NHM 363 Soifer: Midterm

Chapter 1

The Concepts of
Selection and Procurement

Purchasing

Paying for a product or service.

Selection

Choosing from among various alternatives.

Procurement

An orderly, systematic exchange between a seller and a buyer. The process of obtaining goods and services, including all activities associated with determining the types of products needed, making purchases, receiving and storing shipments, and administer

Commercial hospitality operations

profit-oriented company

Noncommercial hospitality operations

Another term for on?site or military hospitality operation.

Franchises

the right to operate a business or to sell a product
franchises A business form where the owner (franchisor) allows others (franchisees) to use his or her operating procedures, name, and so forth, for a fee.

Co?op buying

The banding together of several small operators to consolidate and enhance their buying power.

Referral group

A type of co?op where independent operators join together to send business to one another. For instance, Best Western is a referral group that has a central reservations system available to each member. In addition, these groups typically provide some pur

Commissary

Similar to a central distribution center. The major difference is that at a commissary, raw foods are processed into finished products, which is not the case in a central distribution center. Could be considered a restaurant company's personal convenience

Central distribution center

A large warehouse owned by a multiunit hospitality company that orders merchandise directly from primary sources, takes delivery, stocks the merchandise, and then delivers it to company?affiliated units in the area.

Chapter 3

Distribution Systems

Distribution channel

The people, organizations, and procedures involved in producing and delivering products and services from primary sources to ultimate consumers.

Primary source

A supplier at the beginning of a product's channel of distribution. For instance, a farmer is a primary source for fresh produce items. This supplier typically sells items to an intermediary that resells them to hospitality operations.

Intermediary

Another term for vendor.

Full?line distributor

A vendor that provides food products and nonfood supplies

Broadline distributor

Intermediary that provides food, nonfood supplies, and equipment.

Broker

Person who represents one or more primary sources. A broker does not buy or resell products, but promotes products to potential buyers. A broker usually represents manufacturers and processors that do not employ their own sales force.

Buying club

A type of co?op purchasing. Instead of co?op members organizing and administering their own co?op, they join a buying club that, for a fee, streamlines the process and makes it more efficient.

Supplier services

Services, such as free delivery, generous credit terms, and so forth, provided by vendors to buyers who purchase their products.

Farm?to?table

The food on the table (served to the guest) comes directly from a specific farm.

Chapter 4

Forces Affecting the Distribution Systems

Supply and demand

Refers to a competitive environment that exists for producers of commodity items. If supply exceeds demand, purchase prices will decrease. If demand exceeds supply, purchase prices will increase.

Edible?portion (EP) cost

Equal to the AP price per portion divided by its edible yield percentage.

As?purchased (AP) price

Price charged by the vendor.

U.S. Department of Agriculture (USDA)

Among other responsibilities, it has inspection powers throughout the food distribution channel. Typically concentrates its inspection efforts on red meat, poultry, and egg production.

Food Safety Inspection Service (FSIS)

Division of the United States Department of Agriculture (USDA). Oversees meat inspection.

Food and Drug Administration (FDA)

Administers the Federal Food, Drug, and Cosmetic Act (FFDCA).

Environmental Protection Agency (EPA)

A U.S. agency responsible for protecting human health and the environment by writing and enforcing regulations based on laws passed by Congress.

U.S. Department of Commerce (USDC)

U.S. Department of Commerce (USDC) Agency that, among other things, will, for a fee, provide to seafood processors continuous government inspection and federal grading of their fish products.

National Oceanic and Atmospheric Administration (NOAA)

National Oceanic and Atmospheric Administration (NOAA) Agency of the U.S. Department of Commerce (USDC) that, for a fee, will provide continuous inspection of a fish processor's plant.

Chapter 5

An overview of the purchasing function

Purchasing Activities

Tasks buyers must perform in order to obtain the right products and services, at the right price and time, from the right vendors.

Sourcing

The process used by a hospitality company to help establish a supplier. Typically done by large hospitality companies to help establish minority?owned primary sources and/or intermediaries. Alternately, the process a buyer undertakes to locate a vendor fo

What?if analysis

Method of analyzing the potential outcome of a particular procedure without actually executing it. Normally involves the use of mathematical models.

Make?or?buy analysis

A cost/benefit analysis whereby the buyer tries to determine if, for example, it is more economical to purchase raw foods and make a finished product in?house, or whether it may be less expensive to purchase a convenience, value?added food. The buyer usua

Convenience food

A food that has been processed to change its form and/or taste. It usually requires very little handling in the restaurant kitchen. It may be ready?to?use or ready?to?serve.

Stockout

Running out of a product; not having it available for guests who want it.

Edible-portion (EP) cost

Equal to the AP price per portion divided by its edible yield percentage

Chapter 6

The Organization, Administration, and Evaluation of
Purchasing

Quantity discount

A price reduction for buying a large amount of one specific type of merchandise.

Volume discount

The buyer agrees to purchase a huge volume of goods; however, unlike a quantity discount, he or she buys more than one type of merchandise.

Blanket order discount

Another term for volume discount.

Cash discount

An award for prompt payment, for paying in advance of the delivery, or using a cash?on?delivery (COD) bill?paying procedure.

Cash?on?delivery (COD)

Paying for a shipment when it is delivered. Payment may be in cash, check, credit card, debit card, or other acceptable means.

Bill?paying procedure

Method used to discharge debts in such a way that payments are made on time. Payments should not be late, as that could create penalties, yet they should not be too early unless there are incentives for early payments.

Promotional discount

Price discount awarded to the buyer if he or she allows the vendor to promote the product in the hospitality operation. Or if the hospitality operation agrees to personally help promote the sale of the product to its customers.

Inventory Turnover

Equal to: (actual cost of products used, or sold, divided by the average inventory value kept at the hospitality operation).

Chapter 7

The Purchase Specification: An Overall View

Product specification

Same as a purchase specification but does not contain any information about supplier services the buyer wants.

Purchase specification

A concise description of the quality, size, weight, count, and other quality factors desired for a particular item. Usually also includes some description of the desired supplier services a buyer wants.

Yield

The net weight or volume of a food item after it has been processed and made ready for sale to the guest.

Intended use

Refers to the performance requirement of a product or service, which is noted on the specification. Considered to be the most important piece of information on a specification.

Equal to or better

Tells the vendor that the buyer will accept a substitute item if it is the same, or better, quality.

U.S. quality grades

Rating system used by the federal government to indicate the quality of food products. Not all foods have established federal government quality grading standards.

Weight range

Indication of the approximate size of a product the buyer wishes to purchase. Used when it is impossible or impractical to specify an exact weight.

Count

The number of pieces in a container. Alternately, the number of smaller containers in a larger container.

Waste

Unusable part of a product that occurs when it is processed. Most waste is unavoidable, but sometimes avoidable waste occurs due to mistakes and carelessness.

Point of origin

Refers to the part of the world where a product originates. Important selection factor for some food items, as the point of origin can have a significant impact on their culinary quality.

Approved substitute

A product that a buyer can purchase in lieu of the typical one that is usually purchased.

Pull date

Date beyond which a product (usually food) should not be used, or should not be sold.

Chapter 8

The Optimal Amount

Correct order size

The order size that minimizes the ordering costs, inventory storage costs, and stockout costs.

Correct order time

The order time that minimizes the ordering costs, inventory storage costs, and stockout costs.

Inventory turnover

Equal to: (actual cost of products used, or sold, divided by the average inventory value kept at the hospitality operation).

Par stock approach

Method used to determine the appropriate amount to order. Involves setting par stocks for all items and subtracting the amount of each item on hand to calculate the order sizes.
Order quantity =
Par level - Current inventory

Levinson approach

Method of determining the appropriate order sizes. Takes into account forecasted sales, portion sizes, and yield percentages when calculating the amount of products to order.

Practical Approach

AP (As Purchased) = EP
(Edible Portion) /Edible Yield Percentage

Popularity index

The percentage of total guests choosing a given menu item from a list of menu alternatives.

Portion divider (PD)

Equal to an item's (portion factor (PF) multiplied by its edible yield percentage).

Portion factor (PF)

Equal to (16 ounces divided by the number of ounces needed for one serving). Alternately, equal to (1,000 milliliters divided by the number of milliliters needed for one serving). Alternately, equal to (1,000 grams divided by the number of grams needed fo

Edible yield percentage

Another term for yield percentage.

Chapter 9

Determining Optimal Purchase Prices and Payment Policies

Conventional profit markup

The most typical percentage (or dollar amount) added to the cost a company pays for an item it sells, to compute the company's sales price.

Supply and demand

Refers to a competitive environment that exists for producers of commodity items. If supply exceeds demand, AP prices will decrease. If demand exceeds supply, AP prices will increase.

Blanket order

Purchase order that contains several different products.

Cash discount

An award for prompt payment, for paying in advance of the delivery, or using a cash?on?delivery (COD) bill?paying procedure.

Hedging

Attempting to reduce or avoid the risk of fluctuating AP prices by taking a position in the commodity futures market.

Economical packaging

Packing methods and packaging materials used that will reduce overall product costs.

Odd?hour delivery

Shipment delivered at times of the day or week when a receiving agent is not usually scheduled to work. Buyers who agree to these types of deliveries may receive a discount

Co?Op Purchasing

A "purchasing cooperative" is a type of cooperative arrangement, often among businesses, to agree to aggregate demand to get lower prices from selected suppliers.

Cost?plus purchasing procedure

Under this purchasing procedure, a product's AP price is equal to the supplier's cost of the product plus an agreed?upon profit markup.

Exchange bartering

Another term for barter.
Exchange bartering is simply the practice of trading your products or services for something you need. This is a relatively common practice in the hospitality industry. For instance, it is not unusual for a hotel company to exchan

Introductory offer

AP price discount offered by suppliers to buyers who purchase an item that is newly available in the marketplace. The discount may be in the form of a cash rebate or it might include a free item for every one the buyer purchases at the regular AP price.

Opportunity buy

A purchase intended to save a great deal of money. The products are price discounted. A quantity discount is an example of an opportunity buy.

Chapter 10

The Optimal Supplier

Approved supplier

A vendor that the buyer is allowed to buy from.

Approved?supplier list

A list of all vendors who buyers are allowed to purchase from. An excellent security precaution.

Bid buying

When buyers shop around seeking current AP prices from vendors. The vendors are asked to quote, or bid, the prices they will charge. Intended to give the buyer competitive pricing information that will allow him or her to get the best possible value

Request for quote (RFQ)

Used by buyers who shop around for the best possible deals. It is a list of items needed and their specifications, given to potential vendors who are then asked to quote, or bid, the AP prices they would charge for them.

Chapter 11

Typical Ordering Procedures

Purchase requisition

Lists the products or services needed by someone in the hospitality operation. It is given to the buyer, who then goes into the marketplace to find the best deals. This requisition is typically used for things that the buyer doesn't purchase on a regular

Purchase order (PO)

A request that the vendor deliver what you want, ideally at the time you want it, at an agreed?upon AP price and credit terms. May include other conditions, such as minimum order amount, cost of delivery (if any), and so forth.

Blanket order

Purchase order that contains several different products.

Purchase order draft

A purchase order that includes an attached check to cover the price of the goods and/or services. A form of prepaid order.

Supplier's forms

Paperwork documents or an electronic application the supplier provides to buyers, usually at no charge. They are typically intended for use by buyers who purchase products from the company providing them for free.

Standing order

Under this procedure, a driver (usually referred to as a route salesperson) shows up, takes inventory of what you have, then takes off the truck enough product to bring you up to some predetermined par stock, enough to last until he or she visits you the