Module 2

1) Nature of Industrial buying: Organizational buying Activity

2) Buying models and buying center concept

3) Interpersonal Dynamics of Industrial Buying Behavior

4) Roles of Buying center

5) Conflict Resolution in Decision Making Ethics in Purchasing

Introduction:

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For developing effective marketing strategy, industrial marketers need to understand not only the
nature of industrial buying but also the industrial (or organizational) buying behavior.

Buying (or purchasing) is the other side of the industrial marketing coin. Just as industrial
marketers seek customers, so the industrial buyers seek suppliers or vendors. Purchase (or
materials) is an important function or department in an organization. Purchase department of a
firm develops organizational buying objectives and performs certain activities so as to maintain
an adequate flow of goods and services into the operations.

Nature of Industrial Buying:

Industrial buying adds extensions and entirely new dimensions to the traditionally studied
consumer buying process. In making decisions, purchasing managers must coordinate with
numerous people with divers organizational responsibilities who apply different criteria to
purchasing decisions. Developing effective marketing strategy to reach organizational buyers
rests on the industrial marketer’s understanding of the nature of industrial buying.

Learning objectives from this module

To understand organizational buying objectives

To gain knowledge of organizational buying activities including different phases in the buying
decision process and the types of buying situations.

To identify the members of decision making units (or buying centers)

To understand some of the models of organizational buying behavior

To know how organizational buyers choose and evaluate suppliers

Objectives in organizational Buying/ Purchasing Objectives

Generally, the purchase/materials management objective is defined as buying the right items in
the right quantity, at the right price, for delivery at the right time and place. It is the
management’s problem to define what is “right” for each dimension. The objectives of the
purchasing function are

Task-Oriented Objectives: Organizations that are in business to make a profit are

predominantly oriented to purchase at the lowest possible price while avoiding compromises on
such factors a technical service, product quality, and certainty of delivery. Nonprofit
organizations, however, are concerned with budgetary constraints, and buying at the lowest
possible price may be necessary to operate within predetermined budgets. Therefore, economic
task objectives that achieve the organizational goals are of significant consideration to the
marketer.

Price: The buyers would like to buy at the lowest price consistent with availability and quality of
the product. The buyers consider price as an important objective if delivery and quality
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objectives are met, because low price is meaningless, if the product is not delivered when needed
or if the quality of the product is unacceptable.

Service: The industrial buyers need many types of services accompanying the purchase of
goods. These services include 1) prompt and accurate information from suppliers, 2) application
or technical assistance 3) spare-parts availability 4) repairs and maintenance capability, and 5)
training, if required.

Quality: The product quality should be consistent with the specifications and use of the product.
It is important to ensure consistency in product quality to reduce the cost of inspection,
interruptions in production process due to rejections, and arranging replacements of rejected
material.

Delivery: One of the prime objectives is to ensure that purchased goods and services are
available or delivered when and where needed. If not, the work will come to a grinding halt. This
will reflect badly on the performance of the purchase function. The corollary to this is that the
vendor/supplier reliability in delivery is the most important criterion while evaluating vendors in
most of the cases.

Reciprocity: Giving consideration to selecting suppliers because of their value as customers is

known as ‘reciprocity’. “The objective of reciprocity is, in theory at least, for the buyer and seller
to reach an agreement on an exchange of business that is mutually beneficial” and has become an
important part of the trade relations responsibility of purchasing and materials management.

Non - Task Objectives:

People join organizations to accomplish personal objectives such as greater status, promotions,
salary increases, increased job security, and social interaction. In the sphere of industrial
marketing, it has been found that major factors that influence the purchasing decision are social
considerations, such as friendship, reputation, and mutually beneficial interactions.

Organizations work best when people accomplish personal and organizational objectives
simultaneously. A buyer can take pride, a personal objective, in making a correct buying
decision that also accomplishes an organizational objective.

Organizational buying Activity

The industrial purchasing (or buying) activities consist of various phases (or stages) of buying-
decision making process. The importance to be given to the various phases will depend upon the
type of buying (or purchase) situations. The industrial marketers should understand both the
phases of decision making process and the types of buying situations.

Interpersonal dynamics of industrial buying behavior:

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 • MRP (Material Requirements Planning)

• JIT (Just-in-Time)

• Centralized purchasing

• Buyer technology

Materials Requirement Planning (MRP)

A firm estimates its future sales, schedules production accordingly, and then orders parts and
materials to coordinate with production schedules so that inventories will not become too large
or too small.

Multiple deliveries may be necessary to minimize inventory costs and existing inventories
continuously monitored to accommodate for inaccuracies in sales forecasts and subsequent
production.

To utilize MRP, a growing number of firms are combining the functions of purchasing,
transportation, inventory control, receiving, and in some instances production control under one
functional area referred to as materials management.

Just-in-Time Purchasing
Rather than using multiple sourcing, many OEMs are using Just-in-Time. Just-in-Time is an
inventory control system which enables a manufacturer to maintain minimum inventory levels by
relying on only one supplier to deliver frequent shipments (sometimes daily) just in time for
assembly into final products.

One objective of JIT is to develop long-term, one-supplier relationships to reduce the risk of
interrupted material flows. An advantage of such a relationship is the resultant improve quality
of items supplied, referred to as “zero-defect quality levels”.

Centralized Purchasing
Purchasing specialists concentrate their attention on selected items, developing extensive
knowledge of supply and demand conditions. Thus, they are more familiar with cost factors that
affect the supplying industry and understand well how vendors within the industry operate.

This specialized knowledge, when combined with the volume buying that centralized
purchasing controls, increases the firm’s buying strength and its supplier options.In comparison
to local units where the emphasis is more on short-term cost efficiency and profit considerations,
centralized units place more emphasis on long-term supply availability and supplier
relationships.

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Buyer Technology
The advent of computers has significantly improved the function of purchasing. Typical
computer applications in purchasing include calculating economic order quantities, determining
optimal lead times, tracking critical delivery schedules, and monitoring supplier performance
indices. In fact, computers have been the primary factor in the implementation of MRP.

3 Marks

List the types of buying situations.

7Marks

Explain Buying Center Concept.

Explain Conflict resolution in decision making.
Explain the roles of buying center.
Explain the objectives of Organizational Buying.
Explain the interpersonal dynamics of Industrial Buying behavior.

10 Marks

Define conflict. How conflict can be resolved by power? Discuss the different conflict resolving
strategies.

Explain Webster & Wind model of organizational buying behavior.

Explain the organizational buying decision process with a flow chart (or) Explain the different
phases of purchase decision making in Industrial Marketing.

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