Analysing Business Markets - Procurement Process

1. ANALYSING
BUSINESS
MARKETS
PART IV

2. THE PROCUREMENT
PROCESS

3. • Business buyers seek to obtain the highest benefit
package in relation to a market offering’s costs.
• Business buyer’s incentive to purchase will be a
function of difference between perceived benefits
and perceived costs.
• The marketer’s task is to construct a profitable
offering that delivers superior customer value to the
target buyers.
• Business marketers must therefore endure that
customers fully appreciate how the firm’s offerings
are different and better.

4. • Occurs when customers are given a perspective or
point of view that allows the firm to “put its best foot
forward”.
• Can be as simple as making sure customers realize
all benefits or cost benefits afforded by the firm’s
offering.
• Requires understanding how business customers
currently think of and choose among products and
services.
Framing

5. Supplier diversity is a benefit
that may not have a price
tag but that business buyers
overllok at their risk.
Minority Suppliers are the
fastest-growing segment of
today’s business landscape.

6. In the past, purchasing
departments occupied a low
position in the management
hierarchy,inspite of often
managing more than half the
company’s costs.

7. Today’s purchasing
departments are most
strategically oriented and
have a mission to seek the
best value from fewer and
better suppliers.

9. VARIOUS STAGES
IN THE BUYING
PROCESS

10. GENERAL NEED DESCRIPTION
PRODUCT SPECIFICATION
SUPPLIER SEARCH
PROPOSAL SOLICITATION
PROBLEM RECOGNITION
SUPPLIER SELECTION
ORDER-ROUTINE SPECIFICATION
PERFORMANCE REVIEW

12. PROBLEM
RECOGNITION
1

13. MarketersProduct
specification
•Buying Process begins when someone in the company
recognizesa problem or need.
•Recognition ca be triggered internally(common events lead to
problem recog.) or externally(buyer may get new ideas).
•Business marketers can stimulate problem recog. By direct
mail,telemarketing and calling on prospects.

14. 2&3 Need
&

15. MultipleSingle
•Buyer determines the needed item’s general
characteristics and required quantity.
•Buying Organization develops the item’s technical
specifications.
•Suppliers can use PRODUCT VALUE ANALYSIS as a tool
for positioning themselves to win an account.

16. SUPPLIER
SEARCH
4

17. Buyer tries to identify the most appropriate suppliers
through trade directories, contacts with other companies,
trade ads, trade shows and the Internet.

18. FORMS BY WHICH COMPANITIES UTILIZE ELECTRONIC
MARKETFLACES OVER THE INTERNET
CATALOG SITES
VERTICAL
MARKETS
AUCTION SITES SPOT MARKETS
PRIVATE
EXCHANGES
BARTER MARKETS
BUYING
ALLIANCES

20. • shaves transaction costs
• reduces time between order and delivery
• consolidates purchasing systems
• forges closer relationship

21. • helps to erode supplier-buyer loyalty
• create potetial security problems

23. •2 types of e-hubs: Vertical hubs(plastics,steel)
and functional hubs(logistics,advertising).
• More than acquiring software
• requires purchasing strategy and structure

24. Catalogs
Private
exchange
s
Buying
alliances
Markets
Vertical
Spot
Barter
Auction
sites
Direct links
Alliances
RFPs
E-procurement
Advantageous

25. Lead Generation
• Supplier’s task is to ensure it is
considered when customers are in
market searching for a supplier.
• Suplliers that lack the required
production capacity or suffer from
a poor reputation will be rejected.
• After evaluating each company,
the buyer will end up with a
shortlist of qualified suppliers

26. PROPOSAL SOLICITATION5

27. • Buyer invites qualified suppliers to submit
proposals(written and detailed)
• After evaluation, formal presentation should be made
• Oral presentations of the Business Marketers should
inspire confidence and position the company’s
capabilities and resources so that they stand out from
the competition.
Simple
quote
Detailed
proposal

28. SUPPLIER SELECTION6

29. • Business marketers need to do a better
job of understanding how business buyers
arrive at their valuations
• Business marketers emplyed 8 various
CVA methods to assess customer value.
CUSTOMER VALUE
ANALYSIS

31. • Buyers may attempt to negotiate with preferres
suppliers for better prices and terms before making
the final selection.
• Marketers can counter rewuest for a lower price in a
number of ways:
1)total cost of owndership
2)life-cycle cost
• Improving productivity helps alleviate price
pressures.

32. Restrictive condition for lowering the price
• limited quantities
• no refunds
• no adjustments
• no services

33. NUMBER OF SUPPLIERS
• Companies want their chosen suppliers to be responsible for
a large component system to achieve continuous quality and
performance improement and also lower prices.
• Suppliers should work closely duting product development
and their suggestions are valued.
• There is a trend toward single sourcing though multiple
sources often cite the threat of a labor strike.

34. ORDER-ROUTINE SPECIFICATION7

35. • Buyer negotiates the final order by listing the technical
specifications, quantity needed, expected time of delivery,
return policies and warranty.
• In case of maintenance, repair and operating items, buyers
are moving toward blanket contracts(long-term) rather than
periodic.
• Seller holds the stock and blanket contracts aka stock
purchase plans
• Some companies shift the ordering responsibility to their
suppliers in systems called vendor-managed inventory(VMI)

36. 8

37. •Buyer periodically reviews the performance of the
chosen supplier(s).
• Many companies have set up incentive systems to
reward purchasing managers for good buying
performance, in much the same way sales
personnel receive bonuses for good selling
performance.

38. Created by Aburvaa Ramesh, SVCE ,
during an internship
By Prof. Sameer Mathur, IIM Lucknow.
www.IIMInternship.com