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A comprehensive whitepaper from R3 Worldwide examines how to optimize procurement for marketing, building a mutually supportive relationship between both parties which cannot be underestimated.
Diverse agency models, programmatic media buying, and issues of transparency and ad fraud have put the spotlight on the value added by marketing procurement
Procurement: Marketing’s first line of defence
Procurement has seen tremendous advancement in the last decade. From being managed by each line of business without much visibility across other departments to functioning as advisors to the C-suite, procurement teams have had to shift from doing tactical work to delivering strategic insight.
In marketing, procurement is growing into its role as marketing’s “first line of defence,” and this has made it more present and valued as a central part of any successful marketing operation. Transparency, data privacy, ownership and talent costs can impact brand reputation and operations, and as a result, procurement’s responsibilities include protecting marketing from increasing instances of fraud in digital and media buying; ensuring contracts are aligned on scope and requirements; assuring transparency in vendor selection; and finding ways for savings to be cycled back into marketing initiatives.
In our experience working with marketing and procurement teams, we have seen that a mutually supportive relationship between both parties cannot be underestimated. Alone, procurement might have a stronger focus on cost, risk and process, while marketing looks to deliver on sales and brand. Together, they drive overall brand innovation, performance and intelligence. Achieving this requires collaboration, clear lines of communication, accessibility to new technologies, and joint goals – for without a common purpose true integration is not possible.
This white paper provides some key insights, case studies and recommendations for best practice to help marketing and procurement teams have better collaborative partnerships. We hope you find it useful.
Below are extracts from the whitepaper Optimizing Procurement for Marketing
To download the full whitepaper including helpful infographic charts and case studies click HERE.
Improved Perception, Greater Involvement
The most visible evidence of the improved perception and value of procurement within organizations is in the growing number of procurement professionals. In the US, positions in purchasing and supply chain management increased almost 38% from 2001 to 2015, according to the Chartered Institute of Purchasing & Supply (CIPS). Overall drive for greater corporate sustainability, transparency and best practice have driven much of this growth, though policy-related issues like GDPR and geopolitical uncertainty have also contributed to demand.
In the area of marketing, diverse agency models, programmatic media buying, and issues of transparency and ad fraud have put the spotlight on the value added by procurement. With the growing importance of corporate sustainability, procurement informs suppliers of requirements derived from corporate values, and consequently these suppliers will inform their suppliers, creating a compound effect throughout the supply chain.
How Marketing Procurement is Different
It is very important to articulate the ways in which marketing procurement is unique. Techniques applied in direct procurement functions do not work in vendor negotiations with agencies, nor can stock standard approaches be beneficial in measuring the performance and ROI of media buying.
The Marketing Procurement Mandate
When a company invests in marketing activity, the intent is to drive sales and there is an expected return on marketing investments.
As a result, the goal of marketing procurement as strategic sourcing is to deliver the greatest value rather than always driving to the lowest cost. Marketing outputs which are produced for the lowest possible cost but then fail to deliver marketplace impact may negatively affect revenue and/or ROI.
Unique Vendor Requirements
Competitive sourcing is different in a marketing context. Often, what is being purchased is one of a kind and does not have reasonable substitutes. Each agency pitch is different and the creative content between agencies is not necessarily comparable. Likewise, a sponsorship opportunity is unique to a given property or event. As a result, there is less competitive leverage when negotiating these services.
Agile Response & Solutions
Marketplace opportunities and challenges are fluid and often immediate. The need to respond to competitive threats or seize emerging business opportunities requires marketing procurement to be nimble and responsive. As a result, those accountable for supporting marketing must be creative in their approach. The procurement process must meet the needs of the business rather than being a static framework.
With other types of indirect spend (such as office supplies), it is possible to forecast demand from year-to-year. This enables a methodical approach to sourcing and minimizes the impact of unknown influences. Marketing, on the other hand, can be highly variable year-over-year. Product modification, organizational changes, industry fluctuation, consumer shifts, economic conditions, and so on, create a dynamic environment requiring a high degree of internal connectivity and communication.
Overcoming the Challenges
There are four common challenges when integrating marketing and procurement functions:
Solution: Decide on the value procurement will bring
Procurement has a holistic view of an organization which can lead to the breaking down of internal barriers and the reduction of duplication across the business. There are seven value adds that procurement can bring, depending on which type is chosen:
Also by R3: Measuring ROI in China’s Influencer & Entertainment Market
Three common types of procurement activities:
This is all about cost reduction. This type of procurement is the process of looking for, finding and removing unwarranted expenses. There are times when it is appropriate to remove cost, however, in complex situations a full impact analysis should be completed.
This type of procurement is about cost reduction, cost avoidance and risk mitigation.
This type of procurement includes the traditional areas plus ROI, partnership, cash flow and revenue increase. Value creation is a process which provides a sustainable competitive advantage. There are many ways of generating value which can be dependent on the situation, however, procurement is typically measured using these metrics.
While most marketing leaders recognize the importance of partnering with procurement, they don’t involve procurement teams at the onset. This is the result of a few factors, including the impression that procurement departments are still heavily focused on cutting costs from marketing spend. This exclusion usually leads to lack of clarity in the scope of work, without which, budgets and fees are not estimated correctly.
Solution: Set mutual goals and Key Performance Indicators (KPIs)
How and where marketing procurement can most effectively add value is a question on the minds of procurement teams worldwide. According to a study conducted by WBR (2016), 52% of procurement teams were confident that they were able to add value consistently, while 41% felt that their contribution, while occurring more slowly, added value incrementally. Only 7% of respondents did not feel they were able to consistently demonstrate added value.
Solution: Decide on governance
Once goals and KPI’s are established, the next step is to consider where governance sits. Some procurement teams opt to have a separate team of marketing specialists who have a background in procurement and strong financial management skills.
Solution: Determine the best team structure for your organization
While there are varying opinions of how best to structure marketing procurement, teams are often structured in one of the following ways:
Creating a Hybrid: Centralized and Localized
Procurement typically divides up marketing spend into categories such as point of service (POS), Print, Production and Media and then appoints category managers for each different area. This matrix can be incredibly complicated for multi-market and multi-brand organizations as spend, the number of suppliers and the ability to source the service regionally or locally all vary significantly. Many marketing sourcing teams have therefore looked to manage some categories centrally (sourcing creative agencies and design globally, for example), while running others from the local markets or regional hubs (such as Print or Media or Events).
Solution: Ensure the team understands your marketing strategy and operations
Marketing sourcing team leaders need to understand the dynamics of the marketing industry as much as they do procurement processes. Digitalization, the growth of social media and adtech and martech technology have already started to affect marketing procurement spend. Teams that have professionals who understand the issues and complexities of working with agencies and vendors in these areas will be better able to strategically align with marketing.
Procurement Roles That Migrate Well
Category Managers often have experience at event agencies, production houses or media buying agencies.
Supply Chain Managers
A lot of skills they have are transferable supply chain governance processes (e.g. HR suppliers, managing law firms) that can be applied to marketing agencies.
These buyers are typically e-sourcing or PO systems experts and can be brought in from indirect procurement.
Solution: Learn how agencies really work
Procurement departments often use many different agencies or suppliers.Managing these agency and supplier relationships is a core function forprocurement teams and doing so successfully remains a significant challenge.
About 70% of procurement teams manage up to twenty agencies or suppliers, and 30% manage even more than that. In order to manage successfully, procurement teams need to have a robust strategy to manage and assess their suppliers and streamline the roster, if necessary.
Solution: Schedule audits to ensure financial and process transparency
Reducing the operational costs involved with working with a (potentially) large base of suppliers and agencies is an important objective for marketing procurement teams. Therefore, having a transparent financial relationship with agencies is vital.
Nearly 60% of procurement teams consider themselves to have true financial transparency in their agency and supplier relationships. Regular auditing is the key to understanding what agency and suppliers are doing and where your money is going. A professional financial audit every three years is recommended and gives all parties insight into their processes and helps evaluate agencies and suppliers on the question of value vs. price.
DOWNLOAD the whitepaper here to read these case studies
A solid foundation needs to be laid to ensure that the relationship between
Marketing and Procurement is one of mutual support.
New roles need to be embraced by both departments if they are to see their work as being complementary. Procurement needs to regard itself as customer-solution oriented to help marketers solve issues regarding performance of suppliers, and Marketing need to see itself as a profit, instead of a cost center.
A key challenge for marketing procurement is that there are no common KPIs that all partners can rally towards. Each team and every agency have a different set of KPIs, which makes it harder to align towards a business goal. By establishing a measurement framework that includes qualitative and quantitative data, marketing and procurement teams will be able to see where and how value is being generated, and what the financial impact is over time.
Having a clear and joint understanding of what the total spend is for marketers and where the budget is going will be beneficial for procurement to understand the needs and requirements of marketers, and for procurement to better understand where they can contribute expertise. Spendmaps can shed light on the efficiency of current agency models, cost benchmarking and contract compliance.
Creating a marketing spend map provides clarity for both parties to questions like:
Procurement teams can achieve up to 8% in cost savings by using statistical models and analytics to inform their decision-making. Surprisingly, many do not make use of such systems and miss out on opportunities to negotiate stronger positions and better contracts. Information is power and money in the case of marketing procurement, and employing expertise that is able bring people insights, process functions and the capability of technology together to serve a view of what is happening is a valuable long-term investment.
Vendors are not psychic. They require information to be effective. A healthy vendor-supplier relationship management framework minimizes risks and effort, and considers the impact of strategic, operational and tactical areas in driving organizational accountability and responsibility.
Cost saving does not mean a decrease in overall budget. A key to successful fostering collaboration between Marketing and Procurement is to make sourcing about helping Marketing find additional funds for brand re-investment, and to measure the return, or savings, from these investments. Being efficient with spend means that Marketing can reallocate some of the savings generated by a sourcing program to put back into measurable top line-generating activities.
DOWNLOAD the whitepaper here.
About R3 Worldwide
R3 Worldwide was founded by Greg Paull and Goh Shufen, who, in 2002, combined more than 25 years of working experience in the US, Europe and Asia, to build a new type of consultancy focused on marketers and their Agency Reviews, Relationships, and Remuneration. As the consultancy has grown, we have expanded our service offerings to assist with Return on Media, Return on Investment, and Return on Assets.
The views and opinions expressed are solely those of the contributor and do not necessarily reflect the official position of Marketing Procurement iQ or imply endorsement from the publisher.