What Is Organizational Buying? 111
these organizations have low budgets and captive clienteles. For example, hospitals
have to decide what quality of food to buy for their patients. The buying objective here
is not profit, because the food is provided to the patients as part of the total service
package. Nor is cost minimization the sole objective, because poor food will cause
patients to complain and hurt the hospital’s reputation. The hospital purchasing
agent has to search for institutional food vendors whose quality meets or exceeds a
certain minimum standard and whose prices are low. Knowing this, many food ven-
dors set up a separate division to respond to the special needs of institutional buyers.
Thus, Heinz, for example, will produce, package, and price its ketchup differently to
meet the different requirements of hospitals, colleges, and prisons.
Being a supplier of choice for the nation’s schools or hospitals means big business
for marketers such as Allegiance Healthcare. This firm has become the largest U.S. sup-
plier of medical, surgical, and laboratory products. Through its stockless inventory pro-
gram, known as “ValueLink,” Allegiance delivers ordered products to more than 150
hospitals when and where staff members need them. Under the old system, the most
needed items were inevitably in short supply, while the rarely used items were available
in great number. By using Allegiance’s ValueLink system, hospitals save an average of
$500,000 or more yearly and gain faster, easier access to the items they need.^3
The Government Market
In most countries, government organizations are a major buyer of goods and services.
The U.S. government, for example, buys goods and services valued at $200 billion,
making it the largest customer in the world. The number of individual purchases is
equally staggering: Over 20 million individual contract actions are processed every
year. Although the cost of most items purchased is between $2,500 and $25,000, the
government also makes purchases of $25,000 and up, sometimes well into the millions
of dollars.
Government organizations typically require suppliers to submit bids. Normally,
they award the contract to the lowest bidder, although they sometimes take into
account a supplier’s superior quality or reputation for completing contracts on time.
Because their spending decisions are subject to public review, government organiza-
tions require considerable documentation from suppliers, who often complain about
excessive paperwork, bureaucracy, regulations, decision-making delays, and shifts in
procurement personnel.
Consider the experience of ADI Technology Corporation. The U.S. government
has always been ADI’s most important client, accounting for about 90 percent of its
nearly $6 million in annual revenues. Yet managers at this professional services com-
pany often shake their heads at all of the work that goes into winning the coveted gov-
ernment contracts. A comprehensive bid proposal will run from 500 to 700 pages, and
ADI’s president estimates that the firm has spent as much as $20,000, mostly in worker
hours, to prepare a single bid proposal.
Fortunately for businesses of all sizes, the federal government has been putting
reforms in place to streamline buying procedures. Now the government is moving all
purchasing on-line, with the use of Web-based technologies such as digital signatures.^4
Several federal agencies that act as purchasing agents for the rest of the government
have already launched Web-based catalogs, allowing defense and civilian agencies to
buy everything from medical and office supplies to clothing through on-line purchas-
ing. State and local governments are following suit: The city of Fort Collins, Colorado,
for example, announces its buying needs, posts requests for proposals, and offers
downloads of standard supplier documents on its Web site. Internet-based purchasing
has enabled Fort Collins to more efficiently buy computers, flooring, and an ever-
widening range of goods for city use.