Quantity Purchase & Storage

Submitted to
Mr. Yaseen Reshi

Submitted By
Sana Imtiyaz
Roll No : 1941120072
Course : Bsc in hospitality and hotel administration
Semester : III

Institute of Hotel Management,srinagar

Introduction to purchasing
Purchasing describes the process of buying. It is the learning of the
requirement, identifying and selecting a supplier, negotiation price.
Purchasing is an element of the wider function of procurement and it includes
many activities such as ordering, expediting, receipt and payment. Purchasing
is responsible for obtaining the materials, parts, supplies and services needed
to produce of a product or provide a service. (Joyce, 2006) Purchasing can be
divided into two broad categories, large and small purchases, based on seven
characteristics of purchased product – volume, specificity, technological
complexity, essentiality, fragility, variability, and economic value. (Parikh,
2005)
Bulk Purchase
In case of bulk purchases there are high volume items, large amount, and
more frequent utilization with more specific use. Bulk purchases are handled
in large organisations and multinational organisations with the standardized
purchasing process, where as some other organizations use separate
purchasing process. There are frequent misuse and lack of control in
purchasing process in those organizations in which same standardized
process is used for both bulk and small purchasing. Large purchases are
typically non-urgent in nature. Large-volume, continuous-usage items can be
covered by blanket purchase orders, which often involve annual negotiation of
prices.
Small Purchase
In case of small purchase there are low volume items, small amount, less
frequency of utilization, high variety and low technical complexity. Mainly
small purchases include machine parts, auto parts, machine repairs, in
frequent sullies of offices and miscellaneous goods. Small purchases are
urgent in nature. There are two basic types of purchasing in the business
world: purchasing for resale or purchasing for consumption or conversion.
(Dobler, 1984) Purchasing for resale or resale purchasing is mainly performed
by retailers and wholesalers (called merchants). Purchasing for internal
consumption or conversion is called industrial buying. The industrial buyers
generally face different and complex problems with comparisons of
merchandise buyers or resellers. For instance, the industrial buyers have to
spend time to anticipate in determining what products should be produced or
manufactured and what product should be purchased from outside or
suppliers. They also correlate their purchasing 4 with sale forecasts and
production schedules. In some books, you will find the terms like purchasing,
procurement, supply chain, materials management, supply material and
logistics interchangeably. But there is a hair-line difference in all these terms.

Purchasing System
Purchasing system is concerned with the planning and controlling of the
acquisition of suppliers' goods and resources, to fulfill the administrative and
strategic objectives of the organization. In practice, purchasing managers have
to deal with both customers internal as well as external. He/she has to
respond creatively to internal customers' need on the one hand and to
maintain a mutually profitable relationship with suppliers on the other. This
dual-role perspective of purchasing management has, in recent years, been
increasingly recognized as comprising complex tasks in the integration of
internal/external and upstream/downstream supply chain management
activities. (Fung, 1999) The part of supply chain management that focuses on
the management of inbound goods and services into a firm.

Importance of Purchase system

For Cost Effective Production

Purchasing is responsible for learning of the internal requirements, locating
and selecting suppliers, obtaining the materials, parts, supplies and services
needed to produce a product or provide a service. A purchase manager is
responsible for negotiation of price with suppliers too. You can get some idea
of the importance of purchasing when you consider that in manufacturing
industry more than 60 percent of the cost of finished goods comes from
purchased parts and materials. Furthermore, the percentages for purchased
inventories are even higher for retail and wholesale companies, sometimes
exceeding 90 percent. 6 Nonetheless, the importance of purchasing is more
than just the cost of goods purchased; other important factors include the
quality of goods and services and the timing of deliveries of goods or services,
both of which can have a significant impact on operations. (Joyce, 2006) The
industries like construction, petroleum refineries, sugar, automobile have
more than 75 percentages of materials cost as an input percent cost.
For Strategic Purpose
Purchasing is a strategic issue. The manufacturers have to procure capital
items like plant and machinery for manufacturing facilities. It requires heavy
investment. So, purchasing is an important function. But in some
organisations, especially small scale, purchasing is considered as a clerical
activity. They assign this job to the persons simply who are loyal to the
organisation. But it is a wrong way. In purchasing, the executives must by
dynamic, innovative, creative and must have analytical decision making. The
emergence of the supply chain management concept has enlightened
managers about the strategic role played by purchasing. Purchasing helps to
determine a firm's cost structure through negotiations with suppliers. If the
executives are efficient in bargaining then they can save for the organisations
and this will help the organisations to cut costs and helpful in getting
competitive advantage in the market. Purchasing initiatives can lead to
reducing inventory and improving the quality of incoming parts and
components through vendor selection and supplier development. Purchasing
also supports new product development by encouraging supplier involvement
in product development.

Purchasing Specification
Just as departments carry out certain duties on behalf of the organisation,
Purchase too has legitimate authority to make decisions that rightfully belong
to their Department.
 
1. Evaluate and Select Suppliers – Purchase presumably has the expertise and
training to do this thereby averting any “backdoor” buying – a situation when
sellers contact and attempt to sell directly to end users. Purchase can request
for assistance from internal customer when evaluating potential suppliers e.g.
engineering evaluates products and performance of product.  This does not
mean that the sales representatives are not allowed to talk to non- purchasing
department.  However they cannot make commitments to the seller or enter
into contracts.
 
2. Set the Standard Purchase Specification (SPS) and Review the
same: Purchase develop knowledge and expertise about a wide variety of
materials, sometimes in consultation with the user department, and these
specifications set the standard when material is received at the Stores. E.g.
cauliflower bulb only (without stem and leaves)

3. Act as the Primary Contact with Suppliers – Purchasing is the primary

contact with suppliers but other functional departments can also interact with
suppliers if required after awarding of contract e.g. engineering department
talks to electrical or hardware supplier as they “speak their own language”
thereby clearing any ambiguity and improving communication between buyer
and seller.
 
4. Awarding Purchase Contracts – Purchase has the right to determine how to
award the contracts based on a) competitive bidding b) negotiations or    c) a
combination of both e.g. Tendering process
 
5. Ensure regular feedback from internal customer on quality – Internal
Customer Satisfaction Survey. Take prompt action to resolve dissatisfaction
 
6. Ensure regular Vendor feedbacks – Quarterly Vendor Satisfaction Survey to
take proactive action to resolve issues.
 
7. Ensure Vendor Development of existing & new suppliers – visit vendor
premises, suggest areas for improvement and impart training to their delivery
personnel, hygiene awareness and concern for the environment.
 
8. Market Surveys – for new and better products, check on prices against
contracted prices etc. Competitive analysis of item
Purchasing Techniques
There are many different method of purchasing food.
1. Open market buying
This is the most traditional method of purchasing. The basic steps of this
method are: (1) determine the products to be ordered, (2) obtain price quotes
for all products to be ordered, and (3) allocate order to purveyors to obtain
lowest costs commensurate with service and quality
2. Sealed bid buying
This method is used by large organizations and government agencies. The
basic steps of this method are: (1) determine quantity of the product to be
ordered, (2) prepare detail product specifications, (3) request sealed bids
from purveyors, and (3) select the best price.
3. Cost plus buying
Under this method the operator pay the purveyor's cost plus a negotiated
percent. This method is not frequently used and is usually confined to large
organizations. The supplier provides a minimum of service and receives all
the business of the operator. The operator needs to periodically verify the
accuracy of the supplier's costs
4. Co-op buying
This method is used by groups of similar types of organizations such as
schools, hospitals and fraternities. By working together these operators can
obtain more favorable terms from purveyors.
5. Warehouse club buying
This approach is useful for smaller restaurants.
6. Contract purchasing
This approach is used by large organization for high volume products. Besides
price benefits this method cuts down paperwork. Pricing can on a cost plus a
fixed fee basis; formulae pricing, or fee for service.
7. Steward's market order sheet
The steward's market sheet is a purchase order sheet that is a great help in
purchasing the form shows the foods that are likely to be used and has
columns to list how much is on hand, how much is to be ordered and the bids
received from different purveyors. The purchaser uses the form by calling
each vendor and records the quote on the sheet. He then circles the low prices
and then calls the purveyors back to place the order. Computer purveyor
quote forms are also coming into use.

Storage
Different types of goods are needed in our houses in day-to-day life. Sometime
we may buy in bulk, sometimes we buy in small quantity. When we buy in
bulk we store them in our house. Similarly, organisations also need a variety
of items, materials and parts of different uses for different purposes at
different time. Some items/materials/ parts are required instantly and some
are required after some time. Some are required throughout the year without
any break. Some are required in high amount in a particular season. So,
storage is very important concern. Storage involves proper arrangement for
preserving items/materials/parts from the time of their production or
purchase till the actual use.
The role of storage is very important in smooth production. When the storage
is done on a large scale and in a specified manner it is called ‘warehousing’.
The place where goods are kept is called ‘warehouse’.
‘A warehouse is a planned space for the storage and handling of goods and
material.’