Food Purchasing Cost Control

In the hospitality industry, purchasing may 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 the establishment”. (Davis and Kotas, 1986:47)

Davis and Kotas (1986) suggest that purchasing is a fundamental function in the beverage control cycle. If this function is managed efficiently, then any hotel can attain quality beverage products at the minimum cost possible according to the company’s financial objectives.

The objective of beverage purchasing is to procure the best quality of items, at the lowest price for a specific purpose. It is a must to give considerable attention to the beverage cost control since beverages will normally throw in more profits than food. Fewer staff is required to process beverage into a finished item for consumption by the customers compares to food. (Davis et al, 2008)

3.2 The Purchasing Personnel

Staff members that are responsible for the beverage purchases vary depending on the type and size of the establishment. (Davis and Kotas, 1986)

The purchasing manager is responsible for the beverage purchasing function in Hotels One and Two. In Hotel-Three the purchasing manager and the food and beverage manager are responsible for the beverage purchasing function whereas in Hotel-Four the purchasing manager and the cost controller are accountable for this function. In Hotel-Two when there is a special theme night, the food and beverage manager will join the purchasing manager for such occasions.

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The purchasing function is centralised as hotel purchasing for Hotels One and Four. On the other hand the purchasing function is centralised as a group purchasing for Hotels Two and Three. It was agreed by all the interviewed personnel that the purchasing personnel have to be experienced and knowledgeable about the products that they have to order. In fact the purchasing manager in Hotel-Three has over thirty years of experience in this function. In the case of Hotel-Two it was mentioned that although experience and knowledge are vital for the purchasing function, most items in Malta are standard. Additionally it was also pointed out that the purchasing function depends on the demand of other departments. There have to be cross functional teams (that is team effort) and strong communication among all the hotel departments.

Standards for beverage purchasing are developed for all the four hotels interviewed. Quality is given primary priority in all the hotels interviewed apart from for Hotel-Two where the first preference is on the price. In the case of Hotel-One, the products have to satisfy the bar manager and afterwards the purchasing personnel will deal for the best price for the pre-established quality. They will try to obtain the best price at the best quality. In Hotel-Three the purchasing personnel will try to attain a balance between price and quality however ‘Quality is on top of the agenda.’ It is essential to consider the purchase of some of beverage items of each outlet separately. For example the wines offered at the pool bar will be at a lower quality and at a lower price when compared to the main bar. Each product can have a good quality, very good quality or best quality. The purchasing personnel have to choose the quality that is adequate for the specific outlet. In Hotel-Four both quality and price are given right of way however quality will always win. In Hotel-Two price is given precedence in the sense that, when choosing between two products with similar quality but different prices, the purchasing personnel will go for the cheaper product.

The quantities of beverages to be ordered are determined by the storekeeper with the skilled assistance of the purchasing manager using a par stock level. When required in Hotel-One the cost controller will help out to determine the quantities to be ordered. In Hotel-Three the food and beverage manager will assist when needed to determine such quantities.

3.3 The Selection of Suppliers

The suppliers selected can be either existing suppliers or potential suppliers. The advantage of the existing suppliers is that the quality of the goods received, the price and the service offered would all be already known. According to Dopsen, Hayes and Miller (2007) when dealing with new suppliers it is vital to exercise prudence and to get the subsequent information as a minimum:

Full details of the firm and the range of items it is selling;

Copies of recent price lists;

Details of trading terms;

Details of other customers they deal with;

Samples of products.

Ideally there should be a visit to any potential supplier to enhance knowledge about the size of the company; the range of the products; the size of processing and storage facilities and to meet members of the management team. All these factors facilitate a sustainable long-term business relationship. (Dopsen, Hayes and Miller, 2007)

Suppliers can be chosen on the basis of their reputation in the market, upon an investigation of a supplier and on the basis of their performance. “The best supplier is the one who provides the firm with the most efficient service with regard to quantity, quality, price and delivery performance”. (Davis and Kotas, 1986:53)

In all the hotels except for Hotel-Four there is a list of agreed suppliers from whom products are bought. Hotel-One has a list of preferred suppliers from whom the purchasing personnel will buy continually. It is a preferred suppliers’ list rather than an approved suppliers’ list. The advantage of having a preferred rather than an approved list is that if any particular supplier will give you a hard time (not reliable towards the hotel), then this supplier can be immediately replaced. Hotel-Two has an approved supplier when it comes to soft drinks and beers. When it comes to spirits, the suppliers are preferred rather than approved.

Hotel-Three has contracts with the suppliers containing pre-agreed prices and pre-agreed quality of the listed products, however if something will not vary for example the quality will deteriorate, the purchasing personnel will alter the supplier if the problems will not be tackled. Although there is a contract, it is not a fixed contact that is the hotel personnel are not obliged to buy the beverage products from the specific supplier. Hotel-Four does not have any suppliers’ list. In this hotel the suppliers are chosen according to the quality of the products, the type of brands required and the services that the supplier will offer to the hotel.

When selecting the suppliers, the criteria evaluated by Hotel-One are credit term, quality and prices. The credit term period is given top priority. According to Hotel-One it is useless to go for the best quality and the best price if the credit terms period is short. In Hotel-Two price is given top priority when selecting suppliers while quality and lead time are also analysed to make the right decision. In the other two hotels quality is the most influential factor used to determine the suppliers to be chosen for the beverage products.

Dopsen, Hayes and Miller (2007) explained that the supplier performance can be evaluated using the rating system which usually includes: price, quality and delivery performance. Potential suppliers’ performance is only evaluated by Hotel-Three. Every now and then the purchasing manager will pick some items and verify if there is a better product in the market than the one that the hotel is currently using. The purchasing manager without involving employees in operation will pick up different products and will make a blind presentation and tasting of the product. The purchasing department will decant the product that will be identifiable (delete the tag and the supplier’ name) and the food and beverage manager will rate the product using a rating sheet including quality, yields among other factors. The person rating the product will not know who the supplier is.

Although the decision taken will not be based on price, the food and beverage personnel will know the price to be able to match the product being tasted with its price accordingly. There have to be a balance between quality and price. It can be that the product quality is superior compared to the hotel standard thus the product will not be affordable. Then the rating sheet is filled out.

Hotel-One pointed out that the suppliers’ evaluation and performance is not prepared because this does not add any value on the hotel sales.

The cheapest item is not automatically the best to buy since low-cost products can lead to low quality. Normally the responsible persons go for the supplier on the basis of the quality required and then negotiate the best price for it. There is always a trade-off between quality and price.

3.4 The Purchasing Procedure

According to Dopsen, Hayes and Miller (2007) the various steps in the purchasing procedure are:

The initiation of a request to purchase beverages by an authorised employee such as the head of department or restaurant manager;

The selection of the source of supply from which the goods are to be purchased, and the price to be paid;

Entering into a contract with the supplier by telephone, electronically or in writing;

Obtaining a satisfactory delivery performance from the supplier with regard to time, date and place of delivery;

The acceptance of goods ordered and the transfer to the ordering department or to the stores.

“Purchasing is not a separate activity. What, how and when you buy must always reflect the overall goals of your establishment. Trends change – so must you, the purchaser.” (Brown, 2005:396)

Dopsen, Hayes and Miller (2007) recommend that the procedure should reflect the type of the establishment and the market where it operates. Those responsible should consider: the location of the establishment in relation to its suppliers; the size of the storage facilities of the hotel; the shelf life of the beverage product; and the company’s purchasing power. Whatever the establishment is, it is crucial to have a sound purchasing policy so that satisfactory standards will be achieved.

3.5 Purchasing Orders

In every hotel it is vital to have purchasing policies and procedures which are planned to allow business transactions to take place smoothly between supplier and receiver. Documentary evidence should confirm that the procedures are actually being followed.

In Hotel-One purchase orders are authorised by the purchasing officer and the financial controller while in Hotel-Two these are authorised by the group purchasing manager. In Hotel-Three the purchase orders are authorised by the cost controller or the general manager while in Hotel-Four these are authorised by the head of department and the latter will also communicate with the financial controller and the general manager, if deemed necessary. In all the hotels those authorising purchase orders are independent from those responsible for issuing requisitions. This prevents certain abuses that can be carried out when the same person will be responsible for both authorising purchase orders and for issuing requisitions.

In Hotel-Two the persons issuing requisitions are the head of departments or the supervisors. Then the storekeeper will deliver the items that were previously ordered and the cost controller will verify that every order is in its perspective. In Hotel-Four the purchase orders are prepared by the head of departments while for the other three hotels, the purchase orders are prepared by the purchasing manager.

Every hotel has a system of par stock level. In Hotel-One the cost controller will work to create a par stock level which will depend on the period of the year, the type of functions that the hotel has, and the type of clients that the hotel has. The aim of these par stock levels is to have some items of every stock with a limited quantity since excessive stock means cash put down the drain. Additionally useless stock will lead to negative cash flows.

In Hotel-Two it was remarked that the par stock level used is an informal one that will be adapted according to the company needs. A point to note is that in Malta, hoteliers work a lot on a last minute purchases. This can be used since distances are short and so if there is a stock item missing, you can phone the supplier and the latter will bring the item in a few hours. In Hotel-Three the cost controller is responsible to ensure that stocks in the stores are kept lowest as possible as these will represent idle money.

The information contained in the purchase orders of each hotel is nearly identical to each other. Hotels One and Three does not have the terms of payments listed in the purchase orders. The purchase order of Hotel-Three contained a disclaimer that declares that if the supplier (who will receive the purchase order) will not agree with the purchase order in terms of quantity or price or he does not have the pre-agreed brand, the supplier shall inform the purchasing manager before the delivery. In Hotel-Four the type of brand is not listed in the purchase orders.

All the hotels have sequentially pre-numbered purchase orders. Normally a copy of the purchase order is being received by the supplier. The goods received clerk/storekeeper will also receive the purchase order and the same copy will go to the cost controller who will attach it with the invoice and passes it through his system and then the cost controller will give the purchase order to the accounts clerk who will pass it through the accounting system.

On receipt of an authorised requisition form, it is vital to check the economic quantity to be purchased by checking the existing stocks and the sales volume forecast. After establishing the purchase requirements, a formal written purchase order is prepared. This serves as the basis for ordering. Written records lessen misunderstandings so it is better to maintain some written record of purchases, preferably on a purchase order, to verify the accuracy of deliveries received. (Dopsen, Hayes and Miller, 2007)

3.6 Concluding Remark

“Think of purchasing as a cycle, not a one-time activity. Purchasing is not just a matter of phoning or emailing another order. You don’t want to run out, nor do you want to overstock.” (Brown, 2005:395)