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Eighth Edition Purchasing Selection and Procurement for the Hospitality Industry ANDREW HALE FEINSTEIN AND Eighth Edition Purchasing Selection and Procurement for the Hospitality Industry ANDREW HALE FEINSTEIN AND JOHN M. STEFANELLI © 2011 John Wiley and Sons, Inc. All Rights Reserved

CHAPTER An Overview of the Purchasing Function © 2011 John Wiley and Sons, Inc. CHAPTER An Overview of the Purchasing Function © 2011 John Wiley and Sons, Inc. All Rights Reserved 5

YOU SHOULD BE ABLE TO: • Describe the purchasing activities in a hospitality operation. YOU SHOULD BE ABLE TO: • Describe the purchasing activities in a hospitality operation. • Determine the purchasing requirements of a hospitality operation using value analysis and make-or-buy analysis. • Outline the objectives of the purchasing function and the potential problems that buyers encounter when pursuing those objectives. © 2011 John Wiley and Sons, Inc. All Rights Reserved

PURCHASING ACTIVITIES • Hotel Purchasing Activities • • • Determine when to order Control PURCHASING ACTIVITIES • Hotel Purchasing Activities • • • Determine when to order Control inventory levels Establish quality standards Determine specifications Obtain competitive bids © 2011 John Wiley and Sons, Inc. All Rights Reserved

PURCHASING ACTIVITIES • Hotel Purchasing Activities (cont. ) • • • Investigate vendors Arrange PURCHASING ACTIVITIES • Hotel Purchasing Activities (cont. ) • • • Investigate vendors Arrange financial terms Oversee delivery Negotiate refunds Handle adjustments Arrange for storage © 2011 John Wiley and Sons, Inc. All Rights Reserved

PURCHASING ACTIVITIES • Food Service Purchasing Activities • • • Recipe development Menu development PURCHASING ACTIVITIES • Food Service Purchasing Activities • • • Recipe development Menu development Specification writing Approval of buying source Designation of approved brands Supplier evaluation © 2011 John Wiley and Sons, Inc. All Rights Reserved

PURCHASING ACTIVITIES • Food Service Purchasing Activities (cont. ) • • Negotiation Change of PURCHASING ACTIVITIES • Food Service Purchasing Activities (cont. ) • • Negotiation Change of suppliers Change of brands Substitution Approval of new products Invoice approval Payment Order placement with supplier © 2011 John Wiley and Sons, Inc. All Rights Reserved

MINIMUM PURCHASING ACTIVITIES • Selection and procurement plan • • How to select/procure products MINIMUM PURCHASING ACTIVITIES • Selection and procurement plan • • How to select/procure products and services Policies and procedures Purchasing trends Revise as necessary • Determine requirements • Variety of products, services, ff&e • Work with staff on those decisions © 2011 John Wiley and Sons, Inc. All Rights Reserved

MINIMUM PURCHASING ACTIVITIES (CONT. ) • Supplier selection • Dependable and consistent • Approved MINIMUM PURCHASING ACTIVITIES (CONT. ) • Supplier selection • Dependable and consistent • Approved supplier list • Sourcing • Process in which a supplier is selected • Supplier can handle all products • Maintain Inventory • Optimal Inventory Management © 2011 John Wiley and Sons, Inc. All Rights Reserved

MINIMUM PURCHASING ACTIVITIES (CONT. ) • Conduct negotiations • Everything is negotiable • Buying MINIMUM PURCHASING ACTIVITIES (CONT. ) • Conduct negotiations • Everything is negotiable • Buying Power = Negotiating Power • Research activities • • • Value analysis – cheaper alternative Forecasting – predicting the future What-if analysis – possible outcomes Make or buy – raw or convenience food Plant visits – evaluate facilities © 2011 John Wiley and Sons, Inc. All Rights Reserved

MINIMUM PURCHASING ACTIVITIES (CONT. ) • Maintain supplier diplomacy • Trade Relations with suppliers MINIMUM PURCHASING ACTIVITIES (CONT. ) • Maintain supplier diplomacy • Trade Relations with suppliers • Educate the suppliers • Inform to improve services • Obtain industry trends from them • Purchase, receive, store and issue products © 2011 John Wiley and Sons, Inc. All Rights Reserved

MINIMUM PURCHASING ACTIVITIES (CONT. ) • Disposal of excess and unsaleable items • Recycling MINIMUM PURCHASING ACTIVITIES (CONT. ) • Disposal of excess and unsaleable items • Recycling • Record-keeping controls • Receipts, Invoices, Inventory records • Organize and administer the purchasing function • Plan, organize, hire staff © 2011 John Wiley and Sons, Inc. All Rights Reserved

MINIMUM PURCHASING ACTIVITIES (CONT. ) • Self improvement • Association Meetings, seminars • Trade MINIMUM PURCHASING ACTIVITIES (CONT. ) • Self improvement • Association Meetings, seminars • Trade Shows • Continuing Education • Help competitors • Lending in an emergency • Learn about trends, rumors, etc. • “Keeps friends close, enemies closer” © 2011 John Wiley and Sons, Inc. All Rights Reserved

PURCHASING OBJECTIVES • • • Maintain an adequate supply Minimize investment Maintain quality Obtain PURCHASING OBJECTIVES • • • Maintain an adequate supply Minimize investment Maintain quality Obtain the lowest EP cost Maintain the company’s competitive position © 2011 John Wiley and Sons, Inc. All Rights Reserved

PROBLEMS OF THE BUYER • • • Backdoor selling Excessive time spent Ethical traps PROBLEMS OF THE BUYER • • • Backdoor selling Excessive time spent Ethical traps Responsibility vs. authority Lack of time Internal team members/departments © 2011 John Wiley and Sons, Inc. All Rights Reserved

PROBLEMS OF THE BUYER (CONT. ) • • Unreasonable demands Late deliveries, substitutions, back PROBLEMS OF THE BUYER (CONT. ) • • Unreasonable demands Late deliveries, substitutions, back orders Purchasing as a profit-making department Lack of attention by supplier Receiving and storage inadequacies Returns and allowances Lack of appreciation © 2011 John Wiley and Sons, Inc. All Rights Reserved

EVALUATION OF THE PURCHASING FUNCTION • How much should company spend to achieve the EVALUATION OF THE PURCHASING FUNCTION • How much should company spend to achieve the purchasing objectives? Salaries and other costs jump out at management Benefits of a conscientious purchasing agent not always so visible © 2011 John Wiley and Sons, Inc. All Rights Reserved