Developments in organizational purchasing practice

A number of trends have taken place within the purchasing function that have marketing impli­cations for supplier firms. The advent of just-in-time purchasing, electronic marketplaces, the increased tendency towards centralized purchasing, reverse marketing and leasing have all changed the nature of purchasing and altered the way in which suppliers compete.

The just-in-time (JIT) concept aims to minimize stocks by organizing a supply system that provides materials and components as they are required. The total effects of JIT can be enormous. Purchasing inventory and inspection costs can be reduced, product design can be improved, delivery streamlined, production downtime reduced, and the quality of the finished item enhanced. Very close co-operation is required between a manufacturer and its suppliers. An example of a company that employs a JIT system is the Nissan (www.nissan.com) car assembly plant in Sunderland in the UK. Nissan adopts what it terms 'synchronous supply': parts are delivered only minutes before they are needed. For example, carpets are delivered by Sommer Allibert, a French supplier, from its facility close to the Nissan assembly line in sequence for fitting to the correct model. Only 42 minutes elapse between the carpet being ordered and its being fitted to the car. This system also carries risks, however. For example, the Kobe earthquake in Japan shut down those car plant assembly lines in nearby regions of Japan that did not have parts in stock.

The growth in the use of the Internet has given rise to the development of electronic marketplaces. Two main categories of marketplaces, or exchanges, have emerged: vertical electronic marketplaces are industry specific, such as sites for the chemical industry (e.g. www.chemdex.com) or the automotive industry (e.g. www.covisint.com); horizontal electronic marketplaces cross industry boundaries and cater for supplies such as MROs. Companies seeking supplies post their offers on these websites. Potential vendors then bid for the contracts electronically. Some companies report significant improvement in efficiency from managing their purchasing this way (see e-Marketing 3.2), through reducing the amount of procurement staff involved in processing orders and increasing the potential global spread of vendors. This heightened competition presents challenges for suppliers.

Where several operating units within a company have common requirements and where there is an opportunity to strengthen a negotiating position by bulk buying, centralized purchasing is an attractive option. Centralization encourages purchasing specialists to concentrate their energies on a small group of products, thus enabling them to develop an extensive knowledge I of cost factors and the operation of suppliers. The move from local to centralized buying has important marketing implications. Localized buying tends to focus on short-term cost and profit considerations whereas centralized purchasing places more emphasis on long-term supply relationships. Outside influences - for example, engineers- play a greater role in supplier choice in local purchasing organizations since less specialized buyers often lack the expertise and status to question the recommendations of technical people. The type of purchasing organization can therefore give clues to suppliers regarding the important people in the decision-making unit and their respective power positions.

The traditional view of marketing is that supplier firms will actively seek out the requirements of customers and attempt to meet those needs better than the competition. However, purchasing is now taking on a more proactive, aggressive stance in acquiring the products and services needed to compete. This process, whereby the buyer attempts to persuade the supplier to provide exactly what the organization wants, is called reverse marketing. Zeneca, an international supplier of chemicals, uses reverse marketing very effectively to target suppliers with a customized list of requirements concerning delivery times, delivery success rates and how often sales visits should occur. The growth of reverse marketing presents two key benefits to suppliers who are willing to listen to the buyer's proposition and carefully consider its merits: first, it provides the opportunity to develop a stronger and longer-lasting relationship with the customer; second, it could be a source of new product opportunities that may be developed to a broader customer base later on.

A lease is a contract by which the owner of an asset (e.g. a car) grants the right to use the asset for a period of time to another party in exchange for the payment of rent. The benefits to the customer are that a leasing arrangement avoids the need to pay the cash purchase price of the product or service, is a hedge against fast product obsolescence, may have tax advantages, avoids the problem of equipment disposal and, with certain types of leasing contract, avoids some main­tenance costs. These benefits need to be weighed against the costs of leasing, which may be higher than outright buying.