Advertising agency perspective on the role and function of marketing procurement

At the CIPSA Category Week in Sydney May 29 – June 1 2012 I invited seven senior industry professionals to be on a panel to help the audience of procurement professionals “Navigate the murky waters of marketing procurement”.

In this, the first of the posts from that session, Anthony Freedman gives his perspective:

Darren asked me to respond to 4 questions within this brief spiel; the role I see procurement playing in marketing, an example of it working well, an example of it working less well and 3 tips for success.

Naturally the first thing I did was to Google “Procurement Department”. It’s not that I am unfamiliar with the phrase, more that I was keen to get an impartial view from the experts.

Anthony Freedman, CEO, Host, One Green Bean & Chairman, The Communications Council

So of course I turned to the consensus option, Wikipedia which first endeavored to set out the difference between Direct and Indirect Procurement and made the following distinction.

Indirect procurement is the sourcing of all goods and services for a business that enable its activity.”

But more interestingly…

“It comprises a wide variety of goods and services, from standardized low value items like office supplies to complex and costly products and services like consulting.”

A further characteristic is “the smaller average supplier spends, more suppliers, maverick spend and a more complex stakeholder environment than direct” which require “a different balance of disciplined processes and technology, engagement with stakeholders and diverse expertise across a range of suppliers.”

And herein lies perhaps the first pitfall of procurement and marketing. Indirect procurement departments are characterized by hundreds of categories, tens of thousands of suppliers and it’s very difficult to have real expertise in all of them.

In fact further internet digging around uncovered a statistic from Ad Age in the US who identified that over 90% of procurement managers had no marketing experience whatsoever prior to their current role.

This is a challenge because securing the services of an advertising agency is complex. Much more complex than the purchase of office supplies. Even within marketing services there is a continuum of complexity. Consider negotiating with a printer vs a call centre vs a creative agency. The more qualitative and intangible the service and nature of the relationship the more difficult it is to procure.

So to come back to the almost now forgotten original question, what is the role of procurement in marketing, I would suggest the following.

Its role is to acknowledge the complexity of this purchase, the infrequency of it, the intangible nature of its creative services and engage the necessary expertise in the form of a specialist third party. Darren of course can thank me later for that fortuitous plug but I really do believe their role is to bring probity, efficiency and expertise and all three of these criteria will be best met by engaging someone who procures agency services or negotiates agency remuneration week in week out.

This neatly segues into my example of procurement working well in marketing.

An agency at which I was employed had a long-standing and very strong relationship with a large client. The client had for some years been operating in a ‘zero-cost increase environment’ with the familiar diminishing budgets and growing ‘to-do’ list.

After several years without rate or remuneration increase, the agency was finding it increasingly difficult to continue to service the business at the level that the client had grown used to. Each year the scope would increase, the staff costs would grow but the income would remain the same. The dialogue around resolving this was always between agency principals and the senior marketing team. And despite best efforts on all sides, they never really solved the situation.

After some years the annual review of scope and remuneration was handed over to the procurement team to manage on behalf of the marketing team. The first thing they did was to engage an external consultant to benchmark rates and remuneration against the scope of work.

This identified that rates were at the lower end of competitive but the allocation of resources against the scope of work was far below industry norms. Essentially this corroborated the view held by the agency that it was increasingly difficult to manage the volume at the same service levels and still make money. The client had an understandable view that because they spent a lot of money there must be money in it for the agency somewhere. In fact the large size of the client meant that the lack of profit for the agency in the relationship was more damaging than if it had been a much smaller client.

As part of the final solution a number of steps were proposed.

The client reduced the volume of jobs as the exercise had identified a volume of work emanating from junior staff members that simply did not deliver value for the client. The agency received a rate increase and some increase in remuneration. But a review of processes also allowed a streamlining within the client company that generated a more efficient go to market process. By involving a third party, it brought objectivity, probity that the increases were indeed warranted despite the ‘zero-cost increase’ environment and their expertise in the category allowed a more holistic view of how to create more value for both parties by also facilitating a discussion around the way the two companies operated rather than just looking at rates.

In considering examples where procurement has been less successful, there have unfortunately been several. But one in particular stands out.

An agency where I was employed was invited to a collective ‘briefing session’ involving 6 agencies as the first step of an RFI process. This in itself is unusual on a number of levels but it was overshadowed by an opening speech from the procurement lead which proudly explained that the procurement team had been working on an RFI for the preceding 6 months and had complied a list of almost 100 questions which the attending agencies were expected to respond to within around 8 working days.

On looking more closely at the RFI, this less than positive start was then compounded by the nature of many of the questions. It was clear that a system with a series of drop down menus had been used to create the RFI and a policy of ‘if in doubt let’s include it’ had been adopted. Many simply weren’t relevant in any way to the services or nature of an advertising agency relationship.

Equally all 6 agencies were being asked to complete the RFI in order to select a shortlist for a creative pitch. This approach created a huge amount of unnecessary work for the agencies and marketing team who would need to review dozens of pages along with around 6 attachments for each of the 6 submissions. Surely a simpler screening process would have better enabled the marketing team to narrow the selection field?

Lastly the procurement department would not provide any indication of the scope or value of the opportunity so in effect the 6 agencies were undertaking a sizeable volume of work in developing the RFI response without any idea at all of what they were really hoping to be shortlisted to pitch for. But for the appeal of the brand up for grabs, I am sure many would simply have declined the invitation to submit the RFI.

Lastly to my 3 tips;

The first is Respect. Respect the people who are being invited to participate. Have respect for their time and resources throughout the process. The good agencies don’t need every client opportunity that knocks on their door and there is a real risk of losing the best potential partner if there is a ‘buyer/supplier’ mindset surrounding proceedings. Also acknowledge that it takes a lot longer for an advertising agency to respond to a question like “What is your vision in relation to the brand strategy” than it does a printer to explain their “proposed incident management procedure”.

Secondly is Reflect. Before the RFP and /or RFI is released, it’s worth taking some time to reflect on the volume and nature of questions being asked, the stage of the process at which they are being asked and whether they are really necessary and expediting the process at that point. If in doubt remove things rather than leave them in.

And lastly Retreat. Marketing is a people business and it’s chemistry not just capability. If procurement is the only interface with the agencies during the process outside of a credentials, tissue meeting and final presentation, it removes the chance for the marketing people and agency people to get to know one another in the course of a more usual working dynamic. Yes it’s more work for the marketing team but there’s a lot to be gleaned from what happens in between those meetings as well as at them.

 

Related Posts Plugin for WordPress, Blogger...

About Darren Woolley

Darren is considered a thought leader on all aspects of marketing management. A Problem Solver, Negotiator, Founder & Global CEO of TrinityP3 - Marketing Management Consultants, founding member of the Marketing FIRST Forum and Author. He is also a Past-Chair of the Australian Marketing Institute, Ex-Medical Scientist and Ex-Creative Director. And in his spare time he sleeps. Darren's Bio Here Email: darren@trinityp3.com
This entry was posted in agency remuneration / compensation, agency search & selection, marketing procurement and tagged , , , , , , , , , . Bookmark the permalink.

2 Responses to Advertising agency perspective on the role and function of marketing procurement

  1. John Maloney says:

    Good review from an agency perspective. From my experience working in agencies and on client side in marketing procurement and marketing roles there are advertisers very conscious and experienced in managing the procurement of marketing services who do take into consideration everything Anthony has outlined below, and more.

    Unfortunately for procurement professionals, agencies and ultimately the advertiser, there are also advertisers who treat marketing like any other product / service procured which is definitely the wrong approach which Anthony has unfortunately also experienced.

    One last comment – Indirect Procurement is the procurement of goods / services of everything which goes "around" the production of a produce / service – ie marketing, IT, professional services etc. Direct procurement is the procurement of goods / services required to product a product / service – eg raw materials, packaging etc.

  2. If it helps, CIPS define INDIRECT procurement as “Goods which are purchased to support the operation and which are not converted into finished products or resold.”
    And DIRECT materials as “Materials that are converted or processed to make the finished product” …. I have always thought of INDIRECT as the cost of doing business really.

Comments are closed.