Character of Business
Marketing
Classifying Commercial Enterprises
•
•
•
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NAICS = North American Industrial Classification System
Replaces SIC (Standard Industrial Classification) codes
Common for NAFTA countries
NAICS hierarchical structure:
XX
Industry sector
XXX
Industry subsector
XXXX
Industry group
XXXXX
Industry
XXXXXX
U.S., Canadian, or Mexican national
specific
http://www.naics.com/cgi-bin/search.pl
(continued)
NAICS Codes
Divides economy into 20 major industry sectors
(at two-digit level):
11 Agriculture, Forestry, Fishing,
and Hunting
21 Mining
22 Utilities
23 Construction
31–33 Manufacturing
42 Wholesale Trade
44–45 Retail Trade
48–49 Transportation
51 Information
52 Finance and Insurance
53 Real Estate, Renting,
and Leasing
54 Professional, Scientific, and Technical
services
55 Management of Companies and Enterprises
56 Administrative and Support, Waste
Management, and Remediation Services
61 Education Services
62 Health Care and Social Assistance
71 Art, Entertainment, and Recreation
72 Accommodation and Food Services
81 Other services (except Public Administration)
92 Public Administration
(continued)
Supply Chain Management
• Technique for linking manufacturer’s
operation with those of all its strategic
suppliers, key intermediaries, and
customers.
Supply Chain Characteristics
• Supply chains
– Are multi-tiered
– Are customer driven
– Exist externally AND internally
• Require a cross-functional effort
– And their management are ongoing
journeys – not destinations
– Require good procurement activities
Source: Roberts, Julie S. (2003) “The Buzz About Supply Chain,” Inside Supply
Management, (July), 24-28.
Supply Chain Example
Source: Roberts, Julie S. (2003) “The Buzz About Supply Chain,” Inside Supply Management, (July), 24-28.
Procurement (Purchasing) Goals
Uninterrupted Flow of Materials
Manage Inventory
Improve Quality
Develop & Maintain Supplier
Relationships
Achieve Lowest Total Cost
Reduce Administrative Costs
Advance Firm’s Competitive Position
Evaluating Potential Vendors
Basic Considerations
Performance Considerations
Plant Visits
Geographic Locations
Capacity
Performance Considerations
Must predict supplier’s total
ability to fulfill the contract
as it relates to:
price
delivery
quality
service
Plant Visits
 Be sure to visit the supplier’s
plant if possible
 Try to gain insight into the:
type of facility
personnel
housekeeping
procedures
 Serves as indication of vendor’s
ability to provide necessary preand post-sale service
Geographic Location
 Long distance shipments increase
the chance of
 accidents
 strikes
 acts of God
 Geographic disadvantages can be
overcome with
 special transportation
arrangements
 inventory make-and-hold service
Capacity
Must consider several items
Physical plant and facilities
Supplier’s technical skills
Supplier’s managerial skills
Vendor Rating Systems
The Categorical Plan
The Weighted-Point Plan
The Cost-Ratio Plan
The Categorical Plan
 Buyers keep notes on supplier dealings as
events occur
 Buyers compare notes (usually at monthly
buyer meetings)
 Suppliers are categorized as being in the good,
neutral, or unsatisfactory category
 Highly subjective, but easy to use & understand
 Disadvantage is it’s subjectivity:
relies on memory, personal judgment, and the
experience/ability of the buyers.
Categorical Method Example
Vendor
Cost
Quality
Speed
Total
A
Good(+)
Unsatisf(-)
Neutral(0)
0
B
C
Neutral(0)
Neutral(0)
Good(+)
Unsatisf(-)
Good(+)
Neutral(0)
++
-
The Weighted Point Plan
Assign weights (importance) to quality,
price, and service (or other relevant
criteria)
Should fit buying organization’s needs
Sellers are rated on each factor
Simple, but effective plan that can be
modified to suit specific conditions
Somewhat more objective than the
categorical plan
Weighted Point Plan Example:
Quality
Lots
Lots
Lots
% Acc. * Quality
Vendor Received Accepted Rejected Factor
Rating
A
60
54
6
90.0 * 40
36.0
B
60
56
4
93.3 * 40
37.3
C
20
16
4
80.0 * 40
32.0
Weighted Point Plan Example:
Price
Unit
Vendor Price Dis
+
Tran
Chg
Net
Low
/
Net
%
*
Factor
Rate
A
1.00 10% 0.90
.03
.93
.93
0.93 100%
35
35.0
B
1.25 15% 1.06
.06
1.12
.93
1.12
83%
35
29.1
C
1.50 20% 1.20
.03
1.23
.93
1.23
76%
35
26.6
Weighted Point Plan Example:
Service
Vendor
A
Promises
Kept
90%
Service
Factor
25
Service
Rating
22.5
B
95%
25
23.8
C
100%
25
25.0
Weighted Point Plan Example:
Composite Total
Rating
Vendor A Vendor B Vendor C
Quality
36.0
37.3
32.0
Price
35.0
29.1
26.6
Service
22.5
23.8
25.0
Total
93.5
90.2
83.6
The Cost-Ratio Plan
All activities regarding a supplier’s
performance are valued in terms of dollars
Total cost of buying is determined including:
letters, telephone calls, visits, etc
Total (real) cost varies from vendor to vendor
based on vendors’ skills & dependability
Future vendors selected on basis of lowest
total cost incurred
Cost Ratio Plan Process
Initial costs associated with Quality,
Delivery, and Service are determined
Each cost is then converted to a ratio
Ratio expresses cost as a percentage of
the total value of the purchase
Sum the three individual cost rates to
obtain overall cost ratio
Apply overall ratio to quoted unit price
Abbreviated Example:
Cost-Ratio Plan
Quality Delivery Service Total Quoted
Net
Vendor Cost
Cost
Cost Penalty Price/ Adjusted
Ratio
Ratio
Ratio
Unit
Cost
A
1%
3%
-1%
3%
86.25
88.84
B
2
2
3
7
83.25
89.08
C
3
1
6
10
85.10
93.61
Governments & Institutions
• Compliance Programs
– Must maintain affirmative action
programs for minorities, women &
disabled
• Set-Aside Programs
– % of contracts offered only to small
or minority-owned businesses
• Other aspects of non-profit
buying will be addressing in
Pricing
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.
Relationship Marketing
• All marketing activities directed
toward
• establishing, developing, and
maintaining
• successful relational exchanges
• for the mutual benefit of all
involved parties.
Partners in Relational Exchanges
Goods
Suppliers
Business
Units
Employees
Functional
Dept.’s
Services
Suppliers
Supplier
Partnerships
Internal
Partnerships
Focal
Firm
Competitors
Lateral
Partnerships
Non-Profits
Buyer
Partnerships
Government
Intermediate
Customers
Ultimate
Customers
Value of RM to Sellers
• Helps to ensure substantial
and reliable purchase
volumes at adequate
margins.
• Helps to determine the
buyer’s choice the next time
around.
Value of RM to Buyers
• Costs of carrying safety stocks, and
those of high return rates, numerous
reorders, & long lead times have
steadily risen.
• RM helps to eliminate waste and
improve system economies.
–inventory reduction
–decreased line shutdowns
–purchasing labor savings
REQUIREMENTS FOR HIGH
PERFORMANCE RELATIONSHIPS
• BEYOND THE FINANCIAL CONSIDERATIONS:
– INTEGRITY
– FAIRNESS
– LOYALTY
– FLEXIBILITY
– INPUT INTO PARTNER’S STRATEGY
– PARTNER’S INPUT INTO YOUR STRATEGY
– COMPLIANCE WITH PROCEDURES & AGREEMENTS
Types of Relationships
• Discrete Transactions
– have a distinct beginning, short duration, and
sharp ending by performance.
• Value-Added Exchanges
– Focus shifts from attracting customers to
keeping customers. Begin focusing more
closely on understanding & fulfilling needs.
• Relational Exchange
– traces to previous agreements, and is longer in
duration, reflecting an ongoing process.
Why is Trust So Important?
• The parties have confidence in their
relational partner’s reliability and
integrity
• Without trust, there is NO
commitment
• Without commitment, future
exchanges are questionable at best
• Without trust and commitment,
negotiation costs are increased
• Without trust and commitment,
monitoring costs are increased
Synthesis and Extension Model of
Relationship Management
Knowledge
Relationship
Termination
Costs
Involvement
Relationship
Benefits
Relationship
Commitment
Dedication-Based
Relationship
Trust
Shared
Values
Communication
Trust
Dimensions
Constraint-Based
Relationship
Opportunistic
Behavior
Different Customer Motivations
• Constraint-Based Relationships
–One party believes it cannot exit the
relationship due to economic, social,
or psychological costs.
–The strength of the constraints is a
function of the party’s perceived
dependence upon the other.
Different Customer Motivations
• Dedication-Based Relationships
–Party remains in relationship
because he/she is committed to
the relationship and wants to
remain.
–Dedication generally arises
due to dependence and/or trust.
The Consequences
Constraint-Based
Relationship
Dedication-Based
Relationship
Acquiescence
Propensity
To Leave
Cooperation
Enhancement
Interest in
Alternatives
Identity
Advocacy
Outcomes Associated with
Constraint-Based Relationships
• Interest in Alternatives
– lasts only as long as constraints
– individuals in constrained relationships
attempt to restore freedom to chose.
– increased attempts to identify alternative
suppliers.
– more environmental monitoring
– more receptive to competitors’
relationship offers.
Outcomes Associated with
Constraint-Based Relationships
• Acquiescence
–degree to which partner
accepts or adheres to another’s
specific requests or policies.
–passive agreement to maintain
the relationship.
Outcomes Associated with DedicationBased Relationships
• Cooperation
–active participation for mutual benefit
• Enhancement
–broaden/deepen relational bonds
• buying additional services
• providing capital, information,
labor, or other resources
• participating in company events
Outcomes Associated with DedicationBased Relationships
• Identity
–thinks of relationship partnership
as a team and considers the
partner in proprietorial terms.
Outcomes Associated with DedicationBased Relationships
• Advocacy
–ultimate test of relationship
–promote relationship partner to
others
–defend relationship partner against
detractors
–main purpose is to, of course, benefit
from positive word-of-mouth.
SUGGESTIONS FOR MAKING B2B
RELATIONSHIPS LAST
• On-site visits
• Trade personnel
• Manage total dependence with
alternate suppliers
• Continuous service
• Develop a relational contract
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