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Procurement Strategy

Six Best Practices for Procuring Marketing Services [Plus +]

marketing spend

Editor's note: This Spend Matters Plus brief is a refresh of our 2013 series on category management, which originally ran on Spend Matters PRO. 

My personal involvement with procurement functions trying to get to grips with the marketing spend category goes back some 25 years, and I had some successes and failures in my time as a CPO in several large organisations. It’s a category where procurement has been slow to increase influence, but according to figures from the World Federation of Advertisers, we have gradually reached a position where the procurement function is estimated to have between 50%–80% spend coverage in the category (depending on the geographic maturity, with firms in Europe at the top of the scale and South America at the bottom).

This is starting to feel like a coming of age for marketing services procurement, with some very impressive people in senior category roles speaking and a general air that clear best practice is emerging. There are still tensions between procurement and marketing staff in some organisations, but relationships seem to be improving and a sense of where and how procurement can contribute is certainly developing.

In this Spend Matters Plus article, we’ve pulled together some key learnings to come up with six best practice suggestions for CPOs or marketing services procurement leads to consider. We’ll have three around strategic category and sourcing issues today, and three focusing more on engagement strategy and people in Part 2.

Tail Spend Management in the Trenches: Lessons Learned and Questions Answered [PRO]

purchasing

Spend Matters recently hosted a webcast exploring how Owens & Minor revamped its tail spend management strategy using Simfoni, a procurement solutions provider with specialized capabilities in this area. This Spend Matters PRO brief shares the detailed learnings — including segmentation approach, KPIs and ROI elements — and Q&A conducted during the session to aid procurement organizations in their own efforts to tame the tail.

(For those who want a full download of the webcast, which features Owens & Minor-specific data and screenshots of Simfoni’s tail spend system, check out the on-demand replay.)

Premier: Healthcare GPO Provider Summary — Introduction, Summary Analysis, SWOT and Customer Engagement Tips [PRO]

healthcare

Through a combination of organic growth industry consolidation, three group purchasing organization (GPO) providers have come to dominate the healthcare market. These providers — Vizient, Premier and HealthTrust — control nearly 75% of spend in the healthcare GPO market.

Despite this level of consolidation, the three competitors have, in certain cases, targeted different markets and introduced unique offerings. This Spend Matters PRO research brief provides an overview of Premier, including a general introduction, key points analysis, SWOT framework and customer tips for getting the most out of engagement.

For background on the GPO market, check out our two earlier briefs, An Introduction to Group Purchasing Organizations (GPOs) and Group Purchasing Organizations: Supplier Perspectives and the Evolving GPO Landscape. For general context, perspective and analysis of the healthcare GPO market in particular, see our recent three-part series: Part 1 (Background, History and Introduction), Part 2 (GPO criticisms and market consolidation/bifurcation) and Part 3 (Key Takeaways, Emerging Paradigm Shifts and Customer Recommendations).

The Healthcare Group Purchasing Organization Landscape (Part 2): Market Critiques and Effects of Consolidation [PRO]

This Spend Matters PRO series provides an introduction to the healthcare GPO market. Today in Part 2, we summarize healthcare GPO criticisms and survey the effects of consolidation in two GPO contexts (member consolidation and GPO M&A). We also discuss how models are bifurcating.

For background on the GPO market, review our two earlier briefs, An Introduction to Group Purchasing Organizations (GPOs) and Group Purchasing Organizations: Supplier Perspectives and the Evolving GPO Landscape. Then explore the first installment in this series, which provides a background, history and introduction to the healthcare GPO market.

Services Procurement History: Staffing Firm Dominance Faces a Challenge [Plus +]

In this Spend Matters Plus research brief, Jason Busch, founder and managing director, introduces the reasons why staffing firms will begin to increasingly share overall contingent market share with alternative models including the direct hire of freelancers/independent contractors, talent marketplaces, individual “out-tasking,” alumni and shared interest pools and related models. We also provide a readiness checklist for procurement organizations increasingly tasked with managing services spend that will offer a quick, honest assessment to show if they are ready (or not) for new models.

Group Purchasing Organizations: Supplier Perspectives and the Evolving GPO Landscape [PRO]

Joining a GPO is like getting a Costco membership. You know you’re not going to get ripped off, so you probably won’t put much thought into joining. But therein lies the rub for GPO members. Like Costco, a GPO is a one-size-fits-all marketplace where you may overbuy when you get there or underbuy by not getting there at all.

In an increasingly Amazon-dominated world, however, this model is not the only available option.Today, the assortment and pricing of items available to consumers are tuned to the user and monetized most efficiently by intermediaries that can source better and optimize for lowest total landed costs better than individual buyers. Procurement organizations are now looking to bring this experience to the complex world of B2B purchasing. And where GPOs fit into this more sophisticated equation is not a simple answer (many are still trying to figure it out themselves). 

But that doesn’t mean GPOs will go the way of the 1980s big box retailer. Instead, GPOs will have to take on a role beyond the race to the lowest price. This multipart Spend Matters PRO series explains what motivates GPOs and helps procurement organizations best decide when and how to engage them. In this second installment (see our initial GPO introduction), we explore GPOs from a supplier perspective and offer recommendations for vendors working through GPOs to make these relationships more successful. We also explore how GPO options and capabilities are evolving and segment the GPO market by model and type and provide case example looks at different GPO business models. These include vertical/industry independent, member-owned, horizontal, affinity, category-specific and procurement technology led GPO models. 

An Introduction to Group Purchasing Organizations (GPOs) [PRO]

purchasing

Group purchasing organizations (GPOs) are not a new idea. Agricultural cooperatives aggregated the buying power of farmers hundreds of years ago. That said, GPOs have evolved quite a bit, and the infusion of new digital capabilities is taking that evolution to an even higher level. This evolution also means that procurement organizations must go in “eyes wide open” to best utilize this important tool in the procurement tool belt.

Not all GPOs (or GPO models) are the same. Understanding the differences will make you a more educated, and thus likely more successful, buyer. Therefore, we’ve decided to delve a little deeper into this obscure sector of the procurement provider market and shed some light on how to best extract value from it.

This multipart Spend Matters PRO brief is designed to demystify GPOs and put procurement organizations on the same information playing field as the GPOs attempting to sign them up, expand their utilization of contracts and sell additional services. Within this series, we will explore GPOs by type, as there are several business models in play, and by industry segment, as GPOs are heavily embedded in certain markets and are little more than a supply option in others.

This first installment in our GPO coverage:

  • Defines what GPOs are (and are not)
  • Explains how GPOs operate
  • Explores GPO “spend coverage and fit”
  • Analyze the GPO market segments and how to engage them
  • Offers tips and tricks for engaging GPOs based on their own constraints/models
  • Provides both basic and advanced takeaways for procurement organizations that are thinking through GPOs as an alternative supply option
  • Offers a checklist of activities to consider when sourcing GPOs

All We Are “Saved” — Give Purchasing Consortia (Including GPOs) a Chance [Plus +]

Purchasing consortia and group purchasing organization (GPO) models have been accused of being fads in the past. But there are reasons they could more than go mainstream as a common procurement lever across industries, working outside of just healthcare environments, where they have thrived in the past. Spend Matters research suggests that there certainly are a number of underlying factors that make the consortia and GPO models more attractive than before (even if some suppliers, such as the airlines, will never play ball in working with these intermediaries). Indeed, several GPO and consortia providers not focused on one particular industry have a lot to offer to procurement organizations looking to better manage cost and quality for certain categories of spend.

In this Spend Matters Plus analysis, we will explore the reason behind the current and rising interest in these models and the benefits they can bring to procurement in such categories as IT spend (e.g., hardware, software, etc.), human resources (e.g., contingent staffing and MSP programs), office supplies, employee benefits (e.g., retirement/pension, pharmacy benefits, etc.), facilities and other professional and services categories (e.g., operations consulting, energy management, etc.), not to mention some areas of direct spend as well (e.g., metals). First up: exploring the different GPO benefits for both less mature and more mature procurement organizations.

The 12 Supply Risk Management Disconnects that Destroy Value (Part 1) [PRO]

risk

“Risk” and “risk management” are terms that are like the ultimate Rorschach test in business: they mean many different things to many people. The same applies to the term “value” — and don’t even bring up “supply management.” Even a specific term like “supply risk” has many interpretations (e.g., it’s much more than supplier risk). The problem with this is that if people within a company define various terms differently, then how well will they be collectively managing those areas? Likely not well at all.

Risk management is a strange animal. On one hand, it focuses on “things gone wrong” and hones in on defining and mitigating various external risks that create adverse events in a value chain. On the other hand, those adverse events affect stakeholder-relevant performance (i.e., measurable value). Such performance and value delivery is focused on “things gone right” and reward rather than risk.

The key, therefore, is to realize that risk and reward are inextricably linked. If ensuring delivered value (and improving it over time) from the supply chain and from suppliers is what supply management is all about, then that supply value should not only be expected (i.e., expected value like discussed above) but also protected (i.e., protected value ensured through supply risk management). As a side note, have you ever considered that the concept of “expected value” uses the term “value” even though it is applied heavily to the world of risk management (i.e., calculating the expected probabilities and impacts of various risks)?

Anyway, the imperative becomes ensuring that the most important performance metrics (i.e., KPIs) are protected from risk. Yet these individual KPIs are rarely individually and systematically managed for risk, and the lack of risk-adjusted performance management means that you’re going to be exposed and it will catch up with you eventually. The problem isn’t just bouncing around and applying risk management technique X via tool Y to address risk type Z. There are a dozen fundamental disconnects in most firms that prevent risk management being properly resourced, aligned, managed and improved. Only by unpacking them and addressing them through focused practical interventions can you really get to the root cause issues that are likely keeping your supply risk management efforts suboptimized.

In this Spend Matter PRO series, we will explore 12 critical supply risk management disconnects. This brief, Part 1, focuses on the following four areas:

  1. Risk Scope and Stakeholders
  2. Performance vs. Risk
  3. Risk Type vs. Impact
  4. Risk vs. Cost (e.g., “cost of risk”)
If you’re a practitioner, you should be able to see which disconnects are the biggest issues for you and make yourself more resilient (i.e., ability to mitigate and recover from risks) and predictably high performing. If you’re a consulting organization, you’ll probably find some pointers to improve any methodologies that you have here. And if you’re solution provider, whether in the supply risk management area, or more broadly, you’ll hopefully get some ideas on how to address more strategic pain points.

Economic and Policy Supply Chain: The Non-Invisible Hand [Plus +]

Adam Smith is famous for coining the phrase the “invisible hand” to suggest the collective transparent forces of a market that work together as a whole based on the self-interest of participating members. While Smith used the phrase only a handful of times in his writing, the term has become synonymous with the famous theorist. We can leave the economic theory and philosophizing for another day. The concept itself, however, is clearly valuable: much of what occupies the daily toils of the typical procurement or supply chain manager is directly tied to the broader trade of goods, services and ideas, and ultimately, the pursuit of profit and returns based on the collective set of activities. But what's also equally important to consider is the “non-invisible hand” and how it affects our priorities and overall goals.

Program Management: The Missing Link in Procurement Technology Modules and Suites (Part 2 — Functional Building Blocks) [PRO]

Program management is an integral component of source-to-pay (S2P) activities that is no longer optional for high-performing procurement organizations. In short, program management is a set of processes that manage specific projects and broader project portfolios that focus on higher-level processes and composite processes that cross the traditional linear flow of sourcing, contracting, purchasing and payments. These programs can be ancillary to core processes (e.g., M&A-related activities or globalization efforts) or transformational in nature to implement enterprise-level programs (e.g., working capital programs, risk programs, sustainability programs, digital programs, ERP upgrade programs, Lean/Six Sigma programs).

The problem is that, generally, program management is poorly automated and stovepiped within functions or subfunctions. Within procurement, there may be savings tracking for strategic sourcing processes displayed in a "CPO dashboard” but not much visibility and collaboration beyond that. This is a problem because as procurement is collaborating with stakeholders on ever broader processes and reaching deeper into stakeholder processes, supplier processes and external customer processes, there needs to be a cross-functional management capability. The emergence of collaboration tools like Slack and others have shown the enterprise desire to manage fast-paced mobile communication on the ground that is tied back to strategic objectives.

This Spend Matters PRO series defines what effective program management capabilities are from a design, platform and functional perspective that puts the user first. We explore both what represents best-in-class program management components today, what users should expect tomorrow and what we hope technology providers have on their roadmaps to build. We also explore some solution building blocks for effective program management, including best-of-breed project management, goal management, program auditing/audit trails and prepackaged initiative enablement. (Don’t forget to read Part 1 of this series to first understand the design principles on which effective program management technology is based.)

Unlocking Deeper Value in the Procurement and Finance Relationship (Part 1) [Plus +]

finance

Much has been written about the need for procurement and finance organizations to better align with each other, in particular how the two functions can best integrate purchasing and payables into an end-to-end purchase-to-pay (P2P) process. The opportunity for aligning these two functions, however, is much greater than simply improving transaction efficiency. Unfortunately, the various sources of misalignment that plague procurement and finance prevent many businesses from identifying these opportunities in the first place.

The sad part of this story is that the two functions share many common traits. Both seek to:

  • Elevate their value propositions as enabling business partners by providing compelling service offerings — and overcome their perception as bureaucratic corporate overlords
  • Maximize enterprise value and profitable growth through disciplined spend management
  • Spend not just less but better in terms of process efficiency and process effectiveness
  • Use new techniques and technologies to help the business make better decisions that support the above goals
Additionally, these functions should in theory strive to serve each other as internal customers while also enabling the other to deliver higher value to their own internal (and external) customers. Unfortunately, theory has rarely translated into reality, and the result is that each function is leaving money (and risk) on the table.

Procurement can certainly help finance get more value from its suppliers, but it can also help finance improve service delivery in areas such as FP&A, treasury, tax, financial accounting, risk and compliance, commodity management and even accounts payable.

On the flipside, finance can help procurement in multiple ways, namely to help procurement on value-adding activities — including helping finance. This is a classic “help me, help you” moment. If procurement can help finance help procurement (and help finance help itself), then procurement’s value potential can be truly unlocked.