PurchasingPurchasing

• Purchasing is an activity concerned with the acquisition of product.

• Obtaining the right product, in the right amount, at the right time, at the right price.

• Purchasing is defined as ‘function concerned with the search, selection, purchase, receipt, storage, requisition, issuing and finally production of food in accordance with the catering policy of the hotel.

Aims of Purchasing PolicyAims of Purchasing Policy

• To set down the principles of purchasing.• To set down the rules for purchase transactions.• To help in selection of suppliers.• Market Identification.• Policy should clearly define the purchasing

function.• Policy should assist in purchasing.• Procedure for purchasing.• Policy should aim at settling down the standards for

all the products which is to be purchased (SPS).

Methods Of PurchasingMethods Of Purchasing

• Open Market.

• Centralized Purchasing

• Contract Purchasing

• Standing Order Purchasing

• Fortnightly Purchasing

Open MarketOpen Market

• A committee of 3 persons (purchase officer, accounts men and one person from f & B).

• After considering the rates and the quality the most advantages is selected.

• Quality must not be sacrificed while comparing the prices.

• The advantage of this purchased is that only desired standard of quality will be purchased at lowest possible rate.

• Suitable for Capital Goods

Contract PurchasingContract Purchasing• The food items that requires frequent purchase calls for

contract purchases. • The annual requirement is marked out and the tenders are

invited. • The tenders evaluated• The contract is signed with the supplier• If the supplier fails to supply the indented items we have a

clause in the contract according to which we can buy the indented items at the market rate prevalent and debit the amount to the supplier’s account, this is known as risk purchase.

• The tenders are awarded for items like mutton, fish, poultry, egg, dairy products, fruits and vegetables.

Centralized PurchasingCentralized Purchasing

• All the H.O.D. combine together under a single head and purchase all the necessary items on a large scale.

• Advantages• Better control and co-ordination because all the

H.O.D. are working under single head or department.• Better discount is gained.• Few people are involved in purchasing.• Economic and profit potential of purchasing policy

making it a profit rather than a cost center.

Standing Order PurchasingStanding Order Purchasing

• Milk and dairy product purchasing are normally made by this method, which is often used for specific items only.

• The deliveryman will replenish the stock and this saves a considerable amount of time for receiving person.

• Formal agreement are made for this type of delivery in advance and reviewed from time to time.

• One of the disadvantages of this system is that there is dependence on one vendor and delays may be caused by unexpected problems.

• It works out well for those items that are purchased daily or weekly or several times in a week or month.

Periodical/ fortnightly / bi weeklyPeriodical/ fortnightly / bi weekly::

• Method is used to purchase grocery. • H.O.D. would complete the stock in hand and

fill in the wanted quantity of each item.• Purchase officer would sent out a copy of the

list of each supplier in which the supplier is required to quote the rates on receipt of quotation.

• These would be entered into a master quotation list and the decision is then made about where the order for each items are to be placed.

• Based on the requirement in the next week/ Fortnight and the storage space available.

Flow ChartFlow ChartRecognition

Description

Authorization

Negotiation with supplier

Evaluation

Placement of Order

Fellow Up

Receiving

Payment

Requisition FormRequisition Form

Hotel ABCTo,

Purchase Manager Requisition No.

Date Date Required.

Deptt

Item SPS Supplier Qty Unit Price Total

Required By Approved By

Purchase OrderPurchase Order

Hotel ABC

Date

To Purchaser order No.

XYZ Supplier Requisition No.

Date Required.

S. No. Items SPS Qty Unit Price Total

Approved By Authorized By

Economic Order QuantityEconomic Order Quantity

• 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 purchasing cost and also minimizes inventory cost.

Ordering CostOrdering 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 • This is a fixed cost per lot, hence variable cost per unit.

Carrying/Holding/ Inventory costCarrying/Holding/ 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.

Cont..Cont..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 capital, insurance, depreciation,.

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.

Formula ApproachFormula Approach

E. O. Q (Q*) = √ 2 DC0 / Ch Where D = Annual Demand

C0 = Ordering cost per order

Ch = Holding cost per unit = = Procurement price x Inventory carrying cost per year

Ordering Cost = D/ Q* x C0

Inventory Cost = Q/2 x Ch

Graph ApproachGraph Approach EOQ in XY Chart

02000400060008000

100001200014000160001800020000

1 2 3 4 5 6

No. of Order x 200 unit per lot

Per

Uni

t Cos

t

EOQ

Inventory cost

Ordering cost

Standard Purchase SpecificationStandard Purchase Specification

• 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.

SPS DetailsSPS Details

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

Characteristics of SPSCharacteristics of SPS

• Should be legible.

• Should be identifiable.

• Fair to the supplier and productive to the buyer.

• It should be capable of meeting with several suppliers for bidding.

• Both the parties should understand it.

AdvantageAdvantage

• Quality assurance.• It helps the supplier to supply the right product.• It helps the receiving clerk to identify the right

product.• Right price.• It helps in maximizing the output.• It helps in producing the right amount of

portion.• All the purchasing procedures get easier.• S.PS. is a tool of management control.• Wastage is minimized.

Duties of the Purchase OfficerDuties of the Purchase Officer• The purchase of all food items for the establishment.• Ensuring Continuously of all Commodity.• Responsibility for the efficient operation and the control of

the purchasing, • Formulation of SPS• Reporting to the management .• Research in relations to the requirements for New Market.• Establishing good contacts with the traders.• Issuing a contract or purchase order.• Inventory and portion control measures.• Selection of Supplier

AttributesAttributes

• Negotiating Skills

• Technical Skills

• Commodity Knowledge.

• Knowledge of Market.

• Supplier knowledge.

• Managerial characteristics.

QualificationsQualifications

• He should be a commerce graduate.

• Diploma in hotel management.

• 5 years of experience in food and beverage operations.

Selection of SupplierSelection of Supplier

Consists of Three PhasesSurvey

• Enquiry

• Evaluation

Selection of Supplier

Survey Enquiry Evaluation

Geographic LocationPrice list

Samples of Product

Goodwill

Range of items

Financial Condition

Price Performance

Quality

Delivery