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July 1, 2004
How to Include Procurement in Managing the Advertising Budget, Part 1 of 2

Say the word procurement to an advertising agency and most will cringe thinking their fees are about to be skinned once again. Agencies will claim that procurement doesn't apply to their business because their product is creative and hard-to-measure. Yet agencies want to be compensated for the impact they can have on a client's business. And in their defense the impact can be huge for campaigns such as the original Volkswagen "Think Small" or the classic "I Love New York."

Thus we have a dilemma. How can an agency say they can't measure their value, while still desiring compensation for making measurable gains for their clients?

Conversely, clients have been making great strides in recent years by improving their business processes and wringing waste from their operations. These vast improvements transpired using supply chain management (SCM), enterprise resource planning (ERP) and customer relationship management (CRM). Procurement has evolved from a tactical buying agent function to a strategic partner involved early in the process. Enlightened procurement has grown to understand that long-term relationships with vendors can yield greater efficiencies and provide more flexibility than churning one-off lowest-cost provider deals. Quite naturally, clients who have had great success through procurement are now involving it in the advertising function.

This article will attempt to bridge the divide between clients and agencies over procurement to the betterment of both sides. Here are 11 critical steps clients and agencies should take to ensure getting maximum value from procurement. The first five are directed solely to clients. In part 2 next week, we detailed the steps both sides can take.

1. Consider using Qualification-Based Selection (QBS): In situations where design services are being procured, a straight price-based process does not allow for qualitative differences. Consider approaching this by first soliciting proposals from agencies with the right qualifications. Select the top three, and then order them according to your preference. Start with the most preferred, and then attempt to negotiate a price that is fair to both sides while remaining affordable. If you can't come to an agreement, move to your second choice and negotiate an agreement. You can determine whether or not you are willing to pay the difference for your first choice.

2. Treat agencies like valued employees: As mentioned, when procurement is brought into the process, agency paranoia can derail serious efforts at finding mutual benefits. Likewise, client mistrust can contribute to agency paranoia. Clear communications plus a firm statement that the goal is to benefit both the client and the agency are essential to getting off on the right foot. Remember that you would recognize and financially reward valued employees, and make this philosophy your goal in this process as well. An agency that is performing at the outstanding level should be promoted. Why not have a senior agency position with tenure that includes superior financial rewards in the form of fees and bonuses? Likewise, under-performers should be given warnings and coached along a clear path leading to the reward of senior status. Your procurement department should have a system like this in place right now, and therefore it should be easily extended to advertising agencies.

3. Empower change agents: Inevitably your advertising procurement executive is going to challenge some myths and rattle a few cages. You should expect some healthy tension between marketing and procurement to produce a balanced agreement that will be best for the company overall. Or, the COO may be called upon to make some Solomonic decisions. It is likely that these actions will require some pain and of course, everyone prefers to avoid or at a minimum defer hard decisions. Lack of action or delay on recommendations is a sure way to undermine procurement. On the other hand, make a concerted effort to publicize success. Try branding the project in the way GE did with their highly acclaimed Six Sigma Programs and Black Belt awards. Done well, these can rally the organization, and encourage a team effort to achieve common goals.

4. Outsource the function if necessary: While Ford and P&G can afford to have specialized procurement people involved in advertising, smaller and mid-sized companies might not be able to justify this expense. On the other hand, hiring a consultant might cost a fraction of a full-time hire, and you might get more immediate and substantial benefits by capitalizing on their experience with many clients.

5. The Brand remains sacred: In your charge to procurement, you must make it clear that no program will be implemented that save costs in the short run but compromises the brand equity in the long run. The agency must have the ability to draw the line where it believes brand values are being sacrificed. The most obvious example would be in a fashion business where the cost of photographers varies greatly as does the quality. Likewise, the use of top models, the weight and texture of paper, the use of bleed, etc. are all hard to quantify in terms of value but can be costly to purchase. In these cases, while it is fair game for procurement to question the agency, ultimately the agency judgment should prevail. It is that judgment that you are buying and if you choose to let procurement make the ultimate decision on these types of matters, we can guarantee that you will not get the best talent or the best agency efforts on your business.

See part 2 next week for seven critical steps both sides can take together to make this work.

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The procurement issue may be the hottest topic facing agency search today. With over 12 years experience conducting agency searches and compensation development services, it is with little surprise that Alan Krinsky, along with Steven Marcus, want to discuss the explosive topic of agency procurement.

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