With the wintry economic conditions it is a good time for procurement to revisit the troublesome task of bringing marketing expenses under better control. Done well it is possible to transform this notorious category of complex and often inefficient spend into an area of best practice.
And with the current downturn the ability to effectively manage marketing costs will start to separate the winners form the losers.
FISH WHERE THE FISH ARE
Even the brightest and best-intentioned procurement managers "round up the usual suspects" when trying to reduce marketing expenditure efficiencies. Foremost among these are creative agency's annual fee, the media company's percentage commission and various hourly rates related top agency provision of production and promotional development services. These are important spend areas that should not be ignored, but in most cases have already been extensively investigated and are only likely to account for around 15 percent of total marketing period.
The good news is there's no shortage of unproductive spend in areas offering both scope for measurable results and sustained cost improvement. For example, most procurement teams have no reliable understanding of the current costs and processes in the often opaque area of advertising production and fulfillment (the process after the creative side is complete), whether for the traditional media of TV, press and outdoor, or the growing category of digital/online.
It is now relatively straightforward to access reliable external cost benchmarks for all these activities against which a persuasive business case for change can be built. The typical outcome of such an approach shows potential savings averaging 25-40 percent. Savings can also be found in the consolidation of marketing print, although this is a more widely trodden path reflecting the emergence of able and reliable suppliers in this area. There is still plenty of scope, however, for further centralization not only of marketing print (point-of-sale materials including display stands near tills, etc) but also by integrating across broader categories of print-related activity including adaptation or artwork, proofing and even storage and distribution. Other areas of marketing spend, including marketing premiums (giveaways and promotional items) and merchandising equipment (whether for in-store display or to support events and exhibitions), could also be consolidated to create savings.
Procurement will often find considerable upsides by exploring bonuses and performance related remuneration. Achieving a well balanced relationship can result in these elements accounting for upwards of 25 percent of the agency remuneration and procurement is ideally placed to act as impartial negotiator and gatekeeper. Both the marketing team and agencies are fatally hampered in such negotiations. Each has their own compelling vested interests compounded by a lack of skill in creating a transparent, fact based incentives model.
In other words, it is hard when the agency stands to make considerable additional revenue and marketers face paying out extra cash from their budgets, which are invariably under pressure. A greater level of purchasing involvement in this area will drive better efficiency and help to refute the widespread marketing perception that procurement cannot differentiate between "cost" and "value".
THE DEVIL IS IN DETAIL
For marketers and their agencies finding the next "big idea" is a constant preoccupation and in many ways their reason for being. This single minded pursuit of the big picture may explain why inefficiency , opacity and casual third party relationships often exist within the marketing supply chain.For purchases the ability to segregate types of marketing expenditure and identify " non-productive" elements is crucial to achieving sustainable savings. They must develop a detailed understanding of marketing processes within each major expenditure category. This understanding needs to be supported by analysis showing how money flows through the supply chain.
It is only after this has all been mapped and understood that it is possible to benchmark key cost components-most usefully against current market rates. When his benchmarking is complete it will be possible to understand the issues and opportunities and to assess a variety of strategic options.
Mastery of the detail is also critical to implementing new plans-it will be used to support the business case for change with marketing stakeholders and overcome any objections from agencies when they perceive their revenues may be under threat.
ALL FOR ONE AND ONE FOR ALL
The Three Musketeers could serve as useful role models for the modern truimvirate of marketing, procurement and agencies.A lack of understanding about a purpose and objectives of procurement means it is often kept at arm's-length by marketers and their agencies. Yet a cry heard at many open forums is for procurement to become more "engaged" and to "empathize" more with their marketing more with their marketing colleagues by attending meetings, visiting agencies and understanding the creative process.
Helpful as this is in the most general of ways, it is hard to see than token improvements in team cooperation.
To help purchasers to build up relationships with these partners it's worth them bearing in mind that marketers- and even more acutely agency teams-are, at heart, problem solvers. It is a dominant and even subconscious part of their modus operandi.
Experience has shown that when involved in addressing an interesting challenge, both marketers and agency partners usually engage enthusiastically.
Sharing a common problem among procurement , marketing and agencies , such as "how to reduce expenditure by 4 percent without impacting activity, quality or response speeds", is far more likely to result in positive engagement than tentative role reversal.
Even the Three Musketeers found the occasional use for extra help and the same is true for procurement, which is perhaps less versed in working with external resources. In many cases, without external support the ability of procurement to bring marketing expenses under influence will be compromised.
The potential savings from optimizing marketing expenses are more likely to be in the millions than the thousands. So it makes solid economic sense for procurement to engage with external resources to bring the economies to bear as soon as possible.
There can be little doubt that the economic downturn will have a galvanizing effect on marketers who previously have proved a significant obstacle to procurement's goal of "spend under influence".
Procurement teams will however have only a limited period to take advantage of this before the economic cycle turns and old habits return.
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| GA Business and Management Consultancy |
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