Procurement: marketing’s unreasonable friend

As procurement’s influence over marketing decisions grows, is the increasingly close relationship between the two departments a recipe for conflict, or is procurement the devil’s advocate that marketing sorely needs?

 

Cost-cutting number-crunchers can be forgiven for feeling a little unwelcome in marketing departments. Marketing is that special area of business that likes to imagine itself transcending day-to-day issues by working on long-term growth strategies and building mystifying levels of brand loyalty through the collaboration of creative minds. Big dreams, and the big spend that comes with them, are part of the stereotype of marketers.

But over the past decade, procurement professionals have been getting involved in more and more marketing decisions, bringing a new kind of systemisation. This means less control for marketing managers, and often, cost-cutting.

In difficult financial times, companies need to calculate the ROI in every area of spending. And at a time when information is spreading digitally and globally, faster than ever before, companies are increasingly careful about avoiding supply chain issues. Nobody wants to face the next Bangladesh garment or Tesco horsemeat crisis. So procurement comes in to manage risk, as well as cost.

“10 or 12 years ago, procurement used to be in the back room in the brown cardigan, but now they’re very much in the boardroom,” explains procurement expert Tania Seary.

“Globalisation’s driven a lot of the development, and a lot of it is about brand reputation and risk management.”

 

Cross-functional clash

With this risk management comes controls and processes that don’t sit well with many marketers. One of these is Christine Khor, managing director of marketing industry recruitment specialists Chorus Executive and a former client-side marketer for Simplot and Kraft. In her view, the rise of procurement bringing cost-saving structures to business is proving particularly stifling to the creative elements of marketing.

“Getting the right person, the right campaign or launching the right product is a process that is part science and part art/intuition,” she explains.

“Being too objective stifles creativity. This is okay if you are buying paper, electricity or cables but with some services/products like people, innovation or advertising campaigns, intuition and subjectivity is required.”

Common sense should prevail over pure financial decisions, and sometimes that means spending more money, Khor says.

“Procurement is about cost-saving. If the business says, ‘Your job is to save costs’, that’s what they’ll do. Unfortunately there seems to be less consideration of the total cost – quality, time, productivity etc, when procurement decisions are being made.”

Khor has seen many niche agencies struggle under procurement pressures of clients; without economies of scale, they provide a smaller range of services, often charging higher prices, and find rigorous tender processes difficult with fewer resources.

“As a marketer at Kraft for many years I managed a few of the smaller brands. I gravitated to smaller agencies where I was important and significant to them. When I was forced to go to the bigger agencies I found that my brands were a bit of an ‘after thought’,” she explains.

 

Adland’s anguish

But it’s not just small agencies that are doing it tough. Someone else feeling the brunt of the cost-cutting procurement brings to the advertising agency hiring process is John Zeigler, chairman and chief executive officer of DDB Group Asia Pacific.

He believes procurement is responsible for a creativity crisis that is on its way to destroying advertising agencies in their current form.

“We’ve got procurement going into the agencies and over five years looking for 10% a year – that’s 50% of the revenues of an agency gone. How do you keep talent if you can’t pay them? How do you convince clients you can do better work if you can’t keep your talent? How do you operate as a business on 50% less revenues when we’re on a 70% plus costs and our business is 100% people?

“So it is a crisis of creativity at a time when creativity is the most important thing that clients can leverage in their business, to create competitive advantage, increased sales and increased success.”

In this post-GFC world of technological onslaught, in which big data analytics seems to be everyone’s favourite topic of discussion, one often-quoted business idiom is losing acceptance: “Half the money I spend on advertising is wasted; the trouble is I don’t know which half”. Originally attributed to US merchant John Wanamaker, the quote has been a favourite lament of marketers for nearly a century.

Tania Seary believes it’s time to end the days of businesses being in the dark about their ROI in marketing. Advertising agencies need to “get with the program” and start quantifying the value they produce for businesses, she says with a provocative grin.

Seary has made her career founding a string of successful businesses to develop the procurement industry, including professional development educator The Faculty, recruitment service The Source and, most recently, industry social network, Procurious.

“10 years ago procurement wouldn’t have been seen anywhere near advertising agencies because that was the holy grail; that was the secret herbs and spices. What business leaders have to grapple with is they want to reduce their marketing costs, but where do they do it?

“I think the challenge back to the agency is to quantify it,” she says in response to Zeigler’s comments.

“Procurement professionals are quite analytical so I’m sure if there was a good argument they would listen. But it can’t just all be promises.”

Zeigler pulls out a statistic he uses to justify the value of agencies striving towards advertising awards, but does not explain exactly how it was calculated.

“How can an industry add value if people don’t know what the difference is between great work and not so great work?” he begins.

“We do live in an accounting, numbers-based world and I think when you do have a number you can work to it and you know what you’re losing as well as what you’re potentially gaining.”

“So based on IPA and based on Cannes, a great award-winning piece of work at Cannes will deliver results that are 10 to 12 times the results from a piece of work that isn’t great.”

Seary comes back to point out that procurement and marketing departments are both working under the direction of their CEOs or CFOs, whose goals could range anywhere between severe cost-cutting to generous long-term growth.

“Let’s call it the corporate culture around cost and value and what sort of external pressures they’re under,” she says – rather than ‘blaming procurement’ as Marketing suspects some might.

“Procurement professionals, if they’re doing their jobs right, are a business partner and a facilitator and they’re helping the marketing director get the best outcome,” Seary continues.

“They’ve helped them identify where a lot of money was being wasted and really helped them with the processes. The marketing director is still in the decision seat but the procurement person is a business partner who’s helping with a more robust process for selecting agencies, and can also play devil’s advocate in that selection process and negotiation.

“I think that evolution of the relationship meant the marketing professionals respected the procurement professionals more.”

 

A potent partnership

Marketing strategy consultant and former FMCG marketer Mike Harley agrees, prefacing with: “I have quite a different view to some other marketing people, I have to tell you that right now.”

Harley counts himself as an advocate for procurement’s involvement with marketing, but explains that many marketers are instead feeling frustrated.

“I can understand why – the control is being taken out of their hands. Even the [procurement people] who are focused on value will go through the process of really looking to understand where value is created and actually pushing agencies to clarify that.

“Agencies and the marketing team need to be really, really clear where the work is being done, why it is being done and where it creates value or cost.”

Harley is careful with his words when he explains how the kind of personality that tends to be attracted to the procurement profession can help a typical marketer.

“They have the skills but they also put the discipline and process in place which often marketing people don’t have. Marketing people are – I’ll say this because I’m in marketing – often not the most organised. Often they are not giving their agencies and others enough time, so they are negotiating things at the last minute rather than really planning in advance.”

Procurement has its most obvious place in the commodity buying side of marketing, such as print and packaging, but can also work well involving itself in agency relationships, Harley believes.

“There are a lot of different roles that procurement can play in an organisation and it’s not always just about cost. I think it’s a very broad generalisation to say procurement destroys value and the relationship between a client and an agency, because I’ve been in situations where they’ve actually created a lot of value.

“When I was at National Foods I actually ended up bringing somebody from procurement, who was looking after non-production spend, into my marketing department to help with both the procurement side of dealing with the agency as well as the relationship side. It was about really understanding where value was created and where costs came in, and then pulling that apart and making sure that the focus on cost was in the right place.”

 

Love it or hate it, procurement is here to stay. With more and more procurement professionals getting involved in marketing decisions, how do we best optimise these relationships?

Our next article on marketing and procurement will delve deeper into the practical reality of this situation.

Michelle Herbison
BY Michelle Herbison ON 3 September 2014
Assistant editor, Marketing Magazine.