Budgeting for Housekeeping Expenses.

Budgeting is one of the main planning activities of an executive housekeeper. It is the process by which, based on the actual performance of establishments in the past, estimates of expenditure and receipts are made and adjusted for forecasting future outcomes. Budget can be defined in many ways: budget is a plan by which resources re!uired to generate revenues are allocated." # budget is a plan which projects both the revenues the hotel anticipates during the period covered by the budget and the expenses re!uired to generate the anticipated revenues.$ %he advantage in preparing a budget is that it provides an opportunity for taking a critical look at the cost of the department, reviewing past planning and present accomplishments, and then taking appropriate steps to accomplish more in the coming financial years. %he executive housekeeper$s responsibilities in the budgetry process are two&fold. 'irst, the executive housekeeper is involved in the planning process that leads to the formulation of the budget. %his entails informing the room$s division manager and general manager what expenses the housekeeping department will incur in light of forecasted room sales. (econd, since the budget represents an operational plan for the year, the executive housekeeper ensures that the department$s actual expenses are in line with the budgeted costs and with the actual occupancy levels. %he budget thus acts as a guide that provides the managers with the standards by which they can measure the success of operations. By comparing actual expenses with allocated amounts, the executive housekeeper can track the efficiency of housekeeping operations and monitor the department$s ability to keep its expenses within the prescribed limits. Budgets provide a financial framework within which the housekeeping department operates. %hus, budgets should be carefully prepared and used to govern the department$s spending. %he budget also acts as a guide as to which things need repair or replacement. It helps to determine what valuable pieces of e!uipment may be purchased and to pinpoint the areas where emphasis will be placed for the coming year.

TYPE OF BUDGETS Budget may be of different kinds, based on the types of expenses involved, the departments and the flexibility of expenses. Categorized by Type of Expenditure Based on the types of expenses and assets involved, budgets may be categori)ed into capital, operating and pre&opening budgets. Capital budget * %hese allocate the use of capital assets that have a life span considerably in excess of one year, these are assets that are normally used up in day to day operations. 'urniture, 'ixture and +!uipment ,''+- are typically examples of capital expenditures. .apital expenditures in the housekeeping department may include room attendant$s carts, vacuum cleaners, general floor machines, carpet shampoo machines, sewing machines and laundry e!uipment. %he hotel building itself is also a capital asset. Operating budget * %hese forecast expenses and revenues associated with the routine operations of the hotel during a certain period. /perating expenditures are those costs the hotel incurs in order to generate revenue in the normal course of doing business. In the housekeeping department, the most expensive operational cost is the salary and wages or labor cost. %he cost of all&recycled inventory items, such as cleaning and guest supplies, are also operational costs. Pre!opening budget * %hese force the planning necessary for the smooth opening of a new hotel. %hese budgets allocate resources for opening parties, advertising, generation of initial goodwill, liaisons and 01. 0re&opening budgets also include the initial cost of employee salaries and wages, as well as supplies, crockery, cutlery and other items. Categorized by Depart"ent #n$ol$ed Base on the department involved, budgets may be categori)ed into master budgets or department budgets. %a ter budget * %hese represent the forecasted target set for the whole organi)ation and incorporate all incomes and expenditures estimated for the organi)ation. Depart"ent budget * each department of the hotel forwards a budget for its estimated expenses and revenues to the financial controller. 'or instance, there would be a housekeeping budget , an '2B budget, a maintenance budget, and so on. In fact,

the room division budget is in this case the combine budget of the front office and housekeeping department. Categorized by Flexibility of Expenditure Budget may also be classified on the basis of the flexibility of expenditure: Fixed budget * %hese budgets remain unchanged over a period of time and are not related to the level of revenues. (uch budgets include budgets for advertising and administration. Flexible budget * %hese budgets pre&determine expenditure based on the revenue expected and differ with different volumes of sale. &OUSE'EEP#(G E)PE(SES +xpenses that need to be budgeted for by the housekeeping department may be operating expenses or capital expenditures *+ Operational Budget is the allocation of expenses for each item3s re!uired by the department in order to operate smoothly. In case of hotel operation, controls of expenses are based on occupancy percentage. %he budgeted amount for the month can be variable since there are certain periods where occupancy forecasts in other areas or countries are unreliable or unpredictable. %he basic 4ousekeeping operational budget are as follows: a- (taffing b- 5inen 2 %owels c- 6uest (upplies 2 menities d- .leaning (upplies e- 5aundry (upplies f- 7achine, %ools 2 +!uipment g- 8ecoration h- 7iscellaneous i- 0rinting and stationeries %here are budgeted item3s or sections in 4ousekeeping that are usually divided between other departments such as follows: 9- 1epairs and 7aintenance

%his type of operational budget is usually divided between housekeeping and +ngineering :- ;niform Budget ;niform expenses is prepared by the +xecutive 4ousekeeper with all the elegance, comfort, durability, styles, colors and functionality of the uniform chosen for each department. /nce a specific style of uniform has been chosen, it is then coordinated with the concern department and when the +xecutive 4ousekeeper gets the approval she then submits them to the 6eneral 7anager for overall coordination of styles, colors, functionality etc. that reflects the proper image perception of the entire hotel in the eyes of the guests. %he last step will be to endorse them to the 'inancial .ontroller for allocation of budgeted amount to each department. <- 8ecoration 4ousekeeping is one of the department in the hotel which helps and assists in the beautification of the hotel inside and outside the building. 8ecoration can be flower arrangements, fresh and artificial depending on the policy of the hotel since there are hotels that prohibit the use of artificial flower arrangements for fire ha)ard issue, picture frames, statuary, carvings, tapestry, artifacts and many others are examples of decorations. 1e!uests for flower arrangements seemed to be the most needed items in the hotel whether for the guestrooms, 'ood and Beverage functions, /utside .atering, 5obby of the hotel, .onvention centers and other areas that re!uires flower arrangements. =- 0rinting and (tationeries 'ront /ffice and 4ousekeeping are the two departments that share this budget. >- 7iscellaneous %his type of budget can be charged between 4ousekeeping and any other department depending on what type of expenses is incurred. T,e e-ond type of &ou e.eeping budget i Capital Expenditure /C0PE)+ .apital +xpenditure Budget is the allocation of funds for a specific project or items that will help and assist the operation of the hotel. In case of 4ousekeeping, projects can be

something that re!uire replacement or additional 4ousekeepers cart, 5aundry washer 2 dryer, building a new 5aundry (hop for outside customers, replacement of vacuum cleaners, replacement of worn out beds or furnitures which is usually done floor by floor or by segments. ;sually the . 0+? fund is allocated same way as how the operational budget has been allocated for the coming year. %herefore on a yearly basis project3s is3are accomplished and completed especially if the item3s have specific life span where replacement are made specifically each year. %his way the hotel or facility is well maintained, e!uipped and preserved like new. It is through . 0+? fund that maintenance of the hotel works best and at the same time avoiding depreciation of items in large !uantities where it is difficult to resolve since they re!uire huge amount to achieve. .apital expenses include the cost of e!uipment and machines@ furniture and fittings, etc. E1uip"ent and "a-,ine %his category /' expenses involves the e!uipment and machines used by the housekeeping department, such as floor&cleaning machine, vacuum cleaners- and those provided in the guest rooms for guest use. Furniture and fitting %he budget for guestroom furniture and fittings is under the purview of the housekeeping department since it is responsible for their cleaning and maintences. BUDGET!P20((#(G P3OCESS %he room division$s budget&planning process depends on two main factors. 9. 'orecasted room sales or occupancy levels :. .ost per occupied room.
The hotels reservations department is charged with two primary tasks; setting rates and selling rooms. Before successfully accomplishing either of these tasks, the reservations department needs an accurate count of the number of rooms available for sale. Knowing how many rooms are available for sale on a given date is a logical firststep for the task of selling rooms. Less clear, however, is the relationship between the number of rooms available for sale and the setting of rates for a given period. This second relationship forms the basis for the key ob ective of any hotel! to ma"imi#e revenues through yield management. $ield management is the

process of ma"imi#ing gross rooms revenues by carefully managing both the number of rooms sold for a given period %occupancy& as well as the average rate ' known as average daily rate %()*& or sometimes average room rate %(**& ' received for each room sold. $ield management is based heavily on the ability of the hotel to forecast the number of rooms available for sale in advance of the date in +uestion.

The dual role of forecasting availability The definition of yield management points clearly to the dual role of forecasting availability; ma"imi#ing rate through accurately estimating demand and ma"imi#ing rooms sold through systematic forecasting. $ield management in the lodging industry rests on an irrefutable foundation; the rate charged for remaining rooms tends to increase with rising occupancy pro ections. ,n other words, hotels generally receive a higher rate from the last few rooms sold than they do from the first few rooms sold. The first rooms may have been sold %reserved& a year or more in advance, a period filled with uncertainty in terms of occupancy for the date in +uestion. (s such, hotels tend to discount room rates early in the cycle as they attempt to gauge their business levels for the date in +uestion. Through regular forecasts of the date in +uestion, the hotel grows more and more confident in its understanding of the business levels it will e"perience. (s confidence grows and occupancy for the date becomes more and more certain, the room rate rises. ,n the end, the last rooms sold receive the highest rate. By raising rates, step-by-step, as the room forecast grows in accuracy, the hotel reaps ma"imum yield for the period in +uestion. .nderlying the premise that rising occupancy gives way to rising rates is the logic that systematic forecasting of room availability affords the hotel less errors of fact with regard to underor over-booking rooms sold. ,t takes little to imagine the problems which might befall a hotel that incorrectly forecasts available rooms. ( substantial error one way or the other can be costly to the hotels bottom line. (n error resulting in underbooking rooms available for sale can occur a number of ways. ( few e"amples might include! a reservations department which holds more rooms for a group than they actuallyoccupy, a heavier number of checkouts than forecast, or a high last-minute cancellation rate. (ny of these e"amples will result in more available rooms than pro ected. (nd unsold rooms are costly/ 0verbooking the hotel is e+ually costly. 1"amples of overbooking errors might include! pro ecting a higher number of checkouts than actually e"perienced, forecasting more no-shows and cancellations than occurred, or holding less rooms for a group room block than were

actually re+uired.2hile underbooking the hotel is costly to the bottom line, overbooking the hotel can be costly to good will and guest satisfaction. 3ertainly no guest wants to arrive for the night only to be told the reservation cannot be honored and the guest must be walked to another property because the hotel overbooked. %4or more see entries on 0verbooking, 2alking, and 5o-show.& Reservation types The ultimate goal of every hotel is to achieve the 6perfect fill, defined as a paid guest in every hotel room. To reach this elusive benchmark, however, the hotel needs to make some difficult %and often risky& decisions. 0ne of the first steps in the decision-making process is to understand which types of reservations are acceptable to the hotel. 7otels seeking to reach perfect fill generally book a very high percentage of their rooms as guaranteed or advance deposit reservations. 3onversely, they generally book very few nonguaranteed reservations. 8ome hotels refuse nonguaranteed reservations altogether. 7ere is a +uick look at the three classic types of reservations! - (dvance-deposit reservations! (dvance-deposit reservations are another form of guaranteed reservation. 7owever, rather than guaranteeing the room to a credit card or corporate account, an advance-deposit reservation re+uires the guest to send payment in advance. 9ayment may come in the form of a cashiers check, personal check, money order, or even authori#ed credit card payment. ,n any case, hotels that re+uire advance-deposit reservations often establish more rigid cancellation policies %longer lead time for cancellations& in order for the guest to receive full refund. - :uaranteed reservations! *eservations guaranteed against a guests credit card or corporate account have higher credibility than non-guaranteed reservations. Thats because the guest has something to lose if he or she fails to arrive. )epending on the hotels cancellation policy,failing to arrive for a guaranteed reservation usually costs the guest or the corporate account a nights room and ta". - 5on-guaranteed reservations! 5on-guaranteed reservations %sometimes called ; p.m.-hold reservations& have no monetary promise associated with the reservation. 8hould the non-guaranteed reservation fail to materiali#e, the hotel has no recourse against the guest. (s such, non-guaranteed reservations are very risky and uncertain reservations. <any hotels refuse to accept non-guaranteed reservations %though they may accept them on occasion as favors to particular guests or in uni+ue circumstances&. Because there is a very high no-show factor associated wit nonguaranteed reservations, accepting such reservations impacts the hotels ability to

reach perfect fill. 3alculating availability ,f guests never changed their minds, it would be very easy to fill hotels. The formula would simply be! 8tayovers = Todays reservations > *ooms committed

4ow to 0repare a 4ousekeeping BudgetAA

4ousekeeping is one of the departments in the hotel that has the most bulk expenses and consumable items. Items like bathroom amenities such as shampoo, conditioner, body lotion or moisturi)er, eau de cologne, facial soap and body soap@ bath towel, hand towel, face towel, bath mat, bathrobe, rubber mat@ bed sheet, pillow, pillow case, throw pillow, neck pillow, mattress pad, blanket, duvet3 duvet insert, bed cover@ toilet paper, facial tissue@ coffee maker, coffee sachet, sugar condiments@ ironing board, flat iron@ alarm clock@ cooking utensils, crockeryBs and cutlery@ give away toothbrush and toothpaste@ printing materials, stationery, envelope, note pad, ball pen, folder, telephone directory, Bible or 4oly CurBan can have a substantial impact in the hotelBs overall expenses. %hese are variable assets that when consumed, damaged, lost or become sub&standard are being discarded or removed from circulation, /nce removed from circulation or consumed, the same !uantities must be replenished or replaced with additional mark& up in order to maintain the high standard or !uality of service in the hotel. 'ixed assets like the roomBs furniture and fixtures such as beds, fridges, television sets, mirrors, sofas, easy chairs, reclining chairs, tables, telephones, lamps, headboards, air& conditioning3heating e!uipment etc. can be very costly when damaged or become sub& standard. %hese items are usually included in the .apital +xpenditure Budget especially when refurbishment is re!uired. But if its only one or two pieces, this amount can be allocated in the operating budget.

'or the machine and e!uipment, 4ousekeeperBs cart and vacuum cleaners are the most important tool used in the overall cleaning and maintenance of the hotel guestrooms and public areas. 7achines like carpet shampoo and water extraction machine, rotary machine for carpet shampoo, floor scrubber and floor polishing, wet and dry vacuum cleaner. hydraulic lift etc. are additional heavy duty machines that help in the overall cleaning re!uirements of the hotel. %hese too are included in the .apital +xpenditure Budget. 'or 5aundry area there will be the laundry machine, washer, dryer, dry cleaning machine, laundry folding machine3 calendar, tables, carts, laundry sorter boxes, movable clothes hanger rails, guest laundry printer etc. are .apital +xpenditure items, while detergent, bleach, stain remover, dry cleaning fluid, ph level water treatment solution etc. goes to the operational budget. 5isting all the detailed items involved in preparation of budget gives you an idea how intricate housekeeping budget preparation is.!uoteD Eith the above numerous items, the consumable or fast moving items are the most important items in the preparation of budget. %he consumable items are included in the operational budget. %he fixed asset items are included in the .apital +xpenditure Budget or . 0+?. /perational Budget is being prepared annually and submitted to the 8irector of 'inance for further study and to finali)e the total amount in coordination with the department head. /perational Budget is always based on the next yearBs forecasted occupancy percentage. 'or example: Item: toilet roll :HHI consumption F >HJ occupancy K :HHL forecasted occupancy percentage is M>J M>J& >HJ K :>J , :>J of >H,HHH K9:,>HH,>HJ N :>JK M>J- K , G:>,HHH.HH NG9:,>HH.HH K F<M,>HH.HH1emaining items are calculated in the same manner till all the items re!uired are included in the next yearBs budget. F >H,HHH F GH.>H3roll KG:>,HHH.HH

GH.>H

.apital +xpenditure Budget is for specific items or project that needs to be replaced, made and built in the improvement of guest service or the hotel itself. 'or example: %he hotel management with the approval of the owner of the hotel would like to extend the 5aundry service to non&hotel guest or outside customer. %he project will be a O5aundry (hopO, therefore a !uotation will be re!uired from the contractor for the cost of building the 5aundry (hop, the additional guest3customer laundry bag, laundry and dry cleaning list, and additional manpower for customer service etc. %o sum up the amount of .onstruction of laundry shop K G<>,HHH.HH@ additional laundry bags and lists K G>,HHH.HH and additional manpower K GL,HHH.HH annually. %he G<>,HHH.HH will be included in the .apital +xpenditure while the additional laundry bags3lists and manpower will be added in the operational and staffing budget. %herefore, the operational budget is for the consumable items and .apital +xpenditure is for special project or items that are costly. %here are also certain items being shared by the 'ront /ffice and 4ousekeeping. %he charges on these items are being split between the two departments. Ehen it comes to 7aintenance, +ngineering 8epartment charges the 4ousekeeping for any services rendered like maintenance of the machine wherein they have to supply machine parts and labor, so these are being coordinated with +ngineering. It is important that housekeeping machines are handled with care to avoid such charges. 7onitoring the /perational budget is the most crucial part in the operation of business. Eith the modern technology and the computer software, daily updated total expenses against budgeted amount are made possible and easy to trace in order not to exceed the budgeted amount. +very end of the month, the ccounting 8epartment distributes copies of last monthBs budget outcome to the 6eneral 7anager and the 8epartment 4eads in order for them to review and analy)e where their budget is in line and where it is not. 6eneral 7anager will re!uire the department head that have exceeded their budget a reasonable report since he is accountable to the corporation as well as the owner of the hotel. Co t per o--upied roo" /CPO3+ %he .0/1 order type is for processing hotel3motel cost per occupied room business. In this case, the customer is invoiced an amount based on how many occupied rooms they had for the month, not how much product they BpurchasedB for the month.

Potice above that the invoice is based on room count and month. ItBs important that a new order is started at the beginning of each month and used throughout the month. Ehen a .0/1 order is created, an automatic billing block is applied. %he billing block is necessary because we do not want to bill the delivery,s- until we receive the room count from the customer. Ehen a .0/1 customer calls in an order, customer service must search for an existing .0/1 order for the current period. If one is found, the existing order is added to by either the addition of lines to the order or by increasing the order !uantity of existing materials. %he order is then delivered in the normal fashion. 8uring the month, itBs possible to make several deliveries to the customer. 'or a standard order, we would invoice each one of these deliveries as soon as possible. 'or a .0/1 order, we must invoice all deliveries at the same time after we obtain the room count and apply a header condition. .ost3occupied room K /perating +xpenses 3 1oom sales. C02CU20T#(G #(D#4#DU02 OPE30T#(G E)PE(SES.

n operating expense, operating expenditure, operational expense, operational expenditure or /0+? is an ongoing cost for running a product, business, or system . Its counterpart, a capital expenditure ,. 0+?-, is the cost of developing or providing non& consumable parts for the product or system. 'or example, the purchase of a photocopier involves . 0+?, and the annual paper, toner, power and maintenance costs represents /0+?Q:R. 'or larger systems like businesses, /0+? may also include the cost of workers and facility expenses such as rent and utilities. In business, an operating expense is a day&to&day expense such as sales and administration, or research 2 development, as opposed to production, costs, and pricing. In short, this is the money the business spends in order to turn inventory into throughput. /perating expenses also include depreciation of plants and machinery which are used in the production process. /n an income statement, Ooperating expensesO is the sum of a businessBs operating expenses for a period of time, such as a month or year. In throughput accounting, the cost accounting aspect of the theory of constraints ,%/.-, operating expense is the money spent turning inventory into throughput. In %/., operating expense is limited to costs that vary strictly with the !uantity produced, like raw materials and purchased components. +verything else is a fixed cost, including

labour ,unless there is a regular and significant chance that workers will not work a full& time week when they report on its first day-. In a real estate context, operating expenses include costs associated with the operation and maintenance of an income&producing property Below is an outline of the considerations in each category. Salarie and 5age to calculate these expenses, the salaries and wages paid to all job positions& such as the executive housekeeper, assistant housekeeper, supervisors, 61 s, linen room attendants, housemen and so on.& have to taken into an account. %he executive housekeeper first works out the number of employees re!uired at various positions. If the occupancy levels are fluctuating considerably, the executive housekeeper should employ only the minimum staff re!uired on the payroll and the rest of the staff should be hired on daily wages basis if labor is easy available. 8uty rotas need to be planned efficiently so that annual leaves and weekly off days can be given on days of low occupancy. E"ployee benefit these calculation depends on the number of labour hours expected to be scheduled, the job positions involved, and hotel$s policies regarding employee benefit. In most properties, +mployee benefit include the cost of on&duty meals, payroll taxe, provident funds, medical expenses for the employees and their immediate family or insurances. Contra-t er$i-e the cost of all contract service is averaged throughout the budget period of one year. .onsidering the historical data of contract services already used will lend an insight into the expense level to budget for. OPE30T#(G SUPP2#ES. %he major types of operating supplies include guest supplies and cleaning supplies. Gue t upplie . %hese are non&recycled inventory items and variable in cost. %his expense category will depend on the cost per occupied room. %he executive housekeeper finds out the consumption factor arrived on for soap is H.I the budgeted room sales is =HHH for a month@ and the cost of a bar of soap with the hotel$s monogram is :.HH, the budgeted expense for soap will be. .onsumption factor S budgeted room sales S cost of one unit. K H.IS=HHHS: K T=HH In case of two soap bars are to be placed in one guest room, the amount obtained is multiplied by:. In all case, the amount needs to be further multiplied with thw par number to be maintained for each guest supply.

Cleaning upplie these are non& recycled inventory items that are semi variable in cost. %he higher the occupancy, the higher the volume of cleaning supplies used. It also needs to be remembered that the executive housekeeper schedules deep cleaning tasks during slack period. 2#(E( 'or budgeting linen expenses, the executive housekeeper need to calculate the cost of linen per occupied room based on historical data. %he higher the occupancy, the more the fre!uency of washing the linen. 4istorical data gives some guidelines in calculating linen expenses. 20U(D3Y %he laundry expenses are primarly variable, except for uniforms. %he executive housekeeper can refer to the historical data for calculation of laundry expenses. 5aundry expenses include. .hemical cost Eater cost +nergy cost 5abour cost.

%he cost of laundering is expressed as follow .ost per piece or weight unit &K total number of pieces or total weight of linen3 total cost incurred in a month. 9HHH room hotel uses :HHH bath towels per day at 9HHJ occupancy. 8uring the past year the hotel purchased and inserted 9:HH do)en new bath towels to maintain an ade!uate supply of towels in working inventory. U Ehat are the number of launderings the hotel experienced and the linen replacement ratios for this itemA Pumber of 5aunderings K 0ieces 5aundered :HHH ? <T> M<H,HHH 9=,=HH K >H.M

Pew 0ieces Inserted K 9:HH ? 9: K 5inen 1eplacement 1atio K Pew 0ieces Inserted 0ieces 5aundered 9=,=HH

? 9HH K M<H,HHH ? 9HH

K :.H

Ee can now use our historical experience to plan future linen replacement expenses. '/1+. (%IP6 0I+.+( 5 ;P8+1+8: %o forecast 0ieces 5aundered we need to use a historical benchmark. U %his benchmark is achieved by using the following formula: 0ieces 5aundered per /ccupied 1oom K 0ieces 5aundered %otal /ccupied 1ooms U ;sing the preceding formula, our 0ieces 5aundered per /ccupied 1oom would be computed as follows: 0ieces 5aundered 0er /ccupied 1oom K 0ieces 5aundered %otal /ccupied 1ooms 9HHH or K :.H :HHH

U Pow we can easily compute a forecast for any level of occupancy and a time period by using the following formula: V If our 9HHH room hotel has :.H pieces laundered per occupied room, how many total pieces will be laundered per year if the forecasted occupancy is IMJA nnual /ccupancy: K 9HHH 1ooms ? <T> x .IM K <9M,>>H

%otal 0ieces 5aundered: K %otal /ccupied 1ooms ? 0ieces 5aundered per 1oom K <9M,>>H x :.H K T<>,9HH =

CO(T3O22#(G E)PE(SES .ontrolling expenses in the housekeeping department means comparing actual costs with budgeted amounts and measuring the variances. Ehile doing this, be careful to check whether the forecasted occupancy levels were achieved or not. e.g. if the occupancy is lower than forecasted, decrease in expenses must be expected proportionally. (erious deviations from the budgeted plan needs investigation in e.g. staff scheduling, supervision, efficiency and cost of products used etc. .ontrolling housekeeping expenses means ensuring that actual expenses are consistent with the expected expenses on the operating budget. %here are four methods@

accurate recordkeeping effective scheduling careful training and supervision efficient purchasing

ccurate recordkeeping@ helps to monitor the usage rates, inventory costs, and variances with standards +ffective scheduling@ with the help of the staffing guide, personnel costs stay in line with occupancy reports .areful training and supervision@ important for controlling the cost of inventoried items. +.g. training in the proper use of cleaning supplies can improve usage rates, and lower the cost of cleaning supplies per occupied room +fficient purchasing@ ensures that the hotel$s money is well spent and the maximum value is received from products. CO(T3O22#(G OPE30T#(G E)PE(SES s far as controlling operating expenses is concerned, the executive housekeeper must ensure the following. +ffective documentation all inventories should be documented to monitor their usage rates and costs. Wero&based scheduling this refers to hiring employees by taking into account the actual occupancy for a specified period of time. 1ight purchasing the executive housekeeper coordinates with the purchase department to purchase for the housekeeping department. %he onus of controlling expenses on purchasing is entirely on housekeeper. +fficient training and supervisors training for new employee as well as training on new methods for older employees is a tool for controlling expenses. +fficient training ensures that the productivity and performance standards are met by all employees consistently. COST CO(T3O2 #( SPEC#F#C 03E0 (ome specific methods of controlling expenses in various areas in housekeeping department$s purview are outlined below. 6uestrooms and public areas the following measures can be taken in these areas. (taff must be trained to use cleaning supplies and e!uipment efficiently and economically. (upervisors must control and monitor their use.

ppointing multi&skilled staff and giving them proper training to retain them control expenses. %he use of key& tag or electronic lock system helps conserve power by ensuring that are light are switched off automatically when the guest is out of his room. lac!uer finish helps brass items longer and show less wear, which reduces the use of proprietary polishes such as brasso and indirectly saves labour, time and money. In XI0 rooms, replace only those flowers that are shedding petals instead of changing the entire arrangement. 1estrooms and toilets in public areas can have motion sensors to control power.

5inen room the following practices can be adopted for cost control in these areas. /ld, condemned white sheets may be cut up and used in ban!uet halls as tablecloths for exhibitions and such. /ld shower curtains can be cutup and stitched into aprons for the butchery department instead of traditional aprons. .ondemned towels can be turned into dusters and mop cloths for cleaning surface (tores for controlling expenses in stores, effective stock&taking and control must be ensured as it significantly reduces the expenses involved in the provision of cleaning and other service.

PU3C&0S#(G %he expenses for housekeeping purchases are planned mainly in the form of a capital budget or an operating expense budget. %he purchase can be of local or imported items. Intends for the purchase of stock items are usually generated from the main stores on the basis of re ordering levels. %he housekeeping department generates the indents of non stock items. (tock items are regular operating supplies such as soaps, shampoos, letterhead and cleaning supplies. Pon&stock items are non consumable items such as crystal vases for flower arrangement, wooden hangers and so on. +fficient purchasing practices can make a significant contribution to the executive housekeeper$s role in controlling expenses. %he housekeeping department coordinates with the purchase department for all his purchase. %hough the main aspect of purchasing function is to produce a certain material or item, the material has to be the best buy at the right price. %his calls for regular market surveys on the part of the housekeeping and purchase department. (alespeople and vendors are regularly met for updates on the latest developments in other hotels and the industry as whole. 0urchasing managers3directors, and procurement managers3directors guide the organi)ation$s ac!uisition procedures and standards. 7ost organi)ations use a three& way check as the foundation of their purchasing programs. %his involves three departments in the organi)ation completing separate parts of the ac!uisition process. %he three departments do not all report to the same senior manager to prevent unethical practices and lend credibility to the process. %hese departments can be purchasing, receiving@ and accounts payable or engineering, purchasing and accounts payable@ or a plant manager, purchasing and accounts payable. .ombinations can vary significantly, but a purchasing department and accounts payable are usually two of the three departments involved. Ehen the receiving department is not involved, itBs typically called a two&way check or two&way purchase order. In this situation, the purchasing department issues the purchase order receipt not re!uired. Ehen an invoice arrives against the order, the accounts payable department will then go directly to the re!uestor of the purchase order

to verify that the goods or services were received. %his is typically what is done for goods and services that will bypass the receiving department. few examples are software delivered electronically, P1+ work ,non reoccuring engineering services-, consulting hours, etc. 4istorically, the purchasing department issued 0urchase /rders for supplies, services, e!uipment, and raw materials. %hen, in an effort to decrease the administrative costs associated with the repetitive ordering of basic consumable items, OBlanketO or O7asterO greements were put into place. %hese types of agreements typically have a longer duration and increased scope to maximi)e the Cuantities of (cale concept. Ehen additional supplies are re!uired, a simple release would be issued to the supplier to provide the goods or services. nother method of decreasing administrative costs associated with repetitive contracts for common material, is the use of company credit cards, also known as O0urchasing .ardsO or simply O0&.ardsO. 0&card programs vary, but all of them have internal checks and audits to ensure appropriate use. 0urchasing managers reali)ed once contracts for the low dollar value consumables are in place, procurement can take a smaller role in the operation and use of the contracts. %here is still oversight in the forms of audits and monthly statement reviews, but most of their time is now available to negotiate major purchases and setting up of other long term contracts. %hese contracts are typically renewable annually. %his trend away from the daily procurement function ,tactical purchasing- resulted in several changes in the industry. %he first was the reduction of personnel. 0urchasing departments were now smaller. %here was no need for the army of clerks processing orders for individual parts as in the past. nother change was the focus on negotiating contracts and procurement of large capital e!uipment. Both of these functions permitted purchasing departments to make the biggest financial contribution to the organi)ation. new terms and job title emerged * (trategic sourcing and (ourcing 7anagers. %hese professionals not only focused on the bidding process and negotiating with suppliers, but the entire supply function. In these roles they were able to add value and maximi)e savings for organi)ations. %his value was manifested in lower inventories, less personnel, and getting the end product to the organi)ation$s consumer !uicker. 0urchasing manager$s success in these roles resulted in new assignments outside to the traditional purchasing function * logistics, materials management, distribution, and warehousing. 7ore and more purchasing managers were becoming (upply .hain 7anagers handling additional functions of their organi)ations operation. 0urchasing

managers were not the only ones to become (upply .hain 7anagers. 5ogistic managers, material managers, distribution managers, etc all rose the broader function and some had responsibility for the purchasing functions now. In accounting, purchases is the amount of goods a company bought throughout this year. it is also refers to information as to the kind ,!uality, !uantity and cost of goods bought that should be maintained. %hey are added to inventory. 0urchases are offset by 0urchase 8iscounts and 0urchase 1eturns and llowances. Ehen it should be added depends on the 'ree /n Board ,'/B- policy of the trade. 'or the purchaser, this new inventory is added on shipment if the policy was '/B shipping point, and the seller remove this item from its inventory. /n the other hand, the purchaser added this inventory on receipt if the policy was '/B destination, and the seller removes this item from its inventory when it was delivered. 6oods bought for the purpose other than direct selling, such as for 1esearch and 8evelopment, are added to inventory and allocated to 1esearch and 8evelopment expense as they are used. /n a side note, e!uipments bought for 1esearch and 8evelopment are not added to inventory, but are capitali)ed as assets.

P3#(C#P2ES OF PU3C&0S#(G %he success of any manufacturing activity is largely dependent on the procurement of materials of right !uality, in the right !uantities, from the right source, at right time and at right price * popularly known as five #1$s of the art of efficient purchasing . %hey are also described as the basic principles of purchasing as under: 9- %o purchase the right !uality of materials@ :- %o purchase the materials in right !uantities@ <- %o make the materials available at right time@ =- %o purchase the material at right price@ >- %o purchase the materials from the right source. %hey briefly explained as under: 1ight !uality: %he materials are the basic input and the !uality of the output. It should be noted that best !uality is not always the right !uality. %he right !uality is determined by the cost of the material and the technical characteristics as suited to the specific re!uirements. %he right !uality should be defined clearly and should be described in terms of specifications. 6enerally the !uality decisions are made by the technical staff. %he !uality specifications are controlled before the materials are issued for the manufacturing processes. %he !uality testing is done through the inspection either at supplier$s plant or at buyer$s plant. 1ight !uantity: %he right !uantity of the materials is determined on the basis of economic ordering !uantity ,+./.C-. It is advantageous to purchase the materials on the basis of +/C lots. %he +/C describes the si)e of the order at which the ordering costs and the inventory carrying cost will be the minimum. %he ordering cost consists of the cost of paper processing such as paper, typing, postage, filing, cost of personnel@ the costs incidental to order placing such as follow up, receiving, inspection etc. If the si)e of the order is large, the annual re!uirements will be met with little of the ordering cost as the number of orders placed would tend to be less. .onversely, storing cost consists of interest on funds locked up in storing, cost of storing, cost of insurance and taxes etc. If few orders involving large !uantities are placed, the carrying cost will increase@ however, the ordering cost will decrease due to less number of orders. %hus ordering cost and carrying costs are mutually exclusive. t +/C level both these cots e!uate each other

and at this point, the total inventory cost would be at the minimum. %he +/C is calculated on the basis of the following formula: +/C K Y:18 3.( Ehere 1 K annual re!uirements of the materials in units 8 K /rdering cost per order . K .ost per unit ( K (toring cost as the value of materials stored. 1ight time: %he materials should be purchased at right time so that it may not result in either excess investment in the stocks or may result into stock outs. +fforts must be made to replenish the materials at a point where they are reaching at the reordering level. %he purchase action is initiated at a tome when the material reaches to its pre& decided reordering level. %he reordering level is decided on the basis of the rate of consumption and the lead time. It should be decided on the basis of the probability of maximum periodic consumption and maximum lead time. s stock holding is directly related with the lead time, efforts should be directed towards the reduction of the lead time so that carrying costs can be reduced to the minimum. 1ight price: %he investments in inventories are determined by the prices charged for them. ll attempts should be made to procure the materials at right price because a slightest reduction in the price results in substantial absolute monetary gain. It should be noted that the low bidder is not always the best bidder. %he right price can be availed through searching for the proper sources of supply and comparing all such sources on some scientific basis. %he !uotations of various suppliers are compared after bringing them all on some common footing. 8ue considerations are also given to the factors such as regularity of supply, character of the supplier his financial standing etc. %he price is an agreement between the buyer and the suppliers the former considers his utility while the latter takes into account his cost of production. %he market conditions greatly effect the price determination.

1ight source: %he right source is a key consideration in purchasing as all other #1$s. %he suppliers are not only supplying the re!uired materials but they also supply the information such as probable market conditions and the resultant price trends, general industrial climate and the business environment. %he selection of right source involves the considerations such as search for the more and more sources, selection of the appropriate source through some scientific analysis, negotiating with the selected supplier and post purchase rating of the supplier. TYPES OF PU3C&0S#(G %he effectiveness of purchasing activities can be enhanced by proper organi)ation and coordination of the activities. %here are four types of purchasing system:& 9. 0urchase made as per re!uirement: Po purchase is made in advance. 0urchase is done as need arises. 7ethod usually applied for emergency re!uirement or infre!uent goods. :. <.
4.

.ontract 0urchasing: .ontract of material is given to an agency. It has an 7arket 0urchase: 0urchase is made from the market to take advantage of price (chedule 0urchasing: It is a cyclic purchase model. schedule of purchase is

advantage that low price of those materials whose cost fluctuates highly. fluctuations. made and it is used for those commodities whose price does not fluctuate. Centralized pur-,a ing means buying and managing purchases from one location for all locations within an organi)ation. %his can also be run by a central location buying in to a distribution warehouse that feeds smaller warehouses. %his is called a hub and spoke system. %he responsibility and authority to purchase, lease, or rent materials, supplies, goods, e!uipment, or services are placed with the 8ivision of 'inance and /perations, 0urchasing and (tores 8epartment. 0urchasing is centrali)ed to:

reali)e economy, efficiency, and effectiveness in the procurement function@ pursue !uality assurance and standardi)ation@

maintain the highest standards of ethics@ %he control by a central department of all the purchasing undertaken within an organi)ation. In a large organi)ation centrali)ed purchasing is often located in the head!uarters. .entrali)ation has the advantages of reducing duplication of effort, pooling volume purchases for discounts, enabling more effective inventory control, consolidating transport loads to achieve lower costs, increasing skills development in purchasing personnel, and enhancing relationships with suppliers.

0d$antage of Centralized Pur-,a ing

Xolume purchasing * Ehen the district is able to purchase a single item in mass,

vendors are often willing to provide a discount. 0urchasing in mass to take advantage of discounts is called volume purchasing.

Earehouse * In order to take advantage of volume pricing, the district purchases

items in bulk. Xendors typically re!uire that the district take delivery of the items in mass. %hese bulk purchases are stored in the warehouse until the items are re!uested by the sites.

(ave time in researching products * Individuals spend hours to research the

products and to find best price. %he purchasing department has resources to help reduce the time to research products. Di ad$antage of Centralized Pur-,a ing

6ood processes are not without their shortcomings. 5isted below are some of the

challenges of buying in a school district and suggestions on how to help the 0urchasing department minimi)e their effects.

+xtended procurement time * /ne problem that is commonly associated with

centrali)ed purchasing is the perception it takes too long". In reality, the purchasing department processes vendor re!uisitions typically within one ,9- day. %ypically the delay in the re!uest is either: time spent to research the product, funding sources ,account code check and budget approval-, vendor stock status, and shipping. De-entralized pur-,a ing is the opposite where each plant or office buys what it needs. %his operation allows any employee to buy what he needs. Zou can also run this operation with a designated buyer assigned to the site to do the buying. %he more decentrali)ed an operation is, the less control the home office has. Zou have a duplication of effort in buying and less buyer speciali)ation. Zou lose discounts on !uantity buys. Zou lose freight options based on dollars or weight. lso some support is lost from the supplier as there is no single contact for the supplier to deal with. Xolume buying may not be calculated for all your sites. 0d$antage of de-entralized pur-,a ing dvocates of decentrali)ation claim that local management has the incentive to control cost when the local operation is set up as a profit center. 7any companies operate with a mixed system. %he central operation may buy major commodities but allow local operations to buy all 71/ supplies. It is difficult to change from decentrali)ed purchasing to centrali)e purchasing. +mployees feel their privileges are being taken away. %hey feel they are losing control of their site. (ome will refuse to really cooperate in the changes in hopes to making the program look unsuccessful.