One of the key issues for Procurement is to elevate its role as a strategic advisor to the business. Also, there is increasing pressure on indirect procurement categories to maintain their competitive edge with a continuously challenged budget. In some categories, cost savings may have never been in focus.
With the rise of prices and labor costs, there is a growing awareness that indirect categories need to improve efficiencies, releasing resources for value-adding projects.
For many procurement teams, indirect spend management is peculiar, complex, and challenging. The learning curve is steep, and the landscape is constantly changing. Indirect category managers need to have good people skills to get to their targets together with business function heads.
One category that can be extra difficult to manage is Marketing. In this article, we’ll discuss:
An introduction to marketing spend management
How can procurement improve marketing spend
10 traits of a good Marketing Procurement Relationship
Introduction to marketing spend management
Marketing spend is regarded as indirect spend, i.e., expenses that are incurred to support the essential operations of a business. This includes the sourcing of materials, products, and services.
What’s included in the marketing category differs greatly across industries. However, some core marketing services are common to most. There are a variety of costs that fall under the marketing umbrella:
Examples of Marketing Category spend
Strategic consultation and creative services
Advertising and media buying
Digital services, including social media, website development, and mobile
Market research and benchmarking
Branding and visual identity
Public Relations and crisis management
Content & search engine optimization
Video and webinar production
Events and promotion
Corporate gifts and samples
Print and promotional products
Technology tools, e.g., CRM
What makes the marketing category different?
A unique aspect of managing marketing spend is its heavy use of agencies. Many marketing teams work closely with one or more external agencies that account for a major share of their budget.
In an ideal set-up, the agencies are considered as extended team members with their own set of competencies and skills.
No two agencies are the same. When looking into the total cost of a campaign or a marketing project, the most cost-effective option is not always the cheapest in hourly fees.
Sometimes a more experienced agency is faster in delivery than a more junior one. This directly affects how agency services are sourced. You need to know your market.
In addition, the marketing category is in constant change. Digital technologies are changing how we do business and the types of competencies we need. Procurement needs to find a way to guide marketing through the new realities and redeem their value proposition.
Marketing planning cycles may also be longer than other functions leading to longer contract periods with fewer key suppliers. Frequent tendering may not deliver successful outcomes compared to dual-sourcing strategies and improving service level specification practices.
Supplier relationship development and performance steering are the key to successful outcomes.
The conventional strategic sourcing processes don’t apply. They need to be faster and more adaptable to cater to changing market conditions, different pricing structures, and types of services required. Improving trust, transparency and collaboration with agencies may provide the best result in terms of cost efficiency as well.
Why have Procurement and Marketing been at odds?
Collaboration between Procurement and Marketing has traditionally been poor due to each group’s misperceptions about the other and misalignment of objectives. Marketing can’t be treated like any other category.
Traditionally, Procurement wants to ensure that money is spent wisely in line with corporate policies and that external relationships with suppliers are well-managed.
Marketing wants to collaborate with their partners in an agile manner and to see results with minimum interference from Procurement. Why on earth should they make purchase orders for the services when they already had a briefing session with the agency, right?
The traditional metrics used to measure procurement success, e.g. savings year-on-year, are not directly relevant when it comes to marketing value delivery.
Marketing should be measured in terms of return on marketing investment (ROMI) and the delivery of sales growth. If marketing investment is lower than the realized sales growth, that should be enough, right?
Any suggestion of reducing the marketing budget based on last year's cost-savings will not be well-received. It will be seen as if procurement didn’t understand the business fundamentals. Marketing spend should be seen as an investment to maximize sales.
That investment can be used smartly or loosely, though. In essence, the way marketing uses their budget, how they manage their partners, and get above-average service should be continuously improved.
The traditional route to marketing spend management has been to outsource most or part of marketing activities to one full-service agency taking care of strategic and operational marketing activities.
This is becoming more difficult to achieve as the range of services to cover is so broad that one agency couldn’t specialize in all areas. If procurement suggests aggressive supplier consolidation strategies, they’re off to a bad start with marketing people.
These are the most typical strategies companies use:
A partnership with a “full” service agency. The chosen agency may also offer a full range of support services, including engaging with sub-contractors to source media space, promotional goods, printed matter, and market research. Lead agencies can act as the coordinator, eliminating infighting among other suppliers, avoiding service overlap, and creating accountability.
Contract with two or more service providers to deliver the range of services you need. This has the benefit of mitigating risk but requires more involvement in sourcing, negotiation, and contracting.
A hybrid solution using a panel of providers for selected specialist services and managing other services in-house.
A fully in-house managed marketing function - not recommended.
How can procurement improve marketing spend?
Procurement must invest considerable time in understanding marketing’s issues and business concerns. That means building and maintaining good internal stakeholder relationships and getting to know suppliers.
This requires patience and a genuine interest in marketing and the commercial side of the business.
Procurement can improve marketing ROI through insights into expenditure/ budgeting and improving supplier relationship management practices. Concrete areas of improvement could be service level agreements and briefing practices for maximum ROMI.
Marketing expenditure & budgeting
Despite the size or industry, managing marketing spend is no easy win. The challenge for marketing managers is to stay on top of all the different payments.
Sometimes ongoing subscriptions are forgotten, or campaign budgets run over. The end-of-year panic to spend all the leftover budget is familiar to many.
Managing spend can be overwhelming for your marketing team. But with solid spend management solutions, budgeting and forecasting will be streamlined and transparent.
Using spend analysis as a basis for your budgeting is highly recommended. This saves time and provides transparency to actual costs in the previous period. Managing big teams and budgets efficiently will be a tricky manual exercise without visibility and traceability of costs.
With real-time spend analytics in place, you won’t be surprised with budget running out sooner than expected or having excess money to spend in December.
Procurement can work with marketing by providing benchmarks and industry intelligence on which to base supplier negotiations. Insights on spend trends, changes and growth in marketing sub-categories can be eye-opening for marketing.
Price negotiations with agencies and others providing technical services require a different approach. Sub-contracting and the use of freelancers may incur additional margins. Negotiations around blended rate cards, media commissions, volume rebates, and other creative fee structures demand prior preparation.
Supplier relationship management (SRM) principles should be applied as per other categories. Without detailed specifications and proper briefing documentation, it’s hard to compare what was requested and what was delivered.
As a result of successful marketing-procurement collaboration, partners see systematic improvement in their relationship management and the quality of briefs while marketing is getting a better return on marketing investment.
Marketing teams must focus on rewarding and incentivizing those who deliver on target as per the terms of the agreement, applying sanctions if required. Consider what motivates the supplier. Besides monetary awards, industry awards and recognition are also great motivators!
Procurement and marketing have shared business metrics for success.
Marketers are keen to receive advice and naturally call their procurement counterparts.
Agency senior leads engage with procurement to discuss top-level client-agency priorities.
Beyond the traditional stakeholder status: procurement and marketing feel that they are part of the same leadership team.
Procurement leaders have regular conversations with marketing & finance on how to jointly drive value for the business.
Reporting results is part of the over-arching business performance management and the internal and external reporting process.
Procurement is seen as delivering business solutions and innovation by challenging and/or changing the business environment for the better.
Marketing and procurement provide honest feedback to each other on how they can improve their ways of working.
Marketing and procurement jointly invest in training toward working together more effectively.
Marketers and agency partners see a role in the procurement function as a valuable step in their careers.
A strong relationship between marketing and procurement reduces marketing costs, delivering more value for the money spent.
Cost savings can be used for new campaigns and paid advertising on mutual agreement. A joint, structured approach to sourcing and contracting leads to better quality agency and other supplier relationships.
Procurement can support evaluating the success of marketing initiatives based on agreed key metrics and tracking spending.
Jasmiina is a Head of Content Marketing at Sievo with broad expertise in procurement and category management.
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