Interpersonal dynamics of industrial buying behavior

Purchasing function

International material shortage Cost of material and energy Nationalistic moods Conflicting social goals Profit squeeze Higher government regulation

Purchasing planning

Purchasing is now an assets mgmt process Asset management team includes the procurement specialist, cost/price analyst and engineers

Material requirement planning

The firm estimates the future sale, schedules and orders parts and materials Aim is that inventory should not be too small or too large An input might be used multiple times in a production schedule thus ordering becomes complex.

Material management department: purchasing, transportation, inventory control, receiving and production control MRP today is computerized

Ideal materials requirement plan

Maruti Udyog

Standard products like nuts and bolts Manufactured goods like moulded dashboards, steering wheels, tyres and tubes Capital equipment like cranes etc

Lunch box making activity

Benefits of MRP

controlled inventory level lesser production cost timely deliveries efficiency in operations

Just in Time purchasing

Manufacturer maintain least inventory levels by relying on one supplier who could deliver frequent shipments (sometimes daily) Needs long term one supplier relationship Cost factors are less important and material specification are flexible

Example of JIT-GM

General Motors (GM) in the USA has (approximately) 1700 suppliers who ship to 31 assembly plants scattered throughout the continental USA. These shipments total about 30 million metric tons per day and GM spends about 1,000 million dollars a year in transport costs on these shipments. When GM moved to JIT there were simply too many (lightly loaded) trucks attempting to deliver to each assembly plant. GM's solution to this problem was to introduce consolidation centres at which full truckloads were consolidated from supplier deliveries. This obviously involved deciding how many consolidation centres to have, where they should be, their size (capacity) and which suppliers should ship to which consolidation centres (suppliers can also still ship direct to assembly plants). As of 1990 some 20% by weight of shipments go through consolidation centres and about 98% of suppliers ship at least one item through a consolidation centre. All this has been achieved without sacrificing the benefits of JIT.

Example of JIT Dell

Dells approach to JIT is different in that they leverage their suppliers to achieve the JIT goal. Dell is able to provide exceptionally short lead times to their customers, by forcing their suppliers to carry inventory instead of carrying it themselves They then demand short lead times on components so that products can be simply assembled by Dell quickly and then shipped to the customer. For the same Dell has Dependable suppliers with the ability to meet Dells demanding lead time requirements. A seamless system that allows Dell to transmit its component requirements so that they will arrive at Dell in time to fulfill its lead times. A willingness of suppliers to keep inventory on hand allowing Dell to be free of this responsibility.

Centralized purchase

Selective teams Extensive knowledge Cost factors and vendors are known Bulk purchase brings cost effectiveness Long term supply and supplier relationship Lack expertise and specialization of material which is done at local level

Joint decision making

Characteristic of the firm

Size of the firm (employees): As size increase, number of influencers increase as a large firm has specialized functional areas. Firms orientation (profits versus non profit): More influencers in non profit firms for safeguarding interests and accountability Maximum participation in new task buying

Buying centre interaction patters

Vertical involvement Lateral involvement Extensibility: Number of people involved Connectivity :communication about purchase

Purchase situation influence :Greater the complexity of the purchase, greater the vertical involvement, lateral involvement and extensibility. The more complex the written processes of the firm , more the lateral involvement and extensity and lesser connectivity

Psychological factors in individual decision making

Difference in role: purchase department looks at economy and engineers at quality Difference in information exposure Perceived risk in vendor selection

Risk management in purchases

Reduce uncertainty: visit plants and cross check Select the most reliable supplier Reduce the risk by multiple suppliers

Conflict resolution in Joint decision making

Competing (win loose): win ones own concern Lets do it my way Accommodating (loose-win): Satisfying other concerns I see your point of view Collaborating (win win) : fully satisfy both parties Maybe we can work this point out Avoiding: side stepping the issue I dont want to talk about it Compromising (loose loose) A agreement reached not satisfying either party Lest split the difference

Power in conflict resolution

Reward versus coercive power Legitimate power (position) Expert power

Buying committee (Decision making unit )

Used when purchasing is centralized Reseller market: Food seller form a committee Institution :have temporary buying committee Commercial market :engineers, procurement and account specialists

Evaluation of supplier performance

Categorical method: evaluation on subjective factors by committees Weighted point method: Weights to different factors and the composite performance index is developed

Factor Quality

Weight 40

Delivery

30

Actual performance 90% acceptable (90/100 =0.9) 90% on schedule

Performance score 0.9 * 40=36

0.9*30=27 Total composite score =63

Jagdish Sheth model