Unmasking the Procurement Executive

While Some Really Know Marketing, Many Are Simply Focused on Cost

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BATAVIA, Ohio (AdAge.com) -- As marketers squeeze every ounce of fat out of budgets, agency executives are decrying the power of procurement executives, fearing that as the discipline grows, marketing -- already struggling to prove its value in an age obsessed with return on investment -- could see quality nickel and dimed to death.

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Yet the agencies that know so much about the CMOs, brand managers and marketing directors that are their clients are a lot less knowledgeable about the procurement people reshaping the business. Often, the assumption is that buyers of widgets and office supplies have been retasked to buy agency creative work.

As it turns out, those notions aren't far off the mark. An Advertising Age review of LinkedIn profiles of hundreds of marketing procurement people found that only a small handful, fewer than one in 10, list prior experience in marketing or agencies or even marketing degrees in college. To be sure, not all marketing procurement specialists are inexperienced paper-clip purchasers. The country's largest advertiser, Procter & Gamble Co., which began its first marketing procurement effort with about a dozen people in 1996, today counts 300 in the area globally. Ad Age also found several procurement executives with considerable marketing background and knowledge of the industry, commitment to the profession, and seemingly enlightened philosophies that the lowest price isn't always the best deal (see sidebar).

Yet while marketing procurement execs seem to be in demand -- Indeed.com shows a sharp increase in job listings for marketing procurement and sourcing candidates since the first of the year -- there remains a widespread lack of marketing experience among procurement people.

Miriam Frawley, a principal of e-Diner Design & Marketing, New York, "was there at the beginning of aggressive sourcing" when she created a standard rate card for print production services at American Express. She was chosen to lead the effort at AmEx because she had the background in the industry, but she acknowledges that's not often the case today. "The people doing a lot of the procuring today don't really have experience in the business," she said. "What's happening now is that it's all data-based."

Dollar sense
Chuck Hatsis, president of Chicago-based Surge Consulting, who himself worked in marketing for Bank One before turning to marketing procurement, including on the corporate side with Nationwide Insurance, said that having marketing experience "allows you to make more enlightened tradeoff decisions." But unfortunately, he said, it's also relatively rare in the industry, which leans toward treating marketing services "like another category to be managed like office supplies and travel." The tendency, he said, is to approach the job as a straight exercise in fee and cost reduction.

There's also a good chance procurement people at the negotiating table may not want to be there much more than the agency people on the other side of the table want them there. In fact, many career procurement people would rather be buying equipment or commodities on the belief that they can more readily get quantifiable savings that will help them advance their careers, said one former corporate procurement executive who is now a consultant.

None of this is necessarily good for agencies or marketers. The result, he said, is that marketing procurement people are often younger, less experienced and highly motivated to make a quick hit by negotiating big, easily quantifiable rate reductions that they can then leverage to earn a more desirable posting.

All of which is contributing to a growing reservoir of industry horror stories about procurement practices -- like the large package-goods company that annually demands its global agency of record cut fees by 5%. That's actually an enlightened view according to others, who report demands for 20% fee cuts this year have been the norm. Beyond that are bold negotiating stances ranging from requests for detailed salary information to a demand, reported by an executive of one digital agency who'd already completed an assignment for a major marketer in one country, to retroactively cede global intellectual property rights for no additional fee.

Ms. Frawley cites a recent client who, in a request-for-quote process, noted that her hourly rate was higher than the average, but her hours required were lower. Though that still resulted in a lower cost than other competitors, she said the client's procurement person still asked that she lower the hourly rate.

Ms. Frawley, who now also consults for Morgan Anderson Consulting at times, said she's not going to be lowering the rate and will probably lose the pitch.

New systems
The more sophisticated marketers with more experienced procurement people and larger brands -- the companies that tend to send people to Association of National Advertisers finance conferences -- are gravitating more toward compensation that is based on upfront-negotiated value of the work, something found in the new compensation models of Coca-Cola Co. and P&G, Mr. Hatsis said.

Their systems also tend toward less micromanagement of agency work, he added. "If I can get the result I'm looking for and the agency is able to staff it with junior people and do it in two rather than four weeks, I don't want them to have to artificially add manpower. If they can make a higher margin and get the results faster, that's higher value to me."

Value, of course, is in the eye of the beholder, and the value of procurement executives themselves, might also be coming under scrutiny. Some in the industry say procurement people themselves are also starting to get the squeeze as corporate staffs that bulked up in recent years began thinning ranks.

A system where someone can say 'yes'

Kim Kraus, who as strategic relationship optimization manager at P&G has led the charge to overhaul the company's agency compensation model, has never been in a marketing job per se, but she's spent nine of her 21 years in P&G procurement working on marketing services.

Beyond that, she did get her undergraduate degree in marketing at Ohio State. That's far from making her an expert, she concedes. So when she began her second tour of duty in marketing procurement seven years ago, she spent a month as an intern at Saatchi & Saatchi and other Publicis Groupe agencies.

"I've also done two- or three-day deep dives at other agency types," she said. "It's great to see what they do, but I also like to see how clients behave with them. I learned more in my assignment at Saatchi about the things clients do to them, or cause, vs. what is it we buy."

She spent about three quarters of her time shadowing clients other than P&G (non-competing), she said. P&G people tended to be more immersed in marketing than some of the other marketers, which helped. "Where we were hindered," she said, "was that we had a lot of people who got involved."

That was part of the impetus for developing the brand franchise leader model, in which a P&G general manager is in charge of the brand equity and agency relationship on a global level and a broader system that outlines who's in charge of other elements.

"You've heard the saying 'Lot's of people can say no, but nobody can say yes,'" she said. "We tried to move toward a system where one person could say yes very clearly."

Focusing on value and innovation

Three years ago, Stewart Atkinson was in charge of manufacturing laundry detergent for Procter & Gamble in Europe. Three months ago, he took charge of the company's $7.5 billion advertising budget (including around $1 billion in agency fees), which constitutes the biggest media outlay on earth.

Recently tapped as manager-global marketing purchases, Mr. Atkinson, 52, assumes responsibility for media and other communications purchases and P&G's media agencies. In that role, he replaced Bernhard Glock, a career media and marketing manager who left P&G as VP-media last month. Mr. Atkinson has a dual report to VP-Global Purchases Rick Hughes and Global Brand-Building Officer Marc Pritchard.

While he's never been in a marketing job, Mr. Atkinson has been involved in marketing procurement at P&G off and on since its earliest days, in the mid-1990s, as part of the original group that looked to get its hands around the giant marketer's spending. He's also been part of global management teams in the U.S., Europe and Asia that deal extensively with marketing issues.

"It's different than being in the marketing area, but it is where you put the discipline and rigor and process into place for the category general manager to bring the product innovation and marketing messaging in a way you can take it to market," Mr. Atkinson said.

He's not, he said, approaching his new job with an agenda to blindly cut costs. "It's really about the value that gets created, and that starts with how you're able to out-innovate the market," Mr. Atkinson said.

Chemicals vs. marketing
His most recent experience on marketing services procurement was centralizing and streamlining how P&G purchases shopper-marketing displays, programs and agency services, including customization by retailer and chain.

Before that, he spent years buying chemicals for laundry detergents, doing deals with contract manufacturers for new oral care categories and setting up some of P&G's earliest efforts in buying and selling supplies and products on the internet, in addition to a stint as a human resources manager.

He acknowledges some big differences between those things and buying media or marketing services. With industrial chemicals, "you've got a long history of how work gets done," he said. "Things are clearly specified. There are very disciplined forecast processes in place, so you're dealing with knowns. In marketing services, it's less known. Therefore the skills of being able to [really] define what you have to buy are that much more important. Internal relationship skills carry a premium. Some people are able to make that shift, and some people are not. ... A lot has to do with dealing with ambiguity."

Buying media may not really be as complicated as it's made out to be, and has probably become more complicated than it needs to be, he believes.

"This is after 90 days of getting engaged with it," he said. "Everything on the outside looks very complex. I really think there are a few simple things I'm beginning to understand that we can look to more clearly define. And then in terms of building scale, bring the right parties together in the right way. I'm just not sure we're doing that as well as we could right now."

He'd like to get media decision-making closer to P&G's businesses and brands, he said. "I just came back from a lunch with one of our media AORs and that was the whole topic -- how can we get our agencies more in touch with the brands and the business leaders so we can think more clearly what the priorities are. ... We just have to bring everyone closer to the consumer."

One might expect a less-than-enthusiastic reception to bringing a procurement person into a role once headed by a marketing person. Mr. Atkinson said he's not seeing that. "If you can demonstrate you're creating value, perceptions change rather quickly," he said. "I feel like our relationships are good, and they're getting better and better every day."

Procurement: learning the language

The growing number of marketing procurement specialists also go by a growing number of titles. Here's a field guide to some:

STRATEGIC SOURCING: A k a in Procter & Gamble parlance as BBSS, for brand building strategic sourcing.

PRODUCT SUPPLY: Some marketing procurement people are attached organizationally to the manufacturing and logistics organizations, sometimes also known as "product supply."

STRATEGIC RELATIONSHIP OPTIMIZATION: It's not just about buying, this title points out, but about getting the most for the money.

FINANCE: Many marketing procurement executives are part of corporate finance departments.

MARKETING OPERATIONS: Procurement is a big part of the operation.

INDIRECT PROCUREMENT: As opposed to "direct procurement," usually applied to goods, "indirect procurement" often refers to services, ranging from lawyers to ad agencies.

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