Bussiness to Business Marketing and Supply Chain Management - Case Study Example

Business to Business Marketing and Supply Chain Management Contents Contents 2 Introduction 3 Discussion 3 Variables influencing Buying Decision of Organizational Buyers 4 External Variables 4 Internal Factors 6 Situational Factors 8 Integration of B2B Marketing and Supply Chain Management 9 Value Chain Analysis of Toyota Motor Corporation 11 Conclusion 16 Reference List 17 Introduction Business to Business (B2B) marketing is a contemporary notion in marketing management and practices that commences transaction between different entities of business such as between manufacturer and wholesalers or retailers and wholesalers. Business to business marketing activities is conducted between more than one companies, rather than among individual buyers, sellers and institutions (Fill and McKee, 2002). Naturally, the collective transactions volume in B2B is much higher as compared to the transactions between business to consumers (B2C). Therefore, supply chain holds immense importance in various steps of the marketing practices of B2B, starting from sourcing of raw materials to supplying the finished products to another business conglomerate (Brennan, Canning and McDowell, 2011). Automobile companies are the best examples of business to business marketing. In such companies, transactions take place among various business entities for buying tires, rubbers, glass, battery and other materials (Zimmerman and Blythe, 2013). In some cases, the automobile companies are tied up with other business corporations for manufacturing and supplying a particular car segment. In this paper, the business to business marketing activities of eminent automobile company Toyota Motor Corporation will be analysed. Toyota is a multinational automobile manufacturing company with headquarters in Toyota, Japan. As per the estimates of November, 2014 it is the 12th largest company in the world in terms of revenue and one of the biggest manufacturer of automobiles with a record of manufacturing more than 10 million cars each year. In the recent years, it has been noticed that a large number of forces influence the shape and size of organizational purchase of product and services from suppliers (Bonoma and Zaltman, 2011). Such variables get affected by turbulent economic and social environment which in turn tends to alter buying behaviour of the companies involved. The paper will present relevant theories from Toyota’s perspective to understand such modifications in the buying pattern of B2B companies (Bonoma and Zaltman, 2011). Discussion Business markets are characterised by existence of comparatively fewer customers. Hence, small number of transactions account for large volume of transaction amount (Adler, 2002). Hence, business market encompasses longer decision cycles and more rigid demand for products. Considering the purchasing pattern of Toyota, the company is associated with more than 300 Japanese suppliers for supplying materials, parts and assembles in home country and 1000 to 2500 western suppliers to supply materials to the global manufacturing. A number of macro- economic variables exist in the business environment that leads to influence the purchasing decision of the institutional buyers such as Toyota (Hadjikhania and LaPlacab, 2012). Variables influencing Buying Decision of Organizational Buyers External Variables Economic Factors Geographical positioning and business environment highly influences purchasing pattern of institutional buyers. For example, if the business environment is highly competitive, the bargaining power of the suppliers increases. Hence, the organization has to come up with the best quotation to the suppliers in order to achieve superior quality of raw materials. Likewise, if the geographical location of the institution is such that the required resource is difficult to avail, buyers’ purchasing decision is also influenced by suppliers’ consideration. Toyota is responsible for purchasing of huge amounts parts, equipments and components from several suppliers, competing from different geographical locations (Pfeffer and Salancik, 2003). However, no organization is accountable for more than 5% of total supplies except Denso Corporation. Denso Corporation is the associate supplier of Toyota who is liable for more than 10% of the organization’s supplies (Jani, 2012). Naturally, the company provides Toyota the supplies at a competitive rate due to bulk purchase. Except Denso Corporation, other suppliers are required to quote a competitive price to mould Toyota’s buying pattern towards their organization. Political Factors and Regulatory Changes Changes in corporate regulations also influence the time and nature of organizational buying. The regulatory changes may also affect the business decision of organizations which in turn influences the changes need to be brought. Such changes are required to be introduced in order to align the buying pattern with the newly appointed organizations. Similarly, an alteration in government policies directly impacts the economic condition and such impact ultimately results in a shift in the organizational buying patterns as well (Saylor, 2013). In case of Toyota, changes in purchasing power, level of competition in the business environment as well as changes in the market demand and consumer preference in various economies such as Japan, Europe, Asia and North America leads to change the purchasing pattern of the company. More specifically, volatility in foreign exchange market that leads to devalue Japanese Yen in relation to British pound, euro, Australian dollars and many more highly influences Toyota to bring changes in their purchasing pattern (Saylor, 2013). Social Environment Social environment and certain attributes related to society alter the purchasing decision of organizations. Shortage of fuel and electricity hampers the production process of Toyota. As a result, the company tends to delay the plan of purchasing raw materials. Unavailability of skilled labour and unexpected labour strikes also postpones Toyota’s plan for purchase material (Toyota Motor Corporation, 2015a). Figure 1: Internal, External and Situational Factors Influencing Organizational Buying Behaviour (Saylor, 2013) Internal Factors Organizational Structure and Reputational Factors Organizational considerations such as the background and market impression of both the organizations involved in buying and selling process, purchasing policies of the buyer and criticality of the resource can influence the buying process of an organization. For instance, superior market reputation of Toyota makes the company attractive to many supplier organizations to involve in transactions. Toyota chooses the best possible alternatives to ensure quality and cost effective supply of materials. However, when it comes to critical material such as Ventilator Bundle or Central Line Bundle, the company’s buying pattern shift only towards the most trusted and authenticated supplier organizations such as Virginia Mason Centre (Toyota Motor Corporation, 2015). Technological Factors Before deciding upon the organizational purchases, the buyers take into account the level of technology used in the present production process and whether any changes need to be brought in the technology use. Accordingly the purchase decision is made. In some cases, purchase decisions are altered to replace the existing technology with a recent version. The organization also needs to ensure that all purchasing decisions are technologically compatible with the on-going production and distribution system. Considering the technological influences of Toyota, the company’s strive to innovate personal and commercial vehicles that will ensure more confident driving. Such effort from the company leads them to bring frequent technological advancement in manufacturing process. For example, introducing multimedia system Entune™ in 2002 required the organization to include materials needed in the purchase list for manufacturing of the newly innovated system (Toyota Motor Corporation, 2015a). On the other hand, transmission of engine as a result of technological advancement leads Toyota to introduce Powertrain. Powertrain enabled all Toyota cars to use Double Overhead Cam (DOCH) cylinder head design that includes four valves per cylinder. Replication of old engine system with the new one enhances power and level of efficiency of Toyota cars and such improvement altered the purchasing decision of the organization as the technology involves different composition of materials as compared to the old system (Institute for Healthcare Improvement, 2015). Manpower Skills Depending on the skill set of manpower and to what extent it is aligned to the company’s manufacturing process, the purchasing pattern of organization is determined. Level of equipment and machineries used in the process also influences the level of organizational buying. Considering the manpower skills, Toyota includes highly skilled human resources in their production process and such employees are continuously provided with relevant trainings so that they can ensure optimal exploitation of the existing technologies and machineries. Toyota also provides training related to Just-in-time, SMED (Single Minute Exchange of Dies) and other quality control methods so that the production process can be superior. Incidents are also there in Toyota when assemblers and suppliers work jointly to dilute the cost consideration and lessen the cost burden on the company itself. Hence, such high standards of technology used by the manpower and their efficiency to cope up with rapid technological changes lead to influence the buying pattern of the organization. Situational Factors Time Factor If any emergency situation arises in the manufacturing unit such as system breakdown or need for immediate replacement of certain equipments, the organization tends to change the purchasing schedule and tends to order urgently needed equipment from the supplier who is at close proximity to the company. Denso Corporation being the most reliable supplier of Toyota, the company mostly depends on Denso Corporation to avail the equipment on emergency basis (Liker and Ogden, 2011). Current Financial Situation Present financial situation of the company as well as the economy may lead to influence buying behaviour of organizations. Due to exchange rate volatility and differences in currency values, price of raw materials unexpectedly increases. In such scenario, the organization must reconsider their plan of purchasing in order to comply their purchase with the organization’s budget (Lussier, 2008). The organization may also suffer from liquidity or credit crunch for which they need to cut down their plan of purchasing. Depending on the market reputation and relationship with suppliers, organizations may ask for extended credits so that their manufacturing process remains uninterrupted. Being the market leader in automotive industry, a large number of Tire I and Tire II suppliers extend their hand to support Toyota if any such requirement arises from the company’s end. In general, Toyota obtains a collaborative relationship with its suppliers. The company works together with the suppliers to attain a cost effect approach for both the company’s’ perspective. However, as a global player, Toyota cannot neglect or eliminate the global financial occurrences that lead to increase the materials prices (Funaru, 2004). Therefore, all such factors also influence the purchasing pattern of Toyota. Availability Buying decisions are also influenced by availability of certain raw materials. On occasions, organizations experience that it has not been possible for the supplier to make the product available as per the requirement and within the expected timeframe. Hence, the buyer shifts to new suppliers. Criticality or unavailability leads the buyers to seek for an alternative material to continue the manufacturing process. It has also been noticed that when the price of certain raw materials continuously increases, organizations tend to support the suppliers against the rising cost of materials such as copper, steel and aluminium with negligible alternatives. According to the reports from Automotive News (2012), Toyota aided their support to compensate 92 suppliers against rising cost of materials through adopting price indexation method for compensation (Automotive News, 2012). In this way, 55% of the existing automotive material suppliers of North America were benefitted. When the cost of raw material again declined due to the aftermath of financial crisis, Toyota pulled out such assistance. However, such decisions taken by the company made them reconsider the quantity to be purchased and the source of supplies as well (Toyota Motor Corporation, 2015). Integration of B2B Marketing and Supply Chain Management Supply chain is a systematic procedure of how organizations channelize information and material from suppliers to organization, transform raw materials into finished products and finally, transfer the finished products from the manufacturer to the customers, both individual and institutional (Gunawardhana, Suzuki and Enkawa, 2013). Supply chain management accentuates smooth coordination of the traditional business functions of an individual company for strengthening its relations with all suppliers and stakeholders in order to improve long term performance of that company. According to the reports from Deloitte (2014), Toyota has evolved as a global automobile giant over a certain period of time based on its well established and finely tuned SCM system. Toyota’s effort to eliminate slack from the company’s supply chain and incorporate just-in-time in material procurement system has helped the company to ensure sustainability of business, even after the severe earthquake (Storey and Emberson, 2006). Such superior supply chain management is based on the ground of well-established relationships of Toyota with the organizations involved in material supplies (Habib, 2011). Figure 2: Supply Chain Management of Automotive Companies in B2B Marketing (Ding, 2014) Theoretically, B2B marketing activities are associated with supply chain management in five distinct ways. In a business-to-business marketing, the managers are constantly looking for opportunities in external business environment, without evaluating the nature and scope of that particular business as well as alignment of the opportunity with current business scenario and production process of the organization (Ellis, 2010). Therefore, once the business opportunity is identified, it becomes the supply chain management groups’ responsibility to evaluate whether it is a good fit with the internal condition of the organization and assess the viability of the conditions to carry out business. It is also the responsibility of the supply chain management to evaluate the cost and time effectiveness of availing material and services from a particular organization or to supply the finished product to another business house (Shah, 2009). While B2B marketing takes into account more of the consumers’ perspective and tries to establish sound customer acceptance through incorporating techniques such as segmentation, targeting, positioning, market research and many more, supply chain management strives to add value to the organizations’ business process through deliberately eliminating or at least minimizing risks (Lejmi, 2002). Hence, integration of B2B marketing activities and Supply Chain Management is important in order to ensure an overall effectiveness of the business. As supply chain management is associated with evaluation of business opportunities in terms of cost and time efficiency, market reputation of the organizations to be engaged in business and many other parameters, SCM holds an important role to influence buying decision of the organization. In Toyota Motor Corporation, integration between B2B marketing activities and supply chain management is most prominent. B2B marketing activity of Toyota can be exemplified by showing the business relation between Toyota and Lotus for manufacturing sports cars (Larson and Kulchitsky, 2014). Supply chain management in Toyota takes into account the businesses among various entities such as vendors of materials, dealers and end users. Such integration and how the process influences the purchasing pattern of the company can be better understood incorporating Value Chain Process introduced by Michael Porter. Value Chain Analysis of Toyota Motor Corporation Value Chain is an analytical tool of strategic management that indicates how a manufacturing organization transforms its materials and inputs into final output through effective utilization of the organization’s primary and secondary systems and sub-systems (Hutt and Speh, 2009). Primary Activities The primary activities of Toyota are as follows: Inbound Logistics Inbound logistics coordinate the inbound movement of parts and materials, finished inventories from suppliers to manufacturers to retail stores. The inbound logistics of Toyota includes receiving of raw materials and other materials and parts required for automobile manufacturing process. Toyota does not process the parts of automobiles on their own; they rely on third party suppliers for acquisition of different accessories and materials such as steering wheel, rear-view mirror, leather seats etc to local service providers (Schmid and Grosche, 2014). However, Toyota facilitates such suppliers with machines and equipments of latest technologies so that they don’t tolerate any compromise in the quality standards of Toyota Product. Toyota forecasts demand and accordingly schedule their material receipt and assembly plans in order to minimize inventory cost and eliminate wastages. In this way, Toyota establishes long term relationship with the suppliers of materials, equipment and parts of automobiles and makes their manufacturing as well as total business process cost and time effective (Mahadevan, 2009). Operations Operational activities of a company indicate the company’s efficiency in converting all the material, human capital and energy into standard output. For transforming inputs such as different parts into final output through assembly and processing, Toyota uses a number of efficient and effective systems which are known as Toyota Production System (Monden, 2011). Figure 4: Operational Activities of Toyota Motor Corporation ( Monden, 2011) The concept of Toyota production system is based on Lean Manufacturing concept that leads to eliminate wastage from the system (Agus and Hajinoor, 2012). The concept of just-in-time is also incorporated so that the right material is acquired on the particular time and in exact amount while needed, so that the company can enjoy cost efficiency by eliminating inventory and carrying cost. Jidoka which means “automation with a human touch” is also incorporated into the operational process of Toyota to identify the defects in operations and eliminate the line of operations so that no defective element gets mixed with other manufactured units (Sprague, 2005). In this way, Toyota maintains the standards of operations, adds value to the company and accordingly enhances their bargaining power in the market as an institutional buyer (Müller, 2011). Figure 5: Value Chain Analysis of Toyota Motor Corporation (Müller, 2011) Outbound Logistics Outbound logistics include collection and storage of finished products from manufacturers to wholesalers or retailers and consequently to the end user. Outbound logistics is strengthened by the company with well established dealers’ network. The dealership network of Toyota involves five channels such as Toyota, Vista, Corolla etc. Dealership supply chain channels are owned by the company itself so that efficiency can be incorporated in the whole process of outbound logistics (Schmid and Grosche, 2014). The dealership sales force of Toyota being highly educated, the correctly identifies the customer specifications and communicate to the company so that the company can design the automobile architecture according to such specifications. All the dealers of Toyota concentrate on different segment from the product rage so that no customer segment of Toyota goes unnoticed (Rhodes, Warren and Carter, 2009). Marketing and Sales Toyota exhibits their marketing and sales activities to an indirect distribution channel, Toyota Corporate under the roof of Toyota House. The distribution channel highlights the use of Lean production system and other efficient operational practices which incorporates a message of immaculacy that influences the buyers to invariably purchase the products of Toyota (Sarin, 2014). Services Toyota aims to provide superior after sale services in order to ensure customer satisfaction and in this regard, the company tops the chart in the automotive industry. Toyota always excels in terms of quality of services, level of difficulty experienced, service delivery and frequency of occurrences of problems. Reliability of services makes Toyota most prospective entity in automobiles industry among corporate and other business entities (Saxena, 2005). Supporting Activities Firm Infrastructure Efficiency of various departments of a firm including legal, finance and accounting, quality compliance, strategic management and public relations as a whole indicates the level of efficiency of a firm. Toyota incorporates the most contemporary and sophisticated infrastructure which is another value added advantage of the company to institute it as a powerful organizational buyer (Schmid and Grosche, 2014). Human Resource Management Though the manufacturing process of Toyota includes Robotic System, only human resource of the company is responsible for successful operations of the system. Therefore, Toyota employs the most skill enriched manpower to incur a faultless production and operations system. Worldwide, the company incorporates more than 3, 00,000 employees and train them with the latest technologies and systems so that they can infuse operational efficiencies in the process. Technological Consideration Toyota is one of the largest manufacturing units of automobiles that exercise continuous research and development activities in order to infuse the latest and most innovative technologies in their final products. Adoption of technologies such as pre-crash safety measures, adaptive driving bean, pop-up bonnet etc. makes the manufacturing style of Toyota unique and technology driven (Toyota Motor Corporation, 2015a). Procurement Procurement indicates a firm’s ability of accumulating all materials, parts and other required elements from external sources. Toyota is involved in procurement of materials, parts and equipment from a wide range of suppliers from all over the world. In this regard, emphasis has been given to procure the materials according to their manufacturing standards, at an optimum price and in timely manner. Toyota also believes in establishing long term relationships with the suppliers with an aim of securing mutual benefits. All such efforts enhance the company’s position as an organizational buyer and suppliers from different parts of the world strives to engage in business with this largest automobile company in the world (Funaru, 2004). Conclusion Buying behavior of organizations involved in business-to-business marketing activities is often complex and rigid in nature as compared to consumer buying system. As the process involves purchasing activities in a bulk manner, in much higher volume than an individual buying process, the internal, external and situational factors largely affects the pattern and procedure of organizational buying. In fact, the reason behind organizational buying to experience a fluctuating and derived demand may be attributed as economic, political, technological as well as situational changes in the global marketplace. The purchasing pattern of organizations is smoothed by integrating supply chain management with business-to-business marketing and it also leads to create value addition for a company involved in B2B marketing and its stakeholders. 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