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Industrial marketers are aware that all business buyers or industrial customers do not have the same
purchasing orientation or overall purchasing philosophy, which guides them through their buying
decisions. Buyers normally choose one of the three purchasing orientations Buying, Procurement and
Supply chain management.
Buying Orientation The purchasing firm with buying orientation has a narrow and short term focus.
They usually select the lowest price supplier. Quality and availability are the factors that are considered as
qualifiers for a supplier to be considered. The buying firm gains power over suppliers by using tactics like
commoditization and multi-sourcing. Buyers avoid risk altogether, in order to reduce the chance of
criticism and penalization for making a mistake by following standard purchase procedure.
Procurement Orientation The purchasing firm has a strategic focus and is proactive. The span of
influence of purchasing is more with integration of other activities like order processing, material
handling and logistics. The buyers, with procurement orientations, seek both quality improvements and
cost reductions. This can be achieved by collaborative relationship with major suppliers and working
closely with other functional areas.
Supply Chain management orientation It includes coordination and integration of purchasing
function with other functions within the company and also with other organizations in the whole value
chain like customers, intermediaries and suppliers. The company with supply chain management
orientation focuses on how to improve the whole value chain from raw materials to end users.
Phase 1: Recognition of a Problem: The purchasing/buying process begins when someone in the
company recognises a problem or need that can be met by acquiring goods or services.
The common events that lead to this phase could be:
i. The company decides to develop a new product and needs new equipment and materials to produce this
product.
ii. It decides to diversify or expand and hence requires a multitude of new suppliers.
iii. Purchasing Manager assesses an opportunity to obtain lower prices or better quality.
iv. A machine breaks down and requires replacement or new parts.
v. Purchased materials turn out to be unsatisfactory and the company searches for another supplier.
Early emolument in the new task/problem recognition phase offers the marketer an advantage over
competitive suppliers.
Phase 2: Description of the need: This phase involves determination of the characteristics and quantity
of the needed item. The general characteristics could be reliability, durability, price etc. and the marketer
along with the purchasing manager, engineers and users can describe the needs.
The questions that could be posed are:
i. What performance specifications need to be met?
ii. What types of goods and services should be considered?
iii. What are the application requirements? and
iv. What quantities would be needed?
The answers to such questions will give the marketer a general description of the need which will be the
input for the next phase.
Phase 3: Product Specification: Obtaining the input from the second phase, the buying organisation has
to develop the technical specifications of the needed items. In this phase, the product is broken down into
items. The items in turn are sorted into standard ones and new ones which need to be designed.
The specifications for both are listed. As a marketer, he must involve himself and his technical and
financial counterpart to determine the feasibility and also to elaborate the services they can offer to
develop and supply the product. Unless it is a known supplier many companies do not encourage the
supplier participation at this stage. Customer relationship plays a vital role here.
Phase 4: Supplier Search: This phase pertains to the search for the qualified suppliers among the
potential sources. The marketer has to ensure that he is in the list of potential suppliers. For this to
happen, he has to make periodic visits to all potential companies and create awareness. Brochures have to
be circulated and advertisements placed in specific media like trade journals. This phase only involves
making a list of qualified suppliers.
Phase 5: Proposal Solicitation: The lists of qualified suppliers are now further shortened based on some
critical factors. For example, if the buyer is not willing to try any new firm which has not been in the
market for more than three years, it can delist those suppliers. Then the purchasing departments ask for
proposals to be sent by each supplier.
After evaluations, based on the specified criteria, some firms are asked to come over for formal
presentations. The proposal must include product specification, price, delivery period, payment terms,
taxes of experts and duties applicable, transportation cost, cost of transit insurance and any other relevant
cost or free service provided. For purchase of routine products or services, phases 4 and 5 may occur
simultaneously as the buyer may contact the qualified suppliers to get the latest information on prices and
delivery periods.
For technically complex products and services, a lot of time is spent in analysing proposals in terms of
comparison on products services, deliveries and the landed cost.
A leading MNC which manufactures soaps requires, the-would be suppliers to pass through three stages:
that of a qualified supplier, an approved supplier and a select supplier. To become qualified, the supplier
has to demonstrate technical capabilities, financial health, cost effectiveness, high quality standards and
innovativeness. A supplier that satisfies these criteria then applies sample lot for approval. Once
approved, the supplier becomes a select supplier when it demonstrates high product uniformity,
continuous quality improvement and JIT delivery capabilities.
Phase 6: Supplier Selection: Each of the suppliers presentations are rated according to certain
evaluation models. The buying organisation may also attempt to negotiate with its preferred suppliers for
better prices and terms before making a final decision.
Phase 7: Order Routine Specification: After the suppliers have been selected, the buyer negotiates the
final order, listing the technical specifications, the quantity needed, the expected time of delivery, return
policies, warranties etc. In case of maintenance, repair and operating items, buyers are increasingly
moving towards blanket contracts rather than periodic purchase orders.
Blanket contracting leads to more single sources buying and ordering of more items from that single
source. This system brings the supplier in closer with the buyer and makes it difficult for out-suppliers to
break in unless the buyer becomes dissatisfied with the in-suppliers prices, quality or service.
Phase 8: Performance Review: The final phase in the purchasing process consists of a formal or
informal review and feedback regarding product performance as well as vendor performance. The buyer
may contact the end user and ask for their evaluations which are in turn given to the supplier or he may
rate the supplier on several criteria using a weighted score method or the buyer might also aggregate the
cost of poor supplier performance to come up with adjusted costs of purchase including price.
The performance review might lead to the buyer to continue, improve or drop a supplier. It is essential for
a marketer to have a good relationship and always follow up any customer complaints as soon as possible.
More than the defects and problems faced by the buyers in the product, it is the attitude of the supplier
which is seen more in focus.
The industry environment is composed of the following stakeholders, around which analysis is done.
Namely: Competitors, Suppliers and Buyers. There are also other major considerations like the
political, legal, technological aspects which are a part of the environment analysis.
To analyse these aspects of the industry, models such as PEST, PESTEL, and PORTERs 5 forces have
been developed.
Let us look at the automobile industry.
PEST and PESTEL are two models used to analyze political, legal, economic, social, environmental
and technological factors pertaining to that particular industry.
Example: PEST analysis for the automobile industry
Porters 5 forces analysis is done to study aspects like Suppliers, Buyers, Competitors, new potential
entrants and substitutes of that industry.
Example: Porters 5 force analysis for automobile industry:
It is not unusual for individual objectives to clash due to differing reward criteria of different departments
and levels. This gives rise to conflicts in group decision making. It also becomes increasingly important
for marketers to understand and identify the source of power and the conflict resolution strategies in order
to work the strategy in such a manner so as to help resolve conflicts or provide information and encourage
quick decision making.