A proposal of PURCHASING POLICY AND PROCEDURES ---2012

SUBJECT : MATERIALS –PURCHASING -POLICY AND PROCEDURES

POLICY OBJECTIVES-/STATEMENT--------

FOCUS –MIKHEAL hotel, a five HOTEL , , has a material s department

controlling the inflow of material to the hotel ,the suppliers are identified ,

purchase orders –market list are purchased from various suppliers stored in

the general stores and kitchen stores,at

Although there is a sustained level of material flow and the accounting

responsibilities are quite reasonable , however it was felt by the top management

that the materials function is revamped , more rational policy and procedures

material are set up for an effective mechanism of supply chain operations,

which would govern a large scale warehousing facility , optimizing costs on

added value inventory in the general stores and kitchen , mitigating supplier

hold on the daily procurements due to lack and adequate storage space, and

effective material procurement management system which warrants the

supplier to dictate term on- OUR PURCHASES –the resultant factor of last

minute rush order on the suppliers with a lack of sequential planning on effective

quality procurement of material cost high prices , the material management is

not in a position to scheme the market to the company’s advantage

1. The cost journal equation at present is as follows

Opening stock + plus purchases for the month ---less Closing stock

=consumption

2. However the actual purchase journal should read as follows

Opening Stock + Add Purchases ---less consumption =Closing stock

The first is journal will not measure and analyze accuracies as it is a

consumption valuation by default , however the second journal is a very highly

accurate journal analyzing purchase variations and reconciliations

The enforcement of the second journal is the accuracy measures entrusted to the

cost controller who analyze daily net consumptions to net revenue , and these net

consumptions after adjustments are journalized to arrive at highly accurate cost

figures .

Thus to enable the objectives of the company , for a sustained level of material

inflow at optimum pricing out flow of material from stores on FIFO Method

and ABC analysis of inventory with EOQs , supplemented with material

procedures such as Material indenting system from stores and department ,

purchase order system material receivable –Goods Received Notes –material

issue notes from stores to user department, inventory valuations , consumption

analysis

Are all factors which influence positive for an effective supply chain

management system

.

The new material and procurement policy will have the following Aspects in

the material procurement planning

The Material

The purchaser would purchase for both the Hotels s the material for its daily

consumption and stock, the objective would be to purchase the high quality product

at reasonable rates, The purchaser would source the material food, beverages,

engineering FFE, capital and project items for its use from various suppliers who

have a good Reputation in the market and ensure that spurious, duplicate and expiry

date good s , are not purchased from the market, for items not available in the local

market the Same would be purchased from abroad / imported, The management

would make a list of the product specifications for all its material and for easier

access of costing norms ,the material would be segmented and coded as follows

Category –food –engineering –HK-rest linen-room linen –Printing and stationery

Classification –food –groceries –meat fish poultry –tinned items etc

Engineering –plumbing –critical spares,Beverages etc

Item –food –MFP—meat –mutton beef etc, fish-fish –crabs etc, poultry-chicken

turkey—eggs etc ,thus analyzing material specifications and supply chain

management are proactive factors in ensuring and regulating flow of material for

input conversion and out put from raw material , engineering consumables like nuts

bolts Screws and capital purchases like kitchen equipment FFE, SOE , Linen,

Uniforms , laundry equipment , compressors , generators , cooling towers, Music and

entertainment equipments , guest room equipment , office equipments ,etc do have

material specifications .value analysis and waste management are important

Aspect of material definitions and procurements.

Sourcing from authentic suppliers , the identifying supplier analysis would be from

sourcing from existing suppliers in the market , developing new vendors , MAKE or

BUY decisions Imports of raw material unavailable in the country The purchaser

would source the material food, beverages, engineering FFE, capital and project

items for its use from various suppliers who have a good Reputation in the market,

Highly perishable items are procured from Regulated markets –Remember that our

present purchasing is 40% local and 60 Foreign

Adequate warehousing

The essential aspect of supply chain is to ensure adequate

ware housing space fixed with slotted angles, storekeeping

with stores ledgers ,and storekeeper , storekeeping

procedures like bin cards with FIFO location codes ,ABC

analysis . Bob carts, Trolleys can be used for running

through the material stacked in plastic ware, Aluminum

cans,

ORDERING –Developing EOQS, ABC-Analysis, ordering

costs should be based on quotations of minimum three

suppliers with delivery schedules , part delivery

arrangements , standing orders ,analysis of cost on material

and cost of material

Definations

Quality and Specifications –the management with the chef, would make

Specifications for all items for standardization of the product purchase and as a

Policy the purchaser would make enquiries with the supplier before making any

Purchases Decisions

Prices------------- the purchaser would verify in the market all sources to ascertain

the most optimum prices without compromising on the quality

Data base –the purchaser would create a database of all items with the suppliers

history , and keep a market survey and keep updating the database , this database he

would make available to all department on the history of the material

Cash purchase –the purchaser , as far as possible minimize the cash purchases

and would use this option only when the emergency need arises

Contractual supplies the purchaser would negotiate with all suppliers sustained

supplies at fixed prices on a time bound basis ,

Critical spares would be negotiated for all machinery and critical spares

Capital equipment purchases would be made on the approval of the board and

they would be negotiated on terms of guarantee, machinery replacement policy of the

Company

Imported –All the material not available in the local market would be purchased

From abroad /imported

Value analysis and Vendor Development the company purchaser with

the department head inputs would try and maximize the cost by developing suppliers

Assist in the making good quality of supplies and source the material from larger

market share

To buy or make or Fabricate Decision ---the final policy would be whether we

should BUY the product from the market or MAKE the product,

GOOD S RECEIVING CENTRE

The Material ordered by the purchase department would be brought by the

supplier with a delivery note and reference of the purchase order

The good receiving centre would receive the material with quantity specified

with specifications and after a pass of quality control by the chef a goods

received note would be prepared .

Daily Market list procurements ------for perishables

The daily market list or perishables purchase order is prepared by the chef on a

daily basis , and sent to the purchaser , these purchase orders are forwarded to

the supplier for daily supplies and mainly operational raw material

Market surveys ---The Director purchases would make a weekly market survey

to verify the prices of material and would update the master price list for

procurements and assess availability , and plan procurement strategies

Purchase committee-The hotel management just as a start up , formed a

purchase committee comprising of the various department heads

To regulate the pricing , ratify capital purchases and budgetary sanctions

Budgetary controller –will oversee the cost of purchases in terms of the budgets

And exercise any purchases not within the purview of the budget , however the

management can override the budgetary controller only after justification of an

inevitable purchase .

Purchase order –It is a legal document made usually under the provisions of the sale

of goods Act and the contract act where there is a consideration for the act of services

rendered, the terms of payments are clear to with the delivery schedules , the purchase

order is a legal document and is executed to the suppliers by a legal authorized

signatory, passed by resolutions by the board of directors, under the powers delegated

by owners /

Contractual Purchases-These purchases are under the contractual obligations of

the supplier to the company under fixed rates for consistent supplies of material

Import Licensing, Import Custom duties—the provisions of law are necessarily to be

followed Imports procedures, payment and claims of customs duties etc

Government ware housing charges –Demurrages-if material are not on time from the

warehouses charges are necessarily to be paid

LCs and Letter of guarantees –For all the imports the safest mode of payment is

through letter of credits and guarentees

Valuation of stocks –the valuation of stocks would be based on weighted Average

costs –WAC –

For new inventories it would be on the market price

IMPLEMENTATION PLAN

PURPOSE—In order to standardize the quality of material purchased with a

Standardized communication channel and minimizing internal communications it is

Necessary we communicate to all concerned with clarity and understanding the inter

Departmental efforts in effective purchases

PROCEDURES

1) All department heads will forward purchase requests to the purchaser with

2) authorizations from general manager and budgetary sanction from the finance

manager

3) The chef would forward daily purchase indents /market list once in two days

The chef is requested to plan his requirements accordingly

4) The stores would also forward his indent to the purchaser with lead time

At reorder levels

5) On receiving the indent /Lead time the purchaser would process the order , by

formulating the purchase enquiry , receiving and tabulating quotations ,

Negotiating the prices , terms of payment ,ascertaining specifications delivery

Schedules and translating all this to a local purchase order, the copy of the

Purchase order would be given to the user department and accounts for payment

On completion and issue of purchase order he would follow up for deliveries

from the supplier of pending items

6) The material would be received and after ascertaining

quality with the Department the good received note

would be prepared any deviations from the order The

purchaser should contact the supplier and inform him

of the discrepancy The GRN goods received note

should be made in a receipt format , the goods received

quantity and the quality as per specifications are to be

verified by the staff in charge of receiving the material

and finally the material received would be endorsed by

the chef and the , the companys stamp would be put on

the bill and the receivers signature would be made , all

supplies made to the HOTEL, should have a bill or

delivery challan

No bill should be made subsequent to supplies

7) The purchaser would follow up with the accounts department for the payment

of supplies and any contract signed should have the approval of the board and

any capital items purchased also should have the approval of the board

computerization .The company has seen demonstrations

of the SUN system with the EAM check profile which has

the centralized purchases concept module , food and

beverage costs Module would be implemented soon

Supply Chain Management an overview----flow Chart ORIGIN

PURCHASE REQUISITIONS

Direct stores

Serial number

Par stocks

Lead time

Market list

Purchase order –Local –Foreign

Make or Buy –Decisions

Material Manager

Order processing

Buyers purchasers market purchaser

Quotations and analysis

Minimum three suppliers

Selection of supplier

Terms of payment –credit period –mode of payment-

VAT, Letter of credit , guarantees , Bank Transfers

Delivery schedules

Part delivery

Release of purchase order-type

Follow up of incomplete Pos

Goods receiving Quality , Quantity –certifications

Store keeping Ware Housing General Stores –with adequate spacing -

Kitchen stores –Deep freezers , Garde Mangers

Store keeping procedure –Bin cards , location codes

Non moving safety stock par stock reorder levels

EOQs , ABC analysis , FIFO ,Computerized record keeping

Stores requistions -

Stores Stock –Receipts –Issues –And Balance

Kitchen stock –receipts –issues and Balance

Departmental stores –Receipts –Issues and Balance

Supply chain flow ---purchase requistions

AN ANALYSIS OF FOOD AND BEVERAGE COST CONTROL

SYSTEM –AN APPENDIX ANALYSIS REPORT TO

MANAGEMENT PLANNING A CONCOMITTMENT REPORT

OBJECTIVES

THE COMPANY HAS PROPOSED A COST CONTROL POLICY and

PROCEDURE ON THE MODELS OF AN EFFECTIVE COST CONTROL

SYSTEM ,IN THIS REGARD IT HAS IDENTIFIED ITSELF INTO AN

ABILITY FOR CREATING A GOOD FOOD AND BEVERAGE COST

BOARD SYSTEM

THIS IS TO ENSURE GOOD PLANNING AND COORDINARTION

BETWEEN FINANCE ACCOUNTS ,PURCHASES , STORES ,RECEIVING

CENTRE ,CONCERNED KITCHENS,RESTAURANT ON THE ISSUES OF

THE RIGHT QUALITY PRODUCT PROCURED , WITH A GOOD PRICING

SYSTEM AND THE OPTIMUM REQUIREMENT OF MATERIAL FLOW

INTO THE KITCHEN and ,RESTAURANT FLOW, THE COMPANY

RECOMMENDS THE FLOW OF BRANDED MATERIAL PROCUREMENT,

THE MATERIAL COULD BE ON ANNUAL CONTRACTS WITH

LIQUIDATED DAMAGES CLAUSES, WITH MATERIAL SPECIFICATIONS

THE PLANNING and SOURCING OF MATERIAL SHOULD ENSURE A

SMOOTH FLOW OF MATERIAL ,AN EMPHASIZED PRODUCTION/SALE

OF MATERIAL TO ARRIVE AT PROFIT CENTRE NORMS AND ACHIEVE

MAXIMUM SURPLUS

PROCEDURES

The departments concerned are ---Functional -Finance and Accounts

, purchases stores –receiving, stores and Operations—food and

beverage includng kitchen

Food and beverage Raw Material used- required

Dry food , groceries and provisions-Tinned items ,perishables

Dairy products meat ,fish poultry ,branded liquor-whiskies , brandy

vodka , soft drinks—coca cola , sprite , ETC.

DEFINATIONS

INDENTS-Daily requisitions and market lists

The Chef /Restaurant Manager - thru the FB Director would

Forward the daily requisitions to the stores

The chef would forward a daily market list ,mainly of perishable

products where storage is just for one or two days

The stores would Forward the Daily market list to the Purchases

and the purchases would ensure that the Market list items are made

available to the stores

PURCHASE ORDER

A PURCHASE ORDER IS A DOCUMENT ISSUED TO THE

SUPPLIER FOR SUPPLIES OF MATERIAL

On receipt of an indent from the operating department a purchase

order is made by the purchase department by tabulating quotations

and buying at the optimum price the purchase order specifies the

quality and the quantity to be procured .The purchase order is an

authorised document of the company and would signed by the

authorised signatory or any other person delegated for the purpose

,it purports the delivery schedule , the terms of payments and aims at

procurement at good quality at the best possible price at given

specifiactions , once a purchase order is released it is upto the stores

to follow up with

The suplier for completing the order . A market list released by the

chef is a purchase order by itself, the purchase order is made in four

copies

One copy to the supplier

One copy to the kitchen /restaurant

One copy to the accounts

One copy is the book copy

RECEIVING CENTRE

The receiving centre is a set up at the stores to receive material at

the specific quantity and quality , the good receiving clerk would

make a goods received report GRN with the entries posted in the

system

Once the material is received and counted in the required numbers

the chef inspects the quality of the material and is accepted at the

kitchen

A GOODS RECEIVED NOTE is an acknowledgement to the

supplier of having received received the material in the stores

/kitchen/restaurant

The GRNS are prepared in the following copies, delivery notes of the

supplier is also an acknowledgement for receipt of supplies , when

the supplier presents his bill for payment the good receipt note as

also the delivery note makes the requirement of bill passing system

Supplier copy

Accounts copy for bill passing

Purchase copy to update the material received

Book copy

AUTHORISATIONS

The receipts of good quantity and quality is authorized by the

departmental head the concerned supervisor or the delegated

authority by the department head

SPOILAGE WRITE OFF

The spoilages are occurred due to the cooking wastages the chef

make a spoilage report and as approved it is passed on to the FB cost

controller, for writing of the material from the FB cost either food

cost or beverage cost

WEIGHMENT –the good received is equipped with a weighing

machine this weighing is an electronic machine marked with a

proper weighing scale , it is necessary that a smaller scale for small

volumes of goods received in grams etc and a reserve scale operates

ISSUES FROM THE STORES –Where there is an indent to the

stores , a stores issue note is prepared and is acknowledged by the

user department , the store keeper would get the acknowledgement

from the storekeeper

PART SUPPLIES FROM THE PURCHASE ORDER

The balance of the quantities supplied would necessitate the

storekeeper to follow up with the supplier and ensure delivery

schedules are completed

INVENTORY

STOCK IN STORES –are the Inventories Debited to the stores,

either through a cash-direct or a supplier purchase

Whenever there is an ISSUE the amount is credited to the stock

account

The stores generally monitor the stock expiry dates and the non

moving items , the stock out items , stocks as to the seasonality of the

product ,

STOCK IN KITCHEN AND RESTAURANT

The stock received from stores is par stock in the kitchen , this stock

is monitored by the chef –through the sous chef or junior sous chef ,

This stock should also be managed with

MONTH END STOCK TAKING

In order to ascertain the closed valuation of stocks a month end stock

taking is done physically by the cost controllers and general

accountants , this process is also ensured with the circulating stock

BIN CARDS –Although the stocks are computerized it would be

necessary that the a BIN card is made for every product so that a

physical verification of the stocks is made

VALUATION OF STOCKS, the stock are valued at Weighted

Average Cost method , this would ensure that the purchase variances

are minimal

DIRECT PURCHASES

Usually the stores is unable to support the stock of certain

items, therefore the purchases are directly issued to the

kitchen , highly perishable item such as vegetables ,dairy

items meat fish poultries etc are stored directly in the

kitchen

EXECUTIVE STAFF MEAL –

The food consumed by executives are debited to the executive meal

account and is an adjustment to the food/beverage cost consumption

the POS would be used for this option every time or a consolidated

entry would be made the charge would be 30% at cost on sale price

GUEST ENTERTAINMENT

Any guest entertainment would also be charged at 30% cost on sale,

and entered in the POS, are FB cost Adjustment

COMPLIMENTARIES

Like fruit baskets ,welcome drinks would charged at cost at 30% on

sale price , would also be entered in the POS, are FB cost

Adjustment

FULL BOARD /HALF BOARD

If a guest stay is supported with Room charges with breakfast lunch

and dinner it is full/half board charges , that portion of the charges

on the guest is apportioned as room revenue and food/beverage

revenue

This is enabled at the front office

INTERKITCHEN TRANSFER

It’s a normal practice that the transfer of raw material between

kitchen to kitchen such transfer are accounted as inter kitchen notes

with compensating stock levels at the kitchen so as also with

beverages which are transferred to kitchens

DOCUMENTATION

The Documentation Includes indents –stores /direct material

requisitions / purchase orders /quotations goods receiving reports

and authorized certification of the bill .

COMPUTERISATION

The computerization options store keepers to categorise the menu

and sub menu to various stores stock as food ,beverage , engineering ,

printing ,stationery etc

The cost board can be customized in USER DEFINED REPORTS

Where transfer posting to modules would enable the revenue , cost

and adjustment entries for updations

PURCHASE COMMUNICATION FLOW

DIRECT PURCHASES INDENTS STOCK PURCHASES INDENTS

SUPPLIER

AUTHORISATION

FINANCIAL CONTROLLER GENERAL MANAGER