Purchasing

Purchasing is an activity concerned with the

acquisition of product.
Obtaining the right product, in the right
amount, at the right time, at the right price.
Purchasing is defined as function concerned
with the search, selection, purchase, receipt,
storage, requisition, issuing and finally
production of food in accordance with the
catering policy of the hotel.

Aims of Purchasing Policy

To set down the principles of purchasing.

To set down the rules for purchase transactions.
To help in selection of suppliers.
Market Identification.
Policy should clearly define the purchasing
function.
Policy should assist in purchasing.
Procedure for purchasing.
Policy should aim at settling down the standards for
all the products which is to be purchased (SPS).

Methods Of Purchasing

Open Market.
Centralized Purchasing
Contract Purchasing
Standing Order Purchasing
Fortnightly Purchasing

Open Market

A committee of 3 persons (purchase officer,

accounts men and one person from f & B).
After considering the rates and the quality the most
advantages is selected.
Quality must not be sacrificed while comparing the
prices.
The advantage of this purchased is that only desired
standard of quality will be purchased at lowest
possible rate.
Suitable for Capital Goods

Contract Purchasing
The food items that requires frequent purchase calls for
contract purchases.
The annual requirement is marked out and the tenders are
invited.
The tenders evaluated
The contract is signed with the supplier
If the supplier fails to supply the indented items we have a
clause in the contract according to which we can buy the
indented items at the market rate prevalent and debit the
amount to the suppliers account, this is known as risk
purchase.
The tenders are awarded for items like mutton, fish, poultry,
egg, dairy products, fruits and vegetables.

Centralized Purchasing

All the H.O.D. combine together under a single

head and purchase all the necessary items on a large
scale.
Advantages
Better control and co-ordination because all the
H.O.D. are working under single head or
department.
Better discount is gained.
Few people are involved in purchasing.
Economic and profit potential of purchasing policy
making it a profit rather than a cost center.

Standing Order Purchasing

Milk and dairy product purchasing are normally made by
this method, which is often used for specific items only.
The deliveryman will replenish the stock and this saves a
considerable amount of time for receiving person.
Formal agreement are made for this type of delivery in
advance and reviewed from time to time.
One of the disadvantages of this system is that there is
dependence on one vendor and delays may be caused by
unexpected problems.
It works out well for those items that are purchased daily or
weekly or several times in a week or month.

Periodical/ fortnightly / bi weekly:

Method is used to purchase grocery.

H.O.D. would complete the stock in hand and
fill in the wanted quantity of each item.
Purchase officer would sent out a copy of the
list of each supplier in which the supplier is
required to quote the rates on receipt of
quotation.
These would be entered into a master
quotation list and the decision is then made
about where the order for each items are to be
placed.
Based on the requirement in the next week/
Fortnight and the storage space available.

Flow Chart
Recognition

Description

Authorization

Negotiation with supplier

Evaluation

Placement of Order

Fellow Up

Receiving

Payment

Requisition Form
Hotel ABC
To,
Purchase Manager
Date
Deptt

Item

Required By

SPS

Requisition No.
Date Required.

Supplier

Qty

Unit Price

Total

Approved By

Purchase Order
Hotel ABC
Date
Purchaser order No.
Requisition No.
Date Required.

To
XYZ Supplier

S. No.

Approved By

Items

SPS

Qty

Unit Price

Total

Authorized By

Economic Order Quantity

It is the optimum or the most favorable
quantity which should be purchased each
time when purchases are to be made but
attempt to find out the quantity that
minimizes purchasing cost and also
minimizes inventory cost.

Ordering Cost
The ordering cost is associated with acquisition of
purchased items and
getting purchased items into
companys store room.
It includes the total operating
Expenses of purchasing and receiving department,
Expenses of purchase order and invoice payment,
Data processing cost,
Clerical and administrative cost, follow up,
Cost on accounting,
Transports cost
This is a fixed cost per lot, hence variable cost per unit.

Carrying/Holding/ Inventory cost

These costs are associated with holding a given
level of inventories on hand and vary with the
level and the length of time held .
It includes storage, spoilage, pilferage, energy
requirement,
space
requirement
and
maintenance
cost,
taxes,
depreciation
insurance, product deterioration, staffing and
their
salary,
handling
cost,
equipment
requirement and opportunity cost on investment
tied in inventory.

Cont..
1. These costs are difficult to determine and are
calculated on annual basis as a percentage of
inventory.
2. The cost of inventory decreases inversely as the
number of order increases. The smaller the size of
each order, lower the average inventory carried,
hence lower cost of carrying the inventory.
3. Carrying cost differ with each organization
depending upon the conditions like interest on
capital, insurance, depreciation,.
4. Taking into account the contribution of all these
factors it is quite common to find recurring annual

Formula Approach
E. O. Q (Q*) = 2 DC0 / Ch
Where
D = Annual Demand
C0 = Ordering cost per order
Ch = Holding cost per unit =
= Procurement price x Inventory carrying cost per year
Ordering Cost =

D/ Q* x C0

Inventory Cost =

Q/2 x Ch

Graph Approach
Per Unit Cost

EOQ in XY Chart
20000
18000
16000
14000
12000
10000
8000
6000
4000
2000
0

Ordering cost

Inventory cost

EOQ

No. of Order x 200 unit per lot

Standard Purchase Specification

It may be defined as a list of the detailed
characteristics desired in a product for
specific use.
It contains information like name of the
product, quality standards, price and no. of
the portion to be produced out of it.
Specification is prepared with the help of
the concerned H.O.D.

SPS Details
Name of the product.
Grading (if any).
Size of the container (quantity).
Unit.
Product used.
Weight.
Unit price.

Characteristics of SPS

Should be legible.
Should be identifiable.
Fair to the supplier and productive to the
buyer.
It should be capable of meeting with
several suppliers for bidding.
Both the parties should understand it.

Advantage

Quality assurance.
It helps the supplier to supply the right product.
It helps the receiving clerk to identify the right
product.
Right price.
It helps in maximizing the output.
It helps in producing the right amount of
portion.
All the purchasing procedures get easier.
S.PS. is a tool of management control.
Wastage is minimized.

Duties of the Purchase Officer

The purchase of all food items for the establishment.
Ensuring Continuously of all Commodity.
Responsibility for the efficient operation and the control of
the purchasing,
Formulation of SPS
Reporting to the management .
Research in relations to the requirements for New Market.
Establishing good contacts with the traders.
Issuing a contract or purchase order.
Inventory and portion control measures.
Selection of Supplier

Attributes

Negotiating Skills
Technical Skills
Commodity Knowledge.
Knowledge of Market.
Supplier knowledge.
Managerial characteristics.

Qualifications
He should be a commerce graduate.
Diploma in hotel management.
5 years of experience in food and
beverage operations.

Selection of Supplier
Consists of Three Phases
Survey
Enquiry
Evaluation

Selection of Supplier

Survey

Enquiry

Evaluation

Price list

Geographic Location

Price Performance

Samples of Product

Financial Condition

Goodwill

Quality

Delivery

Range of items