Purchasing

1. Purchasing

2. THE OBJECTIVES OF PURCHASING • PROVIDE APPROPRIATE LEVELS OF SUPPLY + • THE APPROPRIATE LEVEL OF QUALITY + • THE LOWEST TOTAL COST

3. WHAT COMPANIES REALLY PAYFOR OWNERSHIP • Cost of ownership goes beyond the price paid for a product • TOTAL COST OF OWNERSHIP = PRODUCT PRICE + DELIVERY + INSTALLATION + MAINTENANCE / REPAIR + POWER COSTS + SUPPLY COSTS + OPERATING COSTS + FINANCING

4. PURCHASING PARTNERSHIPS ARE MADE WITH VENDORS WHO PROVIDE: • High-purchase-volume materials • Components • Strategic products • Product use information/training • Specialized knowledge for cost reductions and/or performance • Materials unavailable elsewhere

5. Steps in the Business Buying Process • Recognizing the need • Developing product specifications • Soliciting bids from potential suppliers • Making the purchase decision • Issuing the contract • Inspecting delivered goods for quality • Evaluating vendor performance

6. MAKE-OR-BUY DECISION ANALYSIS UNACCEPTABLE RISK Retain Production and Provide Services ACCEPTABLE RISK Buy the Products, Components or Services

7. Quotations and Contracts • RFQ: Request for Quotation • RFP: Request for Proposal • Boilerplate: • Standard legal clauses (fine print) on RFQs, your bid, and the customer’s order. • May contain terms of sale that contradict terms on your bid, and often contain penalties for nonperformance.

8. Types of Business Buying Situations • New-task buy: • Business buying situation that is new and very different from anything that the buyer has faced previously. • Straight rebuy: • Most common type of business buying situation; buyer purchases a part, material, or service routinely, with little thought going into buying process. • Modified rebuy: • Reevaluation of alternatives; necessary because buying requirements have changed such that relatively routine buy or purchase no longer is routine.

9. Examples of Products Purchased Using the Buy-Class Modified Rebuy New Buy Straight Rebuy Vehicles Consulting Services Office Supplies Installations Pure routine Complete negotiation Electrical Components Electricity Gas/Water Computer Systems Moon Shot Insurance Bulk Chemicals

10. Insurance for the Apollo 11 Moonshot

11. Buygrid Analysis Framework New Buy Modified Rebuy Straight Rebuy Need Recognition Develop Product Specifications Complexity of Buying Situation Solicit Bids Make Purchase Decision Issue the Contract Inspect Goods for Quality Evaluate Vendor Performance

12. Buygrid Analysis Framework New Buy Modified Rebuy Straight Rebuy Need Recognition Develop Product Specifications Creeping Commitment Solicit Bids Make Purchase Decision Issue the Contract Inspect Goods for Quality Evaluate Vendor Performance

13. Multi-Attribute Theory • Product offerings are bundles of attributes. • Attributes provide benefits. • Benefits satisfy needs. • Buyers differ in their needs, therefore • Buyers differ in the importance they place upon various attributes. • Some buyers seek to maximize the set of attributes. • Others seek to satisfy most important attributes first.

14. Role Theory • The differing roles people play (in business, society, or life in general) have differing norms and expectations. • Examines how people interact in the Buying Center (more than one person is involved in the purchasing decision.) • In many cases, the buying center is an informal, complex, changing group. • In other cases, it is a formal part of the organization (such as cross-functional teams)

15. The Buying Center • Consists of those individuals • who participate in the purchasing decision and • who share the goals and risks arising from the decision • Average buying center includes more than 4 persons per purchase

16. Roles of Buying Center Members • User • Will use product in question; minimal - major influence • Gatekeeper • Tight controller of information flow to other buying center members; can open/close gate for salespeople. • Influencer • Provides information to other members for evaluating alternative products or sets purchasing specifications; can operate within/outside buying center. • Decider • Makes buying decision; often difficult to ID. • Buyer • Assigned formal authority to select vendors and complete purchasing transaction.

17. Buying Center Dimensions • Time • Time fragmentation: length of time people are in the buying center. • Limits members’ influence • Can lengthen decision making time due to inexperience • Vertical • Layers of management involved • Horizontal • Number of departments involved

18. Clues for Identifying Powerful Buying Center Members • Isolate the personal stakeholders • Follow the information flow • Identify the experts • Trace the connections to the top • Understand purchasing’s role

19. Individual Forces • Evaluative criteria • education, training, experience • Information Processing • selective exposure, attention, perception, and retention • Risk-Reduction Preferences • level of uncertainty about outcomes • magnitude of consequences associated with incorrect choice

20. Selective Perception • Impacts how your buyer views and understands the world • Impacts how your buyer views risk • Selective exposure. • Selective attention. • Selective retention.

21. Impact of Increasing Levels of Perceived Risk • Buying center becomes larger • Higher level managers become involved • Information search more active • Wider variety of info sources accessed • Buying center members exert more effort • Sellers with proven track records tend to be more favored • Product quality & after-sale service tend to become more important than price