LESSON 3

PURCHASING

CONTENTS

3.0 Aims and Objectives

3.1 Introduction
3.2 The Main Duties of the Purchasing Manager
3.3 The Purchasing Procedure
3.4 The Selection of Supplier
3.4.1 Price Performance
3.4.2 Quality Performance
3.4.3 Delivery Performance
3.5 Aids to Purchasing
3.6 The Purchasing of Foods
3.6.1 Purchasing by Contract
3.6.2 Purchasing by Daily Market List
3.6.3 Purchasing by Weekly / Fortnightly Quotations Lists
3.7 Purchasing by Cash and Carry
3.7.1 Advantages of Buying by Cash and Carry
3.7.2 Disadvantages of Buying by Cash and Carry
3.8 Purchasing by Paid Reserve
3.9 Total Supply
3.10 Cost Plus
3.11 Purchase Specification for Food
3.11.1 Standard Form of Writing Purchase Specification
3.12 The Purchase of Beverages
3.12.1 Purchase Specification for Beverages
3.13 Let Us Sum Up
3.14 Lesson End Activity
3.15 Key Words
3.16 Suggested Questions
3.17 References
Food and Beverage 3.0 AIMS AND OBJECTIVES
Management
At the end of this lesson, students should be able to
demonstrate appropriate skills, and show an understanding of the
following:
 Main Duties of Purchasing Manager.
 Purchasing Procedure.
 Purchase specification for food.
3.1 INTRODUCTION
Purchasing can be defined as ‘a function concerned with the
search, selection, purchase receipt, storage and final use of a
commodity in accordance with the catering policy of an
establishment’. This suggest that the person employed to purchase
food and beverages for an establishment will be responsible for not
only purchasing, but also for the receiving, storage and issuing of all
commodities as well as being involved with the purpose for which
items are purchased and the final use of them.
With no specifications for commodities there would be neither
quality standards nor quantity standards resulting in over-ordering or
under-ordering as yields for items would be indeterminable. The
receiving department would only be able to check on quantity and
not on quality. The work in the stores and preparation departments
would be difficult with the quality of produce varying greatly. Finally it
would be difficult to measure satisfactorily the performance of
departments if they were continually being provided with non-
standardized commodity items.The provision of food and beverage
away from home forms a substantial part of the activities of the hotel
and catering industry. Like the industry of which it is a part, food and
beverage operations are characterized by their diversity. Outlets
include private and public sector establishments and range from
small privately owned concerns to large international organizations
and from prison catering to catering in the most luxurious hotels.
3.2 THE MAIN DUTIES OF THE PURCHASING MANAGER
Quite naturally the duties will vary between establishments,
but they will usually include the following:
(1) Responsibility for the management of the purchasing office,
the receiving, storage and cellar areas.
(2) The purchasing of all commodities.
(3) Ensuring continuity of supply of all items to user departments.
(4) Finding cheaper and more efficient sources of supply.
(5) Keeping up to date with all the markets being dealt with and
evaluating new products.
(6) Research into products, markets, price trends, etc.
(7) Coordinating with production department to standardize
commodities and therefore reduce stock levels.
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 (8) Liaising with production, control, accounts and marketing Purchasing
departments.
(9) Reporting to senior management.

3.3 THE PURCHASING PROCEDURE

The procedure can be broken down into five steps:
(1) A question form from an authorized member of staff, for example,
head chef, restaurant manager or from the storekeeper,
informing the purchasing manager of low stock levels of items.
(2) The selection of the source of supply.
(3) Entering into a contact with the supplier by phone or in writing
and negotiating the price to be paid and a satisfactory delivery
performance with particular reference to the time, date, and the
place of delivery.
(4) The acceptance of goods ordered and the adjustment of any
discrepancies in quality or quantity of goods delivered.
(5) The transfer of commodities to the ordering department or to the
stores or cellar.
The procedure for an establishment should reflect the type of
establishment and the market it is in, for example, a hospital or first
class restaurant, the location of the establishment in relation to that
of its suppliers, the size of storage facilities available, the forecast of
future requirements, the shelf life of the food or beverage item, and
most importantly, the establishment’s or company’s purchasing
power.

3.4 THE SELECTION OF SUPPLIER

A supplier can be easily selected from among those that the
buyer has previously purchased from in that the quality of goods
received, price and service offered would be known. When seeking a
new supplier caution must be exercised and detailed enquiries made
to cover the following points.
(1) Full details of the firm and the range of items they are selling.
(2) Copies of recent prices list.
(3) Details of trading terms.
(4) Details of other customers.
(5) Samples of products.
Ideally, a visit should be made to any potential supplier to
see the size of the company, the full range of products, and the size
of processing and storage facilities, the size of their transport fleet
and to meet members of the management team. Having selected
and placed them on an approved suppliers list and after having 27
purchased from them, it is necessary to periodically evaluate their
Food and Beverage performance using a rating system. There are three main
Management performance criteria which are normally used in a rating system.
They are as follows.
(1) Price performance
(2) Quality performance
(3) Delivery performance

3.4.1 Price Performance

The cheapest item is not necessarily the best buy, often a
cheap item is of a low quality. One supplier may specialize in lower
quality goods at a lower price while another may specialized in high
quality goods at higher prices. Both suppliers are specialists and
both may supply the same buyer with similar goods but of different
qualities. Which supplier the buyer chooses depends on the quality
required; the corresponding price will then have to be paid. Price,
however, is not always related to quality. The purchasing manager
needs to guard against this.
The lower the price coupled with an above average quality of
goods the higher is the price performance rating.

3.4.2 Quality Performance

This is the ability of a supplier to supply the buyer
consistently with goods of the desired quality as laid down in the
purchasing specification. Consistency in meeting the purchasing
specification would give a high quality performance rating.

3.4.3 Delivery Performance

This is the ability of the supplier to meet agreed delivery
times and dates with the buyer. Prompt deliveries mean that the
goods will be delivered when required and when staff is available to
check them efficiently for quantity and quality. Late deliveries will
often add to the pressure of work at the receiving department, when
other goods are also being checked in, and to possible complications
in the production department.
The nearer the scheduled delivery date and time, the higher
the delivery performance rating. The rating of supplier using these
three criteria provides a guide to the buyer, in an objective way, for
negotiating further purchasing agreements between suppliers of
similar commodities.
3.5 AIDS TO PURCHASING
(1) The supply trade press: Trade journals are published weekly
and cover most of the commodities to be purchased. They give
valuable current general information and indications of future
trends.
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(2) The commodity trade organizations: These organizations will Purchasing
readily provide information to caterers about a particular
commodity, such as the types available, how they should be
stored and names of local and national suppliers.
(3) The catering trade press: These papers and journals contain
item of commodity news and information of present and future
prices.
(4) The national press: Leading newspapers publish commodity
market news with details of the range of price being paid in
certain markets.
(5) Government publications: These are available from agricultural
departments giving a variety of information such as a national
food survey response, availability of specific commodities and
current food legislation.
(6) Published price indexes: These are produced by
government departments, by consumer associations and by trade
journals. These indexes start from a particular date in time listing
large groups of commodities and monitor the change in price from
that initial period, also recording changes on a yearly and monthly
basis. This is of great significance to the caterer as it provides
information of general and specific price trends and a comparison
against the prices that he has paid for commodities recently.

3.6 THE PURCHASING OF FOODS

When purchasing food, it is necessary to consider what the
true cost of the item will be in relation to what the printed price list
from the supplier states it to be. The true cost calculation has to take
into account the invoice price less any discounts claimable; storage
cost of the item and the production costs. The calculation of true cost
may well indicate that it is cheaper to buy in five case lost as against
a fifty case lot at a lower price, or that the production costs involved
with an item make it too expensive to buy it in that state, and that it
may be cheaper in the long run to buy the item already processed by
a manufacturer.
There are seven main buying methods that may be used for
purchasing foods. They are,
(1) Purchasing by contract
(2) Purchasing by daily market list
(3) Purchasing by weekly / fortnightly quotation list
(4) Purchasing by cash and carry
(5) Purchasing by paid reserve
(6) Total supply
(7) Cost plus
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3.6.1 Purchasing by Contract

Food and Beverage There are two common types of contract used:
Management
(1) The specific period contract; which aims at determining
the source of supply and the price of goods for a stated
period often of three or six months. This reduces the time
and labour of negotiating and ordering to a minimum, plus
it has the added advantage of assisting with budgeting
and pricing, when the price of items are fixed for a period
of time. Items with a fairly stable price, such as milk,
cream, bread, etc., can be contracted in this way.
(2) The quantity contract which aims at ensuring continuity of
supply of a given quantity of an essential item at an
agreed price over a particular trading period. The
purchase of frozen fruit and vegetables for use in a
banqueting or a summer season are typical examples
when the supply could be affected by the weather
conditions with subsequent price fluctuations and where a
quantity contract is advisable used.

3.6.2 Purchasing by Daily Market List

This method is used when purchasing perishable foods on a
daily basis and when it is possible to have two or more approved
suppliers.
A senior member of the kitchen staff would take a quick stock
take of the foods left after each lunch service; pass this information
to the head chef who would complete the daily market list, by
entering the quantities of all items he / she requires to be purchased
for the next day’s business in the wanted column. The list would then
be processed by a member of staff in the purchasing office.
Each approved supplier would be telephoned and asked to
quote a price for the each of the items required. The price quoted
would be based on the quality of the item required, the quantity
required and the esteem placed by the supplier to supply a particular
establishment. The prices quotes would be entered on to the daily
market list and then decision made by the purchasing manager as to
where to place the order for each item. This may result in two or
three suppliers each receiving part of the total order.

3.6.3 Purchasing by Weekly / Fortnightly Quotations Lists

This method is used to purchase grocery item where a
delivery of once a week or fortnight is adequate. The method is
similar to that described when purchasing perishable foods by daily
market list.
The head storekeeper would complete the stock in hand
column on the master list and also fill in the wanted column for each
item, based on the normal order quantity and the volume of the
business expected. Meanwhile the purchasing office would send out
to each grocery supplier a copy of the list on which suppliers should
30 quote their prices. On receipt of quotations these would be entered
on to a master quotation list and a decision then made about where Purchasing
the orders for each item are to be placed. This would be based on
the requirements in the next week / fortnight, the prices quoted and
the storage space available which may allow for special offers for
large quantities purchased to be considered. It should be noted here
that the specifications for items will usually be just by brand name of
the product together with the size, weight and count. This is because
the buying power of most catering companies is not large enough to
interest food manufacturing companies to process foods to their
specific requirements.
3.7 PURCHASING BY CASH AND CARRY
This method is of particular interest to the medium and small
establishments whose orders are often not large enough to be able
to get regular deliveries from wholesalers and food manufacturers.
Cash and Carry food warehouse are situated in all towns and
resemble in layout and operation that of very large food
supermarkets.
3.7.1 Advantages of Buying by Cash and Carry
(1) The warehouse is situated near to most catering establishments
and their hours of business are usually longer than those of most
food wholesalers.
(2) Small or large quantities may be purchased at competitive prices.
(3) Customers are able to see what they are buying, as against
buying just from a price list or catalogue. They may also see
special displays of a particular food company’s products and be
able to taste them.
(4) Customers may use the warehouse as often as they like and in
doing so keep the level of stocks held low. Also, when there is a
sudden increase in their business it is easy for caterers to
replace their stock.

3.7.2 Disadvantages of Buying by Cash and Carry

(1) Caterers have to provide their own staff and transport to collect
the items from the warehouse.
(2) Caterers have to pay cash for the items they purchase.

3.8 PURCHASING BY PAID RESERVE

This method is used when it is necessary to ensure the
continuity of supply of an item for the menu which is of particular
importance to a restaurant. Caterers are buying in advance a large
quantity of a commodity to cover the needs for several months
ahead, and requisitioning their weekly requirements from suppliers,
who would hold the stock. Examples of products which are
purchased by this method are frozen jumbo size pacific prawns and
frozen fillet of beef. 31
Food and Beverage 3.9 TOTAL SUPPLY
Management
This method is relatively new. It is a method offered only by a
few major suppliers who are able to offer a full supply service of all
commodities to caterers. This has the advantages of only having to
negotiate with the supplier; a reduced volume of paperwork; and far
fewer deliveries. The main disadvantage is that of being tied to one
major supplier, whose prices may not be as competitive as when
using several suppliers and whose range of certain commodities
may be limited.

3.10 COST PLUS

This is a method used frequently in the welfare sector of the
industry. The establishment agrees to pay an approved supplier
exactly the same price that the supplier paid for the commodities
plus an agreed percentage, often 10-12 ½ per cent. This percentage
would include the cost of handling, delivery charges, and a profit
element for the supplier.
3.11 PURCHASE SPECIFICATION FOR FOOD
A purchase specification is a concise description of the
quality, size and weight required for a particular item. Each
specification would be particular to an establishment and would have
been determined by members of the management team by reference
to the catering policy, the menu requirements and its price range.
Copies of the specifications should be kept by the relevant members
of the management; the goods received clerk and the food control
clerks and sent to all suppliers on the approved suppliers list.
The reasons for preparing specifications are:
(1) It establishes a buying standard of commodity for an
establishment so that a standard product is available for the
kitchen and restaurant to prepare for the customer.
(2) It informs the supplier in writing precisely what is required and it
assists the supplier in being competitive with pricing.
(3) It provides detailed information to the goods received clerk and
the store man as to the standard of the foods to accept.
(4) It makes staff aware of the differences that can occur in produce,
for example, size, weight, quality, quantity, etc.,

3.11.1 Standard Form Of Writing Purchase Specification

1. Definition of the item: Care must be exercised here that the
common catering term used by the buyer means exactly the
same thing to the supplier.
2. Grade or brand name: for example, apples grade extra class;
Lea and Perrins ‘Worcester sauce.
3. Weight, size or count, for example pounds, hundred weights,
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kilos, etc; A 2 ½, A 10s, etc; lemons 120s, pineapples 12s etc.
4. Unit against which prices should be quoted, for example, per Purchasing
pound, per case, etc.
5. Special notes for the commodity, for example, for meat it could
contain details of the preparation of a particular cut of meat or
details of special packaging requirements.

3.12 THE PURCHASE OF BEVERAGES

The purchase of alcoholic and non alcoholic beverages, like
that of foodstuffs, has the aim to purchase the very best quality of
items, at the lowest price, for a specific purpose. The purchasing of
beverages should be undertaken by the purchasing manager
together with such experts as the food and beverage manager, the
head cellar man and the head wine waiter. As beverages will
frequently contribute more to profit than foods, and as they require
considerably fewer staff to process them into a finished product for
the customer, it is essential that adequate attention is given to this
area.
The following points are generally noticeable while
purchasing of beverages:
(1) There are fewer and often restricted sources of supply.
(2) The high value of beverage purchase.
(3) That free advice and assistance with purchasing are given by
the wine and spirit trade.
(4) That quality factor is difficult to evaluate and require special
training to identify them. This means setting up or attending
tasting sessions several times a year.
(5) There are far fewer standard purchasing units than for food.
(6) There is an established standard of product. Many items like
minerals, spirit, etc, will have a standard that will not vary
over the years and items such as a well known wine from an
established shipper will be of a standard for a specific year,
whereas with food items there may be several grades and a
wide range of ungraded items available.
(7) The prices of alcoholic beverages do not fluctuate to the
extent that food prices do.
There are five main sources of supply that can be used for
purchasing beverages and it is most likely that a purchasing
manager would use at least two of them. The methods used for
purchasing would vary between establishments because of such
criteria as the type of customer; the type, size and location of the
establishment; the storage facilities available; and the purchasing
power of the buyer.
(1) Wine Shippers: These are firms that purchase wine in the
country of origin and ship it to whatever country it is to be sold in.
Usually shippers are concerned with the wine from a particular 33
region only. This means that the range of products that they are
Food and Beverage to sell is limited. Further to this problem, shippers are unlikely to
Management want to deal with customers other than prestigious
establishments or the very large companies. The products of
wine shippers are usually bought form a wine and spirit
wholesaler.
(2) Wholesaler: These are usually the subsidiary wine companies
of the large breweries or independent wine companies. The
brewery companies sell their own label products as a first
preference to other proprietary products. Wholesalers offer a
very wide range of all beverages as well as a regular delivery
service to the caterer. In addition, they can assist the caterer with
promotional literature for both bar and restaurant sales. As the
beverage supply industry is highly competitive wholesalers will
also offer the following services to selected clients.
 Suspected Department Suppliers: Would invoice
caterers for their initial cellar stock purchases, but would
request payment only on subsequent purchases, the first
purchase invoice being suspended’ until the account is
closed with the supplier. This has the advantage for
caterers of a free loan to their business, but the drawback
that they would be required is to make specific beverage
purchases from this one supplier only.
 Cellar inventory and suspended debt account: Is similar
to 1 above. The supplier will stock the caterers’ cellar to an
agreed level, for a specific period of time, free of charge,
the opening stock levels being recorded by the supplier and
the caterer. A stock take is made by both parties at the end
of agreed period and all items used are then charged for.
The supplier then makes a delivery to replenish the stock to
the levels first agreed upon. The draw back to this method
for the caterer is the tying of purchases to this one supplier,
while the advantage is that the caterer only has to pay for
what has been sold to customers and then only some
several weeks after, during which time the caterer will have
been able to use the money taken in the business.
 Publicity material: Wholesalers will usually assist in the
printing of wine lists and publicity material for promotional
events.
(3) Beverage manufacturers: This method of purchasing is used
when the purchasing manager is able to buy in sufficiently large
quantities to deal direct with the manufacturer. This is the most
commonly practiced for the purchasing of the main spirits,
minerals and beers. The advantage to the caterer is the lower
price that would have to be paid as compared to purchasing
through a wholesaler.
(4) Cash and Carry: This method was discussed earlier in the
chapter in relation to food. Cash and carry businesses offer a
very limited range of spirits, wines, beers, etc. at very keen
prices, but no other service. They are useful in emergencies or
when special offers are being made.
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(5) Auctions: This is a method of purchasing that has limitations in Purchasing
that it usually is only for the sale of wines. It can be a useful way
of buying end of bin’ wines in small quantities from a private
home or from another hotel or catering establishment. As long as
purchasing managers know their wines thoroughly this can be
useful source for wines for a special occasion. It would be
unlikely that the quantity offered would justify this method of
purchasing of wines for inclusion in a standard wine list.

3.12.1 Purchase Specification for Beverages

The purpose of purchase specification is to set down in
writing the standard of a product for a specific use by an
establishment. This is then used by the purchasing manager to
inform suppliers exactly what is required and is vital information
when negotiating prices. It is also invaluable to the receiving and
cellar department staff to know what to accept when deliveries are
being made.
Unlike purchasing specifications for food, specifications for
beverages are much simpler and to understand. The reason is that
beverages are sold and purchased by the brand name label of the
product, each having a consistent quality and quantity standard of
content for each selling unit, e.g. barrels, kegs, bottles, splits etc. As
the specification is brief it can always be written in full on a purchase
order. Specification for wines also includes the details of vintage and
shipper.
It should be particularly noted that as the quality, consistency
and quantity are virtually guaranteed the price to be paid for the
product is very important as it is the one factor that is not constant. It
is for this reason that close attention is given by the purchaser to
offer by suppliers of special discounts for, say, five, ten, or twenty
case lots.

CHECK YOUR PROGRESS

1. What do you mean by Purchasing?

2. ................. is the ability of a supplier to supply the buyer
consequently with goods of the desired quality as laid down the
purchasing specification.
3. ………….. is the ability of the supplier to meet agreed delivery
times and dates with the buyer.
4. List any four buying methods.
5. ………… method is a particular interest to the medium and small
establishments whose orders are often not large enough to be
able to get regular deliveries from wholesalers and food
manufacturers.
6. What are the disadvantages of buying by cash and carry? 35
Food and Beverage 7. What do you mean by purchase specification?
Management
8. ………….. method is used when it is necessary to ensure the
continuity of supply of an item for the menu which is of particular
importance to a restaurant.

3.13 LET US SUM UP

Purchasing can be defined as ‘a function concerned with the
search, selection, purchase receipt, storage and final use of a
commodity in accordance with the catering policy of an
establishment’.
The purchase of alcoholic and non alcoholic beverages, like
that of foodstuffs, has the aim to purchase the very best quality of
items, at the lowest price, for a specific purpose.
The purpose of purchase specification is to set down in
writing the standard of a product for a specific use by an
establishment.
3.14 LESSON END ACTIVITY
1. Make your own list on which criteria the supplier will be selected.
2. Imagine as you are working as a purchase manager in five star
hotel, what will be your role in controlling purchase department?
3.15 KEY WORDS

Fluctuations To change Irregularity.

Reconciliation Settlement / Resolution / Compromise

Merchandise The manufactured goods brought and sold in

any business

3.16 SUGGESTED QUESTIONS

1. List out the main duties of the purchasing manager.
2. Explain the purchasing procedure in detail.
3. Describe about the purchasing of foods.
4. What do you mean by purchasing by cash and carry? Explain its
advantages and disadvantages.
5. Explain in detail the purchase of beverage.

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 CHECK YOUR PROGRESS - ANSWER Purchasing

1. Purchasing can be defined as ‘a function concerned with the

search, selection, purchase receipt, storage and final use of a
commodity in accordance with the catering policy of an
establishment’
2. Quality performance
3. Delivery performance
4. (i) Purchasing by contract (ii) Purchasing by daily market list
(iii) Purchasing by weekly / fortnightly quotation list
(iv) Purchasing by cash and carry
5. (i) Caterers have to provide their own staff and transport to collect
the items from the warehouse. (ii) Caterers have to pay cash for
the items they purchase.
6. A purchase specification is a consice description of the quality,
size and weight required for a particular item.
7. Purchasing by paid reserve

3.17 REFERENCES
1. Coltman, M (1987), Hospitality Management Accounting, 3 rd edn.
New York; Van.

2. Cracknell, H. L., Kaufmann, R. J., Nobis, F (1988), Practical

Professional Catering. London Macmillan.

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Food and Beverage
Management

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