Chapter 5 Procurement.

Chapter 5 Procurement

Procurement Process Managerial function of acquiring material for production Functional subsystem in transformation component of foodservice systems model Includes purchasing, receiving, storage, & inventory control ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Role of Purchasing Managers
Top 10 skills of buyers (descending order) Interpersonal communication Customer focus Ability to make decisions Negotiation Analytical ability ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458 Foodservice Organizations (C)2004, Pearson Education

Top 10 skills of buyers (cont.) (descending order) Managing change Conflict resolution Problem solving Influence & persuasion Computer literacy ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458 Foodservice Organizations (C)2004, Pearson Education

Role is changing, especially in Writing food & equipment specifications Ethics in purchasing Food industry in cyberspace ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458 Foodservice Organizations (C)2004, Pearson Education

Purchasing is profit center Better purchasing saves dollars for products, supplies, & services Savings go directly to bottom line Profit center – department generates revenues greater than expenses Cost center – does not generate profits to cover expenses ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Purchasing managers use computers for: Pricing Inventory monitoring Product usage Tracking product movement Paying bills Communicating with other departments & suppliers ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Purchasing & the Market
Purchasing – acquisition of products Right product, in right amount of time, at the right price Buyers must know market and products, and have general business acumen Rely on sales representatives for advice on purchasing decisions & information on available food items & new products ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Purchasing & the Market
Market – medium through which change in ownership moves commodities from producer to consumer Knowledge of market involves finding sources of supply & determining which food can be obtained from which supplier ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Marketing Channel Buyer has powerful influence on food distribution system Listens to desires of customers Determines what is grown & packaged Understands how items are processed or manufactured, shipped, sold , & consumed Marketing channel – indicates exchange of ownership from producer through processor or manufacturer & distributor to the customer ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Marketing Channel ©2004 Pearson Education, Inc.
Upper Saddle River, New Jersey 07458

Marketing Channel Five major components:
Producers Processors or manufacturers Distributors Suppliers Customers Value & cost added in each component & are reflected in final price ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Producers Someone who produces raw food to sell
Usually farmers or ranchers Sell to distributors or directly to foodservice operation; product then sold to customers Abundance in food result of applications of advances in science & technology Food produced per acre increased Improvements in production methods, animal/plant genetics, & farm mechanization ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Processors or Manufacturers
Transforms raw food items into packaged products for sale to consumers or foodservice operations Responsible for many forms of food available to customer ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Distributor Transfer products from processor or manufacturer to supplier Classified as Wholesalers (included super distributors) Brokers Manufacturers’ representatives ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Wholesalers Purchase from various manufacturers or processors, provide storage, sell, & deliver products to suppliers Full or broadline – carry large stock Specialty – particular product category Special breed distributors – purchasing & product movement specialists ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Brokers Sales & marketing representative who
contracts with manufacturers, processors, or prime source producers sells & conducts local marketing programs with wholesalers, suppliers, or foodservice operations ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Manufacturers’ Representatives
Represents a manufacturing company & informs suppliers of products by manufacturer Companies pay flat commission on sales volume Economical because companies do not have sales officials in every area of customers Have greater product expertise than brokers ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Suppliers Offers products for sale
Foodservice manager buys from supplier more often than from wholesaler, broker, or manufactures’ representative One-stop shopping by dealing with prime supplier (single source supplier) Many prefer to bid out individual line items to receive competitive prices ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Customers Anyone affected by a product or service
Typical person consumes average of 4.2 meals prepared away from home per week Customer satisfaction goal of foodservice industry Purchasing quality food & related products should be first objective ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Value-Added Increase in value caused by processing or manufacturing & marketing or distribution, exclusive of cost of materials, packaging, or overhead Objective is to increase marketing value of raw & semi-processed products Example: milling wheat flour into cake flour to produce fine-textured cake ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Market Regulation Purpose, through federal legislation, is to protect customer without stifling economic growth Government, industry, & consumer need to interact to accomplish this purpose Each interdependent & affects performance of other two ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Market Regulation Government Industry Consumer
Enact legislation that protects consumer Promotes competition among industries Industry Satisfy consumer while making profit Responsible for complying with legislation Consumer Alert government about food safety, nutrition, & environment concerns Expect industry to produce appropriate products ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

U.S. Dept. of Health & Human Services
Most often involved with the market regulations that directly affect industry Food & Drug Administration (FDA) & U.S. Public Health Service are under the umbrella of the U.S. Department of Health & Human Services Cooperates closely with U.S. Department of Agriculture (USDA) ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Food & Drug Administration
Food, Drug, & Cosmetic Act, passed in 1938, enforced by FDA To ensure foods other than meat, poultry, & fish are pure & wholesome, safe to eat, & produced under sanitary conditions Requires packaging & labeling to be in agreement with contents Act provides 3 mandatory standards: identity, quality, & fill of container ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Standards of identity – federal standards identifying what a given food product contains Standards of quality – federal standards for product quality attributes such as tenderness, color, & freedom from defects Standards of fill of container – tell packer how full a container must be to avoid charge of deception ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Amendments to Food, Drug, & Cosmetic Act Food Additive & Color Additive - safeguard against adulteration & misbranding Adulterated – contains substances injurious to health, prepared or held under unsanitary conditions, or if any part is filthy, decomposed, or contains portions of diseased animals If damage or inferiority is concealed, label or container is misleading, or valuable substance is omitted ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Miller Pesticide Amendment Procedures for establishing tolerances for residues of insecticides used with domestic & imported agricultural products Tolerances of permitted residues established by Environmental Protection Agency, but FDA is responsible for enforcement Also regulates food irradiation, genetically engineered foods, & nutrition labeling ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Irradiation – exposure of foods to gamma rays or radiant energy to reduce harmful bacteria Does not make foods radioactive, change nutrient content, or change flavor Does not “cook” foods; kills most harmful bacteria Irradiated food can spoil faster – safe food handling measures are required ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Genetically engineered foods – genetic structure altered by adding or eliminating genes to enhance qualities of product Only food crops containing substances significantly different from those in consumer’s diet need to seek FDA approval Nutrition labeling – requirements spelled out in regulations issued by FDA & USDA’s Food Safety & Inspection Service (FSIS) ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Food Safety & Inspection Service (FSIS) public heath agency in USDA responsible for ensuring nation’s commercial supply of meat, poultry, & egg products is safe, wholesome, & correctly labeled & packaged Nutrition Labeling & Education Act Requires nutrition labeling for foods, except meat & poultry, & authorizes use of nutrient content claims & appropriate FDA approved heath claims ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

“Nutrition Facts” (current label) contains: Macronutrients (fat, cholesterol, etc) shown as percent of recommended daily value Amount in grams or milligrams per serving Column headed “% of Daily Value” based on 2,000- and/or 2,500-calorie diet Definitions for descriptors are now spelled out Product “free” of fat must contain “no amount” or only “trivial amount” “calorie free” = less than 5 calories per serving ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

U.S. Public Health Service
Public Health Service Act FDA advises governments on sanitation standards for prevention of infectious diseases Production, processing, & distribution of Grade A milk Standard for Grade A milk is largely a standard of wholesomeness Met state or local requirements that equal or exceed federal requirements ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

U.S. Department of Agriculture
Facilitates strategic marketing of agricultural products in domestic & international markets Grading, inspecting, & certifying quality Grading standards are quality driven & foundation for uniform grading Categories: fresh fruits, vegetables, specialty crops, processed fruits & veggies, milk & dairy, livestock & meat, poultry, eggs, cotton, & tobacco ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Responsible for enforcing federal meat, poultry, & egg inspection programs Changes to Meat Inspection System Must follow HACCP regulations Plants must install preventative measures to reduce bacteria & improve sanitation Egg Products Inspection Act Mandatory continuous inspection of processing of liquid, frozen, & dried egg products ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

FSIS establishing new requirements for poultry plants to improve food safety Required to adopt HACCP system of process controls to prevent food safety hazards Conduct microbial testing for generic E. coli to verify control systems prevent fecal contamination Pathogen reduction performance standards for salmonella that plants must meet for raw products Must adopt & carry out written plan for meeting basic sanitation responsibilities ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

U.S. Department of Commerce
FDA developed seafood inspection requirements for processors & importers Prevent 20,000 – 60,000 seafood poisonings a year National Marine Fisheries Service Part of National Oceanic & Atmospheric Administration (NOAA) Support domestic & international conservation & management of living marine resources ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Imported Food Regulations
Meat & poultry imported to U.S. must be produced under equivalent standards of U.S. Evaluation of country’s inspection system to determine eligibility Document review – assure five risk areas are covered satisfactorily On-site review – team visits country to evaluate five risk areas & inspect plant FSIS periodically reviews operation to assure it continues to meet U.S. requirements ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Product Selection Purchasing is a highly specialized job
Must know product, market, buying procedures, & market trends Know how materials are produced, processed, & moved to market Forecast, plan, organize, control, & perform other management-level functions Primary function of buyer is to procure required products for desired use at minimal cost ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Value Analysis Organized technique applicable to cost reduction
Used to develop new products or evaluate existing product specifications ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Make-or-Buy Decisions
Manager has 3 basic choices for production of a menu item: Produce item completely from raw foods Purchase some ingredients & assemble Purchase item in final form from wholesaler Decision based on quality, quantity, service, & cost ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Make-or-Buy Decisions
Quality Prime consideration in foodservices Quantity Enters decision process when ability to produce in desired amount is considered Service Reliable delivery & predictable service Cost When all others are equal, compare cost of making versus cost of purchasing ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Specifications List of detailed characteristics desired in a product for a specific use Primary safeguard of foodservice quality is adherence to specification ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Types of Specifications
Technical – indicates quality by objective & impartial test results Approved brand – indicates quality by specifying brand name or label Performance – indicates quality by functioning characteristics of product ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Writing Criteria for Specifications
Good specifications are: Clear, simple, & sufficiently specific Consistent with products or grades on market Verifiable by label statements, USDA grades, weight determination, etc. Fair to supplier & protective to buyer Realistic quality standards Capable of being met by several bidders ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Specific Information Specifications for food products should include
Name of product or standard Federal grade, brand, or other quality designation Size of container Count per container or approximate number per pound Unit on which price will be based ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Additional Information
USDA Institutional Meat Purchase Specification (IMPS) Simplifies specification writing for large-volume users of meat Numbering system for identification of carcass cuts & various cuts or types of meat products Meat Buyers Guide Arrangement of text material & colored illustrations of each numbered item ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Grades & Inspection USDA quality grades of beef:
Prime, choice, select, standard, commercial, utility, cutter, & canner Grades pertain to palatability qualities of beef Tenderness, juiciness, & flavor Yield grades for beef provide uniform method of identifying “cutability” differences among beef carcasses ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Kosher Inspection “fit & proper” or “properly prepared”
Must meet standards of Mosaic & Talmudic laws Applied to animals with split hooves & chews its cud Kosher meat processed under supervision of specially trained rabbi ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Packers’ Brands Many food producers use own brand names & define own quality standards Grading system closely follows federal grades & standards with more flexibility Some choose own labels & even color code various quality levels Careful buyer will open cans of different brands for comparison before major purchase – referred to as “can cutting” ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Methods of Purchasing Informal
price quotes by telephone or personally with salesperson Amount of purchase is small – no time for formal purchasing practices Item can be obtained only from 1 or 2 sources Need is urgent & immediate delivery required Stability of market (& prices) is uncertain Size of operation too small for formal purchasing ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Methods of Purchasing Formal
tax supported institutions usually required to use competitive bidding Culminates in formal contract between buyer & supplier Understanding legal implications of contract buying is important for both parties ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Bid Buying Buyer decides which supplier will be chosen for order based on bids submitted from the seller Daily quotation buying – daily bid often for perishable products Line-item bidding – supplier bids on each product on buyer’s list, & one offering lowest price receives order for the product All-or-nothing – supplier bids on best price on complete list of items ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Legal Considerations Law of Agency – buyer’s authority to act for organization, obligation each owes the other, & the extent to which each may be held liable for other’s actions Law of Warranty – guarantee by supplier that an item will perform in specified way Express warranty Implied warranty of merchantability Implied warranty of fitness for particular purpose ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Legal Considerations Law of Contract – signed agreement between 2 or more parties related to the purchase of a product or service the offer the acceptance the consideration competent parties & legality ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Independent & Centralized Purchasing
Independent purchasing – done by unit or department that has been authorized to purchase Centralized purchasing – purchasing activity is done by one person or department ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Centralized Purchasing
Advantages Better control & one complete set of records Development of personnel with specialized knowledge, skills, & procedures Better performance in other departments Economic & profit potentials of purchasing, making it a profit rather than a cost center ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Group Purchasing Bringing together foodservice managers from different operations for joint purchasing Advantage - volume of purchases is large enough for volume discounts Site is selected, purchasing personnel hired, & managers serve as advisory committee ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Warehouse Club Purchasing
Operate on no-frills approach Product in original cartons on shelves Wide variety of brand-name items stocked in plain warehouse including food, cleaning supplies, furniture, electronic equipment, & others needed for operating restaurants No personnel for assistance Markups average of 10% ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Just-in-Time Purchasing
Purchase products as needed for production & immediate consumption by customer without storing & recording inventory Goals: Secure steady flow of raw materials Reduce lead time required for ordering Reduce amount of inventory in storage & production areas Reduce cost of purchased materials ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Supplier Selection & Evaluation
Supplier selection most important decision in purchasing Greater communication between buyer & supplier required than every before Ideal method of purchasing based on price, quality, & delivery from supplier Difficult because of personal ideas & preferences Supplier = seller or vendor Buyer = purchaser ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Survey Stage Purpose of supplier survey is to explore all possible sources for product Buyer’s experience & personal contacts with various suppliers provide valuable & reliable information Kept on file for reference Buyers should question salespeople Have lots of information but could be biased toward own product ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Inquiry Stage Field must be narrowed from possible to acceptable sources Comparing potential suppliers Quality, quantity, & price should be compared & balanced against one another Geographic location Financial condition of supplier ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Supplier Performance Evaluation
Current suppliers need to be monitored to be sure they are meeting performance expectations New suppliers screened to determine if should be considered in future Supplier performance evaluation instrument difficult to select Many develop own forms ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Purchasing Process Recognition of a need
Description of the needed item Authorization of purchase requisition Negotiation with potential suppliers Evaluation of proposals & placement of order Follow-up of order Verification of invoice & delivered materials Closure of purchase record ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Purchase Requisition Form used by foodservice manager to request items for purchasing manager or department Generally included on all requisitions Requisition number Delivery date Budget account number Quantity needed Description of the item ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Purchase Order Document completed by buyer & given to supplier listing items to be purchased Format Name & address of foodservice organization Name & address of supplier Identification numbers General instructions to supplier Complete description of purchase item Price data Buyer’s signature ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Purchase Order Required number of copies Shipping Terms Invoice
Free on board (F.O.B.) – delivered to specific place with all transport charges paid Invoice ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Receiving Activity for ensuring products delivered by suppliers are those that were ordered Verifying quality, size, & quantity meet specifications Price on invoice agrees with purchase order Perishable goods are tagged or marked with the date received Consistent & routine procedures are essential Adequate controls to preserve quality & prevent loss during delivery & receipt ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Elements of Receiving Activity
Competent personnel Separate duties of purchasing & receiving basic to check-and-balance system Well trained employees to perform receiving tasks competently Facilities & Equipment Need enough space to permit all incoming products to be inspected & checked at one time Equipment – scales, unloading platform, table for inspection, & some tools ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Specifications Employee receiving order must know standards the supplies must meet Critical controls in receiving Procedures for inspection & standards for acceptance necessary to prevent food borne illness Sanitation Receiving area designed for easy cleaning ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Adequate Supervision Management check security to ensure receiving procedures are being followed Scheduled hours Suppliers should deliver at specified times Security Different person responsible for purchasing & receiving Follow scheduled hours Move products immediately from receiving to storage Do not allow delivery personnel in storage area ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Receiving Process Inspection against purchase order
Inspection against the invoice Acceptance or rejection of orders Completion of receiving records Removal to storage ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Inspection Against Purchase Order
Purchase Order – written record of all orders. Includes: Brief description of the product Quantity Price Supplier Ensures: Products were actually ordered. Correct quantities have been delivered. ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Inspection Against the Invoice
Invoice – supplier’s statement of what is being shipped & the expected payment. Receiving Methods: Invoice – checks quantity against purchase order. Blind – records quantity received on invoice or purchase order with quantity column blanked out. Electronic – Use of tabulator scales, bar coded cartons & packages, & handheld scanner aid receiving. ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Acceptance or Rejection of Orders
Delivered products become the property when the purchase order, specifications, & supplier’s invoice are in agreement. Rejection at time of delivery is easier than returning products. ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Completion of Received Records
Receiving record – provides an accurate list of: All deliveries of food & supplies Date of delivery Supplier’s name Quantity Price data Provides a checkpoint in control system. ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Removal to Storage Products should be transferred immediately from receiving to the secure storage area. Marking –information about delivery date & price directly on the case, can, or bottle before it is placed into storage. Tagging – information such as date of receipt, name of supplier, brief description of product, weight or count upon receipt, & place of storage are written on a tag. ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Storage Holding of products under proper conditions to ensure quality until time of use. Links receiving & production. Storage employees: Check in products from the receiving unit Provide security for products Establish good material-handling procedures ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Storage Theft – premeditated burglary Pilferage – inventory shrinkage
Storage facility types include: Dry storage Low-temperature storage Nonfood item storage ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Dry Storage Provides orderly storage for foods not requiring refrigeration or freezing. Should provide protection of foods from the elements, insects, rodents, & theft. Temperature of 50º F to 70º F. Relative humidity of 50% to 60%. ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Low-Temperature Storage
Provides storage for perishable foods to preserve quality & nutritive value. Types: Refrigerators – designed to hold the internal temperature of food products below 41ºF. Tempering boxes – units for thawing frozen foods. Steady temperature of 40ºF. Storage freezers – units for frozen foods. Constant temperature of -10ºF to 0ºF. ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Low-Temperature Storage
Recommended humidity range of 75% & 95% (85%-95% for perishable foods). Low-Temp Thermometers: Remote reading – placed outside unit. Recording – mounted outside the unit. Refrigerator/Freezer – mounted or hung on shelf in the warmest area inside unit. Should be checked at least twice a day. ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Inventory Supported by the actual presence of products in the storage area. Access to storage areas should be restricted. Requires maintenance of accurate records. ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Issuing Products Issuing – process used to supply food to production units after it has been received. Direct purchases or direct issues – products sent directly from receiving to production. Storeroom issues – foods that are received but not used the day they are purchased. ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Inventory Records Objectives:
Provision of accurate information of food & supplies in stock. Determination of purchasing needs. Provision of data for food cost control. Prevention of theft & pilferage. ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Physical Inventory Periodic actual counting & recording of products in stock in all storage areas. Involves two people: 1st person counts the products. 2nd person records the data on the physical inventory form. One of the people should not be directly involved with storeroom operations as a control measure. ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Perpetual Inventory Purchases & issues continuously are recorded for each product in storage. Balance in stock is available at all times. Generally restricted to products in dry & frozen storage. ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Universal Product Code
System of identifying food products Code Digit #1 always zero except for meat and produce with variable weight Digits – manufacturer’s or processor’s code Digits 7-11 – product code Digit 12 – check digit ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Inventory Control Tools
Major functions of a control system: Coordinate activities Influence decisions & actions Assure that objectives are met Decision making ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Inventory Control Tools
Inventory turnover indication of ability to control the amount of product held in inventory. ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Minimum-Maximum Method
Involves establishment of minimum & maximum inventory levels. Safety stock – a backup supply. Lead time – interval between requisition & receipt of a product. Usage rate – speed at which a product is used; determined by experience & forecasts. Reorder point – lowest stock level that safely can be maintained to avoid a stock-out or emergency purchasing. ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Economic Order Quantity (EOQ) Method
A balance of ordering cost & inventory holding cost. Ordering cost – total operating expenses. Total annual usage – number of units to be used annually. Holding cost – total of all expenses in maintaining & inventory. ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Inventory Valuation Methods
Actual purchase price – pricing the inventory at the exact price of each individual product. Weighted average – a weighted unit cost is calculated based on the unit purchase price & the number of units in each purchase. FIFO – First In First Out LIFO – Last In First Out Latest purchase price –uses the latest purchase price in valuing the ending inventory. ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Ethical Considerations
Ethics – principles of conduct governing an individual or a business. Personal ethics – a person’s religion or philosophy of life derived from definite moral standards. Business ethics – self-generating principles of moral standards to which a substantial majority of business executives gives voluntary assent. ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Code of Ethics Set of rules for standards of professional practice or behavior established by a group. Influenced by codes of individuals. Standard – the measurement of what is expected to happen. ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Ethical Issues Ethical dilemmas:
Efforts to gain inside information about competitors that will benefit competition. Activities that allow buyers to gain personal benefits from suppliers. Activities that manipulate suppliers to benefit the purchasing organization. ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Ethics Management By implementing planning, organizing, staffing, leading, & controlling, management can be sure ethics are established formally & explicitly into daily organizational life. Leadership is the principal mechanism for increasing ethical performance in business. ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

Materials Management The unifying force that gives interrelated functional subsystems a sense of common direction. Transforms materials that enter the system into an output that meets standards for quantity & quality. Organizational concept of centralized responsibility for those activities involved in moving materials into the organization. ©2004 Pearson Education, Inc. Upper Saddle River, New Jersey 07458

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