Category Archives: Best Practices

Too Many Marketing Fingers in the Procurement Pie? Then You Need To Run a Successful Event.

Once you get Marketing’s attention, you’ll probably be put on probation. Just because the CFO views you positively because you are helping the organization identify 5% to 20% savings annually in every category you touch, this doesn’t mean Marketing does — even if Marketing acknowledges that they need to get their spend under control and deliver more value. So you’ll be given permission to help with one or two “pilot” projects, and if you want to get on Marketing’s good side and take back the Procurement Pie, you will have to succeed and impress. This sounds easy enough, since you already have a standard five/six/seven step sourcing process which is generic enough to be applied everywhere, but, as always, the devil is in the details! Unlike most indirect purchases, it’s not as easy as searching a database or sending out a Request for Interest. Different agencies have different strengths, and different capabilities. Some can manage third party production houses, some can’t, for example. You need to have a firm understanding of what Marketing needs to help identify the right agencies. Second, evaluating an agency pitch is not like evaluating a physical product or manufacturing plant. What are you looking for, and what aren’t you looking for. Again, you need to have a firm understanding of what Marketing needs and a solid understanding of the lingo used by the Agencies as well as Marketing.

And you need to present Marketing with a clear picture of the process you are going to follow up-front and make sure that Marketing understands the process you are using and the critical importance of not circumventing the process, no matter how many times the incumbent Agency representative uses his direct-dial rolodex and asks someone in Marketing to let a requirement slide or just skip straight to the pitch. To get Marketing’s commitment, the process should look like it has been customized to them and use terminology they understand. If you need a good starting point, a recent paper by Source One Management Services, LLC. has a great process graphic you can use in their recent Marketing Insight Report on “Fueling Effective Collaboration: How Strategic Sourcing Delivers Results for Marketing Groups”.

Be sure to pay special attention to the following tasks:

  • Scope of Work (SoW) Definition
    This is what the agencies respond to and will determine not only whether or not the right agencies respond but how accurate their responses are.
  • Agency Identification
    You don’t want to send the SoW to an agency that you know is not appropriate or that would present a conflict of interest (especially if they are working with your direct competitor).
  • Market Assessment
    You have the RFI/RFP process down pat, but you are not necessarily experts in the Agency Marketplace or in what the standard rates are (or should be). This is where your benchmarking skills are really going to come into play.
  • Pitch Evaluation
    You have to make evaluations a qualitative and deliberative process on your terms, not a seat-of-the-pants decision in the Agency’s boardroom, which is what The Crazy Ones want you to do. You have to work with Marketing to build a quantitative scorecard that will be consistently applied to all pitches and select your finalist(s) based on the scorecard.
  • Negotiation, SoW, and Contract
    You know better than everyone that the way to avoid a contract dispute is to address and negotiate the issue up front because, as the saying goes, if you have to reach for the contract, then you’ve already lost the argument. This means leaving no “i” undotted, no “t” uncrossed, and no potential risk, no matter how small, unaddressed. This is your forte. You can make sure no stone remains uncovered, which greatly increases the chances of unblemished project success. (Which, to be honest, is often all Marketing really cares about.)You also know that you have to move Marketing away from just handing over the account and letting the agency run with the account to specifying detailed contracts, statement of work, budgets, and rate-cards as well as processes for selecting and managing third party vendors. You have to help Marketing make the agencies understand that while they can run free on creative within the boundaries specified by Marketing, print, production, etc. has to be managed according to guidelines and budgets.

While you won’t be thanked for your many successes, even though proper benchmarking and reporting will have you recognized by the CFO and CEO, you will get all the blame for any and all failures if you screw up just once.

Too Many Marketing Fingers in the Procurement Pie? First You Need To Get Their Attention.

Does this sound familiar? The CFO has mandated a 10% across the board spend reduction, and it’s Supply Management’s time to shine. You want to help, but, as expected, Legal and Marketing are refusing your help because, when it comes to litigation, you need the rain maker and when it comes to creative, you can’t put a process behind it and get results. As a result, Legal and Marketing costs are still spiralling out of control while you watch millions being wasted on e-Discovery, cookie cutter legal services, print, basic media production services, and unmanaged third party spend. Getting this spend under control could save Legal and Marketing so much that they could afford to pay even more for the rain-makers and creative geniuses they so covet, but still deliver savings and ROI to the business. But how do you get your point across?

The process is two-fold. First, find out who in the C-Suite wants you to get your message across and help the Marketing organization save money and have them strong-arm the Marketing leaders into a meeting with you in a wireless-signal free zone where these Marketing leaders will be forced to give you their undivided attention. Second, have a firm grasp of what you can bring to the table to help Marketing enhance their organizational performance and make sure you can convey it to Marketing in a crisp, clean, clear, and concise presentation.

Specifically, make it clear that you don’t just bring cost-cutting to the table — you also bring value generation support services which include, but are not limited to:

  • Decision Support
    Your expertise in supplier identification, profiling, and evaluation can help Marketing evaluate current relationships and identify new agencies that might more closely align with Marketing needs.
  • Benchmarking
    Your expertise in spend analysis and visibility can help Marketing get a grip on what it is spending compared to what it should be spending (according to existing contracts and rate cards) as well as a breakdown on how much is being spent on each category (print, media production, creative, etc.) and what opportunities there are for consolidation and spend reduction by leveraging volume and disassociating physical product-based spend from creative spend. (Since Marketing generates value based upon the power of the campaign they deliver, it makes sense to pay Phillippe or Eduardo the $500 an hour he wants for his creative genius if it generates a campaign that gets you noticed more than the competition. After all, he’s just one guy and even if he works 3 months on the campaign, that’s only $240K on what could be a 10M campaign. However, it doesn’t make sense to pay $50 an hour to a guy running the printer at Kinkos, especially since you probably are producing so much paper over the year that you are paying the equivalent of 5 guys at Kinkos to sit there full time and run printers, who should be paid $15 an hour. Net result, you’re overspending $350,000 for copy services — way more than the $140,000 you might save by hiring a second-rate creative genius who might end up generating a second rate campaign that actually hurts your brand and costs Sales $1,000,000 by cutting the wrong corner.)
  • Contracting
    You deal with negotiations and contracts day-in and day-out. As a result, you have the methodology to keep the process moving nailed down, the knowledge to know what needs to be addressed, the ability to work with Legal to create a standard Master Services Agreement template to streamline every negotiation, and the skills to put together an all inclusive Statement of Work that protects both parties and includes rate cards that are fair and beneficial to both parties.
  • Strategic Focus
    Marketing’s strength is in campaign management and strategic brand and product positioning, not in the tactical Procurement process, contract negotiation pitfalls, or the back-end project management, that is often left up to the agency. Your presence lets Marketing focus on it’s strength and not waste time on areas that don’t increase its value to the organization.

Of course, this is just the first step.

The Board Gamers Guide to Supply Management Part XV: Le Havre Part II

After being introduced to Le Havre last Friday, you played all weekend as the subtle complexity and inherent trade-offs challenged you to prove that your intuition and strategic reasoning skills could not be matched. You bested your team-mates, and after one play each night of the simple game in the iOS version, where you beat the Admiral Sabine AI on your 4th try, you think you’re ready for the full base game. But are you?

In the simple game, only 19 of the 33 buildings are used — typically these will be the Abattoir, 2 Building Firms, Bakehouse, Bank, Brickworks, Charcoal Kiln, Clay Mound, Cokery, Colliery, Construction Firm, Fishery, IronWorks, Marketplace, Shipping Line, Smokehouse, Steel Mill, Tannery, and the Wharf. With the exception of the marketplace and the bank, each of these was covered in our first post. In addition, you start off with one wooden ship, 5 francs, and 12 resources: 2 fish, wood, coal, iron, and cole and 1 cattle and hide. You are guaranteed of being able to feed your works and build something first round. Not so in the full base game (which goes 6 extra rounds). In the full base game, you start off with five francs and one lump of coal. No ships, no food, and no resources to build. And the marketplace, which gave you four goods in the base game, gives you only 2. You have to wheel and deal your way just to survive (and victory is a long way off).

The challenge of Le Havre, where you not not only have to balance food production (to pay your workers) with resource acquisition (to build your products), energy production (to power your manufacturing plants) and ship production (to distribute your goods for sale), is that you also have to build at the right time, use the buildings at the right time, and trade appropriately. If you’re too early or too late to the market with your goods, no one will buy them. If you don’t take advantage of opportunities, your competition will. And if you don’t secure transport during peak Christmas season, well, then, you’re just dumb. Furthermore, in the game of Le Havre, just like in the real world, only one player can use one building at a time, take an offer from the harbour and the resource type associated with it, or get points for a particular building or action. And the increasing food costs (payroll as your organization grows) make the game quite challenging if you don’t adequately prepare for food production (cash flow) from round one.

And when you scale up to the full base game, a lot more trade elements enter into the picture. Consider the following buildings not typically used in the simple game:

  • Arts Center: Each player occupying (using) one of her buildings receives 4 Francs from the treasury.
  • Black Market: A player visiting the black market may take 2 of each good whose offer space (in the harbour) is empty.
  • Bridge over the Seine: The player may sell as many goods as he wishes at the rate of 1 Franc for each upgraded good and 1 Franc for any combination of 3 standard goods.
  • Business Office: The player can exchange any four goods of his choice for one steel or one good of her choice for 1 charcoal, leather, or brick.
  • Church: It’s a miracle! Walk in with 5 loaves of bread and 2 fish and walk out with 5 more loaves of bread and 3 fish.
  • Dock: At the end of the game, the player who owns the dock receives 4 Francs for each ship.
  • Grocery Market: Receive 1 cattle, meat, fish, smoked fish, grain, and bread from the supply!
  • Hardware Store: Receive 1 wood, brick, and iron from the supply.
  • Local Court: Return 1 or 2 loan cards for free!
  • Sawmill: Build any building that requires wood for one less wood.
  • Storehouse: At the end of the game, the player with the storehouse receives francs for his unsold goods.
  • Town Hall: At the end of the game, each other public building owned by the player increases the value of the hall by 4 Francs.

When these buildings are added into the mix, there are more ways to get (valuable) goods (since each unit of steel requires 5 energy to produce), much needed food (as the grocery market yields the equivalent of 8 food units on a single visit), and money (especially at the end of the game). Trade becomes a much bigger part of the game, in terms of resources and buildings (as it is often advantageous later in the game to sell buildings acquired earlier in the game for those that give you monetary advantages at the end of the game). And the balancing act becomes tougher. (In fact, for those of you who acquired the iOS version, don’t be surprised if Admiral Sabine starts kicking your @ss again until you not only figure out that trade is the name of the game and what that means in the town of Le Havre.)

And this is just the beginning of the complexity. In addition to the full set of base buildings, you are also presented with 5 special buildings, put up by the town, that can be bought in each game. These are randomly selected from the set of 36 special buildings and include: 6 craftsman’s buildings, 14 economic buildings, 6 industrial buildings, 4 public buildings, 5 non-buildings, and a ship. The craftsman’s buildings, like the brick manufacturer or steelworks, give the player resource-based economic advantages. For example, the steelworks allows one iron and 15 energy to be exchanged for 2 steel (instead of the one-to-one conversion enabled by the steel mill). The economic buildings, like the guild house and mason’s guild, give players economic advantages during the game or at game end. For example, the guild house gives its owner 2 Francs for each economic building owned by the player at the end of the game. And the luxury yacht, which can be swapped for an iron ship, has a value of 20 Francs!

Le Havre really is a great game to test your supply management mettle. While it will take you a few hours to get through an intense four (or five) player session and prove your strategic supply management dominance, it really puts your thinking skills and your ability to balance supply with demand with opportunity to maximize the overall value generated to the test. Give Le Havre an honest go. You might just advance your strategic thinking and planning skills more than you bargained for. (And if you haven’t checked it out yet, don’t forget to try Le Havre on iOS. Remember to start with the tutorial, and then move on to the simple version of the 2-player game before moving on to a full 2-player game, and, finally, a full multi-player game.)

Indirect Procurement With Catalogs, Where Do You Start?

Today’s guest post is from Gert van der Heijden, the Executive editor of Spendmatters.nl, and is the English translation of his post, “indirecte inkoop met catalogi, waar te beginnen?”, that originally ran on March 27, 2014.

Organizational buyers are accustomed to thinking in Pareto analysis. This is because buying is an area where the 80/20 rule applies: 20% of the suppliers do 80% of the sales, and therefore these 20% of suppliers deserve the focus. As a result, when Procurement is designing solutions to improve compliance, they often end up with a solution that is inconsistent with what a buyer wants. One area where this often occurs is in the e-Procurement implementation of catalogs. From a Procurement perspective, it might make sense to get the spending under control, but for the end user in the organization, the critical issue is completely different.

An e-Procurement catalog implementation is only successful if the end user is lured to the catalogs and wants to use them without being forced. Compliance is only truly achieved when users follow processes of their own free will. Furthermore, one has to remember that it is the 20% of the suppliers who produce 80% of the invoices who have the most operational customer contacts and it is these 20% of suppliers who are most likely to disturb, and try to circumvent, the process. If the buyer doesn’t like the process, or it’s not easy for him to use, he will be easily swayed by the supplier (offering to make it easier with a direct order) to side-step the process and this will severely hinder your compliance effort.

A smooth process for the purchase of common items, like office suppliers, IT, and food in hospitals (for example), will provide the end user an optimal customer experience and an appreciation for the process. Only once these common, but critical categories, are fully implemented and meet the users needs, should the organization turn its attention to other, less common, categories.

One has to remember that success in e-catalog implementation and roll-out also comes from a proper application of the Pareto principle — focus on the categories that represent the majority of the user’s purchases first, and make sure the users want to use the system for these categories, and only try to go end-to-end once the staple categories are well in hand. That’s because when it comes to e-catalog success, the key is efficiency. That’s how you become truly effective with your efforts.

Thanks, Gert.

Decideware: Taking Agency Expense Management to the Next Level!

As per our recent posts, Decideware are the Agency Performance Management Experts, having brought end-to-end agency lifecycle management (Part I, Part II, and Part III) to your agency-based supply chain.

Agency-based spend is an often overlooked spend category because it’s creative (and marketing doesn’t want to give it up), outsourced, and typically hands-off (because all marketing wants is the end product — print, radio, tv, or web advertisement, campaign, etc.).

However, ignoring this spend is costly, especially if you are doing a lot of production work — because the amount that is being spent through your agencies on production is often a lot more than the creative agency fees. But this is just the tip of the iceberg. When you drill down, you often find that if you are using a lot of different agencies for your different marketing initiatives, there will often be overlap not only in the types of production companies your agencies use to create your advertisements and campaigns, but in the actual companies themselves. This means that if you can identify common tier-2 providers used by your agencies, and identify potential preferred providers, you can negotiate with those providers for preferred rates to be on your preferred provider list that you provide to the agencies (who can be told that they can only use providers for identified services from your list).

Plus, because Decideware’s new Production Management Module allows you to track all costs down to the individual project and provider level, you can make sure that the preferred rates are actually being offered to you. And if the project is large enough, or the volume of work increases, you can ask for an additional discount and track the negotiated savings as well. It’s a great way to identify cost-savings opportunities when you don’t need the absolute best provider. After all, just about any print house can do a print job and any production studio can film an advertisement. This allows you to save on the “commodity purchases” and spend those dollars on the “creative” side instead, where you are likely to receive the most value for your money.

The new Decideware Production Module is a great complement to their existing Statement of Work module (discussed in Decideware: An End-to-End Agency Lifecycle Management Solution Part II) and now, for the first time, you can truly undertake multi-tier end-to-end agency-based cost management and really get your advertising and marketing spends under control.

The Production Module, currently in beta and scheduled for full-release at the start of next quarter, is similar to the scope-of-work module in that it walks the user through the full production RFX and cost estimate workflow. After the user defines the project metadata (type, scope, timeframe, org unit, etc.), she selects the users who will participate (in editorial, view, or approval mode), defines the work products (and who is responsible for overseeing their definition), selects the vendors who will be allowed to bid, defines the desired cost breakdown (by phase and element), defines the contract terms, and then, finally, defines the approval process. Then the project is launched and vendors provide their bid package with the desired cost breakdown, which includes an identification of the sub-tier suppliers who will be used to complete the work.

It’s an easy to use and well-thought out solution for getting your rampant advertising budget under control.