Why integrating purchasing with marketing is both Essay Example

business-to-business marketing.

The integration of purchasing and supply chain activities is crucial for realizing strategic benefits, such as competitive supply chains, improved product development, and faster times to market. This integration should not only occur within the two functions but also extend to the customer (Hard, Reined, &Spiller, 2007;Williams, Junipers, &Honoree, 1994). In order to advance the discipline, it is critical to integrate purchasing and supply chain management in both research and practice. This special issue of Industrial Marketing Management highlights the importance of this integration. However, in practice, purchasing and marketing operate separately within organizations. Even in customer-focused companies, purchasing aligns more with manufacturing and operations rather than with marketing objectives. Interactions between marketing and purchasing are primarily driven by operational needs, such as implementing Just-in-time systems, developing forecasting models, and managing inventory. This reinforces the perception that purchasers in most organizations are separate from marketing (Reinforce, Spiller, &Anger, 2007).The organizational landscape has transformed significantly from when purchasing was a separate department with its own goals, budget, and strategies. Manufacturing has lost its importance in modern business firms, as they now rely on outsourcing non-core activities, including manufacturing and operations. Instead of tangible goods, firms now prioritize capabilities, leading some to predict a shift towards a service-oriented approach in marketing. While the influence of the purchasing department has diminished for routine products, its strategic importance has grown. Sourcing strategies have become crucial components of retailers' merchandising and assortment strategies, while in industrial firms, purchasing plays a strategic role in product design, new product development, and product customization. Additionally, globalization has not only expanded firms' access to global sources for raw materials and components

but also subjected them to global competition.The impact of global competition on traditional sources of competitive advantage has resulted in the erosion of privileged access to materials and components and lower labor costs that were once supported by purchasing. In today's era, purchasing has become more important and strategic for firms worldwide due to the global hunt for resources such as oil, coal, and iron ore, and the aggressive nature of competitors from emerging economies like China, India, and Russia. Additionally, the increase in global capacity for finished products has put pressure on procurement to focus on the end-customer in the supply chain. As a result, there is a need for increased understanding and collaboration between purchasing and marketing beyond their traditional roles within the organization. This paper addresses the issues and solutions for better integration of purchasing and marketing in next-generation organizations and provides a framework for their integration, along with managerial implications and suggestions for future research.Historically, marketing has focused primarily on generating demand and fulfilling customer needs, while purchasing has been concerned with suppliers and ensuring manufacturing and capacity utilization. This has led to conflicting interests between marketing and purchasing in traditional organizational structures. In these structures, integration between marketing and purchasing has mainly occurred through manufacturing and operations. Communication and collaboration between marketing and purchasing have been limited to the requirements of manufacturing and operations. For instance, the decision to make or buy products to meet customer demand was determined based on production and contracting cost evaluations. The importance of purchasing increased when the organization chose to buy, and cost reduction in procurement became a priority. Similarly, closer relationships with suppliers

were motivated by cost reductions in manufacturing and operations.

Close relationships with suppliers are crucial for successful implementation of Just-in-time manufacturing and zero inventory models. Dell Inc., for example, has achieved competitive advantages by establishing strong supplier relations.The success of Enjoyed, compared to other computer manufacturers, can largely be attributed to its Just-in-time manufacturing, which was made possible through aggressive negotiations with its suppliers (Breed, 2004). While the focus of purchasing was on reducing transaction costs and operational expenses, marketing aimed to enhance customer service and satisfaction. However, there has been a disconnect between the inward focus of purchasing and the outward focus of marketing within the same organization (Fig.1). Recent literature on purchasing has emphasized its strategic importance, including the significance of the purchase situation and the need for closer supplier relationships (Anderson, Hosanna & Johansson, 1994; Biomass & Brand, 1995; Cannon & Homburg, 2001; Hunter, Bun, & Puerperal, 2006; Lyre, 1996; Lenders & Blackthorn, 1988). This strategic importance has become even more pronounced as manufacturing has become less prominent and companies outsource key competitive advantages (Browning, Gabriele, & Hellmann, 1983; Lyre, 996). Therefore, evaluating the purchase situation in light of the strategic importance of the assets to be obtained through the market interface is crucial (Hunter et al., 2006;year, 1996).

In recent research, a focus has been placed on the relationship between suppliers and buyers in purchasing. Various approaches have highlighted the importance of collaboration with suppliers and forming effective partnerships. However, these approaches tend to neglect the involvement of the end-customer. Typically, relationships with suppliers are viewed as a reflection of the relationships sought with customers through marketing. It is important to recognize

that marketing's relationships with customers are qualitatively different from purchasing relationships with suppliers. This creates a dual-faced organization, with one face towards the customer and another towards the supplier.

The significance of the relationship between marketing and purchasing is often overlooked in existing research. New realities are now challenging the traditional separation of roles and responsibilities in organizations for marketing and purchasing. These emerging realities will be discussed in the following section.

The rise of service industries is a prominent trend in industrial economies, and the decline of manufacturing in these economies is seen as inevitable. Moreover, the prevailing view is that services, rather than products, play a central role in marketing due to their higher value addition. Fargo and Lush (2004) suggest that most economic and marketing knowledge is based on models focused on goods and output. These models only enhance our understanding of a production-based system where goods are manufactured first and then marketed. However, Fargo and Lush propose that businesses are shifting towards intangibles such as skills, information, and knowledge, emphasizing the diminishing importance of tangible products and processes.

Additionally, there is a growing emphasis on interactivity, connectivity, and maintaining ongoing relationships. This shift, known as the product-to-service-shift, is gaining increasing attention from both academics and practitioners.The central implication of a service-centered logic is that marketing should primarily focus on the service provided rather than the product sold (Fargo & Lush, 2004). This perspective suggests that customized offerings should be developed to better meet customers' needs, and both internal and external firm resources should be utilized to satisfy these needs. Service-centered firms establish networks that allow them to offer solutions to customers by sourcing from

within and outside the firm. The concept of ownership becomes less critical for buying firms, as goods are seen as appliances for service (Fargo & Lush, 2004). Additionally, Coral and Kettle (1999) suggest that the marketing function may evolve into a customer consulting framework, where marketers evaluate and provide the specific services that customers require. In this evolving business environment, the purchasing role in external sourcing becomes crucial, similar to how the human resources department identifies required competencies within the firm. The use of the plural form "services" is deliberate; it signifies that "service" refers to the process firms use to benefit customers using resources, while "services" refers to the output (Fargo & Lush, 2004).

Ultimately, the most successful organizations in the service industry are those that excel in marketing and its related market-sensing processes (Day, 1999; Hackle, 1999). The critical role of purchasing becomes evident in this context, as it serves as the internal supplier to the marketing department. Purchasing is no longer driven by manufacturing processes, but rather by marketing processes.

There are significant economic drivers behind this shift towards a service-oriented logic or a solution-focused marketing strategy. First and foremost, competition in most sectors has become highly intense and continues to grow. In the past three decades, major competitors in global markets have expanded beyond firms from Europe and the United States, now including emerging market players, especially from China and India. The competitive arena has evolved into a global playing field with increasing growth in emerging economies.

However, these emerging economies such as China and India present a unique blend of traditional business practices and modern competitive skills. Their rising economic

strength and modernization necessitate new approaches to competition. In this new competitive landscape, marketing strategies based on offering solutions will prove more successful than those solely focused on cost reductions or design improvements.

Salutatorian's approaches prioritize the process over the product (Tulip et al., 2007). This shift has been made possible by increased multilateral negotiations facilitated by the World Trade Organization (WTFO), resulting in the reduction of inter-country trade barriers. As a result, production can now take place in locations that offer the best advantages, rather than being confined to demand centers (Dunning, 1998). Consequently, firms have become more willing to source products and services from other firms, leading to the dominance of service-based marketing strategies, especially in the case of high value and engineering products, with this trend expanding to encompass almost all products (Brady, Davis, & Gain, 2005).

Furthermore, businesses have become more diverse. In the year 2000 alone, there were approximately 6 million businesses in the U.S., according to the U.S. Census Bureau. Among these businesses, 99% had fewer than 6 employees. Only 95,000 businesses had more than 100 employees, and a mere 16,000 had over 500 employees. These larger businesses operate on average in 54 different locations. The Census Bureau also reveals simultaneous growth in both large businesses (e.g., Bank of America) and small businesses.

The increasing diversity of businesses with firms of different sizes has resulted in the need for customized solutions due to demand diversity. This has been facilitated by emerging and existing technologies like Web 2.0 and Poi, which have reduced transactional costs. Additionally, modern logistics technologies have enabled sourcing from distant locations, leading to the adoption of value-added solutions.

As markets have globalized, customers in the business-to-business sector have also become global. With purchasing evolving into a strategic function, purchasing managers in proactive firms now have more strategic roles. This has led to centralized purchasing, which identifies relational interactions and transactional interactions. Moreover, purchasing has shifted from product purchasing to solution purchasing, evident in the trend of outsourcing. Lastly, the marketing approach has transitioned from manufacturing first and then selling to meeting end-users' demands.

After World War II, most companies followed a traditional approach where they manufactured the product first and then employed marketing strategies to sell it and manage demand. However, some firms like Paella windows adopted a different approach known as reverse marketing, where they first received customer orders before manufacturing the product. In this era of reverse marketing, personalized solutions became more significant than standardized products and services. This shift in trend necessitated a closer integration between purchasing and marketing. In the subsequent section, we examine the conceptual foundations of this integration. We propose a conceptual model in Fig.2 to enhance our comprehension of the issues involved. The increasing need for stronger supplier relationships and the focus on providing solutions require an integration of purchasing and marketing beyond usual organizational practices. To meet the demands of a competitive and efficient supply chain, thorough analysis of sourcing and outsourcing matters is essential along with internal marketing efforts.The increased cost of manufacturing and the higher profits gained from providing services have led many organizations to outsource their manufacturing processes. For instance, companies like IBM have shifted their focus from producing products to offering services (Fig.2). As a result, they have outsourced the physical aspects

of their outcomes. The significance of purchasing has grown in sourcing manufactured products and components in response to customer demand, leading to a decline in the traditional purchase department's role of routine buying. This decline is also predicted by transaction cost economics, which highlights the concept of supplier opportunism. While effective supply chains require closer relationships and single-source supply, there is still a potential for suppliers to act against the firm's objectives. According to transaction cost economics, supplier opportunism occurs whenever it is feasible and economically beneficial for the supplier (Williamson, 1975).

As more firms outsource manufacturing and reduce their focus on traditional purchasing activities like vendor qualification and selection, they become more vulnerable to supplier opportunism (Williamson, 1985). For instance, Matter recently recalled millions of toys due to potential hazardous levels of lead paint and blamed their manufacturing partner in China for inadequate quality control in procuring paint from suppliers (Casey, 2007; Casey ; Zamias, 2007).

Therefore, even when outsourcing, purchasing must strategically align with organizational objectives. Reliance on outsourcing may result in leaks of valuable "architectural knowledge" and proprietary information that underpin the firm's competitive advantages (Lyre, 1996). To address these risks and the risks of supplier opportunism, firms may need complex incentive and contract structures that increase procurement costs (Williamson, 1975).

Alternatively, there are distinct advantages to retaining the purchasing function in-house and performing traditional activities, as well as monitoring and controlling outsourced manufacturing and products. This approach better fulfills customer demands for quality and ensures purchasing prioritizes value rather than solely focusing on costs.

The disadvantages of internal procurement, such as increased bureaucratic costs and dulled incentives, have been noted by Williamson

(1975). It is crucial for purchasing objectives to be aligned within the organization. While most research focuses on closer relationships with distribution partners, a stronger relationship with the purchasing department requires examining relational assets and supply chain investments made by each national area. Purchasing's relational assets can influence the marketing department's relational orientation. There are two types of relational assets: non-transaction-specific assets, like technical expertise and access to raw materials, and transaction-specific assets, such as specific machinery or human assets dependence (Frazier, 1983). In retailing, a channel member's dependence on an applier has shown a positive relationship with the retailer's long-term orientation (Gamesman, 1994).Relational assets indicate commitment, and therefore, investing in such assets allows for the development of closer supply relationships. Additionally, transaction-specific investments made by the marketing function can solidify long-term relationships with customers. These investments increase commitment between partners and demonstrate credible commitments that support ongoing exchange. For instance, an increase in the agency's manufacturer-specific assets contributes to mutual dependence between the agency and the manufacturer, leading to a higher level of relationship orientation. Assets created by marketing can be characterized by their transaction-specific nature, meaning they are tailored to the specific exchange and not used in other exchanges. Investing more in these transaction-specific assets increases the cost of replacing an exchange partner. Thus, relationship-specific assets can exist in both supply relationships and the firm's relationships with its customers. A closer integration between marketing and purchasing is necessary to protect these relationship-specific assets.A balanced relationship and a somewhat seamless value chain can be achieved through investments in relational assets and coordination between marketing and purchasing within the organization. Automation and integration have become

important as firms strive for effectiveness and efficiency in the face of global competition. Process improvement plans, such as Six Sigma, and business process outsourcing (BOP) are being implemented to achieve efficiency. Meanwhile, the measure of effectiveness includes intangible outcomes such as enhancing customer loyalty and increasing "share of wallet" through effective customer relationship management. Enhancing cooperation between purchasing and marketing is one method that firms are using to improve both efficiency and effectiveness. For instance, Dell Computers maintains no inventory and provides the production schedule to vendors just before production, allowing for Just-in-time and Just-in-sequence inventory.In this system, marketing and purchasing must collaborate to ensure fast deliveries and improve long-term forecasts. Process automation has become more prevalent with advances in telecommunication devices. Firstly, firms are now more cost-conscious and aim to reduce costs through automation. Secondly, automation enables firms to operate around the clock in alignment with their customers' needs. As services become more important, ensuring customers can access the firm's capabilities from anywhere becomes a priority. Thirdly, automation facilitates information sharing between employees and customers, reducing interaction costs and improving accessibility for those with specific needs. Fourthly, automation allows employees and customers to focus on strategic decision-making rather than routine tasks. Fifthly, process automation minimizes errors by allowing employees and customers to input their requirements directly into ordering systems. Finally, technologies like EDI enhance communication between computers, reducing the need for human intervention and increasing process efficiency. Automation has resulted in greater access to information and integration of functions.Fig. highlights the progress of automation and integration. It shows that automation and integration are responsible for erasing the boundaries between different functional areas. In

the context of our discussion, these boundaries were prevalent during the 869 era when there were shortages of commodities and a focus on customer solutions. However, there is now a shift happening, transforming the purchasing department from a traditional process-oriented department to a strategic one.

Additionally, in Fig. 3, it is evident that marketing will take the lead in integration and automation in e-procurement. The distinction between internal and external production is becoming less significant and may even be completely eliminated. Instead, the purchasing function should have the flexibility to announce or outsource any product or capability as needed.