How to Fix Procurement

At industry conferences and behind closed doors, agencies continue to grumble about the procurement processes of their clients that continue to drive down their margins and commoditize their work. It’s a relationship that’s always going to be a tense one, since agencies want to be paid more, and clients want to pay them less. Digiday is asking agencies and marketers to weigh in on the issue. Email me your thoughts at the email address at the bottom of this article.

Barry Lowenthal, president, The Media Kitchen
I’ve negotiated with a lot of procurement groups at a lot of different clients. The most impressive procurement people are those that have a marketing background. When you have procurement people with that experience, talking about compensation and the value of our output is always better, and the conversation goes much easier. It also helps if the advertising people having those discussions come from a finance background, too. It’s also much easier when procurement is a function under marketing rather than sourcing or finance, but that happens rarely. Sometimes, the client can force the decision and insist that a particular agency be hired, but many times they can’t. Agencies need to increase the chances that the client wants to work with them way before the fee negotiation commences. Rather than focusing on winning at the fee negotiation, which is always about getting more for less, I recommend agencies focus on creating demand. I don’t know if there’s a middle ground here really, the relationship is set up so there can’t be one. Ultimately, agencies need to try to get past the FTE model.

Winston Binch, chief digital officer, Deutsch LA
Procurement’s job is to look at numbers and make them work for the client, to make sure they get the most out of the relationship from a fee, performance and resource standpoint. Their mission, for the most part, is clear, but like many areas of the industry, they need a digital re-boot. The roles are evolving constantly in digital, and in my experience, there isn’t a sufficient understanding of the landscape nor the current roles and why they’re necessary. All that said, I think it’s the agency’s responsibility to thoroughly explain the need for incremental positions, educate their procurement partners, and build a solid rationale for the inclusion of any new roles that previously were not covered. Additionally, integrated agencies need to be willing to make some sacrifices. The modern creative team is bigger than it used to be. It’s not just Art Directors and Copywriters. It also includes creative technologists, UX designers, digital designers and strategists. You can fight for incremental dollars, and in many cases there should be more money. We’re doing more work, but the business reality is that that there’s generally one bucket of money. That means agencies need to make more room for makers on retainer agreements. And that may require decreasing your traditional headcount in places. It also means that you just have to be smarter about what business and marketing problems you’re trying to solve upfront and build the right team of specialists for the ask. In marketing today, it’s not one size fits all.

Brad Jakeman, president, global beverage group, PepsiCo
Agencies have lost their sense of relationship with clients. They’ve been reduced to a commodity, and that’s where and why procurement comes in. Procurement departments are typically in the business of driving down the costs of commodities. I’ve never been in a procurement meeting where our law firm has come up, for example, because they’re not a commodity. Agencies need to ask themselves why they’re finding themselves in those crosshairs in the first place. I’ve been on the agency side, and clients made me feel like I was important to their business, and I knew I was. Agencies need to get back to that.

John Noe, CEO, Rokkan
In the past, procurement was absolutely our worst enemy. Typically, they separated us from the decision makers and evaluated our agency purely based on things like cost and headcount, and not by our value or our unique approach. But we’ve found recently that procurement for many clients has been working harder to find and match agencies against fit and compatibility. As a result some of the procurement groups we’ve been working with have even become our champions and have introduced us to some very interesting business units and brands.