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Purchasing& Organizational Buying
Behavior
Dr. Dawne Martin
September 20, 2011
Learning Objectives
Revised Schedule Thursday – Chapter 4 – Organizational Buying
Behavior Tuesday – Customer Value
Exam Thursday, September 30 – Chapters 1-4 Review Sheet available on K-State Online For Next Time – Sample Case: Fleury Equipment
de Batiment
Purchasing
Learning Objectives To understand the differing purchasing
orientations & their effects on buying habits To understand the methods by which
companies make purchasing decisions, and the variables that affect the process
Case Analysis Frameworkhttp://www.dryden.com/marketing/ferrell/student/case/index.html
Situation Analysis – SWOT Assumptions and Missing Information
Information to fill in the gaps in the SWOT Statement of Problem(s)
Symptoms – Observable manifestations of the problem
Problem in why symptoms have occurred Brief – one to two sentences – clear indication of
what needs to be addressed.
Case Analysis Framework Development of Alternatives
Either/or decisions Strategic – Identify basic direction for the firm
Evaluation of Alternatives & Recommendation Criteria
Does it address the problem? Is it consistent with the mission statement? Is it feasible and have a good probability of success?
Cost and revenue implications
Case Analysis Framework
Choice of Alternatives Implementation details – 4 P’s Evaluation and control
Set clear objectives for outcomes & timeframes
Use benchmarks to track performance Develop contingency plans
Understanding Purchasing
Purchasing Orientation
Customer Requirements & Preferences
Customer’s Purchase Process
Evaluating Supplier
Performance
Source: Anderson & Narus, Business Marketing Management: Understanding, Creating and Delivering Value, Prentice Hall, 1999.
Purchasing
Process of acquiring resources and capabilities for the firm from outside providers
Purchasing orientation: Philosophy guiding purchasing decisions Buying -- executing discrete transactions Procurement -- quality improvement & cost reductions
through integration of procurement activities Supply-Chain Management -- integration &
coordination of purchasing with other functions and firms in value network -- value-adding activity
Adapted From: Anderson & Narus, Business Marketing Management:
Understanding, Creating and Delivering Value, Prentice Hall, 1999.
Buying Orientation
Orientation: Short term & tactical Relationship: Arm’s length and adversarial Goals:
Get the Best Deal Distributive negotiations (zero-sum game) Supplier cost analysis
Power Commoditization - Target Pricing Multi-sourcing
Risk AvoidanceAdapted From: Anderson & Narus, Business Marketing Management:
Understanding, Creating and Delivering Value, Prentice Hall, 1999.
Procurement Orientation
Orientation: Strategic & proactive Relationships: Cooperative Goals
Improving Quality TQM Standardization of Specifications -- functional,
technical (materials), process, performance or brand, ISO 9000 certification
Adapted From: Anderson & Narus, Business Marketing Management:
Understanding, Creating and Delivering Value, Prentice Hall, 1999.
Procurement Orientation
Goals (continued) Reducing Total Costs
Total costs -- sum of all expenses incurred during productive life of product or service less salvage
Materials Requirements Planning (MRP) or Manufacturing Resource Planning (MRP II)
Cooperating with Suppliers Integrative Negotiation (expand benefits) Target costing -- reducing total costs Just-In-Time Management
Adapted From: Anderson & Narus, Business Marketing Management:
Understanding, Creating and Delivering Value, Prentice Hall, 1999.
Supply-Chain Management Orientation
Orientation: Strategic value-adding activities Relationships: Partnerships, strategic alliances Goals
Focus all efforts on delivering value to customers (end users) Concentrate firm’s resources on set of core competencies Build supply network that efficiently completes business processes Sustain highly collaborative relationships with select suppliers & sub-
suppliers Value -in-Use Price (VIU) or Indifference Price
Adapted From: Anderson & Narus, Business Marketing Management: Understanding,
Creating and Delivering Value, Prentice Hall, 1999.
Other Purchasing Issues Just-In-Time Concurrent manufacturing Electronic data interchange (EDI) Quality Lowest Total Cost Total Cost of Ownership Outsourcing Economic Order Quantity Forward Buying Value Analysis Supplier Evaluation
TOTAL COST OF OWNERSHIP OF A TANGIBLE PRODUCT
• TOTAL COST OF
OWNERSHIP = PRODUCT PRICE
+ DELIVERY
+ INSTALLATION
+ MAINTENANCE / REPAIR
+ POWER COSTS
+ SUPPLY COSTS
+ OPERATING COSTS
+ FINANCING
3-14
USING VALUE ANALYSIS
THE OBJECTIVES OF VALUE ANALYSIS:
• REDUCE COSTS AND/OR
• IMPROVE DESIGN
What is New
Currently Alternatives
Being Done Being
Considered
COMPARE
BENEFITS RECEIVED
FUNCTIONS OF PRODUCT
COST OF MATERIALS
WORK PROCESS INVOLVED
OUTCOME: GREATER VALUE FOR LESS COST
3-15
VENDOR ANALYSIS RATINGS
A RATING FORM SHOULD LIST The most important product attributes The most important service support attributes Pricing variables Delivery variables Quality variables Supplier capabilities
3-16
IMPROVE PERFORMANCE:STAYING AHEAD OF PURCHASING TRENDS
1. REDUCE PURCHASING COSTS
• CUTBACK ON EMPLOYEES
• REDUCE NUMBER OF VENDORS/ TRANSACTIONS
• BUILD RELATIONSHIPS
• CENTRALIZE PURCHASING ACTIVITIES
• USE THE INTERNET3-17
IMPROVE PERFORMANCE:STAYING AHEAD OF PURCHASING TRENDS
(continued)
2. OUTSOURCE IN-HOUSE ACTIVITIES
• TRAINING
• MANUFACTURING
• PROCESSING ACTIVITIES
• INVOLVE SUPPLIERS (ESI)3-18
IMPROVE PERFORMANCE:STAYING AHEAD OF PURCHASING TRENDS (continued)
3. CROSS-FUNCTIONAL TEAMS – MADE UP OF COMPANY DEPARTMENTS, SUPPLIERS, CUSTOMERS
4. INCREASE PROFESSIONALISM THROUGH CERTIFICATION PROGRAMS AND ESTABLISH A CODE OF ETHICS
3-19
Step 8Evaluation of product performanceStep 8Evaluation of product performance
Step 7Selection of an order procedureStep 7Selection of an order procedure
Step 6Evaluation of proposals andselection of a supplier
Step 6Evaluation of proposals andselection of a supplier
Step 5Acquisition and analysis of proposalsStep 5Acquisition and analysis of proposals
Step 4Search for qualified suppliersStep 4Search for qualified suppliers
Step 3Development of detailed specificationsStep 3Development of detailed specifications
Step 2Definition of the product-type neededStep 2Definition of the product-type needed
Step 1Recognition of a need
Step 1Recognition of a need
EXHIBIT 3-3
STEPS IN THE BUYING PROCESS
3-20
The Buy-Grid Framework
Patrick Robinson, Charles Faris & Yorum Wind, Industrial Buying & Creative Marketing, Marketing Science Institute, 1967
Buying Stage New Task
Modified Rebuy
Straight Rebuy
1. Need or Problem 2. Characteristics & Quantity
3. Identify & Evaluate Vendors
4. Proposal Request 5. Evaluation of Vendors
6. Select Order Routine
7. Performance Feedback & Review
Multi-Attribute Model
Assumption: People view products as a collection of attributes, or “bundle of benefits” Individual attributes are rated or weighted in terms of
importance Each product is evaluated based on customer’s
perception of the attribute relative to competitor’s product
Multiple attribute rating time the weight (importance rating) = score per attribute
Summation of the attribute scores provides total product score
Government Contracting
Federal Acquisition Streamlining Act (1994) Purchases below $100,000 reserved for small
business EDI for sales to federal government--1999 Encourages off-the-shelf buying Raises dollar limit on purchasing requiring
competitive bids Federal Acquisition Computer Network $25,000 purchase through SmartPay cards
Government Contracting
Other Federal Government Trends Compliance programs Minority subcontracting Early, open discussion with vendors Requests for draft proposals Down-select process prior to solicitation of bids to screen
potential contractors Competitive range for “most highly rated companies” for
bid consideration Past performance requirements Negotiating best service possible at “fair price” Bundling contracts
Government Contracting
Federal Contracting Assistance GSA Website:
http://government.onvia.com/?cat=2
GSA Advantage -- eBuy https://www.gsaadvantage.gov/advgsa/advantage/main/start
_page.do
Federal Procurement Opportunities https://www.fbo.gov/index?cck=1&au=&ck=
Proposal Writing: http://gov.onvia.com/category/rfp-and-proposal-writing/
State Contracting Vendor’s Lists Vendor Opportunities http://da.state.ks.us/purch/
Local Government Contracting http://wycokck.unifiedtek.com/
VendorInformation.php
Case 3.2 Frenetic, Inc.
Make “green”energy products Most purchasing done through Thomas Industries, but
Margaret has had several problems with their delivery and billing
Christmas card arrives for Margaret, from Thomas sales rep, with $100 Victoria Secret gift card
Questions Is there an ethical issue with accepting the gift card? Why? Would a formal supplier evaluation system help with this? What
components should it have?