THE ORGANIZATIONAL BUYING PROCESS

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CHAPTER 2

• THE ORGANIZATIONAL BUYING PROCESS

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Important Topics of the Chapter

• Changing Role of Business Buyer.
• The Business Buying Process.
• Business Buying and Buying Center.
• Environmental Forces and Buying Decision.

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Objectives of Business Buyers

• Availability of Product/service.
• Reliability of sellers.
• Consistency of quality, delivery and price.
• Decision by business buyers directly effects to
  cost and profitability.

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Changing Role of Buyer

• Relationship marketing
• Alliances and strategic partnership
• understanding the needs
• treating as a partner
• employees are friendly with customers
• providing quality service
• Profile of a business buyer
• 36-45 years old and at least 15 years experience
• have degree in business
• Women are gradually increasing

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Value Analysis

• Developed by GE in 1940s.
• It aims at studying products and all its
  components to improve quality, lower cost with
  more stable supply.
• It exchanges efficiency and profitability.
• It may be used for vendor cooperation with lower
  cost.
• Its purpose to secure improved performance with
  approach
• It cannot be implemented without input from
  production, purchasing and marketing.

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Make-or-Buy Analysis

• It may be generated because of poor vendor
  performance.
• Ascertaining Profitability
• All cost must be considered such as delivery,
  direct labor, purchasing and opportunity
• Resources in maximizing production, managerial
  and financial capabilities can be formalized
• Profitability of the organization is higher

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Make-or-Buy Analysis(cont.)

• Manufacturing
• Make-or Buy decision will be based upon, if
• Items are required in large volume and suppliers
  are unreliable.
• They are adopted in manufacturing facility.
• It is cheaper to produce than purchasing from a
  vendor.
• It is not protected by patent rights.

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Negotiation

• It is the art of bringing two sides together to
  obtain desired objectives.
• It is a technique of communicating ideas.
• It represents a structural process related to
  quality, quantity, payment term and service.
• The both sides should show self-confidence,
  self-esteem, courage, flexibility, patience, and
  understanding of need satisfaction, tolerance,
  and intelligence.

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Negotiation

• Buyer and Seller Strengths
• The unprepared side may loose the negotiation.
• Buyer and seller must know each other.
• At the end both side must win something and
  feeling good.
• Differences must be identified and resolved for
  complete satisfaction.
• Understanding the outcomes may allow negotiators
  more flexibility in choosing the negotiation
  behavior adopted.

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The Business Buying process

• Recognizing the need
• Developing Product Specifications
• Soliciting Bids from suppliers
• Making the purchase decision
• Issuing the contract
• Inspecting delivered goods
• Evaluating vender performance

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Evaluating Potential Vendor

• Performance analysis
• Efficiency, reliability and cost
• Plant visit
• Geographic location
• Capacity
• quality and price requirements

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Business Buying Situation

• New-Task
• Modified-Rebuy
• Straight-Rebuy

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The Buying Center

• Users
• Gatekeepers
• Influencers
• Deciders
• Buyers

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Materials Management Concept

• It is the flow of goods for manufacturing
  operations. It expands to raw materials,
  component parts, and inventory control along
  with being an important tool in planning and
  forecasting.
• Alternative approaches
• Traditional
• Just-in-time
• Kanban
• Integrated Supply Chain
• Partnering management usually develop between a
  purchaser and a distributor on an intermediate to
  long-term basis.

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Environmental Forces and Buying Decision

• Economic Environment
• Derived nature of business demand
• Physical Environment
• Geographic characteristics of region
• The Competitive Environment
• Technological Environment
• Knowledge explosion
• Legal-Political Environment-FDA, FTC
• The Ethical Environment

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Business Buying Motives

• Businesses are not buying for themselves. They
  are buying for their business . Therefore, they
  try to
• reduce uncertainty in quality and service
• select a supplier with the most favorable value
• use multiple sources
• Use psychology-human side of selling/ buying

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Behavioral Clues in Buying

• Power and formal authority often go together.
• Communication with the buying-center
  power-holders is necessary.
• Use your experiences to know who is the powerful
  buyer.
• The most powerful buying-center members are
  probably not easily identified

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Behavioral Clues in Buying (Cont.)

• No correlation exists between the functional area
  of manager and his or her power within the
  company.

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Purchasing Organizations

• Purchasing functions
• what to buy
• in what quantities
• at what time
• from what sources
• with what procedures
• Implementation function
• requisition
• ordering
• receiving and paying

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Purchasing Organization (Cont.)

• Organization structure
• under the production and manufacturing division
• under the control of top management
• Separate buying department
• Centralized Vs. Decentralized Buying
• Control process
• Independent in decision making
• understanding the differences in needs
• developed goodwill through local distributor

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Purchasing Organization (Cont.)

• Centralized purchasing
• Standardization becomes easier
• Administrative duplication is eliminated
• Provides faster delivery and lower cost
• Better control over purchasing
• Provides better specialization and expertise in
  purchasing