Why procurement 2.0 is better business

Lest you think this is going to be yet another procurement beat-up, you are wrong. Done well, marketing procurement plays a vital role in adding value to the marketing/agency relationship.  And we have plenty of examples of ‘done well’ among our client roster here in Australia.

So what differentiates Procurement 2.0 from 1.0? Without oversimplifying, where Procurement 1.0 was about slashing costs, Procurement 2.0 is about establishing fair value.

We have seen firsthand the downside of the pure cost-reduction approach. Put frankly, it has been a failure—a fact that is backed up in the hundreds of relationship surveys we conduct each year.

Because if you reduce an agency’s income, the only levers it has for achieving profitability (or simply to achieve breakeven) are to reduce the numbers servicing the business or put lower-paid, more junior people into those roles. 

And not surprisingly, the lagging indicators of these reductions are client dissatisfaction (with the agency’s capacity and capability of resources) and ultimately diminished agency contribution.

Enter Procurement 2.0.

So, what is “Better Practice” in Procurement 2.0? Here is what we have observed from our clients.

2.0 understands what they are procuring: There is a dramatic difference between procuring commodity items, such as office supplies, and agency services, the value of which is often less tangible and more subjective.

Yet, a study in the US identified that over 90 per cent of marketing procurement managers had no marketing experience prior to moving into their role. Our more progressive clients ensure their procurement leads are marketing-knowledgeable. They also have procurement sit with their marketing constituents, and they include procurement on the marketing leadership team.

2.0 focuses on business outcomes, not just FTE’s:  Ultimately, all those contracted headhours have to actually deliver a business outcome. And the 2.0 professional works backward from those outcomes to resource appropriately. 2.0 recognises that it is the done, not the doing, that ultimately delivers results. And that scope of need, tied to business objectives, always precedes scope of work.

2.0 works collaboratively with both marketing and the agencies: The 2.0 professional treats marketing and agencies as their ‘clients’ and works collaboratively with both parties to secure win-win propositions.  This can only be done if, as above, the marketing procurement professional has a deep understanding of how marketing and agencies actually work.

2.0 funds agency senior-management involvement: Where 1.0 tended to draw a line through agency senior management costs, 2.0 funds their involvement. Why wouldn’t you want the most senior agency resource attached to your business? They play a vital role in ensuring that agency resources are properly focused on business outcomes, while providing a compass and sounding board for senior marketers.

2.0 rewards agencies for performance:  It was not uncommon for 1.0 to ask agencies to put up to 20 per cent at risk for a 5 per cent uplift. That is hardly equitable. Nor an incentive. 2.0, however, is more balanced, and fair. The higher the risk, or the greater the over-delivery; the higher the reward. We have one Client who even went so far as to reward individual Agency team members. Do you think that didn’t make everyone in the Agency want to work on that piece of business? And reduce turnover?

2.0 stays involved: This is probably one of the biggest differences, and one that benefits both marketers and agencies alike. Under 1.0, once the negotiations had concluded, Procurement’s job was typically finished. The 2.0 professional realises that their involvement is ongoing: spelling out clearly to marketing the rules of engagement with the agency, based on the contract; monitoring marketing’s usage of resources based on the agreed scope, and adjusting when necessary; acting as the intermediary between the agency and marketing when ‘scope creep’ occurs; and looking for ways to help agencies, and marketing, become more efficient and disciplined in their engagement. One of our client Procurement 2.0 professional’s favourite mantras with agencies is “How can I help you help us”.

The strongest agency relationships are borne out of partnership, and those clients embracing Procurement 2.0 seem to deliver that in spades.

Which is better business for everyone.