In our last post we discussed how Marketing Procurement was still a sacred cow at many companies, despite the fact that significant savings, which exceeded 42% at one CPG company, are to be had. Even though CIPS and the IPA tried to highlight the potential three years ago with their report on “Magic and Logic”: Re-defining sustainable business practices for agencies, marketing, and procurement, which was followed by Efficio‘s treatise on “The Creative Challenge: Driving Efficiencies in Marketing Procurement” which laid out an eight-step approach to driving efficiencies in Marketing Procurement.

Then Booz & Co. decided to get in the game with their recent whitepaper on “Efficient Sourcing In Marketing”, which is a good candidate to complete the trilogy. In this paper, which described the all-too-common scenario that represents the sourcing side of marketing at large companies, Booz & Co. outlined some of the many advantages that can result from bringing a disciplined process to Marketing Procurement and laid out their six step process for getting results, which we’ll cover today.

1. Analyze Marketing Spend in Detail

As with any sourcing process, you need to know where and how the money is being spent. Currently, most CMOs have no idea of their marketing expenditures or a comprehensive profile of their supply base as their budgets are divided between “above the line” items, such as advertising and creative services, and “below the line” items, such as promotion and direct mail. Furthermore, most marketers manage against budgets and campaigns rather than vendor compliance to contracted terms.

2. Adopt a More Rigorous Approach to Spend

There are two ways Marketing can be disciplined in cost control. The first way is to rebid and consolidate the vendor base. The second is the through the manipulation of demand and process levers through the requirements placed on suppliers by marketing staff themselves. Procurement can help with both levers using the methodologies identified by Booz and Co. in the white paper.

3. Deploy Decision Support Tools to End Users

These tools can alert marketers when their current suppliers are overly expensive, less experienced, or less capable compared with other suppliers they are spending on (when performance metrics are tracked). These tools can also automate price comparisons, cost trade-offs, and complain analysis — offering tangible metrics that quantify the results of marketing’s efforts.

4. Create a Clear Delineation of Roles and Responsibilities

Cost savings rarely happen where decision rights and lines of responsibilities aren’t clearly delineated in most departments, with Marketing being one of the worst offenders. Categories of spend that span business units should be centrally managed, whereas those that are business unit specific or local should be done according to well defined rules that define vendor selection. Typically, final decision rights will remain with Marketing, while Procurement works to facilitate and continually improve the effectiveness of the strategic sourcing process.

5. Define an Operating Model

The operating model should be governed by the roles and responsibilities define above but be streamlined to support the nature of the company’s marketing activity.

6. Use Change Management to Implement the New Paradigm

Each of the previous steps require a company to change established strategies and practices and implement new ones. As a result, the appropriate application of change management must be anticipated and provided if the initiatives are to succeed.

In other words, if you deploy a good cross-functional strategic sourcing process, you’re already well on the way to Marketing Procurement success.

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Three years ago CIPS and the IPA came out with their report on “Magic and Logic”: Re-defining sustainable business practices for agencies, marketing, and procurement in their attempt to change the game and get the sacred cow marketing budget under control. It was an insightful report, as I noted in my two-part series on Magic & Logic (Part I and Part II), and a great first attempt at carving up the sacred cow.

Then, two years ago, Efficio entered the game with their paper on “The Creative Challenge: Driving Efficiencies in Marketing Procurement”. This report, which covered some of the key challenges involved initiating collaboration between marketing and collaboration, as well as some of the typical savings levers that can be used to negotiate savings anywhere from 3% to 50%, provided an 8-step approach to driving efficiencies in Marketing Procurement. As per my posts on The Creative Challenge (Part I and Part II), it was a good starting process and a great second attempt at serving that sacred cow on a platter.

Since them, I’ve been waiting for another paper that will complete the trilogy and, hopefully, provide us with the ultimate approach to Marketing Procurement. And while it certainly isn’t the ultimate approach, Booz & Co.’s recent attempt, “Efficient Sourcing In Marketing” is a good end to the trilogy. As noted in the introduction, the following, all-too-common, scenario speaks volumes about the sourcing side of marketing at large companies.

The large retail bank’s approach to buying marketing-related services and materials was typical. On direct marketing efforts, decentralized business units worked with advertising agencies of their choice — agencies usually chosen on the basis of demonstrated capabilities, their understanding of the nuances of the individual businesses, and the personal relationships they had built over time. The relative cost was hard to compare, as each of the bank’s business units negotiated its own agreements with its marketing partners. Pricing was usually project-based, with no standardization from one business unit to another, even when it involved universally used items, such as envelopes, mailing inserts, and postcards, or when units shared the same vendors. By ignoring costs, which can represent a quarter of many companies’ total purchasing outlay, the company is leaving huge sums of money on the table — as much as 40% to 50% in some cases. This can easily mean tens of millions of dollars of savings at many large companies in the CPG, Pharmaceutical, or Automotive sectors that rely heavy on marketing. These savings can be reinvested in more successful campaigns, truly allowing marketing to do more with less when efficient strategic sourcing comes to the table, provided both departments collaborate to an unprecedented degree.

This will require adherence to a six-step process, that I’ll address in Part II, but the good news is that the payoff can materialize quickly. Often, merely creating more visibility into a supplier’s relationshipsacross a firm and discussing the level of business with the supplier can elicit more favourable pricing. Furthermore, the appropriate identification of savings target for different types of services can lead to rapid savings. The report gives an example of a CPG company that targeted 8% savings on creative services, 16% savings for less complicated services (that could be done in-house or by lower-cost resources), and a 18% savings through the adopt of a preferred set of enterprise-wide vendors. Overall, the company reduced cost by 42%, saving 10 Million on what was a 25 Million spend!

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