NMIT-SUPPLY-CHAIN-MANAGEMENT-Lesson6

Introduction to Supply Chain management(Lesson 6)

Edited By JQuek

Define the nature and size of organizational markets

Describe the demand characteristics of organizational buying

Recollect and remember vendor choices comparison

List & explain the types of buying behavior of organizations

Evaluate the types of buyer-supplier relationships List, describe and compare the different types of

relationships

Objectives for today’s lesson

THE NATURE AND SIZE OF ORGANIZATIONAL MARKETS

• Business Marketing

• Industrial Markets (Producers)

• Reseller Markets (Resellers)

• Government Markets (Fed, St, City)• Not for Profit Associations

Key is intended

use

Business Marketing

Business marketing- The marketing of goods and services to individuals and organizations for purposes other than personal consumption.

Business marketing- The marketing of goods and services to individuals and organizations for purposes other than personal consumption.

DEMAND CHARACTERISTICS OF ORGANIZATIONAL BUYING

Demand is...Demand is... DescriptionDescription

DerivedDerived Demand for business products results from demand for consumer products

Demand for business products results from demand for consumer products

InelasticInelastic A change in price will not significantly affect the demand for product

A change in price will not significantly affect the demand for product

JointJoint Multiple items are used together in final product. Demand for one item affects all

Multiple items are used together in final product. Demand for one item affects all

FluctuatingFluctuating Demand for business products is more volatile than for consumer products

Demand for business products is more volatile than for consumer products

Characteristics of Organizational Buying Behavior

CharacteristicCharacteristic

DemandDemand

VolumeVolume

# of Customers# of Customers

LocationLocation

DistributionDistribution

Nature of BuyNature of Buy

Buy InfluenceBuy Influence

NegotiationsNegotiations

ReciprocityReciprocity

LeasingLeasing

PromotionPromotion

Business MarketBusiness Market

OrganizationalOrganizational

Larger Larger

FewerFewer

ConcentratedConcentrated

More DirectMore Direct

More ProfessionalMore Professional

MultipleMultiple

More ComplexMore Complex

YesYes

GreaterGreater

Personal SellingPersonal Selling

Consumer MarketConsumer Market

IndividualIndividual

SmallerSmaller

ManyMany

DispersedDispersed

More IndirectMore Indirect

More PersonalMore Personal

SingleSingle

SimplerSimpler

NoNo

LesserLesser

AdvertisingAdvertising

Business vs Consumer Markets

HOW BUSINESSES CHOOSE A VENDOR

BUYER-SELLER RELATIONSHIPS IN ORGANIZATIONAL BUYING

Reciprocity (Kesalingan) - Ford and Firestone

Supply Partnership – Walmart and P & G

Supply Partnership

A supply partnership exists when a buyer and its supplier adopt mutually beneficial objectives, policies, and procedures for the purpose of lowering the cost or increasing the value of products and services delivered to the ultimate consumer.

A supply partnership exists when a buyer and its supplier adopt mutually beneficial objectives, policies, and procedures for the purpose of lowering the cost or increasing the value of products and services delivered to the ultimate consumer.

Buying Center

A buying center is the group of people in an organization who participate in the buying process and share common goals, risks, and knowledge important to a purchase decision.

A buying center is the group of people in an organization who participate in the buying process and share common goals, risks, and knowledge important to a purchase decision.

BUYING CENTERS

Buying Situations and the Buying Center

1) Straight Rebuy2) Modified Rebuy3) New Buy

BUSINESS BUYING SITUATIONS

How the buying situation affects buying center behavior

E-marketplaces are online trading communities that bring together buyers and supplier organizations to make possible the real time exchange of information, money, products, and services.

E-marketplaces are online trading communities that bring together buyers and supplier organizations to make possible the real time exchange of information, money, products, and services.

E-Marketplaces

ONLINE BUYING IN ORGANIZATIONAL MARKETS

• 80% of e-trade dollar value is B2B

WHY?

1. Buyers need timely, detailed information2. Buyers need to get that info quickly3. E-trade reduces processing costs4. E-trade reduces marketing costs5. Wider potential customer or supplier base

ONLINE BUYING IN ORGANIZATIONAL MARKETS

• Online Auctions (lelongan) in Organizational Markets

Traditional Auction – Looking for buyers Reverse Auction – Looking for sellers

A traditional auction is an online auction in which a seller puts an item up for sale and would-be buyers are invited to bid in competition with each other.

A traditional auction is an online auction in which a seller puts an item up for sale and would-be buyers are invited to bid in competition with each other.

Traditional Auction

A reverse auction is an online auction in which a buyer communicates a need for a product or service and would-be suppliers are invited to bid in competition with each other.

A reverse auction is an online auction in which a buyer communicates a need for a product or service and would-be suppliers are invited to bid in competition with each other.

Reverse Auction

How buyer and seller participants and price behavior differ by type of online

auction

Buyer-Supplier Relationships

◦Transactional Relationships This type of business relationship exists mostly in a low-priced, low-profit margin business. In this case, sales people sell and do not go back to the customer and does not care whether the buyer is happy after the purchase. The sales person does not have a strong relationship with the buyer. Therefore the buyer have no trust and confidence in sales person / people. Sales people to achieve their objective put pressure on the buyer to make purchase. This kind of sales can be described as hard selling.

Types of Buyer-Supplier relationships

◦Collaborative Relationships A collaborative relationship is one of mutual benefit to both parties. There is a varying level of trust, but some is required. Companies will work together for increased savings and future innovations. Often with this type of relationship buyers have early supplier involvement.

◦Supply Alliances An alliance is formed for a systematic approach to enhance communication between the two firms. Unlike collaborative relationships, an alliance is built to have a trust where both firms can be on the same level and help each other out when there is a time of need or uncertainty. If there is no motive to have trust or manage it then the alliance will most likely fail, and that is something that just cannot happen

Is one supplier head and shoulders above the rest in terms of the value it provides; including price, innovation, ability to adapt to changing situations, capacity to work with your team, task joint risks, etc?

Are some suppliers “strategic” to your business? Would your company benefit greatly if the supplier

were more “integrally connected” with your company?

Do your customers require high degrees of flexibility and speed of responsiveness?

Strategic Elements of a Relationship

Supplier’s want good customers

Several issues affect their assessment, among them are:◦Cash Flow◦Openness and Approachability ◦Availability◦Professionalism

The Supplier’s Perspective

Is there a danger that the supplier may act in an opportunistic manner over time?

Do electronic systems allow for optimum communication and sharing of information?

Is the potential strategic alliance able to stay current in the industry?

Are both the organizations willing to keep attention focused on the joint customer?

Are there other suppliers worth investigating before committing to a strategic alliance?

Has the supply manager been thoroughly trained?

Questions to be addressed Before Proceeding

Is the organization proud to be aligned and associated with the supplier?

Is the organization comfortable with the level of risk associated with reducing the supply base?

Are both supplier and buyer aligned in what their ultimate customer considers to be valuable?

If there is substantial risk for the supplier to develop new technologies, products, processes, or service support?

Are both supplier and buyer aligned in their respective visions?

Are there sufficient operational points of interaction?

Power is a topic that makes people uncomfortable Power is at the heart of all business relationships Power plays a key role in two important

subclasses of buyer-supplier relationships:

◦Captive Buyer: buyer is held hostage by a supplier free to switch to another customer

◦Captive Supplier: makes investments in order to secure a portion of the buyer's business, with no assurance of sufficient business to recoup the investment

The Role of Power

Developing and managing collaborative and alliance relationships require supply professionals that possess the following skills and attitudes:◦Recognize the benefits of collaboration◦Ability to identify, obtain and use data◦Able to work in chaos and uncertainty◦Agile, flexible, and highly adaptive

New Skills and Attitudes Required

"How does B2B e-Commerce affect our selection of the 'right' type of relationship?“◦Selection must be a function of the

requirement, not of the Internet!◦B2B e - Commerce is an enabler

E-Commerce and the “Right” Type of Relationship

Trap #1: Guilding the pig◦ Take an archaic, cumbersome

procurement process and “webbize” it Trap #2: The Magic pill◦ Looking for the one solution that can be

used to solve every procurement situation Trap #3: Supplier equality◦Supplier relationships range from

transactional to alliances

E-Commerce Traps to Avoid

Developed over time Internal trust is developed before external trust Based on individual and institutional integrity It is greater than individual trust. Trust and relationship are viewed as investments Partners have access to other's strategic plans Relevant costs and forecasts are shared

Attributes of Institutional Trust

When key individuals leave, fingerprints are left behind that hold the relationships together

Trust is visible Informal agreements are as good as written Both parties are sensitive to the cultural bridge Relationship is adaptable in the face of change Both firms recognize the interdependency

Sharing information is a means of developing trust Conflict in the relationship is openly addressed Rights, desires, and opinions are considered Firms have mutual goals A bank account of trust is created Recognizes trust has different cultural meanings Both CEO's make a personal investment Senior managers from both firms commit Ethical issues are freely brought up without fear An ombudsman (wakil kerajaan) is assigned at both

firms

An inter-firm team is appointed Discussions conducted in an atmosphere of respect Inter-firm team receives guidance and training in the

implementation of practices Listening, understanding, time, energy are invested Senior leaders at both firms act as champions A communication system is developed Actions to develop and measure trust are created Risks and rewards are addressed openly Negotiation is used as a trust-building opportunity

Actions to Develop and Manage Trust

Both firms work together on technology plans Technical personnel from both firms visit the other Contractual relations are designed to enhance trust Contract relations focus on continuous improvement Team and relationship skills are developed early Company leaders create a formal relationship A contracting philosophy and a legal infrastructure are

designed to the relationship Institutional trust is measured and managed

The merchant supplies the total product. Perform self-manufacture with key raw material

suppliers. In-house plant is operated by a supplier.

The Alliance Options (pilihan pakatan)