Understanding purchasing orientation is important for B2B companies and suppliers. The more complex the product/service exchange will result in higher degree of power balance and dependency in supplier relationships.
The importance of purchasing andsuppliers • Purchasing is of major strategic importance to most companies. • Purchases from suppliers account for more than half of the total costs of most companies. • Specialisation reduces a company’s costs of technological development and leads to economies of scale.
The Interaction Model - Purchasing Environment Market structure Dynamism Internationalisation Channel position Social system Atmosphere Power/dependence Co-operation Closeness Expectations Organization Organization Technology Long term relationships Technology Structure Institutionalisation, Adaptations Structure Strategy Strategy Interaction Process Individual Individual Aims Aims Experience Short term exchange episodes Experience Skills Products/services Skills Information Financial Social Source: Adapted with permission from Håkansson (1982, p24) 3
Understanding Purchasing Orientation • Purchasing – is the process of acquiring resources and capabilities for the company from outside providers. • Purchasing orientation – we mean the overall philosophy that guide managers who make purchase-related-decisions and delineates their span and influence.
Nature of Purchasing Relationships • High-Involvement relationships with suppliers are costly, but assist in the development of more complex product / service offerings at higher prices. • Low-Involvement relationships with suppliers compete to offer lowest price for a standard product offering.
Understanding Purchasing Orientation • Purchasing Orientations: – Buying – Procurement – Supply Management “The value network”
Figure 3.1 Purchasing Orientations and the ValueNetwork Source: Adapted from a chart by Professor Sunil Chopra J.L Kellogg Graduate School of Management, Northwestern University.
Understanding Purchasing Orientation Buying Orientation involves the following: – Obtain the best deal in terms of price, quality, and availability. – Maximise power over suppliers: and – Avoid risk where possible.
The B2B Matrix What businesses buy Operating inputs Manufacturing inputsHow businesses buy MRO Hubs Catalog Hubs Ariba Chemdex W.W Grainger SciQuest.com Systematic sourcing MRO.com PlasticsNet.com BizBuyer.com Yield Mangers Exchanges Spot sourcing Employease E-steel Adauction PaperExchange.com CapacityWeb .com Altra Energy IMX Exchange Source: HBR – E Hubs May 2000
Understanding Purchasing Orientation The Procurement Orientation involves: – Improving quality – Reducing total costs – Cooperating with suppliers
Understanding Purchasing Orientation The Supply Management Orientation: 1. Focus all of the firm’s efforts on delivering value to end users. 2. Concentrate the firm’s own resources on a set of core competencies and strategically outsource all other activities.
Understanding Purchasing Orientation The Supply Management Orientation: 3. Build a supply network that efficiently completes required business process, and 4. Sustain highly collaborative relationships with selected supplier and sub supplier firms. 4. Pursue Segment specific supply and management strategies.
Understanding Purchasing Orientation Putting Knowledge of Purchasing Orientation to Use: – Knowing orientation is useful. – Helps in suppliers selection strategy – Helps you understand how your own strategies and activities hinder the completion of processes.
Summary • Purchasing orientation is of strategic importance to most B2B companies. • Purchasing is global in scope • How customers handle strategic issues in purchasing has a profound implications for business marketing strategy. • Understanding purchasing orientation helps companies understand the degree relationship development required for product / service solutions.
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