The Ordering / Purchasing Control Point
Once menu planning is completed, the Ordering / Purchasing control point is
the next logical step to be addressed. In fact, the menu determines the ingredients
to be purchased, the variety of products needed, and the relative amounts. One
of the major objectives of Ordering / Purchasing is to obtain the right quality
and quantity of items at the right price from the right supplier. The goals
are to maintain quality and value, strengthen the establishment's competitive
position, and minimize the investment in inventory.
More than any other basic operating activity, Ordering / Purchasing relates to cost and quality controls. In fact, most food service businesses spend 30-50% of their total sales revenue on product Ordering / Purchasing. Therefore, cost avoidance in Ordering / Purchasing has the potential to translate directly to the operation's bottom line. Conversely, the failure to properly control food costs can have a more devastating effect than overspending in most other cost categories. It is not surprising that the primary concern of many operators is their food cost. As costs increase, this concern grows. Rising food costs often force management to reexamine the operation's Ordering / Purchasing needs.
In addition to the menu, several other factors dictate Ordering / Purchasing needs. First, the forecasted sales volume is an estimate of how much business there will be in the facility on a given day. The operation's standardized recipes can be used to work backward from the number of servings to the amounts of ingredients needed. If there is a weight loss during processing (as when ribs of beef are roasted), the raw ingredient amounts must be increased accordingly.
Certain external factors also affect Ordering / Purchasing needs. The size and frequency of orders is affected by how much lead time the supplier requires before a delivery can be made. Also, the facility's location relative to the supplier may affect quantities purchased. For example, a steakhouse located high in the mountains or in a rural area probably receives less frequent deliveries than a steakhouse in a downtown metropolitan area. Since the steakhouse located downtown obtains more frequent deliveries, the quantities ordered at any given time tend to be smaller. Assuming the two steakhouses do the same amount of business, the steakhouse in the metropolitan area will have less money tied up in inventory.
Of course, quantity (of food ordered or money spent) is not the only concern. Quality and sanitation standards must also be considered in Ordering / Purchasing. A poor quality or unsanitary product is never a bargain, no matter how inexpensive it is.
The factors affecting Ordering / Purchasing needs are directly related to the functions of the Ordering / Purchasing control point.
The Ordering / Purchasing functions are:
1. Establishing and maintaining an adequate supply of food and nonfood products
2. Minimizing the operation's investment in inventory -
3. Maintaining the operation's quality, sanitation, and cost standards
4. Maintaining the operation's competitive position
5. Buying the product, not the deal
Each of these objectives of Ordering / Purchasing will be discussed as they relate to the four resources: personnel, equipment, inventory, and facilities.
Ordering / Purchasing and Personnel
A number of people have responsibilities related to the Ordering / Purchasing control point. However, Ordering / Purchasing itself is a management function. It must be done by the manager or delegated to a key subordinate (e.g., assistant manager, food and beverage director, executive chef, or steward) . In any case, one person must be designated as the establishment's buyer.
The buyer is responsible for the operation's Ordering / Purchasing control point. Hotels often have a full-time Ordering / Purchasing agent. In large hotels, the Ordering / Purchasing department consists of more than one person and is responsible for all food and nonfood buying. Of course, not all operations can afford a full-time buyer. Smaller facilities and independent restaurants use the manager or a key assistant as a part-time buyer.
To be successful, the buyer must possess many skills. Broadly speaking, the skills of a buyer can be categorized as managerial, technical and other. Managerial skills are necessary because the buyer is a part of the operation's management team. Therefore, the buyer must be able to plan, analyze, influence, control, and see the operation as a whole. A buyer must understand the establishment's present position and its short-term and long-term goals. This knowledge assists the buyer in carrying out Ordering / Purchasing activities according to management's overall plan.
Technical skills are necessary because they enable the buyer to do a more efficient job. New information is constantly becoming available on food marketing, packaging, distribution, and product yields. Beside textbooks, the operation's suppliers, trade journals, and industry associations are good sources of this technical information. The buyer's level of technical expertise also depends upon his or her knowledge of the operation's quality, sanitation, and cost standards and of which products meet these standards. A certain amount of Ordering / Purchasing experience may be necessary to develop technical skills.
Other characteristics the buyer should have are good interpersonal skills and high ethical standards. Interpersonal skills are critical because the buyer must be a communicator. This individual regularly interacts with other department heads, employees in the Ordering / Purchasing department, and management. The buyer's communication skills are also important when working with suppliers. Ethical standards may be difficult to specify, but certainly honesty and trustworthiness are two important considerations. A buyer frequently faces temptations in the form of personal rebates and under-the-table, kickbacks. It is management's responsibility to spot-check how the business is handling the Ordering / Purchasing functions to keep its honest buyer honest. Unannounced checks provide a stimulus for the buyer to avoid compromising the establishment's sanitation, quality, and cost standards.
To perform well, buyers must accomplish the five functions of Ordering / Purchasing. Although the amount of time devoted to Ordering / Purchasing may vary with the facility's size, all five functions are addressed by a well-planned Ordering / Purchasing control point. First, buyers are responsible for maintaining adequate inventory levels. The objective is to reduce or eliminate stockouts which inconvenience production personnel and disappoint customers.
The buyer should also minimize the operation's dollar investment in inventory for two reasons. Excessive inventories promote spoilage and potential contamination of products. In addition, excessive inventories tie up dollars in an asset that does not earn interest. Thus, buyers must maintain an optimum level of food and nonfood supplies.
Buyers are additionally responsible for conducting negotiations with the operation's suppliers. The negotiations typically cover the AP (as purchased) price, quantities to be purchased, delivery schedules, and other supplier services. An intimate knowledge of the establishment's standards and its product needs is necessary if the buyer is to obtain acceptable products. The buyer must communicate quality, sanitation, and cost standards to suppliers. Also, buyers should keep suppliers informed of ways in which the suppliers can improve their services to the operation.
Furthermore, good relationships with suppliers guarantee that the buyer will get the best value each supplier can offer. To maintain the operation's competitive position, buyers should continually try to improve their performance. Of course, suppliers cannot always fill orders promptly. Some wise buyers have circumvented this problem by establishing a reciprocal relationship with competitors. Thus, when a competitor is temporarily out of a needed product, they lend the competitor the product from their own stock until the competitor's order is shipped in. The advantage to the lending business is that the next time it is out of a product, the buyer can call on the competitor and request a temporary loan.
Although they are not, strictly speaking, under the control of the operation's management, suppliers are another human component of the Ordering / Purchasing function. The role of suppliers has changed significantly in recent years. In the past, suppliers often had a specialty such as produce, meat, or coffee, and they sold a limited number of these products. Other supplier specialists were dairy, bakery, paper, sanitary and cleaning supplies, or ethnic food distributors. Each specialist was geared to buy, store, and sell a certain category of food products or supplies.
By the early 1970s, the supplier's role had evolved into the full-line or one-stop shopping distributor. Today, this trend in food service distribution continues and is called the master distributor concept. Now, many of the full-line distributors carry from 5,000 to 10,000 different products. One master distributor may be able to satisfy 90 to 100% of an operation's Ordering / Purchasing needs. Many businesses are currently Ordering / Purchasing most of their requirements from a small number of full-line distributors who sell meat, produce, fresh fish, groceries, canned foods, frozen foods, cleaning supplies, paper products, flowers for the table, utensils, and kitchen equipment. Larger operations may still buy a few specialty items (e.g., exotic fruits and vegetables, dairy products) from a specialist. However, a full-line distributor can probably satisfy all the Ordering / Purchasing needs of a small business.
This one-stop Ordering / Purchasing arrangement increases product consistency and provides Ordering / Purchasing leverage for the facility, while it builds one's trust in the operation and gives management more time for planning, organizing, training, and public relations. Furthermore, master distributors often provide services that a specialist cannot give. These services include menu consulting, employee training programs, seminars, and presentations. -These advantages make it likely that-the master distributor concept will increase in popularity.
Regardless of a whether a specialist or full-line distributor is used, the establishment should periodically evaluate its supplier(s) based on the following criteria:
1. Sanitation policies ,
2. Size and services
3. Staff and labor relations
4. Ordering / Purchasing power and financial position
5. Products and prices -
The size of the distributing company relates to its ability to meet the operation's needs. Supplier services include arranging delivery schedules according to the food service operation's preferences. This can eliminate overcrowding of the food service storage areas while simultaneously avoiding stock-outs. Also, most suppliers are willing to carry unusual items as a special service to the operation if these items are needed on a regular basis. Other services such as menu planning assistance, employee training, and seminars have already been mentioned.
Management often forms an impression of a distributing company based on its sales and delivery personnel. Buyers prefer to work with knowledgeable salespeople who know their products and help the buyer become familiar with product alternatives that will meet the operation's needs. Also, the supplier's salesperson can provide valuable market information. The laws of supply and demand still govern the marketplace. For example, if the distributor learns that California is experiencing heavy rains, its sales representatives should inform the operation's buyer that the price of California lettuce will be higher in approximately six weeks. Similarly, as new produce items come into season, the supplier should keep the establishment abreast of changing market conditions. Also, the salesperson should keep the establishment informed of promotional discounts offered by processors and manufacturers.
Delivery personnel also represent the supplier. Their appearance, attitude, and courteous contribute to the imp ression formed b the operation. In addition, labor relations factors, such as the supplier's ability to create a team spirit among the company's employees, should be considered.
The Ordering / Purchasing power and financial position of the supplier are important. High volume distributors buy in larger quantities, so the unit cost is much less. Thus, a portion of the savings can be passed on to the food service business. A supplier that is on sure financial grounds is more likely to give the operation a fair value for its food and nonfood product dollars.
Naturally, products and prices are a critical evaluation point for suppliers. Products should meet the establishment's stated specifications, Distributors offering greater product variety are able to serve more types of food service businesses. Suppliers are obligated to charge a competitive price. When buyers evaluate distributors on the basis of price, it is essential that they compare like items. In many cases, the edible-portion EP price is more important than the as purchased price because the EP price takes into account the product's yield.
The reputation of a distributor relates to the supplier's reliability, consistency, and predictability. The food service operation should select suppliers who stand behind their products and services. It is a good idea to ask for references from the local health department and restaurant and hotel associations before deciding which supplier(s) will receive the operation's business. In one sense, suppliers are partners in the food service business because they have a stake in its success. Buyers and suppliers can work together to satisfy the desires of the operation's target markets.
Ordering / Purchasing Specifications
Many functions of the food service operation can be delayed or and Inventory stopped entirely if the necessary quantity and quality of inventory is not available. The Ordering / Purchasing department plays a major role in the flow of products through the food service facility. Many areas of the operation interact with the Ordering / Purchasing department.
Therefore it is essential that the Ordering / Purchasing of inventory be properly handled. The overall goal of Ordering / Purchasing is to obtain the necessary food and nonfood items in the correct quality and quantity at a reasonable price. To reach this goal, buyers have many tools at their disposal. The first tool is a set of standard purchase specifications.
Standard purchase specifications precisely define the quality, quantity, and other relevant characteristics required in products purchased by the establishment. Standard purchase specifications are communication tools. They require management to define exactly what is needed. They eliminate confusion on the part of suppliers, and they facilitate the bidding process. These specifications may be developed by a management team consisting of a food and beverage director, executive chef, buyer, and other end users. While it might take this team some time to develop standard purchase specifications for all the products normally purchased by the operation, the results are well worth the investment of time. Once they are developed, the specifications can be used over and over again for new suppliers, for planning menu changes, and for quality control.
Quality is defined through the use of government grades or packer's brand names. For example, the fancy, or government grade indicates a certain quality level in fruits and vegetables. On the other hand, the quality of Heinz tomato ketchup, Swift's Premium ham, and Minor's beef base are implied by their packer's brand names. Quantity may be defined by the number of units per container, box, or case. Where container sizes are standardized, the size of the container may be specified (for example, #10 cans). Other descriptions contained in a standard purchase specification tell the supplier exactly what kind of product is desired.
Standard purchase specifications are only useful if they accurately reflect the individual needs of the operation. Although several specification manuals such as The Meat Buyer's Guide and NIFDA Canned Foods Manual are available, the general specifications in these references should be tailored to the needs of the individual operation. In-house kitchen or performance tests can be used to alter general specifications to fit the establishment's needs. Also, market conditions which affect availability may modify the establishment's specifications. Ultimately, standard purchase specifications for each product must be based on the intended use of the product.
In smaller businesses, the amount purchased is must less than in larger operations, so the method of Ordering / Purchasing is frequently less formal. Written-specifications, bids, and negotiations are not utilized in the informal form of purchasing. Specifications are given, prices are quoted, and negotiations are conducted either in person or by telephone. While this method is less exact, it is simple and it saves time for the small operator. Perhaps more than any other control point, the Ordering / Purchasing activity is in a constant state of flux. Conditions change from season to season, from week to week, and in some cases, overnight.
Ordering / Purchasing and Change
Successful managers realize that their Ordering / Purchasing specifications are not cast in concrete. Ordering / Purchasing patterns must be altered when conditions change. However, before a change is undertaken, it is important to systematically predict and evaluate its impact on the operation's sanitation, quality, and cost standards. Ordering / Purchasing can be risky if menu planning is haphazard. Success objectives of Ordering / Purchasing are not clearly understood. However, the risks can be reduced if the buyer arms himself or herself with knowledge about the operation's policies and procedures as well as food needs.:
Knowledge of food production methods is critical to the success of the Ordering / Purchasing control point. A buyer must know the yield of a raw ingredient in order to calculate its EP (edible portion) cost. The buyer should also know how to modify the AP (as purchased) cost based on how the product is prepared and served.
Knowledge of Ordering / Purchasing procedures must be a high priority if the buyer is to achieve success. A planned, organized system-complete with written product specifications, purchase orders, and product evaluation forms-increases the buyer's control. By carefully reviewing issuing records, the buyer can establish par stocks (minimum quantities) for each item the facility should have on hand. This helps to eliminate costly stock-outs. The winning businesses know that they cannot negotiate either price or quality when they practice last-minute buying.
Knowledge of suppliers and competitors completes the Ordering / Purchasing success formula. Suppliers can be a valuable source of market information. They can assist the operation in the solution of yield, sanitation, quality, and cost problems. Winning food service businesses only deal with honest suppliers. Successful operations are not afraid to develop a reciprocal supply loan relationship with competitors because, in the end, it can be beneficial to them to do so.
In the final analysis, excellent businesses know the difference between control and controls. Control is the overall objective or goal management is striving to reach, whereas controls are the devices, tools, procedures, and policies used to reach the goal. Excellent managers are in control because they have set up a system to integrate sanitation, quality, and cost controls.
The menu, which details the operation's product offerings, is the blueprint for the success of a food service establishment. The menu influences the other control points in the food service system. Menu planning must be geared to the resources under a manager's control. The trend today is toward limited menus and cross-utilization of raw ingredients.
Ordering / Purchasing needs are dictated by a careful analysis of the menu and its standard recipes. Ordering / Purchasing pattems evolve as market trends, sources of supply, and customer needs change. Successful Ordering / Purchasing is the rule rather than the exception when the establishment's representatives arm themselves with knowledge. Control of the quality, sanitation, and cost of purchases is possible when a set of controls is systematically utilized.
To complete this Topic successfully, please complete the following activities in the order shown below:
ASSIGNMENT 1: Interview a person who purchases for a food service operation
Go on to Receiving
Go back to Food Service Control Points
Send E-mail to Dr. Rande or call (520) 523-1710
Copyright © 1999
Northern Arizona University
ALL RIGHTS RESERVED