Analysis - Cengage Learning EMEA

Transcript Analysis - Cengage Learning EMEA

Analysis

2. Industrial buying behavior: decision making in purchasing

Program

      Organizational buying behaviour: basic characteristics The purchasing process Major bottlenecks and problems The role of the purchasing department in the purchasing process Models of industrial buying behaviour Buying behaviour considered as an interactive process © Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)

Industrial vs. consumer markets

Aspect

Buying objective Buying motive Purchasing function Decision m aking Characteristics

Industrial market

Enable production Mainly rational Professional buying Many persons involved, m uch discussion Negotiations, intense interaction Large

Consumer market

Personal need satisfaction Also emotional Consumers Often im pulsive, without consulting others Often without negotiation, little interaction Lim ited Product & market knowledge Order size Demand Price elasticity Num ber of customers Often large Derived, fluctuation Rather inelastic Mostly lim ited Mostly small Autonomous, relatively stable Rather elastic Very large Spread of custom ers Som etim es large geographic concentration Large spread

Industrial markets: basic characteristics

     

Professional purchasing:

professional buyers with education and experience who know their tasks and responsibilities

Derived demand:

developments in industrial markets are often related to changes in the end-user markets upstream in the value chain

Inelastic, fluctuating demand:

due to the derived demand, price-elasticity in industrial markets is frequently lower than in consumer markets

Geographical concentration:

many industrial markets are geographical concentrated (e.g. Silicon Valley)

Large order quantities and large amounts of money involved Limited number of customers:

industrial suppliers often supply only a few companies compared to companies that deliver directly to consumers © Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)

The purchasing process

Define specification Proc. Role

Get specification

Select supplier Contract agreement

- Assure adequate supplier selection - Prepare contract

Elements

Functional specification Technical changes Bring supplier engineering knowledge to - Prequalification of suppliers - Request for quotation - Contracting expertise - Negotiating expertise

Ordering

- Establish Order routine - Develop orderroutines - Orderhandling

Expediting

- Establish expediting routine - Expediting - 'Trouble shooting'

Evaluation Follow up

- Vendor performance evaluation - Settling contract problems - Vendor rating - Vendor evaluation

Documents

Functional specification Norm/spec.

control Supplier selection proposal Contract Order Overdue list - Vendor balanced score card - Vendor profile - Vendor ranking © Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)

The purchasing process



Process approach:

the various steps in the model are closely connected and the quality of the output of the preceding steps determines to a large extent the quality of the subsequent steps 

Defining the interfaces:

the output of each phase has to be clearly defined, preferably with a document 

Determining responsibilities:

purchasing is considered to be a cross functional responsibility. Therefore, the tasks, responsibilities and authority of the parties involved should be clearly indicated in each phase 

Combining different skills, different types of knowledge and expertise:

key question is how to combine the different types knowledge, skills and expertise in such way that all parties involved arrive at an optimal solution for the company © Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)

The purchasing process

     

The added value of the professional buyer lies in the ability to act as a facilitator for the supply process:

Being involved in new product development and investment projects Preparing a list of approved suppliers, drawing up requests for quotations and selecting a supplier together with the internal customer Preparing and carrying out contract negotiations setting up requisitioning and ordering routines (e.g. through electronic buying catalogues, e-Procurement) in such a way that users can place orders themselves Place orders at suppliers and maintain and monitor order, contract and supplier files Monitoring outstanding orders and financial obligations Follow up and evaluation of supplier performance and maintaining relevant supplier documentation © Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)

Ad 4) Inkoopclassificatie

Three types of purchasing situations:

New task situatie

• Completely new product from unknown suppliers • High uncertainty regarding outcome • (e.g. acquisition of capital goods)

Modified Rebuy

• New product from known supplier • Existing product, new supplier • Moderate uncertainty regarding outcome

Straight rebuy

• Known product from known supplier • Low uncertainty regarding outcome • (e.g. consumable items like MRO) © Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)

Examples of purchasing situations

Straight rebuy Modified rebuy New task

Routine task Low risk New task High risk

Major bottlenecks and problems



Supplier or brand specifications:

most buyers are involved only to a minor extent in the specification phase, so the specifications of the user are often designed ‘towards’ a particular supplier 

Inadequate supplier selection:

financial strenghts and technical capabilities leading to discontinuities of supply in delivery stage Insufficient screening of suppliers on 

Insufficient contracting expertise:

how supplier should perform and difficulties in solving delivery and quality problems leading to misunderstandings on 

Too much emphasis on price:

Decisions need to be based upon total-cost-of- ownership (TCO) rather than price only 

Administrative organisation:

lack of clear procedures with regard to procurement or authorisation of orders, leads to lack of control on purchasing expenditure and costs © Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)

The role of the purchasing department

    Many different items are not purchased by the purchasing department, but by management, accounting, administration etc.

The purchasing department usually is mainly involved in the procurement of indirect materials, somewhat less in production related items and least in investment goods The involvement of the purchasing department is limited during the first few stages of the purchasing process Traditionally purchasing’s role focused on the last stage of the process, when contracts have to be drawn up and when orders have to be placed. This picture is changing, however… © Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)

The role of the purchasing department



Type of purchasing item

              Key raw materials Computers and software Lease contracts Insurances Accounting services Advertising Catering Travel Licences Books and magazines Sales promotion items Temporary labour and training Cleaning materials MRO 

Purchased by

              Management Accounting, IT department Accounting Management, Accounting Management Sales, Marketing Facilities manager, Catering Administration R&D department Library Sales, Marketing Personnel department, HRM Facilities manager Technical maintenance © Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)

Four dimensions of the purchasing function

Technical dimension Commercial dimension

•Determine specifications •Audit suppliers’ quality organisation •Value analysis •Quality Control •Supplier selection •Draw up contract •Supply market research •Supplier visits •Requests for quotations •Evaluate quotations •Negotiations with suppliers

Purchasing function Logistical dimension

•Optimisation of ordering policy •Order expediting and follow-up •Incoming inspection •Monitoring delivery reliability

Administrative dimension

•Order handling, expediting and filing •Checking supplier invoices •Checking payments to supplier © Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)

Models of industrial buying behavior 1. Variables that affect the buying

process

 Characteristics of the product  Strategic importance of the purchase  Sums of money involved in the purchases  Characteristics of supply markets  Degree of risk related to the purchase  Role of the purchasing department in the organisation  Degree to which the purchase product affects existing routines in the organisation © Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)

Models of industrial buying behavior

Commercial uncertainty Product complexity

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Standard product

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Technically simple

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Existing product

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Repeat purchase

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Easy to install & use

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No after sales service required Low

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Customised product

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Complex technology

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New product

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Initial purchase

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Difficult to install

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After sales service required High

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Limited Investment

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Small order size

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Short-term impact

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No organisational adaptation required

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Low impact on financial results Low Purchasing department dominant Engineering dominant

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High Investment

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Large order size

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Long-term impact

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Extensive organisational adaptation required

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High impact on financial results High Finance and administration dominant Cross-functional decision making

Fisher, 1970

Models of industrial buying behavior 2.Variables that affect the buying

decision

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Task variables: variables that are related to the tasks, responsibilities and competences assigned by the organisation to the person involved in the purchase decision

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Non-task variables: variables that are related to the professional’s personality

Webster and Wind, 1972

Models of industrial buying behavior

Within the

Decision Making Unit

distinguished… various roles can be     

Users:

people who will work with the product

Influencers

: people who are able to affect the outcome of the purchasing process by means of solicited or unsolicited advice

Buyers:

people who will negotiate with the suppliers about terms and conditions and who place the order

Decisionmakers:

the supplier people who actually determine the selection of

Gatekeepers:

people who control the flow of information from the supplier towards the other members of the DMU © Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)

Models of industrial buying behavior

1 . Identification of need 2. Establishing specification & scheduling the purchase 3. Identifying buying alternatives 4. Evaluating alternative buying actions 5. Selecting the suppliers

Webster and Wind, 1972

Buying behavior: an interactive process

1. Johansson, Håkansson & Wootz

Based on the following physical characteristics, the interaction process between buyers and sellers can be described:     Number of times the parties make contact Properties of the object of exchange The degree in which the process is formalised Characteristics of the parties involved

Three aspects of this model: Physical exchange Social exchange Adaptation

Buying behavior: an interactive process

Market uncertainty 2 3 Characteristics of buying situations: 1. Buying a standard product from an existing supplier 2. Buying a standard commodity from a new supplier 3. Buying a reactor for a new nuclear plant 1 Requirement uncertainty Transaction uncertainty

Buying behavior: an interactive process

The approach of Ford

The crucial element of industrial marketing is viewing the market as a network of relationships between organisations

Marketing policy should strive to maintain and expand a particular portfolio of concrete relationships with organisations… the same is true for purchasing!

Buying behavior: an interactive process

The network approach

The dyadic relationship between supplier and manufacturer is not only influenced by the characteristics of the product and the involved organisations , but also by the relationship between these organisations and other organisations that are part of the supplier network

Effective purchasing and effective management of supplier relationships requires a thorough understanding of the cost structures and the balance of power in the entire buyer-supplier network