4.5 Purchasing Methods

What is formal purchasing?

A purchasing method where the buyer provides specifications of products and multiple suppliers competitively bid on them

How is a supplier selected in formal purchasing?

The selection comes down to the best price and quality offered

What is fixed bidding in formal purchasing?

Bidding chosen for large quantities of items usually nonperishable items purchased over a long period of time

Why might a supplier opt out of using fixed bidding?

Because of the long term commitment and the potential of price fluctuations in products

What type of items are typically purchased using fixed bids?

Large quantities of nonperishable items over a long period

What is daily bidding in formal purchasing?

Bidding usually used with perishable products that lasts only a few days

How may daily bids be communicated and confirmed?

May be made over the phone and then followed up by a written confirmation prior to accepting the bid

What type of items are typically purchased using daily bids?

Perishable products

What is a prime vendor?

A vendor who provides most or all of the buyer goods

What is a primary benefit of using a prime vendor?

Lower delivery costs

What is a primary risk of relying on a prime vendor?

When the vendor runs out of an item the buyer needs they may not have a backup product or replacement on hand

What is informal purchasing?

A purchasing method where price quotes and actual ordering are done over the phone or in person with a sales representative

When might a manager choose informal purchasing?

When time is an important factor and the facility cannot wait for a lengthy supplier bidding process

How does the amount to purchase affect the decision to use informal purchasing?

Informal purchasing is used when the amount to purchase is relatively small and the time for supplier bidding cannot be justified

How does item availability affect the decision to use informal purchasing?

Informal purchasing is chosen when items needed are not widely available and may only be obtained from one or two suppliers

How does urgency affect the decision to use informal purchasing?

Informal purchasing is used when the need for an item is urgent and prompt delivery is required

How do price and availability consistency affect informal purchasing decisions?

Informal purchasing is chosen when prices and availability of goods are not consistent

How does facility size influence the choice of informal purchasing?

Informal purchasing is used when the size of the facility is too small to justify using other purchasing methods

What is independent purchasing?

Purchasing done by a specific unit or department of a facility authorized to make purchases

What type of companies typically use independent purchasing?

Smaller companies like a small restaurant or hospital

What authority might a foodservice director have under independent purchasing?

Authority to do purchasing for the hospital as the purchasing agent and potentially make purchases for other departments

What is centralized purchasing?

Purchasing done by one individual or department designated to handle orders as their primary focus

How do department heads request items under centralized purchasing?

Department heads submit purchasing requests to the centralized purchasing office for fulfillment

Give an example of centralized purchasing in a school district?

A head foodservice director of each school submits requests to a central office which orders in bulk and delivers from a central warehouse to each school

How does centralized purchasing affect delivery for suppliers?

The supplier makes only one delivery to the central warehouse rather than separate deliveries to individual schools

How does centralized purchasing improve financial record keeping?

It provides better control with one department responsible for purchasing yielding one set of records of purchases and expenses

Why is cross training not required for department heads under centralized purchasing?

Because a dedicated office handles purchasing so individual department heads do not need purchasing cross training

How does centralized purchasing benefit department managers?

It relieves department managers of the task of ordering from suppliers

What is group purchasing?

A purchasing method where managers from different operations come together to make a joint purchase

How does group purchasing differ from centralized purchasing?

Group purchasing is external ordering involving different operations while centralized purchasing is internal ordering within one organization

How do healthcare organizations utilize group purchasing?

Many healthcare organizations participate in group purchasing on an external level while maintaining internal centralized purchasing

How is staffing handled in a group purchasing arrangement?

One site is dedicated as the group purchasing office and purchasing personnel are hired by the group of managers

How are orders funded in group purchasing?

Orders are paid through group funding

What is the primary benefit of group purchasing?

Bulk volume pricing

What is warehouse club purchasing?

A purchasing method usually used by small independently owned facilities to buy products in large bulk

What are examples of warehouse club stores?

Sams Club

How do warehouse clubs operate regarding pricing and quantity?

They buy products in very large bulk with a marginal markup and sell in larger quantities than supermarkets

What membership requirement is typical for warehouse clubs?

Participants must become members by paying a monthly or yearly membership fee

What is just in time purchasing?

A purchasing method where products are bought on an as needed basis for immediate production or consumption

Which organizations benefit most from just in time purchasing?

Small organizations with limited storage space to hold inventory especially perishable items

How does just in time purchasing affect storage equipment needs?

It eliminates the need for large refrigeration units for fresh produce storage by utilizing reach in refrigerators as temporary storage

How frequently do suppliers deliver under just in time purchasing?

Suppliers may make regular deliveries several times per week to keep up with demand

What is a major purchasing manager challenge regarding raw materials in just in time purchasing?

Securing a steady flow of raw materials

How does just in time purchasing affect order lead time?

It requires reducing the lead time needed for placing an order

How does just in time purchasing impact storage inventory levels?

It reduces the amount of inventory held in storage and production areas

How does just in time purchasing affect inventory capital tie up?

Cost of products is included in daily food costs so capital is not tied up in inventory

What do receiving employees do upon delivery of just in time items?

They inspect items upon delivery and immediately take them to the areas where they will be used

What is as purchased weight?

The portion of food in its raw state prior to any trimming or cutting or processing or cooking

What is edible portion weight?

The portion of food to be served to the customer that is to be consumed

What is yield factor in procurement?

A calculation used to determine how much usable food remains after accounting for inedible portions

What is waste factor in procurement?

A calculation that determines how much of the food is lost to inedible portions like bones or seeds

How is yield percentage calculated?

Edible portion weight divided by as purchased weight

How is waste percentage calculated?

100 percent minus yield percentage

What is a butcher yield test?

A tool used every few months to evaluate meat quality trim bone waste and true portion costs

What is direct issuing in inventory management?

Products sent directly to production from receiving without going through storage

What is storeroom issuing in inventory management?

Products received recorded stored and issued from storage when needed for production

What is physical inventory?

Periodic actual counting and recording of products in stock in all storage areas

What is perpetual inventory?

Continuous running records of purchases and issues for each product so stock balance is known at any time

How is cost of food available calculated?

Beginning inventory plus purchases

How is cost of food used calculated?

Cost of food available minus ending inventory

What is the ABC inventory method?

A method classifying products into A high value B moderate value and C low value

What percentage of inventory value is represented by category A items?

Category A items represent 75 to 80 percent of total inventory value while making up 15 to 20 percent of total items

What is safety stock in inventory control?

A built in buffer of inventory maintained at a constant level to prevent running out of product

What is lead time in inventory management?

The interval of time between the time a requisition is initiated and the product is received

What is reorder point formula?

Normal usage times time frame until next delivery plus safety stock

What is economic order quantity?

The ideal order quantity that balances ordering costs and inventory holding costs to minimize total cost

What is actual purchase price valuation?

Inventory valuation where each product is priced at the exact purchase price of each individual product

What is FIFO inventory valuation?

First in first out where oldest products in the storeroom are used first and inventory value is based on most recent prices paid

What is LIFO inventory valuation?

Last in first out where most recently purchased items are sold first and inventory value is based on older purchase prices

How is inventory turnover calculated?

Cost of goods sold divided by average inventory value