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 Commercial Enterprises

Includes
– Manufactures
– Construction
– Service firms
– Transportation
– Professional
– Resellers

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 Manufacturers & Size

• Approximately 360,000 in the U.S.

• There are 10% or 36,000 that employee more
than 100 workers.
• The 10%, ship 75% of all products manufactured
in the U.S.
• Typically serves far fewer but far larger
customers.

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 Manufacturers & Geographics

• Half are located in eight states

• Important implications:
– First, can concentrate marketing efforts
– Second, with distribution centers in large volume
areas rapid delivery is possible
– Third, sales personnel may not be tied to specific
geographic areas

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 Classifying Commercial Enterprises
 NAICS organizes business activity into economic sectors and identifies
groups of business firms that use similar production processes.
 Result of NAFTA.
 Replaces SIC system.

North American Industrial Classification System

Source: Reprinted from Michael R. Czinkota, et al, Marketing, Best Practices (Fort Worth, TX: The Dryden Press, 2000), p. 183.

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 Purchasing Function Goals

• To address the needs of business customers of all types.

• May have to juggle a number of different objectives that
clash.

The Goals of
Purchasing

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 Total Cost Considerations of a
Product or Service

Factors that drive total cost.

Acquiring and managing costs.

Quality, reliability over the life cycle.

The value a firm/ customers.

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  Firms operate at different levels of development and emphasize
different pathways to cost reduction and revenue enhancement.

Levels of Procurement Development and

Pathways to Savings/Revenue Enhancement

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 Segmenting Purchase Categories
1st Point, each firm has a unique portfolio.
2nd Point, more attention on purchases having the greatest impact on
revenue generation or the greatest risk to performance.

Segmenting the Buy

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 Procurement Complexity Considerations

 Technical complexity.
 Scope of supply chain coordination required.
 Degree to which life cycle costs are relevant.

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 Purchasing Managers & Performance

The Weighted –Point Plan

• The buying organization weights each
performance factor.
• Organization assigns relative importance to
performance factors.
• Is more objective and flexible than the
categorical method.

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 Government Contracts
“Programs”

• Compliance- requires government contractors maintain

affirmative action programs.
• Set-aside- a percentage of the contract is set aside for
small minority businesses.
• Minority-subcontracting- may require major
contractors subcontract a certain percentage of the
contract to minority firms.

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 Two Types of Contracts

1. Fixed-price contracts
• A price is agreed to before contract is awarded and
payment is made at conclusion of work.
• Provides for the greatest profit potential.
• Poses greater risks.
2. Cost-reimbursement contracts
• Reimbursement for allowable costs may be allowed
and sometimes a number of dollars above costs as
profit is allowed.

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 Government Procurement

• Defense-said to be the largest enterprise in the

world (DOD).
• Nondefense-procurement is administered by
world wide variety of agencies.

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 Two Procurement Strategies

• Formal Advertising—the government solicits bids

from suppliers, and usually the lowest bidder is
awarded the contract.
• Negotiated Contract—used to purchase products
or services that are not differentiated on price
alone, competition is common.

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