Organizational Factors

Every organization has specific purchasing objectives, policies, procedures, organizational structures, and systems. Business marketers need to be aware of the following organizational trends in purchasing:

^ Purchasing department upgrading. Spurred by competitive pressures, companies are staffing their purchasing departments with MBAs who aspire to be CEOs—like Thomas Stallkamp, DaimlerChrysler's recently retired president. In his earlier role as executive vice president of procurement and supply, Stallkamp was highly successful in cost-cutting and in streamlining manufacturing processes.14 These new, more strategically positioned "procurement departments" seek out the best value from fewer and better suppliers. At Caterpillar and other multinationals, purchasing departments have been elevated into "strategic supply departments" with responsibility for global sourcing and partnering. In response to this trend, business marketers must correspondingly upgrade their sales personnel to match the higher caliber of the business buyers.

^ Cross-functional roles. In a recent survey, most purchasing professionals described their job as more strategic, technical, team-oriented, and involving more responsibility than ever before. "Purchasing is doing more cross-functional work than it did in the past," says David Duprey, a buyer for Anaren Microwave Inc., which makes microwave-signal processing devices for communication and defense. Sixty-one percent of buyers surveyed said the buying group was more involved in new-product design and development than it was 5 years ago. More than half of the buyers now participate in cross-functional teams, with suppliers well represented.15

^ Centralized purchasing. In multidivisional companies, most purchasing is carried out by separate divisions because of their differing needs. Some companies, however, have recentralized their purchasing, identifying materials purchased by several divisions and buying them centrally to gain more purchasing clout. Individual divisions can buy from other sources if they can get a better deal, but centralized purchasing usually produces substantial savings. For the business marketer, this means dealing with fewer and higher-level buyers, and using a national account sales group to deal with large corporate buyers.

^ Decentralized purchasing of small-ticket items. More companies are decentralizing selected purchasing operations by empowering employees to purchase small-ticket items such as special binders and coffee makers. This has come about through the availability of corporate purchasing cards issued by credit-card firms. Companies distribute the cards to supervisors, clerks, and secretaries; the cards incorporate codes that set credit limits and restrict usage. National Semiconductor's purchasing chief says these cards have cut processing costs from $30 an order to a few cents. "Now buyers and suppliers can spend less time on paperwork, so purchasing departments have more time for building partnerships."16

^ Internet purchasing. By 2003, business-to-business buying on the Internet is projected to reach $1 trillion per year (compared with a projected $108 billion for consumer buying).17 The move to Internet purchasing has dramatic and far-reaching implications. Companies are not only posting their own Web pages to sell to business buyers, they are establishing Intranets for internal communication and extranets to link with regular suppliers and distributors. So far, most businesses are using extranets to buy MRO supplies. However, a growing number, such as General Electric, are preparing to buy nearly all supplies on-line to shave transaction and personnel costs, reduce time between order and delivery, and consolidate purchasing. In fact, GE Information Services is a leader in helping GE internal business units and outside companies use the Internet to buy from and sell to other businesses; its Trading Process Network lets companies buy raw materials, components, and just about anything else with a few clicks of the mouse. Internet purchasing can help forge closer relations between partners and buyers, and it levels the playing field between large and small suppliers. At the same time, it can potentially erode supplier-buyer loyalty and open the door to possible security disasters.18

^ Long-term contracts. Business buyers are increasingly initiating or accepting long-term contracts with reliable suppliers. For example, General Motors wants to buy from fewer suppliers who are willing to locate close to its plants and produce high-quality components. In addition, business marketers are setting up electronic data interchange (EDI) systems so their customers such as hospitals and bookstores can enter and transmit purchase orders electronically.

^ Purchasing-performance evaluation and buyers' professional development. Many companies have set up incentive systems to reward purchasing managers for good buying performance, in much the same way that sales personnel receive bonuses for good selling performance. These systems are leading purchasing managers to increase their pressure on sellers for the best terms.

^ Lean production. Many manufacturers have moved toward lean production, which enables them to produce a more high-quality product at lower cost, in less time, using less labor. Lean production incorporates just-in-time (JIT) production, stricter quality control, frequent and reliable supply delivery, suppliers locating closer to customers, computerized purchasing, stable production schedules made available to suppliers, and single sourcing with early supplier involvement. JIT II, the next level of customer-supplier partnerships, focuses on reducing the costs and time involved in day-to-day purchasing transactions by locating one or more supplier employees at the customer's site, in the role of buyer-materials planners. Massachusetts's Bose Corporation pioneered this arrangement with G&F Industries, its first in-plant supplier. Says Christ Labonte, a G&F manager, "It's a fresh, nontraditional agreement based on trust. After people get comfortable in their partnering, they start turning up rocks they wouldn't have turned up and revealing causes that were sacred cows."19

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