1. Purchasing & Organizational Buying Behavior Dr. Dawne Martin September 20, 2011

2. Learning Objectives Revised Schedule Thursday – Chapter 4 – Organizational Buying Behavior Tuesday – Customer Value Exam Thursday, September 30 – Chapters 1-4 Review Sheet available on K-State Online For Next Time – Sample Case: Fleury Equipment de Batiment

3. Purchasing Learning Objectives To understand the differing purchasing orientations & their effects on buying habits To understand the methods by which companies make purchasing decisions, and the variables that affect the process

4. Case Analysis Framework http://www.dryden.com/marketing/ferrell/student/case/index.html Situation Analysis – SWOT Assumptions and Missing Information Information to fill in the gaps in the SWOT Statement of Problem(s) Symptoms – Observable manifestations of the problem Problem in why symptoms have occurred Brief – one to two sentences – clear indication of what needs to be addressed.

5. Case Analysis Framework Development of Alternatives Either/or decisions Strategic – Identify basic direction for the firm Evaluation of Alternatives & Recommendation Criteria Does it address the problem? Is it consistent with the mission statement? Is it feasible and have a good probability of success? Cost and revenue implications

6. Case Analysis Framework Choice of Alternatives Implementation details – 4 P’s Evaluation and control Set clear objectives for outcomes & timeframes Use benchmarks to track performance Develop contingency plans

7. Understanding Purchasing Purchasing Orientation Customer Requirements & Preferences Customer’s Purchase Process Evaluating Supplier Performance Source: Anderson & Narus, Business Marketing Management: Understanding, Creating and Delivering Value, Prentice Hall, 1999.

8. Purchasing Process of acquiring resources and capabilities for the firm from outside providers Purchasing orientation: Philosophy guiding purchasing decisions Buying -- executing discrete transactions Procurement -- quality improvement & cost reductions through integration of procurement activities Supply-Chain Management -- integration & coordination of purchasing with other functions and firms in value network -- value-adding activity Adapted From : Anderson & Narus, Business Marketing Management: Understanding, Creating and Delivering Value, Prentice Hall, 1999.

9. Buying Orientation Orientation: Short term & tactical Relationship: Arm’s length and adversarial Goals: Get the Best Deal Distributive negotiations (zero-sum game) Supplier cost analysis Power Commoditization- Target Pricing Multi-sourcing Risk Avoidance Adapted From : Anderson & Narus, Business Marketing Management: Understanding, Creating and Delivering Value, Prentice Hall, 1999.

10. Procurement Orientation Orientation: Strategic & proactive Relationships: Cooperative Goals Improving Quality TQM Standardization of Specifications -- functional, technical (materials), process, performance or brand, ISO 9000 certification Adapted From : Anderson & Narus, Business Marketing Management: Understanding, Creating and Delivering Value, Prentice Hall, 1999.

11. Procurement Orientation Goals (continued) Reducing Total Costs Total costs -- sum of all expenses incurred during productive life of product or service less salvage Materials Requirements Planning (MRP) or Manufacturing Resource Planning (MRP II) Cooperating with Suppliers Integrative Negotiation (expand benefits) Target costing -- reducing total costs Just-In-Time Management Adapted From : Anderson & Narus, Business Marketing Management: Understanding, Creating and Delivering Value, Prentice Hall, 1999.

12. Supply-Chain Management Orientation Orientation: Strategic value-adding activities Relationships: Partnerships, strategic alliances Goals Focus all efforts on delivering value to customers (end users) Concentrate firm’s resources on set of core competencies Build supply network that efficiently completes business processes Sustain highly collaborative relationships with select suppliers & sub- suppliers Value -in-Use Price (VIU) or Indifference Price Adapted From : Anderson & Narus, Business Marketing Management: Understanding, Creating and Delivering Value, Prentice Hall, 1999.

13. Other Purchasing Issues Just-In-Time Concurrent manufacturing Electronic data interchange (EDI) Quality Lowest Total Cost Total Cost of Ownership Outsourcing Economic Order Quantity Forward Buying Value Analysis Supplier Evaluation

14. TOTAL COST OF OWNERSHIP OF A TANGIBLE PRODUCT TOTAL COST OF OWNERSHIP = PRODUCT PRICE + DELIVERY + INSTALLATION + MAINTENANCE / REPAIR + POWER COSTS + SUPPLY COSTS + OPERATING COSTS + FINANCING 3-14

15. USING VALUE ANALYSIS THE OBJECTIVES OF VALUE ANALYSIS: REDUCE COSTS AND/OR IMPROVE DESIGN What is New Currently Alternatives Being Done Being Considered COMPARE BENEFITS RECEIVED FUNCTIONS OF PRODUCT COST OF MATERIALS WORK PROCESS INVOLVED OUTCOME: GREATER VALUE FOR LESS COST 3-15

16. VENDOR ANALYSIS RATINGS A RATING FORM SHOULD LIST  The most important product attributes  The most important service support attributes  Pricing variables  Delivery variables  Quality variables  Supplier capabilities 3-16

17. IMPROVE PERFORMANCE: STAYING AHEAD OF PURCHASING TRENDS 1.REDUCE PURCHASING COSTS CUTBACK ON EMPLOYEES REDUCE NUMBER OF VENDORS/ TRANSACTIONS BUILD RELATIONSHIPS CENTRALIZE PURCHASING ACTIVITIES USE THE INTERNET 3-17

18. IMPROVE PERFORMANCE: STAYING AHEAD OF PURCHASING TRENDS (continued) 2.OUTSOURCE IN-HOUSE ACTIVITIES TRAINING MANUFACTURING PROCESSING ACTIVITIES INVOLVE SUPPLIERS (ESI) 3-18

19. IMPROVE PERFORMANCE: STAYING AHEAD OF PURCHASING TRENDS (continued) 3.CROSS-FUNCTIONAL TEAMS – MADE UP OF COMPANY DEPARTMENTS, SUPPLIERS, CUSTOMERS 4.INCREASE PROFESSIONALISM THROUGH CERTIFICATION PROGRAMS AND ESTABLISH A CODE OF ETHICS 3-19

20. Step 8 Evaluation of product performance Step 8 Evaluation of product performance Step 7 Selection of an order procedure Step 7 Selection of an order procedure Step 6 Evaluation of proposals and selection of a supplier Step 6 Evaluation of proposals and selection of a supplier Step 5 Acquisition and analysis of proposals Step 5 Acquisition and analysis of proposals Step 4 Search for qualified suppliers Step 4 Search for qualified suppliers Step 3 Development of detailed specifications Step 3 Development of detailed specifications Step 2 Definition of the product-type needed Step 2 Definition of the product-type needed Step 1 Recognition of a need Step 1 Recognition of a need EXHIBIT 3-3 STEPS IN THE BUYING PROCESS 3-20

21. The Buy-Grid Framework Patrick Robinson, Charles Faris & Yorum Wind, Industrial Buying & Creative Marketing, Marketing Science Institute, 1967

22. Multi-Attribute Model Assumption: People view products as a collection of attributes, or “bundle of benefits” Individual attributes are rated or weighted in terms of importance Each product is evaluated based on customer’s perception of the attribute relative to competitor’s product Multiple attribute rating time the weight (importance rating) = score per attribute Summation of the attribute scores provides total product score

23. Government Contracting Federal Acquisition Streamlining Act (1994) Purchases below $100,000 reserved for small business EDI for sales to federal government--1999 Encourages off-the-shelf buying Raises dollar limit on purchasing requiring competitive bids Federal Acquisition Computer Network $25,000 purchase through SmartPay cards

24. Government Contracting Other Federal Government Trends Compliance programs Minority subcontracting Early, open discussion with vendors Requests for draft proposals Down-select process prior to solicitation of bids to screen potential contractors Competitive range for “most highly rated companies” for bid consideration Past performance requirements Negotiating best service possible at “fair price” Bundling contracts

25. Government Contracting Federal Contracting Assistance GSA Website: http://government.onvia.com/?cat=2 GSA Advantage -- eBuy https://www.gsaadvantage.gov/advgsa/advantage/main/start _page.do https://www.gsaadvantage.gov/advgsa/advantage/main/start _page.do Federal Procurement Opportunities https://www.fbo.gov/index?cck=1&au=&ck= Proposal Writing: http://gov.onvia.com/category/rfp-and-proposal-writing/

26. State Contracting Vendor’s Lists Vendor Opportunities http://da.state.ks.us/purch/ Local Government Contracting http://wycokck.unifiedtek.com/VendorInformati on.php

27. Case 3.2 Frenetic, Inc. Make “green”energy products Most purchasing done through Thomas Industries, but Margaret has had several problems with their delivery and billing Christmas card arrives for Margaret, from Thomas sales rep, with $100 Victoria Secret gift card Questions Is there an ethical issue with accepting the gift card? Why? Would a formal supplier evaluation system help with this? What components should it have?