SLM-Unit-06-MB0046

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Marketing Management Unit 6 Sikkim Manipal University Page No. 103 Unit 6 Business Buyer Behavior Structure: 6.1 Introduction Learnaing Objectives 6.2. Characteristics of Business Markets 6.3 Differences between Consumer and Business Buyer Behavior 6.4 Buying situations in Industrial/Business Market 6.5 Buying roles in the Industrial Marketing 6.6 Factors that influence Business Buyers 6.7 Steps in Business Buying Process 6.8 Summary 6.9 Terminal Questions 6.10 Answers 6.11 Mini-Case 6.1 Introduction On one side is the market for the final consumer whose behavior we discussed in the previous unit. It will be interesting to find out the difference in behavioral characteristics between the final consumer and what is known as the „business consumer.‟ In case of a business to business marketing, the marketing mix is applied differently. This market includes organizational buying, institutional buying and government buying. The buying may involve materials as final consumption and materials for intermediate consumption. A company may buy stationary for personal use and buy iron ore for making steel. Compared to the retail consumer market t this market consists of fewer buyers but they purchase in a much larger quantities-. These customers are concentrated in industrial towns, tech parks and industrial area other than other business or commercial center. The demand for the intermediate product in this market is known as derived demand. For example, demand for car engines will depend on the demand for cars. If the number of people who purchase car declines in a particular month then demand for the engines also goes down. This shows how engine companies are dependent on the final consumption of cars. In case of a business opting for a purchase, the decision has to go through several processes and people. This is where the behavior of people

Transcript of SLM-Unit-06-MB0046

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Marketing Management Unit 6

Sikkim Manipal University Page No. 103

Unit 6 Business Buyer Behavior

Structure:

6.1 Introduction

Learnaing Objectives

6.2. Characteristics of Business Markets

6.3 Differences between Consumer and Business Buyer Behavior

6.4 Buying situations in Industrial/Business Market

6.5 Buying roles in the Industrial Marketing

6.6 Factors that influence Business Buyers

6.7 Steps in Business Buying Process

6.8 Summary

6.9 Terminal Questions

6.10 Answers

6.11 Mini-Case

6.1 Introduction

On one side is the market for the final consumer whose behavior we

discussed in the previous unit. It will be interesting to find out the difference

in behavioral characteristics between the final consumer and what is known

as the „business consumer.‟ In case of a business to business marketing,

the marketing mix is applied differently.

This market includes organizational buying, institutional buying and

government buying. The buying may involve materials as final consumption

and materials for intermediate consumption. A company may buy stationary

for personal use and buy iron ore for making steel. Compared to the retail

consumer market t this market consists of fewer buyers but they purchase

in a much larger quantities-. These customers are concentrated in industrial

towns, tech parks and industrial area other than other business or

commercial center. The demand for the intermediate product in this market

is known as derived demand. For example, demand for car engines will

depend on the demand for cars. If the number of people who purchase car

declines in a particular month then demand for the engines also goes down.

This shows how engine companies are dependent on the final consumption

of cars. In case of a business opting for a purchase, the decision has to go

through several processes and people. This is where the behavior of people

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as a group needs to be understood. In an organizational context, both, the

individual and the group leave their affect during the process of procurement

or purchase. This unit deals in depth the various aspects of „buyer behavior‟

in the B2B market space.

Learning Objectives

After studying this unit, you will be able to:

Differentiate between consumer behavior and organization behavior.

Understand the nature of business markets

Discuss the different types of buying situations involved in the

organizational buying.

Understand the buying roles and their importance in industrial marketing.

Analyze the factors that influence the organization buying process.

6.2 Features or Characteristics of Business Markets

Following are some of the unique features of business markets where large

establishments purchase the required goods and services from other

businesses. Such B2B operations determine the organizations as buyers

and those organizations who supply the various requirements will be the

sellers or suppliers or service providers.

1. Few but bulk Buyers: The no. of buyers is few but they buy in large

quantity. For example, major airlines buy the necessary equipments

from the aircraft manufacturers

2. Geographical concentration of buyers: Buyers are geographically

concentrated. For example, shipping industries are located on the east

and west coasts of India than in any other places.

3. Variable demand: The nature of demand is fluctuating because the

demand is basically a derived one. Based on the requirements of the

consumer markets, organizations buy the goods and make the finished

goods available in the market for final consumption. Larger the

consumer demand, larger will be the organizational buying. For

example, mobiles are being used by a large population and so cellular

companies have to meet this rising demand.

4. Inelastic demand: The demand is also inelastic because organizations

cannot make rapid changes in the production structure and so prices

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remain constant in the short-term. For example, Shoe manufacturers will

not buy much leather if the price of leather is less neither will they buy

less leather if the price increases.

5. Systematic purchasing: The purchasing activity is directly between the

buyer and supplier organization which means there are no or very few

middlemen involved. Purchasing activity is usually undertaken by

purchase departments based on a proper structure and through various

mechanisms like having purchase requisitions from other sections,

inviting tenders and sending invoices from the suppliers, purchasing

agreements or contracts with the key suppliers, renewing agreements

etc. For example, Reliance Fresh has regular contracts with the

agricultural producers for smooth supply of fresh fruits and vegetables.

6. Multiple buying influences: there will be several parties involved in

deciding about the purchases because organizations will have several

departments and units functioning under it with different requirements.

So, unless they have the proper resources to work with there will be

problems in the departments. For example, purchase department in a

Hospital must be aware about the specific requirements in the clinical

wards, operation theaters, labs, etc.

7. Reciprocation: This means that when an organization buys goods from

another organization then the supplier organization also might need

certain other goods that are produced by the buyer organization. For

example, a stationery supplier will supply the necessary stationeries to

the paper manufacturer who in turn provides papers to the supplier.

8. Lease agreements: Most organizations take on lease the expensive

equipments required by them rather than buy it. So, in this way, they

reduce cost, get better service and the lessor or one who provides the

equipments will also profit from the rent or lease charges. For example,

TATA provides the transport trucks to other organizations on lease.

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6.3 Difference between Consumer and Business Buyer Market

Table 6.1

Characteristics Consumer Market Business market

1. Demand Direct Derived

2. No of customers Large Few

3. Location Dispersed Concentrated

4. Nature of buy Personal Profession

5. No of buying roles Few Many

6. Negotiations Easy Complex

7. Promotion Advertising Personal selling

The differences stated above may not exacting and water tight divisions.

Even in case of a business making a purchase for a regular stationary item,

the responsible employee may adopt an individualistic and direct approach.

Similarly industrial advertising may be effective. The differences lead to

behavior patterns which are also different. As an example, emotion plays a

major role in a purchase decision for an individual in a consumer market but

will hardly come into play in the business market.

6.4 Buying Situations in the Industrial/Business Market

Buying situations varies to a large extent in the industrial market as

compared to the consumer markets. Industrial marketing has to be

understood in the larger context of B2B marketing. We may ponder here

that „will the explanation be different in case of institutions which are not

businesses?‟ What about a government department or a voluntary

organization? We may consider all these under B2B markets. The

differences cited above induce some of the behavioral changes as

compared to the retail consumer market. The negotiation process and

vendor evaluation stages will change as per buying situation. It means for

each set of situation the buying process changes. Therefore in this section

we are discussing different situations involved in business buying. Industrial

marketing usually involves three different types of buying situations. They

are

1. New Task

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2. Straight re-buy and

3. Modified re-buy

1. New task: This is the stage in which an organization is purchasing a

major product for the first time. Therefore the company may have a

larger number of people involved in the decision making. In this situation

the seller tries to meet as many of these decision makers in the

organization and convince them. This may result in higher uncertainty

and cost for the seller. It may also happen that the promoter/s may be

involved directly in the decision making process for reasons of control

and execution.

2. Straight re-buy: In this situation an organization follows the routine step

of informing sellers about their requirements and supply specifications.

This is the simplest situation in the organization buying process. This

provides lot of flexibility to both buyers and sellers. The company may

already have a list of suppliers. It gets the information from the

departments/shop-floors about their requirements and the same is

conveyed to the supplier. After the advent of ERP software things have

become simpler and easier. An enterprise resource planning software

has a data base on vendors, materials, prices, and the channel of

approval for any procurement. At the front end it has requisition forms,

etc which the requisitionist fills up on line through the intranet and within

a given time frame the work is executed. The seller has to ensure that it

figures in the data base of the software of the procuring enterprise.

3. Modified re-buy: In this stage the buyers want either product

modification, price modification, terms modification or suppliers‟

modifications. For example, a company X is buying Rs 100,000 worth of

iron ore from company Y every month. Company would like to reduce

the cost of iron ore. It may negotiate with its suppliers on the new terms

and conditions.

6.5 Buying Roles in the Industrial/Business Marketing

Compared to the decision making process in the consumer market the

number of people involved in the decision making are more in industrial or

business marketing. Therefore many business organizations constitute an

exclusive buying center or buying committee. The buying center/committee

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may have the following characteristics depending on size and nature of the

organization;

1. Several individuals can entrusted with a given role (e.g. many users /

influencers) and one individual can assume multiple roles.

2. The buying center may include people outside the organization such as

government officials, consultants, technical advisors and other members

of the marketing channel.

3. Different members of the buying centre have different influences, for e.g.

the engineering department may be concerned with actual performance

of the product, whereas production floor may be more interested in the

ease of use and reliability of supply of materials.

4. Members of the buying centre have different personal motivations,

perceptions and preferences which in turn are dependent on - age,

income, education, job position, personality, attitudes towards risk and

culture.

Different buying roles played during buying process could be classified as

follows:

a. Actual users are people who actually use the product or the material

procured. Raw materials may be used by the production supervisor and

his team. Lathe machine is used by the shop floor employee. These

individuals can be a better judge of the specifications of the purchase

requirement than any other.

b. Influencers are people who provide the information required to evaluate

the vendor and his products. To purchase computers for the finance

department the staff from the IT department may be better decision

makers.

c. Buyers are individuals or groups who finally procure by placing the

order with necessary specification. These people also evaluate the

vendor and select him.

d. Deciders are those who finally give consent on the chosen supplier/s.

e. Gatekeepers acts as an agent between buying committee (i.e. the

Business Organization) and sellers (i.e. the service providers or

suppliers). The gatekeeper may facilitate the flow of information in the

process of buying and can be played by an office assistant.

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Self Assessment Questions

1. Any market in which customer buys the product for other than personal

consumption is called __________.

2. Common method used in promoting the product in the business

marketing is___________.

3. Derived demand exists in ________________ market.

4. ____________ plays the role of an agent between the buyer

Organization and the suppliers.

5. Business organizations are dispersed in many locations

a. True b. False.

6.6 Factors that influence Business Buyers

1. Economic developments: Purchasing of materials depend upon the

country‟s economic conditions. If the economy is growing rapidly

usually the consumption also grows proportionately then company

should source materials accordingly. The economic health of the

nation provides a mirror image for the organization too. In case the

economy is undergoing a recession as during the year 2008,

businesses typically tone down their own procurement. A government

introduced scheme like NREGA in India may provide opportunities for

a business linked to such a scheme.

2. Demand conditions: Raw materials required should be matched with

the demand position of the company‟s products or services. If there is

an irregular or seasonal demand the company should adjust its

supplies. Any shortage of the raw materials will force the company to

go out of the Market. A sugar manufacturing company has to procure

cane which is a seasonal crop. The company has to anticipate

demand for sugar and accordingly arrange for the supply of sugar

cane much before the harvest.

3. Political and Legal environment: An unstable government will have

unpredictable policies. Any change in the government policy will have

direct or indirect impact on a business. For example, When the Indian

government introduced the emission norms for automobiles,

automobile manufacturers like Marathi Dog Ltd had a difficult time as

they had to change engine specification accordingly and the previous

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stock of components had to be discarded or had to undergo

modifications. Similarly when the Delhi government introduced CNG

norms, providers of CNG equipment had to suddenly scale up their

operation.

4. Competitive environment: Business buying is very complex. The

numbers of buyers are fewer. Thus any technological change adopted

by a competitor should be carefully observed. If the company is

unable to do so, survival in the market place may prove to be difficult.

As supply chain management is increasingly being adopted by

businesses, the advantage of time, cost and flexibility is being reaped.

Not keeping pace with such adoption could prove costly for an

enterprise.

5. Culture and customs: Every country has its own culture, sub-culture,

and customs. While in India we have right hand driving device, it is the

opposite in the US. The suppliers of items relating to this have to keep

this in mind.

6. Organizational objectives: Purchasing objectives are derived from

the organization objectives. For example, an organization objective is

to reduce the overall cost of 20%. Its purchasing objectives take this

as benchmark and try to reduce the cost by 20%. The enterprise may

have a branding objective of catering to high net worth individuals and

thus the stationary in use would also have to be of a similar standard.

7. Organizational policies and procedures: Companies‟ policies like

centralization versus decentralization of buying and selling will have

direct impact on the company‟s procurement. A purchase decision

may be assigned to specific managerial levels based on value. A store

supervisor may be allowed to procure directly for say a value of

Rs.100, 000 whereas the same decision for a value of Rs 100,000-Rs.

500,000 may be taken directly by the production manager. A supplier

may sometime have to be aware of such procedures.

8. Organization structure and systems: Lesser the hierarchy the more

will be the flexibility in the organization. Companies with more number

of hierarchies will have plenty of problems to be addressed. The

approval of hierarchies may be a long winding process. Government

departments in India are typical examples of this kind of hierarchy. The

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purchase behavior exhibited by each approver in the group may be at

cross purposes or in conflict, for whatever reason. The purchase

process may not be able to eliminate subjective behavioral affectation.

9. Interpersonal factors: business buying will have different outcome on

the basis of authority, status, empathy and persuasiveness that

customers and organizations possess. A superior may not like to be

bypassed even if the subordinate has the authority to take decision. A

supplier may not be aware of such delicate situations and may get into

trouble.

10. Individual factors: Age, education, job position, personality, risk

attitudes of individual will determine the buying behavior of each

individual and in turn these changes will have direct impact on the

organization buying.

Exhibit 1

Retail Chains and Future of Business to Business (B2B) Trade in India

Author : Dr. Amit K. Chatterjee

(Amit worked in blue-chip Indian and MNCs for 15 years in various

capacities like Research and Information Analysis, Market Development,

MIS, R&D Information Systems etc. before starting his e-commerce

venture in 1997. The views expressed in this column are his own. He

may be reached at [email protected] )

Govt of India has decided to allow 51 percent FDI in retail chains. This

will certainly make the sector more attractive to foreign retailers who

want a controlling stake in their Indian ventures. Retailers who are

comfortable with ownership rather than franchises may look at the Indian

market with greater interest.

Entry of large foreign retail chains like Wal-Mart will have profound effect

not just on small retailers and Indian retail chains but also on business to

business (b2b) trade. Introduction of b2b cash-and-carry outlets by Wal-

Mart, Metro and possibly other retailers will bring significant changes in

large and fragmented Indian supply chain. Middlemen like wholesalers

and stockiest will increasingly be under pressure. Where do small and

medium manufacturers/exporters stand in this changing scenario?

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What is Cash-and-Carry Scheme?

Targeted at and open only to business customers - cash and carry

scheme focuses on small-wholesale customers who buy in bulk and pay

in cash. Unlike hypermarkets where any consumer can walk-in and buy

goods, cash-and-carry outlets allow only authenticated bulk buyers to

transact business. Medium-sized businesses such as retail stores,

hotels, restaurants, caterers, exporters etc can buy from cash-and-carry

outlets at prices much cheaper than market rate.

In its original form, owners of cash and carry outlets (i.e. large retail

chains) buy from producers directly at very high volume, dispensing with

middlemen like wholesalers and stockiest. They also establish their own

brands - asking producers to manufacture as per their product and

packaging specifications. Volume purchase and removal of middlemen

result in substantial cost reduction - a part of which is passed on to b2b

customers. So, b2b customers get products of assured quality

throughout the year at less than market price.

How Does Cash-and-Carry Outlets Affect your Business?

Large scale introduction of Cash-and-Carry outlets will definitely affect

and influence various players in Indian b2b supply chain. While it may

prove to be a boon for business buyers, manufacturers and producers

such as small-scale units and agricultural producers' cooperatives which

are not big or savvy enough to be able to dictate terms to established

supply chains - it may adversely affect wholesalers and other middlemen.

De-layering of Indian distribution system may pose threat to middlemen,

many of whom may be rendered redundant in the supply chain. Increase

in competition and cost cutting will bring more efficiency in the market

place - benefiting businesses.

Where does Small Scale Manufacturers and Exporters Stand?

Though it‟s too early to predict possible changes - large retail chains may

bring new opportunities for Indian manufacturers and exporters. While

small scale manufacturers may enter into collaboration with retails chains

- allowing them the chance to join a modern procurement chain that

thrives on efficient suppliers, it may have interesting influence on Indian

exporters.

Fragmented and largely un-organized sourcing channels pose a

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formidable challenge to small and medium exporters in Indian sub

continent. Some of the major hurdles in any export transaction are - lack

of assured and uniform quality standard, uncertainty about round the

year availability and wide fluctuation in market price. Exporters lose

lucrative overseas orders because of deficiency in supply chains - factors

completely out of their control. Organized supply chains such as Cash-

and-Carry outlets may bring new opportunities for small business

owners.

Conclusion

Exporters sourcing from organized channels such as Cash-and-Carry

outlets will benefit from more predictability in business, reducing

inventory levels and competitive price. The resultant cost benefit, if

passed on to buyers, can make Indian exports that much competitive.

6.7 Steps in Business Buying Process

Figure 6.1

Stage 1: Problem recognition

1. Problem can be identified from either internal stimuli or external stimuli.

Company would like to launch new product hence it searches for the

suppliers who can supply the material and equipments required for the

new product. A large printing company may find that it can set up an

exclusive design section as a profit center. For this it may want high end

design software and systems. It is possible that the system requirement

s can only be provided by Apple Macintosh.

2. External stimuli like trade show, conference also helps the company to

identify the problem.

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Stage 2: Need description:

After finalizing the problem, companies will define need description. The

need description includes

1. Characteristics and quantity of the needed item.

2. For the complex products team assessment is required.

3. The required items are assessed on the basis of reliability, durability,

price, and other attributes needed in the item.

Stage 3: Product specification:

Organizations develop detailed product specification with value analysis. In

the value Analysis Company analyzes the components and their production

process. Here emphasis is given to find the alternative methods of

producing the components and finding the optimum method that suits the

company.

Stage 4: Supplier search

The buyer now tries to identify the most appropriate suppliers. The buyer

can examine trade directories, do a computer search, phone other

companies for recommendations, watch trade advertisements, and attend

trade shows. The supplier‟s task is to get listed in major business

directories, develop a strong advertising and promotion program, and build a

good reputation in the marketplace. Suppliers who lack the required

production capacity or suffer from a poor reputation will be rejected. Those

who qualify may be visited to examine their manufacturing facilities and

meet their personnel. Qualified suppliers are shortlisted for further process.

Stage 5: Proposal solicitation

The buyer will now invite qualified suppliers to submit proposals. Some

suppliers will send only a catalog or a sales representative. Where the item

is complex or expensive, the buyer requires a detailed written proposal from

each qualified supplier. The buyer will invite qualified suppliers to make

formal presentations.

Thus business marketers must be skilled in researching, writing and

presenting proposals. Their proposals should be marketing documents, not

just technical documents. Their oral presentations should inspire

confidence. They should position their company‟s capabilities and resources

so that they stand but from the competition.

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Stage 6: Supplier selection

This stage is also known as vendor selection. During this stage companies

will prepare the checklist. Weightages are assigned against each checklist

point and evaluated. Some of the important attributes those commonly

found in the vendor evaluations are

a. Quality

b. Delivery

c. Communication

d. Competitive prices.

e. Servicing

f. Technical advice

g. Performance history

h. Reputation

Stage 7: Order routine specifications:

The buyer now negotiates the final order with the chosen supplier(s), listing

the technical specifications; the quantity needed, the expected time of

delivery, return policies, warranties and so on. In case of MRO items

(Maintenance, Repair and Operating items), buyers are increasingly moving

towards blanket contracts rather than periodic purchase orders. Writing a

new purchase order each time stock is needed, is expensive. Nor does the

buyer want to write fewer and larger purchase orders because that means

carrying more inventories. A blanket contract establishes a long-term

relationship where the supplier promises to re-supply the buyer as needed

on agreed price terms over a specified period of time. The stock is held by

the seller, hence the name stockless purchase plan. The buyer‟s computer

automatically sends an order to the seller when stock is needed. This locks

the supplier with the buyer and makes it difficult for out-suppliers to break in

unless the buyer becomes dissatisfied with the in-supplier‟s prices, quality or

service.

Stage 8: Performance review

In this stage organization review the performance of the suppliers. This will

help it to decide whether to continue with existing suppliers or should search

for the new vendor.

These eight stages are very much essential for new task but not necessary

for straight re-buy or modified re-buy. To know which stages are important in

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the new task, a straight re-buy or modified re-buy we will study Buy- grid

Model

Buy Grid model

Buy grid model is developed to understand the business buying process in

three different business buying situations:

Table 6.2

Buying process New task Modified re-buy Straight re-buy

1. Problem recognition

2. General need description

√ √( some times)

3. Product specification

√ √ √

4. supplier search √ (Sometime)

5. Proposal solicitation

√ √( some times)

6. Supplier selection √ √

7. order routine specification

√ √

8. Performance review

√ √ √

Activity 1:

Select any nearby industry or business establishment and with the

authorized permission of the concerned people in the organization, find

out:

a) What kind of supplies it needs to do business?

b) How often they need supplies?

c) From whom they get their supplies?

d) Buying procedure

e) People involved in the buying decision making process

f) Who makes the final decision to buy the goods?

g) Transport and storage facilities

h) The demand and supply gap

i) Problems (if any) recently faced by the business

j) Solutions or strategies

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Self Assessment Questions

6. Trade show is an internal stimulus

a) True b) False

7. Problem recognition is required in straight re-buy situation

a) True b) False

8. ___________ is also known as vendor selection stage.

9. In ___________ stage qualified suppliers are invited to make formal

presentations

10. The full form of MRO is __________________________.

6.8 Summary

Since business markets differ from consumer markets, there are several

differences between the organizational buying process/activity and

consumer buying process/behavior.

There are three buying situations in business buying – New task,

Straight re-buy and Modified re-buy.

The different buying roles in a business buying process include Actual

users, Influencers, Buyers, Deciders and Gate-keepers.

There are several stages or steps in business buying process – they are

Problem recognition, Need recognition, Product specification, Supplier

search, Proposal solicitation, Supplier selection, Order routine

specification and Performance review.

List of Key terms

Business market

Purchase requisition

Gate-keeper

Supplier search

Routine order

6.9 Terminal Questions

1. Differentiate between consumer and business buyer behavior.

2. Explain the buying situations.

3. Discuss the buying roles in the industrial marketing.

4. Write a note on factors that influence business buying.

5. Describe the stages of business buying process.

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6.10 Answers

Answers to Self Assessment Questions:

1. Business market or industrial market

2. Personal selling

3. Business

4. Gatekeeper

5. False

6. False

7. False

8. Supplier selection

9. Proposal solicitation.

10. Maintenance, Repair and Operating items.

Answers to Terminal Questions:

1. Refer 6.2

2. Refer 6.3

3. Refer 6.4

4. Refer 6.5

5. Refer 6.6

6.11 Mini-Case:

Demand-Supply mismatch:

Autoville’s ‘Parts’ Handicap – Auto-parts makers unable to sustain

supply after last year’s demand crunch:

The country‟s top carmakers are struggling to meet an unexpected spurt in

year-end demand with component-makers failing to match a sustained

surge in sales since August. Efforts by companies such as M&M, General

Motors India, Ford India and Tata Motors to step up production have been

throttled by a components shortage, resulting from capacity cuts by auto

parts makers that resorted to lay-offs during the demand slump last year.

“Our sales grew 49% in September and 15% in October. We would have

done much better if it wasn‟t for a serious parts supply constraint because of

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which we couldn‟t ramp up quicker to meet the increase in demand,” said

Karl Slym, President and MD of General Motors India.

The problem has been building up since late August when the car and SUV

sales went into an overdrive. The industry had already prepared itself for

single digit growth numbers, when the April-October period saw demand

growing at over 16% on the back of nearly 21% growth in September and

34% surge in October. Car sales in India grew just 0.31% in the financial

year ended March 2009.

“There‟s parts shortage and it has nothing to do with the recent labour

problems in Gurgaon. This has affected local companies like us,” Said

Michael Boneham, Chief Executive of Ford India.

A demand-supply mismatch is at the root of the problem. The slowdown in

demand that kicked off in October 2008 turned around so quickly that it took

everyone by surprise. “The uptick happened in just 3 months. Both the

vehicle makers and component manufacturers were caught unawares after

cutting back on capacity not so long back,” said Baba Kalyani of Bharat

Forge, the largest maker of automotive forgings in the world. In some cases

the cutback was in terms of investment, while in others it was more of a

question of manpower to run the extra shift.

Rajiv Dube, President – passenger vehicles at Tata Motors – the country‟s

largest maker of cars and trucks, attributes the components shortage to cuts

in manpower. “There‟s enough capacity build-up in the components

industry, but most suppliers had laid-off temporary workers during the

slowdown. So ramping up quickly by adding a shift can‟t happen overnight,”

he said. Not that all component makers resorted to lay-offs during the

downturn. Those who decided to take a hit rather than cutting manpower

benefited form the uptick in demand.

This explains the fact that car market leader Maruti Suzuki, which makes

every second sold in India, remains unaffected by the components shortage.

The demand-supply gap is not an easy one to fill as some component

makers will need to invest heavily to increase capacity. Nearly all major

players posted more than 20% sales growth in the festive season.

“That is not something the component industry was ready for. It will take

some time to catch up with the demand,” said Rajesh Jejurikar, Chief of

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Operations at the automotive division of M&M. The lag can range from just a

couple of months for those who simply need extra hands to a couple of

years for those who need serious capacity expansion. Component makers

admit that there is a problem. “We are adding new capacities and hiring is

also back in full swing. But it is difficult to put an estimate to that,” said

Jayant Davar, President of Automotive Component Manufacturers

Association of India (ACMA).

Henceforth, car-makers and component manufacturers are determined to

plan appropriate business strategies in order to avoid such crisis situations.

Can you suggest some of the business strategies?

(Source: The Economic Times – 16th November 2009)