PURCHASE
Once a menu is planned, a number of activities must occur to bring it to reality.
Purchasing is one of the basic stages- it involves the procurement of raw materials from the market in exchange of resources. This is an important job as a high-cost factor is involved in it. Purchase refers to the management of the supply chain.
After procuring, subsequently storage is also essential- it must be ensured that the purchased raw materials are not spoiled due to bad storage. Different raw materials have different storage time limits and requires different conditions for proper storage.
Factors that drive the supply chain management in today’s world are:
- Availability of information resources allow for easy linkages and eliminate time delays
- The level of competition in the domestic market as well as international market demands that organizations be quick, agile and flexible.
- Customers are becoming increasingly demanding and organizations must be pro-active and feel the pulse of the market, take up challenges, know the value of time in order to secure a place in the competitive marketplace.
For the supply chain to be effective, the following functions need to flow smoothly:
- Internal Functions – i.e. day to day operations i.e. translating customer requirement into actual orders. It includes quoting prices, possible delivery dates, delivery arrangement and after sales service. E.g. Milk
- Up-stream suppliers – An organization appoints persons who are responsible for ensuring that the right suppliers are selected and that they meet the performance expectations. They maintain cordial relationship with supplier as act as a liaison between the suppliers and the internal customer e.g. Engineering, Kitchen, HK etc.)
- Down-stream Customers – This is the distribution channels, processes and functions that the product passes through on its way to the end customer. Take the example of a can of baked beans – goes through the packaging unit, warehouse, dealer network, etc. Logistics are responsible for actual movement of material between locations. One point entry for all material in Hotel industry is the Receiving Department.
THE PURCHASING PROCESS
The objectives of a world class purchasing organization go far beyond the traditional belief that the primary role of Purchase Department is to obtain goods and services in response to internal needs. The objectives of this vital process is as follows:
SUPPORT OPERATIONAL REQUIREMENT
Purchase must support the needs of operations by providing an uninterrupted flow of high quality goods and services that internal customers require. This can be done by:
- Buying at the right price
- From the right source
- At the required specification
- In the right quantity
- Delivery at the right time
Failure to respond to the needs of internal customer may lower the confidence these internal customs have in purchasing department and may try to negotiate contracts themselves (a practice known as “backdoor buying”)
MANAGE THE PURCHASE PROCESS EFFICIENTLY & EFFECTIVELY
- Manage effectively with the staff resources available and utilization to optimum
- Adherence to administrative budgets
- Constant training leading to productivity improvement and better decision making.
SELECT, DEVELOP & MAINTAIN SOURCES OF SUPPLY
- Must select and manage a supplier base that has potential for excellent performance in terms of product cost, quality, delivery, reliability, technology or new product development. E.g. check supplier profile, audit their premises, place trial orders etc.
- After selection, purchase works directly with suppliers to improve existing capabilities and develop new capabilities e.g. citronella candles
STRENGTHEN RELATIONSHIPS WITH OTHER FUNCTIONAL GROUPS
- Communication with other functional groups who are their internal customers. E.g. Quarterly Service Level Agreements between Departments to measure performance
- Cross functional interaction with Departments helps develop strong positive relationships and problem solving of bottle-neck areas e.g. CFT and SFT.
SUPPORT ORGANIZATIONAL GOALS & OBJECTIVES
Purchase Department must actively involve and integrate into the strategic planning process (BSC) of the organization by
- Monitoring market trends e.g. Price increases, shortages, etc and interpret the impact of these trends on the Organizations objectives e.g. food cost
- Identify critical materials and services required to support the key performance areas
- Develop supply options
PROCEDURES INVOLVED IN PURCHASING
Factors | Descriptions |
Market knowledge | It is important for a purchase manager to know the commodity market as it is a highly volatile market, where products vary in both quality and pricing. It is desirable to pay a good price for a quality product, but paying good money does not always ensure good quality. Therefore, it is important to develop and build up relationships with reputed suppliers. It is necessary for the purchasing manager to know where a particular commodity is grown and what its seasonality is , it is also important to know the legal aspects of purchasing . for e.g. it is illegal to buy deer meat in India, but in many countries like Australia, England and U.S.A, it is not against the law. It is equally important to know the market with regards to the supply and demand. market knowledge includessupplier contactssupplier reputationsupplier’s scale of business |
Determine the kind of purchase | In this topic, our main area of concern is F&B purchases. Since most of the items in F&B have a limited shelf life, it is important to control the quantity that needs to be purchased, this largely depends on indenting.Some staple food, canned , bottled and dehydrated foods has a comparatively longer shelf life. So this can be purchased in bulk to demand a good rate from the supplier.Frequency of the purchase depends on amount of storage space also |
Specifications | As per the menu, chefs need to do yield test to determine the specification of a product. The specifications of a product also depends on the usage. For e.g. there are 2 types of oranges in the market 1 has less juice but is very sweet , which is called the table orange, such an orange has a thick peel and can be used as a fruit, the other other variety is know as juice orange, it has a thin peel and not very sweet , but it is very juicy and gives a good yield of juice. Thus the specifications of an orange would differ in terms of its final use . similarly for a large volume operation, it would be intelligent to buy large potatoes that are easy to peel and process for volumes. |
Designing the process of buying | It is important to list out and design the purchasing processes for a particular kind of product. There are two kinds of buying methodsformalinformalthe informal buying method may vary according to the market conditions and is done verbally either in person or over telephone before ultimately purchasing the product.Such transactions might involve cash purchases or some suppliers might give a credit period depending on the relationship between the purchaser and the supplier. Such buying involves negotiation and filling up of tenders. The suppliers agree to supply the goods at the agreed rate even when there is a fluctuation in rate. |
Receiving procedures | It is important to check whether the goods received are as per their specifications. Otherwise, the organization might be paying more for a sub-standard quality. It is important for chefs to constantly check all the food products and reject any food that is not as per the specifications. The supplier is then given a time to procure the items as per the specifications, or else the hotel can buy the product from the open market and charge the same to the suppler. The goods are received as per the food safety laws, and the temperature and the condition of the packaging are given utmost importance. Catering establishments such as airline and hospitals have very strict receiving quality standards to control quality and standardization. The step after receiving goods is the proper storage of the food. |
PURCHASING SPAN OF CONTROL
Just as departments carry out certain duties on behalf of the organization, Purchase too has legitimate authority to make decisions that rightfully belong to their Department.
- Evaluate and Select Suppliers – Purchase presumably has the expertise and training to do this thereby averting any “backdoor” buying – a situation when sellers contact and attempt to sell directly to end users. Purchase can request for assistance from internal customer when evaluating potential suppliers e.g. engineering evaluates products and performance of product. This does not mean that the sales representatives are not allowed to talk to non- purchasing department. However they cannot make commitments to the seller or enter into contracts.
- Set the Standard Purchase Specification (SPS) and Review the same: Purchase develop knowledge and expertise about a wide variety of materials, sometimes in consultation with the user department, and these specifications set the standard when material is received at the Stores. E.g. cauliflower bulb only (without stem and leaves)
Standard purchase specification are concise description of quality, size, weight, or count factor desired for a particular item, Specification buying will give uniformity and consistency to purchasing and receiving, that will aid to maintain a desire food cost and create a standard product.
Objective:
- To establish a suitable buying standard for particular commodity for the hotel.
- To furnish the supplier in writing in specific term the requirement of the hotel.
- To help in setting the price of a commodity.
- To obtain a standard product material for f & b dept.
- To obtain a standard product so that measurement of performance of departments can be accurate.
For proper and effective control, purchase specification should be used in all purchasing. It help in bringing uniformity and consistency in buying, which maintains required cost of product. Each specification is determined by purchase manger, Executive chef, and F & B manager as per the catering policies, menu requirement and price range. The specification format is maintained with F & B service and production, receiving, stores department.
The purchase specifications contain:
- a) Definition of each items. b) Grade or brand name of each item
- c) Weight, size, or count. d) Unit against which price should be coated.
- e) Special note for commodity.
Copies of the purchase specification need to be sent to the following:
- The purchase department
- The supplier
- The executive chef
- The receiving department.
HOTEL XYZ | |||||
STANDARD PURCHASE SPECIFICATION | |||||
PRODUCT:_________________ | |||||
USE:_______________________ | |||||
GRADE / QUALITY:___________ | |||||
UNIT:______________________ | |||||
PRICE /UNIT:_______________ | |||||
AVAILABILITY: SEASONAL / ALL YEAR ROUND | |||||
APPEARANCE: ______________ | |||||
TEXTURE:___________________ | |||||
COLOUR:___________________ | |||||
FLAVOUR:__________________ | |||||
PACKING:__________________ | |||||
SIZE AND SHAPE:___________ | |||||
NO. PER KG:________________ | |||||
MISCELLANEOUS:___________ | |||||
- Act as the Primary Contact with Suppliers – Purchasing is the primary contact with suppliers but other functional departments can also interact with suppliers if required after awarding of contract e.g. engineering department talks to electrical or hardware supplier as they “speak their own language” thereby clearing any ambiguity and improving communication between buyer and seller.
- Awarding Purchase Contracts– Purchase has the right to determine how to award the contracts based on a) competitive bidding b) negotiations or c) a combination of both e.g. Tendering process
- Ensure regular feedback from internal customer on quality – Internal Customer Satisfaction Survey. Take prompt action to resolve dissatisfaction
- Ensure regular Vendor feedbacks– Quarterly Vendor Satisfaction Survey to take proactive action to resolve issues.
- Ensure Vendor Development of existing & new suppliers– visit vendor premises, suggest areas for improvement and impart training to their delivery personnel, hygiene awareness and concern for the environment.
- Market Surveys – for new and better products, check on prices against contracted prices etc. Competitive analysis of items.
For effective purchasing, it is essential that the following points are remembered:
v Know the market
v Determine the purchase needs
v Establish and use specifications
v Design the purchase procedures
v Receive and check the goods
v Evaluate the purchasing task
It is important that the person responsible for the purchase job should have the knowledge of the item to be purchased such as:
v Where they are grown
v Seasons of production
v Approximate cost
v Conditions of supply and demand
v Laws and regulations governing the markets and the products
v Marketing agents and their services
v Processing
v Storage requirements
v Commodity and product- its class and grade.
Buying methods:
These depend on the type of market and the kind of operation:
- Informal buying:
This is used mainly for casual buying, where the amount involved is quite large and speed in purchase is desired. This usually involves the small organizations. This category involves oral negotiations, talking directly to sales people, face to face or using the telephone. Informal methods vary according to market conditions.
- Formal buying:
These are best for large contracts for commodities purchased over a long period of time. Prices did not vary much during the year, once the basic price has been established. This is also known as competitive buying, it involves giving suppliers written specifications and quantity needs. Negotiations are normally written.
While selecting suppliers, the following things are to be kept in mind:
v The prices are competitive for the goods specified in relation to the quality.
v Financial terms offered relating to credit facilities and discount to settlement.
v The Standard Purchase Specification (SPS) for each item
v The delivery conditions- time of delivery, the package of the goods etc.
Instruction to the suppliers:
After the supplier(s) have been selected, written instructions on the following should be made:
v Special requirements’ delivery
v The person(s) authorized to accept and sign for supplies.
v The goods supplied will be as per the SPS.
v No alteration will be accepted between quoted and invoice price
v The name of the people authorized to order supplies
v The contract period (normally for a year)
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