Among other signs is a survey by the World Federation of
Advertisers and consulting firm Spire Worldwide that found 58% of
marketing procurement executives have at least some marketing
experience, up from 30% four years ago.
In addition, the ANA conference, with record attendance of 550,
was bursting at the seams of the Boca Raton, Fla., resort that was
reserved four years ago for a smaller crowd. About half of the
attendees were client-side procurement executives; the rest
included a growing cadre of agency-side procurement specialists and
consultants.
Procurement has become so ingrained that it's even used on its
own operations. One attendee confided that she had come to the
conference partly to network for a new job because her company was
outsourcing the procurement function.
While complaints about the cost pressures exacted by procurement
popped up repeatedly at the event, it was also clear that those
stresses are not putting agencies out of business.
WPP CEO Martin Sorrell, speaking to the group for the first time
in a decade, decried the corporate cost consciousness and pressures
that have persisted after the Lehman Brothers' collapse and global
financial crisis in 2008.
In a question-and-answer session, Mr. Sorrell acknowledged that
WPP works with clients to reduce costs by 10% to 20% a year, though
he emphasized in an email later that "cutting your way to growth"
won't work, and that WPP is looking to invest in innovation and
technology.
Subsequent speakers said that , his outlook notwithstanding, Mr.
Sorrell and other agency bosses aren't faring too poorly. (The WPP
chief's total compensation rose 60% last year, while Omnicom CEO
John Wren's was up 43%.)
Pivotal Research analyst Brian Wieser said that procurement's
major impact has been institutionalizing a 15% margin for the
industry, adding that though that may cap the upside, utility-like
margin stability isn't bad for investors. Other speakers pointed
out that WPP and other holding companies had record revenue and
profit last year.
Still, it was sometimes obvious that things can be icy between
client-side procurement and agencies or marketers.
One questioner asked Mr. Melotte a pointed question about
"fairness" and J&J's position on payment terms.
"Let's be careful to not confuse fairness with what we like,"
Mr. Melotte said, adding that J&J's credo directs it to be
fair. "We are not in the business of making our suppliers drop
their pants."
While admitting that J&J hasn't always paid on time, Mr.
Melotte said it's getting better.
The company is also trying to more broadly apply its standard
payment term, which is 45 days from the end of the month it
receives an invoice. In the U.S., Johnson & Johnson pays 62% of
its bills that way, while the rest are paid even faster.
J&J offers a "dynamic discounting" tool online that allows
firms to get paid more expeditiously in exchange for a discount,
Mr. Melotte added.
Audience members also asked questions about recovery audits, in
which clients hire third parties to find instances of media
agencies' not executing according to agreements and therefore
liable for returning money.
Contingency audits, in which investigators are paid based on a
percentage of funds recovered rather than by fee, particularly
rankle some agencies because, they argue, they incentivize auditors
to find something wrong.
Jim Garrity, president of the Media Audit Council, said his
group specifically excludes audit firms that operate on
contingency.
And Mark Kaline, Kimberly-Clark Corp.'s global director-media,
licensing and consumer services, said, "I can guarantee you that
[contingency auditors] don't come through the marketing department
[but generally] through procurement, finance or some other wing of
the organization."
On the other hand, procurement often reports to marketing rather
than operating as an outside check. That's the case with
notoriously tough procurer Walmart, whose 3-year-old
marketing-procurement department is under marketing, said Chuck
Hatsis, president of Surge Consulting.
Despite the tension, there was some lightheartedness from the
dais to make a serious point.
Mr. Melotte opened his presentation with a video clip of a
procurement executive negotiating a dental extraction for his wife
down to $200 from $1,600 after bargaining away the dental assistant
and anesthesia.
"Try to imagine you're a marketer ... and that guy making the
dentist appointment walks in the room and says, "I'm your key
procurement liaison,' " Mr. Melotte said. "How long do you think
before the relationship gets below zero?"
