Purchasing
& Organizational Buying
Behavior
Dr. Dawne Martin
September 20, 2011
Learning Objectives
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Revised Schedule
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Thursday – Chapter 4 – Organizational Buying
Behavior
Tuesday – Customer Value
Exam Thursday, September 30 – Chapters 1-4
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Review Sheet available on K-State Online
For Next Time – Sample Case: Fleury Equipment
de Batiment
Purchasing
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Learning Objectives
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To understand the differing purchasing
orientations & their effects on buying habits
To understand the methods by which
companies make purchasing decisions, and
the variables that affect the process
Case Analysis Framework
http://www.dryden.com/marketing/ferrell/student/case/index.html
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Situation Analysis – SWOT
Assumptions and Missing Information
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Information to fill in the gaps in the SWOT
Statement of Problem(s)
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Symptoms – Observable manifestations of the
problem
Problem in why symptoms have occurred
Brief – one to two sentences – clear indication
of what needs to be addressed.
Case Analysis Framework
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Development of Alternatives
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Either/or decisions
Strategic – Identify basic direction for the firm
Evaluation of Alternatives & Recommendation
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Criteria
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Does it address the problem?
Is it consistent with the mission statement?
Is it feasible and have a good probability of success?
Cost and revenue implications
Case Analysis Framework
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Choice of Alternatives
Implementation details – 4 P’s
Evaluation and control
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Set clear objectives for outcomes &
timeframes
Use benchmarks to track performance
Develop contingency plans
Understanding Purchasing
Purchasing
Orientation
Customer
Requirements
& Preferences
Source: Anderson & Narus,
Business Marketing
Management:
Understanding, Creating and
Delivering Value, Prentice
Hall, 1999.
Customer’s
Purchase
Process
Evaluating
Supplier
Performance
Purchasing


Process of acquiring resources and capabilities
for the firm from outside providers
Purchasing orientation: Philosophy guiding
purchasing decisions
 Buying -- executing discrete transactions
 Procurement -- quality improvement & cost reductions
through integration of procurement activities
 Supply-Chain Management -- integration &
coordination of purchasing with other functions and
firms in value network -- value-adding activity
Adapted From: Anderson & Narus, Business Marketing Management:
Understanding, Creating and Delivering Value, Prentice Hall, 1999.
Buying Orientation
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Orientation: Short term & tactical
Relationship: Arm’s length and adversarial
Goals:
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Get the Best Deal
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Distributive negotiations (zero-sum game)
Supplier cost analysis
Power
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Commoditization
Multi-sourcing
- Target Pricing
Risk Avoidance
Adapted From: Anderson & Narus, Business Marketing Management:

Understanding, Creating and Delivering Value, Prentice Hall, 1999.
Procurement Orientation
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Orientation: Strategic & proactive
Relationships: Cooperative
Goals
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Improving Quality
TQM
 Standardization of Specifications -- functional,
technical (materials), process, performance or
brand, ISO 9000 certification
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Adapted From: Anderson & Narus, Business Marketing Management:
Understanding, Creating and Delivering Value, Prentice Hall, 1999.
Procurement Orientation
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Goals (continued)
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Reducing Total Costs
Total costs -- sum of all expenses incurred during
productive life of product or service less salvage
 Materials Requirements Planning (MRP) or
Manufacturing Resource Planning (MRP II)
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Cooperating with Suppliers
Integrative Negotiation (expand benefits)
 Target costing -- reducing total costs
 Just-In-Time Management
Adapted From: Anderson & Narus, Business Marketing Management:

Understanding, Creating and Delivering Value, Prentice Hall, 1999.
Supply-Chain Management
Orientation
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Orientation: Strategic value-adding activities
Relationships: Partnerships, strategic alliances
Goals
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Focus all efforts on delivering value to customers (end users)
Concentrate firm’s resources on set of core competencies
Build supply network that efficiently completes business processes
Sustain highly collaborative relationships with select suppliers & subsuppliers
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Value -in-Use Price (VIU) or Indifference Price
Adapted From: Anderson & Narus, Business Marketing Management: Understanding,
Creating and Delivering Value, Prentice Hall, 1999.
Other Purchasing Issues
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Just-In-Time
Concurrent manufacturing
Electronic data interchange (EDI)
Quality
Lowest Total Cost
Total Cost of Ownership
Outsourcing
Economic Order Quantity
Forward Buying
Value Analysis
Supplier Evaluation
TOTAL COST OF OWNERSHIP OF A
TANGIBLE PRODUCT
•
TOTAL COST OF
OWNERSHIP = PRODUCT PRICE
+ DELIVERY
+ INSTALLATION
+ MAINTENANCE / REPAIR
+ POWER COSTS
+ SUPPLY COSTS
+ OPERATING COSTS
+ FINANCING
3-14
USING VALUE ANALYSIS
THE OBJECTIVES OF VALUE ANALYSIS:
• REDUCE COSTS AND/OR
• IMPROVE DESIGN
COMPARE
BENEFITS RECEIVED
What is
New
FUNCTIONS OF PRODUCT
Currently
Alternatives
COST OF MATERIALS
Being Done
Being
WORK PROCESS
Considered
INVOLVED
OUTCOME: GREATER VALUE FOR LESS COST
3-15
VENDOR ANALYSIS RATINGS
A RATING FORM SHOULD LIST
 The most important product attributes
 The most important service support attributes
 Pricing variables
 Delivery variables
 Quality variables
 Supplier capabilities
3-16
IMPROVE PERFORMANCE:
STAYING AHEAD OF PURCHASING TRENDS
1.
REDUCE PURCHASING COSTS
•
•
CUTBACK ON EMPLOYEES
REDUCE NUMBER OF VENDORS/
TRANSACTIONS
•
BUILD RELATIONSHIPS
•
CENTRALIZE PURCHASING ACTIVITIES
•
USE THE INTERNET
3-17
IMPROVE PERFORMANCE:
STAYING AHEAD OF PURCHASING TRENDS
(continued)
2. OUTSOURCE IN-HOUSE ACTIVITIES
•
TRAINING
•
MANUFACTURING
•
PROCESSING ACTIVITIES
•
INVOLVE SUPPLIERS (ESI)
3-18
IMPROVE PERFORMANCE:
STAYING AHEAD OF PURCHASING TRENDS
(continued)
3.
CROSS-FUNCTIONAL TEAMS – MADE UP OF
COMPANY DEPARTMENTS, SUPPLIERS,
CUSTOMERS
4.
INCREASE PROFESSIONALISM THROUGH
CERTIFICATION PROGRAMS AND ESTABLISH A
CODE OF ETHICS
3-19
STEPS IN THE BUYING PROCESS
Step 8
Evaluation of product performance
Step 7
Selection of an order procedure
Step 6
Evaluation of proposals and
selection of a supplier
Step 5
Acquisition and analysis of proposals
Step 4
Search for qualified suppliers
Step 3
Development of detailed specifications
Step 2
Definition of the product-type needed
Step 1
Recognition of a need
EXHIBIT 3-3
3-20
The Buy-Grid Framework
Buying Stage
New
Task
Modified Straight
Rebuy
Rebuy
1. Need or Problem
2. Characteristics &
Quantity
3. Identify &
Evaluate Vendors
4. Proposal Request
5. Evaluation of
Vendors
6. Select Order
Routine
7. Performance
Feedback & Review
Patrick Robinson,
Charles Faris & Yorum
Wind, Industrial
Buying & Creative
Marketing, Marketing
Science Institute, 1967
Multi-Attribute Model
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Assumption: People view products as a
collection of attributes, or “bundle of benefits”
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Individual attributes are rated or weighted in terms of
importance
Each product is evaluated based on customer’s
perception of the attribute relative to competitor’s
product
Multiple attribute rating time the weight (importance
rating) = score per attribute
Summation of the attribute scores provides total
product score
Government Contracting
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Federal Acquisition Streamlining Act (1994)
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Purchases below $100,000 reserved for small
business
EDI for sales to federal government--1999
Encourages off-the-shelf buying
Raises dollar limit on purchasing requiring
competitive bids
Federal Acquisition Computer Network
$25,000 purchase through SmartPay cards
Government Contracting
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Other Federal Government Trends
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Compliance programs
Minority subcontracting
Early, open discussion with vendors
Requests for draft proposals
Down-select process prior to solicitation of bids to
screen potential contractors
Competitive range for “most highly rated
companies” for bid consideration
Past performance requirements
Negotiating best service possible at “fair price”
Bundling contracts
Government Contracting
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Federal Contracting Assistance
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GSA Website:
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GSA Advantage -- eBuy
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https://www.gsaadvantage.gov/advgsa/advantage/main/start
_page.do
Federal Procurement Opportunities
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http://government.onvia.com/?cat=2
https://www.fbo.gov/index?cck=1&au=&ck=
Proposal Writing:
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http://gov.onvia.com/category/rfp-and-proposal-writing/
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State Contracting
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Vendor’s Lists
Vendor Opportunities
http://da.state.ks.us/purch/
Local Government Contracting
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http://wycokck.unifiedtek.com/VendorInformati
on.php
Case 3.2 Frenetic, Inc.
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Make “green”energy products
Most purchasing done through Thomas Industries, but
Margaret has had several problems with their delivery
and billing
Christmas card arrives for Margaret, from Thomas sales
rep, with $100 Victoria Secret gift card
Questions
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Is there an ethical issue with accepting the gift card? Why?
Would a formal supplier evaluation system help with this? What
components should it have?