Why Marketing Procurement Should Focus on Driving Value and Not just Savings.

Striking the right balance between cost savings and value creation is a fine art, but one that the Marketing Procurement community is well equipped to achieve as it continues to grow in strategic importance within organizations, argues Nick Sparey of Illumino Partnership.

The recent study by the World Federation of Advertisers (WFA) highlights a growing dissatisfaction among Marketing Procurement teams at large international brands with their current KPIs. The study’s findings indicate a shift in focus from cost savings to delivering value, but the results highlight a worrying trend with many being asked to deliver blunt or disconnected objectives that make it harder for Procurement to work effectively with Marketers and provide real value.

And herein lies the dichotomy. Marketing Procurement has come a long way in the last five years and is now widely recognized as being critical to an organization’s profitability, operational efficiency, and strategic success. Both cost savings and value creation are therefore vital, but striking the right balance between them can often be the challenge.

Understanding What Cost Savings Can Deliver.

Cost savings invariably refer to the measures taken to reduce expenditure without compromising the quality of the services procured. It’s all about maximizing the return on marketing investment across the supply base and demonstrating a tangible contribution to an organization’s financial health.

There are several strategies that Marketing Procurement can adopt. One common approach is leveraging volume discounts from key suppliers with increased levels of investment to obtain a better overall price. Another recurring strategy involves supplier negotiations, whereby Marketing Procurement teams can negotiate contract terms that result in lower prices or more favourable payment terms. The key to successful negotiation often lies in understanding the supplier’s business in their market, including their costs, resourcing constraints, and competitive pressures that they operate in.

Process improvements can also lead to cost savings in Procurement. This might involve streamlined workflows with a more efficient Agency scoping process or realizing efficiencies with automated data management tools.

However, an over-reliance on cost savings can be risky. It can lead to short-term decisions that can harm a company in the long run, such as choosing a low-cost supplier who can’t deliver the quality of work within the expected timeframe. It can also stifle innovation, as suppliers may have little incentive to invest in new technologies or process improvements if they’re constantly being squeezed on price. Therefore, while cost savings are important, they must be balanced with value creation.

Where Value Creation Fits in Marketing Procurement

Value creation is a broader concept than cost savings and, in some cases, is harder to deliver and actualize. It refers to the Procurement strategies and activities that add significant value to an organization, beyond simply a cost reduction or over-reliance on the financial savings goals. One notable example that is currently a hot topic of discussion in the industry is whether media inflation avoidance is a hard or soft saving.

Marketing Procurement teams that focus on developing strategic partnerships with Agencies and suppliers have perhaps one of the best opportunities to create substantial value within the parameters of a mutually beneficial commercial relationship.

When suppliers are viewed as partners rather than just vendors, they are more likely to invest in the relationship and go the extra mile to meet the company’s needs. Fostering a spirit of innovation using technology to develop market insights, pioneering new creative concepts, developing bespoke proprietary research, or even securing improved access to top talent on key test pilot projects are all examples. Through this collaboration, the company can leverage the supplier relationship to help it gain a significant competitive advantage.

However, value creation in Procurement is not without its challenges. It often requires a shift in mindset internally from key stakeholders who have previously viewed Procurement as one-dimensional to recognize its potential. It also requires a willingness to invest in key supplier relationships, which may not yield immediate returns but can pay off handsomely over a multi-year contract. Moreover, measuring value creation can be complex, as it involves considering both tangible and intangible benefits. Despite these challenges, the pursuit of value creation can yield significant rewards for any forward-thinking organization.

Balancing Cost Savings and Value Creation.

Neither cost savings nor value creation should be viewed in isolation, and they are equal in importance. Cost savings are vital for maintaining profitability, especially in highly competitive markets or challenging economic conditions. On the other hand, value creation is key to driving growth, innovation, and long-term success. Hence, effective Procurement requires a careful balance of both.

Achieving this balance is more of an art than a science, and it starts with shifting from tactical purchasing across the supply base to strategic sourcing where not just cost, but also quality, delivery, service, and the potential for partnership become the measures of success. This approach can yield a better balance of cost savings and value creation.

Embracing Technology in the Equation.  

In today’s modern digital age, technology plays an increasingly pivotal role in Marketing Procurement. With advancements in artificial intelligence (AI) and data analytics, Procurement teams are making more informed decisions, streamlining processes, and unlocking new opportunities.

AI is already helping the Procurement community sift through vast amounts of data to uncover patterns and insights that would be impossible to realize manually. This can involve identifying potential cost savings, such as underutilized suppliers or overpriced contracts, or pinpointing opportunities for value creation, such as innovative suppliers or emerging market trends.

Similarly, advanced data analytics tools are now providing Procurement teams with a deeper understanding of supplier performance, pricing trends, and market conditions, allowing companies to identify inefficiencies, mitigate risks, and make better strategic decisions.

The increasing use of E-procurement platforms and supplier relationship management (SRM) systems are also powerful tools in the armoury. These help companies manage their interactions with suppliers more effectively, fostering collaboration, improving communication, and strengthening relationships to help drive both cost savings (through better terms and conditions) and value creation (through improved quality and service).

Value Creation is Procurement’s Holy Grail Going Forward.

No surprise then that Procurement is currently experiencing a transformational shift in perception. While cost savings remain important, there is a growing emphasis on value creation, and this concerted move towards value is reshaping the role of Procurement within many organizations. No longer seen merely as cost-cutters, they are becoming trusted partners who help to drive growth, innovation, manage risks, and contribute to a company’s overall success. For Procurement, this shift offers the opportunity to play more of a strategic role within an organization and make a bigger impact.

Ultimately, the future of Procurement is about more than just cost savings or value creation; its core values will always revolve around business alignment, collaboration with suppliers, and the continuous pursuit of excellence.

In conclusion, juxtaposing savings and value creation in Procurement requires a robust but open-minded and flexible approach. It’s about seeing the big picture, making informed decisions, and leveraging every opportunity to create value. Adopting this balanced perspective will have far-reaching benefits for any company.