Marketing Procurement: Reduce Your Agency Costs Without Negotiating Fees – 4C Tells Us How

We've done quite a bit of reporting recently on some of the highlights from the ProcureCon 2015 event -- you can read about them here, here, here and here, covering programmatic advertising, talent management and more. There's one more presentation we'd like to share with our readers, because it's not only topical, it can be applied to all organisations. It came from Milan PanchmatiaDirector, 4C Associates and customer Gavin McClure, Global Procurement Marketing Category Manager, Japan Tobacco International.

They talked together on "Reducing your agency costs without negotiating on fees: the impact of process redesign and identifying waste in how you work." It worked well as a case-study-type presentation, because, rather than answering strategically moulded questions, Gavin interjected at natural points where he could add value in terms of real first-hand experience of process change. 

It focused on the shiny, new model (to the marketing procurement world anyway it would seem) whose origins lie in the manufacturing industry, which more and more companies are starting to approach: Lean Six Sigma. And JTI is a good example of where 4C has helped it to work successfully. Lean Six Sigma is a set of powerful tools and techniques that will help any organisation improve its efficiency and productivity. A quick recap on LSS:

Lean is the set of principles, practices and tools aimed at creating precise customer value: it classifies every activity into three types: Value Add (activities that a customer pays for which help create the finished product or service), Non Value-Add (activities that are essential but don’t bring any value to the finished article), Waste (unnecessary actions that bring no value).

Six Sigma is a highly disciplined, structured programme aimed at delivering near-perfect products and services by improving processes. It is used to analyse processes to discover where and how defects occur, measure them and eliminate the problem areas.

Together they bring: cost reduction, shorter cycle times, improved customer service, greater employee productivity and increased profit margins.

Milan asked the audience how many of them knew about or were even implementing LSS - about five hands went up in a room of 200 delegates. Uptake is slow in our experience, Milan explained, CEOs get it, but they haven’t seen it done in marketing. We are focusing on it because we know it can deliver dramatic results. But the key is -- it’s not something that can be done by a general procurement specialist, you have to understand the details, you have to understand both sides: procurement and marketing.

Gavin explained that it was a big undertaking for JTI -- a young but significantly growing company. He talked about how it was the right approach for them: when you are in a mature procurement relationship and you’ve been through all the regular benchmarking scenarios time after time, and you've done the negotiating, and you've already aligned price with market -- what can you do differently to get more money back into the business?

JTI's advice: recognise there's a problem; recommend developing your procurement techniques; get senior executive (and brand buyer) buy-in and be prepared to go on a journey!

We engaged 4C Associates to work with both the procurement and global marketing teams to redesign the core agency relationships, make them more sustainable and to bring down cost of service, Gavin explained. 4C applied LSS across a number of areas such as performance reviews and payments, digital asset management, contracts and output costs, and we have been able to identify savings of more than 30 percent and speed-to-market reduction of 35 percent. What you then do with those savings is up for grabs, but we chose to reinvest back into our brands to achieve longer-term bottom-line savings.

What we designed for JTI, said Milan, was big. But for any size of organisation, some themes are common. You must be fair to the agencies and treat them with respect. We aren't asking anyone to change agency, or process, it's about how we can do things differently and make everyone's life easier. If we get this right, we can shorten processes and everyone will be doing less work and achieving more by taking waste out. It's about spotting potential problems early on, consolidating spend and identifying where core work is sitting in the wrong area and reallocating it (during the process you may even identify un-utilised talent).

It's really important to make sure communication and vision are absolutely clear; for example, don't let the CEO and agency head talk to each other and derail the process. They have to be sure of what they are signing up to at the start, so you don't have to go backwards once the process has begun, then the power stays with procurement. Commercials need to be clear that this is being led by procurement, and it will end up making their lives easier. To reshape how you do your marketing, all the pieces have to work together.

Milan was asked how the agencies handle it. He said that in fact they are pretty much on board with it. Some of the agencies in this case had worked with the company for 10 years, and there's only so far you can go with fees. You have to give the agencies some guarantee that there will be cost and time savings and that it's sustainable. It's crucial to get their services on board from the beginning, they have to get on the journey with you. Our job is getting everyone to work to one method.

It was a really well delivered and interesting presentation, and a shame that there wasn't enough time for more questions. Milan and Gavin did an amazing job in the 20 minutes they were allocated.

We, however, managed to catch up with Milan at the end of the day and asked him to sum up for us:

"The key to implementing transformation change within marketing based on Lean Six Sigma is having 'vision' and getting stakeholder engagement at the most senior level. The results can be astounding -- but you have to be fair to both agency and brand."

If you would like to know more, you can contact Milan on  +44 (0) 7983 104138

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