Tag Archives: strategic sourcing

Strategic Sourcing and Vegetarian Haggis

19 Feb

Guest Article by Katherine Wang, Senior Project Analyst at Source strategic sourcingOne Management Services, LLC

How would you describe strategic sourcing and procurement? Source One’s company website demonstrates, for instance, that a variety of solutions and services are involved in the day-to-day responsibilities of a specialist in this growing field. I, for one, tend to prefer utilizing the terms “consulting” or “subject matter experts” when explaining to others what I do to, in order to capture the multidimensional nature of my activities. Never have I heard of my work being described as “Vegetarian Haggis.”

When I think of Scottish-related stereotypes, I think fondly of things like rugged terrain, tartan, and James Bond, so I will leave out any negative comments about haggis until I try the dish. However, due to the nature of haggis being a hearty and meaty dish, Rob Guenette’s comparison of procurement to a vegetarian version* humorously captures the common frustration and ambivalence agencies often feel towards the division that handles the RFP, negotiation, and contracting processes.

A common point of contention appears to be the perception that the only objective procurement is concerned about is cost reduction, regardless of the shop’s creative ingenuity or type of work, and as a consequence, parties habitually develop unreasonable expectations of themselves and of their partners.  Another concern is the idea that procurement departments do not have a clear enough understanding of the sales and marketing industry to make the best judgment calls. Digiday’s interview with two digital agency leads indicate how their greatest concern is that procurement develops scorecards and “scientific systems” to evaluate shops and disqualify candidates for incorrect or irrelevant reasons. These perceived impediments are only exacerbated by the fact that pitch processes are lengthy and costly, and according to PRWeek, increasingly drawn out thanks to the procurement department’s increasing involvement in marketing-related decisions. When considering those factors, it’s no wonder procurement is as appealing to the agencies as vegetarian haggis is to Sean Connery (or anyone else for that matter).

Nevertheless, it is unlikely that marketing teams will exile the procurement division any time soon. Putting aside company regulations and bureaucratic hurdles, procurement is, as discussed by Alan Wexler, EVP of SapientNitro, and James Gross, co-founder of Percolate, utilized as the “investigative layer that takes the workload off the buyer when making a purchasing decision,” and help add accountability and structure to a company’s buying decisions. This is especially important when large firms with a multitude of divisions and products seek marketing services and are faced with a daunting number of choices from different agencies.

To allay the qualms engendered by the agency-procurement relationship and to emphasize the benefits that such a partnership would bring, I conclude with a few notes on best practices observed in the business. All paths point to how clear communication is integral to the process. Forbes’ recent exposition on the 2013 ANA Advertising Financial Management Conference in Scottsdale Arizona illustrates the gap as well as constructive links between procurement, agency and marketing teams. Brett Colbert of MDC Partner’s quip about procurement at the conference, “…It can’t just be about procuring or buying…. We have to move the conversation beyond savings, talk about value not price,” deftly sums up the ultimate goal. To meet this target and derive value from business engagements, parties should increase the flow of information to better comprehend each initiative’s needs.

Similarly, ISBA and IPA provide six useful principles to make the most out of an agency pitch. The lesson to be mastered sounds simple enough: procurement, agency, and marketing teams should work to ensure that there is effective communication and transparency among the three parties. Collaboration is important to understanding the ultimate objectives and nuances of selecting an agency that fits well, in terms of capabilities and chemistry, and to avoid using the RFI/RFP as a blunt instrument. As they say, “Quality, not quantity.”

To learn more about how strategic sourcing may bridge the disconnects between marketing teams, procurement, and advertising agencies and obtaining value, contact guest blogger Katherine Wang at kwang@sourceoneinc.com.  Katherine Wang is a senior project analyst for Source One Management Services LLC and a key contributor to the company’s sales and marketing services group. Her unique experiences and insights are leveraged daily as the group develops innovative and effective sourcing strategies for a client list of global leaders in industries including pharmaceutical, health care, and manufacturing. Source One Management Services is a provider of procurement services, helping clients with strategic sourcing and supplier management solutions. The company is based in Willow Grove, Pa. 

*A final note on vegetarian haggis: according to The Guardian, it’s actually pretty good, all things considered.

 

Moving Toward Strategic Sourcing

17 May

Advertisers strategic sourcinghave come a long way in forging stronger ties between their marketing and procurement teams.  Yet, there is much more to be done as organizations look for ways to improve their return on marketing investment (ROMI).  After all, while important, expense reduction is only part of the ROMI equation and some would argue a secondary consideration when contrasted with marketing’s role in demand generation.

The Association of National Advertisers (ANA) released the results of a recent survey of procurement professionals fielded earlier this year.  Not surprisingly, survey participants indicated that “cost reduction” and “cost avoidance” were the top two metrics by which their efforts were judged within their respective organizations.  No problem.  These are important financial goals for any enterprise.

However, the key to evolving the collaboration between marketing and procurement is to evolve their focus to include various means of boosting supplier performance.  The potential strategic value related to improvements in; agency relationship management processes, resource allocation decision making, supplier innovation and client/ agency engagement can have a meaningful impact on the bottom line.  On this topic, the aforementioned ANA survey would suggest that marketing and procurement have made significant progress, at least philosophically.

So what are the impediments to strategic sourcing playing a more meaningful role in marketing procurement and supplier relationship management?  Many in the marketing and advertising industry would suggest that “experience” is the principal challenge facing procurement professionals when it comes to the marketing services arena.  To be fair, this is not a procurement issue, this is an organizational issue. Recruiting sourcing talent with marketing experience, educating and training procurement professionals on the nuances of professional services sourcing and creating a culture which embraces accountability and transparency across the organization are key issues to be addressed.

In our opinion, marketing has a significant opportunity to shape the organization’s efforts in building the proficiency of the procurement team.  Work begins with, but clearly is not limited to, assisting HR to identify sourcing professionals with marketing experience, assisting in the crafting of job descriptions, educating and informing their procurement peers on differences between marketing services and other direct or indirect procurement categories, and working diligently to articulate their supplier optimization initiatives as the basis for driving goal alignment between marketing and strategic sourcing.

Unfortunately, in some organizations, rather than assist in developing procurement’s skill set and resource offering, marketers take advantage of the procurement team’s lack of category experience to stave off or minimize their involvement within the marketing services realm.  Given the significant level of marketing investment advertisers are making this is clearly not a desirable outcome; either as it relates to ROMI or relates to mitigating financial and legal risks inherent across the marketing services supplier network.

Unlike George Carlin’s “seven dirty words” which were once “forbidden” by the broadcast industry; accountability, audit, collaboration, cost containment, expense reduction, risk management and transparency are not taboo.  Rather, these activities should be considered necessary ingredients in any strategic supplier management initiative.   It remains a mystery as to why this perspective has been slower to take seed in the U.S. advertising marketplace than it has in the U.K. and Western Europe, but it is an issue that will need to be addressed for any real progress to occur.

Interested in learning more about constructive marketing procurement programs? Contact Cliff Campeau, Principal at Advertising Audit & Risk Management at ccampeau@aarmusa.com for a complimentary consultation.

The Time is Right for Procurement & Marketing

6 Nov

time is right for marketing procurementToo often brands change advertising agencies like politicians change their stance on key issues. Debating the efficacy of this dynamic is a topic for another time. The issue which I would like to address is how Procurement can assist their Marketing peers in mitigating the risks associated with the revolving door approach being employed by many organizations when it comes to their marketing services vendor network.

Building brands is expensive to be sure and there is no guarantee that if a company invests the marketing funds necessary to launch and sustain a portfolio of brands that its efforts will yield the desired results. However, successfully building brands can create tremendous asset value for an organization which in turn can deliver superior returns to its shareholders year-in and year-out. Given the size of the budgets involved and the relatively thin margin between success and failure, it behooves an organization to optimize each and every marketing dollar invested.

To this end, the Marketing Team is perfectly capable of assessing the competitive landscape, positioning the organization’s brands for competitive success and determining the appropriate strategies for driving sales and market share. Proficiency in these areas will drive sound resource allocations decisions with regard to target penetration, market support, media selection and messaging. Marketing should “own” these areas and should be held accountable for the impact of their decisions and the resulting return on marketing investment.

So, where does the role of Strategic Sourcing come into play? In assisting Marketing with the procurement, stewardship and evaluation of its agencies, thus leveraging their processes, tools and expertise to aid marketing in the following areas;

  • Managing the vendor selection process
  • Development of agency remuneration programs
  • Best practice contract development/ negotiations
  • Improved reporting and transparency
  • Ongoing monitoring of agency performance
  • Independent auditing of agency contract complianceand performance
  • Securing and providing performance and relationship feedback to all stakeholders

With Marketing focused on the demand generation side of the ledger and Strategic Sourcing on procurement best practices, the organization stands to benefit both in terms of in-market performance and in maintaining the appropriate controls, transparency and benchmarking data that can drive marketing vendor sourcing and performance management.

The old days of decades old agency relationships are not as prevalent as they once were. Therefore, advertisers must confront the impact of the growth in the number of marketing services vendors and the frequency with which this roster of agencies changes. With change comes opportunity to be sure. But change also increases the risk quotient. With Procurement and Marketing working together the opportunity to effectively manage the risks associated with these changes; improve vendor network performance and the organization’s return-on-marketing investment increases exponentially. Interested in learning more? Check out the article by Paul Broeren, Managing Partner of Quadrivium BV on how to enhance to effectively involve procurement in the marketing services procurement process at Procurement Leaders.

 

Keys to Successful Client/ Agency Negotiations

7 Apr

Too much has been made about the participation of Strategic Sourcing personnel in the marketing services procurement process and whether or not it has had a negative effect on agency compensation levels. While it would be nice to be able to identify some overarching force or entity to blame for an organization’s or an industry’s ills, strategic sourcing is not the culprit, nor is pointing a finger in their direction a productive response. The notion that advertisers view certain aspects of an agency’s offering to be “commodity like” (i.e. media buying, production) and therefore able to be bid and sourced on the basis of the lowest available price is largely overblown.

Agencies themselves are responsible for this issue going back to the start of the “unbundling” process as key service offerings were spun out as separate profit centers in the hope that they could optimize their resources in a particular area by expanding utilization of those services to a broader client base. By definition, a commodity is a good or service that is viewed as interchangeable with another because it has lost its qualitative differentiation. Offering commodity like services, while they may be priced at lower rates, doesn’t necessarily mean they lead lower to lower margins.

Agencies are the masters of competitive differentiation. That is what they do for their clients. It is why Tide brand laundry detergent commands a higher retail price than Purex. Agencies can boost rates and margins by effectively positioning their service offering for competitive advantage while demonstrating the efficacy of their approach. Give advertisers credit for being able to discern both qualitative and quantitative differences in one vendors offering versus another’s beyond price. The three keys to successful negotiations between marketing services firms and their clients;

1) Preparation

2) Transparency

3) Respect.

Preparation for a successful negotiation involves diligence in assessing why the buyer is in the market for your services in the first place, what the key purchase drivers are and what pain points might they be seeking to eliminate. With a tacit understanding of these issues, a seller can begin to lay the process of educating the buyer on how their offering addresses these items in an efficient and effective manner, yielding maximum benefit for the buyer. When it comes to establishing a rate for your organization’s services, providing transparency into your service methodology, delivery processes, resource offering and cost structure is a pre-requisite for establishing sound dialogue on both the caliber of your service offering and the rates that you seek. Treating all parties in the negotiation and the process itself with respect is essential. Be mindful of the client’s time, help them to understand your organization’s offering, how it differs from those of your competitors and where it fits within the context of the industry. Share normative data to support your assertions and in the process position your organization as a knowledgeable, confident and valuable resource. If the advertiser doesn’t approach the marketing services acquisition process with a comparable level of respect, which is usually apparent at the RFP stage, than you have a conscious decision to make about whether you participate and if you do, how you will shape the pursuit approach to be taken by your organization.

Employing these “three keys” can result in a more meaningful negotiation process, more wins for your firm, higher margins and a clearer set of expectations on deliverables, staffing, rates and reconciliation of the effort between you and your client. Interested in learning more? In the following Advertising Age article by Sandy Sbarra, VP of Scotwork he shares his view on the keys to successful marketer/ agency negotiationsRead More

 

What is it About Procurement That Ad Agencies Dislike?

18 Dec

agency client procurement relationshipBriefly, it appeared as though Strategic Sourcing, client-side Marketing and Agency professionals were engaged in constructive dialogue regarding procurement’s role in the marketing services arena.  That is until representatives from the ad agency community took to their soap boxes and railed against corporate procurement’s role.

Why do certain agency community representatives continue to wage a public battle to minimize or eliminate the influence of procurement in the agency sourcing process?  Perhaps one has to move beyond the seemingly endless diatribe about procurement’s “lack of understanding” of how to value an agency’s contribution or the intangible nature of agency deliverables on brand health or procurement’s role in driving agency margins down to get to the root cause of their concern.

After all, forging strong alliances with Strategic Sourcing professionals represents an opportunity for agencies and should be a cornerstone of their business development and client retention strategies.  Could it be that some within the agency community are fearful of the financial scrutiny and performance benchmarking that are part of the process?  Perhaps they are not comfortable justifying fees and or offering demonstrable proof that their stewardship of their clients’ advertising investments generated a positive economic impact.

If their concerns are grounded in the former line of thinking that ship has left the pier and those arguments no longer hold water. Company Boards of Directors and Senior Management teams have both mandated Strategic Sourcing’s involvement on an enterprise-wide basis and expanded their near-term charter to include marketing services.  If the concern is related to the difficulty in valuing their contributions there are two economic analyses that are required.

The first is certainly well within an agency’s ability to catalog, monetize and communicate… their investment of resources into stewarding their clients advertising investments.  The second may require more work, particularly if the client-side marketing team and the agency have not implemented a sound return-on-marketing-investment monitoring system to accurately track and attribute their in-market results back to each facet of the client’s marketing investment.  Difficult as that may be, a fact-based, rational construct is the best bet for engaging all parties in a productive discussion regarding agency performance and contributions and for positively impacting the procurement process.

For many organizations the investment in marketing and advertising is one of their largest indirect expenses… it will continue to be scrutinized. Interested in reading more? Attached is a fascinating exchange between individuals with slightly different perspectives … Read More.

Collaboration Enhances Marketing Procurement Process

21 Jul

marketing collaborationMuch has been made regarding the expanding role of the Strategic Sourcing Group in the selection and or negotiations with Marketing Service vendors and the strain it places on both the process and the relationships between the Marketing Team and their resources. This scenario can easily be avoided if Marketing and Strategic Sourcing work collaboratively.

The following tips will enhance the level of cooperation and increase the chances for a successful process:

Overall

  • Both the Marketing Team and their vendors must recognize and respect the Strategic Sourcing Group and their assigned role in helping the enterprise manage their sourcing initiative.
  • All parties (including the vendors) must move beyond the notion regarding the “uniqueness” of Marketing Services and the fact that because these relationships often create intangibles that cannot easily be valued, they should somehow be exempt from the procurement process.
  • Clearly define roles, responsibilities, timelines and desired outcomes and communicate these to everyone involved in the process.

Procurement

  • If you do not have Marketing Services subject matter expertise on your Team, consider the use of an outside procurement consultant or independent contractor with experience in this area to assist your group.
  • Provide a clear process overview to the Marketing Team and their resources prior to the onset of the review and or negotiation activities:
    • Timeline
    • Desired Outcomes
    • Scoring/ Valuation Criteria
    • Roles & Responsibilities
  • Establish compensation methodology guidelines upfront (i.e. value based, project based, fee based, etc…) and the benchmarks that will be used to assist in setting compensation levels.
  • Lead the contract and compensation negotiation process, relying on the Marketing Team for feedback and insight into the impact of the negotiation outcomes on their deliverables.
  • Work diligently to ensure that there is a level playing field for all participants.

Marketing

  • Remember, you have been charged with managing your organization’s Marketing Service vendor network. As such you should work diligently to support the efforts of your partners in Strategic Sourcing throughout the entire process… whether you lobbied for their involvement in the process or not.
  • Clearly communicate your expectations of the process:
    • Desired Outcomes
    • Capabilities/ resources required of the vendor or prospective vendor
    • Clear and concise scope of services
    • Method and criteria that you will employ for evaluating the performance of the vendor
  • Quantify the potential risks/ costs to the organization in the event that a change in vendors occurs and the impact on the roles and responsibilities of the other firms in your Marketing Services network.
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