Business/ Industrial Management

MODULE 2: Learning objective

1. Organisational buying Activity2. Buying models and buying

centre concept3. Inter Personal Dynamics of

Industrial4. Buying Behaviour5. Roles of Buying centre6. Conflict Resolution in Decision

Making7. Ethics in Purchasing

Buying/purchasing Objectives

It is defined as buying a right items in the right quantity, at the right price for the delivery at the right time and place. The objective are stated as follows

Delivery/Availability. Product quality Lowest price Services Supplier relationship

Delivery/ adaptability

To ensure that purchased goods and services are available or delivered when and where needed.

If not delivered, work will come to grinding halt and this reflect on the performance of the purchase function

Product quality

It should be consistent with the specifications and use of the product. It can happen that a product may meet the Indian Standard (IS) or British Standard (BS) specifications.

It is important to ensure to consistency in quality to reduce cost of inspection, interruptions in production process due to rejections and arranging the replacement of rejected material

Lowest price

Buyer would like to buy at the lowest price consistent with availability and quality of the product.

This will be important objective, if delivery and quality criteria’s are met.

Services

The industrial buyers need many types of services accompanying in the purchase of goods. Which are listed:

Prompt and accurate information of suppliers

Application or technical assistance,Spare-parts availabilityRepairs and maintenance capability

&Training ( if required)

Supplier relationship

To develop long term supplier/ vendor relationship and to develop new sources of supply.

The organizational buying process

The organizational buying (purchase) process consist of various phases of buying- decision making process.

The importance to be given to various phases will depend upon type of buying situations.

Robinson, Faris and Wind developed eight phases of decision making process and types of buying situations

Decision making process:

It is also known as BUYPHASES and they are logical in sequence.

1. Recognition of a problem or need2. Determination of application or

characteristics & quality of needed product.

3. Development of specifications or description of needed product.

4. Search for and qualifications of potential suppliers

Continued

5. Obtaining and analyzing supplier proposals

6. Evaluation of proposals and selection of suppliers

7. Selection of an order routine8. Performance feedback and post-

purchase evaluation.

Recognition of problem

It may originate within the buying firm or may also recognized by a smart marketer.

Quality of material Machineries Equipment

Characteristics & quantity

The buying firm will try to answer questions such as:

what type of products/services to be considered?

Quantity? Engineering/design R&D Production Quality control

Development of specifications

Previous stage are closely related with this stage. Here prominence is given to technical specifications of the product.

Search for & qualifications

To obtain all the relevant information & secondly to decide on acceptable or qualifying suppliers and it depends based on following:▪ Type of buying organization▪ The buying situation▪ The decision making members

General characters will be quality, reliability in delivery, service are considered to qualifications of suppliers

Obtaining & Analyzing supplier proposals

Proposal can be formal offer, quotation or a formal bid submitted by supplier, it should contain product specification, price, delivery period, payment terms, taxes & duties, transportation cost, transit insurance and any other costing

Evaluation of proposals & selection

Decision makers of buying organization may evaluate each suppliers on the set agreed parameters or factors. For illustrationFactors Weight age /

IMPSupplier performance

Supplier rating

Quality 30 0.8 24

Delivery 25 0.4 10

Price 15 0.6 9

Service 20 0.6 12

Flexibility 10 0.2 2

TOTAL 100 57

A supplier evaluation system

“Balanced scorecard Technique”

It is technique/framework that can evaluate supplier performance in information age companies.

It translates companies mission, vision into a set performance measurements. The frame work is divided into 4 parts and they are as follows:

Financial, customer, internal business process & learning growth

Balanced scorecard framework

FinancialTo succeed financially,

company should focus on financial objectives that will satisfy shareholders

Internal-business- ProcessTo satisfy

shareholders & customers, what business process

company must excel at ?

Mission & Vision

CustomerWhich customer value company

should focus on, to achieve its mission

Learning and GrowthHow can company

improve & change to achieve its mission

Internal- Business- Process

Identify customer need and market

Design & develop product/ service

Make/ Buy products/ Services

Market Products/

Services

Satisfy customer

needs

Innovation Processes

Operations Processes

Selection of an order time

Mechanics of exchange of goods and services between buyer and seller is worked out. The activities include

Placement of ordersQuantity to be purchasedFrequency of order placementLevels of inventory neededFollow upPayment terms

Performance feedback and post evaluation

A formal or informal review regarding the performance of each supplier (vendor) takes place. The user department will give feedback on whether the purchased items solved the problem or not. If not, the members of the decision making unit review their decision and decide.

Types of Purchase/buying situations

There are three types of buying situations called buy classes:

New task /New purchase Change in supplier/ Modified rebuy Repeat purchase/ straight rebuy

The buy grid framework

Buyphases New task Modified rebuy

Straight buy

Problem recognition

Yes May be No

Characteristics Yes May be No

Specification Yes May be No

Qualifications Yes Yes No

Analysis Yes Yes May be

Evaluation Yes Yes No

Selection Yes Yes May be

Performance feedback

Yes Yes Yes

Multiple buying influences

The buying centre, the decision making unit, in business marketing is called buying centre. They consists of individuals or members who participate in buying decision & share the common objectives.

Size-- varies

The buying centre roles

Usually members of buying centre accept different roles during the buying process. These roles may vary for different stages of the buying process depending upon the buying situations, complexity of the purchase and the functions involved.

Assume several roles which are as follows

Users, buyers, influentials, deciders & gate keepers

Recognizing & identifying key persons

Recognizing key influential is an important task carried out sales person.

Identifying key members of buying centre.

Top management personsTechnical persons (functions)BuyersAccountantsMarketing function

Models of Organization buying behaviour

There are three models available to provide a comprehensive & integrated picture of major factors.

1. The Webster and Wind Model2. The Sheth Model3. The Choffray & Lilien Model

The Webster & Wind Model

Organizational Variables

Technology

(Purchasing)

Structure

(Buying Centre)

Goals and Tasks

(Buying Tasks)

Actors (people)

(Buying Centre members)

Environment Variables

Buying Centre VariableInterpersonal interactionGroup functioning: buying task and non task dimensions

Individual VariablesNeed & desiresPerception &

learning

Buying Decision Process• Individual decision making

process• Group Decision making

process

Buying

decision

The Sheth model

Differences among individual buyers factors:Back ground of individuals, their info sources, active search, satisfaction with past purchases

Variables that determine if the buying decision is autonomous or joint:Time pressure, perceived risk, type of purchase.Company size, orientation, degree of centralization

Methods used for conflict resolution in joint decision making process:

Problem solvingPersuasionBargainingpoliticking

Supplier or Brand chice

Situational Factors

Component 1 Component 2 Component 3

The Choffray & Lillen Model

Individual Responsibility Obtained set of alterative offers

Likely alternative offers

Individual preferences formed

Organizational preferences

Organizational choices

Interaction

Structure

Evaluation

CriteriaOrganizatio

nal constraints

Environmental

Constraints

Sources of Info

Interpersonal Dynamics

Organizational buying behavior ultimately influenced by forces within the organization.

it is understand and examine the influence of purchasing activities on organizational buyer behavior and how groups and individuals differ in their approach.

Purchasing influence on BB

A. Material requirement planningB. Just in time purchasingC. Centralized purchasing

Joint decision making

Characteristics of the firm ( Employees, Function of the firm)

Buying center interaction patterns Vertical involvement Lateral involvement Extensivity Connectedness

Psychological Factors influencing individual decision making

Differences in role orientationDifferences in information exposure

Perceived risk in the vendor selection process

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Write in detail about conflict and decision making:

Refer Reeder Referral book