Lecture 3

Organizational Buying Behaviour

 Defining OBB
‘The decision making process by which
formal organizations establish the need for
purchasing products and services and
identify, evaluate and choose among
alternative brands and suppliers’.

• market-based exchanges or as fully

developed relational exchanges
 Steps in B2B Buying Process
8: Evaluation of product performance
7: Selection of order procedure
6: Evaluation of RFP for selection
5: Request for Proposals (RFP)
4: Search for qualified suppliers
3: Development of Detailed Specs
2: Definition of product-type needed
1: Recognition of a need
Differences in CB and OB
Decision Making Unit and its Members

1.Initiator
2.Influencer
3.Decider
4.Purchaser
5.User
6.Gatekeeper
 Influences on OBB
• Internal Influences
– Purchasing structure
• Central buying
• Decentralized buying
• Mix approach
– Levels of Authority
– Politicizing
• External Influences
– Political
– Economy
– Social Changes
– Technological Changes
– Environmental Changes
• Individual Influences
– Self centered approach
– Control over information
– Control over resources
– Friendships
• Relationships
– Nature of exchange relationship
– Switching costs
– Global/national dimensions
 Buying Situation/ Buy-classes

• New Buy
• Modified Rebuy
• Straight Rebuy
Buy Situations/Buy-classes
 eProcurement and the Impact of IT on OBB

• eProcurement is ‘using Internet technology in

the purchasing process’ and describe it as
having six principal forms: -
– eMRO (maintenance, repair and operating supplies)
– web-based ERP (Enterprise Resource Planning)
– eSourcing
– eTendering
– eReverse auctioning
 Some More ICT Concepts
• eAuctions
– Direct Auctions
– Reverse Auctions
Requisites
– commodity specifications
– purchase quantities
– appropriate supply market conditions
– correct organizational infrastructure
• eCollaboration

– use of network technologies to share business

information and coordinate supply chain
activities
 B2B Webportal
• Use of IT is order of the day now
– www.ferguson.com
– www.mcmaster.com
– www.alibaba.com
– www.indiamart.com
– www.atyourbusiness.com

• Commonly required characteristics

– Easy to use
– Flexible
– Relevance/thematic content
 Types of Webportal
• Informational
• Transactional
• Horizontal
• Vertical
• Private
• Public
Perceived Decision Making Risks
 How to Mitigate Risks
• Configuration of DMU
– Increase in its size with more autonomy and
accountability for key persons
– Intensifying information search
– More thorough involvement of DMU throughout
the process
– Inter-organizational Relations
Risk Mitigation Strategy
 Other Important Steps
• Lean manufacturing and lean supplies
• Relationship Continuum
Level 1 Basic level relation based on market structure principles
Basic based on price, service and quality

Level 2 The actively tries to reduce the cost of buyer by improving

Cost Control competitiveness

Level 3 The supplier takes responsibility to add value to buyer’s

Partnership capabilities e.g. subassembly arrangement

Level 4 Relational Exchange. Supplier becomes a major source of

Strategic strategic added value for the customer. Cost reduction and
bringing competitiveness through outsourcings and
subassembly facilities
 Why competitive advantage might be
improved through stronger relationships
1. Systems cost reduction – cost savings from
improved working practices (e.g. improved
order cycle times, reduced stock and working
capital).
2. Increased effectiveness through innovation –
as a relationship develops more information is
exchanged and suppliers become more willing
to invest in the relationship.
3. Enabling technologies – electronic systems and
communications help suppliers to anticipate
and understand the needs of their customers.