Industrial buying

behavior:
decision making in
purchasing
 Program

 Organizational buying behavior: basic

characteristics
 The purchasing process
 Major bottlenecks and problems
 The role of the purchasing department in
the purchasing process
Industrial vs. consumer markets
Aspect Industrial market Consumer market
Buying objective Enable production Personal need satisfaction
Buying motive Mainly rational Also emotional
Purchasing function Professional buying Consumers
Decision m aking Many persons involved, Often im pulsive, without
m uch discussion consulting others
Characteristics Negotiations, intense Often without negotiation, little
interaction interaction
Product & market Large Lim ited
knowledge
Order size Often large Mostly small
Demand Derived, fluctuation Autonomous, relatively stable

Price elasticity Rather inelastic Rather elastic

Num ber of customers Mostly lim ited Very large

Spread of custom ers Som etim es large Large spread

geographic concentration
 Industrial markets: basic
characteristics
 Professional purchasing: professional buyers with education and
experience who know their tasks and responsibilities
 Derived demand: developments in industrial markets are often related to
changes in the end-user markets upstream in the value chain
 Inelastic, fluctuating demand: due to the derived demand, price-elasticity
in industrial markets is frequently lower than in consumer markets
 Geographical concentration: many industrial markets are geographically
concentrated (e.g. Silicon Valley)
 Large order quantities and large amounts of money involved
 Limited number of customers: industrial suppliers often supply only a few
companies compared to companies that deliver directly to consumers
 The purchasing process
Define Select Contract Evaluation
Ordering Expediting
specification supplier agreement Follow up
- Vendor
Proc. Role - Get - Assure adequate - Prepare - Establish - Establish performance
specification supplier selection contract Order routine expediting evaluation
routine - Settling contract
problems
Elements - Functional - Prequalification - Contracting - Develop - Expediting
specification of suppliers expertise Order routines - Vendor rating
- 'Trouble-
- Technical - Request for - Negotiating - Order handling - Vendor
shooting' evaluation
changes quotation expertise
- Bring supplier
engineering
knowledge to

Documents - Functional Supplier selection - Vendor

specification proposal Contract Order Overdue list balanced score
- Norm/spec. card
control - Vendor profile
- Vendor ranking
Three types of purchasing situations:

New task situation

• Completely new product from unknown suppliers
• High uncertainty regarding outcome
• (e.g. acquisition of capital goods)

Modified Rebuy
• New product from known supplier
• Existing product, new supplier
• Moderate uncertainty regarding outcome

Straight rebuy
• Known product from known supplier
• Low uncertainty regarding outcome
• (e.g. consumable items like MRO)
 High risk
New task
Examples of purchasing situations

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Straight rebuy Modified rebuy

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Low risk
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Major bottlenecks and problems
 Supplier or brand specifications: most buyers are involved only to a minor extent in
the specification phase, so the specifications of the user are often designed ‘towards’ a
particular supplier

 Inadequate supplier selection: Insufficient screening of suppliers on financial

strengths and technical capabilities leading to discontinuities of supply in delivery stage

 Insufficient contracting expertise: leading to misunderstandings on how supplier

should perform and difficulties in solving delivery and quality problems

 Too much emphasis on price: Decisions need to be based upon total-cost-of-

ownership (TCO) rather than price only

 Administrative organisation: lack of clear procedures with regard to procurement or

authorisation of orders, leads to lack of control on purchasing expenditure and costs
The Buying Center
 Initiators- Users or others in the organization who
request that something be purchased.
 Users- Those who will use the product or service
 Influencers- people who influence the buying decision
 Deciders – people who decide on product requirements
or on suppliers
 Approvers- people who authorize the proposed actions
 Buyers- people who have formal authority to select the
supplier and arrange the purchase terms
 Gate keepers- people who have power to prevent sellers
or information from reaching members of the buying
center.
The role of the purchasing department

 Type
Type of
of purchasing
purchasing item
item 
 Purchased by

 Key
Key raw
raw materials
materials 
 Management
Management

 Computers
Computers and
and software
software 
 Accounting,
Accounting, IT
IT department
department

 Lease
Lease contracts
contracts 
 Accounting
Accounting

 Insurances
Insurances 
 Management,
Management, Accounting
Accounting

 Accounting
Accounting services
services 
 Management
Management

 Advertising
Advertising 
 Sales,
Sales, Marketing
Marketing

 Catering
Catering 
 Facilities
Facilities manager,
manager, Catering
Catering

 Travel
Travel 
 Administration
Administration

 Licences
Licences 
 R&D
R&D department
department

 Books
Books and
and magazines
magazines 
 Library
Library

 Sales
Sales promotion
promotion items
items 
 Sales,
Sales, Marketing
Marketing

 Temporary
Temporary labour
labour and
and training
training 
 Personnel
Personnel department,
department, HRM
HRM

 Cleaning
Cleaning materials
materials 
 Facilities
Facilities manager
manager

 MRO
MRO 
 Technical
Technical maintenance
maintenance