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?