Heinz Means Unhappy Agencies – Suppliers Rebel Over Procurement Process

HeinzAccording to Campaign magazine, the procurement process at Heinz to select an ad agency has come under fire from the industry body. “The pitch process for Heinz's advertising account is "shocking" and "short-sighted", the IPA's chief executive Paul Bainsfair said.”

The final straw appears to have been the introduction of an e-auction stage “on payment” according to the reports – that appears to mean they were auctioning how many days credit the agencies would give to Heinz – an interesting use of e-autions anyway!

“Heinz had shortlisted three agencies to see at pitch stage – Bartle Bogle Hegarty, Leo Burnett and J Walter Thompson. But it has emerged that both Leo Burnett and J Walter Thompson abandoned the process after they were told there would be an e-auction on payment. Bartle Bogle Hegarty remained in the process, and CHI & Partners and M&C Saatchi have now been added in as replacements.”

Now we don’t know the whole story here, but that can’t be good. If you have run some sort of competitive process to get down to your last three potential suppliers, then to lose two of those and have to call on your reserves does not sound like the best way to chose your winner. (To paraphrase Oscar Wilde: to lose one short-listed supplier may be regarded as a misfortune, to lose two looks like carelessness). If the agencies were only told about the auction at a late stage, then that is certainly not good practice; we’re not conceptually against auctions, but if you’re going to do it, you need to tell bidders that up front, we’d suggest.

But the problems go deeper; apparently the pitch for Heinz's European creative account caused issues among agencies from the beginning because of the long payment term – 97 days – and Heinz’s plan to decouple production from the creative agency. “So the incumbent AMV BBDO declined to pitch, no Omnicom creative agencies were allowed to pitch and several other large agencies also baulked at the payment terms.”

It sounds like Heinz lost the chance of the incumbent bidding, had no bidders from the second largest agency group in the world, and have now lost two more big names. And all for what? To save a bit of working capital at a time when Heinz can presumably borrow money for next to nothing given the current interest rates.

Heinz has the reputation for being a brilliant marketing and advertising firm with some iconic campaigns. It has also been a business that has promoted supplier innovation generally. So it seems surprising that it would risk not getting the very best agency in this way by in effect limiting the field. I’m sure whoever wins this will still be a decent firm but the other concern is this: if they feel they’re getting screwed by Heinz on the terms, will they have an incentive to put their very best people on the account, and push their very best work in the Heinz direction?

Campaign reports that Heinz Europe’s director of corporate and government affairs, Nigel Dickie, said this: "An e-auction is used as a mechanism to capture rate information. It is just one part of the process alongside service, creativity and other factors in our decision making. The commercial terms for the agency pitch are clear and if agencies were not comfortable with them they wouldn't be excited about pitching for such an iconic and much loved brand."

But clearly agencies are not comfortable if so many are pulling out! We’d love to hear the procurement story here as well, but as reported it does not look as if the strategic objectives of the Heinz business are being reflected well in the procurement process.

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Voices (2)

  1. alun@marketdojo:

    As an aside, it would be interesting to query how often these large agencies actually have to partake in an eAuction. Traditionally marketing agencies have been difficult to get engaged in the process due to the ‘creative element’. To have a defined and quantifiable area to eAuction is a fair way to use the tool. Whether the payment terms can be considered ‘fair’ is a good question although as mentioned, they have been upfront about them.

  2. Alan Holland:

    It always baffles me when large corporations try to negotiate payment terms in excess of 30 days. The cost of credit for smaller suppliers is much higher so they have to pass this onto the customer. But in Heinz’s case, if they sought to run an eAuction on payment terms after suppliers had already committed to prices, then it is completely understandable for those suppliers to walk away. Moving the goalposts in this manner would be grossly unfair and counter-productive in any case because it increases costs for all concerned.

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