Week 8- Organisational buying process PDF

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Summary

Organisational buying
Characteristics of organisational buying
People and process in purchasing
How they buy
Who makes buying decisions
Choice criteria
Implications of choice criteria
Influences on buying decisions
How this affects organisational buyi...

Description

Thursday 15th November- Week 8 Organisational buying process- Chapter 4 Organisational buying involves purchasing products and services to meet the needs of manufacturers, resellers, government and other types of organisations. The three types of organisational markets: 

The industrial market: consists of companies that buy products and services to help them produce other goods and services such as raw materials, machinery etc.

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The reseller market: comprises of organisations that buy products and services to resell. Retailers are an example of this as they get their products from a seller and sell it to consumers.

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The government market: consists of government agencies that buy products and services to help them carry out their activities.

Organisational buying is different to consumer buying in terms of scale, risk and complexity- making a wrong decision in an organisation could lead to big problems such as a loss of market share, job losses or even company failure which is why they need to ensure they have done the right amount of research before buying anything for the business. Characteristics of organisational buying: 

Nature and size of customers: the number of customers in organisational markets is smaller than consumer markets. Suppliers need to invest heavily in developing long term collaborative relationships to ensure they keep purchasing their goods from them.

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Complexity of buying: often organisational purchases especially those that involve large sums of money and that are new to the business involve many people at different levels of the organisation to have a say in decision making e.g. the managing director, production managers etc may influence the decision as to which machine to buy.

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Buying to specific requirements: sometimes organisational buyers draw up product specifications and ask suppliers to design their products to meet their needs- this is different to the consumer market as many of the goods produced meet the needs of a certain segment in the market and not many businesses would tailor to meet the needs of certain customers.

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Reciprocal buying: if an industrial buyer is powerful in negotiating deals it may be possible for both businesses to agree on buying each other’s products.

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Derived demand: the demand for many organisational goods is derived from the demand for consumer goods. E.g. the demand for machinery is derived from the demand of consumer goods that the machinery can make.

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Negotiations may be made e.g. to lower the price of the good

People and process in purchasing

Who makes buying decisions? Buyers can influence many aspects of a firm’s operation as the decisions they make can impact a company’s performance, suppliers and the workforce. In an organisation, decisions can be influenced and changed by people within the decision-making process. Roles identified in the structure of the DMU: 1. 2. 3. 4. 5. 6.

Initiators: those who begin the purchase process Users: those who actually use the product Deciders: those who have authority to make the decision Influencers: those who provide information and add criteria throughout the process such as accountants- may restrict the amount that can be spent on a particular good/service. Buyers: those who have the authority to execute the arrangements such as the purchasing officer Gatekeepers: those who can control the flow of information for example secretaries who may allow or prevent access to a DMU member

For very important decisions, the structure of the DMU will be complex as it would involve a number of people within the organisation, therefore as there are many people who can influence a decision, firms should try and convince them of the products worth. When the problem to be solved is highly technical, suppliers may work with engineers in the buying organisation to answer any questions and secure an order- salesperson should identify the person who makes the key decisions and should try and persuade them to buy their goods/services. The low cost of direct mail and email campaigns makes them tempting alternatives to personal visits or telephone calls. Setting up a website can also be inexpensive once the initial set-up costs have been met. However, wrongly targeted direct mail, a poorly designed website or a badly executed email campaign can cause customer annoyance and tarnish the image of the company and brand.

How they buy: 1. Recognition of problem/need: needs and problems may be recognised through internal or external factors. Looks at the internal needs of the business and also looks at the external environment e.g. competition faced by the firm. 2. Determination of specification and quantity of needed item: the DMU will draw up a description of what is required to meet certain specifications- marketers can influence this specification and influence their buying decisions. 3. Search for and qualification of potential sources: the cheaper and less important an item, the less search takes place. Marketers can use advertising to ensure that their brands are in the buyers’ awareness. 4. Acquisition and analysis of proposals: firms look at alternatives and analyse all the proposals 5. Evaluation of proposals and selection and selection of suppliers: each proposal will be evaluated to see which one would be more efficient for the business- various members may use different criteria’s judging proposals. 6. Selection of an order routine: details of payment and delivery are drawn up usually conducted by the purchasing officer. 7. Performance feedback and evaluation

Choice criteria: criteria used by members of the DMU to evaluate supplier proposals. For example, purchasing managers who are judged by the extent to which they reduce their expenditure are likely to be more cost

conscious than engineers who are evaluated in terms of their technical efficiency of the production process they design. Quality: total quality measurement is a set of programmes that is designed to constantly improve the quality of physical goods and services. Many buying organisations are unwilling to trade quality for price as consumers are looking for good quality products which is why firms can charge them higher prices. Continuity of supply: another major cost to a company is the disruption of a production run. E.g. a breakdown in the machines can increase the costs for the business and can even lead to a decrease in sales. Continuity of supply is a prime consideration in many purchase decisions as it looks at the risks involved in the supply chain, looking for suppliers who can guarantee reliable supply which could be on just in time basis. Perceived risk:  

Functional risk: uncertainty with respect to product or supplier performance Psychological risk: criticism from work colleagues

Office politics: employees within the same business may have differences in opinions which is why they may favour a different supplier. Personal liking/disliking: a buyer may personally like one salesperson more than another and this may influence supplier choice especially when competing products are vert similar.

Implications of choice criteria:  

Appeals may need to change when communicating to different DMU members Criteria used changes over time as circumstances change

Influences on buying decisions:

The buy class: New task: occurs when the need for the product has not arisen previously so that there is little or no relevant experience in the company and a great deal of information/research is required. Straight rebuy: occurs where an organisation buys previously purchased items from suppliers already judged acceptable- routine purchasing procedures are set up to facilitate straight rebuys. Modified rebuy: a regular requirement for the type of product exists, and buying alternatives are known but sufficient change has occurred such as a delivery problem and this may require some alteration to the normal supply procedure. How this affects organisational buying:      

People in the DMP may change depending on how businesses buy their goods. For example, for a straight rebuy only the purchasing officer will be involved Whereas for a new buy, a lot of people from different departments will be involved such as accountants, product managers etc. Modified rebuys may involve engineers, production managers and purchasing officers Decision making process may be longer as the buying class can change Value analysis: methods of moving purchases from a straight rebuy to a modified rebuy situation. It is a method of cost reduction in which components are examined to see if they can be made more cheaply- may look for cheaper alternatives.

The product type: 1. 2. 3. 4.

Materials used in the production process Components that need to be incorporated in the finished product Plant and equipment Products and services for maintenance, repair and operation such as welding equipment

This is based upon a customer perspective- how the product is used and may be employed to identify differences in organisational buyer behaviour- firms need to see what their consumers are looking for before deciding what materials and components are needed etc. (Firms look at their product type and then make decisions) The importance of purchase: 

A purchase is likely to be perceived as being important to the buying organisation when it involved large sums of money- when the cost of making the wrong decision is high and when there are a lot of alternatives to choose from. This will involve many people at different organisational levels to be involved in the decision – long process.

Developments in purchasing practice:

Lean production and just in time purchasing: Kanban- system for controlling logistics and managing the movement of stock through various stages in the supply chain. Just in time: ordering stock for when it is required  Aims to minimize stock by organising a supply system that provides materials and components as they are required.  Stockholding costs are reduced or eliminated, thus profits are increased.  This may allow firms to receive high quality products, improve product design, inventory and inspection costs can be reduced etc.  However, as this system requires the delivery of the exact number of materials/components then delivery schedules must be reliable, and suppliers must be prepared to make deliveries on a regular basis. Total quality management:  Management approach to long term success through customer satisfaction. In TQM all members of an organisation participates in improving products, services and the culture in which they work. Centralised purchasing: purchasing specialists who can concentrate on a few products. Often increases the power of the purchasing department and results in a move to and long-term supply relationships. E-procurement: systems that enable companies to fulfil a range of activities and processes associated with the purchasing function. Platforms have been set up to facilitate electronic trading and they have been widely adopted in industrial and reseller markets, but the adoption of e-procurement has been much smaller in government markets. E-commerce: marketplaces are creating information portals and purchasing ecosystems that are facilitating greater communication within and across industries and to the end consumer. Reverse marketing: traditional view of marketing is that supplier firms will actively seek the requirements of customers and attempt to meet those needs better than the competition. Purchasers could assume a passive dimension relying on their supplier’s sensitivity to their needs to provide them with solutions to their problems- to provide them with things that they are looking for Leasing: may give out financial benefits to customers making the market look more attractive for new customers Outsourcing: enables firms to focus on their core business process while using contracted firms to provide services and support....