Do brand owners know that they do just about everything right to make their vendors more expensive? Do brand owners know that it's often the marketers who are the cause of procurement not getting the best deal possible? Risk key relationships at your peril.

Marketers put their own operations and relationships with important suppliers at risk when executing a 3rd or 4th round of cost cuttings. An efficient marketing environment and better performing marketing procurement department is all about understanding dependencies and sharing information. If you focus on this, then lower costs will follow.

A few months ago we conducted a Marketing Resource Management (MRM) scan for the marketing procurement department of a large multinational. Our task was to analyse the potential efficiency gains and to design a blueprint for the procurement process of promotional items, POP material...well, basically everything except media buying. Before our involvement the client already executed two - successful by the way - rounds of motivating vendors to be cheaper. They ran just as many campaigns as the year before, but an X–amount cheaper. An X in capitals.

The brand owner stretched the vendors’ financial flexibility to a maximum and stretching it only a bit more meant snapping years of successful business relationships. When we walked into the office of an advertising agency to do our MRM scan, the managing director welcomed us with coffee and his opening statement: “ah, the inquisition has arrived”.

It took about 15 minutes until he realised that we had not come for a third round of budget discussions. With the current processes in place this was the maximum. It became apparent that the reason why the vendor was still relatively expensive per project was because he had to absorb all the inefficiencies of the marketing process prior to the procurement phase.

The external agency started projects that eventually got cancelled. The external agency had to train rookie marketers because knowledge about campaigns wasn’t available at the brand owner. The external agency worked after office hours because all project were last minute exceptions with fast approaching deadlines. Basically the brand owner did just about everything right to make the vendors more expensive. And he expected them to work cheaper! The managing director’s face looked emptied.

Value instead of price

A better performing procurement department is not only about getting the best price. At the MOM (Marketing Operations Management) symposium in New York we had the honour to chair the track on marketing procurement. After years of reducing prices and margins at the vendor side, there seems to be a trend towards looking at the ‘value’ offered by vendors.

Kathy Welker, Associate Director, Marketing Purchases at Procter & Gamble stated that P&G USA decided to work with fewer vendors and to recognise their strategic value for the company. Since the primary driver isn’t the price only anymore, the confidence and involvement from marketing services towards the procurement function increased drastically.

Gary Lee, Chief Operations Officer at Ogilvy North America stated that accountability towards procurement has its price. Representing an agency, he estimated that 15% of every hour is spend on registering where that hour actually was spend. It is up to the brand owner whether or not this investment is justified. Cynics would say that these interesting findings wouldn’t be found if activities weren’t traced at all. At least a future decision is based on facts and not a gut feeling.

The marketing and procurement gap

A recent study (http://www.ana.net/pdf/Barbarapresentation.pdf) revealed that marketing and procurement disagree on procurement’s effectiveness. Over 70% of the procurement respondents rated themselves as exceeding cost savings expectations, but just 20% of the marketing respondents said they had. The organisational structure, a mostly separate procurement function, may be an impediment to a better relationship.

Last year the Association of National Advertisers conducted a Marketing and Procurement Survey involving 122 Marketing manager and 68 Procurement managers. The results show that "Marketing and Procurement are not aligned for their current and future role and need to build bridges".

If you as a marketer want to bridge that gap, please bare in mind that Chief Purchasing Officers (CPOs – nothing to do with Star Wars!) believe that the following items are 'challenging' with respect to the marketing procurement space:

• Strategy - Keeping priorities aligned in the ever changing environment
• Timing - Marketing wants everything to happen yesterday
• Team - Ensuring that all parties are aligned despite potential obstacles
• Decisions - Marketing strategies are too fluid to nail down supplier deliverable
• Suppliers - Long term relationship of incumbent suppliers where trust and communication is primary but pricing is at a competitive disadvantage

The ANA suggests that we start here in search for a better marketing procurement process. It is a good start, but as far as we are concerned, it isn't cracking the code of an integrated approach to marketing procurement yet.

Build bridges

An efficient marketing environment is not about adding up the most efficient sub-processes. You can win the battle, but loose the war. An efficient marketing environment and better performing marketing procurement department is understanding dependencies and sharing information.

The earlier procurement gets involved in a marketing campaign, the better the price. E.g. there is more time for vendor selection, tendering en bidding, shipments from exotic (cheaper) destinations etc. Furthermore, a staggering amount of marketing projects get cancelled when procurement walks in because marketing budgets turn out to be insufficient and timelines too short. These facts would have been known at an early stage of the project if existing information was shared throughout the entire end-to-end process from the start. The marketing operations department and procurement department can provide vital information concerning planning windows and pricing of suppliers.

Marketing is one of the last business functions where major efficiency gains are still possible. Time and money savings between 20% and 50% are realistic. The implementation and usage of Marketing Resource Management software can contribute considerably to a better marketing- and procurement performance.

A collaboration module creates transparency and offers sanity checks in an early stage of projects. However, only 1/3 of these savings are directly linked to marketing automation itself. Process innovation and consolidation of content and materials are equally important. A better insight in usage of assets and control over the brand is desirable. Companies that create a solid MRM infrastructure show significant better results and a more powerful and better armoured CMO at the board table.

By Frans Riemersma & Romek Jansen
Founders of MRMlogiQ & MarketingGovernance.com

www.mrmlogiq.com
www.marketinggovernance.com