A client’s procurement team asked me to review their current services contract to ensure it reflected current ‘best practice”. Apart from the usual problems with intellectual property, the clause that jumped out was that the agency would deliver a 5% per annum decrease in costs due to productivity efficiency improvements.
That is that the agreed annual fee would be reduced by 5% per annum over the term of the contract to reflect these improvements in efficiency. I state that twice because I had to read the clause twice before I asked them why?
“Well, advertising is a manufacturing process and with all of our manufacturing suppliers we add this clause” was the overly confident reply.
Firstly, the agency fee was significant and 5% was about $150,000 per annum.
Secondly, there is an underlying assumption that the primary cost of “manufacture”, in this case being people, would not increase in cost each year.
Thirdly, where did anyone ever think advertising is a manufacturing process?
What most agencies produce is bespoke solutions to specific marketing, advertising and communication problems. Each solution will often require a unique execution and therefore if you were to consider it a manufacturing process then it would be one where every production run requires total tooling up from scratch, meaning that economies and efficiencies are difficult to deliver.
But there are some parts of advertising that can be seen as a manufacturing process.
The usual way to identify these opportunities is to look for:
- High volume outputs
- Consistent or templated solutions
- Heavy production requirements
This is usually in categories like retail or financial services or telcos. Areas with high volume, consistent, production heavy outputs like sales catalogues, brochures, flyers, direct mail letters, e-dm and in some cases traditional media production like television, radio, press and magazines.
But to deliver the economies of scale and the efficiencies, be that 5% per year or even more, then the marketing team must be engaged to accept the compromises and changes in process required.
1. Templating: Rather than inventing from scratch each time, templates are developed for the various executions and then the focus is populating these with the required content as cost effectively as possible rather than focusing on strategic and creative innovation each time. eg. Retail price and item advertising or Catalogue page grids.
2. Production Decoupling: Packaging production requirements to achieve economies in production using the same suppliers providing volume discounts. Again, this means limiting options in suppliers used and therefore limiting range of quality. eg. Catalogue photography or video post production etc.
3. Automation: Many labour intensive and therefore often expensive production processes can be automated. There are many tried and proven print management systems that use pre-agreed templates allowing marketers and other end users to select from pre-agreed options and templates to create cost effective outputs. eg. Local area or local store marketing, catalogue production and even video production can be automated.
4. Off-shoring: Labour costs are often the single largest component of the advertising production budget and therefore these can be minimised by moving these services from markets with high labour costs in the west to lower labour cost markets like India, China, SE Asia, Eastern Europe and Russia and Central and South America. The important consideration in management systems and ensuring the appropriate skill sets in these markets. eg. Many companies are offering off-shoring services to their larger clients for both print and especially digital production.
The thing to note about all of these options is that the more you identify the manufacturing component of the advertising process, the more you need to limit the options to deliver the cost efficiencies. As Henry Ford is apocryphally reported to say when he developed the production line for the Model T Ford, “You can have any colour you like, as long as it is black”.
So before you demand efficiencies from your agency, make sure you identify the areas and the limitations you are willing to accept.
What areas can you be more efficient?