Page 600 - Business Principles and Management

Chapter 22 • Pricing and Promotion

Ethics tip
HOW MUCH TO PURCHASE
A business should have sufficient products available to meet customer demand.
If customers cannot purchase the products they want when they want, they will Ethics is an important issue in
go elsewhere. If a manufacturing business runs out of the necessary raw mate- purchasing. A “kickback” is a
rials and parts, they must delay production. payment from a vendor to a
On the other hand, if businesses have a much larger inventory than they buyer for the purpose of im-
need, they are tying up large amounts of money in inventory that they could use properly obtaining favorable
in other ways to make a profit. The large inventory also requires extra storage treatment in the issuance
space. If businesses keep only small quantities in stock, they reduce the risk of of a contract or purchase
loss from spoilage, changes in design, or changes in demand. Many suppliers are order. Other actions that
now able to fill orders quickly, making it easier for companies to carry lower are considered unacceptable
quantities of many of the products they sell.
include the showing of ex-
cessive favoritism toward a
vendor and the solicitation
CHECKPOINT or acceptance of gifts from
the vendor by the purchaser.
List the specific decisions businesses must make when planning
a purchase.

Business Buying Process

Businesses typically follow a set of formal procedures when they decide to
purchase a product. This process is called the business buying process, as out-
lined in Figure 22-1. Businesses do not always go through every step of this
process. There are three different types of buying processes.

FIGURE 22-1 The Business Buying Process

Problem Recognition
A business buying need is recognized.
Product Specification
Specific details about the product needs are developed.

Supplier Search
Suppliers are requested to submit bids showing how specifications are met and at
what price.

Supplier Selection
Suppliers are evaluated to determine if they are able to meet needs.
Submit Order
Order is placed with quantity needs, delivery date, return policies, warranties, etc.
Review Performance
The suppliers are reviewed on an ongoing basis.

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