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Budgeting for Housekeeping Expenses.

Budgeting is one of the main planning activities of an executive housekeeper. It is the process by which, based on the actual performance of establishments in the past, estimates of expenditure and receipts are made and adjusted for forecasting future outcomes. Budget can be defined in many ways: A budget is a plan by which resources required to generate revenues are allocated. A budget is a plan which projects both the revenues the hotel anticipates during the period covered by the budget and the expenses required to generate the anticipated revenues. The advantage in preparing a budget is that it provides an opportunity for taking a critical look at the cost of the department, reviewing past planning and present accomplishments, and then taking appropriate steps to accomplish more in the coming financial years. The executive housekeepers responsibilities in the budgetry process are two-fold. First, the executive housekeeper is involved in the planning process that leads to the formulation of the budget. This entails informing the rooms division manager and general manager what expenses the housekeeping department will incur in light of forecasted room sales. Second, since the budget represents an operational plan for the year, the executive housekeeper ensures that the departments actual expenses are in line with the budgeted costs and with the actual occupancy levels. The budget thus acts as a guide that provides the managers with the standards by which they can measure the success of operations. By comparing actual expenses with allocated amounts, the executive housekeeper can track the efficiency of housekeeping operations and monitor the departments ability to keep its expenses within the prescribed limits. Budgets provide a financial framework within which the housekeeping department operates. Thus, budgets should be carefully prepared and used to govern the departments spending. The budget also acts as a guide as to which things need repair or replacement. It helps to determine what valuable pieces of equipment may be purchased and to pinpoint the areas where emphasis will be placed for the coming year.

TYPE OF BUDGETS Budget may be of different kinds, based on the types of expenses involved, the departments and the flexibility of expenses. Categorized by Type of Expenditure Based on the types of expenses and assets involved, budgets may be categorized into capital, operating and pre-opening budgets. Capital budgets These allocate the use of capital assets that have a life span considerably in excess of one year, these are assets that are normally used up in day to day operations. Furniture, Fixture and Equipment (FFE) are typically examples of capital expenditures. Capital expenditures in the housekeeping department may include room attendants carts, vacuum cleaners, general floor machines, carpet shampoo machines, sewing machines and laundry equipment. The hotel building itself is also a capital asset. Operating budgets These forecast expenses and revenues associated with the routine operations of the hotel during a certain period. Operating expenditures are those costs the hotel incurs in order to generate revenue in the normal course of doing business. In the housekeeping department, the most expensive operational cost is the salary and wages or labor cost. The cost of all-recycled inventory items, such as cleaning and guest supplies, are also operational costs. Pre-opening budgets These force the planning necessary for the smooth opening of a new hotel. These budgets allocate resources for opening parties, advertising, generation of initial goodwill, liaisons and PR. Pre-opening budgets also include the initial cost of employee salaries and wages, as well as supplies, crockery, cutlery and other items. Categorized by Department Involved Base on the department involved, budgets may be categorized into master budgets or department budgets. Master budget These represent the forecasted target set for the whole organization and incorporate all incomes and expenditures estimated for the organization. Department budget each department of the hotel forwards a budget for its estimated expenses and revenues to the financial controller. For instance, there would be a housekeeping budget , an F&B budget, a maintenance budget, and so on. In fact,

the room division budget is in this case the combine budget of the front office and housekeeping department. Categorized by Flexibility of Expenditure Budget may also be classified on the basis of the flexibility of expenditure: Fixed budget These budgets remain unchanged over a period of time and are not related to the level of revenues. Such budgets include budgets for advertising and administration. Flexible budgets These budgets pre-determine expenditure based on the revenue expected and differ with different volumes of sale. HOUSEKEEPING EXPENSES Expenses that need to be budgeted for by the housekeeping department may be operating expenses or capital expenditures 1) Operational Budget is the allocation of expenses for each item/s required by the department in order to operate smoothly. In case of hotel operation, controls of expenses are based on occupancy percentage. The budgeted amount for the month can be variable since there are certain periods where occupancy forecasts in other areas or countries are unreliable or unpredictable. The basic Housekeeping operational budget are as follows: a) Staffing b) Linen & Towels c) Guest Supplies & Amenities d) Cleaning Supplies e) Laundry Supplies f) Machine, Tools & Equipment g) Decoration h) Miscellaneous i) Printing and stationeries There are budgeted item/s or sections in Housekeeping that are usually divided between other departments such as follows: 1) Repairs and Maintenance

This type of operational budget is usually divided between housekeeping and Engineering 2) Uniform Budget Uniform expenses is prepared by the Executive Housekeeper with all the elegance, comfort, durability, styles, colors and functionality of the uniform chosen for each department. Once a specific style of uniform has been chosen, it is then coordinated with the concern department and when the Executive Housekeeper gets the approval she then submits them to the General Manager for overall coordination of styles, colors, functionality etc. that reflects the proper image perception of the entire hotel in the eyes of the guests. The last step will be to endorse them to the Financial Controller for allocation of budgeted amount to each department. 3) Decoration Housekeeping is one of the department in the hotel which helps and assists in the beautification of the hotel inside and outside the building. Decoration can be flower arrangements, fresh and artificial depending on the policy of the hotel since there are hotels that prohibit the use of artificial flower arrangements for fire hazard issue, picture frames, statuary, carvings, tapestry, artifacts and many others are examples of decorations. Requests for flower arrangements seemed to be the most needed items in the hotel whether for the guestrooms, Food and Beverage functions, Outside Catering, Lobby of the hotel, Convention centers and other areas that requires flower arrangements. 4) Printing and Stationeries Front Office and Housekeeping are the two departments that share this budget. 5) Miscellaneous This type of budget can be charged between Housekeeping and any other department depending on what type of expenses is incurred. The second type of Housekeeping budget is Capital Expenditure (CAPEX) Capital Expenditure Budget is the allocation of funds for a specific project or items that will help and assist the operation of the hotel. In case of Housekeeping, projects can be

something that require replacement or additional Housekeepers cart, Laundry washer & dryer, building a new Laundry Shop for outside customers, replacement of vacuum cleaners, replacement of worn out beds or furnitures which is usually done floor by floor or by segments. Usually the CAPEX fund is allocated same way as how the operational budget has been allocated for the coming year. Therefore on a yearly basis project/s is/are accomplished and completed especially if the item/s have specific life span where replacement are made specifically each year. This way the hotel or facility is well maintained, equipped and preserved like new. It is through CAPEX fund that maintenance of the hotel works best and at the same time avoiding depreciation of items in large quantities where it is difficult to resolve since they require huge amount to achieve. Capital expenses include the cost of equipment and machines; furniture and fittings, etc. Equipment and machines This category OF expenses involves the equipment and machines used by the housekeeping department( such as floor-cleaning machine, vacuum cleaners) and those provided in the guest rooms for guest use. Furniture and fittings The budget for guestroom furniture and fittings is under the purview of the housekeeping department since it is responsible for their cleaning and maintences. BUDGET-PLANNING PROCESS The room divisions budget-planning process depends on two main factors. 1. Forecasted room sales or occupancy levels 2. Cost per occupied room.
The hotels reservations department is charged with two primary tasks; setting rates and selling rooms. Before successfully accomplishing either of these tasks, the reservations department needs an accurate count of the number of rooms available for sale. Knowing how many rooms are available for sale on a given date is a logical firststep for the task of selling rooms. Less clear, however, is the relationship between the number of rooms available for sale and the setting of rates for a given period. This second relationship forms the basis for the key objective of any hotel: to maximize revenues through yield management. Yield management is the

process of maximizing gross rooms revenues by carefully managing both the number of rooms sold for a given period (occupancy) as well as the average rate known as average daily rate (ADR) or sometimes average room rate (ARR) received for each room sold. Yield management is based heavily on the ability of the hotel to forecast the number of rooms available for sale in advance of the date in question.

The dual role of forecasting availability The definition of yield management points clearly to the dual role of forecasting availability; maximizing rate through accurately estimating demand and maximizing rooms sold through systematic forecasting. Yield management in the lodging industry rests on an irrefutable foundation; the rate charged for remaining rooms tends to increase with rising occupancy projections. In other words, hotels generally receive a higher rate from the last few rooms sold than they do from the first few rooms sold. The first rooms may have been sold (reserved) a year or more in advance, a period filled with uncertainty in terms of occupancy for the date in question. As such, hotels tend to discount room rates early in the cycle as they attempt to gauge their business levels for the date in question. Through regular forecasts of the date in question, the hotel grows more and more confident in its understanding of the business levels it will experience. As confidence grows and occupancy for the date becomes more and more certain, the room rate rises. In the end, the last rooms sold receive the highest rate. By raising rates, step-by-step, as the room forecast grows in accuracy, the hotel reaps maximum yield for the period in question. Underlying the premise that rising occupancy gives way to rising rates is the logic that systematic forecasting of room availability affords the hotel less errors of fact with regard to underor over-booking rooms sold. It takes little to imagine the problems which might befall a hotel that incorrectly forecasts available rooms. A substantial error one way or the other can be costly to the hotels bottom line. An error resulting in underbooking rooms available for sale can occur a number of ways. A few examples might include: a reservations department which holds more rooms for a group than they actuallyoccupy, a heavier number of checkouts than forecast, or a high last-minute cancellation rate. Any of these examples will result in more available rooms than projected. And unsold rooms are costly! Overbooking the hotel is equally costly. Examples of overbooking errors might include: projecting a higher number of checkouts than actually experienced, forecasting more no-shows and cancellations than occurred, or holding less rooms for a group room block than were

actually required.While underbooking the hotel is costly to the bottom line, overbooking the hotel can be costly to good will and guest satisfaction. Certainly no guest wants to arrive for the night only to be told the reservation cannot be honored and the guest must be walked to another property because the hotel overbooked. (For more see entries on Overbooking, Walking, and No-show.) Reservation types The ultimate goal of every hotel is to achieve the perfect fill, defined as a paid guest in every hotel room. To reach this elusive benchmark, however, the hotel needs to make some difficult (and often risky) decisions. One of the first steps in the decision-making process is to understand which types of reservations are acceptable to the hotel. Hotels seeking to reach perfect fill generally book a very high percentage of their rooms as guaranteed or advance deposit reservations. Conversely, they generally book very few nonguaranteed reservations. Some hotels refuse nonguaranteed reservations altogether. Here is a quick look at the three classic types of reservations: - Advance-deposit reservations: Advance-deposit reservations are another form of guaranteed reservation. However, rather than guaranteeing the room to a credit card or corporate account, an advance-deposit reservation requires the guest to send payment in advance. Payment may come in the form of a cashiers check, personal check, money order, or even authorized credit card payment. In any case, hotels that require advance-deposit reservations often establish more rigid cancellation policies (longer lead time for cancellations) in order for the guest to receive full refund. - Guaranteed reservations: Reservations guaranteed against a guests credit card or corporate account have higher credibility than non-guaranteed reservations. Thats because the guest has something to lose if he or she fails to arrive. Depending on the hotels cancellation policy,failing to arrive for a guaranteed reservation usually costs the guest or the corporate account a nights room and tax. - Non-guaranteed reservations: Non-guaranteed reservations (sometimes called 6 p.m.-hold reservations) have no monetary promise associated with the reservation. Should the non-guaranteed reservation fail to materialize, the hotel has no recourse against the guest. As such, non-guaranteed reservations are very risky and uncertain reservations. Many hotels refuse to accept non-guaranteed reservations (though they may accept them on occasion as favors to particular guests or in unique circumstances). Because there is a very high no-show factor associated wit nonguaranteed reservations, accepting such reservations impacts the hotels ability to

reach perfect fill. Calculating availability If guests never changed their minds, it would be very easy to fill hotels. The formula would simply be: Stayovers + Todays reservations = Rooms committed

How to Prepare a Housekeeping Budget??


Housekeeping is one of the departments in the hotel that has the most bulk expenses and consumable items. Items like bathroom amenities such as shampoo, conditioner, body lotion or moisturizer, eau de cologne, facial soap and body soap; bath towel, hand towel, face towel, bath mat, bathrobe, rubber mat; bed sheet, pillow, pillow case, throw pillow, neck pillow, mattress pad, blanket, duvet/ duvet insert, bed cover; toilet paper, facial tissue; coffee maker, coffee sachet, sugar condiments; ironing board, flat iron; alarm clock; cooking utensils, crockery's and cutlery; give away toothbrush and toothpaste; printing materials, stationery, envelope, note pad, ball pen, folder, telephone directory, Bible or Holy Qur'an can have a substantial impact in the hotel's overall expenses. These are variable assets that when consumed, damaged, lost or become sub-standard are being discarded or removed from circulation, Once removed from circulation or consumed, the same quantities must be replenished or replaced with additional markup in order to maintain the high standard or quality of service in the hotel. Fixed assets like the room's furniture and fixtures such as beds, fridges, television sets, mirrors, sofas, easy chairs, reclining chairs, tables, telephones, lamps, headboards, airconditioning/heating equipment etc. can be very costly when damaged or become substandard. These items are usually included in the Capital Expenditure Budget especially when refurbishment is required. But if its only one or two pieces, this amount can be allocated in the operating budget.

For the machine and equipment, Housekeeper's cart and vacuum cleaners are the most important tool used in the overall cleaning and maintenance of the hotel guestrooms and public areas. Machines like carpet shampoo and water extraction machine, rotary machine for carpet shampoo, floor scrubber and floor polishing, wet and dry vacuum cleaner. hydraulic lift etc. are additional heavy duty machines that help in the overall cleaning requirements of the hotel. These too are included in the Capital Expenditure Budget. For Laundry area there will be the laundry machine, washer, dryer, dry cleaning machine, laundry folding machine/ calendar, tables, carts, laundry sorter boxes, movable clothes hanger rails, guest laundry printer etc. are Capital Expenditure items, while detergent, bleach, stain remover, dry cleaning fluid, ph level water treatment solution etc. goes to the operational budget. Listing all the detailed items involved in preparation of budget gives you an idea how intricate housekeeping budget preparation is.quote> With the above numerous items, the consumable or fast moving items are the most important items in the preparation of budget. The consumable items are included in the operational budget. The fixed asset items are included in the Capital Expenditure Budget or CAPEX. Operational Budget is being prepared annually and submitted to the Director of Finance for further study and to finalize the total amount in coordination with the department head. Operational Budget is always based on the next year's forecasted occupancy percentage. For example: Item: toilet roll 2008 consumption @ 50% occupancy = 2009 forecasted occupancy percentage is 75% 75%- 50% = 25% ( 25% of 50,000 =12,500) (50% + 25%= 75%) = ( $25,000.00 +$12,500.00 = @37,500.00) Remaining items are calculated in the same manner till all the items required are included in the next year's budget. @ 50,000 @ $0.50/roll =$25,000.00

$0.50

Capital Expenditure Budget is for specific items or project that needs to be replaced, made and built in the improvement of guest service or the hotel itself. For example: The hotel management with the approval of the owner of the hotel would like to extend the Laundry service to non-hotel guest or outside customer. The project will be a "Laundry Shop", therefore a quotation will be required from the contractor for the cost of building the Laundry Shop, the additional guest/customer laundry bag, laundry and dry cleaning list, and additional manpower for customer service etc. To sum up the amount of Construction of laundry shop = $35,000.00; additional laundry bags and lists = $5,000.00 and additional manpower = $9,000.00 annually. The $35,000.00 will be included in the Capital Expenditure while the additional laundry bags/lists and manpower will be added in the operational and staffing budget. Therefore, the operational budget is for the consumable items and Capital Expenditure is for special project or items that are costly. There are also certain items being shared by the Front Office and Housekeeping. The charges on these items are being split between the two departments. When it comes to Maintenance, Engineering Department charges the Housekeeping for any services rendered like maintenance of the machine wherein they have to supply machine parts and labor, so these are being coordinated with Engineering. It is important that housekeeping machines are handled with care to avoid such charges. Monitoring the Operational budget is the most crucial part in the operation of business. With the modern technology and the computer software, daily updated total expenses against budgeted amount are made possible and easy to trace in order not to exceed the budgeted amount. Every end of the month, the Accounting Department distributes copies of last month's budget outcome to the General Manager and the Department Heads in order for them to review and analyze where their budget is in line and where it is not. General Manager will require the department head that have exceeded their budget a reasonable report since he is accountable to the corporation as well as the owner of the hotel. Cost per occupied room (CPOR) The CPOR order type is for processing hotel/motel cost per occupied room business. In this case, the customer is invoiced an amount based on how many occupied rooms they had for the month, not how much product they 'purchased' for the month.

Notice above that the invoice is based on room count and month. It's important that a new order is started at the beginning of each month and used throughout the month. When a CPOR order is created, an automatic billing block is applied. The billing block is necessary because we do not want to bill the delivery(s) until we receive the room count from the customer. When a CPOR customer calls in an order, customer service must search for an existing CPOR order for the current period. If one is found, the existing order is added to by either the addition of lines to the order or by increasing the order quantity of existing materials. The order is then delivered in the normal fashion. During the month, it's possible to make several deliveries to the customer. For a standard order, we would invoice each one of these deliveries as soon as possible. For a CPOR order, we must invoice all deliveries at the same time after we obtain the room count and apply a header condition. Cost/occupied room = Operating Expenses / Room sales. CALCULATING INDIVIDUAL OPERATING EXPENSES.

An operating expense, operating expenditure, operational expense, operational expenditure or OPEX is an ongoing cost for running a product, business, or system . Its counterpart, a capital expenditure (CAPEX), is the cost of developing or providing nonconsumable parts for the product or system. For example, the purchase of a photocopier involves CAPEX, and the annual paper, toner, power and maintenance costs represents OPEX[2]. For larger systems like businesses, OPEX may also include the cost of workers and facility expenses such as rent and utilities. In business, an operating expense is a day-to-day expense such as sales and administration, or research & development, as opposed to production, costs, and pricing. In short, this is the money the business spends in order to turn inventory into throughput. Operating expenses also include depreciation of plants and machinery which are used in the production process. On an income statement, "operating expenses" is the sum of a business's operating expenses for a period of time, such as a month or year. In throughput accounting, the cost accounting aspect of the theory of constraints (TOC), operating expense is the money spent turning inventory into throughput. In TOC, operating expense is limited to costs that vary strictly with the quantity produced, like raw materials and purchased components. Everything else is a fixed cost, including

labour (unless there is a regular and significant chance that workers will not work a fulltime week when they report on its first day). In a real estate context, operating expenses include costs associated with the operation and maintenance of an income-producing property Below is an outline of the considerations in each category. Salaries and wages to calculate these expenses, the salaries and wages paid to all job positions- such as the executive housekeeper, assistant housekeeper, supervisors, GRAs, linen room attendants, housemen and so on.- have to taken into an account. The executive housekeeper first works out the number of employees required at various positions. If the occupancy levels are fluctuating considerably, the executive housekeeper should employ only the minimum staff required on the payroll and the rest of the staff should be hired on daily wages basis if labor is easy available. Duty rotas need to be planned efficiently so that annual leaves and weekly off days can be given on days of low occupancy. Employee benefit these calculation depends on the number of labour hours expected to be scheduled, the job positions involved, and hotels policies regarding employee benefit. In most properties, Employee benefit include the cost of on-duty meals, payroll taxe, provident funds, medical expenses for the employees and their immediate family or insurances. Contract service the cost of all contract service is averaged throughout the budget period of one year. Considering the historical data of contract services already used will lend an insight into the expense level to budget for. OPERATING SUPPLIES. The major types of operating supplies include guest supplies and cleaning supplies. Guest supplies. These are non-recycled inventory items and variable in cost. This expense category will depend on the cost per occupied room. The executive housekeeper finds out the consumption factor arrived on for soap is 0.8 the budgeted room sales is 4000 for a month; and the cost of a bar of soap with the hotels monogram is 2.00, the budgeted expense for soap will be. Consumption factor * budgeted room sales * cost of one unit. = 0.8*4000*2 = 6400 In case of two soap bars are to be placed in one guest room, the amount obtained is multiplied by2. In all case, the amount needs to be further multiplied with thw par number to be maintained for each guest supply.

Cleaning supplies these are non- recycled inventory items that are semi variable in cost. The higher the occupancy, the higher the volume of cleaning supplies used. It also needs to be remembered that the executive housekeeper schedules deep cleaning tasks during slack period. LINEN For budgeting linen expenses, the executive housekeeper need to calculate the cost of linen per occupied room based on historical data. The higher the occupancy, the more the frequency of washing the linen. Historical data gives some guidelines in calculating linen expenses. LAUNDRY The laundry expenses are primarly variable, except for uniforms. The executive housekeeper can refer to the historical data for calculation of laundry expenses. Laundry expenses include. Chemical cost Water cost Energy cost Labour cost.

The cost of laundering is expressed as follow Cost per piece or weight unit -= total number of pieces or total weight of linen/ total cost incurred in a month. A 1000 room hotel uses 2000 bath towels per day at 100% occupancy. During the past year the hotel purchased and inserted 1200 dozen new bath towels to maintain an adequate supply of towels in working inventory. What are the number of launderings the hotel experienced and the linen replacement ratios for this item? Number of Launderings = Pieces Laundered 2000 X 365 730,000 14,400 = 50.7

New Pieces Inserted = 1200 X 12 = Linen Replacement Ratio = New Pieces Inserted Pieces Laundered 14,400

X 100 = 730,000 X 100

= 2.0

We can now use our historical experience to plan future linen replacement expenses. FORECASTING PIECES LAUNDERED: To forecast Pieces Laundered we need to use a historical benchmark. This benchmark is achieved by using the following formula: Pieces Laundered per Occupied Room = Pieces Laundered Total Occupied Rooms Using the preceding formula, our Pieces Laundered per Occupied Room would be computed as follows: Pieces Laundered Per Occupied Room = Pieces Laundered Total Occupied Rooms 1000 or = 2.0 2000

Now we can easily compute a forecast for any level of occupancy and a time period by using the following formula: If our 1000 room hotel has 2.0 pieces laundered per occupied room, how many total pieces will be laundered per year if the forecasted occupancy is 87%? Annual Occupancy: = 1000 Rooms X 365 x .87 = 317,550

Total Pieces Laundered: = Total Occupied Rooms X Pieces Laundered per Room = 317,550 x 2.0 = 635,100 4

CONTROLLING EXPENSES Controlling expenses in the housekeeping department means comparing actual costs with budgeted amounts and measuring the variances. While doing this, be careful to check whether the forecasted occupancy levels were achieved or not. e.g. if the occupancy is lower than forecasted, decrease in expenses must be expected proportionally. Serious deviations from the budgeted plan needs investigation in e.g. staff scheduling, supervision, efficiency and cost of products used etc. Controlling housekeeping expenses means ensuring that actual expenses are consistent with the expected expenses on the operating budget. There are four methods;

accurate recordkeeping effective scheduling careful training and supervision efficient purchasing

Accurate recordkeeping; helps to monitor the usage rates, inventory costs, and variances with standards Effective scheduling; with the help of the staffing guide, personnel costs stay in line with occupancy reports Careful training and supervision; important for controlling the cost of inventoried items. E.g. training in the proper use of cleaning supplies can improve usage rates, and lower the cost of cleaning supplies per occupied room Efficient purchasing; ensures that the hotels money is well spent and the maximum value is received from products. CONTROLLING OPERATING EXPENSES As far as controlling operating expenses is concerned, the executive housekeeper must ensure the following. Effective documentation all inventories should be documented to monitor their usage rates and costs. Zero-based scheduling this refers to hiring employees by taking into account the actual occupancy for a specified period of time. Right purchasing the executive housekeeper coordinates with the purchase department to purchase for the housekeeping department. The onus of controlling expenses on purchasing is entirely on housekeeper. Efficient training and supervisors training for new employee as well as training on new methods for older employees is a tool for controlling expenses. Efficient training ensures that the productivity and performance standards are met by all employees consistently. COST CONTROL IN SPECIFIC AREA Some specific methods of controlling expenses in various areas in housekeeping departments purview are outlined below. Guestrooms and public areas the following measures can be taken in these areas. Staff must be trained to use cleaning supplies and equipment efficiently and economically. Supervisors must control and monitor their use.

Appointing multi-skilled staff and giving them proper training to retain them control expenses. The use of key- tag or electronic lock system helps conserve power by ensuring that are light are switched off automatically when the guest is out of his room. A lacquer finish helps brass items longer and show less wear, which reduces the use of proprietary polishes such as brasso and indirectly saves labour, time and money. In VIP rooms, replace only those flowers that are shedding petals instead of changing the entire arrangement. Restrooms and toilets in public areas can have motion sensors to control power.

Linen room the following practices can be adopted for cost control in these areas. Old, condemned white sheets may be cut up and used in banquet halls as tablecloths for exhibitions and such. Old shower curtains can be cutup and stitched into aprons for the butchery department instead of traditional aprons. Condemned towels can be turned into dusters and mop cloths for cleaning surface Stores for controlling expenses in stores, effective stock-taking and control must be ensured as it significantly reduces the expenses involved in the provision of cleaning and other service.

PURCHASING The expenses for housekeeping purchases are planned mainly in the form of a capital budget or an operating expense budget. The purchase can be of local or imported items. Intends for the purchase of stock items are usually generated from the main stores on the basis of re ordering levels. The housekeeping department generates the indents of non stock items. Stock items are regular operating supplies such as soaps, shampoos, letterhead and cleaning supplies. Non-stock items are non consumable items such as crystal vases for flower arrangement, wooden hangers and so on. Efficient purchasing practices can make a significant contribution to the executive housekeepers role in controlling expenses. The housekeeping department coordinates with the purchase department for all his purchase. Though the main aspect of purchasing function is to produce a certain material or item, the material has to be the best buy at the right price. This calls for regular market surveys on the part of the housekeeping and purchase department. Salespeople and vendors are regularly met for updates on the latest developments in other hotels and the industry as whole. Purchasing managers/directors, and procurement managers/directors guide the organizations acquisition procedures and standards. Most organizations use a threeway check as the foundation of their purchasing programs. This involves three departments in the organization completing separate parts of the acquisition process. The three departments do not all report to the same senior manager to prevent unethical practices and lend credibility to the process. These departments can be purchasing, receiving; and accounts payable or engineering, purchasing and accounts payable; or a plant manager, purchasing and accounts payable. Combinations can vary significantly, but a purchasing department and accounts payable are usually two of the three departments involved. When the receiving department is not involved, it's typically called a two-way check or two-way purchase order. In this situation, the purchasing department issues the purchase order receipt not required. When an invoice arrives against the order, the accounts payable department will then go directly to the requestor of the purchase order

to verify that the goods or services were received. This is typically what is done for goods and services that will bypass the receiving department. A few examples are software delivered electronically, NRE work (non reoccuring engineering services), consulting hours, etc. Historically, the purchasing department issued Purchase Orders for supplies, services, equipment, and raw materials. Then, in an effort to decrease the administrative costs associated with the repetitive ordering of basic consumable items, "Blanket" or "Master" Agreements were put into place. These types of agreements typically have a longer duration and increased scope to maximize the Quantities of Scale concept. When additional supplies are required, a simple release would be issued to the supplier to provide the goods or services. Another method of decreasing administrative costs associated with repetitive contracts for common material, is the use of company credit cards, also known as "Purchasing Cards" or simply "P-Cards". P-card programs vary, but all of them have internal checks and audits to ensure appropriate use. Purchasing managers realized once contracts for the low dollar value consumables are in place, procurement can take a smaller role in the operation and use of the contracts. There is still oversight in the forms of audits and monthly statement reviews, but most of their time is now available to negotiate major purchases and setting up of other long term contracts. These contracts are typically renewable annually. This trend away from the daily procurement function (tactical purchasing) resulted in several changes in the industry. The first was the reduction of personnel. Purchasing departments were now smaller. There was no need for the army of clerks processing orders for individual parts as in the past. Another change was the focus on negotiating contracts and procurement of large capital equipment. Both of these functions permitted purchasing departments to make the biggest financial contribution to the organization. A new terms and job title emerged Strategic sourcing and Sourcing Managers. These professionals not only focused on the bidding process and negotiating with suppliers, but the entire supply function. In these roles they were able to add value and maximize savings for organizations. This value was manifested in lower inventories, less personnel, and getting the end product to the organizations consumer quicker. Purchasing managers success in these roles resulted in new assignments outside to the traditional purchasing function logistics, materials management, distribution, and warehousing. More and more purchasing managers were becoming Supply Chain Managers handling additional functions of their organizations operation. Purchasing

managers were not the only ones to become Supply Chain Managers. Logistic managers, material managers, distribution managers, etc all rose the broader function and some had responsibility for the purchasing functions now. In accounting, purchases is the amount of goods a company bought throughout this year. it is also refers to information as to the kind ,quality, quantity and cost of goods bought that should be maintained. They are added to inventory. Purchases are offset by Purchase Discounts and Purchase Returns and Allowances. When it should be added depends on the Free On Board (FOB) policy of the trade. For the purchaser, this new inventory is added on shipment if the policy was FOB shipping point, and the seller remove this item from its inventory. On the other hand, the purchaser added this inventory on receipt if the policy was FOB destination, and the seller removes this item from its inventory when it was delivered. Goods bought for the purpose other than direct selling, such as for Research and Development, are added to inventory and allocated to Research and Development expense as they are used. On a side note, equipments bought for Research and Development are not added to inventory, but are capitalized as assets.

PRINCIPLES OF PURCHASING The success of any manufacturing activity is largely dependent on the procurement of materials of right quality, in the right quantities, from the right source, at right time and at right price popularly known as five Rs of the art of efficient purchasing . They are also described as the basic principles of purchasing as under: 1) To purchase the right quality of materials; 2) To purchase the materials in right quantities; 3) To make the materials available at right time; 4) To purchase the material at right price; 5) To purchase the materials from the right source. They briefly explained as under: Right quality: The materials are the basic input and the quality of the output. It should be noted that best quality is not always the right quality. The right quality is determined by the cost of the material and the technical characteristics as suited to the specific requirements. The right quality should be defined clearly and should be described in terms of specifications. Generally the quality decisions are made by the technical staff. The quality specifications are controlled before the materials are issued for the manufacturing processes. The quality testing is done through the inspection either at suppliers plant or at buyers plant. Right quantity: The right quantity of the materials is determined on the basis of economic ordering quantity (E.O.Q). It is advantageous to purchase the materials on the basis of EOQ lots. The EOQ describes the size of the order at which the ordering costs and the inventory carrying cost will be the minimum. The ordering cost consists of the cost of paper processing such as paper, typing, postage, filing, cost of personnel; the costs incidental to order placing such as follow up, receiving, inspection etc. If the size of the order is large, the annual requirements will be met with little of the ordering cost as the number of orders placed would tend to be less. Conversely, storing cost consists of interest on funds locked up in storing, cost of storing, cost of insurance and taxes etc. If few orders involving large quantities are placed, the carrying cost will increase; however, the ordering cost will decrease due to less number of orders. Thus ordering cost and carrying costs are mutually exclusive. At EOQ level both these cots equate each other

and at this point, the total inventory cost would be at the minimum. The EOQ is calculated on the basis of the following formula: EOQ = 2RD /CS Where R = annual requirements of the materials in units D = Ordering cost per order C = Cost per unit S = Storing cost as the value of materials stored. Right time: The materials should be purchased at right time so that it may not result in either excess investment in the stocks or may result into stock outs. Efforts must be made to replenish the materials at a point where they are reaching at the reordering level. The purchase action is initiated at a tome when the material reaches to its predecided reordering level. The reordering level is decided on the basis of the rate of consumption and the lead time. It should be decided on the basis of the probability of maximum periodic consumption and maximum lead time. As stock holding is directly related with the lead time, efforts should be directed towards the reduction of the lead time so that carrying costs can be reduced to the minimum. Right price: The investments in inventories are determined by the prices charged for them. All attempts should be made to procure the materials at right price because a slightest reduction in the price results in substantial absolute monetary gain. It should be noted that the low bidder is not always the best bidder. The right price can be availed through searching for the proper sources of supply and comparing all such sources on some scientific basis. The quotations of various suppliers are compared after bringing them all on some common footing. Due considerations are also given to the factors such as regularity of supply, character of the supplier his financial standing etc. The price is an agreement between the buyer and the suppliers the former considers his utility while the latter takes into account his cost of production. The market conditions greatly effect the price determination.

Right source: The right source is a key consideration in purchasing as all other Rs. The suppliers are not only supplying the required materials but they also supply the information such as probable market conditions and the resultant price trends, general industrial climate and the business environment. The selection of right source involves the considerations such as search for the more and more sources, selection of the appropriate source through some scientific analysis, negotiating with the selected supplier and post purchase rating of the supplier. TYPES OF PURCHASING The effectiveness of purchasing activities can be enhanced by proper organization and coordination of the activities. There are four types of purchasing system:1. Purchase made as per requirement: No purchase is made in advance. Purchase is done as need arises. Method usually applied for emergency requirement or infrequent goods. 2. 3.
4.

Contract Purchasing: Contract of material is given to an agency. It has an Market Purchase: Purchase is made from the market to take advantage of price Schedule Purchasing: It is a cyclic purchase model. A schedule of purchase is

advantage that low price of those materials whose cost fluctuates highly. fluctuations. made and it is used for those commodities whose price does not fluctuate. Centralized purchasing means buying and managing purchases from one location for all locations within an organization. This can also be run by a central location buying in to a distribution warehouse that feeds smaller warehouses. This is called a hub and spoke system. The responsibility and authority to purchase, lease, or rent materials, supplies, goods, equipment, or services are placed with the Division of Finance and Operations, Purchasing and Stores Department. Purchasing is centralized to:

realize economy, efficiency, and effectiveness in the procurement function; pursue quality assurance and standardization;

maintain the highest standards of ethics; The control by a central department of all the purchasing undertaken within an organization. In a large organization centralized purchasing is often located in the headquarters. Centralization has the advantages of reducing duplication of effort, pooling volume purchases for discounts, enabling more effective inventory control, consolidating transport loads to achieve lower costs, increasing skills development in purchasing personnel, and enhancing relationships with suppliers.

Advantages of Centralized Purchasing

Volume purchasing When the district is able to purchase a single item in mass,

vendors are often willing to provide a discount. Purchasing in mass to take advantage of discounts is called volume purchasing.

Warehouse In order to take advantage of volume pricing, the district purchases

items in bulk. Vendors typically require that the district take delivery of the items in mass. These bulk purchases are stored in the warehouse until the items are requested by the sites.

Save time in researching products Individuals spend hours to research the

products and to find best price. The purchasing department has resources to help reduce the time to research products. Disadvantages of Centralized Purchasing

Good processes are not without their shortcomings. Listed below are some of the

challenges of buying in a school district and suggestions on how to help the Purchasing department minimize their effects.

Extended procurement time One problem that is commonly associated with

centralized purchasing is the perception it takes too long. In reality, the purchasing department processes vendor requisitions typically within one (1) day. Typically the delay in the request is either: time spent to research the product, funding sources (account code check and budget approval), vendor stock status, and shipping. Decentralized purchasing is the opposite where each plant or office buys what it needs. This operation allows any employee to buy what he needs. You can also run this operation with a designated buyer assigned to the site to do the buying. The more decentralized an operation is, the less control the home office has. You have a duplication of effort in buying and less buyer specialization. You lose discounts on quantity buys. You lose freight options based on dollars or weight. Also some support is lost from the supplier as there is no single contact for the supplier to deal with. Volume buying may not be calculated for all your sites. Advantages of decentralized purchasing Advocates of decentralization claim that local management has the incentive to control cost when the local operation is set up as a profit center. Many companies operate with a mixed system. The central operation may buy major commodities but allow local operations to buy all MRO supplies. It is difficult to change from decentralized purchasing to centralize purchasing. Employees feel their privileges are being taken away. They feel they are losing control of their site. Some will refuse to really cooperate in the changes in hopes to making the program look unsuccessful.

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