1. A proposal of PURCHASING POLICY AND PROCEDURES ---2012
SUBJECT : MATERIALS –PURCHASING -POLICY AND PROCEDURES
POLICY OBJECTIVES-/STATEMENT--------
FOCUS –MIKHEAL hotel, a five HOTEL , , has a material s department
controlling the inflow of material to the hotel ,the suppliers are identified ,
purchase orders –market list are purchased from various suppliers stored in
the general stores and kitchen stores,at
Although there is a sustained level of material flow and the accounting
responsibilities are quite reasonable , however it was felt by the top management
that the materials function is revamped , more rational policy and procedures
material are set up for an effective mechanism of supply chain operations,
which would govern a large scale warehousing facility , optimizing costs on
added value inventory in the general stores and kitchen , mitigating supplier
hold on the daily procurements due to lack and adequate storage space, and
effective material procurement management system which warrants the
supplier to dictate term on- OUR PURCHASES –the resultant factor of last
minute rush order on the suppliers with a lack of sequential planning on effective
quality procurement of material cost high prices , the material management is
not in a position to scheme the market to the company’s advantage
1. The cost journal equation at present is as follows
Opening stock + plus purchases for the month ---less Closing stock
=consumption
2. However the actual purchase journal should read as follows
Opening Stock + Add Purchases ---less consumption =Closing stock
The first is journal will not measure and analyze accuracies as it is a
consumption valuation by default , however the second journal is a very highly
accurate journal analyzing purchase variations and reconciliations
The enforcement of the second journal is the accuracy measures entrusted to the
cost controller who analyze daily net consumptions to net revenue , and these net
consumptions after adjustments are journalized to arrive at highly accurate cost
figures .
Thus to enable the objectives of the company , for a sustained level of material
inflow at optimum pricing out flow of material from stores on FIFO Method
and ABC analysis of inventory with EOQs , supplemented with material
procedures such as Material indenting system from stores and department ,
purchase order system material receivable –Goods Received Notes –material
issue notes from stores to user department, inventory valuations , consumption
analysis

2. Are all factors which influence positive for an effective supply chain
management system
.
The new material and procurement policy will have the following Aspects in
the material procurement planning
The Material
The purchaser would purchase for both the Hotels s the material for its daily
consumption and stock, the objective would be to purchase the high quality product
at reasonable rates, The purchaser would source the material food, beverages,
engineering FFE, capital and project items for its use from various suppliers who
have a good Reputation in the market and ensure that spurious, duplicate and expiry
date good s , are not purchased from the market, for items not available in the local
market the Same would be purchased from abroad / imported, The management
would make a list of the product specifications for all its material and for easier
access of costing norms ,the material would be segmented and coded as follows
Category –food –engineering –HK-rest linen-room linen –Printing and stationery
Classification –food –groceries –meat fish poultry –tinned items etc
Engineering –plumbing –critical spares,Beverages etc
Item –food –MFP—meat –mutton beef etc, fish-fish –crabs etc, poultry-chicken
turkey—eggs etc ,thus analyzing material specifications and supply chain
management are proactive factors in ensuring and regulating flow of material for
input conversion and out put from raw material , engineering consumables like nuts
bolts Screws and capital purchases like kitchen equipment FFE, SOE , Linen,
Uniforms , laundry equipment , compressors , generators , cooling towers, Music and
entertainment equipments , guest room equipment , office equipments ,etc do have
material specifications .value analysis and waste management are important
Aspect of material definitions and procurements.
Sourcing from authentic suppliers , the identifying supplier analysis would be from
sourcing from existing suppliers in the market , developing new vendors , MAKE or
BUY decisions Imports of raw material unavailable in the country The purchaser
would source the material food, beverages, engineering FFE, capital and project
items for its use from various suppliers who have a good Reputation in the market,
Highly perishable items are procured from Regulated markets –Remember that our
present purchasing is 40% local and 60 Foreign
Adequate warehousing
The essential aspect of supply chain is to ensure adequate
ware housing space fixed with slotted angles, storekeeping
with stores ledgers ,and storekeeper , storekeeping
procedures like bin cards with FIFO location codes ,ABC
analysis . Bob carts, Trolleys can be used for running

3. through the material stacked in plastic ware, Aluminum
cans,
ORDERING –Developing EOQS, ABC-Analysis, ordering
costs should be based on quotations of minimum three
suppliers with delivery schedules , part delivery
arrangements , standing orders ,analysis of cost on material
and cost of material
Definations
Quality and Specifications –the management with the chef, would make
Specifications for all items for standardization of the product purchase and as a
Policy the purchaser would make enquiries with the supplier before making any
Purchases Decisions
Prices------------- the purchaser would verify in the market all sources to ascertain
the most optimum prices without compromising on the quality
Data base –the purchaser would create a database of all items with the suppliers
history , and keep a market survey and keep updating the database , this database he
would make available to all department on the history of the material
Cash purchase –the purchaser , as far as possible minimize the cash purchases
and would use this option only when the emergency need arises
Contractual supplies the purchaser would negotiate with all suppliers sustained
supplies at fixed prices on a time bound basis ,
Critical spares would be negotiated for all machinery and critical spares
Capital equipment purchases would be made on the approval of the board and
they would be negotiated on terms of guarantee, machinery replacement policy of the

4. Company
Imported –All the material not available in the local market would be purchased
From abroad /imported
Value analysis and Vendor Development the company purchaser with
the department head inputs would try and maximize the cost by developing suppliers
Assist in the making good quality of supplies and source the material from larger
market share
To buy or make or Fabricate Decision ---the final policy would be whether we
should BUY the product from the market or MAKE the product,
GOOD S RECEIVING CENTRE
The Material ordered by the purchase department would be brought by the
supplier with a delivery note and reference of the purchase order
The good receiving centre would receive the material with quantity specified
with specifications and after a pass of quality control by the chef a goods
received note would be prepared .
Daily Market list procurements ------for perishables
The daily market list or perishables purchase order is prepared by the chef on a
daily basis , and sent to the purchaser , these purchase orders are forwarded to
the supplier for daily supplies and mainly operational raw material
Market surveys ---The Director purchases would make a weekly market survey
to verify the prices of material and would update the master price list for
procurements and assess availability , and plan procurement strategies
Purchase committee-The hotel management just as a start up , formed a
purchase committee comprising of the various department heads
To regulate the pricing , ratify capital purchases and budgetary sanctions
Budgetary controller –will oversee the cost of purchases in terms of the budgets
And exercise any purchases not within the purview of the budget , however the
management can override the budgetary controller only after justification of an
inevitable purchase .
Purchase order –It is a legal document made usually under the provisions of the sale
of goods Act and the contract act where there is a consideration for the act of services
rendered, the terms of payments are clear to with the delivery schedules , the purchase
order is a legal document and is executed to the suppliers by a legal authorized

5. signatory, passed by resolutions by the board of directors, under the powers delegated
by owners /
Contractual Purchases-These purchases are under the contractual obligations of
the supplier to the company under fixed rates for consistent supplies of material
Import Licensing, Import Custom duties—the provisions of law are necessarily to be
followed Imports procedures, payment and claims of customs duties etc
Government ware housing charges –Demurrages-if material are not on time from the
warehouses charges are necessarily to be paid
LCs and Letter of guarantees –For all the imports the safest mode of payment is
through letter of credits and guarentees
Valuation of stocks –the valuation of stocks would be based on weighted Average
costs –WAC –
For new inventories it would be on the market price
IMPLEMENTATION PLAN
PURPOSE—In order to standardize the quality of material purchased with a
Standardized communication channel and minimizing internal communications it is
Necessary we communicate to all concerned with clarity and understanding the inter
Departmental efforts in effective purchases
PROCEDURES
1) All department heads will forward purchase requests to the purchaser with
2) authorizations from general manager and budgetary sanction from the finance
manager
3) The chef would forward daily purchase indents /market list once in two days
The chef is requested to plan his requirements accordingly
4) The stores would also forward his indent to the purchaser with lead time
At reorder levels
5) On receiving the indent /Lead time the purchaser would process the order , by

6. formulating the purchase enquiry , receiving and tabulating quotations ,
Negotiating the prices , terms of payment ,ascertaining specifications delivery
Schedules and translating all this to a local purchase order, the copy of the
Purchase order would be given to the user department and accounts for payment
On completion and issue of purchase order he would follow up for deliveries
from the supplier of pending items
6) The material would be received and after ascertaining
quality with the Department the good received note
would be prepared any deviations from the order The
purchaser should contact the supplier and inform him
of the discrepancy The GRN goods received note
should be made in a receipt format , the goods received
quantity and the quality as per specifications are to be
verified by the staff in charge of receiving the material
and finally the material received would be endorsed by
the chef and the , the companys stamp would be put on
the bill and the receivers signature would be made , all
supplies made to the HOTEL, should have a bill or
delivery challan
No bill should be made subsequent to supplies
7) The purchaser would follow up with the accounts department for the payment
of supplies and any contract signed should have the approval of the board and
any capital items purchased also should have the approval of the board
computerization .The company has seen demonstrations
of the SUN system with the EAM check profile which has
the centralized purchases concept module , food and
beverage costs Module would be implemented soon
Supply Chain Management an overview----flow Chart
ORIGIN

7. PURCHASE REQUISITIONS
Direct stores
Serial number
Par stocks
Lead time
Market list
Purchase order –Local –Foreign
Make or Buy –Decisions
Material Manager
Order processing
Buyers purchasers market purchaser
Quotations and analysis
Minimum three suppliers
Selection of supplier
Terms of payment –credit period –mode of payment-
VAT, Letter of credit , guarantees , Bank Transfers
Delivery schedules
Part delivery
Release of purchase order-type
Follow up of incomplete Pos
Goods receiving
Quality , Quantity –certifications
Store keeping
Ware Housing General Stores –with adequate spacing -
Kitchen stores –Deep freezers , Garde Mangers
Store keeping procedure –Bin cards , location codes
Non moving safety stock par stock reorder levels
EOQs , ABC analysis , FIFO ,Computerized record keeping
Stores requistions -
Stores Stock –Receipts –Issues –And Balance
Kitchen stock –receipts –issues and Balance
Departmental stores –Receipts –Issues and Balance
Supply chain flow ---purchase requistions

8. AN ANALYSIS OF FOOD AND BEVERAGE COST CONTROL
SYSTEM –AN APPENDIX ANALYSIS REPORT TO
MANAGEMENT PLANNING A CONCOMITTMENT REPORT
OBJECTIVES
THE COMPANY HAS PROPOSED A COST CONTROL POLICY and
PROCEDURE ON THE MODELS OF AN EFFECTIVE COST CONTROL
SYSTEM ,IN THIS REGARD IT HAS IDENTIFIED ITSELF INTO AN
ABILITY FOR CREATING A GOOD FOOD AND BEVERAGE COST
BOARD SYSTEM
THIS IS TO ENSURE GOOD PLANNING AND COORDINARTION
BETWEEN FINANCE ACCOUNTS ,PURCHASES , STORES ,RECEIVING
CENTRE ,CONCERNED KITCHENS,RESTAURANT ON THE ISSUES OF
THE RIGHT QUALITY PRODUCT PROCURED , WITH A GOOD PRICING
SYSTEM AND THE OPTIMUM REQUIREMENT OF MATERIAL FLOW
INTO THE KITCHEN and ,RESTAURANT FLOW, THE COMPANY
RECOMMENDS THE FLOW OF BRANDED MATERIAL PROCUREMENT,
THE MATERIAL COULD BE ON ANNUAL CONTRACTS WITH
LIQUIDATED DAMAGES CLAUSES, WITH MATERIAL SPECIFICATIONS
THE PLANNING and SOURCING OF MATERIAL SHOULD ENSURE A
SMOOTH FLOW OF MATERIAL ,AN EMPHASIZED PRODUCTION/SALE
OF MATERIAL TO ARRIVE AT PROFIT CENTRE NORMS AND ACHIEVE
MAXIMUM SURPLUS
PROCEDURES
The departments concerned are ---Functional -Finance and Accounts
, purchases stores –receiving, stores and Operations—food and
beverage includng kitchen
Food and beverage Raw Material used- required
Dry food , groceries and provisions-Tinned items ,perishables
Dairy products meat ,fish poultry ,branded liquor-whiskies , brandy
vodka , soft drinks—coca cola , sprite , ETC.
DEFINATIONS

9. INDENTS-Daily requisitions and market lists
The Chef /Restaurant Manager - thru the FB Director would
Forward the daily requisitions to the stores
The chef would forward a daily market list ,mainly of perishable
products where storage is just for one or two days
The stores would Forward the Daily market list to the Purchases
and the purchases would ensure that the Market list items are made
available to the stores
PURCHASE ORDER
A PURCHASE ORDER IS A DOCUMENT ISSUED TO THE
SUPPLIER FOR SUPPLIES OF MATERIAL
On receipt of an indent from the operating department a purchase
order is made by the purchase department by tabulating quotations
and buying at the optimum price the purchase order specifies the
quality and the quantity to be procured .The purchase order is an
authorised document of the company and would signed by the
authorised signatory or any other person delegated for the purpose
,it purports the delivery schedule , the terms of payments and aims at
procurement at good quality at the best possible price at given
specifiactions , once a purchase order is released it is upto the stores
to follow up with
The suplier for completing the order . A market list released by the
chef is a purchase order by itself, the purchase order is made in four
copies
One copy to the supplier
One copy to the kitchen /restaurant
One copy to the accounts
One copy is the book copy
RECEIVING CENTRE
The receiving centre is a set up at the stores to receive material at
the specific quantity and quality , the good receiving clerk would
make a goods received report GRN with the entries posted in the
system

10. Once the material is received and counted in the required numbers
the chef inspects the quality of the material and is accepted at the
kitchen
A GOODS RECEIVED NOTE is an acknowledgement to the
supplier of having received received the material in the stores
/kitchen/restaurant
The GRNS are prepared in the following copies, delivery notes of the
supplier is also an acknowledgement for receipt of supplies , when
the supplier presents his bill for payment the good receipt note as
also the delivery note makes the requirement of bill passing system
Supplier copy
Accounts copy for bill passing
Purchase copy to update the material received
Book copy
AUTHORISATIONS
The receipts of good quantity and quality is authorized by the
departmental head the concerned supervisor or the delegated
authority by the department head
SPOILAGE WRITE OFF
The spoilages are occurred due to the cooking wastages the chef
make a spoilage report and as approved it is passed on to the FB cost
controller, for writing of the material from the FB cost either food
cost or beverage cost
WEIGHMENT –the good received is equipped with a weighing
machine this weighing is an electronic machine marked with a
proper weighing scale , it is necessary that a smaller scale for small
volumes of goods received in grams etc and a reserve scale operates
ISSUES FROM THE STORES –Where there is an indent to the
stores , a stores issue note is prepared and is acknowledged by the
user department , the store keeper would get the acknowledgement
from the storekeeper

11. PART SUPPLIES FROM THE PURCHASE ORDER
The balance of the quantities supplied would necessitate the
storekeeper to follow up with the supplier and ensure delivery
schedules are completed
INVENTORY
STOCK IN STORES –are the Inventories Debited to the stores,
either through a cash-direct or a supplier purchase
Whenever there is an ISSUE the amount is credited to the stock
account
The stores generally monitor the stock expiry dates and the non
moving items , the stock out items , stocks as to the seasonality of the
product ,
STOCK IN KITCHEN AND RESTAURANT
The stock received from stores is par stock in the kitchen , this stock
is monitored by the chef –through the sous chef or junior sous chef ,
This stock should also be managed with
MONTH END STOCK TAKING
In order to ascertain the closed valuation of stocks a month end stock
taking is done physically by the cost controllers and general
accountants , this process is also ensured with the circulating stock
BIN CARDS –Although the stocks are computerized it would be
necessary that the a BIN card is made for every product so that a
physical verification of the stocks is made
VALUATION OF STOCKS, the stock are valued at Weighted
Average Cost method , this would ensure that the purchase variances
are minimal

12. DIRECT PURCHASES
Usually the stores is unable to support the stock of certain
items, therefore the purchases are directly issued to the
kitchen , highly perishable item such as vegetables ,dairy
items meat fish poultries etc are stored directly in the
kitchen
EXECUTIVE STAFF MEAL –
The food consumed by executives are debited to the executive meal
account and is an adjustment to the food/beverage cost consumption
the POS would be used for this option every time or a consolidated
entry would be made the charge would be 30% at cost on sale price
GUEST ENTERTAINMENT
Any guest entertainment would also be charged at 30% cost on sale,
and entered in the POS, are FB cost Adjustment
COMPLIMENTARIES
Like fruit baskets ,welcome drinks would charged at cost at 30% on
sale price , would also be entered in the POS, are FB cost
Adjustment
FULL BOARD /HALF BOARD
If a guest stay is supported with Room charges with breakfast lunch
and dinner it is full/half board charges , that portion of the charges
on the guest is apportioned as room revenue and food/beverage
revenue
This is enabled at the front office
INTERKITCHEN TRANSFER
It’s a normal practice that the transfer of raw material between
kitchen to kitchen such transfer are accounted as inter kitchen notes

13. with compensating stock levels at the kitchen so as also with
beverages which are transferred to kitchens
DOCUMENTATION
The Documentation Includes indents –stores /direct material
requisitions / purchase orders /quotations goods receiving reports
and authorized certification of the bill .
COMPUTERISATION
The computerization options store keepers to categorise the menu
and sub menu to various stores stock as food ,beverage , engineering ,
printing ,stationery etc
The cost board can be customized in USER DEFINED REPORTS
Where transfer posting to modules would enable the revenue , cost
and adjustment entries for updations

14. PURCHASE COMMUNICATION FLOW
DIRECT PURCHASES INDENTS STOCK PURCHASES INDENTS
SUPPLIER
AUTHORISATION
FINANCIAL CONTROLLER GENERAL MANAGER