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Chapter03

  1. 1. Business Market Management 3 rd edition Understanding Firms as Customers Chapter 3
  2. 2. Section II: Understanding Value Business Market Management, 3 rd edition Chapter 3-
  3. 3. Chapter 3: Understanding Firms as Customers <ul><li>Overview </li></ul><ul><ul><li>Understanding Purchasing Orientation </li></ul></ul><ul><ul><li>Understanding How Purchasing Works with Other Functions and Firms </li></ul></ul><ul><ul><li>Understanding the Purchase Decision Process </li></ul></ul><ul><ul><li>Summary </li></ul></ul>Business Market Management, 3 rd edition Chapter 3-
  4. 4. Overview <ul><li>Understanding firms as customers: process of learning how companies rely on a network of suppliers to </li></ul><ul><ul><li>add value to their offerings </li></ul></ul><ul><ul><li>integrate purchasing activities with those of other functional areas and outside the firms </li></ul></ul><ul><ul><li>make purchase decision </li></ul></ul>Business Market Management, 3 rd edition Chapter 3-
  5. 5. Business Market Management, 3 rd edition Chapter 3- <ul><li>Understanding </li></ul><ul><li>Purchasing </li></ul><ul><li>Orientation: </li></ul><ul><li>Buying </li></ul><ul><li>Procurement </li></ul><ul><li>Supply Management </li></ul>Understanding Value for Present and Prospective Customer Firms <ul><ul><li>Evaluating </li></ul></ul><ul><ul><li>Supplier </li></ul></ul><ul><ul><li>Performance </li></ul></ul><ul><ul><li>Learning the </li></ul></ul><ul><ul><li>Customer’s </li></ul></ul><ul><ul><li>Purchase </li></ul></ul><ul><ul><li>Process </li></ul></ul>Understanding Customer Requirements and Preferences Understanding How Purchasing Works with Other Functions and Firms Understanding the Purchase Decision Process Value Management as a Cooperative Framework Adding Value to the Purchasing Process Through Buying Teams Working with Suppliers and Across Functions
  6. 6. I. Understanding Purchasing Orientation Business Market Management, 3 rd edition Chapter 3-
  7. 7. Understanding Purchasing Orientation <ul><li>Purchasing: process of acquiring resources and capabilities for the firm from outside providers </li></ul><ul><li>Purchasing Orientation: philosophy that guides managers who make purchasing-related decisions and delineates their domain and span of influence </li></ul>Business Market Management, 3 rd edition Chapter 3-
  8. 8. Value Network Defined <ul><li>Set of organizations that perform portions of business processes designed to create: </li></ul><ul><ul><li>Economic and Technical Benefits </li></ul></ul><ul><ul><li>Service and Social Benefits </li></ul></ul><ul><li>The organizations equitably share in resulting benefits </li></ul>Business Market Management, 3 rd edition Chapter 3-
  9. 9. Business Market Management, 3 rd edition Chapter 3- Source: Adapted from a chart by Professor Sunil Chopra, J. L. Kellogg Graduate School of Management, Northwestern University, 1999.
  10. 10. Understanding Purchasing Orientation <ul><li>When the business market manager understands his or her client’s purchasing orientation, the manager can better decide: </li></ul><ul><ul><li>whether to serve the account </li></ul></ul><ul><ul><li>how to adapt the market offering to better meet the customer’s requirements and preferences </li></ul></ul><ul><ul><li>how to craft a persuasive sales presentation </li></ul></ul>Business Market Management, 3 rd edition Chapter 3-
  11. 11. Buying Orientation Business Market Management, 3 rd edition Chapter 3- Central Pursuits <ul><li>Obtain the best combination deal: price, quality, and supplier availability </li></ul><ul><li>Maximize power over suppliers </li></ul><ul><li>Avoid risk wherever possible </li></ul>Buying: executing discrete transactions with suppliers, often for a single item Buyer’s prime objective: reduce its annual total spend of acquisitions in a given year
  12. 12. Obtaining the Best Deal <ul><li>Buyer treats quality and availability as “order qualifiers” </li></ul><ul><li>Price band: range of acceptable prices around the average price paid for product or service </li></ul><ul><ul><ul><ul><ul><li>± 3% of average </li></ul></ul></ul></ul></ul><ul><li>Distributive negotiation: customer and supplier assume that “value pie” is fixed </li></ul><ul><ul><li>Win-lose with one gaining more pie at the expense of the other </li></ul></ul>Business Market Management, 3 rd edition Chapter 3-
  13. 13. Supplier Cost Analysis <ul><li>Supplier Cost Analysis: review of actual and estimated cost data for a potential vendor </li></ul><ul><ul><li>Buyer obtains all information possible on supplier costs directly from supplier </li></ul></ul><ul><ul><li>Industrial engineers estimate remaining supplier costs (materials, labor rates, equipment utilization) </li></ul></ul><ul><ul><li>“ Reasonable” profit margin added to arrive at “fair” price </li></ul></ul>Business Market Management, 3 rd edition Chapter 3-
  14. 14. Maximizing Power Over Suppliers Business Market Management, 3 rd edition Chapter 3- Commoditization <ul><li>Buyers eliminate or downplay any points of difference between value elements of competing offerings </li></ul><ul><li>Attempt to equalize and remove Value f and Value a from the fundamental value equation </li></ul>Multisourcing <ul><li>Customer firm requests price quotations from and places order with a number of suppliers </li></ul><ul><li>Plays one supplier against another </li></ul><ul><li>Suppliers cut prices to secure more business </li></ul>Sole-Sourcing One supplier produces a needed product or service (e.g. rare raw materials, patented products, new technologies) Single-Sourcing Buyer purchases the firm’s total requirement from one vendor even though alternatives exist
  15. 15. <ul><li>Tactics for risk avoidance: </li></ul><ul><ul><li>Follow established procedures and rely on proven vendors </li></ul></ul><ul><ul><li>Seek quotes from at least 3 competing vendors and divide an order among several suppliers </li></ul></ul>Avoiding Risk Business Market Management, 3 rd edition Chapter 3-
  16. 16. Developments in Buying Business Market Management, 3 rd edition Chapter 3- Target Pricing <ul><li>Through market research, buyers determine the target price for their product or service among firm’s customers </li></ul><ul><li>Estimates what portion of product price should come from each system </li></ul><ul><li>Product is divided into subsystems and then parts </li></ul><ul><li>Buyer negotiates with supplier knowing the price they need to attain </li></ul>Global Sourcing Breakthroughs in communication and transportation allow buyers to take advantage of the international markets Advantages: reduced prices, increased quality, and new technologies Disadvantages: Added risks such as materials contamination, suspect product quality, and unreliable deliveries E-Sourcing Online purchasing allows customer firms to simultaneously reap price reduction benefits from multi-sourcing and global sourcing Tools: comparison agents, online reverse auctions, and eRFQs Defeaturing or Cooperative Pricing Customer and supplier managers work together to identify superfluous product features, attributes, and performance specification that can be eliminated or relaxed in exchange for a lower price
  17. 17. The Procurement Orientation <ul><li>Procurement: broadening the domain and span of influence of purchasing </li></ul><ul><li>Firm seeks to increase productivity through: </li></ul><ul><ul><li>Improving quality </li></ul></ul><ul><ul><li>Reduced total cost of ownership </li></ul></ul><ul><ul><li>Cooperating with suppliers </li></ul></ul>Business Market Management, 3 rd edition Chapter 3- For a typical firm, the cost of goods and services purchased account for about 60% of net sales. A reduction of $1 in total sales costs has the same impact as $6 increase in revenues .
  18. 18. Improving Quality <ul><li>Quality: Conformance to specifications that result in a product which meets customers’ expectations </li></ul><ul><li>Specification: the offering that the firm is seeking </li></ul><ul><ul><li>Underspecified </li></ul></ul><ul><ul><li>Overspecified </li></ul></ul>Business Market Management, 3 rd edition Chapter 3- Performance Process Technical or Material Functional Specifications
  19. 19. Total Quality Management (TQM) <ul><li>TQM: a management approach to an organization centered on quality , based on the participation of all its members and aiming at long-term success through customer satisfaction </li></ul>Business Market Management, 3 rd edition Chapter 3-
  20. 20. Business Market Management, 3 rd edition Chapter 3-
  21. 21. Reducing Total Cost of Ownership Business Market Management, 3 rd edition Chapter 3- TCO = Purchase Price + Product or Service’s Lifetime Expenses - Salvage or Resale Price
  22. 22. Total Cost of Ownership Business Market Management, 3 rd edition Chapter 3- Acquisition Costs <ul><li>Costs associated with securing an offering </li></ul><ul><ul><li>Search costs </li></ul></ul><ul><ul><li>Processing orders </li></ul></ul><ul><ul><li>Delivery costs </li></ul></ul>Conversion Costs <ul><li>Costs when using an offering </li></ul><ul><ul><li>Warehousing and handling </li></ul></ul><ul><ul><li>Inventory storage </li></ul></ul><ul><ul><li>Material processing </li></ul></ul><ul><li>Installation, maintenance & repair </li></ul><ul><li>Operating supply costs </li></ul><ul><li>Cost of poor quality </li></ul>Disposal Costs <ul><li>Encompasses: </li></ul><ul><ul><li>Recycling </li></ul></ul><ul><ul><li>Environmental protection </li></ul></ul><ul><ul><li>Waste management expenses </li></ul></ul>
  23. 23. TCO Analysis <ul><li>TCO Analysis: applies activity-based costing (ABC) concepts and methods to quantify all expenses related to the use of a product or service apart from price </li></ul><ul><ul><li>Focuses on firm’s interfaces with suppliers </li></ul></ul><ul><ul><li>Focuses on expenditures </li></ul></ul><ul><ul><li>Identifies firm’s major cost drivers </li></ul></ul><ul><ul><li>Often reveals opportunities to eliminate costs </li></ul></ul><ul><ul><ul><li>Corporate purchasing cards </li></ul></ul></ul><ul><ul><li>Long-term benefits from e-sourcing comes from cost savings rather than price savings </li></ul></ul>Business Market Management, 3 rd edition Chapter 3-
  24. 24. Cooperating with Suppliers <ul><li>Cooperative relationships with suppliers, customer firms attempt to expand the “value pie” for both firms </li></ul><ul><ul><li>Integrative negotiation: resources can be expanded to benefit both parties </li></ul></ul><ul><ul><ul><li>Identify shared interests and goals </li></ul></ul></ul><ul><ul><ul><li>Freely exchange information with emphasis on commonalities </li></ul></ul></ul><ul><ul><ul><li>Seek creative solutions that meet both side’s goals </li></ul></ul></ul>Business Market Management, 3 rd edition Chapter 3-
  25. 25. Cooperating with Suppliers Improving Quality <ul><li>Standardization Requirements: establishing agreement on uniform identification for definite characteristics of: </li></ul><ul><ul><li>Quality </li></ul></ul><ul><ul><li>Design </li></ul></ul><ul><ul><li>Performance </li></ul></ul><ul><ul><li>Quantity </li></ul></ul><ul><ul><li>Service </li></ul></ul><ul><li>Quality Assurance: methods and procedures for production </li></ul><ul><ul><li>Statistical process control </li></ul></ul><ul><ul><li>Product testing </li></ul></ul><ul><ul><li>Defect prevention </li></ul></ul><ul><ul><li>Process inspections </li></ul></ul>Business Market Management, 3 rd edition Chapter 3-
  26. 26. <ul><li>Target Costing: Focus is on reducing TCO. Require customer and supplier to work together, sharing technical, process and cost information </li></ul><ul><ul><li>Customer managers set target price for product </li></ul></ul><ul><ul><li>Determine a target cost for marketplace profitability </li></ul></ul><ul><ul><li>Evaluate TCO of various systems, subsystems, and components </li></ul></ul><ul><ul><li>Customer managers determine the TCO the firm can incur on the part </li></ul></ul><ul><ul><li>Request supplier provide a solution that does not exceed the determined amount </li></ul></ul><ul><ul><li>Supplier alternatives </li></ul></ul><ul><ul><ul><li>Lower price of part to meet target cost </li></ul></ul></ul><ul><ul><ul><li>Propose creative cost reduction program to achieve target price </li></ul></ul></ul>Cooperating with Suppliers Improving Quality Business Market Management, 3 rd edition Chapter 3-
  27. 27. The Supply Management Orientation <ul><li>Supply Management: entails the integration and coordination of purchasing with other functions. Considered a series of “value-adding activities.” </li></ul><ul><ul><li>Within the organization </li></ul></ul><ul><ul><li>With other firms in the value network </li></ul></ul><ul><ul><ul><li>Customers </li></ul></ul></ul><ul><ul><ul><li>Customers’ customers </li></ul></ul></ul><ul><ul><ul><li>Resellers </li></ul></ul></ul><ul><ul><ul><li>Suppliers’ suppliers </li></ul></ul></ul>Business Market Management, 3 rd edition Chapter 3-
  28. 28. The Supply Management Orientation Four Central Tenants Business Market Management, 3 rd edition Chapter 3- <ul><ul><li>1. Focus all firm’s efforts on delivering value to end users </li></ul></ul><ul><ul><li>2. Craft a sourcing strategy around the firm’s core competencies and resources </li></ul></ul><ul><ul><li>3. Build a supply network that efficiently completes required business processes </li></ul></ul><ul><ul><li>4. Sustain highly collaborative relationships with select supplier and sub-supplier firms </li></ul></ul>
  29. 29. Business Market Management, 3 rd edition Chapter 3- Source: Ravi Venkatesan, “ Strategic Outsourcing: To Make or Not to Make,” Harvard Business Review (Nov.-Dec. 1992): 103. The Strategic Sourcing Process
  30. 30. Focus on End-Users <ul><li>Supply Management proactively directs the entire supply network to meet the requirement of end-users through the following: </li></ul><ul><ul><li>Managers participate in: </li></ul></ul><ul><ul><ul><li>Market research projects </li></ul></ul></ul><ul><ul><ul><li>Customer advisory councils </li></ul></ul></ul><ul><ul><ul><li>Personnel exchange programs </li></ul></ul></ul><ul><ul><li>Managers relay value assessment results of products and services to the development group </li></ul></ul><ul><ul><li>Managers use market research findings to reengineer business processes </li></ul></ul>Business Market Management, 3 rd edition Chapter 3-
  31. 31. Craft a Sourcing Strategy <ul><li>Sourcing Strategy: </li></ul><ul><li>Identify core competencies </li></ul><ul><li>Divide the firm’s product and services into systems, subsystems, and components </li></ul><ul><li>Categorize systems, or subsystems if systems too broad (strategic, nonstrategic) </li></ul><ul><li>Firm outsources or produces itself the remaining strategic systems and subsystems </li></ul>Business Market Management, 3 rd edition Chapter 3-
  32. 32. Build a Supply Network <ul><li>Lean Enterprise: a group of individuals, functions, and legally separate but operationally synchronized companies </li></ul><ul><ul><li>Mission: collectively analyze and focus a value stream so that it does everything involved in supplying a good or service (from development and production to sales and maintenance) in a way that provides maximum value to the customer </li></ul></ul>Business Market Management, 3 rd edition Chapter 3-
  33. 33. Build a Supply Network <ul><li>Under lean enterprise concept: </li></ul><ul><ul><li>Purchasing becomes a center of expertise </li></ul></ul><ul><ul><li>Purchasing becomes a repository for knowledge of best practices </li></ul></ul><ul><ul><li>Supply managers disseminate research findings and experiences to colleagues across the company </li></ul></ul><ul><ul><li>Rely on a network of direct suppliers and a larger number of 2 nd and 3 rd tier suppliers </li></ul></ul>Business Market Management, 3 rd edition Chapter 3-
  34. 34. Types of Supply Models Business Market Management, 3 rd edition Chapter 3- Supply Network Model Traces the value-adding step needed to produce an offering from the customer backward through the variety of 1 st , 2 nd , and 3 rd tier suppliers Make to Stock Model <ul><li>Common design model for securing predictable quantities of MRO items </li></ul><ul><li>Manufacturers that produce standardized products to demand forecast, lengthy distribution channels, and local dealers that provide one-stop shopping, local delivery, and credit services </li></ul>
  35. 35. Types of Supply Models Business Market Management, 3 rd edition Chapter 3- Build-to-Order Model <ul><li>For example, used in acquiring Personal Computers (PCs) in a large one-time transaction </li></ul><ul><li>Utilizes mass customization and flexible manufacturing, rapid delivery, and encourages substitution of new technology in product design </li></ul>Continuous Replenishment Model or ECR System <ul><li>Model used for essential spare parts </li></ul><ul><li>A single vendor manages a customer’s entire plant inventories, immediately replacing out-of-stock items through EDI based logics network </li></ul>Design-to-Build Model <ul><li>To obtain access to next-generation technology </li></ul><ul><li>Customer and supplier R&D personnel jointly develop a new product. Supplier produces the one-of-a kind product in a single batch. </li></ul>
  36. 36. Sustain High Collaborative Relationship with Select Suppliers Business Market Management, 3 rd edition Chapter 3- Value-in-Use: difference in value minus the difference in price that a supplier’s offering provides a customer firm relative to a competitive offering VIU fa = (Value f - Value a ) - (Price f - Price a ) Value-in-Use Price: monetary amount at which the customer has no preference between the supplier’s offering and the next-best alternative offering VIU Price f = Price a + (Value f - Value a )
  37. 37. Apply Purchasing Portfolio Management <ul><li>Firms purchase a wide variety of product and services </li></ul><ul><ul><li>Companies may have to adopt multiple sourcing strategies </li></ul></ul><ul><ul><li>Build unique supply network </li></ul></ul><ul><ul><li>Sustain diverse relationships with supplier as a function of the supply situations it faces </li></ul></ul>Business Market Management, 3 rd edition Chapter 3-
  38. 38. Business Market Management, 3 rd edition Chapter 3- Purchasing Portfolio Matrix Leverage Items (raw materials) Criticals (new technology) Generics (MRO items) Bottleneck Items (essential spare parts) High CUSTOMER VALUE Low Low CUSTOMER RISK High
  39. 39. Purchasing Portfolio Goals <ul><li>Add value through </li></ul><ul><ul><li>Functionality-cost management </li></ul></ul><ul><ul><li>Service </li></ul></ul><ul><ul><li>Effective administration </li></ul></ul><ul><ul><li>Sourcing and integration of innovation </li></ul></ul><ul><li>Reduce risk through </li></ul><ul><ul><li>Quality </li></ul></ul><ul><ul><li>Availability </li></ul></ul><ul><ul><li>Assurance </li></ul></ul><ul><ul><li>Agile responsiveness </li></ul></ul><ul><ul><li>Sourcing activities </li></ul></ul>Business Market Management, 3 rd edition Chapter 3-
  40. 40. II. Understanding How Purchasing Works with Other Functions and Firms Business Market Management, 3 rd edition Chapter 3-
  41. 41. Value Management as a Cooperative Framework <ul><li>Value Management (VM): systematic use of value techniques as a general problem-solving method in: </li></ul><ul><ul><li>Business </li></ul></ul><ul><ul><li>Research </li></ul></ul><ul><ul><li>Administration </li></ul></ul><ul><li>Value Analysis: method of value assessment that customer firms use to evaluate supplier offerings </li></ul>Business Market Management, 3 rd edition Chapter 3-
  42. 42. Value Management <ul><li>Strategic level: Executives learn to “manage by value” </li></ul><ul><li>Tactical level: Personnel focus on “management of value” </li></ul>Business Market Management, 3 rd edition Chapter 3-
  43. 43. Value Management <ul><li>Value Management: allows a firm to better focus and efficiently sustain its operations, to gain a clearer understanding of the needs and priorities of its customers, and to deliver optimal value to the customer with trade-offs between performance and cost </li></ul>Business Market Management, 3 rd edition Chapter 3-
  44. 44. Adding Value to the Purchasing Process: Buying Teams <ul><li>Buying Teams or Buying Centers: all those members of an organization who become involved in the buying process for a particular product or service </li></ul><ul><ul><li>Member roles </li></ul></ul><ul><ul><li>Buying situations </li></ul></ul><ul><ul><li>Tasks </li></ul></ul>Business Market Management, 3 rd edition Chapter 3-
  45. 45. Buying Situations Business Market Management, 3 rd edition Chapter 3- Straight Rebuy The company has considerable buying experience and requires little or no new information about the offering Modified Rebuy Customer firm has had experience securing the product or service, but managers need to reevaluation of alternatives New task Unknown what the functional or technical specification of the offering should be
  46. 46. Buying Team Tasks <ul><li>Commodity Procurement Strategy (CPS) teams </li></ul><ul><li>Supplier Certification Teams </li></ul><ul><li>Specification Teams </li></ul><ul><li>Supplier Performance Evaluation Teams </li></ul>Business Market Management, 3 rd edition Chapter 3-
  47. 47. Working with Suppliers & Across Functions <ul><li>Develop Supply Resources </li></ul><ul><ul><li>Seek internal and external expertise to find and qualify new suppliers worldwide </li></ul></ul><ul><ul><ul><li>Managers in diverse functional areas </li></ul></ul></ul><ul><ul><ul><li>Technical staff from operations and R&D </li></ul></ul></ul><ul><ul><ul><li>Technical service personnel provide consulting and training </li></ul></ul></ul><ul><li>Improve Existing Offerings </li></ul><ul><ul><li>Progressive customer firms collaborate with suppliers </li></ul></ul><ul><ul><ul><li>Conduct joint Value / TCO assessment to find process improvements and material substitutions </li></ul></ul></ul><ul><ul><ul><li>Determine most economic lot-sizing for supplier production </li></ul></ul></ul><ul><ul><ul><li>Establish long-term contracts for dedicated production lines </li></ul></ul></ul><ul><ul><ul><li>Rethink and reallocate task from supplier firm to customer firm or vice versa </li></ul></ul></ul>Business Market Management, 3 rd edition Chapter 3-
  48. 48. Working with Suppliers & Across Functions <ul><li>Contribute to New Offering Realization </li></ul><ul><ul><li>Early supplier involvement programs (ESI) </li></ul></ul><ul><ul><li>Early purchasing Involvement programs (EPI) </li></ul></ul><ul><ul><li>Purchasing managers: technology “matchmakers” </li></ul></ul><ul><ul><li>Purchasing managers: serve as “reality check” </li></ul></ul><ul><ul><li>Cost-Effective Product Introduction (CEPI) </li></ul></ul><ul><ul><ul><li>Purchasing managers scrutinize the process </li></ul></ul></ul><ul><ul><ul><li>Alert engineers when they are about to specify high-cost, long lead-time, and overly customized parts, and recommend standard parts as alternative </li></ul></ul></ul><ul><ul><ul><li>Identify and advocate suppliers with proven records for reliability, delivery, quality, and capacity utilization </li></ul></ul></ul><ul><ul><li>Purchasing managers serve as watchdogs for expensive and over engineered parts, and provide detailed cost estimates that help designers better forecast the total cost and profitability of new products </li></ul></ul>Business Market Management, 3 rd edition Chapter 3-
  49. 49. III. Understanding the Purchase Decision Process Business Market Management, 3 rd edition Chapter 3-
  50. 50. Understanding Customer Requirements and Preferences <ul><li>Three sources of uncertainty that make it difficult for customers to understand their own requirements and preferences </li></ul>Business Market Management, 3 rd edition Chapter 3- Needs Uncertainty Difficulties customers have in interpreting the exact nature and importance of goods and services that firms require (Example: How often will a piece of machinery fail and what is the severity of the consequences?) Market Uncertainty Buyer’s inability to predict how many alternative suppliers will be available and the quality of goods and services forthcoming Transaction Uncertainty Inversely related to the customer’s confidence that suppliers have easy-to-use procedures for doing business, processing orders accurately, and providing reliable and timely deliveries
  51. 51. Business Market Management, 3 rd edition Chapter 3- Microsoft Customer Support Requirements Matrix Customer Satisfaction Surveys Service Usage Patterns Activity-Based Costing Activity-Based Planning On-Site Training Online Services Microsoft Magazines Usability Testing Supportability Testing Beta Testing Off-Line Plus WISH Lines Joint Development Projects Known Microsoft’s Understanding of Customer Requirements Unknown Known Customer's Understanding of Their Own Requirements Unknown
  52. 52. Map Customer Activity and Value Cycle <ul><li>Activity Cycle is the steps required to: </li></ul><ul><ul><li>produce, </li></ul></ul><ul><ul><li>productively use, </li></ul></ul><ul><ul><li>recycle, and </li></ul></ul><ul><ul><li>dispose an offering </li></ul></ul><ul><li>Value Cycle captures the changes in the worth across the Activity Cycle steps </li></ul>Business Market Management, 3 rd edition Chapter 3-
  53. 53. Learning the Customer’s Purchase Process Business Market Management, 3 rd edition Chapter 3- BuyGrid Framework <ul><li>Rebuy: Customer has track record of purchasing a given product from a given vendor and can avoid many steps </li></ul><ul><li>New Task: Customer has no experience purchasing good or service. Hence the customer must go through the entire process </li></ul><ul><li>Ongoing Relationship: Customer may be able to eliminate some of the steps from the process. </li></ul>
  54. 54. Evaluating Supplier Performance <ul><li>Best Practices: </li></ul><ul><ul><li>Balanced scorecards </li></ul></ul><ul><ul><ul><li>Review Price, Quality, and Availability </li></ul></ul></ul><ul><ul><ul><ul><li>Subjective questionnaires </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Summarize category result in a single subjective index </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Operational measures </li></ul></ul></ul></ul><ul><ul><ul><li>Scrutinizing Total Costs </li></ul></ul></ul><ul><ul><ul><ul><li>Review costs associated with supplier nonperformance </li></ul></ul></ul></ul><ul><ul><ul><li>Tracking Supplier Value </li></ul></ul></ul>Business Market Management, 3 rd edition Chapter 3-
  55. 55. Scrutinizing Total Costs Business Market Management, 3 rd edition Chapter 3- Supplier performance Index, SPI (item) = Extended purchase price + nonperformance costs Extended purchase price
  56. 56. Tracking Supplier Value <ul><li>Supply managers conduct thorough and demanding evaluation of suppliers </li></ul><ul><ul><li>Estimate the benefits, </li></ul></ul><ul><ul><li>Total costs, and </li></ul></ul><ul><ul><li>Prices paid to each vendor </li></ul></ul><ul><li>Supplement direct vendor evaluations with own customer satisfaction studies </li></ul><ul><li>Goal: assess the impact of supplier contributions on end-user satisfaction </li></ul>Business Market Management, 3 rd edition Chapter 3-
  57. 57. IV. Summary Business Market Management, 3 rd edition Chapter 3-
  58. 58. Summary <ul><li>Examined how firms secure resources from the external environment and integrate them with their internal operations </li></ul><ul><li>Understanding firms as customers is the process of learning how: </li></ul><ul><ul><li>Companies rely on a network of suppliers to add value to their offerings, </li></ul></ul><ul><ul><li>Integrate purchasing activities with those of other functional areas and outside firms, and </li></ul></ul><ul><ul><li>Make purchase decisions </li></ul></ul><ul><li>By understanding firms as customers, the market manager can better craft responsive market strategies </li></ul><ul><li>Three purchasing orientations used in business markets: </li></ul><ul><ul><li>Buying orientation </li></ul></ul><ul><ul><li>Procurement orientation </li></ul></ul><ul><ul><li>Value-based supply management orientation </li></ul></ul>Business Market Management, 3 rd edition Chapter 3-
  59. 59. Business Market Management, 3 rd edition Chapter 3- All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. Copyright © 2009 Pearson Education, Inc.   Publishing as Prentice Hall

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