Chapter 8 Slide 1. Chapter 8 Slide 2 The purpose for mentioning Bombardier : The success of this company is because it has a good understanding of the.
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Chapter 8 Slide 1
Chapter 8 Slide 2
The purpose for mentioning Bombardier :The success of this company is because it has a good understanding of the buyer behaviour of the business market
Chapter 8 Slide 3
• The Industrial Buying Process
• 3 types of industrial markets- producers and manufacturers- trade industries (wholesalers and retailers)- governments
• industrial market demand characteristics
• industrial product categories
• government markets
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Chapter 8 Slide 4
“Individuals and organizations that acquire goods and services to be used, directly or indirectly, in the production of other goods and services or to be resold.” TEXT
Industrial Market
“People who buy stuff to make other things.”
W.T.G.R.
Page 161
Chapter 8 Slide 5
- producers and manufacturers- trade industries (wholesalers and retailers)- governments
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Chapter 8 Slide 6
• producers and manufacturers
Those who transform goods and services, through production, into other goods and services
• manufacturing firms (eg. Auto parts, computers)
• farms
• mining and forest industries
• construction and building companies
• service companies (trucking, air, rail)
• public utilities, banks, insurance companies Page 161
Chapter 8 Slide 7
• Trade Industries (gong ye maoyi)
• Organizations such as wholesalers and retailers that buy things for resale to customers
• examples - lumber dealers, fabric wholesalers, building materials
• metal and electrical products
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Chapter 8 Slide 8
• Governments (zheng fu)
• Federal Ministries and Crown Corporations, Provincial Ministeries and Crown Corporations, Municipal governments and agencies
• examples: Dept. of Defense buying trucks from GM, Dept. of Revenue buying computers, Royal Canadian Mint buying paper and
• Provincial agencies buy services such as snow clearance, cellular phone service …... Page 162
Chapter 8 Slide 9
• The Increase in value of input material when transformed into semi-finished or finished goods.
• input material = parts, raw resources, components etc.
• transformed = process, or manufactured, or shaped, or altered etc.
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Chapter 8 Slide 10
• Example• asbestos company makes asbestos material• another company buys it, shapes it, and makes
asbestos brake pads• another company buys the pads - puts them together
with the other brake parts to form a component• the auto assemble company buys the whole
component and puts it on the car as it is going down the assembly line
Chapter 8 Slide 11
• Example
• sport shoes, with special NIKE logo - makes the shoes more expensive
• t-shirt with special design or drawing
• animal fur - made into a fur coat
• ice cream - ice cream w strawberries on top
• watch - watch with diamonds and jewels added
• wood - wood made into furniture
• blank canvas - “Picasso”
Chapter 8 Slide 12
Industrial Market - Features
• Geographiceg. Auto parts companies tend to locate near auto assembly plants
• Small number of buyers34,000 mfg companies in Canada30 million population as consumers- however mfg. Companies make bigger purchases than an individual consumer
Page 162-163
Chapter 8 Slide 13
A series of industrial classifications developed by the federal government for use in collecting detailed statistics for each industry.
Standard Industrial Classifications (SIC) Codes
SIC out of date - it will be replaced by the NAICS
Chapter 8 Slide 14
NAICSNorth American Industry
Classification System
• It is a new system that replaces the SIC• The purpose is to promote uniformity in
collecting statistics about the economy and companies activities
• Will be used in U.S.A., Canada and Mexico
see http://www.webplaces.com/naics/back.htm
Chapter 8 Slide 15
1. Derived Demand
2. Joint Demand
3. Inventory Adjustments
4. Demand Variability
Chapter 8 Slide 16
1. Derived Demandmeans the demand is derived (or caused by, or linked to) demand for a consumer item- demand for lithium is “derived” from the demand for lithium batteries, which is in turn “derived” from the demand for cell phones
- demand for wood pulp is derived from the demand for paper, which is derived from the increase in people printing on paper page 165
Chapter 8 Slide 17
2. Joint Demandmeans the demand is related to the demand for other industrial thingseg. The demand for printer cartridges is linked to the demand for printer paper
for services, the demand for Netscape 4.05 - is linked to the demand for an ISP account page 165
Chapter 8 Slide 18
3. Inventory Adjustmentsmeans the demand is related to how much the buyer needs to have in stockIf the buyer needs a larger inventory, then demand will be higherIf the buyer is trying to cut back on inventory (eg. Using computer controlled materials handling) then they will need less inventory and just buy in time (called JIT) Just In Time
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Chapter 8 Slide 19
4. Demand Variabilitythe “impact” of derived demand on the demand for interrelated products used in producing consumer goods
page 166
Chapter 8 Slide 20
Accelerator Principle
The disproportionate impact that changes in consumer demand have on industrial market demand
eg. Small changes in consumer demand can have big changes in the requirement for industrial parts, components and materials to make those products page 166
not equal
Chapter 8 Slide 21
1. Capital Items- things that last a long time, and become less and less in value over time
2. Expense Items
- things that are used within a short period of time
- some types of raw materials, office supplies, materials in production
Categories of Industrial Products
Chapter 8 Slide 22
1. Capital Itemsex - car
- office building
- machinery and equipment2. Expense Items
ex - gas for the car
- washing the windows for the building
- parts for the machinery
Categories of Industrial Products
Chapter 8 Slide 23
•Depreciation
• The accounting concept for charging a portion of the cost of a capital item as a deduction against the company’s revenue- eg. 486 DX2 Office computer bought in 1995 - deduct $750 in 1995- deduct $750 in 1996etc. page 166
Categories of Industrial Products
Chapter 8 Slide 24
• Many people involved in the decision making process
• Takes a lot of time to “network” and explain aspects of the product
• Need to get the approval of many peope to get a final decision
• Committees may be involved and this takes time• Many organizations try to use different sources
and therefore do not always buy from the same supplier all the time
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Chapter 8 Slide 25
The Complexity of Industrial Purchases• negotiations can take a long time• Many people involved in the decision making
process have different points of view• Many companies selling industrial parts and
components spend a lot of time in developing relationships with key people who are buyers
• Many companies buying industrial parts and components have a person who specifically deals with buying - the “purchasing manager”
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Chapter 8 Slide 26
The Purchase of a Capital Item• negotiations can take months to full explain all the
- features- advantages- benefitsof the product
• sometimes the seller has to convince the buyer they can create a special customized product for their special industrial needs
• eg. New type of utility pole
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Chapter 8 Slide 27
• Straight Rebuy• recurring (buying all the time) the same thing
• Modified Rebuy• regular buying, but with some re-evaluation to think
about things each time
• New Task / First-time Buying• this takes a lot of effort on the part of the buyers to
consider many aspects
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Chapter 8 Slide 28
1. Users
2. Gatekeepers
3. Influencers
4. Deciders
5. Buyers
Buying Centre Roles
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Chapter 8 Slide 29A Model of the Industrial Buying Process
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Chapter 8 Slide 30A Model of the Industrial Buying Process
Need Recognition
- simply the understanding that you need something
- can be caused by an emergency, or just the execution of your plans to do something
Chapter 8 Slide 31A Model of the Industrial Buying Process
Information Search
- make a list of who are the best potential suppliers
- purpose is to know, in detail, what you need, and what you should buy
- have to develop a list of technical specificationseg. Waterproof, or withstand heat of 200 degrees
Chapter 8 Slide 32A Model of the Industrial Buying Process
Delineation of Suppliers
- collect information on potential suppliers
Chapter 8 Slide 33A Model of the Industrial Buying Process
Sales Demonstration/Proposal
- potential suppliers are then invited to make a presentation, or come for a meeting to provide a proposal
- includes technical and economic considerations
Chapter 8 Slide 34A Model of the Industrial Buying Process
Advertisements
- usually done in trade magazines and newsletters
Chapter 8 Slide 35A Model of the Industrial Buying Process
Technical articles + in the late 1990’s, extensive Internet searches
- the buying group examines this information to determine how it fits their requirements
Chapter 8 Slide 36A Model of the Industrial Buying Process
•Word of Mouth
•Personal and interpersonal influences
•Review of Internal Proposals
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Chapter 8 Slide 37
Reciprocity
• Buying from suppliers who are also customers
• eg. Computer manufacturer buys all computer paper from forest products company that uses their computers
• eg. Ford executives rent cars from Hertz - cause Hertz uses Ford cars !
Chapter 8 Slide 38
• Government buying of products and services is 52% of Canada’s GDP
• therefore selling to the government is important business
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Chapter 8 Slide 39
• Bids• price quotations from potential suppliers
• Specifications• Specific descriptions of the items• in many situations, this information is extremely
detailed
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Chapter 8 Slide 40
• Three Ways of Obtaining Bids• An Invitation to Tender (offer)• - for big things that cost a lot of money
• Requests for Quotations• - for small purchases less than $5,000
• Requests for Proposals• - for noncompetitive purchases more than $5,000
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