Character of Business Marketing

NAICS = North American Industrial Classification System Replaces SIC (Standard Industrial Classification) codes Common for NAFTA countries NAICS hierarchical structure: XXIndustry sector XXX Industry subsector XXXXIndustry group XXXXXIndustry XXXXXXU.S., Canadian, or Mexican national specific (continued) Classifying Commercial Enterprises

Divides economy into 20 major industry sectors (at two-digit level): 11 Agriculture, Forestry, Fishing,54 Professional, Scientific, and Technical and Hunting services 21 Mining 55 Management of Companies and Enterprises 22 Utilities 56 Administrative and Support, Waste 23 Construction Management, and Remediation Services 31–33 Manufacturing 61 Education Services 42 Wholesale Trade 62 Health Care and Social Assistance 44–45 Retail Trade71 Art, Entertainment, and Recreation 48–49 Transportation 72 Accommodation and Food Services 51 Information 81 Other services (except Public Administration) 52 Finance and Insurance 92 Public Administration 53 Real Estate, Renting, and Leasing (continued) NAICS Codes

Example of additional digits making the product more specific: Sector 31–33 Manufacturing Subsector 334 Manufacturing computer and electronic products Industry group 3346Manufacturing of magnetic and optical media 33461Manufacturing of magnetic media Software reproduction NAICS Codes

Supply Chain Management Technique for linking manufacturer’s operation with those of all its strategic suppliers, key intermediaries, and customers.

Supply Chain Characteristics Supply chains –Are multi-tiered –Are customer driven –Exist externally AND internally Require a cross-functional effort –And their management are ongoing journeys – not destinations –Require good procurement activities  Source: Roberts, Julie S. (2003) “The Buzz About Supply Chain,” Inside Supply Management, (July),

Supply Chain Example Source: Roberts, Julie S. (2003) “The Buzz About Supply Chain,” Inside Supply Management, (July),

Procurement (Purchasing) Goals  Uninterrupted Flow of Materials  Manage Inventory  Improve Quality  Develop & Maintain Supplier Relationships  Achieve Lowest Total Cost  Reduce Administrative Costs  Advance Firm’s Competitive Position

Evaluating Potential Vendors Basic Considerations  Performance Considerations  Plant Visits  Geographic Locations  Capacity

Performance Considerations Must predict supplier’s total ability to fulfill the contract as it relates to:  price  delivery  quality  service

Plant Visits  Be sure to visit the supplier’s plant if possible  Try to gain insight into the: type of facility personnel housekeeping procedures  Serves as indication of vendor’s ability to provide necessary pre- and post-sale service

Geographic Location  Long distance shipments increase the chance of accidents strikes acts of God  Geographic disadvantages can be overcome with special transportation arrangements inventory make-and-hold service

Capacity Must consider several items  Physical plant and facilities  Supplier’s technical skills  Supplier’s managerial skills

Vendor Rating Systems  The Categorical Plan  The Weighted-Point Plan  The Cost-Ratio Plan

 Buyers keep notes on supplier dealings as events occur  Buyers compare notes (usually at monthly buyer meetings)  Suppliers are categorized as being in the good, neutral, or unsatisfactory category  Highly subjective, but easy to use & understand  Disadvantage is it’s subjectivity: relies on memory, personal judgment, and the experience/ability of the buyers. The Categorical Plan

VendorCostQualitySpeedTotal AGood(+)Unsatisf(-)Neutral(0) 0 BNeutral(0)Good(+)Good(+) ++ CNeutral(0)Unsatisf(-)Neutral(0) - Categorical Method Example

 Assign weights (importance) to quality, price, and service (or other relevant criteria)  Should fit buying organization’s needs  Sellers are rated on each factor  Simple, but effective plan that can be modified to suit specific conditions  Somewhat more objective than the categorical plan The Weighted Point Plan

Weighted Point Plan Example: Quality

Weighted Point Plan Example: Price

Weighted Point Plan Example: Service

Weighted Point Plan Example: Composite Total

 All activities regarding a supplier’s performance are valued in terms of dollars  Total cost of buying is determined including:  letters, telephone calls, visits, etc  Total (real) cost varies from vendor to vendor based on vendors’ skills & dependability  Future vendors selected on basis of lowest total cost incurred The Cost-Ratio Plan

 Initial costs associated with Quality, Delivery, and Service are determined  Each cost is then converted to a ratio  Ratio expresses cost as a percentage of the total value of the purchase  Sum the three individual cost rates to obtain overall cost ratio  Apply overall ratio to quoted unit price Cost Ratio Plan Process

Abbreviated Example: Cost-Ratio Plan

Governments & Institutions Compliance Programs –Must maintain affirmative action programs for minorities, women & disabled Set-Aside Programs –% of contracts offered only to small or minority-owned businesses Other aspects of non-profit buying will be addressing in Pricing

Two Types of Contracts 1.Fixed-price contracts A price is agreed to before contract is awarded and payment is made at conclusion of work. Provides for the greatest profit potential. Poses greater risks. 2.Cost-reimbursement contracts Reimbursement for allowable costs may be allowed and sometimes a number of dollars above costs as profit is allowed.

Relationship Marketing All marketing activities directed toward establishing, developing, and maintaining successful relational exchanges for the mutual benefit of all involved parties.

FocalFirm Goods Suppliers Services Suppliers Competitors Non-Profits Government Ultimate Customers Intermediate Customers Employees Business Units Functional Dept.’s SupplierPartnerships BuyerPartnerships LateralPartnerships InternalPartnerships Partners in Relational Exchanges

Value of RM to Sellers reliableHelps to ensure substantial and reliable purchase volumes at adequate margins. Helps to determine the buyer’s choice the next time around.

Value of RM to Buyers Costs of carrying safety stocks, and those of high return rates, numerous reorders, & long lead times have steadily risen. RM helps to eliminate waste and improve system economies. –inventory reduction –decreased line shutdowns –purchasing labor savings

REQUIREMENTS FOR HIGH PERFORMANCE RELATIONSHIPS BEYOND THE FINANCIAL CONSIDERATIONS: –INTEGRITY –FAIRNESS –LOYALTY –FLEXIBILITY –INPUT INTO YOUR PARTNER’S STRATEGY –PARTNER’S INPUT INTO YOUR STRATEGY –COMPLIANCE WITH PROCEDURES AND AGREEMENT –HONOR COMMITMENTS –STAND BEHIND YOUR PRODUCTS

Role of Trust in the Relationship Cooperative Strategies Benefits For Both Unless Lack Of Trust

Why is Trust So Important? The parties have confidence in their relational partner’s reliability and integrity Without trust, there is NO commitment Without commitment, future exchanges are questionable at best Without trust and commitment, negotiation costs are increased Without trust and commitment, monitoring costs are increased

Types of Relationships Discrete Transactions –have a distinct beginning, short duration, and sharp ending by performance. Value-Added Exchanges –Focus shifts from attracting customers to keeping customers. Begin focusing more closely on understanding & fulfilling needs. Relational Exchange –traces to previous agreements, and is longer in duration, reflecting an ongoing process.

Synthesis and Extension Model of Relationship Management RelationshipCommitment Trust RelationshipTerminationCosts RelationshipBenefits SharedValues Communication TrustDimensions Involvement Knowledge OpportunisticBehavior Constraint-BasedRelationship Dedication-BasedRelationship

The Consequences Constraint-BasedRelationshipDedication-BasedRelationship Propensity To Leave Interest in Alternatives Acquiescence Cooperation Enhancement Identity Advocacy

Different Customer Motivations Constraint-Based Relationships –One party believes it cannot exit the relationship due to economic, social, or psychological costs. –The strength of the constraints is a function of the party’s perceived dependence upon the other.

Different Customer Motivations Dedication-Based Relationships –Party remains in relationship because he/she is committed to the relationship and wants to remain. –Dedication generally arises due to dependence and/or trust.

Outcomes Associated with Constraint-Based Relationships Interest in Alternatives –lasts only as long as constraints –individuals in constrained relationships attempt to restore freedom to chose. –increased attempts to identify alternative suppliers. –more environmental monitoring –more receptive to competitors’ relationship offers.

Outcomes Associated with Constraint-Based Relationships Acquiescence –degree to which partner accepts or adheres to another’s specific requests or policies. –passive agreement to maintain the relationship.

Outcomes Associated with Dedication- Based Relationships Cooperation –active participation for mutual benefit Enhancement –broaden/deepen relational bonds buying additional services providing capital, information, labor, or other resources participating in company events

Outcomes Associated with Dedication- Based Relationships Identity –thinks of relationship partnership as a team and considers the partner in proprietorial terms.

Outcomes Associated with Dedication- Based Relationships Advocacy –ultimate test of relationship –promote relationship partner to others –defend relationship partner against detractors –main purpose is to, of course, benefit from positive word-of-mouth.

SUGGESTIONS FOR MAKING B2B RELATIONSHIPS LAST Make on-site visits to your partner Trade personnel and offices Manage total dependence with an alternate supplier Make the pledge of continuous service Develop a relational contract Provide ownership by bringing functions or technology within boundaries of partner’s firm