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Modern Food Service Purchasing
Robert Garlough
Vice President, Career and Professional
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PART 1 | PROCUREMENT Dynamics of Food Service Purchasing

CHAPTER

1
© iStockphoto.com

The Purchasing Function:
An Overview
“No nation was ever ruined by trade.”

Benjamin Franklin

After reading this chapter, you will be able to:

<
<
<
<
<
<
<
<

Describe commerce.
Outline the purchasing function.
Analyze the optimal goals of selection and procurement.
Describe the desired attributes and knowledge required of a buyer.
Describe a storeroom policies and procedures manual, and explain content that may be included.
Differentiate among the various types of sellers and how to best work with them.
Distinguish among the various purchasing options and contracts available to buyers.
Identify the benefits of a healthy buyer–seller relationship.

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Chapter 1 The Purchasing Function: An Overview

Introduction

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5

Using salt for bartering

Purchasing for food service operations involves wide-ranging skills and broad product knowledge, much of it unique to this industry. It is more than merely exchanging payment for goods or services rendered. To procure goods and services of the optimal quality at the optimal time and in a costeffective manner, the buyer must be competent in many diverse areas of the profession. Purchasing for food service involves both the selection and procurement of goods and services from a global marketplace that changes frequently.
This chapter will outline the skills one must possess and the relationships one must maintain to function effectively as a purchasing agent in food service. The material in this chapter, and in this book, applies to everyone in the food service purchasing industry, whether buying for a small startup business like a Texas rib shack, procuring products for a giant Las Vegas hotel, or serving as vice president of purchasing for a national restaurant chain. This chapter provides a foundation for learning trade and food service commerce.

Historical Perspectives in Trade
Archeological evidence shows that early humanoids hunted and gathered their food. They gathered grains, fruits, roots, and mushrooms and hunted animals for food. Later, they began to plant seeds—the beginning of agriculture. As more people ate food grown by farmers, cities began to develop, and populations increased.
Trade was another early human interaction. Most prehistoric people traded goods and services with neighboring tribes.
Food is now traded all around the world thanks to modern transportation. Modern restaurant owners and chefs are not restricted to local foods or the local growing seasons. Some countries now import most of their food from other places, and other countries export most of what they grow or produce.
Trade is an exchange of goods or services. Trade is voluntary; both the seller and the buyer must agree to the transaction. Commerce is another word for trade, and a market is a place where people make trades. Bartering, the first form of trade, is where one party gives the other goods and then receives goods in return. Earlier civilizations used bread, pigs, seashells, whale’s teeth, cattle, cocoa beans, and salt for bartering (see Figure 1.1). When currency was developed, buying became separate from selling. Currency is any object with an intrinsic value—such as paper money, coins,

and credit cards—recognized by both the seller and the buyer as legal tender. With currency, a seller does not have to wait for a buyer with specific goods to trade. This made trading easier for both the buyer and the seller.

The Goals of Selection and Procurement
To work as a chef, food buyer, or purchasing agent, one must understand the two primary purchasing functions involved in these positions: selection and procurement. Selection can be defined simply as choosing from among many alternatives. A buyer must determine the eligibility and suitability of a product or service, taking into account many considerations. In food service operations, this is sometimes called a specification, or spec. Eventually, the spec becomes a detailed description of what the buyer wants to purchase. Selection only occurs when there is choice, but fortunately, in this modern world, we almost always have many alternatives from which to choose.
For example, the selection of a tomato product for use in a recipe can appear almost limitless. However, the buyer should have certain qualities in mind for the ingredient, and these will guide the selection process. If this ingredient is going to be for a recipe that is on a static menu, for example, then the tomato product must be regularly available with little

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PART 1 | PROCUREMENT Dynamics of Food Service Purchasing

cost fluctuation. Whether it is to be left raw and whole or stewed with other ingredients are examples of considerations that aid the buyer in the selection process. The goal is to identify and select the most appropriate product that best meets the needs of the enterprise.
Once a product has been selected, the buyer must find the best source for procurement. Procurement is the systematic exchange of payment for goods or services between the buyer and the seller. A buyer should identify all available sellers that might carry the ingredient and then conduct further research to determine the best supplier to use. The buyer and seller must then agree to the terms for the sale and delivery before procurement can take place.

AN OPTIMAL GOAL
Optimal purchasing is central to the buyer’s role. Optimal purchasing considers all of the variables in the selection and procurement processes and chooses the product that best meets the needs of the operation, neither more nor better than is needed, nor less.
The goal is to sustain the operation’s competitive status, maintain an adequate supply of storeroom wares, and obtain the lowest possible serving cost while ensuring the most appropriate quality and minimizing the company’s product investment. Optimal purchasing matches the specific characteristics of the product to the specific needs of the business. Considerations that are often evaluated include:
• Product characteristics or attributes
• Taste, texture, appearance
• Quality grade and wholesomeness
• Consistency
• Availability
• Packaging
• Quantity
• Supplier characteristics or attributes
• Price

1.2

• Minimum purchases required for delivery
• Delivery schedule
• Sanitation/condition of supplier’s warehouse or processing facility
• Dependability

For example, even though beef tenderloin is readily available on the market, it is not the optimal product for chicken-fried steak sold at a truck-stop diner. The most expensive, or highest quality product is not always appropriate for the needs of the business. On the other hand, customer expectations at an haute cuisine restaurant where ticket averages exceed $100 per customer require premiumquality foodstuffs. This is an example of product use: the buyers match the product attributes as dictated by the recipe to the available products in the market.

The Buyer
The role of the buyer is best illustrated by an organizational chart. Smaller businesses (see Figure 1.2)—such as independent restaurants, country clubs, bakeries, bars, and catering businesses—operate differently from hotels, hospitals, the military, or restaurant chains (see Figure 1.3).
In the former, someone from the management team often serves as the buyer, as well. In restaurants and clubs, the chefs generally do all of the buying. These are considered line positions, as they are directly involved in the food production or service. In catering businesses, bars, and bakeries, the owner–operators often wear the buyer’s hat. If they are also involved in food production or sales, then they are also considered line supervisors. There is no hard-and-fast rule, but workload is often distributed in that manner with these types of operations.
Larger organizations, such as hotels, hospitals, and restaurant chains, often employ individuals who purchase products on behalf of the organization. Because of the quantities

Organizational chart of a small restaurant

Manager

Working
Chef/Buyer

Head
Bartender

Bartender

Bar Persons

Fry/Broiler

Pantry/Pastry

Prep Cook

Host/Hostess

Grill

Service Persons

Bus Persons

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7

Organizational chart of a larger hotel food service operation
General
Manager

Resident
Manager

Food & Beverage
Director

Sales
Director

Controller

Director of
Catering

Asst. Food &
Beverage Director

Sales
Manager

Food & Beverage
Controller

Outlet
Managers

Executive
Chef

Executive
Steward

Purchasing
Agent

Sous
Chef

Receiving
Clerks

Cooks

Assistant
Controller

Storeroom
Clerks

involved, a dedicated, full-time buyer can bring effective procurement processes and greater efficiency to a company, which translates into product cost savings. The benefits gained by having such a position must be weighed against the personnel costs in employing one. These positions are considered staff positions, as they work in support of others who are directly involved in food production or sales.

REQUIRED ATTRIBUTES
AND KNOWLEDGE
Buyers come from varying backgrounds. Some have been successful in other enterprises. Others have recently come into money and wish to invest in a restaurant. Still others have worked their way up through the ranks of the food service industry.
In any case, there are certain attributes and skills that a buyer must possess to be highly successful. Beyond the obvious initiative, organizational ability, and honesty, the purchasing staff must also possess the following qualities: ethical standards, conceptual skills, communication skills, mathematical skills, computer skills, market awareness, an understanding of the laws of commerce, and product knowledge.

and money—items desired by most mortal men and women.
Purchasing agents are required to maintain high moral and ethical standards that place them, and the company, beyond reproach. Opportunities will arise where these standards will be tested, and the ethical buyer must resist them. Clear guidelines for behavior can aid the buyer in maintaining professionalism, which is paramount to job success.
Many professional organizations, such as the Pennsylvania Restaurant Association, have developed codes of ethics for their memberships. As members of these organizations, the operators seek to elevate themselves and their businesses through proper and responsible practices. A code of ethics is based on the belief that principles should govern an organization’s employees. All goals of the organization, and the decisions made by management and staff, should be guided by these values. A code of ethics should include statements that affirm a commitment to:
• Fair prices and good value.
• Good food and good service.
• Good health and welfare of employees and customers.
• Fair treatment of employees.
• Honest relationships with purveyors.
• Honest relationships with the community.

Ethical Standards
Ethics is the study of morality, what is right or wrong.
Storeroom managers, food buyers, chefs, kitchen mangers, and food and beverage directors will always have temptations placed before them. They work with food, alcohol,

• Respect for the environment.

There are many organizations for buyers and sellers that work to elevate the ethical and professional standards within their own industry, including restaurant associations, chef associations, and supply management organizations.

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PART 1 | PROCUREMENT Dynamics of Food Service Purchasing

Conceptual Skills
Buyers must be able to see the whole enterprise, how the various functions of the organization depend on one another.
Buyers must be able to see how changes to one function will affect all of the other functions. And buyers must be able to see the relationships between the business and its place in industry. A well-informed buyer should know how her actions affect the community, political, social, and economic forces of the nation. This concept is commonly referred to as conceptual skills.
Food service buyers should try to understand how the product will be used and anticipate any constraints it would put on the food preparation staff. Understanding the application of the product will help the buyer make good judgments.

Historically, chefs have frequently been hired as both sales representatives for food brokers and as buyers for large food service establishments, because of their profound understanding of food service operations and product application.

Before computers were widely used in food service, operators had two choices. Either they tediously tracked their inventory on stock file cards (Figure 1.4), or they didn’t even bother to maintain records, as it seemed like too much work.
Today, computers are integrated throughout all modern food service operations (Figure 1.5). Storeroom employees must be able to perform the basic functions of word processing, database entry, and spreadsheet operations. As there are numerous proprietary systems designed for food service and storeroom operations, prospective employees are expected to possess only a basic understanding of computer operations. Most establishments anticipate having to train new employees on the customized software that they use.

1.4

Storeroom clerk working with old-fashioned storeroom card file
Photo Courtesy of Robert Garlough

Communication Skills
Buyers need to have balanced communication skills. They must possess the ability to listen to the needs of the stakeholders of their operation, including the preparation staff, accounting staff, receiving and storing staff, and owners.
Additionally, they must be able to articulate these needs succinctly to purveyors. Proper attention paid to communication will result in happier employees, fewer errors, and more efficient operations.

Mathematical Skills
Ever since prehistoric humans made their first trade, math has been an integral part of commerce. With the advent of calculators, and now computers, math has become easier—easier but no less important. Math is basic to buying, receiving, storing, and issuing—all of the primary functions of storeroom personnel.
Although machines can assist with computations, humans—who are prone to error—operate these machines.
An error in math directly correlates to an error in money and, later, profit. It is vital to the operating and fiscal health of the business that all storeroom personnel demonstrate a high degree of competency in basic math.

1.5

Buyer using computerized inventory system
© Randy Van Dam 2008

Computer Skills
Computers have permeated our lives in virtually all areas of business, and accordingly their use is widespread in storeroom operations. Primary functions of computers, since their very onset, include data storage and computations. Such is the heart of inventory control.

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Chapter 1 The Purchasing Function: An Overview

Market Awareness
Contrary to the old adage, in food service, what you don’t know will hurt you. Successful businesses avoid threats and take advantage of opportunities. A successful buyer must possess a broad understanding of the marketplace, both local and national, and both domestic and foreign. Understanding the market is half the battle in staying competitive.

Laws of Commerce
Inherent in all forms of business are the rules and processes to which all participants are expected to adhere. In food service, as in other areas of commerce, there are established laws that govern the course of business. It is incumbent upon the buyer to be aware of such laws and to be vigilant to their practice.
These laws are discussed at length in Chapter 2, “Food Laws and the Market and Distribution Systems.”

Product Knowledge
Although most of the skills a buyer must possess are transferable from one profession to another, a food service buyer must additionally possess an in-depth understanding of food products. Storeroom managers and buyers can be trained in all of the requisite skills, and that includes food knowledge.
However, this requires the buyer’s devotion to learning, an intense interest in food, and a commitment to the profession.
Exposure to food products, in all their forms, is necessary for a buyer to learn the trade. To truly comprehend the vast array of products available, a buyer should visit dairy farms, slaughterhouses, coffee plantations, aquaculture ponds, and orchards. A buyer should make trips to bakeries, fish processing plants, butcher shops and charcuteries, cheesemongers, herb gardens, and flourmills. And a buyer should spend time at trade shows, farmer’s markets, and food distributor’s warehouses. In addition to learning about food, buyers should study textbooks and attend seminars to learn about the profession. They should join professional organizations and meet others who perform similar job functions. Food buyers should always be willing to learn more about their profession.
However, short of that, buyers can focus on the needs of their business’s menu. They can interview their production staff and bookkeeper to get a sense of what they are looking for. They can look through the phonebook or search the Internet for a list of purveyors and set up meetings to learn about the available sellers. They can request samples of products for their chefs to evaluate. Remember, purchasing is all about the selection and procurement of product.

STOREROOM POLICIES
AND PROCEDURES
Before the food service enterprise opens to the public, it must find suitable purveyors with whom to conduct business. But before the company holds its first meeting with the

9

potential sellers, the food service operator should develop a policies and procedures manual for operating the storeroom. Although small operators might view this effort as a lot of unnecessary work, its dividends are always paid down the road. As Peddersen (1981) writes, “The Guide to Purchasing, of the National Association of Purchasing Management, declares that no purchasing manager has an excuse for not having at least an informal statement of purchasing policy and a collection of purchasing procedures” (p. 35).
Most failures in business are because of insufficient research and planning. Operators often fail to realize the real costs associated with establishing or maintaining their business, and they fall short in anticipating problem areas.
Storerooms are rife with opportunities for problems, so management must organize and monitor them carefully. By having access to a comprehensive policies and procedures manual at the beginning, employees understand what is expected of them.
The policies and procedures manual provides a starting point for the purchasing staff (see Figure 1.6). Like all operating documents, the policies and procedures manual should be considered a living document, and it should be revised as better procedures and common sense become evident. All thriving businesses are able to adjust to new procedures and change with the times. Yet they all still maintain quality standards for their products and procedural standards for their employees. Peddersen (1981) suggests some of the following questions be addressed in a storeroom policies and procedures manual:
1. Which signature is required on a requisition?
2. What are the Purchasing Department’s responsibilities and authority to challenge need or specifications?
3. Who may initiate or maintain contacts with suppliers or potential suppliers?
4. What are the criteria for supplier selection?
5. When is competitive bidding required?
6. Who takes part in negotiation?
7. Who may commit funds for supplies and equipment? What limits, if any, are there to this authority?
8. What authority or responsibilities does Purchasing share with other departments?
9. What is the policy on cooperative purchasing arrangements? 10. Are their limits on sales calls?
11. Who handles requests for samples or literature?
12. What are the limits on accepting gifts or entertainment from suppliers?
13. What rules govern potential conflicts of interest?
14. Will the Purchasing Department make personal purchases for employees and staff members?
15. In what committees or organizations should Purchasing be represented? (p. 37)

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1.6

Buyer reading a policies and procedures manual
© Randy Van Dam 2008

metropolis, the selection of purveyors can have a huge impact on the well-being of the food service operation.
A surly attitude when dealing with purveyors is counterproductive and foolish. The food service community is like all other professions; people within the community congregate. Reputations, both good and bad, are often made at one place of employment and carried on to future jobs. All too often, new working chefs anxious to earn their title treat others unfairly and with disrespect. This type of behavior might play well with a handful of celebrity chefs, but no one else tolerates such self-indulgent behavior. Doors are shut to those who don’t respect others; sellers select their customers as much as buyers select their purveyors.

Sourcing: Finding the Purveyors
It is not difficult to start a list of purveyors with which to do business. Whether taking over an existing food service operation or starting a new business, the new chef must be open minded when developing a list of potential purveyors.
There are several methods for researching food service resources. Some suggestions include:

The Seller
The seller is a vitally important factor in the business equation. To be an effective buyer, one must establish mutually satisfying relationships with a variety of purveyors.
All too often chefs and business owners view the sellers as the opposing force, begrudging them their respect and fair profit in the marketplace. Such behavior is both unwarranted and shortsighted.
Sellers must exist in order for buyers to have product availability. When sellers are successful, they are able to broaden their products and services. When they are not, buyers have lost an option or resource. The adage
“competition breeds success” plays well in food service.
When businesses are successful, particularly as purveyors, there are more companies from which to choose. And, because there is competition, they must keep their pricing competitive in the market. Food service operators should welcome sellers into their offices to learn of their products and services. That being said, there are proper steps to follow when selecting purveyors.

SELECTING SELLERS
One of the most important functions that a chef, kitchen manager, food and beverage director, purchasing agent, or owner can perform is the proper selection of sellers. Whether in a small resort community, mid-American city, or bulging

• Review the advertisements and listings in the telephone directory • Contact the local chef’s or club manager’s association
• Call other chefs or managers in the area to introduce yourself • Search the Internet for listings of food service distributors and e-vendors
• Talk to a local grocer
• Talk to a local food service equipment dealer

There are usually a variety of purveyors available that specialize in such products as meat, produce, and dairy, as well as larger food service distributors that sell both dry and refrigerated goods. Additionally, many suppliers service only locally based customers while a handful service the broader region or the entire country.
E-MARKETS
The marketplace is constantly evolving, and bricks and mortar no longer can bind it. Numerous new, as well as established, businesses have embraced the Internet as their storefront. However, according to Neef (2001), “Nearly
80% of organizations that have rushed to establish Web sites for online retailing have failed to invest in the purchasing and distribution systems that make delivery of their products possible” (p. 3).
Business-to-business (B2B) e-commerce uses the Internet to buy and sell food items. In the past few years, it has become an important way to do business. According to Neef,

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• B2B e-commerce has replaced business-to-consumer e-commerce as the fastest growing area of e-business in the economy.

1.7

11

Local supplier delivering products to a restaurant
© Randy Van Dam 2008

• E-procurement is the most important area of development in the B2B e-commerce area.
• E-procurement will fundamentally restructure the way in which an organization purchases goods.
• E-procurement is coming, but for most companies their online procurement capabilities are still limited to occasional and uncoordinated shopping online for office materials (p. 2).

Many smaller or boutique e-vendors have entered the food service marketplace, bringing national or international awareness to their specialty products. In addition, large distributors like Gordon Food Service offer the benefits of electronic ordering (GFS Plus) from their warehouses.
LOCAL SUPPLIERS
Local suppliers tend to be those who specialize in highly perishable goods, such as produce and seafood. They generally purchase their goods directly from the source, or marketplaces close to the source, and act as intermediaries. They purchase what you need and make it available to you when you need it for a slight profit.
Other local suppliers can be the growers or producers themselves, such as dairies, egg producers, fish farmers, herb farmers, bakeries, and cheesemongers (Figure 1.7).
These suppliers tend to deal directly with the buyers and exchange useful information that helps each achieve its goals. The buyer must seek out these opportunities if her company allows direct purchases.

People, Places, Thi ngs

Hillary Clinton and the Farmto-Fork Initiative
Senator Hillary Clinton organized a movement, beginning in 2006, to promote economic growth and viability for the farmers and food producers of New York State. The initiative was named Farm-to-Fork, and the goal was to broaden the market places and distribution networks of locally grown
New York State produce by working with area school systems, restaurants, food retailers, and farmer’s markets.

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PART 1 | PROCUREMENT Dynamics of Food Service Purchasing

NATIONAL DISTRIBUTORS
There are several very large food service distributors that service either particular regions of the country (Figure 1.8) or the entire country (Figure 1.9). Broadline distributors have a wide range of products: They can sell everything that a food service establishment needs. They distribute goods from centrally located warehouses that often service multiple state areas.

The Introductory Meeting
There are many criteria to be considered when selecting purveyors, not the least of which is the sales representative.
Typically, sales representatives do not attend introductory meetings, which are often held with area sales managers before a sales representative is assigned.
Yet the buyer should request that the sales representative attend the introductory meeting. As most sales associates are paid largely on the commission of their sales, it is in their own best interest to develop mutually beneficial relationships with their customers. It is important that the sales representative fully understand the needs and values of the buyer. Hearing that information secondhand from a sales manager can taint the message.
The following questions and strategies should be considered when first meeting with a potential supplier’s representative: • When setting up the meeting, establish the length of time for the meeting. It generally should not exceed 1 hour for the benefit of both parties.
• Hold the first meeting at the buyer’s food service operation.
If warranted, a second meeting to inspect the purveyor’s facilities should be held at its location.
• Ask the potential purveyor to bring a printout of its product listing. Purveyors usually can comply, but rarely do they include pricing for their products. Pricing levels are generally negotiable based on volume and other factors and are closely guarded by the sellers.
• Ask purveyors if they can provide samples. This is common, particularly when the product is both fresh and narrow in scope. Meat purveyors, cheesemongers, bakeries, egg farmers, fish farmers, and produce and herb farmers often bring samples.
• Discuss the following:
• The buyer’s philosophy of business, relative to honesty, quality, service, consistency, and dependability
• The seller’s philosophy of the same issues
• Pricing structures and methods of payment including extension of credit and C.O.D. discounts
• Where the sellers get their products, for example:
“Who are your suppliers?”
“How do you get your products that you sell?”
• Potential delivery days and times, for example:
“I need deliveries between 7 a.m. and 9 a.m., or between 2 p.m. and

3:30 p.m. Can you guarantee to deliver within these time periods?”
“On which days do you deliver in my area?”
“Can you deliver to me every other day?”
• Sales representative services, for example:
“How frequently do you want to meet?”
“I can only meet in the mid-mornings; can you call on me then?”
“Can we set up established meetings: dates and times?”
“My time is really tight. Can we keep our sales meetings to a half hour?”
“If I get in a bind for an important event, can you personally run a product out to me?”
• Driver services, for example:
“I intend to inspect, count, and weigh my deliveries each time.
Will your driver wait patiently as I do so?”
“Will your drivers deliver the product to inside our walk-in coolers? If not, where?”
• Truck sanitation, for example:
“Are all of your delivery trucks refrigerated?”
“How frequently do you clean the inside of your delivery trucks?”
• Rejection of product and credit memos, for example:
“How do you handle product refusals or returns?”
“Does your driver issue credit memos?”
• If interested in a purveyor’s services, request a tour of its facilities.
• Obtain a credit application from the seller so you can order on credit.

Remember, the purveyor is in sales and is interested in putting the best foot forward at the introductory meeting.
It is wise to remind the purveyor that your discussion has implications for many months, and potentially years, ahead.
Honesty and integrity are principal to a healthy relationship, and the buyer should expect the quality level of both product and service to remain high long into the relationship.
Be wary of shifts in product quality or price increases after several months of service by a purveyor. Although not common, some unscrupulous purveyors attract new business by quoting lowball prices for premium products. After several months, when they believe the relationship is well established, they increase prices or reduce the quality of the product to make a better profit.

Inspecting the Purveyor’s Facilities
The failure of a supplier to maintain adequate sanitary standards can irrevocably damage the hard-earned reputation of a food service establishment. In other words, bad news travels fast when someone gets food poisoning. Although the fault may not lie primarily with the food service operator, the public rarely knows or cares when the damage originates with a supplier.
To protect the alimentary health of their clients, concerned buyers should take it upon themselves to inspect the purveyor’s production and warehouse facilities when possible. This inspection can help the buyer

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1.8

13

Gordon Food Service services area map
Courtesy Gordon Food Service

British
Columbia

Labrador

Newfoundland
Bay
Roberts

Edmonton

Alberta
Calgary
Vancouver

Saskatchewan

Manitoba

PEI

Quebec

Winnipeg

Quebec city Ontario

NB

NS
Amherst

Montréal

Gordon Food Service®
MI

Neptune Food Service

Milton

Grand
Rapids

Bridge Brand

Brighton

PA
OH

GFS Ontario

IL

IN

Springfield

WY

Distal

Shepherdsville

M&S Food Service
Atlantic Grocery Distributors (strategic alliance)

AR

NC

GFS Marketplace® (currently 119 stores in IL, IN, MI, OH, KY, PA, and FL)
Gordon Food Service Chain Alliance (chain distribution only)
Distribution Centers

VA

KY

MO
TN
MS

Greenville

GA

SC

AL

Ocala

FL
Miami

1.9

Sysco Food Services services area map
Courtesy SYSCO Food Services of Grand Rapids

Broadline Companies
Custom Meat-Cutting Locations
Hotel Operating Supplies Locations
Specialty Produce Distributors
SYGMA Systems Distribution Facilities
Fold-Outs in Progress

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PART 1 | PROCUREMENT Dynamics of Food Service Purchasing

decide between two potential suppliers, particularly when product pricing seems unrealistically low from one of the sellers. Buyers should never gamble with the health and reputation of the business, particularly to save a few cents.

Establishing Purchasing
Options and Contracts
Before selecting a purveyor, buyers should inquire about the variety of purchasing options available. Some sellers will allow, or even encourage, a less formal method of purchasing while other purveyors prefer a formal arrangement, clearly identifying all pricing structures and services in a negotiated contract. This difference might lie in the nature of the buyer’s business, whether it is a midsized independent restaurant or a large staterun university, for example. It might also be determined by the nature of the buyer’s position within the company
(see Table 1.1).
Should the buyer be (a) a purchasing agent involved in centralized purchasing for multiple food service units, there is a greater likelihood for formal arrangements, compared with the (b) buyer working for a smaller, independent operation. The chance for error of a greater magnitude

warrants extra effort by both parties. A third scenario includes (c) cooperative buying, where people form a democratically controlled business organization to achieve a common economic end. Cooperative members realize hefty savings by buying directly from the source in massive quantities. As Spears (1999) writes, “Purchasing negotiation is the art of arriving at mutual agreement with suppliers by means of bargaining on the essentials of a purchasing contract, such as specifications, quality assurance, price, payment terms, and delivery schedules. As such, the effectiveness of purchasing negotiation depends largely on a buyer’s ability to establish bargaining strength” (p. 485).
Above all, knowledge is king. Understanding the options available is the best means of achieving optimal purchasing.
Those arrangements that are flexible can benefit either the buyer or seller, as is also the case with inflexible arrangements. Oftentimes, the decision comes down to how much risk the operator is willing to bear, and how much effort the operator is willing to expend.

PURCHASING SERVICE AND
MAINTENANCE CONTRACTS
“Know thyself” is a good premise when considering service and maintenance contracts. Most businesses, no matter their size or resources, recognize the need for outside

People, Places, Thi ngs

Gordon Food Service

FPO

The year 1897 marked some great adventures in history: S. A.
Andree’s Polar Expedition in a hot air balloon, the great Klondike Gold Rush, and production of Marconi’s new invention, the radio. Another adventure, although not on quite as grand a scale, also began in 1897 . . . the birth of Gordon Food Service
(GFS). It was in 1897 that 23-year-old Isaac VanWestenbrugge, a Dutch immigrant, borrowed $300 from his older brother
Martin and started his business delivering butter and eggs in
Grand Rapids. With headquarters in Grand Rapids, Michigan, today GFS is the largest privately held food service distributor in North America. With over 100 years in the food service business, Gordon Food Service is still family owned and committed to its customers and employees. This philosophy and commitment have given over 30,000 customers in ten U.S. states and throughout Canada access to more than 14,000 GFS and nationally branded, specialty, and exclusive products.
Copyright 2008 Gordon Food Service.

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TABLE 1.1

15

Formal and Informal Purchasing Methods Comparison Matrix

Method of Purchasing

Primary Business
Structures

Required Information

Advantages

Disadvantages

Business 2 Business

Smaller to larger businesses Product Specs

Wider access to boutique vendors Online procurement capabilities are still limited Competitive Quotes

Smaller clubs, restaurants, caterers

Detailed product specs

Vendors must compete; best/lowest purchase price Poorly written specs may result in inferior products

Daily Quotes

Smaller to larger businesses Minimum information

Good for ordering highly perishable products; flexible Time consuming

Sealed Bid Buying

Institutional, hotels, large properties

Detailed product specs; estimate of annual needs

Guaranteed lowest bids; time savings

No price fluctuations with sales

Cost-Plus and Prime
Vendor Purchasing

Clubs, hotels

General knowledge of total product needs

Generally lowest available price

Generally limited selection; no competition Standing Order

Institutional food service, bakeries, coffee shops

Good forecasting of future needs

Maintains par stock levels; time saving; favorable service

No flexibility

Informal Buying

Small independents

General knowledge of products More flexible; requires less effort to purchase

Goods are not competitively priced

Volume Buying

Large chains, hotels

General knowledge of product needs; product specs Stockless inventory

Possible storage fees; must take deliveries

Drop Shipment

Smaller to larger businesses Minimum information

Does not require product storage; good for
Internet purchases

Delivery charges can be high Hedge Buying

Large chains, hotels

Product specs; estimate of total needs

Possibility for significant lower prices

Very risky—possibility for paying higher prices or getting unwanted stock

help. In addition to contracting for food and supplies, food service operators must also enter into contracts with other service providers, whether because of a lack of technical expertise, a lack of equipment, a lack of time, or a lack of interest. Thus, the need to know thyself becomes essential.
Unfortunately, in today’s modern and litigious society, the days of the handshake sealing the deal are all but gone. It might still exist among the owners of their own enterprise, but rarely does it exist among corporateowned companies.
Food service operators often enter into contracts for the following services:
• Pest control. Pest control is mandatory in food service.
It is a highly specialized service, and it is unlikely that the typical food service manager would have the requisite knowledge to perform the tasks. Food service operators are required to be proactive with pest control. There are nationally recognized companies
(often franchised by a local owner), corporate-owned companies, and independents all competing for the buyer’s contract. Each must be considered on its own merits. Considerations include the training and

knowledge of the individual servicing the account, the quality of time spent and commitment to servicing the account, and the strength and quality of chemical agents used. Whichever company is used, it is absolutely critical to have a professional pest control company under monthly contract.
• Waste removal and recycling. Modern food service operators can reduce their need for garbage removal by using garbage grinders and garbage disposals. They also can be environmentally conscious by separating their recyclables, such as nonfood cardboard, glass, and metals, from other trash. Trash removal companies will supply closed Dumpsters of various sizes, depending on the needs of the operation. Most food service operators wish to contract for daily removal to minimize pests and unwanted odors. Operators should request that their
Dumpsters be rotated on a regular basis and replaced with clean and sanitized units with working lid closures when necessary.
• Cleaning. In addition to cleaning the windows, restrooms, bars, dining areas, entrance ways, and kitchens daily, food service establishments also have specialty

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cleaning needs, such as exhaust hoods, tile and vinyl floor waxing, deep cleaning and degreasing, carpets and upholstery, and concrete or blacktop cleaning. The operator should assess its own willingness and ability to perform each of these duties. In reality, when these services are not contracted, they are also often placed on the back burner, and the facility quickly shows the wear and tear of use.
• Facility maintenance and remodeling. Maintenance is typically an ongoing need of most operations. Whether painting the kitchen, recarpeting the dining room, changing locks, or installing alarm systems, the list seems to go on and on. Many operators employ a handyman, often a retired individual who has a broad range of skills and the interest in part-time employment. Other times, operators must use the services of professionals who are contracted for specific tasks in which they are trained.
• Groundskeeping and plowing. Before the public ever enters a business, they evaluate the facility from the outside. It is paramount, with the vast competition that exists in the marketplace today, to be proactive about the facility’s appearance. If operators are unable to maintain their own landscaping and parking lots, they must contract out the services to a dependable provider.
• Equipment maintenance. Equipment maintenance can be arranged in either of two ways. The traditional way is to call an equipment repair company, as needed, when something breaks. The other way is to enter into service contracts with companies that agree to perform preventative maintenance on the equipment, as well as fix it whenever it breaks for an agreed-upon period of time. This is often expensive for the buyer, but it provides peace of mind for important equipment, such as point-of-sales machines.
• Equipment rental. Oftentimes it is necessary, or more cost effective, to rent equipment rather than to buy it. When caterers are starting out, they tend to rent vans, chafing dishes, complete table settings, and even warming carts.
As they grow, caterers can afford to purchase some of their own equipment but continue to rent as larger parties or busy months require. Restaurants, clubs, and hotels also rent equipment for enormous or unusual events. Some companies used to rent computer equipment because it was so costly and changed so rapidly. But as the cost of computers has dropped significantly, and their capacity has grown exponentially, it has become standard for companies to purchase, rather than rent, computers.
• Laundry and linen supply. Virtually every food service company, except hotels that operate their own laundry facilities, needs the services of a linen company. Depending on the location of the food service establishment, there are usually only a limited number of linen suppliers in the area.
If the business decides to rent from a linen service, it should consider the following: overall cost of the service, charges

for lost or damaged goods, length of service contract, ability to cancel the contract, scheduled delivery times, and variety and quality of options.
• Bookkeeping, auditing, and check writing. Most companies need the services of an outside auditing company, even if they can maintain their own books.
Small and midsized companies usually also need bookkeeping services to print employee paychecks, bill the accounts receivables, and pay the accounts payable. Auditing companies also help to prepare the monthly financial statements, when given sales and inventory figures.
• Legal. Most businesses need a lawyer from time to time to advise them on legal matters relative to the business.
Lawyers charge by the hour, so companies should have their paperwork in order and their needs specific when meeting with lawyers. Most operators can save themselves a lot of money by being organized and efficient and by asking good questions about the law’s expectations of business.
• Insurance. Liability, property, hazard, and commodity insurance are a commodity, as much as any other product on the market. Operators should require insurance companies to submit quotes for contracts, and management should review the contracts annually.
• Utilities. Utilities such as electric and natural gas are also a commodity, and savvy owners and buyers can negotiate contracts for utilities in advance with brokers.
• Advertising and promotion. Most companies advertise, whether in newspapers, in the Yellow Pages, on billboards, in trade magazines, or on the Internet.
Food service operators should find a means to measure the return on their investment. With the high cost of
Yellow Pages ads and the many companies that provide competing services, it is important to consider the target market for the ads and how much flexibility one has to change the content.
• Flowers and plants. Although not a requirement for doing business, plants and flowers help to transform stark environments into friendly places of commerce. Some businesses contract with plant rental services to maintain plants, often rotating them out due to limited sunlight in some spaces.
• Vending machines. Vending machines have modernized over the decades, although their purpose remains essentially the same: to provide food service in locations or at times when other forms of food service are impractical. Some operators choose to own or rent the machines and stock them personally while most others use vending companies that pay a commission on the sales of the machine. There are national vendors like
Service America Corporation, Canteen, and ARAMARK, which provide full-service vending, as well as privately

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Chapter 1 The Purchasing Function: An Overview

owned vending companies in most metropolitan areas.
Some suggest that a formal bid process be used for these services.

INFORMAL BUYING PRACTICES
Informal buying is often practiced by smaller operations where the chef or owner also does the buying. Although the practice is quite common, it rarely yields the savings that are realized through more formal systems of purchase. In effect, the buyers ride the market and wait until they need the goods before they order. That being said, operators practice informal buying because:
• It takes little time away from the production needs of the operation.
• Sales are volatile, and the quantities needed for a product vary daily.
• Purchasing seasonally available goods is important to the buyer.
• There are only one or two sources available for the items.
• The market is unstable, and prices fluctuate.
• The need is urgent, and the immediate receipt of goods is important.
• The size of the business is too small to warrant a formal process of purchasing.
• The business struggles with cash flow and must limit its purchases.
• The purveyor has placed the business on a C.O.D.-only arrangement because of late bill payments.

To maintain the best cost advantage possible, the buyer should still perform competitive buying practices. Competitive buying is when the buyer solicits quotes, either orally or written, from various sellers and compares them to find the lowest price. By contacting at least two suppliers to request daily pricing of perishable goods, such as produce, fish, and meats, the buyer is still able to practice competitive buying.
If it is a large order, it might make economic sense to split the order between two purveyors. However, if it is a small order, it likely makes the most sense to purchase the products from the one purveyor whose total price is the lowest.
Oftentimes, purveyors have minimum order requirements to cover delivery costs, so in those instances the buyer cannot split the order among multiple vendors.

As a matter of practice, chefs and food service managers will often alternate purchases among multiple vendors to maintain good working relationships with their sellers. Failure to buy from one vendor could result in the loss of that source as well as the ability to keep the other vendor’s prices competitive.

17

In contrast to competitive buying is single-source buying, where the buyer simply orders from one source with the hope that the price and quality are good. This method is obviously not preferred and generally underserves the needs of the operation, unless it is done by negotiated contract. Unless the product is unique and only available from a single source, or a contact has been negotiated that guarantees lower prices, it reflects a lazy and careless attitude on the part of the buyer, and management should not tolerate it.

FORMAL BUYING PRACTICES
Larger food service operations that are able to justify the payroll costs of storeroom staff uniformly engage in formal buying practices. Tax-supported, publicly held institutions such as prisons and universities usually are required to use competitive bidding processes. Hotels and restaurant chains, though not mandated by state laws, also engage in the bidding process. There are several methods of formal purchasing; they include bid buying, cost plus fixed-fee buying, volume buying and warehousing, prime vendor contracts, long-term contracts, and hedging.
The negative and positive aspects of these methods are depicted in Table 1.1.

Bid Buying
Bid buying is used in competitive buying to compare the price quotations from several vendors seeking the buyer’s business. Buyers can take bids by telephone, by fax, by e-mail, by sealed bid, or in person. Moreover, bids are either fixed, where the seller and buyer agree to a price for a set period of time, or daily, where the prices can vary on a daily basis.
Fixed bids are often used by larger organizations, such as universities, hospitals, and restaurant chains, which buy large quantities of perishable and nonperishable items over a long period of time. The buyers prepare bid request forms, as illustrated in Figure 1.10, which contain product specifications, estimated quantities, and a specified period of time.
Purveyors are invited to complete the request forms and submit them to the buyer. Sealed bids are submitted to the company by a specified deadline and then publicly opened by the buyer. Contracts are then awarded, generally to the lowest bidders.
A daily bid, also known as daily quotation, is often used for perishable items that have only a few days’ shelf life. Daily bids are often made over the phone, by fax, or by e-mail. The chef arranges a system with her supplier to obtain the daily quotes and places orders accordingly.
Whether using daily or fixed bids, buyers select vendors by either line-item bidding or bottom-line bidding.
Line-item bidding involves selecting the vendor that quotes the lowest price for a single product. (Sometimes

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PART 1 | PROCUREMENT Dynamics of Food Service Purchasing

1.10

Sample Bid Request Form

Date

Purchasing Agent’s Name
Contact Information_____

The name of business will receive bid quotations for our annual purchase of name of product category, until time and date.
Interested vendors must review the attached list of Vendor Requirements, and address these requirements, as needed, as part of their bid submission.
•

Master Bid Document

•

General and Special Bid Conditions

•

Payment and Delivery Structure

•

Vendor Warranty

•

Required Product Specifications

All bidders must sign and date this cover letter receipt, acknowledging their understanding of the terms as outlined in the
Vendor Requirements documentation. This signed certificate must be included with all other required bid documents. Failure to sign and submit this form may be considered grounds for disqualification.
__________________________________________________

___________________________________________

Vendor’s Company Name

__________________________________________________

Vendor Street Address
___________________________________________
City
State
Zip Code
___________________________________________

Submitted by

Date

Title

bidders will choose to bid only on part of the request form.) Each item on the buyer’s list is compared line by line, and the contract is awarded for only those items with the lowest quoted prices (see Figure 1.11). However, as mentioned earlier, oftentimes purchase minimums must be met to receive free delivery from the vendor. According to
Gunn (1992), “the typical wholesaler needs a guarantee of a $600.00 minimum-order to realize a return on investment” (p. 32).
Bottom-line bidding, nicknamed the “all-or-nothing approach,” requires the bidders to bid on all items on the request form. The prices from each potential vendor are totaled, and the supplier with the lowest combined total is awarded the entire contract. This process is practical for both parties: the buyer saves time, and the seller saves on delivery costs.

Cost Plus Fixed-Fee Buying
When a company negotiates a contract for cost plus fixed-fee, as shown in Figure 1.12, it agrees to purchase most of its products from one broadline or full-line food service distributor for a fixed markup beyond the seller’s actual costs. The markup can be a set monetary amount or a percentage of the purchase price. The benefit is mutual:

the seller is guaranteed a large sale on a regular basis, and the buyer gets rock-bottom pricing without having to engage in daily competitive buying. With the spiraling costs of transportation, it is very advantageous for purveyors to maximize their deliveries to buyers. Similarly, with escalating labor costs and staff shortages, it is also often advantageous for food service operators to consolidate their time spent on buying and receiving.

Volume Buying and Warehousing
Volume buying and warehousing, sometimes referred to as “stockless purchasing,” involves contracting for large quantities of singular products over an extended period of time. It requires the buyer to purchase a product in advance and then take multiple deliveries of the product over a negotiated length of time. The seller may charge the buyer a storage fee, which must be weighed against the savings incurred. However, storage charges are not always applied, particularly if the entire product is delivered within 30 days.
Oftentimes food distributors promote “show specials” during their fall or spring food shows. Buyers can negotiate the minimum quantity required for purchase and take delivery over several weeks after the show. This practice

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1.11

19

Sample Comparative Bid Analysis

Bid Order Sheet Comparative Analysis
Delivery Date:
I te m & D e s c r i p t i o n

Order

Vendor #1
Bid

Vendor #2
Cost

Bid

Vendor #3
Cost

Bid

Cost

Individual Invoice Total:

is quite common, and it benefits the buyer who knows her own volume needs. For example, if the buyer has tracked her company’s usage of 6-ounce chicken breasts per month, she might purchase 100 cases as a show special at $8 off per case. The buyer has saved her company $800 with this single-volume purchase.

Prime Vendor
A prime vendor contract, as illustrated in Figure 1.13, is similar to a cost plus fixed-fee contract. Rather than be contractually restricted to only one vendor, an establishment can make prime vendor arrangements with several purveyors. Sellers achieve prime vendor status by agreeing to sell their products at a set price, often based on cost plus fixed-fee. Prime vendor arrangements can be made with fullservice or specialty suppliers.

Long-Term Contract
Long-term contracts are based on fixed or accelerated prices.

Similar to the volume buying and warehousing method, this contract makes the supplier responsible for purchasing the

product and then having it available as needed. The buyer must forecast her company’s needs, and if the quantity is sufficient to gain the seller’s interest, the two will enter into a long-term contract. In this scenario, the buyer needs to make payment only upon receipt of each delivery, and the seller bears all storage costs.

Hedging (Forward Buying)
Hedging is a method of purchasing that often entails considerable risk to the buyer. Also known as “forward contracting” or “forward buying,” hedging is the practice of investing in products that are forecasted to increase in price.
However, if the price falls, the buyer is committed to purchasing products at above-average prices.
This practice is beyond the sensibilities of most businesses and is only practiced by large-volume operators that have sophisticated purchasing systems and the expertise to study the futures market. However, any operator can read the Wall Street Journal and Produce Green Sheets to learn about what’s happening in the marketplace and its effect on the future prices of their products.

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1.12

Sample Cost Plus Contract

XYZ Food service Company will offer (your business) competitive pricing through a Cost Plus Program.
XYZ Food service Company will maintain the overall markup of the product category.
Product Category

Markup

Grocery
Frozen
Protein
Meat
Poultry
Seafood
Disposables
Dairy
Produce
Tabletop
Cleaning Powder

Agreed Upon Contractual Pricing

Beverage Systems

Agreed Upon Contractual Pricing

Ready-to-Drink Beverages
The above markup structure has been based on the following information: average order size ( ), number of proprietary items ( ), terms ( ), commitment level (%), and number of deliveries per week per unit ( ).
When (your business) contracts with vendors for individual pricing, documentation verifying this information should be forwarded to the Contract Administration Team for implementation. XYZ Food service
Company requests that a reasonable amount of time, seven to ten (7-10) business days, be allotted to execute new pricing. The XYZ Food service Company cannot back-date pricing contracts if they are received after the date they go into effect.
Pricing for the Cost Plus Program is firm for one (1) fiscal month. Exceptions include meat, poultry, seafood, produce, dairy, and some oils. These items will be quoted on a weekly basis. Uncontrollable market conditions may necessitate price adjustments mid-week. You will be notified of those occasions when they occur.
Pricing on cleaning products and dispensed beverages will be based upon mutual agreement. This pricing is locked in for a period of one (1) year. Please see your Chain Manager for information regarding dispensed beverage and cleaning product programs.
All pricing programs are contingent upon (your business’) agreement to purchase X% of total goods from XYZ Food service Company in the categories we have the ability to service. Prices are applicable to full cases.
This pricing excludes all additional costs that may be incurred by XYZ Food service Company in the course of our relationship with (your business). This includes any sponsorship or donations XYZ Food service Company may provide to (your business) as outlined in this contract.

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1.13

21

Sample Prime Vendor Proposal

Thank you for allowing XYZ Food service Company the opportunity to act as the preferred vendor for (your business). We are confident that the service and support we have to offer will meet and exceed your needs throughout the duration of our relationship.
Recognizing (your business’) need for cost-effective pricing coupled with outstanding service, XYZ Food service Company has developed this proposal with the purpose of meeting these needs. Our desire to providing a competitively priced product teamed with superior service is unsurpassed.
As you consider XYZ Food service Company as your primary vendor, please take into account the following—these are just a few of the benefits we offer our customers.
•

Easy access to various business reports

•

Internet-based ordering

•

A nutrition resource center to provide nutrition and ingredient information staffed by eight registered dieticians

•

Our on-site quality assurance lab is a rarity in the food service distribution industry

•

Electronically track product shipping and delivery

•

Marketing consultants to help you improve your business

•

Annual food shows

XYZ Food service Company will offer the following ordering and delivery schedules.
Next Day Deliveries
If you place an order Monday through Thursday, you will receive your order the next day. Orders placed on Friday will be delivered on Monday.
Skip Day Deliveries
There will be one (1) working day between the day you place the order and the day the order is delivered. The following schedule outlines Skip Day ordering:
Order Day

Delivery Day

Monday

Wednesday

Tuesday

Thursday

Wednesday

Friday

Thursday

Monday

Friday

Tuesday

Two Day Lead (TDL) Delivery Items
Certain slower moving items are only available on a skip day basis. These are referred to as TDL items. These items are not available to add to your order and will be listed on the front page of your XYZ Food service Company order guide for quick reference.
Additions to Your Order
To ensure that your delivery reaches you in a timely manner, we request that you limit additions to your order when possible.
Any adds must be phoned in by 11:00 AM Eastern Time on the day prior to the day that the order is delivered. We will make every effort to accommodate your request; however, additions cannot always be accepted because of limited space on our trucks. If our truck is filled to capacity, the XYZ Food service Company representative will alert you at the time of the call, or will notify you as soon as they are informed of the issue by our transportation department.
As you review and evaluate this proposal, please feel free to direct all inquiries to:
XYZ Food service Company
1234 Main Street
Anytown, USA 12345

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PART 1 | PROCUREMENT Dynamics of Food Service Purchasing

The Buying Process
The buying process occurs only after the food service establishment has planned the menu, determined quality and quantity of ingredients needed to produce the menu, written product specifications, determined price ceilings for products, determined appropriate stock levels, and identified approved purveyors. Once the owner and chef have completed these tasks, the buyer can begin her job of selection and procurement. The buying process involves three major steps: identifying the need, planning for the purchase, and making the purchase.

IDENTIFYING THE NEED
Identifying the need is primarily a mathematical function of the job. It requires constant communication with the production staff, and perhaps the sales staff, and a daily accounting of stock levels. The buyer’s primary responsibility is to maintain an adequate level of stock to meet the production demands of the staff. Failure to have either the proper ingredients or quantity of ingredients is highly detrimental to the business. As the old adage goes about the street vendor, “you can’t sell produce off an empty cart.”
Methods have been established to help the buyer maintain sufficient stock. According to Warfel and Cremer
(2005), “It is unfair to expect a food buyer to know exactly what is needed by operating departments and how much of it to buy. In fact, it would be unwise for the buyer to ignore the chef and operating department heads” (p. 54). Most businesses create a list of all of their needed supplies and foodstuffs. Each ingredient is crosschecked to determine its multiple uses within different recipes, and a minimum quantity is established that must be on hand at all times. This quantity is known as a safety stock. Various methods for determining proper stock levels and ordering amounts are discussed at length in Chapter 8.

Determining Stock Levels
When establishing an inventory, it is best to divide the products by their nature, perishable and nonperishable
(see Figure 1.14 and Figure 1.15). Nonperishable items are often purchased in bulk, such as case lots, and have a longer shelf life. They are much easier to buy and store, and they can often be purchased from multiple full-service or broadline vendors.
Nonperishables are purchased more frequently, as needed, because of their short shelf lives. Ideally, the chef and buyer will create forms or commodity lists for each type of perishable, grouping them by the purveyor’s product line. For example, separate lists should be created for dairy, produce, seafood, meats, poultry, and bakery.

In some large operations, such as a hotel, the chef is expected to prepare a daily list of all perishables needed for use over the next day or two. This list usually includes meats, fish, and poultry. The buyer, based on banquet sales contracts and established par stock levels, projects other fresh ingredients such as produce and bakery products.
According to Virts (1987), a system for determining the quantity of perishable products may include the following steps:
1. Determine normal usage rates. For example, in a normal two-day purchasing period, the operation typically purchases a specific amount of selected items: pounds of fresh meat, fresh poultry fryers, cases of lettuce, and other perishable products.
2. Consider whether additional quantities are needed for special catered events.
3. Determine the amount of each item currently in inventory.
4. Deduct that amount from the normal usage rate to calculate the quantity to purchase.
5. Make adjustments as necessary for holidays, special events, or other factors unique to the order period. (p. 64)

PLANNING FOR THE PURCHASE
After the tentative need has been determined, the buyer must consider other factors before placing the order. The most important factor is the rate at which the operation uses the items. In addition to quantifying how much of a certain product is used between deliveries, the buyer must consider the lead-time quantity for each item. This number represents the amount of units deducted from inventory between the time the reorder has been placed and the time the product actually arrives.
In some remote locations, such as resorts, purveyors might make only one delivery per week. The buyer must be able to accurately project her needs, without needlessly overbuying. This lead-time quantity is not to be confused with the safety stock levels, which should be available at all times. This safety level ensures a continuation of services in the event of damaged goods or late deliveries.
The buyer compares the quantities needed with that on hand, and prepares an order sheet. As discussed previously, the buyer can place the order in a formal or informal manner; however, the buyer must also consider the urgency of the products. Most of the time, with proper planning, emergencies can be avoided. Unfortunately, there are times when products are needed immediately, and the buyer must consider her options for obtaining the product.

MAKING THE PURCHASE
After a buyer has selected and approved suppliers from which she can buy on credit, a smart buyer will also identify retailers in the area that carry the products

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1.14

23

Commodities List of Perishables
Hotel La Bocana
Commodity List of Perishables
Date: ___________
Category:
Dairy

On Hand

Par
Stock

Order
Qty

Acme Dairy

GFS

Kingma

SYSCO

Milk, 2%, 4-Gal
Milk, Whole, 4-Gal
Milk, Whole, 24-Pt
Half & Half, 12-Qt
Heavy Cream, 12-Qt
Sour Cream, Lite, 6-Qt
Yogurt, Plain, 6-Qt
Butter, Print, Unsalted, 36-1#
Butter, Print, Salted, 36-1#
Butter Reddies, 90 ct, AA, 15#
Butter Chips, 90 ct, AA
Cheese, Asiago, 2.5 #
Cheese, Bleu, Danish, 10#
Cheese, Bleu, Crumbles, 5 #
Cheese, Brie, 8 oz
Cheese, Brie, 1#
Cheese, Camembert, 1 #
Cheese, Cheddar, Sharp, 10#
Cheese, Cheddar, Mild, 10#
Cheese, Gouda, 8 oz
Cheese, Jack, 1#
Cheese, Mozzarella, 2%, 10#
Cheese, Mexican Blend, 3#
Cheese, Parmesan, Fresh, 10#
Cheese, Provolone, 10#

Copyright 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
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PART 1 | PROCUREMENT Dynamics of Food Service Purchasing

1.15

Commodities List of Nonperishables

Hotel La Bocana
Commodity List of Non-Perishables
Date: ___________
Category:
Canned Fruits

On Hand

Par
Stock

Order Qty

GFS

Sam’s

SYSCO

US Foods

Applesauce, Natural,
72-4 oz, SYSCO
Fruit, Mixed Cup, in Jce,
36-4 oz, Dole
Fruit, Tropical Salad Mixed
Cup, 36-4oz, Dole
Grapefruit Sections, Asst, L/S,
12-5 IPM
Orange, Mandarin, Jce,
6-#10,
Peach Halves, L/S,
6-#10, GFS
Pear Halves, W/P,
6-#10, SYSCO
Pineapple, Sliced in Jce,
6-#10, Dole
Pineapple, Tidbits in Jce,
6-#10, GFS
Pineapple Chunks in Jce,
6-#10, Dole or GFS

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Chapter 1 The Purchasing Function: An Overview

her business uses. Unfortunately, someone else’s lack of planning can become the buyer’s emergency. Buyers have a variety of methods and sources for obtaining goods. These include the purchase order and blanket purchase order, standing order, daily order, drop shipments, ordering C.O.D., cash and carry, farmer’s markets and retail grocers, and bartering.
Regardless of the method the buyer chooses to order the supplies, the buyer should create an order record and make it available to the receiving personnel. Oftentimes, buyers work from custom-made buyer’s order forms.
These forms are created and separated by the nature of their contents, such as by seafood, meats, dairy, produce, and dry goods. As demonstrated in Figure 1.16, buyers often work with several vendors that supply the same types of product, so there will be a column for each vendor on the form. These completed order forms, indicating the vendor and expected delivery date and time, should be placed in a secure location, such as in an “Orders Placed” binder or on a clipboard in the buyer’s office, for easy reference by the receiving staff.

The Purchase Order
A purchase order (P.O.) (see Figure 1.17) is a form issued by the buyer and sent to the purveyor. The P.O. includes the names of the items, the quantities, and the prices for the items that will be purchased. The buyer will include a P.O. number and the shipping and billing address.

1.16

25

Purchase orders are legal documents that communicate the buyer’s intention. Because a purchase order clearly spells out the conditions for the sale, it protects both the seller and the buyer. If the buyer refuses to pay, the seller can sue for the moneys using the P.O. as evidence. If it is a large or complicated purchase, a seller may request that a buyer create a P.O. so that both parties understand the transaction. An invoice, which is the receipt for the items delivered, is another legal document that will reinforce the terms of the purchase order. The buyer can match the purchase order to the invoice to make sure that all of the items were delivered.

BLANKET PURCHASE ORDERS
A standard purchase order is usually used for companies with whom the buyer does infrequent business. If buyers plan to frequently purchase products or services from a seller over time, they often establish a blanket purchase order. This type of purchase order allows the buyer to purchase a certain amount of goods, usually indicated by a dollar amount, within a given time period. This speeds up the purchasing process as a separate P.O. is not needed for each transaction. The buyer merely needs to call her purveyor on the phone, send an electronic order, or submit a formal bid request to place an order with the company. As items are purchased, the seller will invoice the buyer for goods received. If needed, a “not-to-exceed” dollar amount can be added to the blanket P.O. to control the amount of spending.

Sample Buyer’s Order Form for Multiple Produce Vendors

The Heritage Restaurant Buyer’s Order Form
Food Category: Dairy
Item Description
PC: 13582 Milk, whole, 6-gal dispenser

Low-level Par

SYSCO

Jones Dairy

Crystal Dairy

Kraft

5 each

PC: 13576 Milk, skim, 10 oz

66 each

PC: 13563 Milk, choc., 10 oz

136 each

PC: 13542 Milk, butter, 10 oz

1 each

PC: 13921 Cheese, ched., 10 lb/blk

½ blk

PC: 13933 Cheese, sliced, Am., 3-lb stack

5 stacks

PC: 13979 Cheese, Swiss, 10-lb loaf

½ loaf

PC: 13961 Cheese, cream, 3-lb loaf

½ loaf

PC: 13987 Cheese, parm., 5-lb pail

½ pail

PC: 13995 Cheese, brie, 2-kg wheel

1 wheel

PC: 13906 Cheese, prov., 8-lb loaf

¼ loaf

PC: 13981 Cheese, mozz., 5-lb loaf

¼ loaf

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PART 1 | PROCUREMENT Dynamics of Food Service Purchasing

1.17

Order Guide for Gordon Food Service: GRCC Tech Center

Purchase Order
P.O. Number

:

O0011122

Order Date

:

4/1/2009

Expected On

:

4/3/2009

Ordered For

:

Kitchen

522 Stonewell Ave

Ordered By

:

Chris Smith

Austin, TX 77022

Ordered From :

Phone
Fax
Comment

: 713-555-2909
:

Contact

: Martin Carter

: Sample Only

Item Name

Item Code

Quantity

Unit

Price

Total

Additive Rinse Aid 3x-RA 2/77oz
Ecolab

4677912

1.000

4/1gal

$116.15

$116.15

Additive Rinse Aid 3x-RA 2/77oz
Ecolab

7746183

1.000

CS2CT

$115.90

$115.90

Ecolab-Apex Detergent Hand Pot &
Pan

4527487

1.000

CS2CT

$ 78.28

$ 78.28

Ecolab-Apex Power Plus

4589628

1.000

CS4CT

$ 80.40

$ 80.40

Ecolab-Apex Presoak

4526794

1.000

CS3CT

$ 89.04

$ 89.04

Ecolab-Apex Rinse Add

4589693

1.000

CS2CT

$179.04

$179.04

Total:

$658.81

Blanket purchase orders are very common among food service operators and allow for the immediate request and delivery of goods or services.

Standing Orders
If the buyer needs to purchase repetitive, specified services or items from a single supplier, the buyer can initiate a standing order (S.O.) to obtain more favorable pricing or service through volume commitments. This allows a business to quickly request delivery of goods and services, and it avoids the nuisance and cost of multiple purchase orders.
The S.O. is limited to a certain amount for the entire year

Notes

and does not represent a free license to buy goods or services not specified on the requisition.
A common practice for coffee shops, universities, convenience stores, and other food retailers is to maintain standing orders with dairies and bakeries. These businesses can usually forecast their usage with enough accuracy— relative to the sales of soft drinks, doughnuts, bagels, and milk—to establish an S.O. for daily delivery.

Daily Orders
The daily order is quite common among smaller, independent operators, as well as businesses that employ full-time buyers. In most cases, buyers ask purveyors to submit price

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quotations in advance, oftentimes weekly, so buyers can do comparative buying. Some purveyors are reluctant to quote prices more than 24 hours in advance, and it might be for good reasons such as market volatility.
In any case, the chef, owner, or designated buyer will review her commodity lists and contact the seller by the established means (online, by fax, by phone, and so on).
Daily orders are placed and debited from the blanket purchase order that has been established. The goods are generally delivered within 24 hours, and the invoice is mailed later.

Drop Shipments
A drop shipment is a slightly different method of purchasing goods. In this instance, the seller does not have the item, or enough of the item, in stock. The seller arranges with the wholesaler or the manufacturer of the item to deliver it directly to the buyer. The wholesaler invoices the seller, who then in turn invoices the buyer. The seller will increase the price on the second invoice to cover the costs of the transaction.
Drop shipping can occur when the order quantity is more than what the seller normally carries in its store or when a buyer purchases items from a smaller store or website.

Bartering
Bartering is not limited to the remote areas of the country; it can be practiced by the most upscale of eateries. Magazines publishers, advertisers, and graphic designers commonly barter their services for dining privileges at a fine-dining restaurant. Because both businesses trade in marked-up labor, with a fraction of supply costs involved, meals can be exchanged for ad space or artwork. This is a particularly useful strategy for new businesses that are cash strapped and looking to fill their dining rooms.

27

the war. Only one side was meant to be victorious: the buyer.
That was wrong then, and it remains wrong today.
Relationships between buyers and sellers should be mutually beneficial. As the adage goes, “It is much easier to conduct business with someone who is running toward you, rather than running away from you.” With a win– win approach, both parties consider their relationship to be advantageous, and future relations are both sought after and encouraged. The buyer who believes she received value from the seller will seek further trade with that seller, and similarly the seller will seek business with that buyer if she received both respect and due profit from the last deal.
The lesson is simple. Buyers need sellers; sellers need buyers. Both deserve the opportunity to conduct business in a professional, courteous, and profitable manner. Otherwise, move on. If both parties don’t walk away from a negotiation as winners, then the process has failed.

CONDUCTING SALES MEETINGS
Essential to maintaining a win–win relationship is the ability to conduct regularly scheduled sales meetings that satisfy both the buyer and the seller (Figure 1.18). As the personal productivity of both the buyer and the seller is crucial to her own success, neither party should unfairly monopolize the other’s time. These meetings should be established in advance, allowing both parties to set sufficient time aside, with the least amount of interruption permitted. Most meetings can be productive if scheduled to last between a half hour and an hour. Beyond that, time is often spent on nonwork-related discussions. That is fine if both parties agree, but often it can drain on one or the other’s patience.
1.18

Buyer holding sales meeting with seller in storeroom office
© Randy Van Dam 2008.

Bartering and trade-outs may be illegal or have tax consequences in some states. It is advisable to consult a tax attorney before entering into such an arrangement. Buyer–Seller Relations:
A Win–Win Approach
Not so long ago, many in business likened the negotiation process to war. Books on negotiations frequently used battlefield analogies. Meetings were seen as confrontations, where discussions needed to be held in an adversarial manner. Strategies were taught on how to win the battle and, ultimately,

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PART 1 | PROCUREMENT Dynamics of Food Service Purchasing

Upon the selection of the approved sellers, the buyer should identify how frequently she wishes to meet with the sales representative and agree on specific days and times for the meetings. Additionally, the buyer should indicate what information she will be seeking from the sales representative and query what type of additional information might be available, should she desire it. Generally, this includes product searches and substitutions, plus information on new developments that may be of interest to the buyer.
Under no circumstances should buyers allow sellers
(more often, potential sellers) to drop in without an appointment expecting to have the buyer’s full attention for more than 1 or 2 minutes. It is advisable for buyers to post a sign outside their office indicating that all salespeople must have appointments. The Negotiation Process
One of the greatest attributes a buyer can possess is the ability to negotiate a purchase with skill and diplomacy. Some consider it the single most important measure to being a successful buyer. As Shapiro et al. write in their book, The Power of Nice: How to Negotiate So Everyone Wins-Especially
You, “The best way to get what you want is to help the other side get what they want” (2001, p. 249). Paquette writes in The Sourcing Solution, “The ability to negotiate is a skill set requiring training and experience, and it is one that a good buyer must use effectively on a daily basis”
(2004, p. 141). To create a win–win strategy to negotiations, the buyer should consider the following elements:

• Recognize that good deals lead to more good deals
(and vice versa).
• Know the terms.
• Keep written notes.
• Understand performance issues. (2004, p. 149)

SUPPLIER PERFORMANCE
EVALUATION
Evaluations should be designed to provide information to management that will aid in their decision-making abilities.
Although all information can be useful, supplier performance evaluations should seek specific information. Both the product and the process should be evaluated. Consider the following criteria for your own evaluation instrument:
• Identify the short- and long-term goals for your organization.
• Identify the specifications for your needed products.
• Look at which suppliers and products you want to evaluate.
• Develop a cross-functional team (such as including the owner, chef, accounting staff, receiving staff, and sales rep) with various suppliers and management’s assistance to identify the functional priorities of the storeroom that should be evaluated.
• Define the most important factors to evaluate: price, quality, delivery time, consistency, sales representative, and other services.

• Create partnerships. Future business negotiations are about building long-term relationships.

• Weigh each criterion (in relation to the others).

• Know the needs of all parties. Your job as a successful buyer and negotiator is to understand the needs of the person across the table from you.

• Review the instructions for completing the evaluation for clarity and effectiveness.

• Know thyself. Your needs may be different from those of the seller. The seller’s greater need might be to gain, or increase, market penetration by landing your account, while you seek favorable pricing.

• Review completed evaluations with management.

By understanding the needs of both parties, you are much more likely to create a strategy of success for both businesses. The skill lies in trading something of value to obtain something of value. Paquette also suggests using the following strategies in the negotiation process:
• Never make the first concession.
• Make your first concession a reasonable one.
• Make each subsequent concession smaller, less reasonable.
• Don’t be afraid to ask the question. It may get answered.
• Find creative solutions.

• Determine a rating scale.

• Have other buyers, outside the team, evaluate the system and criteria.

ETHICAL AND PROFESSIONAL
STANDARDS AND PRACTICES
It is up to management to establish and articulate the ethical and professional standards of the organization. Additionally, management must clearly lead by example when it comes to ethical and professional behavior. They must also insist upon this behavior from those with whom they conduct their business activities.
Both buyers and sellers must pledge to conduct their business honestly and ethically, whenever or wherever their business is conducted. It is vital that both parties be honest,

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Chapter 1 The Purchasing Function: An Overview

responsible, trustworthy, and respectable. Neither side should sacrifice its reputation or sound business judgment.
Sellers and buyers should not engage in illegal or unethical behaviors. Any short-term advantage or profit gained unethically will result in a long-term failure for the company and its agent.
Company management, such as the food and beverage director and executive chef, may not benefit person-

29

ally from the financial gains of the company. No conflict of interest can be permitted, including bribes, kickbacks, or other unauthorized benefits that affect purchasing decisions. All company officers including buyers, chefs, food and beverage managers, dining room managers, and bar managers should avoid tips or bonuses. They should also avoid presents, trips, or entertainment tickets that would influence their purchasing decisions.

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P

P

RO PROCUREMENT Dynamics I L E Service Purchasing
E S S I 1 The L RO F of Food
PART 1 |FChapter O N APurchasing Function: An Overview g Van P. Atkins,

CEC, AAC

Place of Birth: San Francisco, California

Van Atkins is one of the country’s preeminent chefs, having led the kitchens in some of America’s largest and most celebrated hospitality properties. As with most accomplished chefs, he started by washing dishes and prepping foods in several establishments, learning from everybody for whom he worked. After schooling at
Boise State University, Chef Atkins graduated from The Culinary Institute of America in 1974. He moved to Las Vegas and eventually became the executive chef of the Tropicana Hotel. Chef Atkins later became the executive chef of the famed
Hilton Anatole Hotel, the largest and most complete convention resort hotel in the Southwest, situated on 45 acres outside of Dallas, Texas. Wishing to return to his hometown of San Francisco, Chef
Atkins then became executive chef of the
Westin St. Francis Hotel, a legendary San
Francisco landmark. Always the ambitious chef, Atkins returned to Las Vegas to run the many kitchens of the famed Caesars
Palace Hotel, owned by one of the world’s leading gaming companies. Later, when
Luxor called, he responded by becoming the opening executive chef of the iconic pyramid hotel and casino, establishing the storeroom and kitchen operations for the mega-resort. After several more years at its helm, Chef Atkins accepted the position of corporate executive chef for the L. J. Minor Corporation. Today, Chef
Atkins is the senior director of business development and corporate executive chef for Custom Culinary, one of the leading providers of authentic culinary flavor systems in the food service and food processing industries.

Memberships and Career
Highlights
Chef Atkins is a member of the American
Culinary Federation, where he is a certified executive chef. He is also a member of the
Research Chefs of America. Chef Atkins is a well-sought-after speaker and chef consultant, presenting at trade shows and culinary schools across the United States and abroad. Atkins recently returned to Dubai as a featured presenter at the CHEF seminar, held at the InterContinental Hotel. The

FPO

Courtesy Van Atkins.

Educational Background and Work Experience

“I was the Executive Chef at Caesar’s Palace and we had an outdoor catering party for 18,000. It was the grand opening for the now famous Forum Shops at Caesars. Even though the Forum Shops are connected to Caesars, we had to load up the equipment and food onto 2 eighteen-wheeler refrigerated trucks and drive them to the site. You can imagine how much food was needed for this elaborate, heavy hors d’oeuvre party for 18,000 people.
“The day before the event we started to preload the refrigerated trucks. On the day of the function, we discovered that one of the refrigerated trucks had malfunctioned and froze everything that we had stored on board. Needless to say, we had to put everything into overdrive to replace all of the products!
The party went off without a hitch and was hailed a success by all. From that moment on, however, we put temperature monitors on any refrigerated trucks we used for catering.”

CHEF seminar, which aims to strengthen awareness of American food products, was held in conjunction with the U.S. Agricultural Trade Office and the Southern U.S.
Trade Association (SUSTA). For his lifetime of culinary achievements, Chef Atkins was elected as a Fellow of the American Academy of Chefs, and the Honorable Order of the Golden Toque, an international honor society limited to 100 living chefs. However, with all of his success and notoriety, including being asked to interview for the position of White House chef in 1987,
Chef Atkins still considers his mentoring of young men and women to be his greatest achievement. Passions with the Food Service
Industry
“What gives me the greatest pleasure in our business is to help others to grow. I still also thoroughly enjoy cooking and managing others in their jobs and the camaraderie

of being with other chefs throughout the world. I’ve always said I have one of the greatest jobs in the country. I get paid to help chefs succeed in their jobs! I also enjoy the fact that we never stop learning. Wow, what a business!

Advice to a Chef or Buyer
“Always compare ‘apples to apples.’ Be on the lookout for new products, as manufacturers are making new products every day that are superior to the products of yesterday. Be sure to read the ingredient label on products. If you don’t know what certain ingredients are, ask somebody who does.
When possible, try to buy locally, and get to know your sources like the farmers, ranchers, and fishmongers.”
(Note: The Forum Shops at Caesars have expanded three times since then, and it is per square foot the most profitable shopping center in the United States.)

Copyright 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
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Chapter 1 The Purchasing Function: An Overview

31

Key Words and Concepts bid request form blanket purchase order bottom-line bidding broadline vendor business-to-business (B2B) e-commerce buyer’s order forms code of ethics commerce competitive buying conceptual skill

cooperative buying cost plus fixed-fee daily bid daily order daily quotation drop shipment ethics fixed bids food service distributor hedging line-item bidding

line positions long-term contracts negotiate optimal purchasing policies and procedures manual prime vendor procurement purchase order (P.O.) purveyor safety stock

sealed bid selection service contracts shelf life single-source buying staff position standing order (S.O.) trade volume buying and warehousing Chapter in Review
The following exercises are provided to help the reader understand and apply the contents of this chapter. They may be completed individually or in a classroom environment.

REVIEW QUESTIONS
a. Identify at least five attributes required to be a modern buyer.
b. Identify at least five important product characteristics to consider when buying.
c. Identify the various forms of formal and informal buying, and describe when each method would be appropriate to use.
d. Identify at least eight attributes that would be desirable in potential vendors.

IN D IV IDUAL ACTIV ITIE S
a. Web based: Research different vendors that service your area, and find at least one vendor for each type of food used by a full-service restaurant.
b. Experiential: Attend a food show in your area, and speak with different purveyors at their booths.
c. Critical thinking: Consider why a food service operator would choose to use a formal system of buying over an informal system.

GROUP ACTIV ITIE S
a. Lab experience: Set up a series of mock sales meeting interviews, where students practice interviewing potential vendors.
b. Classroom action: As a class, outline the sections to a storeroom policies and procedures manual for a fictitious business.
Afterward, divide the class into subgroups to develop each section.

Copyright 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
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