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Question1. Explain the steps in Business Buying process.
Answer: Some of the characteristics of organizational buyers are:
1. Consumer market is a huge market in millions of consumers where
organizational buyers are limited in number for most of the products.
2. The purchases are in large quantities.
3. Close relationships and service are required.
4. Demand is derived from the production and sales of buyers.
5. Demand fluctuations are high as purchases from business buyers magnify
fluctuation in demand for their products.
6. The organizational buyers are trained professionals in purchasing.
7. Several persons in organization influence purchase.
8. Lot of buying occurs in direct dealing with manufacturers
Steps in business buying process:
1. Recognizing an Organizational Need
2. Determining Products Specifications
3. Identifying Suppliers
4. Searching for Information and Evaluating Suppliers
5. Negotiating a Purchase Order
6. Evaluating P performances of the Product and Supplier
Step 1: Recognizing an organizational need
Organizational purchasing starts with the identification of demand for products and
services. While there are different kinds of needs, most needs arise out of situations
related to the operation of the business. Need recognition is not always as
complicated or involved as it is in new task and modified re-buy decisions. It
becomes a routine, particularly in a straight re-buy situation. A large construction
company may negotiate a contract with a steel beam supplier to replenish
inventory on demand. Purchase orders are automatically written and sent to the
supplier when the inventory reaches a pre-specified mark. Such routine buying
situations offer the best opportunities to use computer based database management
Step 2: Determining product specifications
Subsequent to identification of the responsibility centre, the purchase manager also
specifies exact product and service descriptions for procurement. It is also
necessary to estimate the exact quantity required and the period in which these
quantities need to be delivered. An estimate of other associate services required for
the purchase of specified goods and services is also necessary.
Step 3: Identifying suppliers
If there are many suppliers on the list, a screening procedure that bases its
decisions on certain predefined criteria is needed. The information gathered
enables the organizational buyer to quickly look for suppliers who can meet
minimum requirements. These requirements might be Delivery time, capacity to
meet the buyer’s quantity needs, and breadth of the product line. Failure to meet a
minimum requirement usually means that a supplier will not be included in the list
of acceptable suppliers, no matter how well that supplier stacks up on other
criteria. Because of a good past service to the company, a purchasing agent may,
for example, put a supplier on the list though he/she does not meet the minimum
requirements. At this stage, the buying centers search for different suppliers and try
to find out their qualification or eligibility by collecting information on their
performance and capability from various sources. It then notifies or requests for
proposals from possible suppliers and sends these proposals for evaluation to the
standing committee on purchase.
Step 4: Information search and supplier evaluation
A buying centre may have to evaluate several product types for a particular use
before suppliers can be selected. If products are complicated, technically trained
people sort through the alternatives to recommend those that meet previously
developed product specifications.For instance, many companies deal with the
rapidly changing technology of computer products (both hardware and software)
by creating task forces that keep themselves abreast of current product
developments. A task force recommends product types that are suitable for
Step 5: Negotiation of purchase orders
An organizational buyer may negotiate a contractual agreement with a supplier. An
agreement of this kind can cover a single purchase of a product or repurchase of
the product over a period of time. Contracts are commonly used in straight re-buy
situations. The buying centre of a large supermarket chain enters into contracts for
purchases of frequently sold products like soap, toothpaste, and peanut butter for a
year or more. Buying centers negotiate terms of payment, credit, and delivery
during this stage to arrive at a specified order routine, which the supplier
is required to honors under the negotiated agreement. Normally a term of contract
is signed between both the parties.
Step 6: Evaluation of supplier performance
Organizational buyers usually want to know how well suppliers comply with the
purchase agreement. Thus, an important part of organizational purchasing is
evaluation of suppliers after purchase. This task is typically assigned to the
purchasing department. The criteria used for supplier selection become the
performance standards for this evaluation.
Information is collected on the performance of the product or service in use. A
questionnaire may be sent to users of the product to obtain their input. Other
technical measures of performance may also be devised. A manufacturer who
purchases aerosol packaging, for instance, may select a sample of the packaging
and test it for pressure and evenness of application. The buying centre develops a
provision for feedback and evaluation on a continuous basis. It also develops
systems and procedures to have a regular communication with the suppliers.
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