Industrial Marketing

Industrial Buying Process

TV/IM/Purchase
 Purchasing’s Contribution
2

Provide the right product in the right amounts

when needed
Provide correct quality
Examine and compare costs
 Total cost of ownership
 Economic Order Quantity (EOQ)

 Value Analysis

TV/IM/Purchase
 From executing transactions to managing
supply
3

The buying orientation:

- Obtaining the best deal

- Maximizing power over suppliers

- Avoiding risk

TV/IM/Purchase
 From Executing Transactions to Managing Supply
4

The procurement orientation:

- Improving quality

- Reducing total costs

- Cooperating with suppliers

TV/IM/Purchase
 From Executing Transactions to Managing Supply
5

Supply Chain Management orientation:

- Focus on delivering value to end-users

- Strategically in-source or outsource activities

- Build a supply network

- Sustain highly collaborative relationships

with select suppliers

TV/IM/Purchase
 Factors affecting Purchase Decisions
6

Environmental
Organizational
Interpersonal
Individual

TV/IM/Purchase
 Buy Class Framework
7

A buy class framework identifies the degree of

effort required of the firm’s personnel to collect
information and make a purchase decision in:
new buys
straight re-buys
modified re-buys

TV/IM/Purchase
 Types of Business Buying Situations
8

 New-task buy: Business buying situation that is new

and very different from anything that the buyer has faced
previously.

 Straight rebuy: Most common type of business buying

situation; buyer purchases a part, material, or service
routinely, with little thought going into buying process.

 Modified rebuy: Reevaluation of alternatives;

necessary because buying requirements have changed such
that relatively routine buy or purchase no longer is routine.

TV/IM/Purchase
 Buy-classes to consider
9

TV/IM/Purchase
 FIVE STAGE DECISION PROCESS

Buy Phases in the Industrial

Buying – Decision Process

TV/IM/Purchase 10
 Industrial Buying Process
11

TV/IM/Purchase
Industrial Buying Process
12

Step 1
Recognition of a need

TV/IM/Purchase
Industrial Buying Process
13

Step 2
Definition of the Product
Type Needed

Step 1
Recognition of a need

TV/IM/Purchase
Industrial Buying Process
14

Step 3
Development of
Detailed Specification

Step 2
Definition of the Product
Type Needed
Step 1
Recognition of a need
TV/IM/Purchase
Industrial Buying Process
15

Step 4
Search for
Qualified Suppliers

Step 3
Development of
Detailed Specification
Step 2
Definition of the Product
Type Needed
Step 1
Recognition of a need
TV/IM/Purchase
Industrial Buying Process
16

Step 5
Acquisition and Analysis
of Proposals

Step 4
Search for
Qualified Suppliers
Step 3
Development of
Detailed Specification
Step 2
Definition of the Product
Type Needed
Step 1
Recognition of a need
TV/IM/Purchase
Industrial Buying Process
Step 6
17Evaluation 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 Specification
Step 2
Definition of the Product
Type Needed
Step 1
Recognition of a need
TV/IM/Purchase
 Industrial Buying Process
18
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 Specification
Step 2
Definition of the Product
Type Needed
Step 1
Recognition of a need
TV/IM/Purchase
 Industrial Buying
Process Step 8
19
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 Specification
Step 2
Definition of the Product
Type Needed

Step 1
Recognition of a need
TV/IM/Purchase
 Buy-grid matrix for help in purchasing
20 New Straight Modified
Task Buy Re-buy Rebuy
Recognition of Need

Definition of product needed

Development of Specifications

Search for qualified suppliers

Acquisition & Analysis of proposals

Evaluation & selection of supplier

Selection of order procedure

Evaluation of product performance

TV/IM/Purchase
 Supplier evaluation Process
Multi-attribute Decision Making Model

Rank Factor Mean Min Set

Rating
1 Quality 3.508 3.00
2 Delivery 3.417 3.00
3 Performance History 2.998 2.80
4 Technical Capability 2.849 2.80
5 Production facilities & capacity 2.775 2.70
6 Price 2.753 2.50
7 Warranties & Claim policies 2.545 2.50
8 Financial position 2.542 2.30
9 Procedural compliance 2.488 2.30
10 Communication systems 2.433 2.30

TV/IM/Purchase 21
 The Webster and Wind Model of Organisational Buying Behaviour

Environmental
Variables

Organisational
Variables
Organisational Buying
Decisions
Buying Centre Choice of suppliers,
Variables Delay decision & search for
more info,
Make, lease or buy
Individual
Variables

TV/IM/Purchase 22
 The Webster and Wind Model of Organisational Buying Behaviour

Environmental Variables
Level of Demand, Technological Changes,
Economic Outlook, Interest Rate, Political and
Regulatory Developments, Competition, Social

Organisational Variables

Organisational Buying Decisions

Buying Centre Variables Choice of suppliers, Delay decision &
search for more info, Make, lease or buy

Individual Variables

TV/IM/Purchase 23
 The Webster and Wind Model of Organisational Buying Behaviour

Environmental Variables

Organisational Variables
Objectives, Policies, Procedures
Organisation Structure, Systems

Organisational Buying Decisions

Buying Centre Variables Choice of suppliers, Delay decision &
search for more info, Make, lease or buy

Individual Variables

TV/IM/Purchase 24
 The Webster and Wind Model of Organisational Buying Behaviour

Environmental Variables

Organisational Variables

Buying Centre Variables

Authority, Size,
Organisational Buying Decisions
Key Influencers, Status Choice of suppliers, Delay decision &
Interpersonal relationships, search for more info, Make, lease or buy
Persuasiveness

Individual Variables

TV/IM/Purchase 25
 The Webster and Wind Model of Organisational Buying Behaviour

Environmental Variables

Organizational
Variables Organisational Buying Decisions
Choice of suppliers, Delay decision &
search for more info, Make, lease or buy
Buying Centre Variables

Individual / Personal Variables

Personal Goals, Income, Education for job
position, Experience, Values, Culture

TV/IM/Purchase 26
 Sheth Model of Industrial Buying Behaviour
Component 1 Component 2 Component 3 Situational
Factors

Difference Variables Methods

among that used for
Individual Determine if conflict Supplier
buyers the buying resolution or
decision is in joint Brand
autonomous decision Choice
or joint making
process:

TV/IM/Purchase 27
 Sheth Model of Industrial Buying Behaviour

Component 1 Component 2 Component 3 Situational

Factors

Difference among
Individual buyers
Caused by factors:
\ Variables that Methods used for
Background of Determine if the conflict resolution
Supplier
buying decision is In joint decision
Individuals autonomous or joint making process: or
Their Info Sources Brand
Active Search Choice
Perceptual
Distortion
Satisfaction with
Past purchases

TV/IM/Purchase 28
 Sheth Model of Industrial Buying Behaviour
Component 1 Component 2 Component 3 Situational
Factors

Difference Variables that Methods

among used for
Individual buyers Determine if the buying conflict
Caused by decision is autonomous resolution
factors:
or joint In joint
decision Supplier
Product specific factors making
Background of process:
or
Individuals including Time pressure, Brand
Their Info Perceived risk, Type of Choice
Sources
Active Search
purchase
Perceptual
Distortion Company specific
Satisfaction with Factors including its size,
Past
purchases orientation, centralisation

TV/IM/Purchase 29
 Sheth Model of Industrial Buying Behaviour
Component 1 Component 2 Component 3 Situational
Factors

Difference among Variables that Methods used for

Individual buyers Determine if the
Caused by factors: buying decision is conflict resolution
autonomous or in joint decision
joint
making process:
Background of Product specific Supplier
Individuals factors including or
Their Info Time pressure,
Sources Perceived risk Brand
Problem solving by
Active Search Type of purchase Choice
Perceptual Persuasion
Distortion Company specific
Satisfaction with Factors including Bargaining
Past purchases Company size, Politicking
orientation,
centralisation

TV/IM/Purchase 30
 The Buying Center
31

The group of people in the organization who

participate in the decision-making process
May include production workers, supervisors,
engineers, secretaries, shipping clerks, and
financial officers

TV/IM/Purchase
 Roles in the Buying Center
32

Role Nature of activity

Initiator Begins the buying process

TV/IM/Purchase
 Roles in the Buying Center
33

Role Nature of activity

Initiator Begins the buying process

User Needs the product

TV/IM/Purchase
 Roles in the Buying Center
34

Role Nature of activity

Initiator Begins the buying process

User Needs the product

Gatekeeper Controls the flow of information to other

members

TV/IM/Purchase
 Roles in the Buying Center
35

Role Nature of activity

Initiator Begins the buying process

User Needs the product

Gatekeeper Controls the flow of information to other

members

Influencer Dispenses advice or shares expertise

TV/IM/Purchase
 Roles in the Buying Center
36

Role Nature of activity

Initiator Begins the buying process

User Needs the product

Gatekeeper Controls the flow of information to other

members

Influencer Dispenses advice or shares expertise

Decider Makes the final decision

TV/IM/Purchase
 Roles in the Buying Center
37

Role Nature of activity

Initiator Begins the buying process

User Needs the product

Gatekeeper Controls the flow of information to other

members

Influencer Dispenses advice or shares expertise

Decider Makes the final decision

Buyer Executes the purchase

TV/IM/Purchase
 Materials Management Concept
38

 Materials management: Grouping of functions

involved in obtaining and bringing materials into
a production operation.

 Usually one manager responsible for planning,

organizing, motivating, and controlling all the
activities principally concerned with the flow of
materials into an organization.

 View material flow as a system.

TV/IM/Purchase
 MRP Systems
39

 MRP = Materials Requirement Planning

 MRP systems: Large computer systems used to plan and schedule

operations using a “push” approach.

 Starting from the order due dates and forecast, MRP considers
every required raw material, operating supply, and component
part, their order of use, and what equipment they will occupy.

 Backs into a schedule of what will have to be done when,

including what will have to be ordered when and received when.

TV/IM/Purchase
 Just-In-Time Systems
40

 JIT = Just-In-Time

 Adopted and implemented by many original equipment

manufacturers (OEMs) and suppliers of component
parts and materials.

 An operational philosophy thought to epitomize the

relationship marketing model.

 Uses a “pull” approach; much more than material

arriving just in time.
TV/IM/Purchase
 JIT Features
41

 Zero defects—Strict quality control

 Frequent, reliable delivery of quantities as needed
 Close location
 Advanced telecommunications, EDI.
 Single sourcing—Customer-supplier partnerships/alliances
 Value analysis
 Early supplier involvement
 Evergreen contracts
 Customer access to financial and process information

TV/IM/Purchase
 Value Analysis:
Comparison of Function to Cost
42

 Select a relatively high-cost or high-volume purchased

item (part, material, or service).
 Find out how the item is used and what is expected of it
—i.e., its function in detail.
 Ask the following questions:
 Does its use contribute value?
 Is it cost-proportionate to usefulness?
 Does it need all its features?
 Is there anything better, at a more favorable price, for the
intended use?
 Can the item be eliminated?
 If the item is not standard, can a standard item be used?

TV/IM/Purchase (continued)
 Value Analysis:
Comparison of Function to Cost
43

 If it is a standard item, does it completely fit the proposed application,

or is it a misfit?
 Does the item have greater capacity than required?
 Is there a similar item in inventory that could be used instead?
 Can the weight be reduced?
 Are closer tolerances specified than are necessary?
 Is needless machining performed on the item?
 Are unnecessarily fine finishes specified?
 Is commercial quality specified?
 Can you make it now? Can you buy it for less?
 Is the item properly classified for shipping purposes to obtain the
lowest transportation rates?

TV/IM/Purchase (continued)
 Value Analysis:
Comparison of Function to Cost
44

 Can cost of packaging be reduced?

 Are you asking your suppliers for suggestions to reduce costs?
 Do material, reasonable labor, overhead, and profit total the
item’s cost?
 Will another dependable supplier provide it for less?
 Is anyone buying it for less?

 Now:
 Pursue those suggestions that appear practical.
 Get samples of the proposed item(s).
 Select the best possibilities and propose changes.

TV/IM/Purchase
 Industrial Tenders

• Supply of Materials

• Supply of Equipments

• Erection and Commissioning Works

• Providing Services

• Systems and Software Development

• Pre-Qualification

• Corrigendum
Pre Qualification
Installation of System
Supply of materials
Corrigendum
Equipment Supply