Requisition Form, Standard Purchase Specification, Economic Order Quantity

REQUISITION FORM-

A requisition is the first document in the purchasing process and may have originated in any unit in the food service operation. It consists of all the details which are mentioned above.

PURCHASE ORDER:

It is a document based on the information in the requisition completed by the buyer or purchase officer who gives it to the supplier. It states in specific terms the purchase and sales agreement between the buyer and the supplier. Three copies of purchase order are sufficient for basic ordering i.e. original sent to the supplier, 2^nd for acknowledgment of acceptance and last copy for filing process. The purchase order form consists of the following data:

PURCHASE ORDER FORM

ECONOMIC ORDER QUANTITY (EOQ):- 

It is the optimum or the most favorable quantity which should be purchased each time when purchases are to be made but attempt to find out the quantity that minimizes ordering cost and also minimizes inventory cost. In other words EOQ is the size of order representing standard quality of material and it is one for which the aggregate of

Ordering cost and Inventory cost is minimum. It is also cost “Lot Size”.

• Ordering cost:-The ordering cost is associated with acquisition of purchased items and   getting purchased items into company’s store room. It includes the total operating expenses of purchasing and receiving department, expenses of purchase order and invoice payment, data processing cost,  clerical and administrative cost, follow up, cost on accounting, transports cost  and any other the cost pertinent to purchasing. This is a fixed cost per lot, hence variable cost per unit.
• Carrying cost / Holding cost / Inventory cost:- these costs are associated with holding a given level of inventories on hand and vary with the level and the length of time held . It includes storage, spoilage, pilferage, energy requirement, space requirement and maintenance cost, taxes, depreciation insurance, product deterioration, staffing and their salary, handling cost, equipment requirement and opportunity cost on investment tied in inventory.
  1. These costs are difficult to determine and are calculated on annual basis as a percentage of inventory.
  2. The cost of inventory decreases inversely as the number of order increases. The smaller the size of each order, lower the average inventory carried, hence lower cost of carrying the inventory.
  3. Carrying cost differ with each organization depending upon the conditions like interest on capitol, insurance, depreciation, storage space damage and pilferage.
  4. Taking into account the contribution of all these factors it is quite common to find recurring annual cost of holding inventory is nearly 20% of its total value.

1. O. Q (Q^*) = √ 2 DC₀ / C_h

                  Where D = Annual Demand

                              C₀ = Ordering cost per order

                              C_h  = Holding cost per unit = Procurement price x Inventory carrying                      

                                                                                                                    cost per year

                   Ordering Cost   =      D/ Q^*  x C₀

                    Inventory Cost =     Q/2 x C_h

STANDARD PURCHASE SPECIFICATION (SPS)

It may be defined as a list of the detailed characteristics desired in a product for specific use. It contains information like name of the product, quality standards, price and no. of the portion to be produced out of it. Specification is prepared with the help of the concerned H.O.D., e.g. for the kitchen, all the standards of the raw material is prepared by the Executive Chef and for the F & B service department, it is prepared by the F & B manager. All the specifications for the food product should include the following information:

• Name of the product.
• Grading (if any).
• Size of the container (quantity).
• Unit.
• Product used.
• Weight.
• Unit price.

Written specifications are necessary for an efficient food service operation. When specifications are written supplier, receiving clerk and food service manager all can determine the products received are what were ordered. A good written specification should meet the following criteria:

1. Should be legible.
2. Should be identifiable.
3. Fair to the supplier and productive to the buyer.
4. It should be capable of meeting with several suppliers for bidding.
5. Both the parties should understand it.

Advantages of S.P.S.

1. Quality assurance.
2. It helps the supplier to supply the right product.
3. It helps the receiving clerk to identify the right product.
4. Right price.
5. It helps in maximizing the output.
6. It helps in producing the right amount of portion.
7. All the purchasing procedures get easier.
8. PS. is a tool of management control.
9. Wastage is minimized.