Scribd
Upload
143 views

Purchase Decision Making Process in Organization

The greatest factor that affects the buying decision process of organizations is organizational factors. Organizations differ in terms of their policies, organizational structure, procedures, systems, and past experiences. These organizational factors have a significant influence on how buying decisions are made within a company. Some key organizational factors that impact the buying process include: - Company policies: Formal policies around procurement, spending limits, preferred suppliers, and contract terms can constrain or guide what options are considered and chosen. - Organizational structure: The structure of departments and how buying decisions get made (e.g. by committee) influences the process. Centralized vs decentralized structures lead to different processes. - Procedures: Standard operating procedures around soliciting

Uploaded by

Jowjie TV
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
143 views

Purchase Decision Making Process in Organization

The greatest factor that affects the buying decision process of organizations is organizational factors. Organizations differ in terms of their policies, organizational structure, procedures, systems, and past experiences. These organizational factors have a significant influence on how buying decisions are made within a company. Some key organizational factors that impact the buying process include: - Company policies: Formal policies around procurement, spending limits, preferred suppliers, and contract terms can constrain or guide what options are considered and chosen. - Organizational structure: The structure of departments and how buying decisions get made (e.g. by committee) influences the process. Centralized vs decentralized structures lead to different processes. - Procedures: Standard operating procedures around soliciting

Uploaded by

Jowjie TV
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 6

WEEK 7

Purchase Decision Process in Organization

PURCHASE DECISION-MAKING PROCESS IN ORGANIZATIONS

When making purchases, organizations make use of the decision-making


process consisting of the following stages:

1. recognition of a problem or need;


2. search for information about products and suppliers;
3. evaluation and selection of supplier;
4. the purchase; and
5. performance evaluation and feedback.

Recognition of a Problem or Need

When someone in the business firm recognizes a need that can be satisfied by
buying the appropriate product or service, the purchasing process has begun. In this
stage of the buying process, however, there are some factors that must be considered.
They are as follows:

1. Organizational purchasing is a result of product and operational needs. The


primary objective of the firm is to make profits, and this is possible if the firm can
provide the product or service that the customers want. To facilitate production,
however, various requirements must be put in place. Many of these requirements
need to be bought.
2. An organization's need can be identified by different employees of the firm.
Changes in the internal and external environment of the firm requires corresponding
adjustments in the firms operations. These may involve changes in the company's
products, processes, and policies. These changes would be translated to needs that
will be identified by persons in various units of the firm. The needs could be
requirements for new equipment, different materials and supplies, or redesigned
building.
3. Progressive firms are engaged in requirements planning. Environmental
demands for efficiency makes it necessary for firms to reduce costs and
uncertainties in the continuous provision of supply. As such, firms make attempts to
forecast future requirements to plan their purchases in advance.
Requirements planning paves the way for the signing of long-term contracts
designed to minimize the risk of supply shortage and price increase. With
requirements planning there is a strong possibility that the firm can carry less
inventory without sacrificing operational efficiency.
4. The firm needs to determine product specifications. This is a very important
requirement because any discrepancy between what is really required and what has
been delivered by suppliers Will mean additional expenses if the problem is to be
corrected. Delay can be als0 a consequence of the discrepancy and it may mean
lost opportunities for the firm.

Search for Information about Products and Suppliers

If the problem or need has been recognized, the next logical step is to ind
possible solutions. As such, the following must be undertaken:

1. A listing of products or services that will solve the problem. This is followed by
value analysis which means a systematic appraisal of the design, quality, and
performance of the products or services so listed. The aim of value analysis is to
determine which products or services meet the firm's requirements including the cost
factor.
2. Make or buy analysis. Sometimes, firms consider manufacturing its own needs due
to the following:
a. it is more economical; and
b. the firm wants to minimize the risk of a single supplier's vulnerability to strike, or
to avoid the possibility of future price increases, or poor service.
3. Information must be gathered about potential suppliers. The information
required includes the firm's financial health, credit history, production capacity, and
quality standards.
Evaluation and Selection of Suppliers

Both the consumers and organizations evaluate alternative suppliers and their
products or services. However, organizations are more formal and they use a set of
choice criteria which show the advantages offered by each supplier.

The criteria used and the importance of each vary according to the following:

1. the quality of goods or services being considered for purchase;


2. the characteristics and needs ot the buyer;
3. the supplier's ability to meet quality standards;
4. the supplier's ability to meet delivery schedules;
5. the price; and
6. the technical capability of the supplier.

The Purchase

In support of the efficiency objective, organizations prefer to routinize their


purchases. If the new-task buying is satisfactory the organization would shift to the
straight rebuy situation for repeat purchases. Most often this is undertaken through a
blanket purchase order which is actually an agreement where the supplier promises to
resupply the buyer as needed on agreed price terms over a specified period of time.

The blanket purchase order effectively shuts out other suppliers until the buyer is
no longer satisfied with its relationship with the current supplier.

Performance Evaluation and Feedback

The efficiency objective of the organization is carried through all activities of the
firm including purchasing. One way is performance evaluation of the product and the
supplier. The evaluation commences as soon as the products are delivered.

The following steps are undertaken:


1. the buyer inspects the delivered products to determine whether it meets the required
specifications;
2. the user will determine if the purchased product performs according to expectations;
and
3. the buyer evaluates the supplier's performance on
a. promptness of delivery;
b. product quality; and
c. after sales service.

The purpose of the foregoing exercise is to provide necessary information in


evaluating proposals and selecting suppliers about similar purchases in the future.

WHAT INFLUENCES ORGANIZATIONAL BUYERS

Buyers in organizations are not immune to influences when performing their


buying functions. They are influenced by two general factors:

1. economic - such as price, product quality, and service


2. personal - such as favors, attention, and risk avoidance

Buyers may be influenced by either factor. For instance, when competing


products are equal in economic terms, the buyer may be influenced by personal factors.
The influence of economic factors, however, will prevail if the competing products differ
substantially.

Specifically, influences on organizational buyers may be classified as follows

1. Environmental factors. The economic situation, as well as developments in


technology, politics, and competition are the environmental factors affecting
organizational buying For instance, during recession competition becomes more
intense as many firms start to cease operations. To win purchasing contracts,
marketers must offer more product benefits to buyers.
2. Organizational factors. Organizations are different in terms of policies,
organizational structure, procedures, systems, and past experiences. Even if the
marketer is able to convince the organizational buyer, factors like policies and
procedures may still hinder progress in the buying process.
3. Interpersonal factors. Members of the organization's buying center will have
different interests, authority, and persuasiveness. It will be to the advantage of the
marketer if he will have information about the different personalities involved in the
purchasing process.
4. Individual factors. Each buying center member has his own personal motivations,
preferences, and perceptions. Some of them will be meticulous, and some would
want to do the job quickly. Some would even want to make the suppliers play
against each other.
Activity – Week 7

1. Based on the explanation, what is the greatest factor that affects the buying
decision process of the organization? (Explain using your own words, minimum of
250 words.)

You might also like