If you mention the words purchasing or procurement in a marketing services arena you will probably find you get a very mixed reaction. Purchasing could be called something of a ‘hot topic’ in the marketing services industry at present and however heated the debate becomes, there is no doubt it’s here to stay. Depending on who you listen to will depend on whether you believe the future to be rosy or an uphill struggle with no end in sight.
Purchasing, as a business discipline, has itself been through many changes in the past 30 years or so. In the 1960s and 70s the approach taken by professional purchasers was adversarial, with a very clear ‘them versus us’ attitude. This led the purchaser to battle constantly with the supplier basing the relationship on buying at the lowest price possible and not a lot else.
In the 1980s, the relationship between purchasers and their suppliers changed and focused more on working in partnership, with the lowest overall cost of a product or service (not just price) being the priority. In the past 15 years we have seen a more balanced and strategic approach within purchasing, led by market complexities and change management having a very influential impact.
As purchasing has become more crucial, the scope to what an organisation purchases ‘strategically’ has broadened. After raw material costs, marketing can be the second highest spend area for a company. Traditionally however, purchasing has been aligned with buying the more tangible products the raw materials the ‘items’ that physically allow an organisation to operate and not perhaps the more specialist areas such as marketing and advertising.
There has been a major step change in recent years with marketing spend coming under closer scrutiny of purchasing departments. The logic is that marketing spend should be treated any differently to any other purchase: it’s company money and spending it in the best way possible is the duty of the professional purchaser.
All this said, purchasing marketing services is still a fairly new concept, but marketing isn’t. The structure of how marketing is planned and executed may be where some of the initial problems lie. Marketing budgets are often campaign focused and don’t split out costs for individual items as other goods and services may do. Also it will often be found that the more traditional purchasing models don’t fit the buying of marketing services.
There are issues for both professions to address here. The fact is they can and are being overcome by organisations who are reaping the benefits from these two disciplines working closer together.
The Boots Company which recently achieved recognition at the 2004 Chartered Institute of Purchasing & Supply (CIPS) Awards has proven that there is great success to be achieved from working together.
In 2003, Boots marketing and procurement announced a complete retender of its advertising and marketing budget, a contract worth £90 million. The strategic marketing director involved the purchasing team from the start of the whole process and integrated them completely with the project.
Jon Wilkins, partner at the agency Naked, part of the winning agency consortium, said: My general experience is that procurement people either don’t take the time to understand our business or they only come in to deflate us once we’ve won a contract…playing a steering role through, rather than simply picking up the pieces afterwards, is a good model for others.
One of the issues that has underpinned how successfully the two professions have worked together has centred on understanding or lack of it. The image of the purchasing profession has been a sticking point it is seen as focusing on the price-per-unit and concentrating on margins and bottom lines. But purchasers like everyone else in the value chain also focus on creating value, driving quality and improving processes.
A joint survey between CIPS and Edelmans in 2003, which focused on quality and value creation, concluded that from all people in the party whether it be the marketer, the purchaser or the agency working together creates value for all. Both client marketing and purchasing departments reported a change for the better in their joint working practices and measurable increases in return on investment.
But the results did show that the purchasing department was more involved in the buying of design and print than in areas such as PR and sponsorship the areas that are perhaps a little more blurred when it comes to ROI.
One of the other issues uncovered by the survey was the timescale and how far into the project that the purchasing department was able to get involved. It’s no surprise that the majority of involvement was happening at the auditing and monitoring stage and the actual contractual buying of the service. Developing the brief and attending the pitch were by far the areas where purchasing was struggling to have any involvement.
In some ways it can be argued that the early stages of the process the development of the brief and attending the pitch are where the purchasing expertise is needed. However, by completing that stage of the process and only then bringing purchasing on-board, purchasing is playing catch up and will not understand any of the decision process up until that point, hence fuelling the lack of understanding argument.
The agency involvement in this debate has also caused a few ripples. The agency has often been seen as the bad guy, shunning purchasing departments and their involvement as it intervenes in what is viewed as the ‘cosy’ relationship between it and the client.
Maybe in a few cases this has been true, but more and more agencies are realising the involvement of purchasing is an opportunity; especially as these days many pitches are attended by not only the marketing client but their purchasing representative also.
For the two professions to work successfully there has to be a greater understanding of each other’s specialities. There has to be an investment in building the relationship, managing each other’s expectations and ensuring objectives are mutually beneficial, especially when agencies are involved.
At the 2004 CIPS Purchasing Marketing Conference, keynote speaker Sir Martin Sorrell, CEO of WPP, stated; If you treat an agency as a supplier you will eventually get a commodity…but a partner who can invest in your business will help you build it with great ideas.
It is typically the agency fees that attract the most attention (or criticism) but often this will serve as only 10-15 per cent of the total project. There are a couple of different methods that have been tried over recent years to try and end the ‘fees’ debate these include resource fee package (RFP) and payment by results (PBR).
RFP arrangements have led to clients feeling the need to micro-manage the agency and scrutinise timesheets, where as the agency may feel the need to add more people to help increase income. The PBR approach has meant that agencies have had to work on a break-even basis, and if all clients operated this policy the agency wouldn’t be able to stay in business.
Some agencies have come out fighting with their own solutions to help resolve such issues, facing up to the reality that purchasing and its involvement is here to stay at the same time as making the most of the opportunity. Grey Worldwide made the decision to hire Tina Fegent who had previously been procurement chief at mobile operator Orange. Tina is employed at Grey as commercial director and has been in her post since the summer 2003.
Abbot Mead Vicker BBDO and Mediaedge have also employed specialists in this field with objectives of merging the client side of the contract and the supply contracts.
Sir Martin Sorrell set out his stall in the WPP annual report by stating: Fees, procurement, and outsourcing bring opportunities as well as threats. We have set ourselves the goal of being the undisputed lead of procurement practice in the global advertising and marketing services industry.
The challenge for the future is one of relationship management. For some organisations, not all, there is a great deal of work to be done before the organisation can reap the rewards of the two professions working hand in hand rather than at arms lengths.
The ideal picture is one of a cohesive working practice amongst all involved parties the marketing client, the purchasing client and the agency.
