fermented beverage that comes in a variety of styles as well as packaging alternatives, including cans, bottles, and kegs. Examples include lager, light and dark ales, and sake (a beverage fermented from rice ).
Wine is popular worldwide and can vary greatly in quality and price. Wine must be carefully stored to ensure it maintains its best quality characteristics.

35. Buying Nonalcoholic Beverages
Soda
Coffee
Tea
Juice
Bottled water
Instructor’s Notes
Soda can be purchased in cans, bottles, or “bag-in-box” which requires a mechanical and/or electrical carbonation system.
Coffee may be purchased in whole bean form, ground, or frozen (to be reconstituted).
Tea may be purchased as loose leaf, in tea bags of various sizes, or as an instant powder, as well as a concentrate.
Juice can be purchased in fresh, frozen, or in concentrated forms.
Bottled water comes in a variety of sizes and may be purchased carbonated or noncarbonated as well as in a number of flavors.

36. Buying Nonfood Items Linens and uniforms China and glassware
Bar supplies
Paper goods
Cleaning supplies
Menus and beverage lists
Candles
Flowers
Music and entertainment
Kitchen utensils and supplies
Instructor’s Notes
Many restaurants rent rather than buy their linens and uniforms. A cost comparison should be done before determining which is best for an individual operation.
Paper goods can represent 2–5 percent of total food-related purchases in QSRs (Quick-Service Restaurants) and are often included in “cost of food sold” (food cost) computations.
Though not purchased often, restaurant menus represent a large expense when they must be reprinted. This is why self-printed menus are gaining in popularity.
Kitchen utensils, while they most often have an estimated life of over one year, are not typically considered a capital expense because their individual unit cost is so small.

37. Buying Furniture, Fixtures, and Equipment
Tables, chairs, and barstools
Lighting fixtures
Bars
Cooking equipment
Refrigeration equipment
Plumbing fixtures
Heating, ventilation, air conditioning (HVAC)
Entertainment pieces
Instructor’s Note:
Explain that furniture, fixtures, and equipment is often called FF&E for short.
Tables, chairs, and barstools are a capital expense. Their repair is considered a monthly operating expense.
Cooking equipment is typically purchased from nonfood vendors because of unique installation requirements.
Entertainment pieces include items such as pool tables, video games, and sports equipment (dart boards, foosball games, and the like) suitable for use in some types of bars and restaurants.

38. Buying Business Supplies and Services
Office equipment and supplies
Cash registers
POS systems
Computers
Credit card processors
Financial and legal services
Insurance
Marketing and advertising
Instructor’s Notes
Office equipment includes chairs, desks, and workstations required by the operation’s managers and supervisors.
POS systems for a single restaurant can cost from $5,000 to $50,000 depending upon their complexity.
Credit card processors are required in most of today’s restaurants. Even QSRs have begun to accept credit and debit card payments.
Restaurants spends typically spend 1–5 percent of their gross sales for advertising and marketing expenses.

39. Buying Support Services
Linen and uniform rental
Waste removal
Flower services
Music services
Pest control
Parking and valet services
Instructor’s Notes
Consistent control of pests is a critical component in a quality sanitation program.
Waste removal service costs are based upon both the size of containers supplied by the vendor and the frequency with which the containers are emptied.

40. Buying Maintenance Services
Cleaning services
Plumbing repair
HVAC repair
Groundskeeping
Painting
Carpentry
Equipment maintenance
Equipment repair
Equipment replacement
Instructor’s Notes
Cleaning services typically include those for kitchen hoods, exhaust vents, and filters.
Fire extinguishers must be maintained and/or replaced on a regular basis.
Groundskeeping includes lawn services and, where needed, snow and ice removal.
Most gas and electrical equipment must be serviced and replaced, when needed, by licensed technicians.

41. Buying Utilities Gas Oil heating Electricity Water Sewage services
Telephones
Internet access
Instructor’s Notes
In most areas, sewage charges are related to the amount of water used by the operation.
Electricity is sold by the kilowatt hour, and the rates charged may vary based upon when the electricity is actually used (peak hours versus off hours).
Internet access is crucial for use in charge card processing, and more recently, for directly placing orders for food and other needed operating supplies.

42. How Would You Answer the Following Questions?
A (popularity/frequency) index can be used to help estimate how many of a specific menu item are likely to be sold.
Which of the following is not a goal of the purchasing function:
Obtain the lowest possible EP price.
Maintain adequate supply.
Maximize investment.
Maintain quality standards
A goal of a quality purchasing program is that of maintaining an operation’s __________ advantage.
The cost of most AP food products is higher than their AS cost. (True/False)
Instructor’s Notes
Popularity
C It seeks to minimize, not maximize, the investment.
Competitive
False

43. Chapter Learning Objectives— What Did You Learn?
Define purchasing, procurement, and product selection.
Outline the objectives in the purchasing function.
Describe the importance of maintaining an operation’s competitive position.
List the types of goods and services that might be purchased by a foodservice organization.
Instructor’s Notes
Ask students to do a personal assessment of the extent to which they know the information or can perform the activity noted in each objective.

44. Key Term Review As purchased (AP) price As served (AS) price
Cash position
Competitive advantage
Cooperative or co-op buying
Covers
Customer count history
Economies of scale
Instructor’s Notes
As purchased (AP) price—cost of an item before all trimming, fabrication, and cooking
As served (AP) price—cost of an item as it is served to the customer
Cash position—amount of cash available to an operation at a specific point in time
Competitive advantage—favorable relationship or position relative to one or more characteristics of a competitor
Cooperative or co-op buying—process of joining with others to collectively purchase products
Covers—number of customers served; one customer = one cover
Customer count history—number of customers and times at which an operation has served those customers in the past
Economies of scale—savings that a multi-unit business generates for itself by sharing the cost of purchasing goods and services
Indicate that there are additional key terms in this chapter.

45. Key Term Review continued
Edible portion (EP) price
Franchise
Popularity index
Procurement
Product selection
Profit
Purchasing
Vendor
Instructor’s Notes
Edible portion (EP) price—cost of an item after all trimming and fabrication (but before cooking)
Franchise—business system that an independent owner buys from a company, along with the right to use the company’s name, logo, and products
Popularity index—measure of the popularity of a specific menu item in relation to other items in its category and the popularity of one menu category relative to other categories
Procurement—entire process by which products and services are selected
Product selection—process by which products and services are chosen based upon quality and cost
Profit—money remaining after all operating expenses have been paid
Purchasing—obtaining products of a desired quality at a desired price
Vendor—company that sells a product or service

46. Next Week Read Chapter Two Recipes Due Units of Measure Worksheet
5 total recipes
Units of Measure Worksheet
Group Presentation work