As defined in Part I, this summer the Value Framework Initiative co-sponsored by CIPS (Chartered Institute of Purchasing and Supply), the IPA (Institute of Practitioners in Advertising), and the ISBA (Incorporated Society of British Advertisers) released a report entitled “Magic and Logic: Re-defining sustainable business practices for agencies, marketing, and procurement”.
This report “identifies best practice methodologies that can be used jointly by agencies, marketing, and procurement to work together in their efforts to produce ‘profitable ideas that make profit’. Knowing that profitable ideas result when all three parties recognize the ‘magic/logic’ distinction and vigorously pursue the improvement of both with an appropriate balance”, this report is designed to be a guide for marketing, agencies, and procurements to get more out of their relationship.”
The report also notes that “Procurement can help marketing deal more effectively by disciplining the process and aiding marketing in the identification of precisely what it is they are seeking. They [Procurement] can bring consistency to briefing, standard contracts, fee structures, and reporting, and insure that third party supplies are purchased effectively. They [Procurement] can help control the relationship, maintain consistency in their organization’s dealings, measure effectiveness and outcomes, and help quantify, as well as increase, the value of the relationship (which is not cost, but ROI).” Furthermore, “Procurement can also help the agencies increase their value by working with the agencies to improve their management and processes, thereby increasing the value of the services offered by the agency. Procurement is also the entity that is best suited to identify the win/win during negotiations.”
The report concludes with detailed recommendations for agencies, marketing, and procurement alike, and what I would like to point out are the recommendations for procurement which are:
- make the effort to understand what you are buying when you buy agency services; understand that quality of outcome is highly correlated with cost and return on investment is a better measure of success,
- be more open about your agenda … after all “a failure to communicate creates a vaccuum that will be filled by lies, poison, and drivel“,
- look for ways to work with agencies to help them be more efficient, and
- help marketing be more disciplined.
The reason I want to point these out are that these are best practices that hold true when working with any third party service provider, procurement outsourcing agencies included! The same maxim holds true for services and direct materials: cheaper is not always better. Quality and return on investment (with the ultimate goal of value) should be your metrics of choice.
Open and honest communications will in turn inspire open and honest communications from your potential provider. (And if it does not, find another provider.)
Finally, you are always in a position to assist third parties in improving their efficiency, just like you are always in a position to help your own organization become more efficient. With the possible exception of engineering/production, no other division needs to be anywhere near as efficient, value conscious, and metric focussed as procurement in order to get business done and look good. Marketing looks good if they boost brand recognition. Sales looks good if they boost sales. Finance looks good if they find ways to trim the buget. But unless procurement measures, manages, and shows value in everything it does, it tends to get overlooked because it will otherwise be looked upon as the division that spends money, not the division that saves it.