General Need Description and Product Specification

Next, the buyer determines the needed item’s general characteristics and required quantity. For standard items, this is simple. For complex items, the buyer will work with others to define characteristics such as reliability, durability, or price. Business marketers can help by describing how their products meet or even exceed the buyer’s needs.

The buying organization now develops the item’s technical specifications. Often, the company will assign a product-value-analysis engineering team to the project. Product value analysis (PVA) is an approach to cost reduction that studies whether components can be redesigned, standardized, or made by cheaper methods of production without adversely affecting product performance. The PVA team will identify overdesigned components, for instance, that last longer than the product itself. Suppliers can use PVA as a tool for positioning themselves to win an account.

Supplier Search

The buyer next tries to identify the most appropriate suppliers through trade directories, contacts with other companies, trade advertisements, trade shows, and the Internet. Companies that purchase online are utilizing electronic marketplaces in several forms (see Table 5.3). Web sites are organized around two types of e-hubs: vertical hubs centered on industries (plastics, steel, chemicals, paper) and functional hubs (logistics, media buying, advertising, energy management).

Moving into e-procurement means more than acquiring software; it requires changing purchasing strategy and structure. However, the benefits are many. Aggregating purchasing across multiple departments yields larger, centrally negotiated volume discounts, a smaller purchasing staff, and less buying of substandard goods from outside the approved list of suppliers.

The supplier’s task is to ensure it is considered when customers are—or could be—in the market and searching for a supplier. Marketing must work with sales to define what makes a “sales ready” prospect and send the right messages via sales calls, trade shows, online activities, PR, events, direct mail, and referrals. After evaluating each company, the buyer will end up with a short list of qualified suppliers.

TABLE 5.3 Electronic Marketplaces for Business Buying

• Catalog sites. Companies can order thousands of items through electronic catalogs, such as W. W. Grainger’s, distributed by e-procurement software.

• Vertical markets. Companies buying industrial products such as plastics or services such as media can go to specialized Web sites called e-hubs, including

• “Pure Play” auction sites. Online auctions can serve business buyers and sellers worldwide. Ritchie Bros. operates the multilingual site, enabling businesses in many nations to buy or sell.

• Spot (or exchange) markets. On spot electronic markets, prices change by the minute. IntercontinentalExchange (ICE) is an electronic energy marketplace and soft commodity exchange, for example.

• Private exchanges. Hewlett-Packard, IBM, and Walmart operate private online exchanges to link with specially invited groups of suppliers and partners.

• barter markets. In barter markets, participants offer to trade goods or services.

• buying alliances. Several companies buying the same goods can join together to form purchasing consortia and gain deeper discounts on volume purchases. TopSource is an alliance of firms in food-related businesses.

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