Purchasing Organization and Administration

Purchasing can also be said to be a pre-cursor and support of Marketing. Most purchasing professionals describe their jobs as more strategic, technical, team-oriented, and involving more responsibility than ever before. Purchasing is doing more cross-functional work than it did in the past. Sixty-one percent of buyers surveyed said the buying group was more involved in new product design and development than it was five years ago; and more than half of the buyers participate in cross-functional teams with suppliers well represented.

In multidivisional companies, most purchasing is carried out by separate divisions. Some companies have started to centralize purchasing. Headquarters identifies materials purchased by several divisions and buys them centrally, thereby gaining more purchasing clout. The individual divisions can buy from another source if they can get a better deal, but in general centralized purchasing produces substantial savings. For the business marketer, this development means dealing with fewer and higher buyers and using a national account sales group to deal with large corporate buyers.

At the same time, companies are decentralizing some purchasing operations by empowering employees to purchase small-ticket items such as special binders, coffeemakers, or Christmas trees. This has come about through the availability of corporate purchasing cards issued by credit card organizations. Companies distribute the cards to foremen, clerks, and secretaries; the cards incorporate codes that set credit limits and restrict where they can be used. It was noted that the cards have cut processing costs from $30 on each order to a few cents. The additional benefit is that buyers and suppliers now spend less time on paperwork.

Stages in the buying Process:

At this point we are ready to describe the general stages in the business buying decision process. Robinson and Associates have identified eight stages and called them buy phases. This model is called the buy grid framework.

In modified re-buy or straight-re-buy situations, some stages are compressed or by passed. For example, in a straight re-buy situation the buyer normally has a favorite supplier or a ranked list of suppliers. Thus the supplier search and proposal solicitation stages would be skipped. In India most leading companies have Registered and Approved Vendors’ Master list and quotes are obtained from these vendors. If there are too many vendors then quotes are solicited from those vendors who have the appropriate processing facilities for the item to be procured.

Te eight stage buy phase model describes the major steeps in the business buying process.Tracing out a buy flow map can provide many clues to the business marketer. In some cases (large companies) over 20 people in the purchasing company were involved, including the production manager and staff, new product committee, company laboratory, marketing department, and the department for market development. There are important considerations in each of the eight stages.

Problem Recognition:

The buying process begins when someone in the company recognizes a problem or need that can be met by acquiring a good or service. The recognition can be triggered by internal or external stimuli. Internally, some common events lead to problem recognition. The company decides to develop a new product and needs new equipment and materials. A machine breaks down and requires new parts. Purchased material turns out to be unsatisfactory, and the company searches for another supplies. A purchasing manager senses an opportunity to obtain lower prices or better quality. Externally, the buyer may get new ideas at a trade shows, see an ad, or receive a call from a sales representatives who offers a better a better product or a lower price. Business marketers can stimulate problem by direct mail, telemarketing, and calling in prospects.

General Need Description and Product Specification:

Next, the buyer determines the needed item’s general characteristics and required quantity for standard items, this is simple. For complex items, the buyer will work with others engineers, users to define characteristics like reliability, durability, or price. Business marketers can help by describing how their products meet or even exceed the buyer’s needs. Here is an example of how a supplier is using value added services to gain a competitive edge.

Hewlett-Packard’s marketing division has developed a concept called “trusted advisor”. The marketers felt HP needed to move beyond selling systems to selling itself as an advisor and offering specific solutions to unique problems. What HP discovered is that some companies want a partner and others simply want a product that works. HP assumes an advisory role when it sells complex products like a network computer system, HP estimates that the new way of selling has contributed to a 60 percent growth of the high-end computer business. The company has increased its consulting business and is working on enterprise-wide projects through a series of partnerships with systems integrators and software companies.

Supplier Search:

The buyer next tries to identify the most appropriate suppliers through trade directories, contacts with other companies, trade advertisements, and trade shows. Business marketers also put products, process, and other information on the internet. While B2B electronic commerce has not delivered on its early promise, it still far outstrips B2C commerce. According to market research firm eMarketer, US businesses spent about $482 billion on online transactions with other businesses in 2002 – up 242 percent from $141 billion spent two year earlier. By comparison, consumers spent only $71 billion on goods and services online in 2002. The move to Internet purchasing has far reaching implications for suppliers and will change the shape of purchasing for years to come.