Processes And Stages Associated with Organizational Buying and Purchasing - Coursework Example

Processes And Stages Associated With Organizational Buying And Purchasing With the ever increasing competition in the industrial world, managers have realized that everything must have value for money. The buyers and vendors are both on a lookout for better bargains and quality service. Internet has also made the task of buying easier as well as tricky for both the buyers and the suppliers. With the option of online buying, managers can now purchase an item which will give them best value for their money. The objective of all industrial concerns is to make profit by reducing their costs and increasing revenues. Organizational buying is a decision-making process where the managers identify a need for a product or service and then they evaluate the options available to them to make a buying decision. The buying decision may be based on competitive bids, time required for a purchase agreement, ability to meet delivery schedules, quality specifications, warranties and claim policies etc. STAGES ASSOCIATED WITH BUYING DECISION The organizational buying decision usually revolves around certain risks and uncertainties therefore it is divided into several stages or processes. This process begins with recognizing a problem or a need. Once a need has been identified, managers will discuss with those directly involved whether the problem could be solved internally or if there is a requirement to make a purchase order from an outside source. If the solution lies in buying then the managers will now look for options available in the market and best vendors will be considered. The production department might draft the product specifications and submit it to the purchasing or the procurement department. The procurement department will now begin supplier search based on the specifications provided by the engineers. The vendors’ premises might be visited to evaluate their production capacities, quality control and in some cases financial status as well. Quotations and proposals will be invited from all the suppliers on the list. Suppliers not meeting the purchase requirement will be struck out from consideration. And then only those will be contacted or short-listed, which have got something to offer. The best among them will be chosen and a buying decision will be made. The buyers and suppliers then negotiate their terms related to delivery and payment, thereby finalizing the agreement. Sometimes a post-purchase performance feedback and evaluation is required, this allows the managers a convenience to decide early on which suppliers are to be considered for future purchase decisions and which are to be dropped from the list if they fail to supply product or services as negotiated in the agreement. ORGANIZATIONAL BUYING SITUATION An organization may be required to make a buying decision generally because of three situations. One situation is where the organization places an order for a completely new product or a service, this is called new task buy and it involves extensive information and supplier search. Since it is the first time buy, it carries greater risk therefore all stakeholders are usually involved in the buying process. Second situation is Straight re-buy, where the organization places an order for an existing product from the same supplier. It is usually the most convenient one, as both the buyer and supplier know what is expected. Under this condition the information requirement is very minimal and there is either no obligation to evaluate alternative options or the constraint is not as rigid as under any other condition. Third situation is Modified re-buy. In such a situation as the name suggests, some sort of modification is required. It could be that the specifications are to be modified, the supplier needs to be changed or the terms of the contract must be reviewed. Information requirement is higher than that required in straight-buy and there might be a desire to evaluate alternative options available. PARTICIPANTS OF THE BUYING DECISION On a large scale there are usually seven types of people involved in the buying process these are, Users, Initiators, Influencers, Buyers, Deciders, Gate Keepers and Approvers. There are different models which depict the organizational buying process; one such model is Matbuy model which encourages marketers to focus their efforts on ‘who’ is making ‘what’ decisions based on ‘which’ criteria. Users are the individuals who are actually going to use the product or service. Initiators as the name suggests, initiate the purchase order. The Influencers deal with the design or product specifications. For e.g. there can be different products for different situations but what’s going to work in a particular situation, the influencers are going to decide. Buyers are the ones who actually do the buying transactions i.e. to say they have the formal authority and responsibility to select the supplier and negotiate the terms of the contract. However, the decision to short list still lies with the Deciders. The deciders give the formal approval for product specifications and suppliers’ lists. Then come the Gate Keepers who maintain the flow of information among the various members of the buying process. Lastly, it is the Approvers who are the final authority to approve the buying decision or the purchase. If an issue comes up at the end of any of these participants the buying decision might be re-considered. Therefore, a mutual consent of all parties involved is crucial to the procurement function of an organization. FACTORS INFLUENCING BUYING DECISION Beside the supplier preferences there are different factors which influence an organization’s buying decision; these include environmental factors, organizational factor, interpersonal factors or individual factors. Environmental factors include concerns such as change of technology, supply shortages, decline in product demand etc. If any of the changes occur it is going to affect an organization’s buying decision. A decline of demand for e.g. may result in modification of product, therefore a modified re-buy maybe be required. Organizational factors mean any internal changes within the organization for example centralization or de-centralization of functions, change of management, alteration in the vision or the objectives of the organization, establishment of a new department or merger of a department into another may influence the buying decision. Interpersonal factors can be empathy, authority, status and persuasiveness of those involved in the buying decision. Last come the Individual factors which are usually the trickiest ones. Buying decision will be greatly influenced by the buying participants’ ability to take risks, their own attitude towards a certain supplier, their willingness to make a buying decision, their understanding of the product specifications or requirement of the production department. Organizational buying behavior is an intricate part of an organization’s profitability therefore understanding of various stages involved or the factors influencing buying behavior is quite essential to an organization’s success. Work cited Demand Issues. Industrial Marketing. Web. 25 April. 2010. Organizational Buying Behavior. Oxford University Press. Web. 25 April. 2010. Organizational Markets and Buyer Behavior. Web 23 April. 2010. < http://www-rohan.sdsu.edu/~renglish/370/notes/chapt06/index.htm> Rao Narayana. Organizational Buying Process and Buying Behavior. Knol. Web. 23 April. 2010. Read More