$3.8B under scrutiny: P&G gives ad power to purchasers

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Procter & Gamble Co. is giving purchasing executives a major role in advertising agency relations, starting with Publicis Groupe's Saatchi & Saatchi. The goal is to improve agency performance and P&G profits as the country's second-largest advertiser anticipates a dwindling impact from its current restructuring program.

The shift is part of a broad movement to apply what Chairman-CEO A.G. Lafley last week called P&G's "purchasing culture" to the roughly 50% of expenses not already handled by purchasing executives, including much of the $40 billion company's $3.8 billion advertising budget.

"This is not about penny-pinching," said a P&G spokeswoman. "It's about building more effective long-term relationships. ... It's about looking at the creative product we get out."

Leading the effort will be Kim Krause, a purchasing manager recently appointed to the new post of strategic-relationship-development manager. She reports to Global Marketing Officer Jim Stengel.

All P&G full-service shops will ultimately be involved, though Saatchi is the first, the spokeswoman said. Saatchi referred calls to P&G.

Purchasing involvement in agency relations is increasingly common, though the issue of using price-driven strategies to choose or manage agencies has become a source of contention in the industry. Bank of America conducted a controversial reverse online auction to choose an agency for its $160 million media account, while DaimlerChrysler's 2000 shootout between Omnicom Group and True North Communications for its $2.4 billion business was wholly about squeezing the lowest price out of its shops.

"I'm not against informed buyers negotiating for what they consider to be competitive rates. I'm against uninformed buyers being in the process," said Bill Nicholson, exec VP-management services, American Association of Advertising Agencies.

`floating waste'?

"Having a purchasing agent involved is not dissimilar to having a high-level executive's attorney negotiate their compensation package before starting a new position," said Hasan Ramusevic, chief executive of consultantcy Hasan & Co. "Sometimes it gets awkward to talk compensation when there is such high-level wooing going on. ... If your marketing-communications budget is hundreds of millions of dollars, there could be an amount of floating waste."

But changing P&G's three-year-old agency compensation system is not a goal, at least initially. "We're very pleased with how our [agency] compensation is working out," the spokeswoman said.

Responding to an analyst question during last week's earnings conference call as to how P&G would drive higher profit margins, Mr. Lafley said expansion of purchasing executives' roles would be part of the answer.

P&G calls the effort Supplier Business Development, comparing it to the Customer Business Development unit that works with P&G retailers. Besides handling the traditional sales role, CBD works with retailers jointly to cut costs in the supply chain and increase sales through joint marketing initiatives.

A similar purchasing regimen has been used for several years in P&G's media purchases with Publicis media shops MediaVest and Starcom, the spokeswoman said. While P&G hasn't had purchasing executives per se involved, Dave Cowan, a media executive with a finance background, has led the effort, which resulted, among other things,in the use of optimizing software for media planning and buying and cross-platform media buys.

Comparing P&G shops' performance against others will be part of purchasing's role, the spokeswoman said. "We want the world's best communication agencies on our brands," Mr. Stengel recently said in a speech to assistant brand managers. "We're working on how to measure that."

P&G is ramping up the purchasing program gradually, hoping to avoid what one executive termed "some of the horror stories" of purchasing departments involved in agency relations. He named General Motors Corp., Ford Motor Co. and PepsiCo as examples of clients where purchasing involvement has worked well.

contributing: brad johnson and rich thomaselli

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