Functions of Buying for Different Types of Organizations

The function of buying and merchandising varies from organization to organization. The role of the buyer and merchandiser would vary. Similarly, the levels within the hierarchy would also vary. Many a time, the job of a buyer is likened to that of product manager in a consumer company. Just as in a consumer goods company a product manager develops the annual marketing plan for a particular consumer product with an eye toward achieving the business objective, the buyer performs the same function for the merchandise line that he or she is responsible for. Targets need to be achieved in term of sales and profit goals. Strategies need to be developed keeping in mind the specific customer profile to the merchandise. The buyer needs to monitor and maintain gross margin plans by controlling markups, markdowns, shortages, turnover and stock levels.

Larger retailers provide mores sophisticated merchandise information systems that allow quick and efficient responses to changes in the market. They also have established planning processes for seasonal planning, forecasting and assortment planning.

Organisation buying is the decision-making process by which formal organizations establish the need for purchased products and services and identify, evaluate and choose among alternative brands and suppliers. Organisations buy in furtherance of organizational objectives, such as to manufacture and deliver goods and services to members, customers or the community.

Organizational buying is heavily influenced by derived demand, that is, demand for an end product or for a product or service sold by the buyer’s customers. The demand for components by a manufacturer will be dependent on demand coming from their customers, the retailers and wholesalers, who in turn are reacting to demand from their customers, the consumers.

Organizational Buying Decision Process:

Organizational buying behavior refers to the process of how companies or organizations buy goods and services. Organizational Buying is not an easy activity as most people think of it.

Following are the stages in the Organizational Buying process:

Problem Recognition:

The first stage of the business buying process in which someone in the company recognizes a problem or need that can be met by acquiring a good or a service.

General Need Description:

At this stage of business buying Process Company describes the general characteristics and quantity of a needed item.

Product Specification:

At this stage of the business buying process buying organization decide on the product and specifies the best technical product characteristics for a needed item.

Value Analysis:

An approach to cost reduction, in which components are studied carefully to determine if they can be redesigned, standardized or made by less costly methods of production.

Supplier Search:

At this stage of the business buying process buyer tries to find the best vendors.

Proposal Solicitation:

The stage of the business buying process in which the buyer invites qualified suppliers to submit proposals.

Supplier Selection:

The stage of the business buying process in which the buyer reviews proposal and selects a supplier or suppliers.

Order-Routine Specification:

The stage of the business buying process in which the buyer writes the final order with the chosen suppliers, listing the technical specifications, quantity needed, expected time of delivery, return policies and warranties.

Performance Review:

The stage of the business buying process in which the buyer rates its satisfaction with suppliers, deciding whether to continue, modifies or drops them.

Key Members of Buying Centre:

Initiators

Usually the need for a product/item and in turn a supplier arises from the users. But there can be occasions when the top management, maintenance or the engineering department or any such recognize or feel the need. These people who “initiate” or start the buying process are called initiators.

Users

Under this category come users of various products. If they are technically sound like the R&D, engineering who can also communicate well. They play a vital role in the buying process. They also act as initiators.

Buyers

They are people who have formal authority to select the supplier and arrange the purchase terms. They play a very important role in selecting vendors and negotiating and sometimes help to shape the product specifications.

The major roles or responsibilities of buyers are obtaining proposals or quotes, evaluating them and selecting the supplier, negotiating the terms and conditions, issuing of purchase orders, follow up and keeping track of deliveries. Many of these processes are automated now with the use of computers to save time and money.

Influencers

Technical personnel, experts and consultants and qualified engineers play the role of influencers by drawing specifications of products. They are, simply put, people in the organisation who influence the buying decision.

It can also be the top management when the cost involved is high and benefits long term. Influencers provide information for strategically evaluating alternatives.

Deciders

Among the members, the marketing person must be aware of the deciders in the organisation and try to reach them and maintain contacts with them. The organisational formal structure might be deceptive and the decision might not even be taken in the purchasing department.

Generally, for routine purchases, the purchase executive may be the decider. But for high value and technically complex products, senior executives are the deciders. People who decide on product requirements/specifications and the suppliers are deciders.

Approvers

People who authorize the proposed actions of deciders or buyers are approvers. They could also be personnel from top management or finance department or the users.

Gate Keeper

A gatekeeper is like a filter of information. He is the one the marketer has to pass through before he reaches the decision makers. Understanding the role of the gatekeeper is critical in the development of industrial marketing strategies and the salesperson’s approach. They allow only that information favourable to their opinion to flow to the decision makers.

Organizational Nature

Large retail firms generally have formal buying department whose job is to buy the merchandise and making it available to sales floor for selling purpose. This department has full control over buying activities and has separate staff to perform merchandise buying operations, while on the other hand, in case of informal buying organization, merchandise buying is not handled by separate staff but the floor staff along with their usual selling operations, perform buying operations too.

It means same floor staff handles merchandise buying and merchandise selling related tasks. The formal organization generally occurs in large retail firms. No doubt, formal buying is an expensive state of affairs but it has several merits too:

Merits and demerits of ‘formal’ buying organization:

Merits:

• Role clarity
• Due attention
• Assistance of dedicated merchandisers

Efficient bargaining

Demerits:

• Uneconomical
• Time consuming task

Merits and demerits of ‘informal’ buying organization:

Merits:

• Economical
• Optimum utilization of work force
• Flexible system

Demerits:

• Role confusion
• Employees blame each other for any wrong decision
• Inefficient buying

Degree of Centralization:

The concept of centralized buying organization is applicable where retailer has more than one store, may be in different cities, but carries out functions on behalf of stores collectively as opposed to individuality. But when the activities and scope of these individual stores increases, the controlling activities are transferred to these retail stores, but the benefits that a retailer derives from centralized office are numerous.

The main advantage is the economy of scale and the specialization of activities. Some retail decisions that need to be made for one store is to be made for all stores, hence, a central body of employees becomes responsible for decision making for all outlets. Most of the employees at the head office work in some particular departments dedicated to a particular function of retail management.

The central department is commonly known as ‘policy-making department’ which carries out the initial planning of the strategic plan. While the independent stores carry out the remaining functions and put policies (as laid by central office) into actions.

On the other hand, in case of decentralized buying organization, purchasing is done at outlet level. It means each store is free to buy the merchandise as and when required under intimation to the regional head. It means if a certain retailer has 15 chains in a city/ state, it may allow each outlet to buy its merchandise on its own or separating the branches under geographic territories (like five branches per region) with regional decisions are made by the headquarters’ store in each such zone.

Merits and Demerits of ‘Centralized’ Buying:

Merits:

• Benefit of economies of scale
• Efficient bargaining
• Integration of efforts and time
• Nearness to top management
• Staff assistance

Demerits:

• Time wastage
• Duplication of work
• Complexities of overload
• Lack of flexibility

Merits and Demerits of ‘Decentralized’ Buying:

Merits:

• Enhanced morale of employees at outlet level
• Quick order processing
• Degree of flexibility
• Adherence to local conditions

Demerits:

• Less bargaining power
• No benefit of economies of scale
• Less support from staff
• Sometimes wrong merchandise buying decisions

Organizational Breadth:

Retail store organizational breadth is a measurement that tracks the store’s central business functions affected by a system in practice. Therefore, selection must be made between a general buying organization and a specialized one. As the name implies, in general buying organization merchandise buying exercise is done by one or more persons individually or collectively.

For instance, a departmental store owner does the buying for his store on its own. Each type of item is selected and purchased by him or under his control while in the case of specialized buying, merchandise buying is done by separate people committed to separate product categories. For instance, an apparel store has separate buyers for Gents’ Clothes, ladies’ Clothes and Kids Wears.

Experience has shown that if a retailer is small and deals in limited merchandise, the general buying format is suitable. In case retailer has variety of wide merchandise assortment and within a category, if it has further merchandise depth, specialized buying format is recommended. Each method has its own merits and demerits. Retailer has to select which method will be applicable to his store merchandise.