8 Procurement Methods for Foods

V. Suganthi

1.  DEFINITION

The term procuring or purchasing comprises of a number of activities, all directed towards the acquisition or procurement of food and related materials for the operation of a food service institution. Sound purchasing practices, therefore represent the act of buying materials of the right quality, in the right quantity, at the right time, at the right price, from the right source with its delivery at the right place.

2.  OBJECTIVES

After studying this chapter, you should be able to:

·     Learn about the purchasing function

·     Identify controls that are needed in purchasing

3.  STEPS TO REMEMBER WHEN PURCHASING FOOD

Once a menu is planned, a number of activities must occur to bring it into reality. Skillful purchasing with good receiving can decrease food losses thereby increasing profits. There are six important steps to remember when purchasing foods:

• Know the market
• Design the purchase procedures
• Determine purchasing needs
• Receive and check the goods
• Establish and use specifications
• Evaluate the purchasing task

4.  KNOWING THE MARKET

A market is a place in which ownership of a commodity changes from supplier to the user. It is important that the person responsible for buying food in a food service institution has the following knowledge about foods to be purchased:

• Where they are grown
• Seasons of production
• Appropriate costs
• Conditions of supply and demand
• Laws and regulations governing the market and the product
• Marketing agents and the type of services offered by them
• Types of processing different foods
• Storage requirements
• Commodity and product, their class and grade

5.  TYPES OF MARKET

There are three main types of market. They are:

1.  The primary market

Raw materials needed for production may be purchased at the source of supply like from a grower, producer or manufacturer or from central markets. A majority of large food service institutions and a few smaller food service institutions may buy foods from primary market to fulfill their needs.

2.  The secondary market

In this, goods are bought wholesale from a distributor at wholesale prices. The buyer also may get possible discounts.

3.  The tertiary market

This is mainly suitable for smaller establishments. This requires the user to have his own transport. It is important to remember that buying in this type of market has added cost such as running the vehicle and petrol used and the person’s time for going to the market.

6.  PURCHASING PROCESS

Procurement in any food service operations requires procedures to accomplish the routine purchasing transaction as quickly and accurately as possible. The adoption of definite purchasing procedures use of appropriate records for each phase in the purchasing process. The following are the steps in the purchasing process:

6.1. Recognition of needs

The most obvious place for a need to occur is the production unit. The second location is the storage area, in which the objective is to have on hand the right product, in the right quantity, at the right time. A third location exists in larger organizations in which the centralized purchasing department has inventory responsibility. Recognition of need should be followed by action to remedy the deficiency by preparing a requisition.

6.2. Description of the needed item

In most large food service organizations, the production unit cooks, having recognized a need, initiate a requisition, preferably written, to the storeroom for the required amount of the product. If the storeroom does not have sufficient quantity of the product, the storekeeper initiates another requisition to purchasing for replenishment of the product to the required level.

6.3. Authorization of the purchase requisition

The third procedure in the purchasing process is authorizing the purchasing requisition. No requisition should be honored unless the person submitting them has the authority to do so. Furthermore, suppliers should know the names of the person authorized to issue purchase orders.

6.4. Negotiations with potential suppliers

Negotiation in purchasing is a process of working out both a purchasing and sales agreement, mutually satisfactory to both buyer and supplier, and reaching a common understanding of the essential elements of a contract. It is one of the most important components of a purchasing function.

6.5. Evaluation of proposals and placement of order

All suppliers proposals are evaluated are evaluated for compliance with the preceding four fundamental steps in purchasing. The actual placement of the order follow the evaluation of proposals.

6.6. Follow up of order

The follow up of order is essential in a food service unit, particularly when a specific delivery time of certain products is critical to an occasion, such as a major banquet.

6.7. Verification of invoice and delivered materials

The invoice is the supplier’s statement of what is being shaped to the buyer and the expected statement. The invoice should be checked with the purchase order for quality, quantity and price. Delivery and condition of materials should be in agreement with the purchase order and the invoice. A difference requires immediate action by the buyer.

6.8. Closure of purchase record

Closing the purchase record consists of the clerical process of assembling the written records of the purchase process, filling them in appropriate places and authorizing payment.

7.  CHOOSING OF SUPPLIERS

The selection criteria for the selection of food service suppliers are:

•  Dependability of the supplies
•  Service rendered
• Quality offered
• Consistency in quality
• Delivery schedule promised
• The supplier’s ability to adhere to the delivery schedule
• Prices charged
• Variety of products offered
• Payment policy
• Minimum order requirements
• Returns policy of the supplier

8.  PURCHASING METHODS

8.1. Informal buying or Open market buying

This is used by majority of food service institutions. The buyer requests quotations for the food items needed for specific amounts and quality from one or more sources of supply. The order is placed with a particular supplier after due consideration of price in relation to quality, delivery and other services offered by the supplier. This type of buying is mostly used for perishables especially fruits, vegetables and meat.

8.2. Formal buying or Competitive Bid Buying

It is the procedure of submitting written specifications and quantity needs to suppliers with an invitation for them to submit prices for the items limited. The request for bids may be advertised in the newspaper formally. In addition to definite specifications for each item of food, the request for bid must include the general conditions of acceptance, as date and method of delivery, terms of payment, willingness to accept all or part of the bid, discounts and other terms of the negotiations, as well as the date of closing bids.

The bids received remain sealed until a specified time and is opened in front of representatives from all supplying organizations. This is used only in large food service organizations. Generally the order is given to the to the supplier quoting the lowest bid unless the product fails to meet the specifications.

8.3. Negotiated buying

This is a semi formal method of buying. It is the practice of purchasing seasonal, limited or restricted production. It is a method that provides a flexible means of obtaining quick, decisive action in a fluctuating market situation. Buyers contact vendors directly, negotiate prices and request bids that are then submitted in writing as soon as possible. This is mainly used for purchasing seasonal fruits and vegetables.

Negotiated buying may be adopted when purchasing food items directly from the farmers or manufacturer. This is mainly followed in large institutions because it involves large quantities of foods to be bought i.e. the total farm produce for an item for a season or a total manufacturing lot. Two types of contracts may be signed between the seller and the purchaser:

(a). A “Firm At Opening Price” (FAOP) contract: In this, the buyer agrees to take the supplies at a price established in the future when yield is known rather than at pre season prices when the contract is made. Such a contract is therefore firm but not signed till the seasonal yield is known.

(b). A “Subject To Approval of Price” (SAP): In this case, the buyer has the option of rejecting the order if the price fixed in the future is not acceptable to him.

8.4. Wholesale buying

In this method, a contract is signed with a wholesaler for purchase of foods at a specific price for a future period, along with the quantities required. The agreement also specifies the interval between deliveries for the contract period.

8.5. Blanket Order Purchasing

A blanket order is an agreement to provide a specified quantity of food items for a period of time at an agreed price. If the price is not settled at the time of signing the contract, a method of determining the order is stipulated in the contract. Deliveries are then made under the specified release system.

Another type of blanket order agreement is to furnish all the needs for particular item for a specified period. Under this the quantity is refixed until the time period has elapsed. The blanket order method is best suited for items that are required in small quantities but more frequently and whose usage rate cannot be planned accurately.

A blanket order is contracted usually for one year. Prices are also handled according to the method of ordering specified in the contract. This method is useful because it eliminates the routine administrative work of ordering the same item frequently. Lower prices can be negotiated because only the price quoted when signing the contract is quoted by the supplier even though the prices may increase.

8.6. Stockless Purchasing

As the term suggests, the buyer does not keep the stocks of goods ordered by the buyer. The supplier keeps the stock for the buyer. The inventory is thud owned by the supplier. Sometimes the consignment is kept with the buyer, but it belongs to the supplier. In such cases, the term consignment buying is used.

For this type of buying to operate smoothly, there should be a good understanding between the purchaser and the seller. The prices may be a higher than the other systems, because the suppliers’ storage costs increase. But the total capital of the buyer which is usually fixed in stocks is much less.

Generally this method applies to off-the-shelf items like biscuits, essences, processed foods and mixes, etc.

8.7. Contract Purchasing

This is also called as systems contract and is usually used by large food service institutions like five star hotels. The technique assists the purchaser and seller to improve reordering of materials which are repetitively used with minimal administrative expenses. This method is similar to blanket order technique except that the arrangement is a long term one and suppliers are therefore not changed frequently. More formal ways are used to select the supplier.

8.8. Small order methods

Most establishments require purchase to be made which are non recurring and involve small sums of money. The purchase methods used for these transactions involve the petty cash system, cash on delivery or check payment system.

8.9. Petty cash systems

Petty cash is a small sum of money which is kept aside to meet the minor expenses in an establishment. It is effective for purchasing small amounts of food from the local market in exchange for a bill and cash payment.

8.10. Cash on Delivery systems (C.O.D.)

This term suggests that it involves payment on acceptance of delivery. The order may be placed telephonically or through the mail.

8.11. Check payment ordering

This system is also called as paperless purchasing. This is a combination of the order and blank check for payment. Besides the product specification, the product also contains delivery instructions, account number, unit price, quantity, taxes, discounts offered and terms of payment. The supplier completes the presigned blank cheque which states the maximum limit for payment. A duplicate copy of the completed check is returned to the buyer for record.

8.12. Auction buying

Food is rarely bought through auction, but sometimes a supplier may sell processed food items by auction. In such cases, a preview of product and stock quantities is offered before the auction. Large food service organizations may use this method of buying for taking price advantage.

9.  PRINCIPLES OF PURCHASING

There are basically nine principles of effective purchasing:

1.  Continuity of supply This is of critical importance for minimizing or eliminating disruption in food production activity.

2. Minimum investment in stock Quantities to be stocked need to be considered very carefully while purchasing.

3.  Security of stocks Forward buying has to be carefully balanced with present usage requirements. Security refers not only to guarding of stocks from pilferage or theft but also preventing spoilage or deterioration of quality in storage.

4. Maintenance of quality The objective of purchasing is to procure those goods which are most suited to production requirement for end use, tan those which rank higheast in absolute quality in terms of standard quality, grades or brands. Perishable foods should go directly into the kitchen for production of quality meals.

5.  Procurement at low cost In the matter of buying food materials,the principle is to purchase at the lowest ultimate cost rather than lowest initial cost. This is usually done through bulk package purchasing directly from manufacturers and using single suppliers who are conscious of the quality and quantities that are required on a long term basis.

6. Avoidance of duplication and waste Interaction between purchasing, production and user departments is important to achieve reduction of food waste and duplication of procurement time and effort which can result from sudden menu changes or production policy shifts.

7. Maintenance of competitive position Those in charge of purchasing needs to have a thorough knowledge of the market environment and the purchasing policies of those offering similar goods and services to their customers. This requires experience and high degree of executive judgement through which impending taste changes of customers can be gauged in advance. A purchasing manager who can communicate these changes to production and service departments in advance can maintain the competitive position by drawing attention to costs, quality and prices that the market will take.

8.Image with supplier It is very important to set up a value based image through high ethical standards that are reflected in a supplier’s response to a purchasing manager, staff and the organization as a whole. A supplier feels a sense of loyalty to the organization sees a sense of honesty of dealing and not a sense of exploitation through corruption and bribery.

9.Harmonious environment Developments of relationships that lead to harmony and cooperation both within the organization and outside results in a sense of mutual sense and respect among all associates in an institution.

10.  PURCHASING FUNCTIONS

• Keeping records of specifications for each type of dish on the menu developed with the help of those who prepare them.
• Using perishable foods within two days of purchase.
• Rotating uses of packaged foods so that older stocks are used first.
• Formulating specifications for food items.
• Liasing with suppliers and user departments.
• Placing orders.
• Receiving of food and supplies.
• Inspection of goods.
• Control of stocks.
• Staff management.
• Taking or rejecting delivery of goods.
• Maintaining safety and security of stores by keeping an eagle’s eye.
• Disposing off obsolete equipments and waste materials.

11.  PURCHASE RECORDS

The essential records for the purchasing process are the requisition and the purchase order, originating with the buyer, and the invoice, prepared by the supplier.

11.1. Purchase requisition

The requisition is the first document in the purchasing process. A requisition is used by the food service managers to request food items from the purchasing manager or department. The following five basic items of information generally are included in all requisitions:

• Requisition number This number is necessary for identification and control purposes and is generally accompanied by a code for the originating department.
• Delivery date This date, on which the product should be in the storeroom for use by the cooks, should always allow sufficient time to secure competitive bids and completion of the full purchase transaction, if possible.
• Budget account number This number indicated the account to which the purchase cost will be charged.
• Quantity needed Quantities should be expressed in a common shipping unit, such as cases along with the number of items in a unit.
• Description of the item The information may include the product specification, brand, etc.

11.2. Purchase order

A purchase order is a document, based on the information in the requisition, completed by the buyer who gives it to the supply. It states in specific terms the purchase and sales agreement between the buyer and the supplier. Every purchase order includes the following items:

•  Name and address of the food service organization
•  Name and address of the supplier
•  General instructions to suppliers
• Complete description of purchase items
• Price data
• Buyer’s signature

11.3. Invoice

The invoice, prepared by the supplier, contains the same essential items as the purchase order that is quantities, description and prices. When products are delivered, the supplier’s invoice must be compared with the purchase order and the quantity received.

12.  BUYING TIPS FOR PURCHASING MANAGERS

• Acquire and keep up to date a sound knowledge of all commodities, both fresh and convenience to be purchased.
• Be aware of the different types and qualities of each commodity that is available.
• When buying fresh commodities, be aware of partly prepared and ready prepared items available in the market.
• Keep a sharp eye on price variations.
• Organise an efficient system of ordering with copies of all orders for cross checking.
• Compare purchasing by retail, wholesale and contract procedures, to ensure that the best method is selected for the organization.
• Explore all possible suppliers.
• Keep the number of suppliers to a minimum. At the same time, have atleast two suppliers for every group of commodities if possible.
• Issue all orders to suppliers fairly, allowing sufficient time for the order to be implemented efficiently.
• Request price list as frequently as possible and compare price list continuously to ensure that you buy at a good market price.
• Buy perishable goods when they are in full season as this gives the best value at the cheapest price.
• Containers normally account for a large sum of money. Ensure that all containers are correctly stored and returned to the suppliers whenever possible and the proper credit given.
• All statements must be checked against invoices and passed swiftly to the office so that payment may be made in time to ensure maximum discount on purchases.

13.  SUMMARY

Purchasing is an activity concerned with the acquisition of products. It is often described as obtaining the right product, at the right time and at the right price. Adequate control in the purchasing activity is needed to run the food service institution in the most profitable manner.

Bibliography

1. Restaurant management-Customers, operations and employees, Third edition, Robert Christie Mill, Pearson Education, 2007
2. Sethi, Institutional Management: New Age International publishers, 2004
3. West & Wood, Food Service in Institutions, Wiley Eastern Limited, 2000

Web links

• www.hodderplus.co.uk
• http//drkist.edu.in
• http://nou.odu.ng