Opinion

Why we need to understand the truth about procurement

Screen Shot 2014-10-14 at 10.33.26 pmProcurement is always a hot button issue in agency land. Navigare’s Jeff Estok argues that clients and agencies need to understand the different types of procurement and to nail down the detail of their expectations.

We all know there are three sides to every story. Your side; their side; and the truth, which often sits somewhere in between.

Yesterday Mumbrella’s Nic Christensen gave a confronting summary of “slash and burn” type of procurement but there are arguably other types of procurement as well.

So let’s talk about some of the truths about procurement.

Truth #1: Not all Procurement deserves the criticism that we have been reading.

If you believe half of what we read, Procurement is singlehandedly responsible for the downfall of advertising. Which presumes that all Procurement operate the same.  Wrong!

Some time ago, we pronounced the arrival of Procurement 2.0. Where Procurement 1.0 was about slashing costs, Procurement 2.0 is about establishing fair value.

The 2.0 professional understands what they are procuring; focuses (and rewards) on business outcomes instead of FTE’s; works collaboratively with both Marketing and Agencies; and stays involved long after the contracts are finalised to ensure Agency compliance and prevent, or fund, scope creep. 

And unlike many Asian markets, Australia is blessed with its share of Procurement 2.0 professionals. So maybe it’s time to stop bashing Procurement, and focus on some key underlying behaviours instead. 

Truth #2: For the most part, Agencies deserve the deal that they get.

Let’s face it. With the exception of multinational aligned business, every agency has the opportunity to say ‘no’. And therein lies the problem.

Few agencies do say no to procurement 1.0 demands. And even when dealing with a 2.0 situation, many agencies are ill-equipped. Some of the larger, and more evolved agency groups have added procurement to their management structure, as it is an area that benefits from this expertise. 

Smaller Agencies might be wise to retain similar services as well, instead of going it alone.

Truth #3: Many agreements are not fully understood by marketing, nor policed by procurement. 

We see far too many examples of scope disputes between agencies and marketing, particularly after a new business win. 

In the post-win euphoria, and the desire to hit the ground running, contractual governance often takes a back seat.  While details such as scope tracking and review protocols shouldn’t command priority over the transition work, neither should they be subjugated to the unimportant pile.

They should be addressed concurrently, with full visibility and approval by Marketing, so that Marketing understands what the scope of engagement actually is.

Truth#4: There are two distinct views about what an full time employee constitutes, and both parties believe their view is right.

This is probably one of the most contentious issues we deal with.

A Client ‘buys’ 100 per cent of, say, a strategy planner. The agency ‘sells’ that full time employee based on an agreed set of annual head hours (commonly calculated at 1650 hours).

The client view is typically that they are paying for that person, so all of his or her hours should be theirs, regardless of how many hours that person works.  Which has merit.

The agency, however, feels they have the right, should they exercise it, to sell any additional hours that that person works (above the contracted 1,650 hours) to another client.

And with many agency staff working in excess of 1,800 per annum, that is a big opportunity lost if they do not.

The agency logic is that if a client caps the agency’s profit potential by applying a below market multiplier (say 1.8), then the only way to achieve profitability is to charge out that person in excess of 1,650 hours.  Which also has merit.

This is one to definitely nail down in every contract.

Jeff Estok is managing partner of consultancy Navigare

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