3. THE PURCHASING DEPARTMENT’S
FUNCTION IS TO:
1. PROVIDE APPROPRIATE LEVELS OF
SUPPLY
2. AT THE APPROPRIATE LEVEL OF
QUALITY
3. FOR THE LOWEST TOTAL COST
3-3
4. Case study: Abilene Heavy Equipment Tires
Abilene Heavy Equipment Tires sells tires for off-road mining and forestry
vehicles and construction equipment. The company also retreads the tires and
provides services at the mine or construction site. Because customers’
equipment is considered production equipment, a flat tire means a loss of
production. Quality service is an important element in Abilene’s business.
Ken Arthur is the manager of Abilene’s service business. His responsibilities
include managing a fleet of 12 heavy-duty pickup trucks that are used to reach
customers’ equipment in the field for service. Ken buys three trucks each
January, retiring each truck after four years of service. For the previous two
years, he purchased Dodge trucks from the Abilene Dodge dealer, dealing
directly with owner Don Tanksley.
Today, December 20, Don stopped by Ken’s office. After saying hello and
asking after the family, Don said, “Come on, Ken, I want to show you something
I have outside in the truck.” As they walked outside, Don continued, “I know you
like 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 you
with this.” From the inside of his truck, Don pulled out a new Browning Citori
shotgun.
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 added
another $500 to the cost of the gun. He held it, admiring the balance, and then
sighted the gun as if about to shoot. He thought about how nice it would be to
use 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
5. Case 3.1 Human Performance Systems
Joyce 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
accidents
this 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 Jackson
Molding? Think through the various ways HPS could save Jackson money,
among other benefits.
2. What is important to Bob? Why?
6. Transactional vs. Relational Marketing
Transactional exchange Relationship exchange
Objective 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
ding
Market 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 customers
Core 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
7. Reasons to buy
Factor Percen
t
Product 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
8. PURCHASE PRICE Vs. TOTAL COST
• PURCHASE PRICE = THE DOLLAR VALUE
PAID
• TOTAL COST = PURCHASE PRICE +
DELIVERY + STORAGE + SERVICE
3-8
9. METHODS TO EXAMINE
AND COMPARE COSTS
1. TOTAL COST OF OWNERSHIP
2. ECONOMIC ORDER QUANTITY
(EOQ)
3. VALUE ANALYSIS
3-9
10. 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
12. USING VALUE ANALYSIS
THE 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
13. 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
14. BUY-PHASES
1. NEW TASK
COMPLETE BUYING PROCESS REQUIRED EMPHASIZES
PRODUCT DEFINITION AND SPECIFICAIONS
2. MODIFIED REBUY
EMPHASIZES SUPPLIER SEARCH AND EVALUATION
3. STRAIGHT REBUY
EMPHASIZES NEED RECOGNITION AND PURCHASE
3-14
17. 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
18. 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
19. IMPROVE PERFORMANCE:
STAYING AHEAD OF PURCHASING TRENDS
1. REDUCE PURCHASING COSTS
• CUTBACK ON EMPLOYEES
• REDUCE NUMBER OF VENDORS/
TRANSACTIONS
• BUILD RELATIONSHIPS
• CENTRALIZE PURCHASING ACTIVITIES
3-19
21. 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
3-21
22. 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
23. 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
24. Changing company focus: MAKE-OR-BUY?
Purchasing Determines Who Provides Best Value for Lowest Cost
Best-Value Provider
Action 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
25. MAKE-OR-BUY DECISION ANALYSIS
RISK ASSESSMENT
FINANCIAL RISKS MARKETING RISKS
Resource Allocation Customer Impact
Investment of Resources Supplier Impact
Accurate Cost Analysis
Legal Issues
MANUFACTURING 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
26. ETHICAL ISSUES FOR BUYERS
KEY REQUIREMENT: EVERY COMPETITOR
HAS AN EQUAL OPPORTUNITY TO SELL TO
THE BUYER AND HAS EQUAL ACCESS TO
INFORMATION
AS A BUYER, YOU MUST
PROVIDE EQUAL ACCESS TO THE
BUYING OPPORTUNITY
BE TOTALLY RESPONSIBLE TO
YOUR EMPLOYER
3-26
