Organisational Buying Factors

8/2/2019 Organisational Buying Factors

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Interpersonal dynamics of

industrial buying behavior


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Purchasing function

International material shortage

Cost of material and energy

Nationalistic moods

Conflicting social goals

Profit squeeze

Higher government regulation


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Purchasing planning

Purchasing is now an assets mgmt process

Asset management team includes theprocurement specialist, cost/price analyst and

engineers


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Material requirement planning

The firm estimates the future sale, schedulesand orders parts and materials

Aim is that inventory should not be too small

or too large

An input might be used multiple times in aproduction schedule thus ordering becomes

complex.


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Material management department:purchasing, transportation, inventory control,receiving and production control

MRP today is computerized


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Ideal materials requirement plan


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Maruti Udyog

Standard products like nuts and bolts

Manufactured goods like mouldeddashboards, steering wheels, tyres and tubes

Capital equipment like cranes etc


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Lunch box making activity


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Benefits of MRP

controlled inventory level

lesser production cost

timely deliveries

efficiency in operations


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Just in Time purchasing

Manufacturer maintain least inventory levelsby relying on one supplier who could deliverfrequent shipments (sometimes daily)

Needs long term one supplier relationship

Cost factors are less important and materialspecification are flexible


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Example of JIT-GM

General Motors (GM) in the USA has (approximately) 1700 supplierswho ship to 31 assembly plants scattered throughout the continentalUSA. These shipments total about 30 million metric tons perdayand GM spends about 1,000 million dollars a year in transportcosts on these shipments.

When GM moved to JIT there were simply too many (lightly loaded)

trucks attempting to deliver to each assembly plant. GM's solution tothis problem was to introduce consolidation centresat which fulltruckloads were consolidated from supplier deliveries.

This obviously involved deciding how many consolidation centres tohave, where they should be, their size (capacity) and whichsuppliers should ship to which consolidation centres (suppliers can

also still ship direct to assembly plants). As of 1990 some 20% by weight of shipments go through

consolidation centres and about 98% of suppliers ship at least oneitem through a consolidation centre.

All this has been achieved withoutsacrificing the benefits of JIT.


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Dells approach to JIT is different in that they leverage theirsuppliers to achieve the JIT goal.

Dell is able to provide exceptionally short lead times to theircustomers, by forcing their suppliers to carry inventory instead ofcarrying it themselves

They then demand short lead times on components so thatproducts can be simply assembled by Dell quickly and thenshipped to the customer.

For the same Dell has Dependable suppliers with the ability tomeet Dells demanding lead time requirements.

A seamless system that allows Dell to transmit its component

requirements so that they will arrive at Dell in time to fulfill its leadtimes.

A willingness of suppliers to keep inventory on hand allowing Dellto be free of this responsibility.

Example of JITDell


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Centralized purchase

Selective teams

Extensive knowledge

Cost factors and vendors are known

Bulk purchase brings cost effectiveness

Long term supply and supplier relationship

Lack expertise and specialization of materialwhich is done at local level


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Joint decision making


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Characteristic of the firm

Size of the firm (employees): As sizeincrease, number of influencers increase as alarge firm has specialized functional areas.

Firms orientation (profits versus non profit):More influencers in non profit firms forsafeguarding interests and accountability

Maximum participation in new task buying


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Buying centre interaction patters

Vertical involvement

Lateral involvement

Extensibility: Number of people involved

Connectivity :communication about purchase


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Purchase situation influence :Greater thecomplexity of the purchase, greater thevertical involvement, lateral involvement and

extensibility. The more complex the written processes of

the firm , more the lateral involvement and

extensity and lesser connectivity


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Psychological factors in individual

decision making

Difference in role: purchase departmentlooks at economy and engineers at quality

Difference in information exposure Perceived risk in vendor selection


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Risk management in purchases

Reduce uncertainty: visit plants and crosscheck

Select the most reliable supplier

Reduce the risk by multiple suppliers


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Conflict resolution in Joint decision

making Competing (win loose): win ones own concern

Lets do it my way

Accommodating (loose-win): Satisfying other concerns

I see your point of view

Collaborating (win win) : fully satisfy both partiesMaybe we can work this point out

Avoiding: side stepping the issue

I dont want to talk about it

Compromising (loose loose) A agreement reached not

satisfying either partyLest split the difference


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Power in conflict resolution

Reward versus coercive power

Legitimate power (position)

Expert power


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Buying committee (Decision making unit )

Used when purchasing is centralized

Reseller market: Food seller form acommittee

Institution :have temporary buying committee

Commercial market :engineers, procurementand account specialists


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Evaluation of supplier performance

Categorical method: evaluation on subjectivefactors by committees

Weighted point method: Weights to different

factors and the composite performance indexis developed


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Factor Weight Actualperformance

Performancescore

Quality 40 90%acceptable

(90/100=0.9)

0.9 * 40=36

Delivery 30 90% onschedule

0.9*30=27

Totalcompositescore =63


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Jagdish Sheth model

Documents

Organisational Buying Factors