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					Purchasing



 Chapter 6
         What is Purchasing?

   - The act of buying

   - A complex and dynamic process

   - A sequence of consecutive actions with
    the goal of securing food, supplies and
    equipment to meet the needs of a FS
    operation
       What is Purchasing?


   A process of obtaining:
    the right product for a FS operation
    at the right time
    in a form that meets pre-established
     standards for
      quantity
      quality
      and price
   What to purchase?


The product could be
• food,
• supplies &/or
• equipment
In other words, what do you need for
  (i) food preparation and
  (ii) food service?
  In Chapter 6, the emphasis is on buying food.
       Flow of Purchasing
           Activities

    - Identify needs (new or existing
    menu)

    - Determine standards, write
    specifications for each food
    item

   - Estimate quantities needed
        Flow of Purchasing
            Activities

   - Calculate desired inventory or
    stock levels

   - Identify amts. to purchase (desired
    quantities – stock levels) issue bid
    requests if required

   - Develop purchase orders
           Flow of Purchasing
               Activities


   - Conduct market research on
    potential vendors product
    availability – tabulate and evaluate
    bids if required

   - Select and negotiate with vendors –
    award contracts
   See chart 6.1 p. 195
              The Market

   Market - The transfer of ownership of a
    product
   Marketing Channel (system) – several
    types of markets through which
    commodities flow
   Primary Market - major geographic source
    of supply (growing regions)
   Secondary Market – products accepted
    from primary markets, distributed to local
    buyers.
   Local Market – located close to buyer i.e.
    farmers markets, local fish, produce
              The Market

   Marketing Agents (middle men)
      • Food Wholesalers - in secondary
        markets - purchase merchandise in
        large quantities, redistribute locally
      • Food Brokers (jobbers) – do not buy or
        own merchandise, but find buyers for
        the manufacturers’ products
      • Commissioned Agent – takes
        ownership of merchandise then seeks
        interested buyers
       Market Regulations

  - Safety and wholesomeness of our food
  supply ensured through government safety
  and inspections programs

  - Food Program, Health Protection Branch,
  Health Canada ensures safe food supply
  for Canadians

Canada: Canadian Food Inspection Agency (CFIA)
  www.inspection.gc.ca

US: U.S. Department of Agriculture (USDA)
      Food and Drug Administration (FDA)
Canadian Food Inspection
        System

   1997 -- CFIA Act passed
    • responsible for all federally related
      food inspections
   1999 - Food Retail and Food
    Service (FRFS) Regulation and
    FRFS Code
    • create uniformity
    • simplify food safety standards
    Food Control Systems in
           Canada

   Under jurisdiction of 4 federal
    depts
    •   Health Canada
    •   Agriculture and Agri-food Canada
    •   Industry Canada
    •   Fisheries and Oceans Canada
    Food Control Systems in
           Canada

   All 4 depts involved in
    • inspection
    • surveillance
    • analysis of food
   Several federal acts involved
    • Food and Drugs Act (www.hc-sc.gc.ca)
    • Canada Agricultural Products Act
    • Consumer Packaging and Labeling Act
         Food and Drugs Act

   All food, drugs, cosmetics &
    medical devices sold in Canada
   Act & Regulations specify
    •   safety
    •   compositional
    •   nutritional
    •   labeling requirements
    Food Control Systems in
           Canada

   Provincial/Territorial gov’ts
    • jurisdiction over food safety and
      quality
   Municipal, regional, provincial, etc.
      -- food inspectors
             The Buyer

   - Represents the institution in
    negotiations with market
    representatives
   - Can be:
    • an individual i.e. FS manager
    • A purchasing department
    • A cooperative arrangement with
      other institutions
      Ethics in Purchasing

   Buyer = agent of institution
   Demands integrity
   Objectivity needed in product
    evaluation
   No gifts or perks should be
    accepted
    • may obligate the buyer
    • create a conflict of interest
       Types of Purchasing

   Centralized Purchasing
    • Purchasing Dept obtains supplies for
      entire organization
    • sometimes with central storage
   Cost effective & time saving
   Can create excessive paperwork
   Decision-making authority must be
    clear
    • esp. with quality stnds
       Types of Purchasing

   Group Purchasing
    • Consolidate buying power
   Requires
    • agreement on common specs
    • buyer selected by group
   Increased volume & cost savings
   Fewer meetings with sales reps
   Streamlined paperwork
              The Vendor


   A seller, a source of supply

   Choosing a Vendor
    • Check delivery schedules
    • Payment policies
       • discounts for early payments
       • volume purchasing discount
              The Vendor

   Choosing a Vendor cont’d
     • Contingency plans for times where stnds
       not met
     • Delivery available in emergency
       situations
     • Equipment & services included with
       products
     • Routine maintenance schedule
     • Equipment failure plans
   Local vs. distant
     Methods of Purchasing

   Informal or Open-Market Buying
    • seen in smaller facilities
    • based on daily, weekly, monthly
      price quotes
    • price quotes based on specs sent
      to interested vendors
    • agree on prices and quantity
      before delivery
     Methods of Purchasing

   Formal Competitive Bid Buying
    • written specs & quantities needed
    • sent to vendors with invitation to
      quote prices within certain time
    • may be advertised or mailed
    • bids opened on designated
      date/time
    • contract awarded to lowest
      responsible bidder
     Methods of Purchasing

   Formal Competitive Bid Buying
    cont’d
    • Awarding Contracts
      •   Open bids on specified date
      •   Assess for various factors
      •   Legally binding on both parties
      •   All bidders notified of outcome
      •   Foodservice gets copy of contract from
          purchasing agent
     Methods of Purchasing

   Competitive Bidding Variations
   Firm Fixed Price contract
    • price not subject to change during
      delivery schedule
   Variable Price contract
    • price depends on market price for
      delivery days
     Methods of Purchasing

   Cost-Plus Purchasing
    • buy product for fixed time period
    • price=fixed markup over vendor’s
      cost
   Prime Vending
    • formal agreement with single
      vendor to supply majority of goods
      needed
     Methods of Purchasing

   Blanket Purchase Agreement
    • vendors agree to furnish supplies during
      agreed time period
    • “charge account” basis
   Just-in-time Purchasing
    • product purchased in exact amounts for
      specific production run
    • reduces inventory/storage
    • Maximizes cash flow
        Product Selection

   Make or Buy?
    • Quality standard maintained?
    • Current equipment meet
      production demand?
    • Staff trained & available?
    • Time involved to make?
    • Storage & holding space
      available?
           Product Selection

   Make or Buy? Cont’d
    • Conduct complete cost analysis
        • buy vs. make
    • Use cost as decision basis after
      other factors analyzed
   See Figure 6.6 p. 211
         Product Selection

   Food Quality
    • Appropriate quality/grade for use in the
      menu
    Grades
    • market classifications of quality
      • Grades differ with different categories of food
      • Meat, Poultry, Eggs, Fresh Produce, canned
        fruits and veg. etc.
      • Canned fruits - Grade A Fancy, Grade B
        Choice, Grade C Standard
      Product Selection

   Federal Grade Stamps



Canada Prime
Canada AAA
Canada AA
Canada A
        Product Selection

   Brands
    • Assigned by private organizations
    • Usually identified by a trademark
      or label
      • Company Brands i.e. Kraft, Heinz
      • House Brands i.e. President’s Choice,
        no-name
     Purchasing Procedures

   Good purchasing practices
    include:
    • Use of appropriate buying methods
    • A systematic ordering schedule
    • Maintenance of an adequate flow
      of goods to meet production
      requirements
    • A systematic receiving procedure
    • Inventory control
          Identifying Needs

   Inventory Stock Level
   Mini-Max System
    • establish min and max levels
    • depends on
       • usage levels
       • time needed for ordering
       • time for delivery
   Minimum stock level
    • includes safety factor until replenishment
   Maximum stock level
    • min + estimated usage
         Identifying Needs

   Establish reorder point
   Quantity to purchase considers
     • amount needed to = max stock level
     • most economical amount


    Par Stock System
    • Stock is brought up to an established
      level each time and order is placed
      regardless of the amount on hand at the
      time of order
           Specifications

   Detailed description of product
    wanted
    • clearly stated for understanding by
      all involved (buyer & seller)
      • Name of product
      • Federal Grade or Brand
      • Unit on which price is quoted i.e. lb,
        gallon, can etc.
      • Name & size of container i.e. 6 # 10
        cans, 30 lb lug tomatoes
    Specifications

• Count per container i.e. apples
  113/box, 8/lb frankfurters
Additional:
  Fresh fruit& vegs – variety, weight
  degree of maturity.
  Canned foods – type or style, pack,
  size, syrup type
  Frozen foods – variety, sugar ratio
  Meats – cut, weight range
  Dairy – fat content, , milk solids
     Bid Request/Purchase
            Order

   Bid request
    • Provides vendors with an
      opportunity to submit bids for
      specific items needed by buyer
    • Includes quantities, purchase
      specs as well as date/time of
      closing and other terms/conditions
      Bid Request/Purchase
             Order

   Purchase Orders
    • Procedure for authorizing purchases
    • Issued by an authorized purchasing
      agent
    Eval Bids/Awarding Contracts
    • Price, quality, service
    Laws
    • Purchase/sale exchange between buyer
      and seller is a legal and binding
      commitment

				
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