Tag Archives: marketing services procurement

Insightful Approach to Marketing Services Procurement

30 Aug

marketing services procurementIt was with great interest that I read a blog post on Procurement Leaders from Danny Ertel dealing with the topic of strategic sourcing’s role in the procurement of complex services. 

The article provides an insightful approach to dealing with the services business owners within the organization to gain their confidence and importantly, their buy-in to an active collaboration with the procurement team.  In our experience working with marketers, the chief fear cited by Mr. Ertel when it comes to marketing leaders hesitation to actively engaging with procurement is the fear that their “trusted advisor” will be abandoned in favor of a lower-cost provider that is not as capable of supporting the branding and demand generation needs of the organization.  From a marketer’s perspective this potential outcome carries an inherent level of risk that can be difficult to overcome when attempting to forge a productive relationship between marketing and procurement.

There has been a significant shift of late in assessing the procurement team’s “value proposition” to their internal marketing clients due in large to the recognition that the sourcing of complex services is different than that of direct procurement categories.  It is generally agreed that the former carries more risk and in turn can yield greater strategic value to the organization when a productive, long-term relationship can be forged or enhanced with a marketing partner such as an advertising agency, public relations firm or marketing insights provider.  In the words of M. Kathleen Casey:

“Do not free the camel from the burden of his hump; you may be freeing him from being a camel.”

So how should procurement fashion their appeal to professional services owners?  According to Mr. Ertel, “procurement needs to consider ways to help address what such stakeholders might actually consider to be in need of fixing.”  While simple in nature, this is an incredibly straight forward approach which too often is not followed.  The primary reason for this is a lack of a basic understanding of the marketing services value chain and the role which suppliers play in assisting the organization in achieving its sales and profitability goals.  Further, it requires procurement and marketing professionals to work in tandem to map out those areas where the marketing services team’s needs align with procurement’s resource and capability offering to find “win-win” opportunities. 

While the end result of such collaboration could be savings, in all likelihood the rewards will be much greater and encompass future cost avoidance, process improvements, the mitigation of risk, alignment of corporate governance oversight and better resource management… for both the organization and its marketing supplier network. 

When there is a perceived risk involved in the sourcing process, such as with the procurement of complex services, careful analysis of those risks relative to the cost: benefit proposition is paramount.  This cannot be accomplished solely by the procurement team.  For strategic service providers such as an advertising agency of record, deep category knowledge is required which will necessitate the active involvement of the internal marketing stakeholders and potentially independent advisors with specific skill sets in the area of search, agency remuneration and contract compliance. 

The consequences of a poor decision in the sourcing of complex professional services are too great to be ignored. Therefore, the logical path forward necessarily requires a solid working relationship between procurement and marketing built on the notion of trust, a clear delineation of project goals and a mutually agreed upon division of roles and responsibilities over the course of the indirect procurement process. 

Marketing investment is a substantial component of an enterprise’s overall cost structure which often runs as high as 3.0% to 5.0% of gross revenues –  way too substantial to believe that this investment category can forgo the type of internal scrutiny and control rigor applied to other areas of the company.  Thus, it is imperative that procurement and marketing strive to address their differences and forge ways to collaborate that unlock the value gains which are inherent in a marketing services supplier network. 

 

 

 

Agency Agreements Require Adequate Audit Rights

14 Apr

Advertising Audit is an important financial control process – not an optional luxury.

Any large company conducting business with an advertising agency or media buying firm without comprehensive Audit Rights is simply at risk. The marketing supplier may refuse to cooperate with (or significantly restrict) even very reasonable audit requests.

Based on years of experience and observation, it is clear that a sub par or non-existent audit clause often limits an Advertiser’s ability to implement standard compliance testing which therefore limits their opportunity to validate agency billings and gain comfort. Important learning opportunities are also lost – clearly an undesired outcome.

An example of a healthy financial relationship between parties – there are cases to note where even lacking clear audit documentation, the marketing supplier has complied with audit requests, but these cases are few and far between.

Pushback is a “red-flag.” Good financial practices should have nothing to fear from thorough scrutiny. The more pushback the higher the risk meter should rise.

Verification of billing accuracy / support would seem an innate right of any large company spending millions of dollars with a vendor (yes, even in Marketing).

What should you do? (1) in the near term amend the current Client-Agency Agreement to add a Right to Audit clause – and make it retroactive for at least 3 years; (2) add a Right to Audit clause within an ancillary document such as a Statement of Work (SOW) or an annual amendment to the Master Client-Agency Agreement; or (3) create a new document signed by both parties creating a Right to Audit and adding it to the vendor master file.

Ensure the audit clause is
well-defined and comprehensive.
For a guide, contact AARM at info@aarmusa.com

Once Audit Rights are established, a best practice and preventative control measure is to implement periodic and routine testing to deter wasteful practices, to identify errant billing transactions and to monitor key financial metrics. Testing should be performed at least annually, and always in cases where an agency relationship has been terminated (“transition audit”).

The audit concept also applies to systematic (or continuous) monitoring processes. A systematic monitoring program measures agency financial transactions, reporting and timing against a predetermined set of tolerances. Metrics are compiled and delivered at least monthly to stakeholders. Systematic monitoring is generally performed by an independent third-party with specialized software, and the Advertiser often chooses to share results with the agency – to support incentive compensation goals of and or a basis for behavior modification.

Right to Audit is a necessary safeguard in today’s business environment. Determining a schedule, methodology, and defined approach that encompass at some level each vendor in the organization’s marketing network will provide necessary assurance to management that adequate oversight and preventative controls are in place to catch errors, drive efficiencies and enhance ROI.


Progressive Move by the ANA on Agency Procurement

1 Nov

The ANA recently announced an initiative to combat the negative perceptions that many advertising agencies have regarding client-side procurement professionals and their understanding of the marketing services sector. Hats off to the ANA and the “Procurement Task Force” members who have agreed to donate their time and insights as part of this initiative and the proposed mentoring program.

This is a very positive step on the part of advertisers to assist in expanding the knowledge base among the organization’s members with less experience in the area of marketing services procurement .  In addition, the move further dispels the often held belief that strategic sourcing departments “don’t understand” and “don’t care” about the differences between professional services procurement relative to other facets of their corporate charters.  Real or imagined, discussing those differences within their association and providing consultative support to ANA members seeking to augment their knowledge base is a sound approach to what has become a divisive topic.

Perhaps the 4A’s can reciprocate and work to educate its enrollment on best practices to be considered when engaging with corporate procurement professionals.  The complimentary approach would further enhance the industry’s mutual understanding of procurement’s role in the process and by adding clarity, perhaps reduce the anxiety on the part of client-side marketers and agencies alike.

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