Systems buying and selling

SYSTEMS BUYING AND SELLING

Many business buyers prefer to buy a total solution to a problem from one seller. Called systems buying, this practice originated with government purchases of major weapons and communications systems. The government would solicit bids from prime contractors, who assembled the package or system. The contractor who was awarded the contract would be responsible for bidding out and assembling the system’s subcomponents from second-tier contractors. The prime contractor would thus provide a turnkey solution, so-called because the buyer simply had to turn one key to get the job done.

Ford has transformed itself from being mainly a car manufacturer to being mainly a car assembler. Ford relies primarily on a few major systems suppliers to provide seating systems, braking systems, door systems, and other major assemblies. In designing a new automobile, Ford works closely with its seat manufacturer and creates a black box specification of the basic seat dimensions and performance that it needs, and then waits for the seat supplier to propose the most cost-effective design. When they agree, the seat supplier subcontracts parts to suppliers to produce and deliver the needed components.

During the contract period, the supplier manages the customer’s inventory. For example, Shell Oil manages the Oil inventory of the many of its business customers and knows when it is due for replenishment. The customer benefits from reduced procurement and management costs and from price protection over the term of the contract. The seller benefits from lower operating costs because of a steady demand and reduced paper work.

System selling is a key industrial marketing strategy in bidding to build large-scale industrial projects, such as dams, steel factories, irrigation systems, sanitation system, pipelines utilities, and even new towns.

Project engineering firms must compete on price, quality, reliability, and even new towns. Project engineering firms must compete on price quality, reliability, and other attributes to win contracts. Consider the following example

JAPAN AND INDONESIA

The Indonesian government requested bids to build a cement factory near Jakarta.

An Australian firm made a proposal that included choosing the site, designing the cement factory, hiring the construction crews, assembling the materials and equipment and turning over the finished factory to the Indonesian government.

A Japanese firm, in outlining its proposal, included all of these services, plus hiring and training the workers to run the factory, exporting the cement through its trading companies, and using the cement to build roads and new office buildings in Jakarta. Although the Japanese proposal involved more money, it won the contract. Clearly, the Japanese viewed the problem not just as one of building a cement factory (the narrow view of systems selling) but as one of contributing to Indonesia’s economic development. They took the broadest view of the customer’s needs. This is true systems selling.

To sum up Sellers have increasingly recognized that buyers like to purchase in this way and many have adopted systems selling as a marketing tool. One variant of systems selling is systems contracting where a single supplier provides the buyer with his or her entire requirement of MRO (maintenance, repair, operating) supplies.

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  • Anonymous

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