Exploring the Customers

Purchase Operations
B2B MARKETS: THE INTERNET CONNECTION -
Web Based Procurement

• Roughly 94 % of all Internet sales are B2B transactions.

• Opens up foreign markets to sellers.

• Largest segment of the business market.
•Has radically changed the procurement process.
•Gives buyers a quick, low cost medium to get data on
suppliers
•Online purchasing and electronic catalogues provide
access to remotely stored information at any time.
SEGMENTING B2B
MARKETS
SEGMENTATION BY DEMOGRAPHIC
CHARACTERISTICS
• Grouping by size based on sales revenues or number of
employees.

SEGMENTATION BY CUSTOMER TYPE

• Customer-based segmentation Dividing a business-
to-business market into homogeneous groups based on
buyers’ product specifications.
• Grouping in broad categories, such as by industry.
SEGMENTATION BY END-USE APPLICATION
• End-use application segmentation Segmenting a
business-to-business market based on how industrial
purchasers will use the product.

SEGMENTATION BY PURCHASE CATEGORIES

• Segmenting according to organizational buyer
characteristics, or by stage in their relationship.
THE PURCHASE DECISION PROCESS
• Sellers must navigate organizational buying processes that
often involve multiple decision makers.
• Purchasing process usually more formal than in consumer
market.
• Purchases may require bidding and negotiations.

BUYER-SELLER RELATIONSHIPS
• Often more complex than in consumer market.
• Greater reliance on relationship marketing.
EVALUATING INTERNATIONAL BUSINESS
MARKETS
• Business purchasing patterns differ from country to country.

• Global sourcing Purchasing goods and services from

suppliers worldwide.
• Can bring significant cost savings but requires
adjustments.
DIFFERENCES IN FOREIGN BUSINESS
MARKETS
• May differ due to variations in regulations and cultural
practices.
• Businesses must be willing to adapt to local customs and
business practices and research cultural preferences
BUSINESS MARKET DEMAND
• Demand characteristics vary from market to market.
DERIVED DEMAND
• The linkage between demand for a company’s output
and its purchases of resources such as machinery,
components, supplies, and raw materials.

VOLATILE DEMAND
• Derived demand creates volatility.
JOINT DEMAND
• Results when the demand for one business product is
related to the demand for another business product used
in combination with the first item.

INELASTIC DEMAND
• Demand throughout an industry will not change
significantly due to a price change.
INVENTORY ADJUSTMENTS
• Just-in-time (JIT) inventory policies boost efficiency by
cutting inventory and requiring vendors to deliver inputs as
they are needed.
• Often use sole sourcing - buying a firm’s entire stock of a
product from just one supplier.
• Latest inventory trend: JIT II, suppliers to place
representatives at the customer’s facility to work as part of
an integrated, on-site customer–supplier team.
 Changing Technologies

• Just in Time – Treats Inventory as an evil presence that covers up

problems and drives costs
• Material Requirement Planning – Systematic determination of
current and foreseeable needs
• Electronic Data Interchange and the Internet – Buying and Selling
organisations are linked together by computers
• Enterprise Resource Planning – Software based system with ties
together all the basic processes of the business (ordering,
Inventory, forecasting, budgets)
CRITERIA FOR THE SELECTION OF
TARGET MARKETS
• Does the target market fit the company’s image and
experience?
• Will the segment be responsive?
• Will the segment be substantial over time?
• Is the target market profitable?
• Does homogeneity exist within the segment?
• Is the segment measurable?
• Is the market segment accessible?
• Can the company be competitive in the target segment?
THE RISE OF OFFSHORING AND
OUTSOURCING
• Offshoring Movement of high-wage jobs from one country to
lower-cost overseas locations. Allows firms to concentrate their
resources on their core business and access specialized talent or
expertise.
(China makes two-thirds of the world’s copiers, microwaves, DVD players,
and shoes, and virtually all of the world’s toys.)
• Nearshoring Moving jobs to vendors in countries close to the
business’s home country.
• Outshoring Using outside vendors to provide goods and
services formerly produced in-house. Commonly outshore for
three reasons: cost reduction, quality and speed.
PROBLEMS WITH OFFSHORING AND
OUTSOURCING
• Many companies discover their cost savings are less
than expected.
• Can raise security concerns over proprietary technology
or customer data.
• Can reduce flexibility to respond quickly to marketplace.
• Can create conflicts with unions, even leading to
shutdowns and strikes.
• Can negatively affect employee morale and loyalty.
INFLUENCES ON PURCHASE DECISIONS
Environmental Factors
• Economic, political, regulatory, competitive, and
technological considerations influence business buying
decisions.
Organizational Factors
• Successful marketers understand their customers’
organizational structures, policies, and purchasing systems.
• Some firms have centralized procurement, others delegate
it throughout the units.
• Many companies use multiple sourcing to avoid depending
too heavily on a sole supplier.
Interpersonal Influences
• Many different people influence B2B buying decisions,
sometimes as individuals and sometimes as part of a
committee.
• Marketers must know who the influencers are and
understand their priorities.
• Sales personnel must be flexible and have a good
technical understanding of their products.
The Role of the Professional Buyer
• Many organizations rely on professionals, often called
merchandisers, who implement systematic buying
procedures.
• Firms usually buy expense items with little delay but
carefully consider capital purchases.
• May rely on systems integration and centralization of the
procurement function.
• Corporate buyers often use the Internet to identify
sources of supplies.
INTERNATIONAL BUYING CENTERS
• Marketers may have difficulty identifying members of
foreign buying centers.
• Eastern buying centers often include more participants
than western buyers
• Marketers who can quickly identify decision makers have
an advantage over competition.
TEAM SELLING
• Combining several sales associates or other staff to help
the lead account representative reach all those who
influence the purchase decision.
• May include members of the seller firm’s own supply
network in the sales situation.
ROLE DESCRIPTION OF A PURCHASING AND SUPPLY
MANAGER

• Purchasing
• Managing resources
• Advising on purchasing and supply systems
• Building supply chain relationships
• Policy development
 DIFFERENCES BETWEEN PUBLIC AND PRIVATE SECTOR
PURCHASING
Area of difference Private sector Public sector

Objectives Usually, to increase profit Usually, to achieve defined service

levels

Responsibility Buyers are responsible to directors, Buyers are responsible ultimately to

who in turn are responsible to the general public
shareholders

Stakeholders Purchasing has a small group of Purchasing has to provide value to a

stakeholders to take into account. wider range of primary and secondary
stakeholders.

Activity/process Organisational capabilities and Add value through supply of

resources need to produce outsourced or purchased
goods/services products/services. (Tend not to
purchase for manufacture.)

Legal restrictions Activities are regulated by company Most of this applies equally to public
law, employment law, product liability sector, but additional regulations are
law etc present too
 DIFFERENCES BETWEEN PUBLIC AND PRIVATE SECTOR
PURCHASING (CONTINUED)
Area of difference Private sector Public sector

Competition There is usually strong competition There is usually no competition

between many different firms

Value for money Maintain lowest cost for competitive Maintain or improve service levels
strategy, customer value and profit within value/cost parameters.
maximisation.

Diversity of items Specialised stock list for defined Wide diversity of items/resources
product/service portfolio. required to provide diverse services

Publicity Confidentiality applies in dealings Confidentiality is limited because of

between suppliers and buyers public interest in disclosure

Budgetary limits Investment is constrained only by Investment is constrained by

availability of attractive opportunities; externally imposed spending limits
funding can be found if prospects
are good
 DIFFERENCES BETWEEN PUBLIC AND PRIVATE
SECTOR PURCHASING (CONTINUED)
Area of difference Private sector Public sector
Information Private sector buyers do not Public sector buyers are willing to
exchange exchange information with exchange notes and often are
other firms, because of career government employees
confidentiality and competition on rotation
Procurement Tend to be organisation- Tend to follow legislative
policies procedures specific. Private sector buyers directives. Public sector buyers
can cut red tape when speed are often constrained to follow
of action is necessary established procedures
Supplier Emphasis on long-term Compulsory competitive
relationships partnership development tendering: priority to cost
where possible, to support minimisation and efficiency, at
value chain. the expense of partnership
development.
 OBJECTIVES OF THE PURCHASING FUNCTION

• To identify and select effective suppliers, and to

manage relations with them in a constructive and
profitable manner
• To protect the organisation’s cost structure and
ensure that value for money is obtained in
managing the purchasing function
• To ensure availability of required materials without
undue stockholding costs
• To maintain constructive relationships with other
organisational functions
PURCHASING PLANS
• Make internally or source from outside?
• Sourcing policy: single or multiple sourcing, or a combination
depending on the materials concerned?
• Local or international sourcing?
• Standardisation of products or emphasis on differentiation?
• Centralise or decentralise purchasing decisions, or a
combination of both depending on materials, organisation
structure, available systems?
• What kind of systems to capture, analyse and share
purchasing information?
• How to ensure compliance with relevant law, regulation and
policy?
 PERFORMANCE METRICS FOR PURCHASING
Efficiency metrics
Cost Procurement cost as a % of spend
Staffing Staff per £million of spend
Labour cost per employee

Productivity Purchase orders/material receipts per employee

Cost per purchase order/receipt

Technology Technology cost as a % of procurement cost

leverage and % of purchase orders, RFIs/RFPs/RFQs communicated
integration electronically to suppliers or potential suppliers

Cycle time Hours required to complete a requisition and purchase order

Standardi- Use of company-wide policies, commodity codes
sation
 PERFORMANCE METRICS FOR PURCHASING (CONTINUED)

Effectiveness metrics
Cost savings Annual cost savings as a % of spend
Supplier Number of suppliers per £x of spend
leverage

Error rates % of transactions requiring correction after process

Customer % of deliveries received in full and on time
satisfaction
Partnering Procurement control over material/goods spend
Use of cross-functional teams in supplier development, sourcing and
negotiation

Strategic Visibility of a formal documented procurement strategy

alignment Percentage of objectives linked to business strategy
 BENEFITS OF THE EFFECTIVE MANAGEMENT OF
PURCHASING
• Effective administration, and the efficient use of effort and
resources to achieve objectives
• Reliable continuity of supply
• Improved supply chain relationships
• Improved quality
• Reduced costs
• Increased flexibility and responsiveness
• Maintenance and provision of appropriate data for operations
managers and other stakeholders
• Improved contribution of purchasing staff
 Advantages of internet procurement
• 24 hour, 7 day a week availability
• Ease of finding products
• Speed in accessing a wide variety of products
• Accuracy in ordering
• Ability to adapt the interface to meet a company’s specific
requiremetns
• Ease of access to the WWW
• Possibility of two way interactive communication on a real time basis
• Ability to maintain electronic records of transactions and transaction
status
• Streamlining of customer’s existing purchasing relationships
• Reduction in operating costs
 Other Implications……
• Stronger Customer orientation
• Enhanced flexibility of operations
• Deployment of optimal information
technology infrastructure
• Relationship management