METHODS OF PURCHASING

Purchasing by contract

A contract is a binding agreement between two or more persons that specifies the obligations
of each individual. A contract consists of an offer by one person and acceptance by another. In
any contract considerations must be present. This consideration mainly consists

Of payment by the purchaser for the products and services delivered by the seller.
Consideration could also be form of a promise to deliver or make payment on delivery. This
method is mainly used in large establishment. Basically there are two types of purchasing by
contract. Ie

a) Time contract

This covers a specific period of time normally ranging from three months (short term) to
about one year (long term)

b) Quantity contract

This contains specific quantities of items over a period of time. It is mainly used for
frozen foods and dry goods to buy a set quantity of goods during that trading period,
but with delivery phased at weekly, fortnightly, or monthly intervals according to their
needs.

Factors to consider when preparing a contract

I. The effects of the contract

II. The decision of any body mainly in the regard of misunderstanding

III. Time to purchase the item, then supplier to cater for the cost.

LEGAL IMPLICATIONS OF A CONTRACT

i. Period of the contract

ii. Estimated quantities as accurate as possible

iii. The reservation of the establishment to divide a contract, if necessary between

suppliers.
 iv. The purchase specification for the item concerned.

v. The removal of any rejected goods to be undertaken by the supplier.

vi. Containers chargeable must be credited to the establishment in full when returned.

vii. Power to purchase in default; should a supplier not be able to supply a commodity, the
establishment reserves the right to purchase the commodities from another source.

viii. In case of a major dispute, then the decision of an agreed independent body should be
accepted by both parties.

ix. Indemnity against damage; the supplier to be responsible for damage to property or
injury to persons caused in conjunction with the execution of the contract.

x. Prevention of corruption; the establishment reserves the right to cancel the contract
should any unethical practices such as bribery of any member of staff be known. Any
cost incurred from the cancelling of the contract to be recovered from the supplier.

xi. The place of delivery; at times particularly on group purchasing, goods are required to
be delivered to several different addresses.

xii. Invoices to be supplied within a specified time after delivery has taken place. They
should be sent to particular addresses.

xiii. Payment of Invoices; information to be given to the suppliers as to when payments will
be made.

xiv. Service of notice to break a contract, the period of time to be given by either party to be
specified and to whom notice is served.

The clauses are normally printed at the back of the contract form, the front of the form
being designed to give sufficient space for the purchase specification to be detailed.

Advantages of contract purchasing

1. Continuity of supply at a fixed price

2. Time saving by eliminating price and supply negotiations

3. Avoiding over ordering of items

4. Avoiding need to hold high stocks to gain bulk buying discounts

5. Regular re ordering and delivery performance are set

 Disadvantages

1. Inflexible in the choice of supply and in some cases the commodities available

2. Special offers or price cuts outside the contract cannot be enjoyed

3. The suppliers may take the customer for granted

4. Incase of specific quantity contract for certain items it may lead to high stock
holding should there be a change in customer demand.

5. The difficulties involved in changing supplier should a supplier prove inconsistent

in the service or goods provided.

Centralized purchasing

This is normally used by chain operations or group establishment and occasionally by small
groups of independent operations who may have similar needs. In this case requirement of one
individual unit within the group are related to a central office which would determine total
requirement of all units within the group and purchase to total. Delivery may be done directly
to the units to a central point or location for distribution to the units by the groups themselves.

Advantages

1. Price reductions due to bulk buying

2. Wider choice of market due to volume trade

3. Greater range of stock items available

4. Specification of purchase may be more precise

5. Purchase and quality are easier to control due to volume of trade

6. Control over dishonesty by unit measures

Disadvantages

1. Units don’t have freedom to purchase stock items which may be peculiar to their
particular needs.

2. Standardization of menus and products limits the freedom of units to change.

3. The advantage of localized price reduction cannot benefit the unit.

 4. Centralized delivery may cause distribution problems.

PURCHASING BY MARKET LIST QUOTATION

This method is practiced by larger establishment either on a daily for perishable foods or
weekly, fortnightly or monthly basis for any goods and grocery commodities.

The purchaser calls the supplier and request for a price quotation for the required goods.
According to standard purchase specification sent earlier on to the supplier, the supplier with
the most competitive price is given the order.

In some cases the establishments send their own quotation sheets for suppliers to complete.

Advantages

1. It is possible to select the most competitive price from different suppliers.

2. Suppliers price quotations are rendered more competitive

3. Suppliers only quote against their purchase specification

4. It assist purchaser in selecting most economic ordering quantities.

Disadvantages

1. It may be time consuming

2. It is impracticable for small establishments due to the volume of suppliers required

making it uneconomical for suppliers to quote or offer such services.

3. Suppliers who offer better service to others may not be as competitive in price thus the
establishment may not benefit from such a service.

PURCHASE FROM VAN SALES

This is practiced mainly in rural areas by smaller establishments in general. The suppliers use
vans carrying a range of products and visit establishments on a regular basis for the purchaser
to buy his purchases directly from the van and pay on a monthly account.

Items mostly sold in this method are fruits, vegetables, bread, dairy products and frozen foods.
Advantages

1. The caterer is able to see the goods available and any alternative.

2. Special offers can be taken immediately

3. Stock holding can be easily controlled

Disadvantages

1. Products may on occasions not be available

2. Prices may not be as competitive as wholesale or market prices

3. It may limit choice of suppliers.

PURCHASING BY CASH AND CARRY

It is used by small establishment, it involves the purchaser visiting local wholesale warehouse to
carry establishment services exclusively and traders have a full range of foodstuffs.

Advantages

1. Prices are competitive

2. There are no minimum order levels.

3. Their accessibility means that caterers can make frequent visits according to their own
requirements.

4. Stock levels can be kept to a minimum

5. The caterer can see a range of products available to him and experiment with them

Disadvantages

1. In most cases there is no delivery services

2. Credit is not available to the purchasers.

 CLERICAL PROCEDURES AND FORMS USED IN RECEIVING

Purchase orders

Purchase orders are sent out to suppliers giving details of the quantity and quality of items
required to be delivered. The purchase orders are often made in five copies, each copy
being color coded to aid in distribution of them;

- White top copy – sent to supplier

- Yellow copy – sent to accounts department

- Green copy – sent to receiving department

- Pink copy –retained in the purchasing office and filled under supplier

- White bottom copy – retained in purchasing office & kept in date order until goods are
received and then filed under order number.

The receiving clerk should have a copy of the purchase orders or daily quotation sheets,
which would be compared with delivery notes accompanying any delivery.

Delivery note

It accompanies all deliveries and is compared with a copy of purchase order. It is necessary to
check the delivery note which is normally in duplicate. The top copy is retained in the receiving
department, while the second copy is signed by receiving department and returned to the
delivery man.

Goods received book

It shows the delivery note number, name of suppliers, purchase order number, etc. A remarks
column is used when purchase order and delivery note do not match. It is used in small
establishments but in large ones an analysis good receiving book is used:

- Analysis of goods received can be measured against standards

- Enables receiving department to undertake analysis of purchases in the afternoon and

this relieves the control office this additional work.

Credit note
It is a document used to correct an overcharge in an invoice. It is written under the following
circumstances;

- When goods are rejected

- When insufficient quantities are delivered

- When there is price discretion

- When inferior qualities are delivered

Invoice

It is a document that is used to demand for payment. It is brought by the delivery man together
with the goods.

Receiving of foods

The method of receiving foods follows the procedure outlined at the start. The procedure
applies even when receiving beverages.

Receiving of expensive commodities

Although every item must be checked for quality, special attention is given to most expensive
items such as meat and smoked salmon. A meat tag is used after checking it for quantity and
quality.

A tag; it is a label made from a hard and durable piece of paper attached to an item. It consists
of name of item; price per unit, total value, supplier, date received, total weight, tag number,
etc.

Tagging; the act of labeling expensive items received using tags.

Purposes of a meat tag;

- Provides a basis for control for an expensive item of food.

- Ensures that the receiving clerk weighs each joint.

 - The checking of individual weight of each joint is done against the specification weight
range of a commodity.

- It provides a reference number to aid issuing to the kitchen and when yield testing.

- Assists in stock rotation.

- Assists when taking weekly or monthly inventories as the purchased weight is recorded.

Assessing performance of receiving department

- Take spot –check in different suppliers

- Ensuring that all necessary paper work is done properly and in time.

- Check that receipt of goods is done as quickly as possible. If this is done the receiving
department will be efficient and there will be no collision with supplier or delivery man.

STORING AND ISSUING

The basic objective of a food store and beverage cellar is to maintain an adequate supply of
food and beverages for the immediate needs of the business with the very minimum loss
through spoilage and pilferage. The stores should be near the receiving department, goods lifts,
to reduce lab our costs for internal deliveries and pilferage.

Qualities of a good store

- The stores should be well ventilated and lighted.

- The stores should be large enough for checking in goods, unpacking and assembling of
order prior to delivery and collection.

- Should be constructed with materials that are easy to clean, and free from vermin and
rodents.

- Security is essential in the stores therefore windows should be barred, refrigerators and
cold rooms should have strong locks and doors to have heavy duty locks.
 - When opened only authorized persons should be allowed in and senior staffs like
purchasing officer and food and beverage manager.

- All keys to be held by the storekeeper or cellar man, with a duplicate kept in the
purchasing office.

- A general store where non- refrigerated items would be kept should be fitted with
mobile adjustable shelving racks made of steel, to allow changing the layout of the store
area, assist in cleaning the area and cleaning the shelves.

- A wash hand basin, soap, nails brush, and drier should be provided for staff and also a
first aid box.

- Steps for staffs to reach goods on high shelves and appropriate trolley should be
provided.

- There should be ample well arranged store space with shelves of varying depths and
separate sections for each type of food. These sections may be deep freeze cabinets,
cold rooms, refrigerators, chill room, vegetables bins and container stores.

Typical layouts of stores

- Those having all items arranged in the stores in alphabetic or numerical orders.

- Those having all items which are frequently issued located near the door where issues
are made and others arranged in alphabetic and numerical bin sequence.

- Those grouping commodities together eg, all canned items arranged in sections for
fruits, veges, fish, etc or all sparkling wines together, etc

- Those arranging heavy items on the lower shelves while the light one on the upper
shelves.

Qualities of a good storekeeper

- Should be experienced

- Should have knowledge to handle, care for and organize the stock in his or her charge.

- Must be honest.

- Must like his job.

 - Must have a quick grasp of items.

- Must have steady mind and sense of detail.

- Must be tidy.

Duties of a storekeeper

- In charge of cleanliness of store and arranged.

- Ability to identify important stock and have sample of stock.

- Should keep pricing list

- Should keep a set of bin cards.

- Keep all delivery notes, credit notes, and invoices.

- Update the records

- Should keep a list of all suppliers.

- Should have a report

- Should keep a data for management report.

Documents used in store keeping

i. Bin card

A bin is simply a container, receptacle, drawer, shelf, cupboard, or room in which any
stock item is physically held. Each stock item has a separate bill allocated to it. One bill
should hold one particular stores item only. One bin card is maintained for each bin. In
larger stores, the bin card is kept next to the relevant bin but in smaller stores all bin
cards may be retained in the stores office. All entries are made in the bin cards in terms
of quantities only, values are not shown.

Item name should be very specific to avoid confusion and to ensure proper
identification the product code should also be clearly shown.
 The unit is the standard measure in which the material is received and issued. It could
be kilogram, a liter, a tin of 5kg etc. It is important to note that all entries in the bin card
are made in terms of units.

If bin cards are held in the stores office, showing bin no. on the card helps in location of
the relevant bin. Maximum, minimum, and re-order levels are shown on the cards to
enable the stores personnel to regulate the ordering and issues of stock items
accordingly.

ii. Stock ledger

This is kept in the costing department and records movements in both physical
quantities and monetary values of all stock items. It is maintained on the same debit and
credit principles as are all financial ledgers. A balance column is also maintained to show
both the quantity and value of items in stock at any given time.

iii. Perpetual inventory system

This refers to a procedure which ensures that the quantity and or value of each stock
item at any given moment is readily available. This is a very useful tool of stores control
as it assists in immediate verification whenever a regular or surprise stock card is carried
out.

Perpetual inventory system is only a stock records technique which prescribes that
balance must be computed and recorded after each receipt and issues. This is not stock
taking.

iv. Stock cards

It is an alternative to a bin cards, kept in a loose- leaf holder or tray file in stores or
cellar. It is kept for every item and contains the information on a bin cards but in
addition, it contains the details of the re-ordering quantity of a commodity plus signal
devices (a small red plastic indicator) which draw attention when a commodity is at low
level. It should be updated daily and check that the balance on the card agrees with the
actual quantity of the item held in the stores or cellar.

v. Departmental requisition book

Each department needs to be provided with a requisition book in order to draw goods
from the stores. Whenever goods are drawn from the stores a requisition must be filed
at when a storekeeper issues the goods, he will check them against the requisition and
tick them off.
 Details found in requisition sheet

- Serial number

- Name of department

- Description of goods received

- Unit

- Date

- Price per unit

- Quantity of goods issued

- Cash column

- Signature

vi. Order book

This is a duplicate and has to be filled in by the storekeeper every time he or she wishes
to have goods delivered. Whenever goods are ordered, an order sheet must be filled in
and sent to the supplier, and on receipt of goods they should be checked against both
delivery note and duplicate order sheet. All order sheets must be signed by the
storekeeper. It contains;

- Name and address of the catering establishment

- Name and address of the supplier

- Serial number of the order sheet

- Quantity of goods

- Description of the goods to be ordered

- Date of delivery if a specific date is required

- Signature

vii. Stock sheets

 Stock should be taken at regular intervals of either one week or more ie one month.

Spot checks are advisable about every three months. This should be done by an
independent person thus preventing the chances of pilferage and fiddling taking place.
Details contain;

- Description of goods

- Quantity received, issued, and remaining balance

- Price per unit

- Cash column

Stock sheet is usually printed in alphabetic order.

viii. Transfer note

It is used by an individual department to order for items from either department

without recording from stores.

ix. Breakage or damage goods book

It is used to record all goods damaged. It contains; name of the item, cause of damage,
date of the accident, the staff in charge, remarks.