THE BASIC FLOW OF PURCHASING ACTIVITIES
The Market
Food is
distributed from sources to consumers through a series of market channels.
Market channels
is the food processing and distribution system, beginning with the grower of
raw food products and ending at the final customer or point of consumption.
For example, a
farmer who grows wheat sells the post-harvest product to a mill where the wheat
is processed into flour. The process from farmer to the mill or also called as
factory is a channel.
1.Intermediaries
Intermediaries or
also called as middleman act as channels between the manufacturers,
distributors, and consumers. The two most common middleman who influnce the
foodservice segment are brokers and manufacturer’s representatives.
a.
Brokers and manufacturer’s representatives is
wholesalers who do not assume ownership of goods, but whose responsibility it
is to bring buyers and sellers together.
i.
A broker firm serves as a sales representative for
a manufacturer or group of manufacturers. Brokers are paid on comission by the
manufacturers.
ii.
Brokers make make money on the volume of food they
move, so the typically work directly and only with large-volume foodservices
and distribution compenies such as U.S. Food Service and Sysco.
iii.
In addition to serving as a conduit or channel on
available product, brokers introduce new products to potential buyers.
a.
Rather than invest in a broker, a manufacturer
will hire its own product representative or agent. For example, send its agent
directly to distributors or foodservice operations to introduce new products
and address product or delivery problems. A manufacturer’s representative may
visit a foodservice to introduce a new product and provide samples.
Market
Regulation: U.S. Food and Inspection Programs
- Markets and the
function of purchasing are regulated at the federal, state, and local levels.
All foods shipped
in interstate commerce must meet the requirements of federal laws and
regulations.
Food sold in intrastate commerce must meet the state and local
regulations that are at least equal to the federal requirments.
The major
responsibility for ensuring safe, wholesome food lies with the U.S. Department
of Agriculture (USDA) and the Food and Drug Administration (FDA), an agency of
the Department of Health and Human Services.
U.S. Department
of Agriculture (USDA)
- The Food Safety
and Inspection Service within the USDA is responsible for inspecting meats,
poultry, and other processed foods.
Food and Drug Administration (FDA)
-
Responsible for the enforcement of the federal
Food, Drug, and the Cosmetic Act, the Fair Packaging and Labeling Act, the
Nutritional Labeling and Education Act and the Food Safety Modernization Act.
Under the Food,
Drug, and Cosmetic Art, no food may enter interstate commerce that is deemed
adulterated or misbranded. Afood is adulterated under the following conditions:
It cointains substances that are injurious to
health
- Any part of it is filhty or decomposed
- It has been prepared or held under unsanitary
conditions
- It cointains portions of diseased animals.
- Misbranded is a food product whose label either
does not include information mandated by law or includes misleading
information.
- Standards of identity defines what a food product
must contain to be called a certain name.
- Standards of quality is set minimum standards for
features such as aesthetics of a product before it can enter interstate
commerce.
- Standards of fill is regulate the quantity of food
in a container
National Marine
and Fisheries Service
-
An agency of the Department of Commerce that
controls a voluntary inspection system for fish, fish products, and grade
standards.
U.S. Public
Health Department
- This agency is
concerned with the control of infections and contagious disease, and also for
the safety of some foods.
Environmental
Protection Agency
-
Regulates pesticides and quality standards for
water.
Department of teh
Treasury
-
The Bureau of Alchohol, Tobacco and Firearms
(BATF) in the Department of the tReasury is responsible for monitoring the
production, distribution, and labeling of alcoholic beverages.
The Buyer
-
A buyer is
a member of the professional administrative team and is held to high standards
of work performance and ethical behavior.
I.
The Art of Negotiation
-
Negotiation is the communication skill used by
individuals to confer with others to reach an agreement or compromise. The
first step in successful negotiations with a potential vendor is for the buyer
to be well prepared with knowledge and information about the products needed
and the foodservice operation in which they will be used.
-
The buyer needs to work closely with the
production and service staffs to ensure that operational needs and limitations
are well understood.
ii. Ethics in Purchasing
-
Ethcics is the science of morals in human behavior.
Products should be evaluated objectively, and buying decisions made on the
basis of quality, price, and service.
Types of
Purchasing
-
The structure of purchasing varies depending on
the size and type of organization. Foodservice organizations work under
different types of purchasing arragements depending on a number of factors,
including organizational size, ownership, and geographic location.
i.
Centralized Purchasing is a stucture of purchasing
in which a department within an organization assumes the main responsibility
for the purchasing function.
- Where centralized purchasing is used, the
authority to buy some product, such as fresh or other preshables, may
be delegated to the foodservice, or in multiple-unit organizations to the
individual units.
-
Disadvantage of centralized purchasing is that
friction can develop between the purchasing department and the foodservice unit
if there is not a clear understanding of decision-making authority, especially
on quality standards.
ii.
Group and Cooperative Purchasing is an
organization that represents member organizations and oversees their purchasing
function.
-
For example, several hospitals in a metropolitan
area may combine their purchases to obtain lower prices and possibly more
favorable service arrangements; or in smaller comunities, two or more
dissimilar foodservices, such as a school, hospital, and nursing home, may join
in a cooperative purchasing agreement.
-
In coorperative purchasing, the members are
usually units of a larger system, such as schools in a citywide or countrywide
school system.
-
The main advantages of cooperative purchasing for
the foodservice managers include freedom from having to meet with sales
representatives and time savings through streamlined paperwork and
administration of the purchasing function.
Vendors and Food
Distributors
-
The selection of vendors is one of the most
important decisions that must be made in a purchasing program.
-
The buyer should carefully evaluate the product
line of the vendor to ensure they meet quality specifications of the
organization.
-
The two most common categories used in
foodservices= are broadline and specialty vendors.
-
A specialty vendor typically carries a limited
product line. For example, a specialty vendor my limit its line to only
groceries or carry a single commodity such as meat, fish, or product.
-
A broadline food distributor carries large
inventories of food and supplies, representing numerous specialty vendors. In
addition to food, these broad- or full-line vendors are likely to carry
chemicals, paper products, and equipment.
-
The buyer should carefully evaluate the product
line of the potential vendor to assess availability of needed products and to
ensure that the products meet the quality standards of the organzation.
-
For example, a buyer would want to know the
vendor’s policy regarding credit when a damaged or spoiled product is
delivered.
Methods of
purchasing
-
There is two principal methods of buying . It is
informal or open-market buying and formal competitive – bid buying.
Informal or open – market buying is common in
smaller foodservice operations, involves odering needed food and supplies from
a selected list of vendors on daily, weekly, or monthly prices quatations.
-
Formal competitive bid buying are written
specifications and estimated quantities needed are submitted to vendors with an
invitation for them to quote prices.
-
Advantages and disadvantages.
- Bid buying is often required by goverment
procurement systems, such as those found in corrections facilities, and is found
to be advantages by large foodservices or multiple-unit organizations.
-
Two main diadvantages to formal competitive
bidding .
-
The system is time consuming, and the planning and
request s for bids must be made well in
advance so that the buyer has time to distribute the bid forms and the supplier
have time to cheek availabiity of supplies and determine a fair price.
Competituve Bidding Variations
-
Many variations and techniques are found in formal
competituve bidding, depending on the type of institution.
-
Bids can be written for a supply of merchandise
over a period of time at prices that fluctuate with the market.
-
For example, a six-month supply of flour may be
required, with 500 pounds delivered each month, at a price compatible with
current market conditions.
Cost plus purchasing
-
A buyer agrees to buy certain items from a
purveyor for an agreed-on period of time based on a fixed mark-up.
Prime vending
-
Involves a formal agreement with a single vendor
to supply the majority of product needs.
-
For example, prices may increase over time,
therefore, procedures for periodically auditing prices should be clearly
defined as part of the agreement.
Blanket purchase agreemnt.
-
It used when a wide variety of items are purchased
from local suppliers, but the exact items, quantity, and delivery requirements
are not known.
-
Just-in-Time Purchasing
-
It is in fact and inventory and production
planning startegy where the product is purchased in the eact quantitues
required for a specific production run and delivered just in time.
Product Selection
-
Numerous factors need to be considered when
selecting products for a foodservice operation.
-
Table 1 lists the factors to consider in a
make-or-buy decision:
Food Quality is something that need to check
before purchasing, the quality of foods most appropriate to the foodservice
operation and their use must be decided.
I. Quality standrads, the extent of desirable
characteristics such as color, flavor, aroma, texture, tenderness, and
maturity.
II. Grades. Grades are market classifications of
quality.
III. Grading and acceptance services. The USDA
Argircultural Service, in cooperation with state agencies, offers official
grading or inspection for quality of: Meat and meat products, fresh and
processed fruits and vegetables, poultry, eggs, and manufactured dairy
products.
IV. Brand. A particular make of a good or product
usually identified by a trademark or label.
Purchasing
Procedures.
The submission of a requisition
is the action that triggers the purchasing process. Requisition is an
interdepartmental from used to request desired products including food and
supplies.
Inventory stock level. A detailed and complete
list of goods in stock. A minimum and maximum stock level must be established.
Quantity to buy. Depends on money, storage soace,
method of buying, and frequency of deliveries.
Specifications is a detailed description of a
product and should always include:
Name of the product, federal grade or brand,
unit on which price was quoted, name and size of container, count per
container number per pound.
Issuing bid request. Providers vendor with an
opportunity to submit bids for specific items needed by a buyer.
Developing purchase orders. The purchase order
specifies the quantity of each item needed for the bid period, quality
specifications, and required date of delivery.
Tabulating and Evaluating Bids. In most instances,
public purchasing laws specify that the award be made to the lowest responsible
bidder.
The following points should be considered before accepting bids:
1.
Ability and capacity of the bidder to perform the contract and provide the
service.
2. Ability of the bidder to provide the service promptly and within the
time specified.
3. Integrity and reputation of the bidder.
4. Quality of
bidder’s performance on previous contracts or services.
5. Bidder’s compliance
with laws and with specifications relating to contracts or service.
6. Bidder’s
financial resources.
Awarding contracts. The general conditions of the
contract should include services to be rendered, dates and method of
deliveries, inspection request, grade certificates, procedures for payment, and
subsitution.
-
Legal and regulatory aspects of purchasing:
a.
Laws and contract management:
i.
The legal aspects of this exchange are covered in
the Uniform Commercial Code (UCC). The purpose of the UCC is to provide
uniformity of law pertaining to business interactions.
ii.
The law of agency defines the buyer’s authority to
act for the organization.
iii.
The law of warranty defines warranty as a
supplier’s promise that a product will in fact perform as specified.
iv.
Law of contract includes at least five components:
1. An offer.
2. An acceptance.
3. Consideration.
4. Competent oarties.
5.
Legality
b.
Law relating to competition and pricing.
- The four major laws that encompass this category are the:
1) Sherman Act
2) The Federal Trade Commission Act
3) The Clayton Act
4) The Robinson-Patman Act
