ORDERING ROUTINE SPECIFICATION & PERFORMANCE REVIEW
After selecting suppliers, the buyer negotiates the final order, listing the technical specifications, the quantity needed, the expected time of delivery, return policies, warranties, and so on.
Many industrial buyers lease heavy equipment like machinery and trucks. The lessee gains a number of advantages: conserving capital, getting the latest products, receiving better service, and some tax advantage. The â€˜lesserâ€™ often ends up with a larger net income and the chance to sell to customers who could not afford outright purchase.
In the case of maintenance, repair, and operating items, buyers are moving toward blanket contracts rather than periodic purchase orders. A blanket contract establishes a long term relationship in which the supplier promises to re-supply the buyer as needed, at agreed upon prices, over a specified period of time. Because the stock is held by the seller, blanket contracts are sometimes called stockless purchase plans. The buyerâ€™s computer automatically sends an order to the seller when stock is needed. This system locks suppliers in tighter with the buyer and makes it difficult for outâ€“suppliers to break in unless the buyer becomes dissatisfied with the in-supplierâ€™s process, quality, or service.
Companies that fear a shortage of key material are willing to buy and hold large inventories. They will sign long-term contracts with suppliers to ensure a steady flow of materials. DuPont, Ford, and several other major companies regard long-term supply planning as a major responsibility of their purchasing managers. For example, General Motors wants to buy from fewer suppliers who are wiling to locate close to its plants and produce high quality components. In addition, business marketers are using the Internet to setup extranets with important customers to facilitate and lower the cost of transactions. The customers enter orders directly on the computer, and these orders are automatically transmitted to the supplier. Some companies go further and shift the ordering responsibility to their suppliers in systems called vendor-managed inventory. These suppliers are privy to the customerâ€™s inventory levels and take responsibility to replenish it automatically through continuous replenishment programs.
â€œOTIFNEâ€? is a term that summarizes three desirable outcomes of a B-to-B transaction:
Â· OTâ€” Deliver on time.
Â· IF— in full.
Â· NEâ€” no error
All three matter. If a supplier achieves on-time compliance of only 80 percent, in full compliance of 90 percent, and no error compliance of 70 percent, overall performance computes at
80% x 90% x 70% —only 50%!
The buyer periodically reviews the performance of the chosen supplier (s). Three methods are commonly used. The buyer may contact the end users and ask for their evaluations; the buyer may rate the supplier on several criteria using a weighted score method; or the buyer might aggregate the cost of poor performance to come up with adjusted costs of purchase, including price. The performance review may lead the buyer to continue, modify, or end a supplier relationship.
Many companies have set up incentive systems to reward purchasing managers for good buying performance, in much the same way that sales personnel receive bonuses for good selling performance. These systems are leading purchasing managers to increase pressure on sellers for the best terms.