In the past, purchasing department occupied a low position in the management hierarchy, in spite of often managing more than half the companyâ€™s costs. Recent competitive pressures have led many companies to upgrade their purchasing department and elevate administrators to vice presidential rank.
Todayâ€™s purchasing departments are staffed with MBAs who aspire to be CEOs-like Thomas Stallkamp, Chryslerâ€™s former executive vice president of procurement and supply, who cut costs and streamlined the automakerâ€™s manufacturing processes.
These new, more strategically oriented purchasing departments have a mission to seek the best value from fewer and better suppliers. Some multinationals have been elevated them to â€œstrategic supply departmentsâ€? with responsibility for global sourcing and partnering. At Caterpillar, for example, purchasing, inventory control, production scheduling and traffic have been combined into one department. Lockheed Martin is another firm that has improved its business buying practices.
The purchaserâ€™s focus is short term and tactical. Buyers are rewarded in their ability to obtain the lowest price from suppliers for the given level of quality and availability. Buyers use two tactics namely commoditization, where they imply that the product is a commodity and care only about price; and multi-sourcing where they use several sources and make them compete for share of the companyâ€™s purchases.
Here buyers simultaneously seek quality improvements and cost reduction. Buyers develop collaborative relationships with major suppliers and seek savings through better management of acquisition, conversion, and disposal costs. They encourage early supplier involvement in materials handling, inventory levels, just-in-time management, and even product design. They negotiate long-term contracts with major suppliers to ensure the timely flow of material. They work closely with their manufacturing group on materials requirement planning (MRP) to make supplies arrive on time.
Supply Chain Management Orientation:
Here purchasing role is further broadened to become a more strategic, value-adding operation. Purchasing executives at the firm work with marketing and other company executives to build a seamless supply chain management system from the purchase of raw materials to the-time arrival of finished goods to the end users.
Types of Purchasing Processes:
Marketers need to understand how business purchasing departments work. These departments purchase many types of products, and the purchasing process will vary depending on the types of products involved. Four product related purchasing processes are distinguished,
1. Routine product: These products have low value and cost to the customer and involve little risk (e.g. office supplies). Customers will seek the lowest price and emphasize routine ordering. Suppliers will offer to standardize and consolidate orders.
2. Leverage products: These products have high value and cost to the customer but involve little risk of supply (e.g. engine pistons) because many companies make them. The supplier knows that the customer will compare market offerings and costs, and it needs to show that its offering minimizes the customerâ€™s total cost.
3. Strategic products: These products have high value and cost to the customer and also involve high risk (e.g. mainframe computers). The customer will want a well-known and trusted supplier and be willing to pay more than the average price. The supplier should seek strategic alliances that take the form of early supplier involvement, co-development programs, and co-investment.
4. Bottleneck products: These products have low value and cost to the customer but they involve some risk (e.g. spare parts). The customer will want a supplier who can guarantee a steady supply of reliable products. The supplier should propose standard parts and offer a tracking system, delivery on demand, and a help desk.
The conclusion is that the upgrading of purchasing means business marketers must upgrade their sales personnel to match the higher caliber of the business buyers. Formally, we can distinguish three company purchasing orientations.