SPEAKING THE LANGUAGE OF PROCUREMENT Tina Fegent
Client procurement teams are now a given with the majority of clients, from managing a pitch process to conducting annual audits of agency performance and adherence to agreed contract terms. This chapter will help you understand their role and what you as an agency can do to be a known supporter of procurement, as it will benefit the agency in the long term.
The focus is on private and not public sector procurement.
• What the role of procurement is - roles and responsibilities and how they are measured
• The procurement process – from the pitch through to the purpose of Request For Informations and Request For Proposals, plus how key it is to get a signed contract and fees in place
• How to build a relationship with procurement that benefits everyone
Roles and responsibilities
“As I hurtled through space, one thought kept crossing my mind - every part of this rocket was supplied by the lowest bidder.” John Glenn, USA Astronaut
After raw material costs, the marketing budget is usually the second highest spend area for a company.
It is your client’s money and they have a right to know how it is being used – both in terms of the charges by agreed agencies in terms of fees and all third party costs.
“Buying is as important as Selling” – a £1 saving will benefit the bottom line immediately, a £1 sale will, after reduction of cost of sales, potentially benefit the bottom line by £0.35.
“Procurement’s ability to generate additional savings that can be turned into marketing funds in a time of marketing austerity gives companies that are able to practice clever marketing sourcing a true competitive edge. As such, sourcing specialists are becoming the front-line soldiers in marketing wars. CMOs ought to embrace them and value their contribution.” Avi Dan, Forbes Columnist
Procurement’s role is to manage the organisation’s external resources (suppliers), whilst ensuring that they minimise any element of risk in the supply chain whilst looking to add and maximise value.
Procurement usually sits within the Finance Division of any corporate organisation, with the Chief Procurement Officer reporting into the Finance Director.
Client organisations vary in the way they structure their departments. A typical Marketing Procurement team will look like the team in Figure 1.
Figure 1 Procurement department showing Marketing Procurement detail
The role of procurement is very wide and covers:
• Managing costs that are acceptable to the business and represent good value
• Ensuring that quality and delivery are not compromised
• Developing and implementing the sourcing strategies for all external spend
• Ensuring that both corporate and departmental governance principles are adhered to at all times by suppliers
• Using project management skills to work collaboratively with stakeholders and agencies, especially in a pitch process
• Making sure that the correct levels of contractual coverage with the supplier base are implemented and managed
An initial procurement programme will be measured on cost savings. It is important to understand why. It could be to release budget to invest in other company projects such as establishing a shared service department or investing in R&D, or being able to get the most out of its existing marketing budget.
Measurement of any cost reduction is critical to the credibility of any client procurement programme, as is demonstrating added value.
The procurement team may have a shared cost savings element of their personal bonus that they all contribute to. It is always worth asking the procurement person if this is the case, so at least you know what their targets are.
A procurement department will have a set of defined processes that they follow, regardless of the category of spend. This is a common complaint from agencies that the procurement team will use the same tendering process for PR services as they will for IT Hardware.
An enlightened and experienced Marketing Procurement person will adapt the standard documentation as much as they are allowed, but the protocol is there to standardise the process and ensure all the regulatory and compliance issues for an organisation are covered.
The procurement process covers three areas, which are shown below.
Figure 2 Procurement processes
The key process to understand is Sourcing, as this is where agencies will invariably get to meet client procurement for the first time, in a pitch environment.
The pitch process followed is what procurement calls a tendering or Sourcing process, and usually has 7 steps:
Step One – Procurement to fully understand the spend category e.g. PR, across their organisation
Step Two – Supplier market assessment – which suppliers are in the marketplace and could meet their needs
Step Three – Prepare a supplier survey – start to draft the documents for Step Five
Step Four – Building the Sourcing strategy – is a tender / pitch the best way to go out to the market; are they looking for a single supplier or a roster of suppliers?
Step Five – Issue the RFx Requests for… and run a tender / pitch process, with timings and scoring managed by procurement
Step Six – Selection after negotiation with a shortlist of suppliers
Step Seven – Communicate with your new suppliers & provide feedback to the unsuccessful ones
Source: CIPS - The seven stages of a sourcing strategy
The key stage that suppliers will see is Step Five – the issue of either a Request for Information (RFI) or Request for Proposal (RFP). Their definitions are:
• RFI – a top line document that will ask for your company credentials; main clients (usually top 10); key staff; 3 years audited accounts; policies that are in place and relevant experience in the related client sector
• RFP – also called a Request for Quotation (RFQ) or Invitation To Tender (ITT) – detailed proposal against a scope of work with costs
From an agency point of view, it is worth building up a toolkit of answers to the above documentations, as there will be an element of repetitiveness in the question set.
Contract and fees
Once a supplier has been appointed the key deliverables procurement want to cover are:
1. Scope of Work (SOW)
2. Resource to deliver the SOW
3. The fee – both the agreed value and the structure e.g. retainer, project, outcomes
4. Any Performance Related Fee with clear and agreed measurement with the financial sums
5. Service Level Agreement
7. Reconciliation and review meetings
All are important but the contract and fees are key, so you as an agency know the level of resources that you have to deliver against the agreed SOW, and the contract is there to cover any eventualities in case of changes at the client e.g. personnel or requirements.
If both parties understand each other better and are more skilled at the process, the relationship works better in the long term for everyone. It becomes win:win.
Procurement is here to stay, and the sooner agencies accept it and work with those responsible, the better it is for everyone involved. A common complaint is that an agency just sees a procurement person at a pitch and then never again.
Be proactive and look to work with the procurement person on an ongoing basis. These ten tips will help:
1. Set goals - Make sure you agree which areas procurement can bring value to the agency relationship, prioritise them and you’ll have a planned and productive relationship together
2. Define what success looks like - Have a discussion about what success looks like.
Once both sides have the same understanding of adding value (see no.1), there should be a discussion on specific areas in which the PR agency can help improve brand / organisational performance
3. Share pain points - Think about which common issues affect you and the client working effectively. Areas like lack of briefs, approval processes, repeated or unnecessary meetings, no Purchase Orders, extended payment terms and late invoice payment are all often troublesome areas that come to light
4. Build structure - Get procurement to help in the structure and formalisation of the agency relationship in areas such as SLAs, Performance Reviews, pricing and getting a robust contract in place
5. Understand the procurement process - Get a basic understanding of Procurement Category Management. A procurement professional worth his/her salt will discuss a range of ‘value levers’ with you, instead of focusing solely on cost cutting
6. Engage with the procurement team early - This gives you time to cover some the basics like a contract, PO & invoicing system and new supplier set up - all of which are best completed before you push the start button on a project
7. Build trust - Relationships break down when the trust is threatened, so work hard to build and keep trust in place with procurement. Make them your new best friend. It’s worth it
8. Integrate into the team - Get procurement involved with the agency client team. If you involve your procurement contacts in training or regular client team updates, they’ll be up to speed on their stakeholders’s priority activities, values and language, and less likely to be a blocker
9. Fresh perspective - Procurement may have an interesting overview, internally and externally. They can keep their stakeholders appraised of new agencies on the market or how the incumbent agency/ies are performing with other brands or product lines. They can also show if the roster of agencies fits or doesn’t fit the client’s strategic requirements
10. Act as a counsellor - As a third party, procurement is there to help facilitate relationship discussions – it’s surprising how often ‘relationship’ is a euphemism for ‘money’ – that clients don’t always have time for, and these should be easily combined with the agency regular performance reviews
Although procurement had its foundation in the traditional areas of manufacturing, it now performs a key role in the majority of client organisations, and is firmly embedded into client’s marketing teams.
By reading this chapter, hopefully it has helped you understand procurement in more detail and given you some ideas on how to build on this key relationship to the benefit of everyone.
Tina Fegent runs a successful Marketing Procurement consultancy, working with both clients and agencies to ensure that the best clients work with the best agencies for them, with the correct commercial framework in place. Tina has over 25 years’ experience in this area, being one of the first to work in Marketing Procurement. She set up the teams at Telefonica (Cellnet); GSK (SB) and Orange (France Telecom), and then uniquely worked as Commercial Director at both Grey and Lowe Advertising Agencies.