A Race to the Bottom in Marketing Spend

A close relative of mine has recently taken a position in procurement. We’ll call this person Dede for short. Dede worked at various marketing firms, but was laid off a few years ago as continued cost cutting on the client side worked its way back up the value chain to Dede’s firm.  About a year later, some of Dede's old client contacts mentioned that a job was opening up in procurement, so, Dede, having sat across table from procurement, decided to make a jump to the dark side (or light side, if you prefer). After spending a few weeks in procurement, I caught up with Dede to get an outsiders perspective of life on the other side. Here's a paraphrase of what Dede said:

 “Well, it's been interesting. We are measured on cost savings from price reductions, but you never call them price savings.  You call it ‘value creation’. We justify our own existence through the savings, and everything else in terms of promotion uplift or sustainability is all secondary. We take the savings out of the budgets of our internal business customers, but we can’t tell them that, otherwise they wouldn’t work with us. So, Finance secretly does this for us. 

Meanwhile, I have to do $X Million in ‘value creation’ this year and we have a big consultant in who says we can save 10-20% by consolidating our suppliers even more. I asked our CPO where the savings might come given that we had done this process a few times already and the CPO opined that big marketing firms really spend too much money on their fancy Madison avenue real estate and need to get lean… like procurement. I feel for the poor bastards. 

Procurement dangles the prospects of mega business when they’re asking for your best creative people, then once they have the strategy and campaigns locked down, they chop up and mechanize all the downstream program and think it won’t have an effect. As a supplier, we always responded with layoffs and providing lower priced people on the account in order to stay in business. It’s really been a race to the bottom.”

I always take these stories with a grain of salt. The invisible hand is not always pretty, but I do think that as long as procurement justifies its existence through price reductions and merely shifts the pain via margin reduction to suppliers, the supply outcomes desired by the business will be sub-optimized. Procurement must be the arbiter of a balanced scorecard of supply, not an advocate of performance of a single metric in that scorecard. Until that happens, then the business will view procurement as Scott Adams does. Do an Internet image search on Dilbert Procurement and you’ll see what I mean.

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