Unless you happen to work in the purchasing department, procurement is not the most engaging of subjects, but it is one that most advertisers and their agencies are having to get to grips with.
According to recent research from the Incorporated Society of British Advertisers (ISBA), the influence of procurement specialists on agency decisions is growing. The proportion of advertisers that involve their purchasing department in the negotiation of agency contracts has increased from one-third in 1997 to almost a half. The survey also found that the purchasing department is now entirely responsible for one in five of all such agreements.
Procurement departments can ruffle feathers on both sides of the fence. Agency bosses are concerned that procurement people, who tend to be from a purchasing rather than marketing services background, do not appear to understand the first thing about buying marketing services. Equally, marketing departments are distrustful of procurement specialists because they fear their primary motivation is to work out ways to slash the marketing budget.
Now an advertising agency has taken the unusual step of hiring a procurement specialist from an advertiser. Mobile phone company Orange’s procurement chief, Tina Fegent, is joining Grey London in September as its first commercial director (MW last week).
Grey chief executive Garry Lace says his new procurement director is a trained “gatekeeper” and will have “ultimate commercial” control.
Fegent’s role at Grey will be wide ranging, from buying the agency’s toilet paper, to TV facilities for commercials as well as negotiating contracts with advertisers. “She will negotiate all our contractual arrangements and make sure they are enforced,” says Lace. Fegent will be on hand during new business pitches to represent “negotiations without emotions”, because Lace says there is rarely a designated agency person to negotiate with an advertiser’s buying department and for this reason “emotion can get in the way”.
There are a few other agencies that have specialist procurement personnel, among them Abbott Mead Vickers.BBDO which last year recruited Emma Nussey as its first commercial director to oversee its procurement strategy. She came from specialist procurement consultancy QP Group.
But some agencies say they have no need for a procurement specialist, as their financial directors are capable of communicating with a client’s specialist buying departments.
“It’s mutton dressed as lamb,” says McCann-Erickson chief executive Chris Hunton. “While I am not playing down the importance of procurement departments at our clients, most agencies already have specialist people who speak to client procurement departments all the time.”
Agency Assessment partner Stuart Pocock says that although most agencies have good accountants or financial people, procurement is a “different art”. Pocock oversees scores of advertising reviews every year, and says the role played by procurement departments from the start to finish of a review has been increasing.
“They do sit in on quite a few pitches, and are very wise to their companies’ needs. They also understand that it’s not just about the cheapest agency,” he says.
Boots director of procurement Julian Coles, who was himself formerly head of marketing for personal care at Boots, welcomes the appointment of procurement specialists by advertising agencies. “We work very closely with WPP Group’s director of procurement,” he says. Boots has an exclusive deal with WPP to house all its communications with the group’s agencies. “It’s more than just a communication process between the two organisations,” he adds. “It’s a way for us to get to know if we are being inefficient in any way, such as controlling the number of briefs we send out that never come to anything.”
Lace says a procurement expert on the agency side helps give clients and their army of procurement specialists a relevant point of contact when it comes to discussing costs. “I am deeply bored with having conversations with marketers who think they are being ripped off by their agency,” he says. “Whether that is true or not is one thing, but we have a responsibility to make sure we are unambiguous in the future. Agencies have hidden from the rise of procurement and have just skirted around the issue, I am doing something about it.”
In a market where every penny counts, agencies and their clients are finding more accountable ways of paying for services, such as payment by results whereby the agency gets paid according to the client’s sales performance. Not so long ago agencies just sent their clients a bill at the end of every month with a loose breakdown of costs and a fee, usually a percentage of the media spend. It is this trend towards more complex remuneration contracts that has almost certainly led to the increased involvement of procurement specialists.
In his previous role as chief executive of TBWA/London, Lace introduced a performance-based remuneration scheme, but his thinking on this matter has since moved on. He is now looking at ways of establishing a shared commercial partnership as, he says, the days of a fixed income from some of his clients are long gone.
And procurement, however dull the subject may sound, is of growing importance to this process. If advertising bosses like Lace are to be believed, every agency in town will be scrambling to get one on board. But one stumbling block at the moment is the fact that there are few procurement specialists who specialise in marketing services.