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Purchasing
THE OBJECTIVES OF PURCHASING
1. PROVIDE APPROPRIATE LEVELS OF SUPPLY
+
2. THE APPROPRIATE LEVEL OF QUALITY
+
3. THE LOWEST TOTAL COST
WHAT COMPANIES REALLY PAYFOR OWNERSHIP
• Cost of ownership goes beyond the price paid for a product
• TOTAL COST OF OWNERSHIP = PRODUCT PRICE
+ DELIVERY + INSTALLATION + MAINTENANCE / REPAIR
+ POWER COSTS + SUPPLY COSTS + OPERATING COSTS + FINANCING
PURCHASING PARTNERSHIPS ARE MADE WITH VENDORS WHO
PROVIDE:
• High-purchase-volume materials, components or strategic products
• Information and training for effective product use
• Services requiring specialized knowledge for cost reductions and/or performance
• Materials unavailable elsewhere
Steps in the Business Buying Process
1. Recognizing the need
2. Developing product specifications
3. Soliciting bids from potential suppliers
4. Making the purchase decision
5. Issuing the contract
6. Inspecting delivered goods for quality
7. Evaluating vendor performance
MAKE-OR-BUY DECISION ANALYSIS
ACCEPTABLE RISKBuy the Products,
Components or Services
UNACCEPTABLE RISKRetain Production and
Provide Services
RISK ASSESSMENT
FINANCIAL RISKS
Resource Allocation
Investment of Resources
Accurate Cost Analysis
Legal Issues
MARKETING RISKS
Customer Impact
Supplier Impact
MANUFACTURING RISKS
Reliability
Expertise
Equipment
Patent Protection
POLITICAL RISKS
Management commitment/
willingness to partner
Turf Battles
Internal Strife
Quotations and Contracts
• RFQ: Request for Quotation
• RFP: Request for Proposal
• Boilerplate: – Standard legal clauses (fine print) on
RFQs, your bid, and the customer’s order.
– May contain terms of sale that contradict terms on your bid, and often contain penalties for nonperformance.
Types of Business Buying Situations
• New-task buy:– Business buying situation that is new and very different
from anything that the buyer has faced previously.
• Straight rebuy:– Most common type of business buying situation; buyer
purchases a part, material, or service routinely, with little thought going into buying process.
• Modified rebuy:– Reevaluation of alternatives; necessary because buying
requirements have changed such that relatively routine buy or purchase no longer is routine.
Examples of Products Purchased Using the Buy-Class
Pureroutine
Completenegotiation
StraightRebuy
ModifiedRebuy
NewBuy
ElectricityGas/Water
OfficeSupplies
BulkChemicals
Vehicles ConsultingServices
ElectricalComponents
ComputerSystems
Installations
Moon ShotInsurance
Insurance for the Apollo 11 Moonshot
Buygrid Analysis Framework
StraightStraight RebuyRebuy
ModifiedModified RebuyRebuy
NewNewBuyBuy
Need RecognitionNeed Recognition
Develop Product SpecificationsDevelop Product Specifications
Solicit BidsSolicit Bids
Make Purchase DecisionMake Purchase Decision
Issue the ContractIssue the Contract
Inspect Goods for QualityInspect Goods for Quality
Evaluate Vendor PerformanceEvaluate Vendor Performance
Complexity of Complexity of Buying SituationBuying Situation
Buygrid Analysis Framework
StraightStraight RebuyRebuy
ModifiedModified RebuyRebuy
NewNewBuyBuy
Need RecognitionNeed Recognition
Develop Product SpecificationsDevelop Product Specifications
Solicit BidsSolicit Bids
Make Purchase DecisionMake Purchase Decision
Issue the ContractIssue the Contract
Inspect Goods for QualityInspect Goods for Quality
Evaluate Vendor PerformanceEvaluate Vendor Performance
CreepingCreepingCommitmentCommitment
Forces Influencing Organizational Buying Behavior
EnvironmentalForces
OrganizationalForces
GroupForces
IndividualForces
OrganizationalBuying
Behavior
•Economic Outlook: Domestic & Global•Pace of Technological Change•Global Trade Relations
•Goals, Objectives, and Strategies•Organizational Position of Purchasing
•Roles, relative influence, and patterns of interaction of buyingdecision participants
•Job function, pastexperience, and buyingmotives of individualdecision participants
A projected change in business conditions can drastically alter buying plan.
Multi-Attribute Theory• Product offerings are bundles of
attributes.• Attributes provide benefits.• Benefits satisfy needs.• Buyers differ in their needs, therefore• Buyers differ in the importance they
place upon various attributes.• Some buyers seek to maximize the set of
attributes.• Others seek to satisfy most important
attributes first.
Role Theory• The differing roles people play (in business,
society, or life in general) have differing norms and expectations.
• Examines how people interact in the Buying Center (more than one person is involved in the purchasing decision.)
• In many cases, the buying center is an informal, complex, changing group.
• In other cases, it is a formal part of the organization (such as cross-functional teams)
The Buying Center
• Consists of those individuals–who participate in the purchasing
decision and–who share the goals and risks
arising from the decision
• Average buying center includes more than 4 persons per purchase
Roles of Buying Center Members• User
– Will use product in question; minimal - major influence
• Gatekeeper– Tight controller of information flow to other buying
center members; can open/close gate for salespeople.
• Influencer– Provides information to other members for evaluating
alternative products or sets purchasing specifications; can operate within/outside buying center.
• Decider– Makes buying decision; often difficult to ID.
• Buyer– Assigned formal authority to select vendors and
complete purchasing transaction.
The Influence of Gatekeepers
The Gatekeeper
Buying Center Dimensions
• Time– Time fragmentation: length of time people
are in the buying center.– Limits members’ influence– Can lengthen decision making time due to
inexperience
• Vertical– Layers of management involved
• Horizontal– Number of departments involved
Clues for Identifying Powerful Buying Center Members
• Isolate the personal stakeholders
• Follow the information flow
• Identify the experts
• Trace the connections to the top
• Understand purchasing’s role
Individual Forces
• Evaluative criteria– education, training, experience
• Information Processing– selective exposure, attention,
perception, and retention
• Risk-Reduction Preferences– level of uncertainty about outcomes
– magnitude of consequences associated with incorrect choice
Selective Perception
Selective exposure.Selective attention.Selective retention.
•Impacts how your buyer views and understands the world
•Impacts how your buyer views risk
Impact of Increasing Levels of Perceived Risk
• Buying center becomes larger
• Higher level managers become involved
• Information search more active
• Wider variety of info sources accessed
• Buying center members exert more effort
• Sellers with proven track records tend to be more favored
• Product quality & after-sale service tend to become more important than price