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Purchasing

THE OBJECTIVES OF PURCHASING


1. PROVIDE APPROPRIATE LEVELS OF
SUPPLY

+
2. THE APPROPRIATE LEVEL OF QUALITY

+
3. THE LOWEST TOTAL COST
WHAT COMPANIES REALLY PAY
FOR OWNERSHIP
 Cost of ownership goes beyond the price
paid for a product

 TOTAL COST OF
OWNERSHIP = PRODUCT PRICE
+ DELIVERY
+ INSTALLATION
+ MAINTENANCE / REPAIR
+ POWER COSTS
+ SUPPLY COSTS
+ OPERATING COSTS
+ FINANCING
PURCHASING PARTNERSHIPS ARE
MADE WITH VENDORS WHO
PROVIDE:
 High-purchase-volume materials,
components or strategic products
 Information and training for effective product
use
 Services requiring specialized knowledge for
cost reductions and/or performance
 Materials unavailable elsewhere
Steps in the Business Buying
Process
1. Recognizing the need
2. Developing product specifications
3. Soliciting bids from potential
suppliers
4. Making the purchase decision
5. Issuing the contract
6. Inspecting delivered goods for
quality
7. Evaluating vendor performance
MAKE-OR-BUY DECISION
ANALYSIS
RISK ASSESSMENT
FINANCIAL RISKS MARKETING RISKS
Resource Allocation Customer Impact
Investment of Resources Supplier Impact
Accurate Cost Analysis
Legal Issues
MANUFACTURING RISKS POLITICAL RISKS
Reliability Management commitment/
Expertise willingness to partner
Equipment Turf Battles
Patent Protection Internal Strife

ACCEPTABLE RISK UNACCEPTABLE RISK


Buy the Products, Retain Production and
Components or Services Provide Services
Quotations and Contracts
 RFQ: Request for Quotation
 RFP: Request for Proposal
 Boilerplate:
◦ Standard legal clauses (fine print)
on RFQs, your bid, and the
customer’s order.
◦ May contain terms of sale that
contradict terms on your bid, and
often contain penalties for
nonperformance.
Types of Business Buying
Situations
 New-task buy:
◦ Business buying situation that is new and very
different from anything that the buyer has faced
previously.

 Straight rebuy:
◦ Most common type of business buying situation;
buyer purchases a part, material, or service
routinely, with little thought going into buying
process.

 Modified rebuy:
◦ Reevaluation of alternatives; necessary because
buying requirements have changed such that
relatively routine buy or purchase no longer is
routine.
Examples of Products Purchased
Using the Buy-Class
Straight Modified New
Rebuy Rebuy Buy
Office Vehicles Consulting Installations
Supplies Services

Pure Complete
Electrical
routine Components negotiation
Electricity Computer Moon Shot
Gas/Water Systems Insurance
Bulk
Chemicals
Buygrid Analysis Framework

New Modified Straight


Buy Rebuy Rebuy
Need Recognition
Develop Product Specifications Complexity of
Buying Situation
Solicit Bids
Make Purchase Decision
Issue the Contract
Inspect Goods for Quality
Evaluate Vendor Performance
Buygrid Analysis Framework

New Modified Straight


Buy Rebuy Rebuy
Need Recognition
Develop Product Specifications Creeping
Commitment
Solicit Bids
Make Purchase Decision
Issue the Contract
Inspect Goods for Quality
Evaluate Vendor Performance
Forces Influencing Organizational
Buying Behavior •Economic Outlook:
A projected change in Domestic & Global
business conditions
Environmental •Pace of Technological
can drastically alter Change
buying plan. Forces
•Global Trade Relations

•Goals, Objectives, and


Organizational Strategies
Forces •Organizational Position
Organizational of Purchasing
Buying
Behavior •Roles, relative
Group influence, and patterns
Forces of interaction of buying
decision participants

•Job function, past


Individual experience, and buying
Forces motives of individual
decision participants
Multi-Attribute Theory
 Product offerings are bundles of
attributes.
 Attributes provide benefits.
 Benefits satisfy needs.
 Buyers differ in their needs, therefore
 Buyers differ in the importance they
place upon various attributes.
 Some buyers seek to maximize the set
of attributes.
 Others seek to satisfy most important
attributes first.
Role Theory
 The differing roles people play (in
business, society, or life in general) have
differing norms and expectations.
 Examines how people interact in the
Buying Center (more than one person is
involved in the purchasing decision.)
 In many cases, the buying center is an
informal, complex, changing group.
 In other cases, it is a formal part of the
organization (such as cross-functional
teams)
The Buying Center

 Consists of those individuals


◦ who participate in the
purchasing decision and
◦ who share the goals and risks
arising from the decision
 Average buying center
includes more than 4 persons
per purchase
Roles of Buying Center Members
 User
◦ Will use product in question; minimal - major
influence
 Gatekeeper
◦ Tight controller of information flow to other
buying center members; can open/close gate
for salespeople.
 Influencer
◦ Provides information to other members for
evaluating alternative products or sets
purchasing specifications; can operate
within/outside buying center.
 Decider
◦ Makes buying decision; often difficult to ID.
 Buyer
◦ Assigned formal authority to select vendors
and complete purchasing transaction.
Buying Center Dimensions
 Time
◦ Time fragmentation: length of time people
are in the buying center.
◦ Limits members’ influence
◦ Can lengthen decision making time due to
inexperience
 Vertical
◦ Layers of management involved
 Horizontal
◦ Number of departments involved
Clues for Identifying Powerful
Buying Center Members

 Isolate the personal


stakeholders
 Follow the information flow
 Identify the experts
 Trace the connections to the
top
 Understand purchasing’s role
Individual Forces
 Evaluative criteria
◦ education, training, experience
 Information Processing
◦ selective exposure, attention,
perception, and retention
 Risk-Reduction Preferences
◦ level of uncertainty about
outcomes
◦ magnitude of consequences
associated with incorrect choice
Selective Perception
•Impacts how your buyer views and understands
the world
•Impacts how your buyer views risk

Selective exposure.
Selective attention.
Selective retention.
Impact of Increasing Levels of
Perceived Risk
 Buying center becomes larger
 Higher level managers become involved
 Information search more active
 Wider variety of info sources accessed
 Buying center members exert more
effort
 Sellers with proven track records tend
to be more favored
 Product quality & after-sale service tend
to become more important than price