120 CHAPTER6ANALYZINGBUSINESSMARKETS ANDBUYERBEHAVIOR
plier selection.^24 Marketers can counter a buyer’s request for a lower price in a num-
ber of ways. They may be able to show evidence that the “life-cycle cost” of using the
product is lower than that of competitors’ products. They can also cite the value of the
services the buyer now receives, especially where those services are superior to those
offered by competitors.
Hewlett-Packard, for example, has worked hard to become a “trusted advisor” to
its customers, selling specific solutions to their unique problems. Along the way, HP
discovered that some companies want a partner and others simply want a product that
works. Still, the company estimates that the trusted-advisor approach has contributed
to 60 percent growth of its high-end computer business.^25
As part of the supplier selection process, buying centers must decide how many
suppliers to use. In the past, many companies preferred a large supplier base to ensure
adequate supplies and to obtain price concessions. Out-suppliers would try to get in
the door by offering an especially low price.
Increasingly, however, companies are reducing the number of suppliers.
Companies such as Ford, Motorola, and AlliedSignal have cut the number of suppliers
anywhere from 20 percent to 80 percent. The suppliers who remain are responsible
for larger component systems, for achieving continuous quality and performance
improvements, and for lowering prices annually by a given percentage.
There is even a trend toward single sourcing, using one supplier. The Knoxville
News-Sentineland the New York Daily Newsnewspapers both rely on a single source for their
newsprint. This makes it easier to control newsprint inventories and maintain paper con-
sistency to avoid the time and expense of changing presses for different papers.^26Stage 7: Order-Routine Specification
After selecting suppliers, the buyer negotiates the final order, listing the technical
specifications, the quantity needed, the delivery schedule, and so on. In the case of
MRO items, buyers are moving toward blanket contracts rather than periodic pur-
chase orders. A blanket contractestablishes a long-term relationship in which the sup-
plier promises to resupply the buyer as needed at agreed-upon prices over a specified
period. 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, and the supplier arranges delivery and billing according to the
blanket contract.
Blanket contracting leads to more single-source buying and ordering of more
items from that single source. 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 the in-supplier’s prices, quality, or service.Stage 8: Performance Review
In the final stage of the buying process, the buyer periodically reviews the perfor-
mance of the chosen supplier(s). Three methods are commonly used. The buyer may
contact the end users and ask for their evaluations. Or the buyer may rate the supplier
on several criteria using a weighted score method. Or the buyer might aggregate the
cost of poor supplier performance to come up with adjusted costs of purchase, includ-
ing price. The performance review may lead the buyer to continue, modify, or end the
relationship with the supplier. Therefore, to stay in the running for future purchases,
suppliers should monitor their performance carefully using the same criteria applied
by the product’s buyers and end users. Smart suppliers also analyze the rivals who com-
pete for the same business, as discussed in the next chapter.