Page 224 - Marketing Management

ANALYZING BUSINESS MARKETS | CHAPTER 7 201

them to achieve continuous quality and performance improvement, and at the same time they
want them to lower prices each year by a given percentage. They expect their suppliers to work
closely with them during product development, and they value their suggestions.
There is even a trend toward single sourcing, though companies that use multiple sources often
cite the threat of a labor strike as the biggest deterrent to single sourcing. Companies may also fear
single suppliers will become too comfortable in the relationship and lose their competitive edge.

Order-Routine Specification
After selecting suppliers, the buyer negotiates the final order, listing the technical specifications, the
quantity needed, the expected time of delivery, return policies, warranties, and so on. Many industrial
buyers lease heavy equipment such as machinery and trucks.The lessee gains a number of advantages:
the latest products, better service, the conservation of capital, and some tax advantages. The lessor
often ends up with a larger net income and the chance to sell to customers that could not afford
outright purchase.
In the case of maintenance, repair, and operating items, buyers are moving toward blanket con-
tracts rather than periodic purchase orders. A blanket contract establishes a long-term relationship in
which the supplier promises to resupply the buyer as needed, at agreed-upon prices, over a specified
period of time. Because the seller holds the stock, blanket contracts are sometimes called stockless
purchase plans. The buyer’s computer automatically sends an order to the seller when stock is needed.
This system locks suppliers in tighter with the buyer and makes it difficult for out-suppliers to break
in unless the buyer becomes dissatisfied with prices, quality, or service.
Companies that fear a shortage of key materials are willing to buy and hold large inventories.
They will sign long-term contracts with suppliers to ensure a steady flow of materials. DuPont,
Ford, and several other major companies regard long-term supply planning as a major responsibility
of their purchasing managers. For example, General Motors wants to buy from fewer suppliers,
who must be willing to locate close to its plants and produce high-quality components. Business
marketers are also setting up extranets with important customers to facilitate and lower the cost of
transactions. Customers enter orders that are automatically transmitted to the supplier.
Some companies go further and shift the ordering responsibility to their suppliers in systems
called vendor-managed inventory (VMI). These suppliers are privy to the customer’s inventory levels
and take responsibility for replenishing automatically through continuous replenishment programs.
Plexco International AG supplies audio, lighting, and vision systems to the world’s leading
automakers. Its VMI program with its 40 suppliers resulted in significant time and cost savings and
allowed the company to use former warehouse space for productive manufacturing activities. 51

Performance Review

The buyer periodically reviews the performance of the chosen supplier(s) using one of three
methods. The buyer may contact end users and ask for their evaluations, rate the supplier on
several criteria using a weighted-score method, or aggregate the cost of poor performance to come
up with adjusted costs of purchase, including price. The performance review may lead the buyer to
continue, modify, or end a supplier relationship.
Many companies have set up incentive systems to reward purchasing managers for good buying
performance, in much the same way sales personnel receive bonuses for good selling performance.
These systems lead purchasing managers to increase pressure on sellers for the best terms.

Managing Business-to-Business

Customer Relationships

To improve effectiveness and efficiency, business suppliers and customers are exploring different
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ways to manage their relationships. Closer relationships are driven in part by supply chain man-
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agement, early supplier involvement, and purchasing alliances. Cultivating the right relationships
with business is paramount for any holistic marketing program.
Business-to-business marketers are avoiding “spray and pray” approaches to attracting and
retaining customers in favor of honing in on their targets and developing one-to-one marketing