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Chapter Questions
Who are the business customers? How are industrial products classified? What are the marketing implications for different types of customers and products? What are the business customers purchasing orientations and practices? What are the different types of environment? How to manage external environment?
Materials and parts: these goods enter the final product directly.
Raw materials Basic products like iron ore, crude oil, fish, fruits, vegetables. Manufactured materials Acids, fuel oil, steel, chemicals Component parts These are semi-finished parts like bearings, TV tubes, gauges, small motors, batteries, tyres Subassemblies These are semi-finished goods like exhaust pipe in motorcycle.
Selling of Capital items, consisting of heavy machinery and construction of factories and office buildings, is often done by personal selling with extensive interactions, involving top executives in both buying and selling organizations.
Supplies and services often sold to business customers directly.
Procurement orientation the purchasing firm has a strategic focus and is proactive. The influence is more with integration with other activities and the buyers seek both quality improvements and cost reductions. The company adopts the following practices:
Collaborative Relationship with Major Suppliers: The customer and supplier have inter-firm teams who implement just-intime delivery scheduling and quality assurance to attain zero defects level. They use integrative negotiation that includes focusing on common interests and goals, minimizing differences, exchanging information, and seeking solutions to meet the goals and interests.
Supply chain management orientation It includes coordination & integration of purchasing function with other functions within the company & also with other organizations in the value chain. It primarily focuses on how to improve the value chain from the raw materials to end users. This orientation has 3 purchasing philosophies:
Deliver value to End users Outsource Non-core Activities: The top management identifies the core competencies of the company, thereby, grouping its products & services into strategic & non-strategic systems & subsystems. The firms would then outsource those systems or subsystems that have become non-competitive, are nonstrategic, involve mature technologies & have many qualified suppliers.
Purchasing through Competitive Bidding / Tenders 1. Closed / sealed tenders 2. Open / limited tenders: This method is usually adopted when the govt. organizations require non-standard or complex technical products and services. 3. Reverse Bidding: The buyers set the highest possible bidding price, beyond which the offers will not be accepted. Each supplier is encouraged to offer its price below the set price indicated by the buyer. The lowest price bidder get the order, without compromising on quality of product and service.
Other Government contracts: There are generally two types of contracts under the category.
i. Fixed-price contracts a firm price is agreed without any variation in the price, when negotiation is concluded between govt. customer & the supplier firm. Disadvantage is if the costs of raw material & other production inputs goes up substantially during the contract period, it may result in loss to the supplier. Cost-reimbursement contract the supplier firms are reimbursed for allowable costs that are incurred in performing the contract.
ii.