Monthly Archives: June 2015

Navigating & Keeping Up with Digital Agency Landscape: Part III


In this three-part series of articles, Kathleen Jordan, Associate Director at Source One Management Services takes a look at the complex digital agency landscape and provides insight on the process of agency sourcing: considerations when sourcing, vast digital agency options, and the need for bridging the gap between marketing and procurement departments. Kathleen Jordan is a strategic sourcing subject matter expert with a wide range of experience in the marketing category who works closely with marketing professionals and helps alleviate challenges encountered when overseeing agency relationships.

In Part I of this series we reviewed common considerations for sourcing digital agencies. Then, In Part II, we took a look at the vast types of digital agency options and what they mean for a company’s sourcing strategy. Today, in this third and final part, we discuss the importance of aligning Procurement and Marketing for Digital Agency success.

Marketing and Procurement teams may not always see eye-to-eye. Both teams have different goals, measures for success, and serve as unique functions in an organization. However, the digital space is a fast-paced environment with various options and the alliance of these two departments when sourcing digital agencies can have substantial strategic benefits for the company overall.


Procurement can help Marketing identify current trends and potential risks.
Marketing strategies are constantly changing, altering what services agencies provide. A thorough RFP process will bring to light an agency’s service portfolio (or lack thereof) not only for current marketing campaign initiatives but also with respect to future strategic options. This process also highlights pricing options and helps provide insights into industry standards.

Procurement can identify areas of improvement in compensation structures and contractual terms and conditions.
This helps Marketing optimize their budgets. Procurement teams have a deep understanding of company budgets and possess a whole slew of strategies to stay within them. Aligning these two departments helps ensure that the Marketing budget is used wisely while ensuring that contracts are put in place that drive further value from the products/services purchased.

Procurement can also carry out a proper end-to-end agency search.
This ensures that the selection criteria are met and that only an agency that can deliver what they pitched with full transparency and strong execution is onboarded. Beyond pricing, properly defined RFPs can provide marketing with a full view of how agencies compare in their offerings. Sourcing an agency that is a creative fit is also important; Procurement teams can facilitate the process for identifying agencies that are not only budget friendly, but also suit marketing’s creative vision.

Procurement can also help Marketing enhance contracts to include KPIs based on metrics that can be tracked on a regular basis.
This ensures that Marketing is able to effectively measure performance. As mentioned in part one of this series, there is the potential for scope creep, missed deadlines, and poor communication when seeking outside help from an agency. Procurement’s involvement in the sourcing process can help prevent these challenges by putting performance metrics in place from the start. This vendor management structure can help boost productivity but also foster a strategic relationship between the Marketing organization and the digital agency.

In some cases, bringing in a procurement consulting firm may be helpful in bridging the gaps between Marketing and Procurement teams. The right Procurement consulting firm will have the needed category and relationship-building expertise to align the two different departments. They can act as a mediating force that remains close to the goals of each team with the objectivity needed to maximize success.

Options for digital agencies are aplenty. Full-service digital agencies, handling all work from strategic and creative to media and production, can serve as a good fit if you are seeking out a one-stop shop and are looking for the ability to ramp up and down quickly and easily with a dedicated account team. Smaller shops give you greater visibility into their processes and your account may be considered a key one in which you have the attention of agency executives. More niche agencies can also provide you with access to greater expertise given they have a focus on one core competency and do it really well. Overall, there are benefits to both agency models and Marketing and Procurement must collaborate to determine the benefits that will meet their company’s objectives and pursue those opportunities further.

Sourcing Your Salary: What Should You Be Paid?

This is a good question. Not only are salaries in the Procurement profession all over the map, but so are the salary surveys and reports produced by different organizations, including the ISM, CAPS, and the APS. However, these can sometimes be hard to get, and, with the exception of the ISM, not regularly produced.

But there is an alternative, and now that it is in its fifth year, it is becoming a very reliable one. That alternative is the Next Level Purchasing Association Annual Salary Survey, and it is a survey you should be familiar with. This survey, which collected data from over 1,300 participants, provides very reliable salary data for North America (39.6%), Africa (24.9%), Asia (22.9%), and Europe (7.1%) and starting data points for South America (3.2%) and Australia (2.3%).

As expected, the highest salaries are in North America, followed by Europe, Asia, and Africa; the average supervisory salary in North America is almost 50% more than the average salary, compared with 30% more outside North America; and salaries increase according to position title. And, despite the proliferation of equal opportunity employment advertisements, we should not be that surprised (especially given the number of women in corporate board rooms), that male procurement professionals not only make more money than their female counterparts, but they also get more higher-level opportunities. And, as those of us who have both climbed the ladder and jumped ship know, Procurement professionals who are recruited from the outside make more than those who are promoted from within. Once you’re inside, you’re on a standard progression track with a small raise tied to each progression. But if another organization is desperate enough, you can get the high end of market value, even if it’s 30% more than you are currently making, and a signing bonus.

However, not all of the results are as one might expect. Two findings in particular that stick out are the facts that

  • Buyers of indirect goods and services make more than those who buy direct goods and services
  • The use and size of bonuses in procurement is trending steeply upward

While a decent amount of market intelligence and negotiating capability is often required to identify and seize the opportunity in an indirect (services) category, the expertise required to properly should-cost model a direct materials category such as custom hardware or aircraft engines is staggering. For any modern piece of electronic or engineered equipment, you often need an advanced university degree just to understand what you are buying on top of the knowledge required to do a great purchasing job, which will likely require a background in operations management as well. Given the average level of education and skill required for direct vs. indirect, one would expect direct buyers to be paid more.

And while the doctor has been promoting performance-based compensation in Procurement for years, because the right incentives can often produce absolutely amazing results (just like appropriately incentivized sales people can lead to incredible growth), it was not something he expected to see. The average (laggard) organization believes that a Procurement professional’s job is to save money, that she should do the best job possible (even if she has to work 60 hours a week), and that her only reward for going above and beyond and identifying hidden millions in savings should be knowledge of a job well done.

the doctor strongly encourages you to check out the Purchasing & Supply Management Salaries in 2015 (Login required) report. A Basic Next Level Purchasing Association (NLPA) Membership is required, but basic membership is fee and Sign Up is simple.

Time to see how you stack up.

How Do We Solve the Top Procurement Challenge?

A few weeks ago, we mused on what is the Top Procurement Challenge when the average Procurement organization has so many challenges to deal with and indicated, for many organizations, the top, immediate, procurement challenge might be to align Finance and Procurement on the ROI of platforms and processes Procurement wants to implement for the good of the organization because, in many organizations, not only do we have the situation where Procurement don’t get no regard, but we also have the situation where they don’t get no money for essentials either, trying to survive on life-support when over half of organizational spending goes through them and organizational livelihood depends on them.

But how do we accomplish this alignment? How do we align Finance and Procurement on the value of good Procurement processes and platforms when everyday Finance sees proposals from various departments proclaiming mega (but unrealizable) savings and has an instinctive negative reaction to any savings claim put in front of them. Especially when Procurement and Finance don’t speak the same language. As far as Finance is concerned, a model only depicts savings if it is described in terms of ROIC (Return on Invested Capital) or ROE (Return on Equity) against the organizational balance sheet. It has to include not only financial outlays and expected cost reductions but overhead, indirect costs, assumptions, and potential variations due to unexpected interruptions.

The model has to be conservative, all risks have to be clearly identified, and the best and worst case savings ranges have to be precisely defined, with conservative estimates all the way. The savings process has to be outlined, the timeframes (especially if implementations and integrations have to be accomplished) and ranges have to be specified, and contingency plans have to be defined for delays. Only then will Finance even listen and start to take Procurement seriously.

But even then Finance may not understand how Spend Analysis or Decision Optimization can save 10% or more. Especially when previous investments in “analytic” technology resulted in glorified reports that resulted in no savings and previous investments in “auctions” supposed to “optimize” spending with the market, which had limited success in the beginning, ended up increasing organizational costs when demand started to exceed supply and inflation returned.

And convincing Finance might not always be the best idea because explaining that Procurement is not doing an optimal job might result in negativity, or even hostility, from Finance that might believe Procurement is doing a very lousy job if 10% savings are feasible. Finance might not be capable of realizing that sometimes global sourcing scenarios are so complex that it is literally impossible to get a grip on everything in a spreadsheet and there is no way any human can find an optimal solution to a complex sourcing problem without a sophisticated decision optimization tool that might have to analyze millions of possible award scenarios to find the best one. Nor can any human attempt to make sense of millions of transactions with a real spend spend analysis system that allows the user to cube, slice, and dice the data in a myriad of ways looking for patterns that simple reporting systems will forever miss. Procurement could be doing an exceptional job under the circumstances but still be leaving 10% on the table — 10% that can never be claimed without proper technology.

It’s a puzzler to say the least.

Technology Damnation 94: New Industrialization Era

Progress is good. Innovation is good. Invention is good. Until it destroys your business model. And that’s what’s about to happen, because unless the supply chain can adapt, the organization won’t survive. Because it’s going to be spotted by the supply chain first, it’s going to impact the supply chain first, and it’s going to distort the supply chain first. In fact, the new industrialization era is already revolutionizing global supply chains, and if your company hasn’t caught up, it may soon end up in the obituaries. Even some of the largest companies in history couldn’t survive the changes brought on directly and indirectly by technological shifts, including the South Sea Company (which was, adjusted for inflation, the third largest company in history in 1720), the Mississippi Company (which was, adjusted for inflation, the second largest company in history, also in 1720), and the Dutch East India Company (which was the largest company in history, adjusted for inflation, in 1637). These were all bigger than Apple, Microsoft, Google, and Facebook — which could all become blips in future decades. And even if you survive, you can fall from great heights to obscurity. Consider the Hudson’s Bay Company, founded in 1670. It’s still around, and has assets worth almost 8 Billion, but even a considerable number of Canadians aren’t likely to mention it, if they even know if it, if asked for prominent Canadian companies, instead citing companies such as Tim Hortons (sold again for 11.4 Billion last year), Imperial Oil, the Canadian National Railway, and Rogers (if they don’t realize that our biggest companies are actually are banks).

Three changes in particular are going to disrupt your supply chain in the near term, so if your supply chain is not ready, it better get ready. In no particular order they are:

3-D Printing

Those of you following SI’s landmark series on The “Future” of Procurement and the “Future” Trends Expose which basically clarified once and for all that the vast majority of “future” trends that were being touted by the average analyst, blogger, speaker, and vendor were actually trends that were years old, decades old, and, in some cases, centuries old and that while a handful were still relevant (as they are still emerging and only affecting the leaders), only a few trends being touted as “future” trends were actually recent enough to still fall into that category. One of these was 3-D printing.

As stated last September, while 3-D printing is not a new technology, as this year is its 30th anniversary, it was only in the last decade that it became accessible to more than a handful of businesses and only within the last few years that it has become widely accessible and affordable. Now that the technology is becoming mainstream, it’s entering a rapid maturization phase in which it’s going to become better, faster, cheaper, and infinitely more powerful. As a result, prototyping is not only going to become more rapid, but more powerful. Engineers will be able to iterate through multiple prototypes in rapid succession without having to wait six (6) weeks for the next iteration from the plant in China. Not only will this support the increasingly shorter and more complex product life-cycles, but it will help reduce failure risk and associated costs, and increase innovation potential as now you can try the product before you commit to a production run.

Robotics

Robotics is not new, and many factories, such as automotive plants, have been investing in automation for decades. But recent increases in computing power, hardware production, and control systems coupled with open source systems such as Arduino have revolutionized the ability for even garage start-ups to build elaborate control systems, create advances in robotic automation, and even unmanned vehicles for air, sea, and inhospitable (volcanic) environments. Space age developments can literally be done in a garage workshop. So it won’t just be your largest competitor that you have to fear, but an unknown start-up that can revolutionize a production process and decrease the cost of production by orders of magnitude.

Bio-Plastics

Bio-plastics are new age plastics that are derived from renewable biomass sources that are more environmentally friendly (as they are biodegradable) than petroleum base plastics. Although they are currently more costly, and in some case, more environmentally damaging to produce than traditional plastics, the inflection point is coming and then your competition is going to have cheaper packaging that is more accepted by the market than you. And while the focus now is on packaging and industries like electronics and automotive where injection moulding is required, they could even have applications in medicine. Think about liquid bandages. Variations of bio-plastics might lead to the (accidental) discovery of better, and safer, polymers. Bio-plastics might have less risk of leaking when used in casts. And so on.

And this is just the first wave of disruptive innovation that your supply chain has to deal with. More waves are coming. While progress is wonderful at a societal level, for those organizations not ready, it’s damning since the very nature of innovation means that for something new to emerge, something old has to die.