Procurement Myths, Truths Explored at AA Roundtable

Five Executives From Major Marketers Talk With Ad Age About Why the Discipline Seems to Be Misunderstood and What They're Doing About It

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It's been six months since the Association of National Advertisers, reacting to a glaring disparity in how procurement is perceived within internal marketing departments and by their agencies, convened its task force to help align priorities. Since then, the task force has set up a mentoring program and produced white papers, case studies and webinars.

At the group's Advertising Financial Management Conference last week, Ad Age Executive Editor Judann Pollack sat down with Sean Dowd, global strategic sourcing manager at Intel; Mike Thyen, director-marketing and sales procurement, Eli Lilly & Co.; Lisa Figel, group category manager-U.S. agency procurement, Johnson & Johnson; Chris Baker, senior director-purchasing, Heineken USA; and Sal Vitale, former procurment director of advertising/marketing at American Express, to discuss misperceptions of procurement and the progress of the task force. An edited transcript is below.

SAL VITALE: Former procurement director of marketing and advertising, American Express.
SAL VITALE: Former procurement director of marketing and advertising, American Express.

Ad Age : Do you need to have a marketing background to be in marketing procurement?

Mr. Thyen: It may help the team to understand a little bit better some of the softer things in marketing, that you're buying a service, maybe, rather than a direct good or something. And so it helps to understand a little better, talk the language, with your internal customers. Understand what they need, or question [them] a little bit better, help guide them down the road to getting better understanding of what it is they're really trying to buy and how we want to measure that ; and then how you go out to do that . So I think it helps in that way, but I don't think you have to have marketing background to be in procurement.

Ad Age : The argument you hear on the agency side is , well, they're not marketers. They don't know what we're dealing with every day.

Mr. Vitale: I'm formerly the procurement director of advertising at American Express. And I was there for 25 years; the first five years I was in marketing. Had the MBA in marketing. I think it helps. You understand, you speak their language. But I think more important, you have to have a passion for marketing. If you're a good procurement person and you have a passion and you want to do it and you understand it, you will do well. You have to be comfortable with gray. If you're a black-and-white person, marketing is really tough for you, because it's not always based on something that may be measurable. There's some subjectivity in there. … But it's not something that you can't learn.

Mr. Baker: If you're not 100% in tune with what a business is trying to do about brand building, then you're not going to be successful in this space, because unless you can actually show a genuine interest and genuine excitement aspect of what is going on in that space, you know, how can you [be effective]? Because certainly our businesses are about trying to build brands over a period of years and achieve steady growth, and find great ideas.

Now, do you actually need to be conversant in having written a brief for a creative agency, to be able to look at two briefs and see which is a good one and which is a bad one? No, I don't think you do. But you can help instruct people about the elements you need to be putting into things in order to get as precise a response back and to make the whole process work more smoothly. That's part of the procurement approach, to actually try and help both sides on process as well. Because in people industries, if you're wasting time, you're wasting money.

Mr. Thyen: At the foundation of any procurement or any negotiation, it's got to be based in principles in business of what you're trying to accomplish. And transparency and those things. So whether it's chemicals or manufacturing a tool or whatever, if you have that discussion of what we're really trying to get, what we need from you, what you need from us, the profit that you need to make, the value, etc., and you talk about it that way, at any given time a client could say, 'I think I need to walk away,' or 'I don't think this is going to work in that way.' I don't think anybody's trying to push them to that point.

Ad Age : Very often you hear agencies talk in terms of cost-cutting and you hear procurement talk in terms of value. Is it the same thing from different points of view?

Mr. Vitale: Procurement may say 'savings,' marketing may say 'want to stretch my marketing dollars and growth, want investment opportunities, more value.' So I think at the end of the day, everyone wants to buy competitively, not cheap. They want to buy at the right price for the right product and service. … I don't think I've ever met a marketer that would pass up a good deal, who'll be able to get an extra slot or get more for their dollars.

Mr. Thyen: It's interesting that when we talk with each other and many of our colleagues, I could say, 'Are you really fighting at your agencies, are you really having a problem?' And to the person, everybody's like, 'No.' I mean, we're having good discussions and we have a great relationship. So in some ways, yes, you wonder where is it out there that it's so misaligned? Because all of the major marketers that I know, and strategic source and their procurement people, worked out pretty darn good relationships with their agencies.

Ms. Figel: I think the ANA has done a lot to foster that , and I think that 's what we're trying to do with the task force. We're trying to recruit some new people that are coming into the space, you know, with the procurement mentoring program. We're trying to get those people, because if those people really don't have a very well-established marketing procurement, they may run the risk of having misaligned goals with their marketing agents, having procurement- independent goals. So I think that 's what we're trying to do with the task force, is to coach and teach and influence the next generation of marketing procurement to be more like the member companies.

Mr. Baker: I think sort of some of the noise [around procurement] masked actually some reasonable relationships, but relationships that are different than what they were 20, 30 years ago, when it was commission-based. As any of the brands represented around this table know, sales and marketing budgets are influenced by the overall business. ... Media dollars, overhead and salary dollars —you've got to be careful and professional with it all. Because that 's your business. And if you don't, your competitors will.

Ad Age : You talked about being comfortable with the gray area. But, for example, listening to Coca-Cola talk about its value-based compensation model today, there didn't seem to be much gray area there at all.

Mr. Vitale: Well, there are qualitative metrics. There is subjectivity. In fact, the gentleman from Anheuser-Busch [Frank Abenante, global VP-brand and insights at AB InBev] said, and I kind of wrote down his quote, he said that "We have to stop setting goals on things that are measurable; instead, find out what's important to us and develop measurements and metrics for those." I think that was great. Because I think that 's what's lacking. The things that are more important to us? People say that we can't measure it. You know what? Technology is so sophisticated today, I think if you work hard and find out what's important and find out how to measure it, we'll come up with the solution. And I challenge everyone to do that , with your agencies, partnering, saying this is what's important. Let's develop metrics for it.

In your daily life you'll pay a premium if you can show you're getting something more for that . But if you can't show you're getting anything more for it, and you're paying a premium you're kind of scratching your head and saying, 'Gee, I was told that I'm going to get the top art director, I'm told I'm going to get the best people here and I'm going to get the best quality, campaign finished, scratching my head, what is the success?' Then you have that dilemma.

Ad Age : We've been hearing a lot about procurement-led reviews. Do you lead reviews?

Ms. Figel: Not at J&J.

Ad Age : If Tylenol, for example, was up for review and there was a pitch, would you or someone from your group be at the pitch?

LISA FIGEL: Group category manager-U.S. agency procurement, Johnson & Johnson
LISA FIGEL: Group category manager-U.S. agency procurement, Johnson & Johnson

Ms. Figel: We are definitely involved.

Ad Age : But would you have a vote?

Ms. Figel: Procurement usually does not have a vote. But they help manage the process that the marketers have to vote on.

Mr. Dowd: In a lot of cases we lead the RFPs, and help facilitate the process. And do have a seat at the table, and a vote. And I would say we're not the ultimate decision-maker.

Ad Age : So if you looked at three agencies and they came in about the same, or one came in at a lower price point, but they seemed to be equal value, would you go with the lowest price point?

Mr. Thyen: One of our roles is to lead a fair and unbiased and thorough process, and that 's what we make sure that we do, having all the right parties involved. I would think it's safe to say if you talk to any agency that 's been through a process or worked with us, they're very happy we're involved because it would mean it's fair, unbiased, thorough, guides the organization in thinking about what are the criteria, really how we're going to make this decision, what's the importance of those criteria, and how they work. So through that , we don't have a vote, but we are facilitating the discussion, the process, everything, to make sure. So you don't really need to have a vote, if you've got a good, fair process.

Mr. Dowd: Price is just one element of many things you're looking at.

Ad Age : I think that 's kind of where the misnomer comes in. I spoke to one agency guy who said, "How can procurement tell me what hotel to stay in?"

Mr. Baker: We're going to [expect from an agency] the same concerns about how they [steward] those dollars as about our own employee's dollars. It just makes sense.

Mr. Thyen: In a true partnership, there is no we or they, there is no line; therefore [you] have to become us. And if you become us, then you know the challenges we've got, everything that we're looking at, you know, in the marketplace, and take on [our] culture and you act that way and you do that . So quite right, we're not flying first-class or we're not staying in the fancy hotels, because we really believe that we want to invest every dime in bringing lifesaving medicine to patients around the world.

Mr. Baker: You can't have one set of people flying one class and another set of people flying a different class… because that 's equality, in my book, and in fact, that I've always worked with businesses that are very equal and transparent.

Ad Age : How about internally? You have your own constituency of marketers, and by nature, they want to reinvest whatever they save.

Ms. Figel: Procurement presents options. They present the options, and it's [the brand's] responsibility.

Mr. Dowd: We very much see it as helping them stretch their dollars, stretch their spend. By the time we get involved, they've already had their budget scrutinized, and in a lot of cases, cut. And so we see our role as helping them go maximize what they have to spend.

Mr. Baker: In most businesses, [procurement's role] should be to highlight savings and manage discussions between finance and marketing as to whether [funds] are to be invested or not. In reality? The best thing for procurement is the brand is given license to reinvest. Because then the brand is far more likely to come to you with other opportunities. But the fact is , it's not a procurement decision.

Ad Age : If there was one thing you'd like to get across about procurement, what would it be?

Mr. Vitale: I would say the early involvement. Because when procurement's reactive, and brought in after the deal is done to execute the contract, [that 's a problem]. The worst time for procurement to be introduced to an agency? When there's a problem. If you're engaged earlier, and you're along with the process and you're building those relationships, the problems just seem to be smaller. And I think also after deals are done, the contracts are signed, the relationship shouldn't stop there. It should continue. Procurement should be visiting with the agency, you know, once a quarter, twice a year, once a year, or whatever. I understand procurement 101 is , have negotiations on home turf, and that should be at the client. Yes, fine. But after that , procurement should go out. Learn more about what's going on at the agency. Understand nuances. Know the people.

Ms. Figel: It is critical to be aligned, and really that 's accomplished by getting involved early and really understanding marketing.

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