Forward:  The following looks at the IT Industry, supple chain management, business process, and purchasing decisions.  This article explains the necessary steps in making IT purchasing decisions – it is all hypothetical, but also rich in rhetoric and theory.  Read on…

The IT industry business that I am pursuing is using an online auction for selecting a provider of services, and it is reasonably high in importance to the buying company. My company sells solutions that are varied with many value added features when compared to the competition. Is this online auction a benefit or hindrance to the both the buyer and seller? Why?

This auction is a benefit to both the seller and the buyer. This is because the business that we are looking to win is high in importance. Though our solutions are varied and offer a lot of added value, we clearly need a provider of services if we want to take the next step in revenue earnings. The fact that they have importance in the IT industry indicates to me that there is true brand recognition associated with this business. Brand recognition is a benefit because it brings validity to all companies associated with it, including ours, in this case. When a brand is well known in and good standing, being seen as a partner to that brand can build increased awareness and understanding.

The auction is also beneficial because of its platform – it’s an auction. We can go in with a set price floor and ceiling in mind. Typically, auctions tend to work out better for the buyer (they usually get something at a lower than retail rate), and even if this auction doesn’t, we can pack up, move along, and find a different business to win. All in all, I think this is beneficial to the business as well, since they are auctioning their service, and can always use the option of a “reserve price” to get the amount of money that they are hoping to.

Long Term Agreements

A company purchasing manager can decide to enter into a long term agreement for certain purchases. What factors are to be considered in this decision? Is this always a less expensive way of buying?

A purchasing manager might decide to lock into a long term agreement due to pricing. Typically, the longer the business contract, the lower the unit price will be in the IT Industry. Also, sometimes locking in a low price is crucial, since all prices tend to go up over time. The factors to consider here would be the pricing tears based on the length of the agreement, the projected sales of the items into the future, and the ramifications for breaking the contract if necessary.

Though a long term agreement is typically a less expensive way of buying, it can sometimes cost a business more in the long term. For instance, if a product is unsatisfactory, if shipments are slow, and if quantities are unstable, a business can actually lose money with long term pricing agreements. This is why it is sometimes necessary for a company to release itself from the restraints of a contract.

Supply Chain Management

Companies are always looking for a good deal on purchases. They tend to focus on price only and ignore other factors. What impact can Supply Chain Management have on prices and what is the business value proposition in the IT world?

Supply chain management can impact prices in many ways. Firstly, supply and demand can and do alter prices all of the time in the marketplace. Manufacturing lulls, recalls, and even defects on less expensive items can actually end up costing a company a lot more long term. Even though they are spending less up front, they could be dishing out a lof more to recall items or create make-good opportunities. Just look at Topps, a hamburger company who filed bankruptcy after a hamburger meat recall in 2007. The use of industry white papers can help a company to determine the effects of supply chain management and its underlying meanings.

The business value proposition is typically one of “the lowest pricing” available when we talk about buying items based on costs alone. Since many companies research and buy on price, this can be beneficial. When we look at value, however, the business proposition can be rendered into something more along the lines of “the only solution you’ll ever need” for a specific industry; or more, it can give birth to an opportunity to price your products at the industry ceiling, rather than the floor. Higher ticket items usually yield higher profits in most industries. Just look at luxury cars, private universities, and high end real estate (under normal market conditions).

Cross-functional Sourcing Teams

Cross-function sourcing teams are typically a good idea. This is because they can go in a look at things that can make or break a business. Choosing suppliers, negotiating contracts, and enforcing contract commitments are all tasks handled by these teams. Thus, the pros for having them include a vast amount of research within the IT industry, the ability to buy at lower costs based on negotiation and manipulation, and the confidence that a contract will remain in place until all requirements have been satisfied. Some of the cons could be seen as missed opportunities with single suppliers who could offer substantial value and frustrations within client relations due to past agreements and forfeitures. Team can learn more, and increase their research efforts through the use of IT white papers.

Corporate Purchasing Units in IT

How do the concepts of centralized corporate purchasing units differ from decentralized corporate buyers? Is this an important concept for the marketer to understand? Why?

With centralized corporate purchasing units, a central department controls all of the purchasing which occurs inside of a business. This tends to reduce the duplication of effort, enables more effective inventory control, and purchases in volume for discounts. It can also consolidate transport loads for reduced costs and develop stronger business relationships with clients.

Decentralized purchasing units tend to be much of the opposite. The purchases are managed from more than one location, and it is much more difficult to save money via load consolidations and load volume discounts. Inventory control is also not as efficient with this model, as inventory is being placed and pulled by several parties at the same time. Without a proper ERP solution, this can prove problematic. This is important for a marketer to understand, because they must know how to promote the product. Knowing whether purchasing units are centralized or decentralized can dictate the difference in marketing in bulk, and based on geography.