Chapter 6 - Purchasing -

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.

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       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.

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          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.

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              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.

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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