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Business/ Industrial Management
MODULE 2: Learning objective
1. Organisational buying Activity2. Buying models and buying
centre concept3. Inter Personal Dynamics of
Industrial4. Buying Behaviour5. Roles of Buying centre6. Conflict Resolution in Decision
Making7. Ethics in Purchasing
Buying/purchasing Objectives
It is defined as buying a right items in the right quantity, at the right price for the delivery at the right time and place. The objective are stated as follows
Delivery/Availability. Product quality Lowest price Services Supplier relationship
Delivery/ adaptability
To ensure that purchased goods and services are available or delivered when and where needed.
If not delivered, work will come to grinding halt and this reflect on the performance of the purchase function
Product quality
It should be consistent with the specifications and use of the product. It can happen that a product may meet the Indian Standard (IS) or British Standard (BS) specifications.
It is important to ensure to consistency in quality to reduce cost of inspection, interruptions in production process due to rejections and arranging the replacement of rejected material
Lowest price
Buyer would like to buy at the lowest price consistent with availability and quality of the product.
This will be important objective, if delivery and quality criteria’s are met.
Services
The industrial buyers need many types of services accompanying in the purchase of goods. Which are listed:
Prompt and accurate information of suppliers
Application or technical assistance,Spare-parts availabilityRepairs and maintenance capability
&Training ( if required)
Supplier relationship
To develop long term supplier/ vendor relationship and to develop new sources of supply.
The organizational buying process
The organizational buying (purchase) process consist of various phases of buying- decision making process.
The importance to be given to various phases will depend upon type of buying situations.
Robinson, Faris and Wind developed eight phases of decision making process and types of buying situations
Decision making process:
It is also known as BUYPHASES and they are logical in sequence.
1. Recognition of a problem or need2. Determination of application or
characteristics & quality of needed product.
3. Development of specifications or description of needed product.
4. Search for and qualifications of potential suppliers
Continued
5. Obtaining and analyzing supplier proposals
6. Evaluation of proposals and selection of suppliers
7. Selection of an order routine8. Performance feedback and post-
purchase evaluation.
Recognition of problem
It may originate within the buying firm or may also recognized by a smart marketer.
Quality of material Machineries Equipment
Characteristics & quantity
The buying firm will try to answer questions such as:
what type of products/services to be considered?
Quantity? Engineering/design R&D Production Quality control
Development of specifications
Previous stage are closely related with this stage. Here prominence is given to technical specifications of the product.
Search for & qualifications
To obtain all the relevant information & secondly to decide on acceptable or qualifying suppliers and it depends based on following:▪ Type of buying organization▪ The buying situation▪ The decision making members
General characters will be quality, reliability in delivery, service are considered to qualifications of suppliers
Obtaining & Analyzing supplier proposals
Proposal can be formal offer, quotation or a formal bid submitted by supplier, it should contain product specification, price, delivery period, payment terms, taxes & duties, transportation cost, transit insurance and any other costing
Evaluation of proposals & selection
Decision makers of buying organization may evaluate each suppliers on the set agreed parameters or factors. For illustrationFactors Weight age /
IMPSupplier performance
Supplier rating
Quality 30 0.8 24
Delivery 25 0.4 10
Price 15 0.6 9
Service 20 0.6 12
Flexibility 10 0.2 2
TOTAL 100 57
A supplier evaluation system
“Balanced scorecard Technique”
It is technique/framework that can evaluate supplier performance in information age companies.
It translates companies mission, vision into a set performance measurements. The frame work is divided into 4 parts and they are as follows:
Financial, customer, internal business process & learning growth
Balanced scorecard framework
FinancialTo succeed financially,
company should focus on financial objectives that will satisfy shareholders
Internal-business- ProcessTo satisfy
shareholders & customers, what business process
company must excel at ?
Mission & Vision
CustomerWhich customer value company
should focus on, to achieve its mission
Learning and GrowthHow can company
improve & change to achieve its mission
Internal- Business- Process
Identify customer need and market
Design & develop product/ service
Make/ Buy products/ Services
Market Products/
Services
Satisfy customer
needs
Innovation Processes
Operations Processes
Selection of an order time
Mechanics of exchange of goods and services between buyer and seller is worked out. The activities include
Placement of ordersQuantity to be purchasedFrequency of order placementLevels of inventory neededFollow upPayment terms
Performance feedback and post evaluation
A formal or informal review regarding the performance of each supplier (vendor) takes place. The user department will give feedback on whether the purchased items solved the problem or not. If not, the members of the decision making unit review their decision and decide.
Types of Purchase/buying situations
There are three types of buying situations called buy classes:
New task /New purchase Change in supplier/ Modified rebuy Repeat purchase/ straight rebuy
The buy grid framework
Buyphases New task Modified rebuy
Straight buy
Problem recognition
Yes May be No
Characteristics Yes May be No
Specification Yes May be No
Qualifications Yes Yes No
Analysis Yes Yes May be
Evaluation Yes Yes No
Selection Yes Yes May be
Performance feedback
Yes Yes Yes
Multiple buying influences
The buying centre, the decision making unit, in business marketing is called buying centre. They consists of individuals or members who participate in buying decision & share the common objectives.
Size-- varies
The buying centre roles
Usually members of buying centre accept different roles during the buying process. These roles may vary for different stages of the buying process depending upon the buying situations, complexity of the purchase and the functions involved.
Assume several roles which are as follows
Users, buyers, influentials, deciders & gate keepers
Recognizing & identifying key persons
Recognizing key influential is an important task carried out sales person.
Identifying key members of buying centre.
Top management personsTechnical persons (functions)BuyersAccountantsMarketing function
Models of Organization buying behaviour
There are three models available to provide a comprehensive & integrated picture of major factors.
1. The Webster and Wind Model2. The Sheth Model3. The Choffray & Lilien Model
The Webster & Wind Model
Organizational Variables
Technology
(Purchasing)
Structure
(Buying Centre)
Goals and Tasks
(Buying Tasks)
Actors (people)
(Buying Centre members)
Environment Variables
Buying Centre VariableInterpersonal interactionGroup functioning: buying task and non task dimensions
Individual VariablesNeed & desiresPerception &
learning
Buying Decision Process• Individual decision making
process• Group Decision making
process
Buying
decision
The Sheth model
Differences among individual buyers factors:Back ground of individuals, their info sources, active search, satisfaction with past purchases
Variables that determine if the buying decision is autonomous or joint:Time pressure, perceived risk, type of purchase.Company size, orientation, degree of centralization
Methods used for conflict resolution in joint decision making process:
Problem solvingPersuasionBargainingpoliticking
Supplier or Brand chice
Situational Factors
Component 1 Component 2 Component 3
The Choffray & Lillen Model
Individual Responsibility Obtained set of alterative offers
Likely alternative offers
Individual preferences formed
Organizational preferences
Organizational choices
Interaction
Structure
Evaluation
CriteriaOrganizatio
nal constraints
Environmental
Constraints
Sources of Info
Interpersonal Dynamics
Organizational buying behavior ultimately influenced by forces within the organization.
it is understand and examine the influence of purchasing activities on organizational buyer behavior and how groups and individuals differ in their approach.
Purchasing influence on BB
A. Material requirement planningB. Just in time purchasingC. Centralized purchasing
Joint decision making
Characteristics of the firm ( Employees, Function of the firm)
Buying center interaction patterns Vertical involvement Lateral involvement Extensivity Connectedness
Psychological Factors influencing individual decision making
Differences in role orientationDifferences in information exposure
Perceived risk in the vendor selection process
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Write in detail about conflict and decision making:
Refer Reeder Referral book
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