INFLUENCE_OF_PURCHASE_ACTIVITIES_ON_ORGANIZATIONAL_BUYER_BEHAVIOR

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INFLUENCE OF PURCHASE ACTIVITIES ON ORGANIZATIONAL BUYER BEHAVIOR:

INFLUENCE OF PURCHASE ACTIVITIES ON ORGANIZATIONAL BUYER BEHAVIOR

Slide 2:

International marketing shortages, skyrocketing costs of materials and energy, fluctuating nationalistic moods, conflicting social goals, profit squeezes , and greater government regulation of business has brought about a recognition of the importance of purchasing function

Slide 3:

Purchasing is now viewed as “ Asset –management through asset – utilization and inventory control. “ Some of the techniques used in purchasing are :- MRP JIT Centralized Purchasing

MATERIAL REQUIREMENT PLANNING:

Under MRP( material requirements planning ), a firm estimates its future sales , schedules production accordingly ,and then orders parts and materials to coordinate with production schedules so that inventories will not become too large or too small MATERIAL REQUIREMENT PLANNING

Slide 5:

Multiple deliveries may be necessary to minimize inventory costs and existing inventories continuously monitored to accommodate for inaccuracies in sales forecasts and subsequent production

Slide 6:

To utilize MRP, a growing number of firms are combining the functions of purchasing , transportation, inventory control, receiving and , in some instance , production control under one functional area referred to as materials management

Slide 7:

The effectiveness of MRP depends on the buyer notifying the supplier of material needs in advance of production schedules Since irregular deliveries and defective parts furnished by suppliers can require numerous adjustments in a producer’s MRP scheduling , suppliers who sell to organizations using MRP must work closely with customer firms to ensure that MRP systems are effective

Slide 8:

The resultant benefits of MRP to both supplier and customer are Controlled inventory levels Better management of production costs Timely deliveries and Overall increase in efficiency and effectiveness of operations

JUST – IN – TIME PURCHASING:

JIT is an inventory control system which enables a manufacturer to maintain minimum inventory levels by relying on only one supplier to deliver frequent shipments just in time for assembly into final products JUST – IN – TIME PURCHASING

Slide 10:

Objective of JIT is to develop long- term , one – supplier relationships to reduce the risk of interrupted material flows An advantage of such a relationship is the resultant improved quality of items supplied.

Slide 11:

The use of JIT necessitates that supplier deliver the ordered product at the precise time in the precise quality It also requires the integration of the buyer- seller’s materials management, engineering , purchasing, production and marketing systems to promote the efficient flow of parts and materials

Slide 12:

JIT creates an atmosphere in which both buyer and seller contribute toward optimal cost / benefit trade- offs , with cost and performance each receiving full consideration

CENTRALIZED PURCHASING:

There is a growing tendency toward centralization of purchasing There are important differences in buying behavior between centralized and decentralized purchasing functions CENTRALIZED PURCHASING

Slide 14:

In centralized purchase, the buyers concentrate their attention on selected items, developing extensive knowledge of supply and demand conditions. They are more familiar with cost factors that affect the supplying industry and understand well how vendors within the industry operate

Slide 15:

This specialized knowledge, when combined with the volume buying that centralized purchasing controls, increases firm’s buying strength and its supplier options Centralized purchasers also tend to place different priorities on selected buying criteria

Slide 16:

In comparison to local units where the emphasis is more on short – term cost efficiency and profit consideration, centralized units place more emphasis on long – term supply availability and supplier relationships

MARKETING IMPLICATIONS:

MRP, JIT and Centralized Purchasing have a definite impact on industrial marketing programs A close buyer – seller relationship needs to be developed through MRP and JIT It would also necessitate that supplier constantly monitor product quality and delivery capability MARKETING IMPLICATIONS

SUPPLIER CHOICE AND EVALUATION:

SUPPLIER CHOICE AND EVALUATION

Slide 19:

The buying organization’s objective in carefully evaluating and qualifying potential vendors is to locate those suppliers that Have the capacity to produce the needed item in the required quality and quantity Are capable of fulfilling delivery and service needs Are price competitive and Can be relied upon as a continuous source of supply

CRITERIA FOR SUPPLIER EVALUATION:

Supplier evaluation generally involves four basic considerations Quality Service Delivery and Price CRITERIA FOR SUPPLIER EVALUATION

EVALUATION METHODS:

CATEGORICAL METHOD WEIGHTED – POINT METHOD COST- RATIO METHOD EVALUATION METHODS

CATEGORICAL METHOD :

Supplier evaluation is based on the experience and opinions of the user departments It is subjective in nature and non quantitative in nature Can suffer from perceptual biases CATEGORICAL METHOD

WEIGHTED – POINT METHOD :

Weights are assigned to the different evaluation criteria Assigning weights to each factor enables the buyer to develop a composite performance index that can be quantitatively used to compare suppliers WEIGHTED – POINT METHOD

WEIGHTED – POINT METHOD OF SUPPLIER EVALUATION:

FACTOR WEIGHT ACTUAL PERFORMANCE PERFORMANCE SCORE QUALITY 40 90 % ACCEPTABLE 40 x .9=36 DELIVERY 30 90 % ON SCHEDULE 30x .9=27 COST- REDUCING SUGGESTIONS 20 % OF TOTAL RECEIVED = 60 20x.6 = 12 PRICE 10 125 % OF LOWEST PRICE 100/125 = 0.8 10x.8=8 TOTAL COMPOSITE PERFORMANCE SCORE 83 WEIGHTED – POINT METHOD OF SUPPLIER EVALUATION

Slide 25:

The advantage of weighted – point method of supplier evaluation to the buyer is that a number of evaluative criteria can be proportioned to correspond with the values of the firm It also forces the buyer to define the key attributes of a supplier and objectively evaluate them, thus minimizing much of the subjective evaluation that occurs under the categorical method

COST- RATIO METHOD :

The cost- ratio method is based on the use of cost analysis in evaluating suppliers Under this method, all identifiable purchasing costs are related to the value of products received The choice of costs depends on the products involved Commonly used categories are quality, delivery, service and price COST- RATIO METHOD

Slide 27:

High ratio of costs to products correspond to low rating of supplier Low ratio means the supplier’s rating is high

Slide 28:

From the buyer’s perspective, cost associated with quality include such factors like Visits to the vendor’s plant Evaluation of samples Inspection of incoming shipments Costs associated with defective products ( e.g. unusual inspection procedures, rejected parts, and manufacturing time lost due to defective parts )

MARKETING IMPLICATIONS:

Industrial marketers must be aware of the criteria that buyers employ in evaluating their offerings Evaluation criteria of buying organizations would however vary, depending on their objectives , requirements, and structures By developing a rating system based on customer criteria , a similar system can be used by the selling firm to :- MARKETING IMPLICATIONS

Slide 30:

Promote and enhance the value of the company’s product and services Provide special control over items that customers consider critical to their operations Improve efficiency of internal planning and control Supply “ hard facts “ in support of contract negotiations