What procurement does and why it exists – from the client’s perspective
Many a new business person’s blood pressure increases when you start talking about procurement. Frustration is natural when attempts to “persuade the unpersuadable” are unsuccessful – as in trying to communicate creative or subjective value to a person who’s really only interested in getting the cheapest price.
Like it or not, procurement is here to stay.
Think about this: at a recent ANA event procurement reps outnumbered VPs of marketing! You might take that as a bad sign, or you might conclude that it’s good news: representatives of procurement departments are trying to educate themselves about marketing and advertising. If this is even partially true, it should make every ad agency new business person who works with procurement want to better understand the function.
David Wilson, President of Stirling Consulting, provided an in-depth look at procurement during the recent 2010 New Business Conference. Here’s a summary of my notes from the session.
Procurement is often looking for new suppliers to introduce to their internal client (the marketing team). Dont’ be afraid to get to know them and develop a relationship. They’re not the enemy.
Why does procurement exist? It’s driven by the needs of the organization, which is usually to reduce expenses and increase working capital (the latter is usually accomplished by collecting amounts owed faster and paying vendors slower).
What is procurement’s internal reputation? In a 2009 survey, 78% of Chief Financial Officers viewed procurement positively. Why? They’re achieving 5%-20% annual cost savings and helping companies better manage risk. So, the trend to use procurement will continue.
Definition of a good procurement process: “An ongoing process of decreasing overall costs and managing supplier risk, while improving internal and external processes.”
Principals of a good procurement process:
- Cross functional
- Focused on total cost (not just price), quality and service
- Have clear objectives
- Make objective decisions
- Be grounded in strategy
It’s important to note that within “the big corporation”, procurement departments are at varying stages of their own evolution and maturity:
- Competent (e.g. are very knowledgeable about marketing, savvy about developing innovative partnerships)
- Lagging (e.g.”siloed” from the rest of the company, just focused on reducing costs, short-term oriented, ignorant about marketing)
As an agency new business person, you need to be prepared to deal with all three types.
What’s procurement’s decision criteria? For a “competent” department, they will consider quality, technology, strategic value, service, innovation and cost. When considering agency selection, “cost is significantly down the food chain“.
Important things to recognize about procurement:
- Agencies must understand client decision making
- Harness the client’s self-interest [as discussed in numerous posts, your proposal needs to be all about them, not you]
- Identify the additional value your agency brings to the table
- Recognize the cards that you hold – you’re likely smarter about your subject area than anyone inside the prospective client
Hope this helps you crack the procurement nut!