Week 7 Procurement (Purchasing, Receiving And Storing) 2 2552


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Week 7 Procurement (Purchasing, Receiving And Storing) 2 2552

  1. 1. PROCUREMENT Purchasing, Receiving, Storing and Inventory ระบบการจัดซื้อ ตรวจรับ จัดเก็บ และควบคุมสินค้าคงคลัง Aj. Pavit Tansakul Tel. 2248 Email: tpavit@wu.ac.th Tourism and Hospitality Management Program School of Management, Walailak University Week 7
  2. 2. Objectives <ul><li>Describe what is involved in purchasing, receiving, storage, and inventory control . </li></ul><ul><li>Understand the different between purchasing and buying </li></ul><ul><li>State the three areas within which the purchasing agent must work, as well as their importance and relationship </li></ul><ul><li>Name two reasons that a purchaser must know how the market works </li></ul><ul><li>List two advantages and two disadvantages of purchasing goods from master and specialty distributors </li></ul><ul><li>Explain two if the reasons that operations should use purchase specifications </li></ul><ul><li>Name three items that should be included in purchase specifications </li></ul>
  3. 3. Outline <ul><li>Introduction to procurement </li></ul><ul><li>Purchasing </li></ul><ul><ul><li>Purchasing from the customer’s point of view </li></ul></ul><ul><ul><li>The three area of purchaser familiarity </li></ul></ul><ul><ul><li>Who does the purchasing? </li></ul></ul><ul><ul><li>The different between purchasing and buying </li></ul></ul><ul><ul><li>Method of purchasing </li></ul></ul><ul><ul><li>The purchase specification: key to effective purchasing </li></ul></ul><ul><ul><li>Supplier selection </li></ul></ul><ul><ul><li>Buyer and seller relationships </li></ul></ul><ul><li>Receiving </li></ul><ul><li>Storage </li></ul><ul><li>Inventory </li></ul>
  4. 4. Procurement <ul><li>Four steps in Procurement </li></ul><ul><li>Purchasing </li></ul><ul><li>Receiving </li></ul><ul><li>Storage </li></ul><ul><li>Inventory Control </li></ul>
  5. 5. PURCHASING 1
  6. 6. Purchasing <ul><li>Purchasing is an essential function for any foodservice operation. </li></ul><ul><li>The nature of the foodservice biz, with its unpredictable flow, makes purchasing a difficult task. </li></ul><ul><li>Operators have to be careful not to order to much it will spoil and become unusable, and , at the same time, they must be careful not to order so little </li></ul>
  7. 7. Purchasing <ul><li>Purchasers do not buy only items for the kitchen, they also buy items for the various other departments of the operation. </li></ul><ul><li>Therefore, they must be in close communication to ensure that they buy exactly what is needed. </li></ul>
  8. 8. Purchasing <ul><li>Specifications, or the specific characteristics of the goods needed, must be developed so that both the buyer and the seller understand exactly what is needed. </li></ul><ul><li>A large portion of goods purchased, such as fresh produce and meat items, are subject to the variations found in nature items </li></ul>
  9. 9. Role of Purchasing Department <ul><li>Purchasing is profit center </li></ul><ul><ul><li>Better purchasing saves dollars for products, supplies, & services </li></ul></ul><ul><ul><li>Savings go directly to bottom line </li></ul></ul><ul><li>Profit center – department generates revenues greater than expenses </li></ul><ul><li>Cost center – does not generate profits to cover expenses </li></ul>
  10. 10. Purchasing Cycle <ul><li>1. Issuing </li></ul><ul><ul><li>Department completes an issue requisition to storeroom. </li></ul></ul><ul><ul><li>Storeroom issues requested products. </li></ul></ul><ul><li>2. Purchasing </li></ul><ul><ul><li>Storeroom sends purchase requisition to purchasing department. </li></ul></ul><ul><ul><li>Purchasing department completes purchase order and sends to: </li></ul></ul><ul><ul><ul><li>Receiving Accounting Supplier </li></ul></ul></ul>
  11. 11. Purchasing Cycle <ul><li>3. Supplier </li></ul><ul><ul><li>Provides products and invoice to receiving department. </li></ul></ul><ul><li>4. Receiving </li></ul><ul><ul><li>Checks products against delivery invoice and purchase order. </li></ul></ul><ul><ul><li>Sends delivery invoice to accounting. </li></ul></ul><ul><li>5. Accounting </li></ul><ul><ul><li>Pays supplier according to delivery invoice and purchase order. </li></ul></ul>(continued)
  13. 13. Purchasing from Customer’s Point of View <ul><li>Purchasing is a functions that occurs behind the scenes of a foodservice operation and out of view of the customers </li></ul><ul><li>The result of the purchasing function are visible and important to the guests </li></ul><ul><li>The quality of the product effect on their perceptions of management’s commitment to quality </li></ul><ul><li>An operator that uses the least expensive goods available will be seen as a cost cutter and will, accordingly, have problems in charging top dollar for its goods and services. </li></ul>
  14. 14. Purchasing from Customer’s Point of View <ul><li>Customers expect a brand such as Coca-Cola or Pepsi-Brand which they are familiar-when they request a Cola Drink </li></ul><ul><li>The substitution of an off-brand will most likely cause problems in the long run. </li></ul>
  15. 15. Purchasing from Customer’s Point of View <ul><li>There is generally a direct relationship between price and quality of goods purchased. </li></ul><ul><li>Goods at a bottom of the price range are generally inferior to their more expensive counterparts and may eventually cost more for the operation </li></ul><ul><li>Operators who look for the cheapest item may be losing money in two ways: </li></ul><ul><ul><li>1. Customer goodwill (reputation) and business </li></ul></ul><ul><ul><li>2. Increased costs resulting from reduced product quality </li></ul></ul>
  17. 17. The Three Area Of Purchaser Familiarity <ul><li>The role of the purchaser is to find the best-quality product at the best price and to ensure that it arrives at the proper time. </li></ul><ul><li>1. Market – purchase the goods and services for the operations </li></ul><ul><li>2. Operation – the establishment for which the purchaser works </li></ul><ul><li>3. Customer – whose need expectations must be met </li></ul>
  18. 18. Three Areas With Which Purchaser Must be Familiar
  19. 19. 1. THE MARKET <ul><li>Market – medium through which change in ownership moves commodities from producer to consumer </li></ul><ul><li>Most goods that are purchased go through a chain of distribution from the producer (farmer) to the Processor (or a number of processors) to distributors </li></ul>
  20. 20. THE MARKET Farmer or Producer Processor Broker Distributor Customer Processor Processor Foodservice operation Retail Grocery Store
  21. 21. Purchasing & the Market <ul><li>Purchasing – acquisition of products </li></ul><ul><ul><li>Right product, in right amount of time, at the right price </li></ul></ul><ul><li>Knowledge of market involves finding sources of supply & determining which food can be obtained from which supplier </li></ul><ul><li>Buyers must know market and products, and have general business acumen </li></ul><ul><ul><li>Rely on sales representatives for advice on purchasing decisions & information on available food items & new products </li></ul></ul>
  22. 22. Marketing Channel <ul><li>Buyer has powerful influence on food distribution system </li></ul><ul><ul><li>Listens to desires of customers </li></ul></ul><ul><ul><li>Determines what is grown & packaged </li></ul></ul><ul><ul><li>Understands how items are processed or manufactured, shipped, sold , & consumed </li></ul></ul><ul><li>Marketing channel – indicates exchange of ownership from producer through processor or manufacturer & distributor to the customer </li></ul>
  23. 23. Marketing Channel
  24. 24. Marketing Channel <ul><li>Five major components: </li></ul><ul><ul><li>1. Producers </li></ul></ul><ul><ul><li>2. Processors or manufacturers </li></ul></ul><ul><ul><li>3. Distributors </li></ul></ul><ul><ul><li>4. Suppliers </li></ul></ul><ul><ul><li>5. Customers </li></ul></ul><ul><li>Value & cost added in each component & are reflected in final price </li></ul>
  25. 25. 1. Producers <ul><li>Someone who produces raw food to sell </li></ul><ul><ul><li>Usually farmers or ranchers </li></ul></ul><ul><ul><li>Sell to distributors or directly to foodservice operation; product then sold to customers </li></ul></ul><ul><li>Abundance in food result of applications of advances in science & technology </li></ul><ul><li>Food produced per acre increased </li></ul><ul><ul><li>Improvements in production methods, animal/plant genetics, & farm mechanization </li></ul></ul>
  26. 26. 2. Processors or Manufacturers <ul><li>Transforms raw food items into packaged products for sale to consumers or foodservice operations </li></ul><ul><li>Responsible for many forms of food available to customer </li></ul>
  27. 27. 3. Distributor <ul><li>Transfer products from processor or manufacturer to supplier </li></ul><ul><li>Classified as </li></ul><ul><ul><li>Wholesalers (included super distributors) </li></ul></ul><ul><ul><li>Brokers </li></ul></ul><ul><ul><li>Manufacturers’ representatives </li></ul></ul>
  28. 28. 3.1 Wholesalers <ul><li>Purchase from various manufacturers or processors, provide storage, sell, & deliver products to suppliers </li></ul><ul><ul><li>Full or broadline – carry large stock </li></ul></ul><ul><ul><li>Specialty – particular product category </li></ul></ul><ul><ul><li>Special breed distributors – purchasing & product movement specialists </li></ul></ul>
  29. 29. 3.2 Brokers <ul><li>Sales & marketing representative who </li></ul><ul><ul><li>contracts with manufacturers, processors, or prime source producers </li></ul></ul><ul><ul><li>sells & conducts local marketing programs with wholesalers, suppliers, or foodservice operations </li></ul></ul>
  30. 30. 3.3 Manufacturers’ Representatives <ul><li>Represents a manufacturing company & informs suppliers of products by manufacturer </li></ul><ul><li>Companies pay flat commission on sales volume </li></ul><ul><li>Economical because companies do not have sales officials in every area of customers </li></ul><ul><li>Have greater product expertise than brokers </li></ul>
  31. 31. 4. Suppliers <ul><li>Offers products for sale </li></ul><ul><li>Foodservice manager buys from supplier more often than from wholesaler, broker, or manufactures’ representative </li></ul><ul><ul><li>One-stop shopping by dealing with prime supplier (single source supplier) </li></ul></ul><ul><li>Many prefer to bid out individual line items to receive competitive prices </li></ul>
  32. 32. 5. Customers <ul><li>Anyone affected by a product or service </li></ul><ul><li>Typical person consumes average of 4.2 meals prepared away from home per week </li></ul><ul><li>Customer satisfaction goal of foodservice industry </li></ul><ul><li>Purchasing quality food & related products should be first objective </li></ul>
  33. 33. THE MARKET <ul><li>The purchaser must be aware of the advantages and disadvantages of the various links in order to know which can best be bypassed. </li></ul><ul><li>When some items were available only at certain times of the year and foodservice operations had to develop different menus for the various growing seasons </li></ul><ul><li>In order to provides the best quality at the best price, THE PURCHASER MUST KNOW THE BEST TIME TO PURCHASE THE FRESH PRODUCE NEEDED. </li></ul>
  34. 34. 2. THE OPERATION <ul><li>The role of the purchaser is to buy the food and supplies for the various areas of the operation </li></ul><ul><li>An operation’s goal may be to get the best value for the dollar, with quality secondary, or to provide guests with the best that money can buy </li></ul>
  35. 35. THE OPERATION <ul><li>A purchaser must avoid judging between two items solely on the basis of price without considering the intended use </li></ul><ul><li>When given a choice of product, some purchasers may tend to choose the least expensive </li></ul><ul><li>“ YOU GET WHAT YOU PAY FOR” </li></ul><ul><li>An item maybe cheaper, but if it is not useable, it represents a total waste of money </li></ul>
  36. 36. 3. THE CUSTOMER <ul><li>The key to the success of any operation is to MEET or EXCEED the needs and desires of its customers </li></ul><ul><li>Customer expect a certain level of quality, which depends on the menu prices and the perceived value of the operation’s offerings </li></ul><ul><li>REMEMBER!!! Customers are aware of the quality brands and expect to see some of them when they dine out </li></ul>
  37. 37. THE CUSTOMER <ul><li>Example </li></ul><ul><li>if an operation serves ketchup on the table as a condiment, it will most likely be Heinz ketchup rather than any of the numerous other brands that are available from grocery stores. </li></ul><ul><li>Note: </li></ul><ul><li>Pepsi, Coca-Cola, Heinz are not the cheapest brands, but they are the brands used visibly in most operations because customers equate them with quality and have come to expect them </li></ul>
  39. 39. WHO DOES THE PURCHASING? <ul><li>The size of the operation, as well as whether it is an independent operation or part of chain, can have a dramatic effect on the role and function of the purchaser </li></ul>
  40. 40. SMALLER OPERATIONS <ul><li>A possible advantage is that the person who places the order is also the one to receive it, a control problem may arise </li></ul><ul><li>An unscrupulous person could steal some goods with a driver to defraud the foodservice op. </li></ul><ul><li>Whenever possible, the person who places an order should not be the person who will receive the goods. </li></ul>
  41. 41. SMALLER OPERATIONS <ul><li>Smaller ops cannot justify or afford having a person whose sole responsibility </li></ul><ul><li>The task of purchasing is usually delegated to the chef to be performed along with his or her other duties </li></ul><ul><li>An advantage – because the user of the goods is the person doing the buying, there is no chance for miscommunication </li></ul>
  42. 42. LARGER OPERATION <ul><li>Usually with in Hotel, hospital and resort, have full time purchasing agent and staff. </li></ul><ul><li>The role of the purchasing agent is to deal with suppliers, supervise receiving clerk, and manage the storeroom By managing the storeroom area they can monitor the goods and notify the kitchen staff of any slow moving foods that must be used before they spoil </li></ul>
  43. 43. CHAIN OPERATIONS <ul><li>The purchasing function done by the corporate or regional office of the company </li></ul><ul><li>Most chain restaurants serve generally the same menu at all of their locations </li></ul><ul><li>Because consistency is so important to chains, they usually write up specification for food items and distribute them to their operations </li></ul><ul><li>Companies have also found that they can generally obtain better prices and services if they negotiate on a regional or national basis, rather than having each property negotiate on its own for the items needs. </li></ul>
  45. 45. THE DIFFERENT BETWEEN PURCHASING AND BUYING <ul><li>Formal Process, called PURCHASING </li></ul><ul><li>Informal, considered BUYING </li></ul><ul><li>Must be aware of this distinction and of the respective Advantages and Disadvantages </li></ul><ul><li>Although the net effect for the operation is basically the same – it receives the good and service it needs-the process of receiving the good (and most likely the price) can differ </li></ul>
  46. 46. FORMAL PURCHASING <ul><li>Is the systematic and planned process of determining what is needed, checking prices, negotiating with suppliers, and obtaining the need goods </li></ul>Written Specifications Check Prices Negotiate with Suppliers Receive Goods Price Delivery Schedules Credit Terms
  47. 47. INFORMAL BUYING <ul><li>Less complex then formal purchasing. </li></ul><ul><li>The op, call one suppliers and orders what the rest needs. </li></ul><ul><li>Specification not used, Price are not checked with a number of supplier </li></ul>Call Supplier Place Order Receive Goods
  48. 48. PURCHASING AND BUYING <ul><li>Formal purchasing is generally used in larger operations that can afford a specialized staff with time to devote to the more complex formal method </li></ul><ul><li>Smaller operations generally use the informal system; however, combining the purchasing responsibility with a person’s other duties may make it difficult to perform both functions well </li></ul>
  50. 50. Methods of Purchasing <ul><li>Informal </li></ul><ul><ul><li>price quotes by telephone or personally with salesperson </li></ul></ul><ul><ul><li>Amount of purchase is small – no time for formal purchasing practices </li></ul></ul><ul><ul><li>Item can be obtained only from 1 or 2 sources </li></ul></ul><ul><ul><li>Need is urgent & immediate delivery required </li></ul></ul><ul><ul><li>Stability of market (& prices) is uncertain </li></ul></ul><ul><ul><li>Size of operation too small for formal purchasing </li></ul></ul>
  51. 51. Methods of Purchasing <ul><li>Formal </li></ul><ul><ul><li>tax supported institutions usually required to use competitive bidding </li></ul></ul><ul><ul><li>Culminates in formal contract between buyer & supplier </li></ul></ul><ul><ul><li>Understanding legal implications of contract buying is important for both parties </li></ul></ul>
  52. 52. Independent & Centralized Purchasing <ul><li>Independent purchasing – done by unit or department that has been authorized to purchase </li></ul><ul><li>Centralized purchasing – purchasing activity is done by one person or department </li></ul>
  53. 53. Centralized Purchasing <ul><li>Advantages </li></ul><ul><ul><li>Better control & one complete set of records </li></ul></ul><ul><ul><li>Development of personnel with specialized knowledge, skills, & procedures </li></ul></ul><ul><ul><li>Better performance in other departments </li></ul></ul><ul><ul><li>Economic & profit potentials of purchasing, making it a profit rather than a cost center </li></ul></ul>
  54. 54. Centralized Purchasing <ul><li>Disadvantages: </li></ul><ul><li>Each unit must accept the standard item in stock and has little freedom to purchase for its own particular needs </li></ul><ul><li>Units can’t take advantage of local specials </li></ul><ul><li>Menus are ordinarily standardized, limiting the individual unit managers’ freedom </li></ul>
  55. 55. Group Purchasing <ul><li>Bringing together foodservice managers from different operations for joint purchasing </li></ul><ul><li>Advantage - volume of purchases is large enough for volume discounts </li></ul><ul><li>Site is selected, purchasing personnel hired, & managers serve as advisory committee </li></ul>
  57. 57. THE PURCHASE SPECIFICATION <ul><li>A Purchaser cannot call the produce supplier and order a case of LETTUCE </li></ul><ul><li>The supplier needs more information-the type of lettuce, size of the case, pack of the case (number of heads), the amount of processing </li></ul><ul><li>A purchase specification would include all this information and would make the jobs much easier and more efficient. </li></ul>
  58. 58. THE PURCHASE SPECIFICATION <ul><li>Purchase specification is a precise written statement of the product’s characteristics required by a user </li></ul><ul><li>List of detailed characteristics desired in a product for a specific use </li></ul><ul><ul><li>Primary safeguard of foodservice quality is adherence to specification </li></ul></ul>
  59. 59. THE PURCHASE SPECIFICATION <ul><li>To write the specification will help the control the fluctuation of nature, freshly grown produce and the difference in size and quality of animals </li></ul><ul><li>The lack of brand names for a majority of foodservice products also makes the written specification desirable. </li></ul>
  60. 60. DEVELOPING AND USING SPECIFICATIONS <ul><li>Written specifications accomplish the following objectives: </li></ul><ul><ul><li>Communicate the characteristics of products and services needed for the operation, and help eliminate misunderstanding between the buyer and seller </li></ul></ul><ul><ul><li>Provide the receiver with the product characteristics he or she needs to see before accepting goods delivered to the operation </li></ul></ul><ul><ul><li>Help to ensure consistency in the items served by the operation by providing consistent product </li></ul></ul><ul><ul><li>Allow the operation to solicit bids from more than one supplier </li></ul></ul><ul><ul><li>Facilitate the training of purchasers, and allow other people to step in for the purchaser if the need arises </li></ul></ul>
  61. 61. THE CONTENTS OF A SPECIFICATION <ul><li>Specs can vary greatly in length. Items with a recognizes brand name, such as cans of Pepsi-Cola, can have a specification as simple a s the name, size of can, and number of can in a case </li></ul><ul><li>Specifications for items that do not have brand names, such as apples, require much more detail in order to be effective </li></ul>
  62. 62. THE CONTENTS OF A SPECIFICATION <ul><li>The intended use of the product or service </li></ul><ul><li>The specific, definitive name of the product </li></ul><ul><li>Packer's or producer’s brand name </li></ul><ul><li>U.S quality grades </li></ul><ul><li>Size or Size range of the items needed </li></ul><ul><li>Package size </li></ul><ul><li>Preservation and/or processing method </li></ul><ul><li>Point of origin </li></ul><ul><li>Method of packing </li></ul>
  63. 63. Example <ul><li>Item: Prime Rib, Bone in, Oven Ready </li></ul><ul><li>Grade: USDA choice, Upper Half </li></ul><ul><li>Weight range: 18lb min – 22lb Max </li></ul><ul><li> average 20ib (9Kg) </li></ul><ul><li>State of Refrigeration: Chilled when delivered </li></ul><ul><li>Fat Limitation: 0.25-0.75 inch (average 0.5) on outside moderate marbling </li></ul><ul><li>Color: Light red to lightly dark </li></ul><ul><li>Quantity requirement: approximately 300 lb per week </li></ul>
  65. 65. SUPPLIER SELECTION <ul><li>Purchaser have several options when choosing the type of supplier(s) with which whey will deal </li></ul><ul><li>Supplier can either limit themselves to a few types of goods or they can be master distributors </li></ul><ul><li>A number of factors must be considered in making selection </li></ul><ul><li>Within most geographical areas, purchasers have the choice of a number of different distributors in each of the categories of the items they need </li></ul><ul><li>Purchaser must be sure to choose the supplier that best suits the operation’s needs </li></ul>
  66. 66. CHOICE OF SUPPLIERS <ul><li>Traditionally, suppliers generally specialized in only one type, such as produce, such as produce, dairy, or seafood, rather than a wide range of goods. </li></ul><ul><li>Nowadays, the trend in the industry is toward distributions handle a wide range of both food and nonfood items. </li></ul><ul><li>Foodservice operators should be aware of the advantage and disadvantages with various types of supplier. </li></ul>
  67. 67. 1. SPECIALTY DISTRIBUTORS <ul><li>This is similar to the original types of retail stores where customers brought their food </li></ul><ul><li>Specialty Distributors, who offered only a single type or carried only a limited range of goods </li></ul><ul><li>ADVANTAGE (+) </li></ul><ul><li>a limited type of goods, it would gain expertise with those goods </li></ul><ul><li>DISADVANTAGE (-) </li></ul><ul><li>purchaser has to contact a number of supplier to suppliers to place an order </li></ul>
  68. 68. 2. WAREHOUSE CLUBS <ul><li>Warehouse club allow operators to buy items in LARGER PACKAGES than those available in retail grocery store but Smaller than packages available from the wholesale distributors </li></ul>
  69. 69. 3. MASTER DISTRIBUTOR <ul><li>Large distributors can offer a wide range of both food and nonfood items. </li></ul><ul><li>They carry fresh, frozen, and canned produce. A large-scale distributor may carry as many as 10,000 items in inventory, providing the operator with one-stop shopping service </li></ul>
  70. 70. SPECIALTY VS MASTER DISTRIBUTORS Type of Supplier Advantage (+) Disadvantage (-) Master Distributors Increase product offerings Lack of expertise regarding all of the product sold Increase convenience; one phone call, one delivery Lack of competition Specialty Distributor Generally more personal service Limited product offering Increase competitions; can promote better prices and service Possibility of higher prices because of increased costs and reduction of volume Increase product expertise More time spent ordering; receiving, and doing paperwork
  71. 71. CONSIDERATION IN SELECTING SUPPLIERS <ul><li>Operators must realize that, for the most part, all suppliers pay much the same prices to obtain the goods they sell; the prices at which they sell the items are fairly comparable. </li></ul><ul><li>A significant lower price on an item quoted from one supplier may mean that the supplier will have to raise prices on other items to make up for it, or that possibly the product is inferior in some way. </li></ul>
  72. 72. CONSIDERATION IN SELECTING SUPPLIERS <ul><li>The following are factors that purchasers should consider when selecting suppliers </li></ul><ul><li>1. Credit terms offered </li></ul><ul><li>2. Reputation </li></ul><ul><li>3. Reliability </li></ul><ul><li>4. Substitution Policy </li></ul><ul><li>5. Accuracy </li></ul>6. Delivery schedule 7. Level of technology 8. Lead time 9. Delivery vehicles and drivers 10. Willingness to break case
  74. 74. BUYER AND SELLER RELATIONSHIPS <ul><li>There are some aspect in the buyer-seller relationship of which both parties must be aware entering into a transaction. </li></ul><ul><li>Some of these matters are governed by laws and regulation, and others are ethical issues. </li></ul>
  75. 75. ETHICAL AND PROFESSIONAL STANDARD <ul><li>Ethics deals with behavior that may not be illegal, but may still be wrong or improper according to commonly accepted practices. </li></ul><ul><li>All employee who work in a foodservice operation must be made aware of the ethical and professional standards of the company and the industry </li></ul><ul><li>Purchaser must make sure that their relationship with suppliers are kept strictly professional - not for the personal gain of the purchaser. </li></ul>
  76. 76. KICKBACK <ul><li>A kickback is the illegal practice whereby a supplier or salesperson pays back money or goods to a purchaser in exchange for an order </li></ul><ul><li>This practice is illegal because it gives an unfair advantage to one supplier over other </li></ul>
  77. 77. LOW-BALL PRICING <ul><li>Suppliers may offer lower prices on a few items in order to entice the purchaser to buy from them, and then raise prices on other items </li></ul><ul><li>This practice advertise a few items at or below cost as “Loss Leaders” to draw customer into a store then hope to make up the lost money with the rest of the groceries </li></ul><ul><li>Purchaser must be aware to avoid being overcharge in long run. </li></ul>
  78. 78. CONFLICTS OF INTEREST <ul><li>Buyers must be sure that they do not benefit personally from their dealing with the operation for which they work </li></ul><ul><li>Purchasers must be careful to avoid the temptation of accepting loans, gift, items for their personal benefit, or cash in exchange for either giving a supplier an advantage over other company </li></ul>
  79. 79. EXAMPLE OF ETHICAL POLICY <ul><li>The following are examples of precepts that should be included in policy governing the ethical standard of purchasers: </li></ul><ul><ul><li>To treat all supplier equally, and not be swayed by the offering of gift or other consideration for personal benefit of the purchaser </li></ul></ul><ul><ul><li>To keep the best interests of the company in mind when negotiating all transaction; to conduct all business with others according to company policies </li></ul></ul><ul><ul><li>To either limit the value of a gift allowed to the given to a purchaser by a supplier, or establishment company policy forbidding the acceptance off all gifts </li></ul></ul>
  80. 80. RECEIVING 10
  81. 81. Receiving <ul><li>Activity for ensuring products delivered by suppliers are those that were ordered </li></ul><ul><ul><li>Verifying quality, size, & quantity meet specifications </li></ul></ul><ul><ul><li>Price on invoice agrees with purchase order </li></ul></ul><ul><ul><li>Perishable goods are tagged or marked with the date received </li></ul></ul><ul><li>Consistent & routine procedures are essential </li></ul><ul><li>Adequate controls to preserve quality & prevent loss during delivery & receipt </li></ul>
  82. 82. Elements of Receiving Activity <ul><li>Competent personnel </li></ul><ul><ul><li>Separate duties of purchasing & receiving basic to check-and-balance system </li></ul></ul><ul><ul><li>Well trained employees to perform receiving tasks competently </li></ul></ul><ul><li>Facilities & Equipment </li></ul><ul><ul><li>Need enough space to permit all incoming products to be inspected & checked at one time </li></ul></ul><ul><ul><li>Equipment – scales, unloading platform, table for inspection, & some tools </li></ul></ul>
  83. 83. Elements of Receiving Activity <ul><li>Specifications </li></ul><ul><ul><li>Employee receiving order must know standards the supplies must meet </li></ul></ul><ul><li>Critical controls in receiving </li></ul><ul><ul><li>Procedures for inspection & standards for acceptance necessary to prevent food borne illness </li></ul></ul><ul><li>Sanitation </li></ul><ul><ul><li>Receiving area designed for easy cleaning </li></ul></ul>
  84. 84. Elements of Receiving Activity <ul><li>Adequate Supervision </li></ul><ul><ul><li>Management check security to ensure receiving procedures are being followed </li></ul></ul><ul><li>Scheduled hours </li></ul><ul><ul><li>Suppliers should deliver at specified times </li></ul></ul><ul><li>Security </li></ul><ul><ul><li>Different person responsible for purchasing & receiving </li></ul></ul><ul><ul><li>Follow scheduled hours </li></ul></ul><ul><ul><li>Move products immediately from receiving to storage </li></ul></ul><ul><ul><li>Do not allow delivery personnel in storage area </li></ul></ul>
  85. 85. Receiving Process <ul><li>Inspection against purchase order </li></ul><ul><li>Inspection against the invoice </li></ul><ul><li>Acceptance or rejection of orders </li></ul><ul><li>Completion of receiving records </li></ul><ul><li>Removal to storage </li></ul>
  86. 86. Inspection Against Purchase Order <ul><li>Purchase Order – written record of all orders. </li></ul><ul><li>Includes: </li></ul><ul><ul><li>Brief description of the product </li></ul></ul><ul><ul><li>Quantity </li></ul></ul><ul><ul><li>Price </li></ul></ul><ul><ul><li>Supplier </li></ul></ul><ul><li>Ensures: </li></ul><ul><ul><li>Products were actually ordered. </li></ul></ul><ul><ul><li>Correct quantities have been delivered. </li></ul></ul>
  87. 87. Inspection Against the Invoice <ul><li>Invoice – supplier’s statement of what is being shipped & the expected payment. </li></ul><ul><li>Receiving Methods: </li></ul><ul><ul><li>Invoice – checks quantity against purchase order. </li></ul></ul><ul><ul><li>Blind – records quantity received on invoice or purchase order with quantity column blanked out. </li></ul></ul><ul><ul><li>Electronic – Use of tabulator scales, bar coded cartons & packages, & handheld scanner aid receiving. </li></ul></ul>
  88. 88. Acceptance or Rejection of Orders <ul><li>Delivered products become the property when the purchase order, specifications, & supplier’s invoice are in agreement. </li></ul><ul><li>Rejection at time of delivery is easier than returning products. </li></ul>
  89. 89. Completion of Received Records <ul><li>Receiving record – provides an accurate list of: </li></ul><ul><ul><li>All deliveries of food & supplies </li></ul></ul><ul><ul><li>Date of delivery </li></ul></ul><ul><ul><li>Supplier’s name </li></ul></ul><ul><ul><li>Quantity </li></ul></ul><ul><ul><li>Price data </li></ul></ul><ul><li>Provides a checkpoint in control system. </li></ul>
  90. 90. Removal to Storage <ul><li>Products should be transferred immediately from receiving to the secure storage area. </li></ul><ul><li>Marking –information about delivery date & price directly on the case, can, or bottle before it is placed into storage. </li></ul><ul><li>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. </li></ul>
  91. 91. RECEIVING <ul><li>KEY POINT IN RECEIVING </li></ul><ul><li>You Do Not Get What You Expect, </li></ul><ul><li>You Get What You INSPECT </li></ul>
  92. 92. IMPORTANCE OF RECEIVING <ul><li>The Entire Purchasing System can fall apart if a receiver is not careful to check items properly when they arrive from the supplier. Receiver must check three key factors for each items that arrives: </li></ul><ul><ul><ul><li>Quantity </li></ul></ul></ul><ul><ul><ul><li>Quality </li></ul></ul></ul><ul><ul><ul><li>Adherence to company specification </li></ul></ul></ul>
  93. 93. IMPORTANCE OF RECEIVING <ul><li>It is important in the receiving function to ensure that all that was ordered is received </li></ul><ul><li>A distributor charges the foodservice operation for all items on the invoice </li></ul><ul><li>Nonreceipt of an order items or receipt of a quantity less than that ordered can cause a significant problem if the discrepancy is not spotted at the time of delivery so that it can be rectified </li></ul>
  94. 94. PROPER TOOLS FOR THE RECEIVER <ul><li>The person who does the receiving must be supplied with a number of tools in order to perform the job properly. </li></ul><ul><ul><ul><li>The Knowledge necessary </li></ul></ul></ul><ul><ul><ul><li>Scales </li></ul></ul></ul><ul><ul><ul><li>An adequate area in which to work </li></ul></ul></ul><ul><ul><ul><li>Specification Sheets </li></ul></ul></ul><ul><ul><ul><li>The time </li></ul></ul></ul><ul><ul><ul><li>A list of what was ordered </li></ul></ul></ul>
  95. 95. STORAGE 11
  96. 96. Storage <ul><li>Holding of products under proper conditions to ensure quality until time of use. </li></ul><ul><li>Links receiving & production. </li></ul><ul><li>Storage employees: </li></ul><ul><ul><li>Check in products from the receiving unit </li></ul></ul><ul><ul><li>Provide security for products </li></ul></ul><ul><ul><li>Establish good material-handling procedures </li></ul></ul>
  97. 97. Storage <ul><li>Theft – premeditated burglary </li></ul><ul><li>Pilferage – inventory shrinkage </li></ul><ul><li>Storage facility types include: </li></ul><ul><ul><li>Dry storage </li></ul></ul><ul><ul><li>Low-temperature storage </li></ul></ul><ul><ul><li>Nonfood item storage </li></ul></ul>
  98. 98. 1. Dry Storage <ul><li>Provides orderly storage for foods not requiring refrigeration or freezing. </li></ul><ul><li>Should provide protection of foods from the elements, insects, rodents, & theft. </li></ul><ul><li>Temperature of 50 º F to 70º F. </li></ul><ul><li>Relative humidity of 50% to 60%. </li></ul>
  99. 99. 2. Low-Temperature Storage <ul><li>Provides storage for perishable foods to preserve quality & nutritive value. </li></ul><ul><li>Types: </li></ul><ul><ul><li>Refrigerators – designed to hold the internal temperature of food products below 41 ºF. </li></ul></ul><ul><ul><li>Tempering boxes – units for thawing frozen foods. Steady temperature of 40ºF. </li></ul></ul><ul><ul><li>Storage freezers – units for frozen foods. Constant temperature of -10ºF to 0ºF. </li></ul></ul>
  100. 100. 2. Low-Temperature Storage <ul><li>Recommended humidity range of 75% & 95% (85%-95% for perishable foods). </li></ul><ul><li>Low-Temp Thermometers: </li></ul><ul><ul><li>Remote reading – placed outside unit. </li></ul></ul><ul><ul><li>Recording – mounted outside the unit. </li></ul></ul><ul><ul><li>Refrigerator/Freezer – mounted or hung on shelf in the warmest area inside unit. </li></ul></ul><ul><li>Should be checked at least twice a day. </li></ul>
  101. 101. INVENTORY 12
  102. 102. Inventory <ul><li>Supported by the actual presence of products in the storage area. </li></ul><ul><li>Access to storage areas should be restricted. </li></ul><ul><li>Requires maintenance of accurate records. </li></ul>
  103. 103. Issuing Products <ul><li>Issuing – process used to supply food to production units after it has been received. </li></ul><ul><li>Direct purchases or direct issues – products sent directly from receiving to production. </li></ul><ul><li>Storeroom issues – foods that are received but not used the day they are purchased. </li></ul>
  104. 104. Inventory Records <ul><li>Objectives: </li></ul><ul><ul><li>Provision of accurate information of food & supplies in stock. </li></ul></ul><ul><ul><li>Determination of purchasing needs. </li></ul></ul><ul><ul><li>Provision of data for food cost control. </li></ul></ul><ul><ul><li>Prevention of theft & pilferage. </li></ul></ul>
  105. 105. Physical Inventory <ul><li>Periodic actual counting & recording of products in stock in all storage areas. </li></ul><ul><li>Involves two people: </li></ul><ul><ul><li>1 st person counts the products. </li></ul></ul><ul><ul><li>2 nd person records the data on the physical inventory form. </li></ul></ul><ul><ul><li>One of the people should not be directly involved with storeroom operations as a control measure. </li></ul></ul>
  106. 106. Perpetual Inventory <ul><li>Purchases & issues continuously are recorded for each product in storage. </li></ul><ul><li>Balance in stock is available at all times. </li></ul><ul><li>Generally restricted to products in dry & frozen storage. </li></ul>
  107. 107. Universal Product Code <ul><li>System of identifying food products </li></ul><ul><li>Code </li></ul><ul><ul><li>Digit #1 always zero except for meat and produce with variable weight </li></ul></ul><ul><ul><li>Digits 2 - 6 – manufacturer’s or processor’s code </li></ul></ul><ul><ul><li>Digits 7-11 – product code </li></ul></ul><ul><ul><li>Digit 12 – check digit </li></ul></ul>
  108. 108. Inventory Control Tools <ul><li>Major functions of a control system: </li></ul><ul><ul><li>Coordinate activities </li></ul></ul><ul><ul><li>Influence decisions & actions </li></ul></ul><ul><ul><li>Assure that objectives are met </li></ul></ul><ul><ul><li>Decision making </li></ul></ul>
  109. 109. Minimum-Maximum Method <ul><li>Involves establishment of minimum & maximum inventory levels. </li></ul><ul><li>Safety stock – a backup supply. </li></ul><ul><li>Lead time – interval between requisition & receipt of a product. </li></ul><ul><li>Usage rate – speed at which a product is used; determined by experience & forecasts. </li></ul><ul><li>Reorder point – lowest stock level that safely can be maintained to avoid a stock-out or emergency purchasing. </li></ul>
  110. 110. Ethical Considerations <ul><li>Ethics – principles of conduct governing an individual or a business. </li></ul><ul><li>Personal ethics – a person’s religion or philosophy of life derived from definite moral standards. </li></ul><ul><li>Business ethics – self-generating principles of moral standards to which a substantial majority of business executives gives voluntary assent. </li></ul>
  111. 111. Code of Ethics <ul><li>Set of rules for standards of professional practice or behavior established by a group. </li></ul><ul><li>Influenced by codes of individuals. </li></ul><ul><li>Standard – the measurement of what is expected to happen. </li></ul>
  112. 112. Ethical Issues <ul><li>Ethical dilemmas: </li></ul><ul><ul><li>Efforts to gain inside information about competitors that will benefit competition. </li></ul></ul><ul><ul><li>Activities that allow buyers to gain personal benefits from suppliers. </li></ul></ul><ul><ul><li>Activities that manipulate suppliers to benefit the purchasing organization. </li></ul></ul>
  113. 113. Ethics Management <ul><li>By implementing planning, organizing, staffing, leading, & controlling, management can be sure ethics are established formally & explicitly into daily organizational life. </li></ul><ul><li>Leadership is the principal mechanism for increasing ethical performance in business. </li></ul>
  114. 114. Materials Management <ul><li>The unifying force that gives interrelated functional subsystems a sense of common direction. </li></ul><ul><li>Transforms materials that enter the system into an output that meets standards for quantity & quality. </li></ul><ul><li>Organizational concept of centralized responsibility for those activities involved in moving materials into the organization. </li></ul>
  115. 115. SUMMARY
  116. 116. SUMMARY