Purchasing

What is purchasing?

• it's also know as procurement
• the process of securing the right product for a facility at right quantity, quality, price, place, time, specification and sources.
• purchasing activity usually are more focus on buying transaction in formal way.
• basic flow of purchasing.

The Market

 The medium through which a change of ownership occurs

1. Market distribution                                                                                                                           - product are distributed through a series of channels and transfer of ownership.        

  

Market Channels	Middlemen	Brokers and Manufacturer’s Representatives	Broker	Manufacturer’s representative
The food processing and distribution system, beginning with the grower of raw food products and ending at the final customer or point of consumption.	Conduits between manufactures, distributors and consumers.	Wholesalers who do not assume ownership of goods but whose responsibility it is to bring buyers and sellers together.	Serves as a sales representative for a manufacturer or group of manufacturers.	Serves as a sales representative for a single manufacturer.

     

       2. Market Regulation: U.S. Food and Inspection Program

  

i. Interstate commerce	ii .Intrastate commerce	iii. U.S. Department of Agriculture (USDA)
Financial transactions (buying and selling of goods) carried on between states.	Financial transactions carried on within state boundaries.	Responsible for enforcing the Meat Inspection Act, The Poultry Products Inspection Act and The Egg Inspection Act.

iv. Food and Drug Administration (FDA)
An enforcement agency within the Department of Health and Human Services       Responsible for the enforcement of the federal Food, Drug, and Cosmetic Act: the Fair Packaging and labelling Act and the Nutritional labelling and Education Act.       No food may enter interstate commerce that is deemed adulterated or misbranded.
Misbranded	Standards of Identity	Standard of Quality	Standard of Fill
A food product whose label either does not include information mandated by law or includes misleading information.	Defines what a food product must contain to be called a certain name.	Set minimum standards for features such as aesthetics of a product before it can enter interstate commerce.	Regulate the quantity of food in a container.
Several laws have been passed by Congress to define these labeling requirements in more detail.
National Marine and Fisheries Service	U.S. Public Health Service	Environmental Protection Agency (EPA)	Department of the Treasury ( Bureau of alcohol, tobacco, firearms and explosives)
A voluntary inspection system for fish.	Concerned primarily with control of infections and contagious disease but also need to take care about safety of some foods.	Setting tolerance levels for pesticide residues in foods, establishing the safety of new pesticides and providing educational materials on the safe use of pesticides.	Monitoring the production, distribution and labelling of alcoholic beverages.

The Buyer

• A buyer is a member of the professional administration team and is held to high standards of work performance and ethical behavior. 

1)      The art of negotiation	2)      Ethics in purchasing
·         Negotiation is the communication skill used by individuals to confer with others to reach an agreement or compromise.              ·         The ability to negotiate is important to having successful purchasing in very organizations.	·         Ethics is the science of morals in human behavior.     ·         Buying demand integrity, maturity, negotiation skills and commitment to a high standard of ethics.     ·         The most important things is no gifts or other   favors should be accepted that could        compromise the buyer’s ability to make objective purchasing decisions.

3)      Structure of purchasing
§  The structure of purchasing varies depending on the size and type of organization.
i.                    Centralized Purchasing	ii.                  Group and Cooperative Purchasing
ü  Responsible for obtaining needed supplies  and equipment for all units in the organizations is usually used in many large organizations (university, school, hospital)	ü  An organization that represents member organization and oversees their purchasing function.
§  The buyer is selected by the members and maintains an office independent of the participating       organizations.

Vendors and Food Distributors

•  A foodservice can purchase food and products from a wide variety of vendors. 
• Vendor is a seller or sources of supply.
• Foodservice operation can locate vendors through:-                                                                         i) the internet                                                                                                                                  ii) other foodservice operators                                                                                                       iii) trade journals and publications                                                                                               iv) trade shows
• The key responsibility of the buyer is to evaluate carefully the vendor's scope of products and services.

Methods of Purchasing

1) Informal or Open-Market Buying

• a commonly used method of buying, currently used in smaller foodservice operations. 
• involves ordering needed food and supplies from a selected list of vendors based on a daily, weekly or monthly price quotation.
• Quotation is an amount stated as the current price for a desired product or service.

2) Formal Competitive-Bid Buying

•  written specifications and estimated quantities needed are submitted to vendors.
• it can be quite formal and advertised in the newspaper and copies can be printed and widely distributed.
• it also can be less formal with single copies supplied to interested vendors.
• Bids are opened on a designated date and the contract generally is awarded to vendor that have meet business specifications.

Advantages	Disadvantages
Often required by government procurement   systems       Satisfactory for canned goods, frozen products, staples and other nonperishable foods.	Time consuming and the planning and requests for bids must be made well, so, the buyer has time to distribute the bid forms and the suppliers also have time to check availability of suppliers and determine a fair price.       Type of buying was designed to ensure honesty.

• Competitive Bidding Variations                                                                                                     - many variations and techniques that have in formal competitive bidding but it is depending on the type of institution.                                                                                                                     - bids can be written for a supply of merchandise over a period of time at prices that fluctuate with the market.

3) Variations on Methods of Purchasing

•  Cost-Plus Purchasing = a buyer agrees to buy certain items from a  purveyor for an agreed-on period of time based on a fixed markup over the vendor's cost.  
• Prime Vending = a method of purchasing that has gained popularity and acceptance among restaurant and noncommercial buyers during the past several years.
• Blanket Purchase Agreement = sometimes used when a wide variety of items are purchased from local suppliers.
• Just-in-Time Purchasing = another variation of purchasing. 

Product Selection 

1. Market Forms of Foods                                                                                                                       - to be purchased is a major decision that requires careful study refers to the physical shape, and temperature.
2. Food Quality                                                                                                                                      - the quality of foods most appropriate to the foodservice operation and their use on the menu must be decided.                                                                                                                               i) Quality Standards   =  refer to wholesomeness, cleanliness or freedom from undesirable                                                substances.                                                                                               ii) Grades                   =  market classifications of quality.                                                             iii) Grading and Acceptance Services  =  offers official grading or inspection for quality of                                                                           meat and meat product, fresh and processed fruits and                                                                   vegetables, poultry, egg and manufactured dairy                                                                             products.                                                                        iv) Brands                  = a particular make of a good or product usually identified by a                                                        trademark or label.

Purchasing Procedures

1) Identifying Needs

•  quantities of food needed for production of the planned menus are identified from the menus and from recipe used to prepare them.
• requisition is the action that triggers the purchasing process.
• requisition is an interdepartmental from used to request desired products including food and supplies

        i) Inventory stock level

             - a system of communicating needs from the production areas and the storeroom to the buyer                is essential

             - inventory is a detailed and complete list of goods in stock.

             - minimum and maximum stock level provides a means of alerting the buyer to needs.

         ii) Quantity to buy

             - the amount of food and supplies purchased at one time and the frequency of ordering                           depends on finance and accounting procedures, the methods of buying, the frequency of                    deliveries and storage space. 

         

2) Specifications

•      a detailed description of a product, stated in terms that are clearly understood by both the           buyer and the seller.
•          the information that have included in all specification for food products:-                                           - name of the product                                                                                                                       - federal grade or brand                                                                                                                   - unit on which price is quoted                                                                                                         - name and size of container                                                                                                             - count per container or approximate number per pound
• additional specifications:-                                                                                                                             - fresh fruits and vegetables                                                                                                             - canned foods                                                                                                                                 - frozen foods                                                                                                                                   - meat and meat products                                                                                                                 - dairy product    

3) Issuing Bid Requests

• an invitation to bid provides vendors an opportunity to submit bids for specific items needed by a buyer

 

4) Developing Purchase Order

• the process for authorizing purchase differs in various foodservices
• purchase order is written request to a vendor to sell goods or services to a facility   

5) Tabulating and Evaluating Bids

• Bids should be kept sealed and confidential until the designated time for opening.
• receiving after the time and date specified for bid opening must be rejected and returned unopened to the bidder.
• should be under the control of an appropriate official 
• the points should be considered before accepting bids:-                                                                        a) ability and capacity of the bidder to perform the contract and provide the service                    b) ability of the bidder to provide the service promptly and within time specified                        c) integrity and reputation of the bidder                                                                                          d) quality of bidder's performance on previous contract or services                                              e) bidder's compliance with laws and with specification relating to contract or service                f) bidder's financial resources

6) Awarding Contract

• the contract should be awarded to the most responsive and responsible bidder with the price most advantageous to the purchaser.
• purchasing should be on the basic of price, quality and service.

7) Legal and Regulatory Aspects of Purchasing

• influence the function of purchasing.
• the buyer is responsible for understanding and complying with the law, regulation or policy                  i) Laws and Contract Management                                                                                                         - the purchase/sale exchange between buyer and seller is a legal and binding                                  commitment even if made in good faith.                                                                                    - Uniform Commercial Code (UCC) used to protect the buyer from deceptive                                practices on the part of the supplier.                                                                                               - 3 major protection:-                                                                                                                                 a) Laws of agency                                                                                                                           b) Laws of warranty                                                                                                                         c) Laws of contracts                                                                                                         ii) Laws Relating to competition and pricing                                                                                            - can influence the purchasing function relates to issues of fair competition and                             pricing                                                                                                                                         - the 4 major laws:-                                                                                                                                 a) Sherman Act                                                                                                                                 b) The Federal Trade Commission Act                                                                                           c) The Clayton Act                                                                                                                           d) The Robinson- Patman Act