MANAGEMENT DECISION CASE: Organizational Buying on a Grand Scale Imagine that yo
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Question
MANAGEMENT DECISION CASE:
Organizational Buying on a Grand Scale
Imagine that you work for a company producing a product that has only one buyer. The relationship between the buyer and your company has existed for decades and you have been supplying this buyer with products since the seemingly prehistoric late 1980s. Furthermore, imagine that this one buyer has only one supplier for the product your company produces and that your product is so important to this buyer's operations it would not be able to fulfill its mission as an organization without it. Thus, the importance of your company's product to the operations of the buying organization is enormous. As a result, the relationship between your company and members of the buying organization is extremely close—so close that sometimes your company hires employees away from the buying organization in an effort to stay current on that organization's requirements, better understand the extremely complex purchasing process they use, and further deepen the relationship between your two organizations.
In a relationship as described above, which organization do you think has an advantage when negotiating contracts for new purchases or extensions to existing contracts? Of course, it's a difficult question to answer unless you know exactly who the players are and what the product is. In this case, the seller is Northrup Grumman Corporation, the buyer is the U.S. Department of Defense (DOD), and the product is the B-2 Stealth Bomber. Were the paragraph above the entire information provided, it's fair to assume that most people would say when a product being sold is so vital to the buyer's operations the selling organization will have the advantage in purchase negotiations. However, the DOD is a quite unique entity and along the way the purchasing processes utilized therein can involve dozens if not hundreds of people, a labyrinth of regulations, potential testimony before a congressional committee, turnover in key personnel during the process, threats of funding cancellation by Congress, and many other contingency situations too numerous to mention. Whether it involves buying a B-2 Stealth Bomber ($2.1 billion per plane), the latest aircraft carrier (USS Gerald R. Ford, at $12.5 billion), or a contract for the provision of food service to hundreds of thousands of troops stationed in far-flung places around the globe, doing business with the DOD probably tops every other buying process in the world in terms of complexity. But as discussed in the chapter, when federal, state, and local governments combined spend over $2 trillion on an annual basis, it is worth it for companies like Northrup Grumman to expend the considerable extra effort to navigate the complexities and do business with those various government units.
Think of the differences between business and consumer markets and how those differences might apply to the DOD. The complexity of the buying process and the fact that it can take years for a project to be approved, funding to be provided, specifications to be written, contracts to be negotiated, prototypes to be developed and tested, and additional negotiations and more testing before the final product is actually deployed, all mean that the DOD is a buyer any seller must view as a long-term partner. Such complexity explains the tight and long-lasting relationships that exist between DOD entities and their venders. It also explains why many ex-military personnel go to work for suppliers—after all, who can maintain those close relationships and who knows the DOD buying procedures better than such people? Finally, given the massive buying power that exists at the DOD, it's no wonder that large defense contractors, Northrup Grumman being one, are located near the Pentagon in northern Virginia. Proximity, availability, and the potential to maintain a consistent presence are key ingredients to success when the buyer is as large and demanding as the DOD.
Questions for Consideration
Question: Use the chapter discussion of various buying center roles to describe the potential members of the buying center for the air force when purchasing an item like the B-2 Stealth Bomber. Who should be included and what are their roles?
Question: Contrast the buying process for the DOD with the buying process used by Target Corporation's procurement of laundry detergent from P&G for resale in Target Stores. What aspects of those buying processes are likely different and what aspects are likely similar?
Explanation / Answer
The potential members of the buying center for the air force when purchasing an item like B-2 Stealth Bomber and their roles are as follows:
The above mentioned are the major personnels who will have to be present during the purchase of an item like B-2 Stealth Bomber.
2. The buying process used by Target Corporation's procurement procurement of laundry detergent from P&G for resale in Target Stores is entirely different from that of the DOD since for Target the Stores there are a number of end users and they require mass production in order to meet the growing demands of the society. Whereas the buying process of DOD is quite unique as there aren't enough producers who are allowed inside this industry. Due to security reasons, the Government will not issue license for any new companies in this industry. Hence being the only buyer and only seller the options for both of them are limited. The buyer has no other options other than the unique seller. The main advantage to the seller is that they doesn't have to market or advertise their products in order to attract customers. Being a long term relationship the sellers will make sure that their only buyers are retained by offering quality services.
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