Purchasing systems – methods of buying

Purchasing is a process in which includes buying of materials and equipments needed by various departments of an organisation to ensure continuity in product production and supply of essential services to the guest. Therefore it is a very important and challenging function and has to be carried out efficiently to meet the purchasing requirements of the organization. Purchase department must be highly responsible to the organization needs in terms of quality, price, and delivery. The expenses for housekeeping purchases are planned in advance mainly in the form of a Capital Budget or an Operating Budget. The purchase can be of local or imported item. The housekeeping department generates the indents of non-stock items. Stock items are the regular operating supplies such as soap, shampoo, stationeries, and cleaning supplies. Non-stock items are non-consumable items such as crystal vases for flower arrangement. Efficient purchasing practices can make a significant contribution to the housekeeping department. Purchasing includes the process of buying, learning of the needs, identifying purchase locations, selecting best supplies, negotiating for best price, and other relating tasks such as to ensure deliveries in time. Purchasing is described as an art since it requires talent and satisfaction in judgement i.e. judging the right combination of colour, shape, size, and consistency of item. Although different properties have different procedures for processing and approving purchases the evaluation of what is needed for the housekeeping department is decided by the Executive housekeeper. Purchasing in housekeeping is basically done for:

  1. Recycled products: The Executive Housekeeper raises a purchase requisition/indent form and forwards it to the Financial Controller and General Manager. The Purchase Manager than makes out the purchase order which is send to the supplier. Once the items are received the Executive Housekeeper checks the quality and specification of the item before approving the consignment. Example-annual linen purchase. Linen is the most important recycled inventory item in housekeeping department. It is also the biggest expense. To ensure the purchased linen is worth the money spent the Executive Housekeeper should consider:
  • The suitability of the product for its intended use.
  • The expected useful lifespan of the linen.
  • The purchase price.
  • The cost of laundering.

Cost per use should be calculated in order to evaluate linen purchase using the following formula: Cost per use=purchase cost+lifespan laundering cost/number of lifespan launderingWhere lifespan laundering cost=item weight * laundering cost per kg. * Number of laundering without by item. The annual linen purchases are made using the following formula: Annual order=par stock-linen on hand+expected annual consumptionWhere consumption=discards + discrepancies

  1. Non-recycled products: Worksheets are developed by the Executive Housekeeper to monitor usage rates and costs for the different type of non-recycled inventory items. For each product the monthly use report identifies the vendor. The product name and its intended use each month by physical inventory provides the Executive Housekeeper with information concerning how many purchase units of each items have been used. Every week or fortnight the floor supervisor takes an inventory of these items. They are compiled with the par stock to be maintained before ordering new supplies.

Principles of purchasing: 

There are five primary principles of purchasing that need to be upheld by the Housekeeping and the purchase department. Right quality: The housekeeping department is responsible for providing the guests with a clean, comfortable, and safe environment as well as meet and exceed the guest’s expectations. In this regard the department needs to buy the best products. Value for money is the factor in each of the product supplies to the guestroom and public areas. The entire range of items has to meet the standards and specifications determined by the department and the hotel management. Right quantity: Placing a purchase order of the right quality is of utmost importance for any organisation. Suppliers usually offer huge discounts large quantities but that should not influence the department’s decision. The following factors should be kept in mind while ordering the right quantity of material:

  • The cost of the order being placed
  • The cost of storage and carrying charges for holding stocks
  • Quantity discount
  • Stock level and order point
  • Buffer stock
  • Budgetary controls

Right price: One of the major concerns for both the housekeeping and purchasing department is to get the supplies at the right price. An in-depth knowledge of the market is vital to make sure that the right price is being paid i.e. the payment corresponds to the exact value of the material being purchased. While calculating the right price ex-showroom the terms of payment should also be attended. Right time: The material should be made available at the right time. Lead time, which is the period between the indent originating from the housekeeping department and the time the material is ready for use, should be minimal. The total lead time which includes the supplier lead time plus the internal processing, clearance receipt, and inspection time should be as low as possible to work on lower inventory level. The time should also be right as regard ensuring immediate availability of a particular product in the market. Right source of supply: The right source of supply is critical to the Executive Housekeeper. If the source of supply is correct, right quality, quantity, price, and time are a natural consequence. The selection of the ideal supplier is crucial for both the housekeeping and the purchase departments in which they are aided by:

  • Knowledge and experience
  • Catalogues, internet, etc
  • Hotel supplies directories
  • Salespersons
  • Trade associations and association companies

Stages in purchasing: 

There are two stages in purchasing.

  1. Pre-order stage: It includes the following:
  • Receipt of purchase indent: The indent should be checked for specification, quality, and quantity required. The last supplies and the last supplier’s rate should be checked. If any correction is required, it should be referred to indenting authority at once. If the item indented is not part of the planned budget, it needs the approval of the unit head before the indent is processed.
  • Floating of inquiries: Where there is only one manufacturer of a particular product it is better to contact that manufacturer straightway instead of approaching commissioned agents or traders.
  • Procurement of samples for approval: The concerned people in the organisation must approve of the samples before an order is finalised.
  • Quotation and ordering: The order should be placed with the right supplier who must be identified on the basis of right quotation for right quality.
  1. Post-order stage: The following steps are involved:
  • Issue of purchase order: The purchase order should be issued once the pre-order stage is complete and the right supplier has been identified. Since it is a legal contract between the buyer and the supplier the purchase order should include all the details of the transactions.
  • Confirmation of receipt of the purchase order: The supplier should confirm receipt of purchase order in writing. A duplicate copy of order should be signed and acknowledged accepting all the terms and conditions of purchase.
  • Follow-up: There should be a regular follow-up to ensure that the items requested will be delivered on time.
  • Dispatch advice: A dispatch advice note should be sought from the supplier to expedite the process of receipt.
  • Receipt note: When the items are received in good condition and are found to meet the desired standards after inspection the receiving department should make out a goods receipt note (GRN) before transferring it to the main store. If the items do not match the prescribed conditions on the purchase order, the purchase manager and the supplier are intimated immediately and the goods are rejected. If the items are seemed as suitable to be received they are accepted and a GRN is send to the department concerned to appraise it of the approval of the goods.
  • Payment: After the goods have been received and transferred to the department concerned via the main store the purchase department has the important function of following up on payment.

Types of purchasing:

Various types of purchasing methods are used in hotels. A single purchasing activity may also be a combination of several types. Some of the methods are:

1. Formal purchasing/competitive bid buying: Formal quotations are invited from sellers against the written specification for each item to be purchased. These requests for bids may be made through newspapers or other publications that are widely distributed or they may be passed to interested sellers who may be contacted over the phone. The usual practice is to accept the quotation of the lowest bidder unless the products fail to meet the specifications.

2. Wholesale buying: In this method of purchasing the contract is signed with a wholesaler for the purchase of items at a specific price. For the future the agreement specifies the intervals between deliveries for the contract period.

3. Negotiated buying: this method involves negotiation between the buyer and the seller regarding the price and quantities. This method is generally used for items that are in limited supply where both the buyer and the seller are keen that the product be picked up quickly. In this case the buyer contacts the seller directly.

4. Contract purchasing: This method of purchasing assist the buyers and the sellers to improve the re-ordering of items that are repeatedly called for with minimal administrative expenses. This method is similar to blanket order purchasing except that the agreement is long term and the supplier are therefore not changed frequently. The rate of usage and frequency of ordering over the contract period need to be known under the system contract. The buyer receives only those brands which are produced or sold by the contractor. This method of purchasing is most commonly used for the purchase of housekeeping supplies.

5. Blanket order purchasing: A blanket order is an agreement to provide a specific quantity of listed items for a period of time at an agreed price if the price is not settled at the time of placing the order. A method of determining it is included in the contract. The blanket order method is best for items that are required in small quantities but more frequently and where the usage rate cannot be accurately forecasted.

6. Stockless purchasing: In this case the buyer does not keep the stock of goods ordered. The supplier warehouses them for the buyer instead. The inventory is thus owned by the supplier.

7. Purchase by paid reserve: In this method money is paid in advance for commodities to ensure continuity of supply throughout the year.

8. Total-supply purchasing: In this type of purchasing all the required items are supplied by a single supplier. This helps in reducing the paperwork and negotiations need to be done with only one person.

9. Cost-plus purchasing: In this method of purchasing a supplier buys all the commodities and provides them to the housekeeping department. The supplier is given a small commission for this.

10. Centralized purchasing: This type of purchasing is done mainly by the chain hotels. They purchase items for all their main properties together. This method helps them to source the items at a cheaper price as the quantity of the order is more resulting in economy of volume.

11. Standing order purchasing: In this method daily supplies are fixed for perishable items such as flowers or groceries.

12. Cash and carry method: This is the method of purchasing where the items are purchased from supermarkets so that the prices are competitive. There are no minimum order level orders of certain items in case of non-availability of delivery services.

13. Purchasing from van sales: This method is rarely used for purchasing in the housekeeping department. In this method purchasing is done from mobile shops which move from one place to another.

14. Weekly/fortnightly purchasing: In this type purchasing is done only weekly/fortnightly. This ensures regular availability of the items and makes the suppliers prices more competitive.

15. Daily market purchasing/petty cash system: In this method of purchasing item quantities in the store are checked on a daily basis and only items falling short are purchased. This method operates as a petty cash system. It is effective for purchasing small order from local market in exchange for bill so that a cash payment is made.

16. Cash-on-delivery buying: The ordering system involves payment on acceptance of delivery. The order may be placed over the telephone or through the internet.

17. Cheque-payment ordering: This is a purchase order and draft system. It is a combination of the order and a blank cheque for payment. Besides the products specification the order also contains delivery instructions, bank account number, unit price quantity, discounts if any, and terms of payment.

18. Auction buying: This method of is useful for purchasing furniture and equipment that are not obsolete. Sometimes certain export shipments that were rejected by the originally intended buyer are also auctioned to other buyer.

Amit Kumar
Amit Kumarhttps://hmhelp.in
Hii! Welcome to My digital home, I am Amit – an almost no-code generalist, helping businesses with their online presence using WordPress and other tools and simplifying some of their operations with ideas and automation. A psychology and philosophy geek by interest and a graduate in Hospitality Management. I founded hmhelp during college, which got me into WordPress. I am a highly motivated and results-oriented professional with a proven track record of success in the hospitality industry. I’m also a Digital Marketing Enthusiast with significant academic and practical experience managing digital content across multiple platforms. Skilled at SEO optimization, developing digital content for social media platforms, I offer extensive knowledge of multiple software programs, strong attention to detail, and extraordinary communication skills. If you are interested in talking about any of the topics I have mentioned on my website, you are in the right place. You can contact me or learn more about what I do. You can also connect with me on social networks.

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