Purchasing or procurement activities are a part of our daily lives and are often not given much thought by individual buyers. However, in an organisational setting, it can cause a massive change within the revenues and achievements of the Corporate Social Responsibility and value creation goals that a company sets for itself.
Mass consumption products have an inelastic demand which means that the demand is unaffected by the change in price. This implies that the customers will keep buying the products even though the price is high.
On the other hand, keeping the price of these products low is in the best interest of the companies selling them because it could give them a great competitive advantage and make the operations sustainable in the long run (Etzel, Walker & Stanton, 1997).
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Terminology of Procurement versus Purchasing
The terminology of procurement vs purchasing can perhaps be best explained using the PP Organogram, as shown in the diagram below. The diagram depicts the focus of purchasing on system and process, whereas procurement is focused on the active interaction with suppliers, as well as with internal customers. This article will adopt the terminology of procurement where the activities involved require active interaction both internally, and with suppliers.
Importance of Pricing Decisions for Mass Consumption Products
The price of a product is a pressure point for the management of any company because it is determined through the progress in technology, prices by competition, change in the demand for the product, changes in the economic and political background of the country. Everything that happens in the internal or external environment of the company has the potential to affect the prices.
When an organisation is able to control the source pricing then it will also be able to give a more competitive price to its customers. Hence the source pricing or the effectiveness of the procurement practices has the potential to provide a competitive advantage to a company (Eliashberg & Jeuland, 1986).
Importance of Purchasing Mass Consumption Products
Implementation of effective procurement practices has the following benefits (Leonard, Seiders & Grewal, 2002)
Managing the inputs and outputs for the company helps in the reduction of costs such as utility, material procurement, etc., and increases the efficiency of the processes which creates a financial advantage.
The organisational goals and business values can be aligned with the procurement practices through the making of effective purchasing policies. It also helps reduce business risks and improve the management of the supply chain. The company engaging with effective procurement practices is able to provide more innovations through the use of technology and lean production methods. When the suppliers understand the company’s requirements then they are able to cater to its change in productivity levels as well.
Effective procurement practices focus on reduction in waste and better methods of its disposal. The reduced burden on the resources helps decrease the consumption of energy without a dip in the quality or increase in costs. Better management of the transportation, packaging, carbon footprint and maintenance of biodiversity can help preserve the environment. This is beneficial not only because it would enable a green way of production but also give the company a competitive advantage through a better brand image.
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Eliashberg, J. & Jeuland, A. P. 1986. “The Impact of Competitive Entry in A Developing Market upon Dynamic Pricing Strategies,” Marketing Science, vol. 5 no. 1, pp. 20-36.
Etzel, M. J., Walker, B. J. & Stanton, W. J. 1997. Marketing; 11th edition, Irwin McGraw Hills, USA.
Leonard L., B., Seiders, K. & Grewal, D. 2002, “Understanding Service Convenience,” Journal of Marketing, vol. 66, pp. 1-17.
Poh, Philip (1988), “Defining and Clarifying the use of Terminologies”, International Federation of Purchasing and Materials Management conference, Brisbane.
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