B2B Purchasing Orientation

Overview

The importance of purchasing and suppliers

• Purchasing is of major strategic importance to most companies.

• Purchases from suppliers account for more than half of the total costs of most companies.

• Specialisation reduces a company’s costs of technological development and leads to economies of scale.

OrganizationTechnology

Structure

Strategy

IndividualAims

Experience

Skills

Interaction Process

EnvironmentMarket structure

Dynamism

Internationalisation

Channel position

Social system

AtmospherePower/dependence

Co-operation

Closeness

Expectations

OrganizationTechnology

Structure

Strategy

IndividualAims

Experience

Skills

Long term relationshipsInstitutionalisation, Adaptations

Short term exchange episodesProducts/services

Information

Financial

Social

The Interaction Model - Purchasing

3Source: Adapted with permission from Håkansson (1982, p24)

Understanding Purchasing Orientation

• Purchasing – is the process of acquiring resources

and capabilities for the company from outside

providers.

• Purchasing orientation – we mean the overall

philosophy that guide managers who make

purchase-related-decisions and delineates their

span and influence.

Nature of Purchasing Relationships

• High-Involvement relationships with suppliers are costly, but assist in the development of more complex product / service offerings at higher prices.

• Low-Involvement relationships with suppliers compete to offer lowest price for a standard product offering.

Understanding Purchasing Orientation

• Purchasing Orientations:

– Buying

– Procurement

– Supply Management

“The value network”

Figure 3.1 Purchasing Orientations and the Value Network

Source: Adapted from a chart by Professor Sunil Chopra

J.L Kellogg Graduate School of Management, Northwestern University.

Understanding Purchasing Orientation

Buying Orientation involves the following:

– Obtain the best deal in terms of price, quality,

and availability.

– Maximise power over suppliers: and

– Avoid risk where possible.

Understanding Purchasing Orientation

Developments in Buying:

– Global sourcing

– Target pricing

– Lopez approach

– Customised materials

– B2B Matrix – (E-Hubs)

The B2B Matrix

Operating inputs Manufacturing inputsHow businesses buy

What businesses buy

Systematic sourcing

Spot sourcing

Source: HBR – E Hubs May 2000

MRO Hubs

Ariba

W.W Grainger

MRO.com

BizBuyer.com

Yield Mangers

Employease

Adauction

CapacityWeb .com

Catalog Hubs

Chemdex

SciQuest.com

PlasticsNet.com

Exchanges

E-steel

PaperExchange.com

Altra Energy

IMX Exchange

Understanding Purchasing Orientation

The Procurement Orientation involves:

– Improving quality

– Reducing total costs

– Cooperating with suppliers

Understanding Purchasing Orientation

The Supply Management Orientation:

1. Focus all of the firm’s efforts on delivering

value to end users.

2. Concentrate the firm’s own resources on

a set of core competencies and

strategically outsource all other activities.

Understanding Purchasing Orientation

The Supply Management Orientation:

3. Build a supply network that efficiently

completes required business process,

and

4. Sustain highly collaborative relationships

with selected supplier and sub supplier

firms.

4. Pursue Segment specific supply and

management strategies.

The Value Network

Understanding Purchasing Orientation

Putting Knowledge of Purchasing Orientation to Use:

– Knowing orientation is useful.

– Helps in suppliers selection strategy

– Helps you understand how your own strategies

and activities hinder the completion of

processes.

Summary

• Purchasing orientation is of strategic importance to most B2B companies.

• Purchasing is global in scope

• How customers handle strategic issues in purchasing has a profound implications for business marketing strategy.

• Understanding purchasing orientation helps companies understand the degree relationship development required for product / service solutions.

You are welcome to contact Nigel Bairstow at B2B

Whiteboard your source of B2B Asia / Pacific

marketing advice

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