THE PURCHASING DEPARTMENT’S FUNCTION IS TO:1. PROVIDE APPROPRIATE LEVELS OF SUPPLY2. AT THE APPROPRIATE LEVEL OF QUALITY3. FOR THE LOWEST TOTAL COST 3-3
Case study: Abilene Heavy Equipment TiresAbilene Heavy Equipment Tires sells tires for off-road mining and forestryvehicles and construction equipment. The company also retreads the tires andprovides services at the mine or construction site. Because customers’equipment is considered production equipment, a flat tire means a loss ofproduction. Quality service is an important element in Abilene’s business.Ken Arthur is the manager of Abilene’s service business. His responsibilitiesinclude managing a fleet of 12 heavy-duty pickup trucks that are used to reachcustomers’ equipment in the field for service. Ken buys three trucks eachJanuary, retiring each truck after four years of service. For the previous twoyears, he purchased Dodge trucks from the Abilene Dodge dealer, dealingdirectly with owner Don Tanksley.Today, December 20, Don stopped by Ken’s office. After saying hello andasking after the family, Don said, “Come on, Ken, I want to show you somethingI have outside in the truck.” As they walked outside, Don continued, “I know youlike to hunt and I thought you might appreciate this little Christmas present.You’ve been a good customer for nearly 10 years, and I’d like to say thank youwith this.” From the inside of his truck, Don pulled out a new Browning Citorishotgun.Ken eyed the new gun with appreciation, knowing that it retailed for at least$1,200. The custom carving on the stock, with Ken’s initials, probably addedanother $500 to the cost of the gun. He held it, admiring the balance, and thensighted the gun as if about to shoot. He thought about how nice it would be touse this at the annual dove hunt that Abilene sponsored for its customers.1. Is there any ethical problem with Ken accepting the gift? Why or why not?2. What factors could affect your decision? 3-4
Case 3.1 Human Performance SystemsJoyce Davis leaned back in her chair and reflected on the sales call she made that morning. Her company, Human Performance Systems (HPS), provides safety training in order to bring manufacturers into compliance with OSHA regulations. She also had the data to prove that the training saved companies money by reducing the number of manufacturing accidents. What Joyce couldn’t understand was why Bob Jackson, owner of Jackson Molding, was so adamant that he couldn’t afford the training.“Bob, you can’t afford not to do this,” she told him. “You have had three accidentsthis month, losing 23 workdays.” (Three employees missed five days each, and another missed eight, for a total of 23.)“I don’t pay them for lost workdays. That makes them more careful.” He stared at her defiantly. “Therefore, I don’t need training.”1. What benefits could Human Performance Systems’ training provide JacksonMolding? Think through the various ways HPS could save Jackson money,among other benefits.2. What is important to Bob? Why?
Transactional vs. Relational Marketing Transactional exchange Relationship exchangeObjective To make a sale (sale is end result and To create a customer (sale is measure of success) beginning and relationship is the Customer needs satisfaction measure of success) (customer buys value) Customer integration (interactive value generation)Customer Anonymous customer Well-known customer understan Independent buyer and seller Independent buyer and seller dingMarket tasks Assessment on the basis of products Assessment on the basis of problem- and and prices. solving competence performan Focus on gaining new customers Focus on value enhancing of ce criteria existing customersCore aspects Focus on products Focus on service of Sales is a conquest Sale as a agreement exchange Discreet even (episodic perspective) Continuing process (historic holistic Monologue to be aggregated perspective) Individualized dialogue
Reasons to buyFactor Percen tProduct Quality 72.7%Service 53.4%Availability of Product 50.8%Total Purchasing Costs 40.5%Price of Product 32.2%Supplier’s supports in urgent situations 26.9%Ease of Contact with suppliers 18.6%Technical supports 15.2%Brand name 11.0%Source: Calners Advertising Research Reports
PURCHASE PRICE Vs. TOTAL COST• PURCHASE PRICE = THE DOLLAR VALUE PAID• TOTAL COST = PURCHASE PRICE + DELIVERY + STORAGE + SERVICE 3-8
METHODS TO EXAMINE AND COMPARE COSTS1. TOTAL COST OF OWNERSHIP2. ECONOMIC ORDER QUANTITY (EOQ)3. VALUE ANALYSIS 3-9
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 3-10
ECONOMIC ORDER QUANTITYTHE QUANTITY THAT MINIMIZES ORDERING COSTS AND STORING COSTS 3-11
USING VALUE ANALYSISTHE OBJECTIVES OF VALUE ANALYSIS:• REDUCE COSTS AND/OR• IMPROVE DESIGN COMPARE What is BENEFITS RECEIVED New Currently FUNCTIONS OF Alternatives PRODUCT Being Done Being COST OF MATERIALS WORK PROCESS Considered INVOLVED OUTCOME: GREATER VALUE FOR LESS COST 3-12
STEPS IN THE BUYING PROCESS Step 8 Step 8 Evaluation of product performance Evaluation of product performance Step 7 Step 7 Selection of an order procedure Selection of an order procedure Step 6 Step 6 Evaluation of proposals and Evaluation of proposals and selection of a supplier selection of a supplier Step 5 Step 5 Acquisition and analysis of proposals Acquisition and analysis of proposals Step 4 Step 4 Search for qualified suppliers Search for qualified suppliers Step 3 Step 3 Development of detailed specifications Development of detailed specifications Step 2 Step 2 Definition of the product-type needed Definition of the product-type needed Step 11 Step Recognition of aaneed Recognition of need EXHIBIT 3-3 3-13
BUY-PHASES1. NEW TASK COMPLETE BUYING PROCESS REQUIRED EMPHASIZES PRODUCT DEFINITION AND SPECIFICAIONS2. MODIFIED REBUY EMPHASIZES SUPPLIER SEARCH AND EVALUATION3. STRAIGHT REBUY EMPHASIZES NEED RECOGNITION AND PURCHASE 3-14
Marketing Mix and Buy-PhasesBuy Phase and Marketing Techniques
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 3-17
PURCHASING PARTNERSHIPS ARE MADE WITH VENDORS WHO PROVIDE:HIGH-PURCHASE-VOLUME MATERIALS, COMPONENTS OR STRATEGIC PRODUCTS• INFORMATION AND TRAINING FOR EFFECTIVE PRODUCT USE• SERVICES REQUIRING SPECIALIZED KNOWLEDGE FOR COST REDUCTIONS AND/OR PERFORMANCE• MATERIALS UNAVAILABLE ELSEWHERE 3-18
IMPROVE PERFORMANCE:STAYING AHEAD OF PURCHASING TRENDS1. REDUCE PURCHASING COSTS • CUTBACK ON EMPLOYEES • REDUCE NUMBER OF VENDORS/ TRANSACTIONS • BUILD RELATIONSHIPS • CENTRALIZE PURCHASING ACTIVITIES 3-19
IMPROVE PERFORMANCE:STAYING AHEAD OF PURCHASING TRENDS (continued)3. CROSS-FUNCTIONAL TEAMS – MADE UP OF COMPANY DEPARTMENTS, SUPPLIERS, CUSTOMERS4. INCREASE PROFESSIONALISM THROUGH CERTIFICATION PROGRAMS AND ESTABLISH A CODE OF ETHICS 3-21
SALES SURVIVAL QUESTIONS: CAN YOUR SALESPEOPLE ANSWER THE FOLLOWING QUESTIONS?1. WHAT IS A CROSS-FUNCTIONAL TEAM?2. CAN YOU RECOGNIZE ONE AT YOUR CLIENT’S ORGANIZATION?3. DO YOU KNOW HOW TO GET YOUR COMPANY INCLUDED IN YOUR CLIENT’S CROSS- FUNCTIONAL TEAM?4. WILL YOUR COMPANY GIVE YOU THE PEOPLE RESOURCES TO SUPPORT YOUR CLIENT’S 3-22
SUCCESSFUL CROSS-FUNCTIONAL PURCHASING TEAMS DEPEND ON:• APPROPRIATE LEADERSHIP• FACE-TO-FACE COMMUNICATION• CONTINUITY– IN IT FOR THE LONG TERM• TOP-LEVEL COMMITMENT to provide for key individuals’ full participation• EMBRACING DIVERSITY of experience, backgrounds, EXHIBIT 3-9 outlooks, and corporate philosophy 3-23
Changing company focus: MAKE-OR-BUY? Purchasing Determines Who Provides Best Value for Lowest Cost Best-Value ProviderAction In-House Partner•Training•Transaction Processing•Paper Processing•Product Design•Product Manufacturing•Component Part Manufacturing•R&D•Marketing •Sales •Advertising •Research •Support•Human Resources Administration 3-24
MAKE-OR-BUY DECISION ANALYSIS RISK ASSESSMENTFINANCIAL RISKS MARKETING RISKS Resource Allocation Customer Impact Investment of Resources Supplier Impact Accurate Cost Analysis Legal IssuesMANUFACTURING RISKS POLITICAL RISKS Reliability Management commitment/ Expertise willingness to partner Equipment Turf Battles Patent Protection Internal Strife ACCEPTABLE RISK UNACCEPTABLE RISK Buy the Products, Retain Production and Components or Services Provide Services 3-25
ETHICAL ISSUES FOR BUYERSKEY REQUIREMENT: EVERY COMPETITOR HAS AN EQUAL OPPORTUNITY TO SELL TO THE BUYER AND HAS EQUAL ACCESS TO INFORMATIONAS A BUYER, YOU MUST PROVIDE EQUAL ACCESS TO THE BUYING OPPORTUNITY BE TOTALLY RESPONSIBLE TO YOUR EMPLOYER 3-26
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