INSTPUR

Lesson 1 - Concept of Selection and Procurement

OBJECTIVES
After the discussion,student should be able to:
▪ Define the terms purchasing, selection, and procurement.
▪Describe the purchasing activities in a hospitality operation.
▪ Differentiate the purchasing functions in different Types of hospitality operations

Overview on Purchasing Functions

▪ The hospitality industry is made up of a surprisingly large number of small operations. These
Small establishments do not have there sources topper for each operating activity.
The small operator normally has to conduct some business procedures informally, and
purchasing maybe one of them. The large company may employ purchasing specialists, but the
normal pattern is for owner - managers to squeeze the purchasing activities in their schedules.

● Purchasing
● paying for an item or service

● Selection

● choosing from among various alternatives.

● Procurement
•an orderly, systematic exchange between a seller and a buyer.
• The process of obtaining goods and services including all activities associated with
determining the types of products needed, making purchases, receiving and storing shipments,
and administering contracts.

Several Activities that must be Accomplished to Fulfill the Purchasing Function’s

Responsibilities:

PRE PURCHASE ACTIVITIES

1. Plan menus
2.Determine specifications of product qualities needed
3.Determine appropriate inventory levels
4.Determine appropriate order sizes
5.Prepare ordering documents

INFORMAL PURCHASING
6. Contact vendors
7. Obtain price quotes
8. Select vendors
9. Place order
10. Receive shipment
11. Issue products to production and service departments

FORMAL PURCHASING
6. Contact vendors
7. Establish formal competitive bid process
8. Solicit competitive bids
9. Evaluate bids
10. Award contract to vendor
11. Receive shipment
12. Issue products to production and service depts.
13. Monitor future contract performance
14. Evaluate and follow up

Transactions done electronically are commonly referred to as :

▪E-Commerce
▪ Refers to transactions done online
▪B2B E-commerce
▪ Online interaction between businesses
▪ Involves the sale and purchase of merchandise and services.
▪ B2C e-commerce
▪ Online transactions between businesses and consumer.
▪Involves the sale and purchase of merchandise and services.
▪ E- Procurement
▪ Ordering products and services from various purveyors online.

Types Of Hospitality Operations

Commercial
● Profit - Oriented Operations

Non-Commercial
● Institutional Operations
● Military

Types Of Hospitality Operations

1.Commercial Hospitality Operations
▪The profit- oriented companies.

2. Non- Commercial
▪ Institutional Operations
▪ Those Facilities that are operated on a break- even basis
▪ Military Operation
▪ Those operations that include troop feeding and housing , military clubs and military exchange
that exists within military installations

Purchasing Functions in Different Types of Hospitality Operations

1. The Independent Operation
❑ The small independent
▪ is typically run by an owner
- manager, who usually does all the buying for the business.
▪ He or she also oversees the other related purchasing activities such as receiving deliveries
and paying bills.

2. The medium- sized independent

▪ generally, involves more than one person in the purchasing function.
▪ General manager coordinates the various activities that the other management personnel
perform.

❑ The large independent

▪ Implements the purchasing function in much the same way that the medium independent
does, except that it may employ a full- time buyer. This buyer purchases for the various
production departments such as housekeeping, maintenance,engineering, and foodservice.

❑ Co-op Buying
•The banding together of several small operators to consolidate and enhance their buying
power.

❑ Referral Group
• A type of Co- op were independent operators join to send business to one another.

❑Aggregate Purchasing Companies or Group Purchasing Organization

•Another term for buying club
•GPO do not buy or sell products. Instead, They negotiate contracts on behalf of restaurants,
hotels, management companies, etc.
• Each company enrolling in this electronic co-op might receive a purchasing guide that includes
the names, email address, websites and telephone numbers of suppliers, along with a brief
description of the program negotiated on purchasing companies’ behalf.
• Buyers can access a private e-commerce marketplace or portal to conduct business with
approved distributors or suppliers.

2. The Multi Units and Franchises

▪ A multi-unit franchise is when a franchisee purchased the rights to develop and multiple units
in a particular territory.
▪ The company - owned outlets , the internal organization for buying, particularly for restaurants,
stipulates that the unit manager order most products from the central commissary or approved
suppliers.

Lesson 2 Purchase Specification

Learning Objectives :
After reading this chapter, you should be able to:
▪ Give examples of information that should be included on purchase specifications.
▪ Identify factors that influence the information included on purchase specifications.
▪ Explain the potential problems related to purchase specifications.
▪ Describe how quality is measured, including the use of government grades and packer’s
brands.

What is the difference between product specification and purchase specification?

What is a Product Specification?

▪ It is a description of all characteristics in a product to fill a certain production or services

What is a Purchase Specification?

▪ A concise description of the product spec information such as quality, size weight count and
other factors desired for a particular item .
▪ Includes description of the desired supplier services a buyer want

How about in buying equipment do we still need to have a purchase specification? Why
or Why not?

What is the importance of having specs?

Why Have Specs?

▪ It help to avoid Misunderstandings between suppliers, buyers, Users, and other company
officials.
▪ They serve as useful training devices for assistant buyers and manager trainees .
• It will assist the buyer in the bidding process.

Types of Specification:

FORMAL SPECIFICATION
• is apt to be extremely lengthy, perhaps several pages of information.
•Another term for purchase specification.
INFORMAL SPECIFICATION
• Less precise product specification.

▪What information does a specification include?

What Information Does the Spec Include?

1. The Performance Requirement
• Intended Use

2. The Exact Name and Type

•Exact Name and Type of Merchandise

3. The Packer’s Brand Name

•Packers’ brands are an indication of quality

4. Size Information
•Weight range

5. Acceptable Trim or Waste

•maximum amount of waste

6. Package Size
•size of the container

7. Type of Package
•type of packaging materials

8. Preservation or Processing Method

•identify two or more preservation methods

9. Point of Origin
•exact part of the country, or the world

10. Packaging Procedure

•Arrangement or formation

11. Degree of Ripeness

•age on the item

12. Form
•Shape or structure
13. Color

14. Trade Association Standards

1. National Sanitation Foundation
▪ NSF International is an accredited, independent third - party certification body that tests and
certifies products to verify they meet these public health and safety standards. Products that
meet These standards bear the NSF mark.

2. Philippine Association of Meat Processors, Inc. ( PAMPI )

▪The Philippine Association of Meat Processors Inc. (PAMPI) is an industry organization
composed mainly of manufacturers of processed meats and
Suppliers from allied industries.
▪ PAMPI is an ardent advocate of consumer education. By providing consumers right and
accurate information on food issues, products manufactured by its members are assured of
acceptability and credibility among consumers.

3. The Philippine Chamber of Food Manufacturers, Inc. (PCFMI, or also known as PH Food
Chamber)
▪ The responsibility of providing to the consumers, safe, nutritious and affordable processed
food products that are compliant to local and international standards and regulations

15. Approved Substitute

16. Expiration Date
▪Best if used by dates
17. Chemical Standards
18. The Test or Inspection Procedure
19. Cost and Quantity Limitations

20. General Instructions.

In addition to specific details, buyers might include such general details as:
▪ Delivery procedures, if possible;
▪ Credit terms;
▪ Allowable number of returns and stock outs;
▪ Whether the product purchased must be available
to all units in the hospitality company, regardless of a unit’s location;
▪ Other supplier services desired, like devising new
uses for a product to help increase the profit

What Influences the Types of Information included on

the Specs?
▪Company Goals and Policies
▪The Time and Money Available
▪The Production Systems the Hospitality Operation Uses
▪Storage Facilities
▪Employee Skill Levels
▪Menu Requirements
▪Sale Prices or Budgetary Limitations
▪Service Style

▪Who Decides What to Include on a Spec?

Who Writes The Specs?

● Company Personnel
● Government Publications
● Buyer and Supplier
● Expert

Potential Problems with Specs

● Unreasonable Requirements
● Inadvertent Discrimination
● High Standards of Specifications
● Utilization of Specs

INSTPUR
Lesson 4 -The Distribution System

Learning Objectives
After reading this lesson, students should be able to :
▪ Be familiar with the various distribution systems in the hospitality
industry.
▪ Differentiate sources such as intermediaries, and retailers'
involvement in the supply chain

General Channel of Distribution

▪Distribution Channel - The People,organizations, and procedures involved in producing and
delivering products and services from primary sources to ultimate consumers.
▪Primary Source - A supplier at the beginning of a product’s channel of distribution
▪Intermediary - Another term for vendor

•Growers
•Manufacturers
•Processors

INTERMEDIARIES
(Middlemen)
RETAILERS
(Hospitality Operators)

CONSUMERS

Major Primary Sources:

A. Growers

What is are the products being produce by the

Growers?

The farmer harvesting fresh produced from the farm.

B. Manufacturer
▪Controls the production of an item from raw materials.

Can you cite an example of product being supply

by the manufacturer?

C. Processors
▪ referred to as fabricator takes one or more food and assembles them into a
new end product.
▪ The new end product is usually referred to as convenience, efficiency, value - added, or k -
minus food.

How about another example of value

- added food ?

Some processors are also

manufacturers, but not all
manufacturers are processor.
The difference is that processors
always work with food products

D.Intermediaries/Middlemen
1.Distributors/Wholesaler Merchants
▪purchase products directly from growers,manufacturers or processor for resale and delivery to
customer.

Three Major Types of Distributors

A. Specialty Distributor handles one type of product.
Three Major Types of Distributors
B. Full-line Distributor provide food and non-food supplies

C. Broadline Distributor provides food, non-food supplies and equipment.

Intermediaries

2.Brokers
•A broker is an agent that acts as an intermediary between primary source and consumers.
•It can one or more primary sources.
• Brokers neither buy or resell a product.
•Their job is to promote products and put sellers in contact with buyers.

How does the broker earn money from promoting products and putting sellers in contact with
buyers?

The provides sales effort , and the distributor provides the end-user services. The broker earns
a sales commission, and the distributor earns a profit on the resale.

3. Manufacturers Representatives
▪ Reps serve a function comparable to that of broker. The difference is that they do more than
simply get sellers and buyers together.

4. Manufacturer’s Agents
▪ Agents represent a primary source in a specific geographic
area.
▪ Exclusive for one source.Reps seem to work more frequently with the equipment and
furnishings trade whereas brokers are usually found in the food and non-food supplies trade.

5. Commissaries
▪Is usually owned and operated by a large food service company.
▪ A commissary processes food products according to the exact requirement that the company
has determined. It is intended to sell and ship products to restaurants

Commissary is parallel to central distribution center, the major difference is that at a

commissary, raw foods are processed into finished products which is not the case in a central
distribution center. A distribution center can also be called a warehouse

6. Wholesale Clubs/Warehouse Club

▪ Wholesale clubs offer attractive prices to consumers whether there are big or small-scale
traders.Their prices are low.
How does wholesale club make money ?

▪ Wholesale clubs sells a variety of commodities,which many customers buy in large quantities
from stores.
▪Clients are supposed to pay membership fees thatarepaidannually

7. Buying Clubs / Price Clubs

▪are group of independent purchasers who join together to purchase
collectively to obtain more competitive prices by placing larger orders
than they would be able to do independently.
▪ The most typical kind of buying club is the purchasing c
- op, which usually includes several small, independent foodservices and lodging
properties.
▪Contract houses are operated by third parties that pass on some of the
savings obtained through bulk purchasing to member buyers.
▪Aggregate purchasing companies and Group Purchasing Organizations
(GPO) can be considered as buying clubs.

Distribution System for Beer, Wine and Distilled Spirits

There are 3 major sources supply beverage alcohol products.

1. Brewers
▪ Provide fermented beverages made primarily from grains.
▪ Company that manufactures beer

2. Wine makers
▪ Wine makers provide fermented beverages made primarily from grapes

3. Distillers
▪ Provide beverage alcohol that has undergone a distillation process or other similar
high alcohol content items

Cite an example of Brewers in the Philippines

San Miguel Food and Beverage, Inc.(SMFB)
▪ It has among the most recognizable and top-of-mind brands in the industry and holds
market leading positions in the food, beer and spirits categorie

Cite an example of Wine Makers

The company innovated and improved a secret fruit wine recipe and extracted and
fermented The wine with both the unripe green and ripe sweet yellow mangoes as the
main ingredients.Don Roberto’s Green Mango Wine and Don Roberto’s Sweet (Yellow)
Mango Wine was formally launched in December 2001. The product is available in
750ml. and 75cl. Bottle containing 12. 5% alcohol.

Cite an example of Distillers

▪Tanduay Distillers Incproduces alcoholic beverages. The Company distills rum, gin,
vodka, brandy, and wine in a variety of flavors and colors. Tanduay Distillers distributes
its products worldwide.

Intermediaries
1. Importers-Wholesalers
▪ responsible for importing alcoholic beverages into each state and local municipality.
▪ Liquor distributor buy the liquor from primary sources to resale to retail establishments
Such as restaurant, hotel, tavern and supermarkets.

2. Liquor Distributor
▪ Are specialized wholesaler who operate under a variety of legal sanctions.
▪ Tied-House Laws is a legislation that prohibits liquor distributors from becoming
primary sources or retailers. The law mandate separate ownership from primary
sources, intermediaries, and retailers

3. Alcohol Beverage Commissions

- A liquor control authority that regulates the sale and purchase of alcoholic
beverages.
▪ Control State
▪A state that sell beverage alcohol. It is the only purveyor of beverage alcohol in the
state.
▪ License State
▪ A state that grants licenses to importers, wholesaler, distributors, retailers who then
handle the distribution and sale of beverage alcohol.

Distribution System for FFE

Major Intermediaries of FFE:

1. Dealers
▪usually buy equipment items from primary sources, earning profits when they re-sell to
hospitality buyers

Four Major Types of Dealers

a. Catalogue houses
▪They have little stocks or no available on hand items for inventory Items are selected
by the customers from one or more catalogs, and the dealer order, delivery and so forth
b. Store Front Dealer/Discount Operation
•They specialize in handling small portable types of Furnitures, fixtures, and equipment
•They usually have a minimum amount of (FFE) for inventory

C.Heavy Equipment Dealer

•Specialize in handling large equipment installations.
•They carry inventory and usually involved in the layout and design of new hospitality
properties or major renovations

d. Full-Service Dealer
▪Carry a full line of inventory and are able to provide all end
-user services to their customers.

2. Brokers
▪Similar to brokers working in the distribution system for food and other non -related
supplies.

3. Designers
▪The designer work in tandem with architects, contractors and
manufacturers to ensure all physical structures and architectural elements are aligned
with client’s vision and business requirements.

4. Architects
▪a person who plans, designs and oversees the construction of buildings.

5. Constructor
▪is responsible for the day-to-day oversight of a construction
site, management of vendors and trades, and the communication of information to all
involved parties throughout the course of a building project

6. Distributors
▪Many distributors of food and beverage and nonfood supplies often supply several of
the most purchased FFE items. They typically sell replacement items and are not
normally involved with the design and construction of the establishment.

7. Leasing Companies
•It is a firm that purchases FFE and lease them to other companies.
•For example , expensive kitchen equipment such as ice machine, ovens, and ranges
can be leased or purchased on a rent to own plan
Distribution System for Services

7 Major Intermediaries for Services

Lesson 5 Forces Affecting Distribution Systems

Forces Affecting Distribution System

Learning Objectives :
After the reading the lecture, student should be able to:
● Identify and differentiate the economic and political forces that affect the channel of
distribution.
● Describe the role of ethics in the channel of distribution.
● Explain the legal restrictions that affect the channel of distribution.
● Provide examples of technological advances that are impacting the ways in which
products are distributed

Distribution System

● On our most recent lesson we discussed the overall pattern of distribution in the
hospitality business, as well as the values added throughout the distribution channel.

● In most instances, a supply goes from its primary source through various intermediaries
to the retailer primary source goes through various intermediaries to the retailer, as
Figure illustrates. As shown by the broken line, however the possibility of a retailer’s
bypassing the intermediaries and dealing directly with the primary source also exists
SOURCES
● growers
● manufacturers
● processors

INTERMEDIARIES
(middleman)
RETAILERS
(hospitality retailers)
CONSUMERS

Major forces affecting the Distribution System

● Economic Force
● Political Forces
● Ethical Force
● Legal Force
● Technological Force
● Other Force

● EconomicForce
- SupplyandDemand
- As the supply and demand for commodities change, the price of the commodity
will also change. The fundamental rule is that commodity prices will rise with
increasing demand. Prices will also rise when there is a fall in the overall supply
or inventory of acommodity. On the flipside, the price of commodities will fall
when faced with decreasing demand and increasing supply.

Figure 4.2 Value related to quality, supplier services, and EP Cost

Perceived Quality + Perceived Supplier Services
Perceived Value = Perceived EP Cost

▪Sellersusuallystrivetoemphasizetheproduct’soverallvalue,valueisrelatedtoqualityofaproduct,asw
ellastothesupplierservices.So,abuyersupposedlywouldbewillingtopaymoreforaproductifthepricein
cludedadditionalsupplierservicesthatthebuyerfeltprovidedincreasedvalue.
▪TobemoreaccurateweusetermPerceivedvalueinsteadofjustcallingitvalue,sincevalueimpliesdiffer
entthingstodifferentpeople.Infigure4.2showsthatPerceivedvalueisequaltotheperceivedqualityofap
roductorservicesPlustheperceivedsupplierservicesdividedbytheperceivededible-
portion(EP)costoralsoknownasas-servedcostorusedcost.
▪Itsanequationtoemphasizethepointthatvalueisrelatedtoqualityandsupplierservices,butcontrarywi
serelatedtoEPcost.Forexample,ifthequalityandthesupplierservicesremainthesamewhileEPcostdr
op,thevalueoftheproductincreases.InOpposition,ifthequalitydecreasesandthesupplierservicesand
EPcostremainconstant,thevalueoftheproductdecreases
POLITICALFORCE

▪Referstofactorsthatimpactthedistributionchannelsinwaythataredirectlyrelatedtotheamountofinflu
encechannelmembershaveononeanother.
▪Hospitalityenterprisesexerciseconsiderablepoliticalinfluenceinlegislatures.Majorityofmembersint
hechannelsofdistributionusuallyrestricttheireffortstojoiningalocalhospitalityassociationandchamb
erofcommerce.
▪Forinstance,hospitalityassociationsincludesHotelandRestaurantAssociationofthePhilippines(HR
AP)HRAPitsanon-stock,non-
profitorganization,istheumbrellaorganizationthatspeaksforthehospitalityindustry.Createdin1951,H
RAPmembershipincludesluxury,deluxe,andstandardhotels,leadingrestaurantsandfoodgroups,sc
hoolsanduniversitiesofferinghotelandrestaurantmanagementcourses,aswellasalliedindustrypartn
ers.Thesearerepresentedbyhotelmanagers,restaurantowners,universitydeansandCEO.
▪Politicalforceneednottoberestrictedtolocal,state,andfederallegislativebodies.Manypoliticalrealitie
sorunwrittenlawscanaffectachannelmember’sbehavior

ETHICAL FORCE
▪Theeffectsonbusinesses,offairandhonestbusinesspractices,andotherrelevantformsofcompetitive
pressure.
▪Forinstance,abeveragesupplieroffersabuyerafreecaseofwineforthebuyer’spersonaluse.Whatsho
uldthebuyerdo?Acceptthewine?Rejectit?Offertobuyitatareducedprice?
Somemayacceptitwhileothersmaydeclinethegift.
▪Severaloperatorshaverecommendedthatquestionableethicsarenecessaryspeedbumpsinthecha
nnelofdistribution.Thepressureonsalespersonandbuyerstoconsummatewithattractivedealspractic
allycompelsmemberstobehaveunethicallyattimes.Thefactisthatthroughtheyears,asystemillegalre
batesandkickbackshasgrownupamongsometraditionaloperators,andthesemaybethoughtofasanu
nethicalforcebearingonthechannels.

LEGALFORCE
▪Legislativeinfluenceonthedistributionchannelsestablishingcertainrulesofconduct.Enforcedbyloca
l,state,and/orfederalgovernmen.
▪Channelmembersmustacceptavarietyofrulesandregulationsiftheywanttoengageinbuyingandselli
ng.

Republic Act No. 7394 April 13, 1992 THE CONSUMER ACT OF THE PHILIPPINES

▪ItisthepolicyoftheStatetoprotecttheinterestoftheconsumer,promotehisgeneralwelfareandtoestabli
shstandardsofconductforbusinessandindustry
.▪ThisConsumerWelfareAct.RA7394aimstoprotectconsumersagainsthazardstohealthandsafety,p
rotectconsumersagainstdeceptive,unfairandunconscionablesalesactsandpractices,provideinform
ationandeducationtofacilitatesoundchoiceandtheproperexerciseofrightsbytheconsumers,provide
adequaterightsandmeansofredress,andinvolveconsumerrepresentativesintheformulationofsocial
andeconomicpolicies

The Republic Act No. 10611 “Food Safety Act of 2013”

▪ It strengthens food safety regulatory system in our country. The law provides protection to
consumers so they will have access to local foods and food products that have undergone
thorough and rigid inspection

Contract

▪ Part of the legal force is the contract which is the voluntary and lawful agreement by
competent parties for a good consideration, to do or not to do a specific thing.

▪ A completed purchase order, once accepted by a supplier becomes a legally enforceable

contract. If buyers renege on their promises., they may be sued by the suppliers and forced to
perform according on the terms stablished in their contracts.

Agency Law

▪ Legal force also have the agency law which allows employees when acting in
their official capacity, to sign contracts for their companies.

▪ In general, buyers have the authority as their company’s agents to legally bind their companies
to purchase order contracts. Hospitality companies usually limit a buyer’s authority by setting a
limit on the purchases he or she can contract for. If such limitation exists, however salesperson
and their companies must be notified otherwise they can rightfully assume that the buyer has
unlimited authority.

Title of Goods
▪ It is important for buyers to know the precise moment when the title to any product
passes to their firm because, at the point of title transfer, the buyer’s firm assumes
responsibility for the item.

▪ Title of goods represents ownership of property which is free of claims against it, and therefore
can be sold , transferred, or put up a security

Consignment Sales
▪ is an Arrangement in which goods are left in the possession of an authorized third
party to sell. Typically, the consignor receives a percentage of the revenue from the
sale in the form of commission.
▪ Allows the Buyer to pay a vendor for a purchase after the buyer’s company has sold the
merchandise to its customers

Warranties and Guarantees

● Warranty
• It implies a Formal assurance given to the customer about the state of the product are true and
declares that the manufacturer will be responsible for the repair or replacement, if found
defective

● Guarantee
▪ The guarantee serves as a promise made by the manufacturer, to the buyer, that in case the
product below quality, it will be repaired, replaced or the money deposited will be refunded.

Patents
▪ is a right Granted to an inventor by the federal government that permits the inventor to exclude
others from making, selling or using the invention for a period of time.
▪ The patent System is designed to encourage inventions that are unique and useful to society.
Congress was given the power to grant patents in the Constitution, and federal statutes and
rules govern patents.
▪ Retailers must be careful to avoid illegally adopting someone else’s patented procedures
▪ For instance, you cannot substitute Pepsi for Coke products

Rebates
▪referstoasumofmoneythatiscreditedorreturnedtoacustomerinthecontextofatransaction.
▪Arebatemayoffercashbackonthepurchaseofaconsumergoodorservice,eitherasaflat-
raterebate,whichisautomaticallysubtractedfromthepurchaseprice,orconditionalrebates,whichareo
nlyvalidundercertainconditions,suchas"buyone,getonefree

TECHNOLOGICALFORCE

▪Thewayinwhichinventionsandotherinnovationsinfluencethedistributionsystem.
1.GeneticallyAlteredFood
▪Food Modifiedby Bioengineering Techniques.Typically Soneto Enhance
Flavor,appearance,and/uniformity of size,and increase shelf life.
▪Exampletomatoesthathavebeengeneticallyengineeredcanremainonthevinemuchlongerthanthos
eproducedthetraditionalway.
2.ProductPreservation
▪referstoproduction,storageand/
ordeliveryproceduresavendorusetoensureconsistentandreliableproductquality.

3.ProductivityPosilac-
supplementofnaturallyoccurringcowhormone.BST,thatwhenadministeredtocowsallowsthemtopro
ducemoremilk.

4.Value-AddedFoods
▪arerawagriculturalproductsthathavebeenmodifiedorenhancedtohaveahighermarketvalueand/
oralongershelflife
.▪Someexamplesincludefruitsmadeintopiesorjams,meatsmadeintojerky,andtomatoesandpeppers
madeintosalsa.
▪Productprocessingfromtheprimarysourcetoretailerlevelhasreachedhigherandhigherlevelsofsophi
stication.
▪Therewehavethevalue-
addedfoodinwhichHospitalityoperatorsusuallybuytosavemoneyinthelongrunthoughitisgenerallytr
uethatitismuchmoreexpensivethanitsrawcounterpart,thepotentialsavingsinlaborpreparationtime,e
nergyusage,andstoringandhandlingchores.ItmayreducetheEPcosttothepointatwhichoverallprofit
marginwillbeattractive

▪Transportation
▪Constitutes A Form Of Product Preservation.
▪Todaybuyerscanexpectfaster,larger,andmorepredictabledeliverieswhichoftenreducethenumbero
fpurchaseordersbuyersmustmake.Italsoincreaseddependabilityoftransportationallowsthebuyerco
mpanies,inturntofulfillmorereadilythepromisestheymaketotheircustomers.

•Packaging
-It directly affects the quality, shelf life, and convenience of the food and beverage products.-
Controlled Atmosphere Packaging (CAP)
–removing existing gases by creating vacuum and introducing a specially formulated mixture of
gases intended to enhance the product’s shelf life.

-Aseptic Pack -Form of controlled atmosphere packaging (CAP). Sterile foods placed in an air-
tight, sterilized package. Example : juices

Other Forces
•Are Labeled As Intangible Forces.
•Forexample,suppliersadvertisingandpromotion,pricingpolicy,credittermsandthelikethatcertainlya
ffectthechannelofdistribution
.•Buyersmustcontinuallygiveattentiontotheseintangibleforcesbecausebothprimarysourcesandmid
dlemenusethemtodifferentiatetheproductsandservicestheysell.Thebuyermustbearationalbuyer.
•Buyersmustacceptallforcesaspartofthegametheyhaveelectedtoplay.Inthefinalanalysis,thoughthe
dynamicmarketforcesthataremoredirectlyaffecttheavailabilityofproductsandtheircostmustbereorg
anizedandusedtoshapetheoverallpurchasingstrategy

Security in the Purchasing Functions

Learning Objectives :
After the Discussion, you should be able to:
▪ Describe the Security problems associated with the purchasing function.
▪ Identify methods used to prevent security problems related to purchasing.
▪ Create A process to reduce theft and pilferage in a hospitality operation.

Purchasing Department

Security Problems
▪ Kickbacks
▪ Invoice Scams
▪ Supplier and Receiver Error
▪ Inventory Theft
▪ Inventory Padding
▪ Inventory Substitutions
▪ Telephone and Email sales scams
▪ Inability to Segregate Operating Activities
▪ Suspicious Behavior

▪ INVOICE SCAMS
▪ Using fraudulent invoices to steal from a company.
▪ Invoice scams Often target small to medium businesses and occur when criminals change the
bank account details on an invoice.
▪ Learn the benefits of teaching employees To recognize invoice scams, and the importance of
confirming the payment details on invoices are correct.

▪ Supplier and Receiver Error

1. Losing credit for container deposit or returned merchandise
2.Receiving substitute item of a slightly lower quality than that ordered and failing to issue a
request for credit memo .
3.Receiving the wrong items unintentionally
4.Weighting items with an inaccurate scale,

▪ Inventory Theft
▪ Inventory Shrinkage is the excess amount of inventory listed in the accounting records, but
which no longer exists in the actual inventory.
▪ The most common type of inventory shrinkage is pilferage by employees.

▪Inventory Padding
▪ Reporting a false inventory amount by indicating that there is more inventory on hand.
▪ A Fraud that is usually committed to make the actual cost of food sold appear to be less than it
is.

▪ Inventory Substitution
▪ Occurs when someone takes a product and leaves behind a different one.
▪ Typically done by persons who steal a high-quality item and substitute a low-quality one in its
place

● Sales Scams

Telephone Scam
▪ Telephone Scammers try to steal your money or personal information.
▪ Scams May come through phone calls from real people, robocalls, or text messages. Callers
often make false promises, such as opportunities to buy products, invest your money, or receive
free product trials. They may also offer you money through free grants and lotteries. Some
scammers may call with threats of jail or lawsuits if you don’t pay them.

E- mail Scams
▪ Some business scams come by letter or email. These documents may contain what looks like
a simple call to action without any obvious commitment- for example, a request for the victim to
check that their details are correct, then sign and return. On closer inspection, the document
turns out to be a long- term and/or expensive contract.

▪ Inability to Segregate Operating Activities

▪ Preferably, Hospitality operation separates the buying, receiving, storing and payments
procedures. They designate a separate personnel to do the certain task.
▪ Buyers who are Also receiver of the deliveries are common in the hospitality industry usually
because:
1.They are The only one who can recognize the various product quality standards
2. Buyer must Do other things to justify time spent on the job.
3.Management just cannot afford to hire separate receiver

▪ Suspicious Behavior
✓Unduly friendly with suppliers, salesperson or drivers
✓Hang around storage areas for no reason
✓Needlessly handle keys or locks
✓Make too many trips to the garbage area, bathroom, locker room, or parking lot
✓Requisition abnormally large amounts of supplies
✓Frequent trips to the storage areas for no apparent good reason
✓Have relatives working for the suppliers
✓Stray from their assigned workstations too frequently
✓Are seen passing packages to guests
✓Are seen stuffing packages in a public area
✓Permit drivers to loiter in unauthorized areas
✓have visitors on the work site

Preventing Security Problems

3 Main Steps to Prevent Security Breaches:
1. Select honest suppliers
2. Employ honest employees
3. Design the physical facilities with security conditions

Basic weapons to fight against crime :

✓Background Check
✓Integrity Testing
✓Reference Checks

Steps to prevent theft and pilferage :

1.Document cash paid-outs carefully.
2.Double check the details of invoice before the payment.
3.Verify all invoices for payment and forward them to the central accounting office.
4.Sort out paperwork on all completed transactions.
5.Conduct a random audit.
▪ The independent auditor should :
1. Analyze invoices and payment checks
2.Check the receiving routine and equipment
3.Inspect the storage facilities (physical inventory )
4.Check receiving sheets and stock requisitions
5.Check consumption against reported units of sales
6.Audit the coupons if applicable
6. Hospitality operators hire spotters or shoppers.
7. Related to surprise audit is the use of integrity or personality tests and drug tests.
8. Operators resort to a fidelity bonding company .
9. The manager might consider investing in a trash compactor.
10. Operators should allocate doors to receive deliveries.
11. Employee's parking lot should not be close to the establishment.
12. Employee locker rooms and restrooms should be within a reasonable distance .
13. The manager should not allow supplier to loiter in unauthorized areas.
14. The manager should not rush receivers.
15. The operator should not let anyone loiter around the establishment.
16. Owners should invest in some cost- effective physical barriers.
▪ Heavy duty locks
▪ Adequate lightning in the storage area
▪ closed–circuit television
▪Uniformed guards
▪See through screen doors
▪ Alarm system
17. Assign certain personnel to do separate activities
18. Compare AP price of the current supplier from the other suppliers for the same type of
merchandise.
19. Avoid to hire employees who have relatives working from suppliers.
20. Check the bills carefully.
21. Manager should take out of its shipping container before storing it.
22. The manager should be leery of putting cash deposits.
23. Become a house account for one or more suppliers.
24. Develop a bookkeeping procedures.
25. Manager should not rush into purchasing products.
26. Develop an approved- supplier list.
27. Avoid purchasing merchandise in small, single packages.
28. Restrict access to all high-cost products.
29. Maintain close tabs on all expensive items through out the production and service cycle.
30. Adopt technology available for theoretical-inventory value.
▪Critical–item Inventory
▪Reconciling the critical item inventory daily usage with the daily sales recorded in the POS
system. Discrepancies between what is used and what was sold must be resolved.
31. Restrict the access of records.
32. Put additional precautions.

Who checks the checker?

▪ It Is virtually Impossible to have a complete set of checks and balances. An adequate
management information system (MIS) should help monitor the operating results in a way that
will indicate where, if at all, problems may exist in the purchasing- receiving - storage cycle.

▪ A Management information system (MIS) is a computer system consisting of hardware and

software that serves as the backbone of an organization’s operations. An MIS gathers data from
multiple online systems, analyzes the information, and reports data to aid in management
decision- making.

Purpose of MIS
▪ The Purpose of an MIS is improved decision- making, by providing up- to - date, accurate data
on a variety of organizational assets, including:
● • Financials
● •Inventory
● •Personnel
● •Project timelines
● •Manufacturing
● •Real estate
● •Marketing
● •Raw materials
● •R&D
▪The MIS collects the data, stores it, and makes it accessible to managers who want to analyze
the data by running reports

INSTPUR WEEK:9
Lesson 2 - Technology Applications in Purchasing

Learning Objectives
After the Lecture, student must be able to:
▪ Describe How technology is changing hospitality purchasing.
▪ Provide examples of how distributors utilize technology to assist in the management of their
products and to streamline their services.
▪ Explain how technologies are used by hospitality operators in the selection, procurement, and
inventory management process.

Technologies that Distributors Use

What is Customer Database ?

▪ Is the collection of information that is gathered from each person. The database may include
contact information, like the person's name, address, phone number, and e - mail address.

▪ This software is used to estimate or forecast the number and types of hospitality operations
that might or should open in a particular area, allowing the distributor to make informed
decisions regarding hiring expansion.

Why should I build a customer database?

▪ Provides an opportunity to build rapport with your customers.

▪ You can inform customers on product updates, new services, and communicate your
strategies to keep them informed.
▪ It also offers an opportunity to show your human side, interacting with your customers and
showing them that you care.

Benefits of a Customer Database

▪ Create Brand Affinity

● Develop Customer Loyalty

▪ Starbucks has two main email lists:
• The My Starbucks Rewards list is for those who are members of the program, and
• A sort of catch- all list where contacts receive Starbucks news, announcements and
promotions
▪ Each of these lists sends an automated welcome email. The list for overall news and promos
is a rather straightforward and simple email just letting people know they’re on the list.
▪ The one for Starbucks Rewards has more to the email itself as it dives into how to gain
rewards to fuel that caffeine addiction we’re so happy to give into.

● Provide Better Customer Service

● Direct Channel to Customers

Things to always remember about customers:
▪Names
▪Last Order
▪Relationship status
▪Preferences
▪Their Story
▪Their Ideas
▪Valuable Time
▪Special Occasions
▪Them Again /Follow Up

● Launching New Products

New Starbucks coffees to enjoy at - home and kick off 2020
January 15, 2020

● Starbucks Cold Brew Concentrate

● Starbucks Fresh Brew

★ Starbucks Coffee with Essential Vitamins, Starbucks Coffee with Golden Turmeric and
Starbucks Coffee with 2X the Caffeine*

Customer Relationship Marketing (CRM)

▪ CRM also referred to as relationship marketing. Forming personal alliances that will lead to the
sale and purchase of products and services.
▪ The goal is to help with improving the services provided by the company to the customer and
to increase customer satisfaction.
▪ There are many CRM software applications on the market that assist operations managers
with customer information that includes contact information, product preferences, buying habits,
and satisfaction level regarding service, just to name of a few elements.

For example :
Kim needs a new ice cream machine, so she shops around and narrows her choice to one of
two: Brand A or Brand
B. After reviewing the features and price ranges of both manufacturers, she decides on Brand
B. Kim will become a loyal customer of the brand if all her interactions with the company are
positive and pleasant.
When she contacts the manufacturer with questions if she finds the customer service to be
unresponsive, she may decide not to stay with that brand anymore. Therefore, CRM is critical to
any company: they must continuously evaluate their customer relationship processes so that the
customer is always happy and will want to return to the company for all future purchases.

● Customer Relationship Management (CRM) Excel Template

Ordering Systems
▪ Web Order Entry System

▪ Refers to a method ordering product online.

▪This method of communication permits buyers to order products directly and receive instant
feedback on pricing and availability.
▪ Minimize the ordering function and the paper trail for buyers and distributors.

● US Food Web Order Entry System

GPS
▪The Global Positioning System (GPS) is a navigation system using satellites, a receiver and
algorithms to synchronize location, velocity and time data for air, sea and land travel.
▪ All the location's drivers need to visit the following day simply typing an address or placing a
marker on a digital map (Google Map or MapQuest).

▪Fleet Management Software

▪ Software that suppliers use to schedule vehicles and other equipment usage, required repair
and maintenance work, and preventive maintenance activities.

❖ Manila GPS Trackers - GPS Tracking and Fleet Management Overview

Roadside Sensor Network

▪ Vehicles that contain a variety of onboard sensors that collect real- time data on current traffic
conditions that can be used to reroute automatically the vehicles scheduled routes. Some
networks also include safety warning features.

【 TOSHIBA 】 Wireless sensor network

▪ RFID (Radio Frequency Identification Tags)
▪ Are microchips that can be utilized in tracking everything from cars to basic inventory, and
even people.
▪ It is placed on a box,crates, pallets, and the like.
▪ They are used by the distributors and retailers to monitor automatically, inventory and storage
areas.

● How to do an inventory with RFID and Barcode

Technologies That Buyers Use

▪Fax Machine
▪ Fax (short for facsimile), sometimes called telecopying or telefax (the latter short for
telefacsimile)
▪It is the telephonic transmission of scanned printed material (both text and images), normally to
a telephone number connected to a printer or other output device.

▪ It permitted the buyers to check of on a paper those items they wanted to purchase and then
to submit this information over the telephone lines.
▪ Printed output could be stored for historical records, used to verify orders and prove they were
Sent, and establish usage patterns.
▪ Today, Fax machine are now multipurpose powerhouses that can scan, print, fax, and copy
At incredible speeds in high resolution and color.

▪ Personal Computer ( PC )
▪Is a multi- purpose computer whose size, capabilities, and price make it feasible for individual
use.
▪PC’s have made it possible for hospitality operators to:
✓analyze huge amounts of data and manage inventories more effectively.
✓Base their purchasing decisions on current data, thus minimizing the need to estimate such items as
current food costs and menu item popularity.
Point Of Sale System (POS)
▪Computerized device used to record sales revenue and maintain a considerable amount of
management information such as number of guests served, server productivity statistics,
amount of cash collected, number of each menu item sold and so forth.
▪ POS systems are mostly networked and communicate with a central computer, referred to as
a SERVER. This server track sales from the connected computers in all departments or areas
within the hospitality operation and instantly provide vital information to managers.

▪The integration of POS and inventory system provides the manager with THEORETICAL
INVENTORY USAGE figure that later be compared with actual physical counts.
▪ POS systems facilitate the ability to send purchase orders directly to the distributors, based on
sales and inventory reduction information.

▪ Bar Code Reader

▪ Bar Code Elements, ID’s and corresponding product information are based on a standard that
associates these pieces of information.
▪ The bar code also automates the counting of in- process inventories.
▪ Bar Code Reader– device used to read labels that contain bar code elements.

❖ Alibaba's Hema grocery stores are changing retail | CNBC Reports

Product Identification and Specification

▪ Product Identification/ Product Specification.

Product Specification
▪ Same as purchase specification, but it does not contain any information about supplier
services the buyer wants.
▪ These resources enable users to search products and product categories and may also
provide information about the distributors who sell them. They contain a seemingly endless
amount of information. If product is made somewhere in the world and is distributed, chances
are it can be found online.

Product Ordering
E- Procurement Application
▪ A software that allows customers to select and purchase products online.
▪ Often made available by the distributors, streamline and minimize a buyer’s ordering
procedure, thereby creating a value - added service for the buyer.

Inventory - Tracking and Storage Management

▪ Some small operators develop elaborate spreadsheets using generic spreadsheet software,
most commonly in Microsoft Excel. They list all their products in inventory and then develop
mathematical formulas to calculate costs and usage.
▪ Physical count, in - process inventories and other major variable have been entering on the
spreadsheet calculations are automatic.
▪ Large hospitality operators use off - the – shelf software packages and services that manage
inventory in a hospitality environment.
▪ These software packages can be linked to an operator’s POS system

Features :
▪ Replenishment
▪Maintaining the right amount of inventory to support service level expectations is critical.
NetSuite offers many tools to automate this process. Preferred stocking levels, lead times and
re - order points can be automatically calculated in the system, with suggestions appearing
instantly in the order items list. In our multi - location distribution requirements planning solution,
more advanced parameters help you balance demand and supply across the entire
organization.
▪ Key Capabilities:
• Automatically calculate key settings
•View and manage inventory across your organization
•Multi- location planning

▪ Cycle Counting
▪ No matter how good your replenishment, tracking and management systems are, you
need to do regular checks of actual inventory levels for key items. Keeping an accurate
item count can help reduce required safety stock and lower your overhead costs.
NetSuite’s Inventory Count feature improves inventory tracking and gives you more
control over your assets. With this feature, you can categorize inventory based on
volume of transactions and/or value. You can also enter regular periodic counts of on -
hand item quantities to maintain inventory accuracy.
▪ Key Capabilities:
• Increased accuracy of inventory levels
• Automatically prompts for items to be counted
• Categorize your items based on volumes / value

▪ Traceability
▪ Companies require the ability to trace products from receipt back through their entire lifecycle.
With NetSuite, you can define inventory and assembly items as being lot or serial tracked. The
system will enforce the capture and identification of all related information on each transaction
to provide full traceability. The inventory detail screen lets you view your inventory by lot or
serial number and drill - down capabilities enable quick access to all related transactions.
▪ Key Capabilities:
• Lot Tracking (multiple quantities)
• Serial Tracking (quantity of 1)
• Enforce full traceability

Warehousing
▪NetSuite offers unique capabilities when it comes to tracking inventory across multiple
locations. The physical locations themselves can be hierarchical, allowing the creation of sub -
locations. These locations can then be broken down into bins to provide a more finite level of
tracking. Once the locations and bins are defined, any item can be stored in any location, which
gives you a holistic view of inventory levels across all physical locations.
▪ Key Capabilities:
• Multi - location tracking
• Hierarchical location definitions
•Bin tracking