The Purchasing/Procurement Process

In principle, business buyers seek the highest benefit package (economic, technical, service, and social) in rela­tionship to a market offering’s costs. The strength of their incentive to purchase will be a function of the differ­ence between perceived benefits and perceived costs.²⁷

Business marketers must therefore ensure that customers fully appreciate how the firm’s offerings are different and better. Framing occurs when customers are given a perspective or point of view that allows the seller to “put its best foot forward.” It can be as simple as making sure customers recognize all the benefits or cost savings afforded by the firm’s offerings or becoming more influential in the customers’ thinking about the economics of purchasing, owning, using, and disposing of product offerings.

In the past, purchasing departments occupied a low position in the management hierarchy, in spite of of­ten managing more than half the company’s costs. Recent competitive pressures have led many companies to upgrade their purchasing departments and elevate administrators to vice presidential rank. These new, more strategically oriented purchasing departments have a mission to seek the best value from fewer and better suppliers.

Some multinationals have even elevated purchashing departments to “strategic supply departments” with re­sponsibility for global sourcing and partnering. At Caterpillar, purchasing, inventory control, production schedul­ing, and traffic have been combined into one department. Here are two other companies that have benefited from improving their business buying practices.

• Rio Tinto is a world leader in finding, mining, and processing the earth’s mineral resources, with a significant presence in North America and Australia. Coordinating with its suppliers was time-consuming, so Rio Tinto embarked on an electronic commerce strategy with one key supplier. Both parties have reaped significant benefits. In many cases, orders are being filled in the suppliers’ warehouse within minutes of being transmit­ted, and the supplier can now use a pay-on-receipt program that has shortened Rio Tinto’s payment cycle to about 10 days.
• Medline Industries, the largest privately owned manufacturer and distributor of health care products in the United States, used software to integrate its view of customer activity across online and direct sales channels. The results? The firm enhanced its product margin by 3 percent, improved customer retention by 10 percent, reduced revenue lost to pricing errors by 10 percent, and enhanced the productivity of its sales representatives by 20 percent.²⁹

The upgrading of purchasing means business marketers must upgrade their sales staff to match the higher caliber of today’s business buyers.

Supplier diversity may not have a price tag, but it is a benefit purchasing departments and business buyers overlook at their own risk. Minority suppliers are the fastest-growing segment of today’s business landscape, and CEOs of many of the largest companies see a diverse supplier base as a business imperative. In 2011, McDonald’s U.S. restaurant system purchased nearly $6.7 billion in goods and services from minority- and women-owned suppliers, about two-thirds of what the system spends for food, packaging, uniforms, operating supplies, and premiums.

Source: Kotler Philip T., Keller Kevin Lane (2015), Marketing Management, Pearson; 15th Edition.