Decoupling Creative and Production Procurement

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1 AND Decoupling Creative and Production Procurement Handle with care! Written by Peter Smith, Spend Matters

2 Summary In this short paper, we look at the development of marketing services procurement and in particular the idea of de-coupling spend. That concept describes the separation of different elements within the marketing process in terms of commercial management, so (for instance), looking to split the procurement of creative and production activities. Whilst this can be an appropriate strategy, it carries some real risks, such as a loss of brand consistency or focus. So rather than automatically assuming this, or indeed any other particular approach is always correct, marketing and procurement executives need to consider what we believe are the core aspects and drivers that deliver value from third party spend. They include principles such as transparency and competition, as well as enablers such as effective processes, quality, speed to market, brand consistency, technology and data, which can support both effective procurement and successful brand management. How did we get here? The old Agency model comes unstuck... Once upon a time, a single Marketing Services firm, usually known to its clients simply as the Agency, did everything for the brand owner. As well as advising the client, and coming up with brilliant creative work, the so called Ideation, Creation and Production agency proposition, they bought whatever needed to be purchased to service the brand. That might include goods or services to produce creative output such as television advertisements, or even branded collateral and point of sale items. That was good news for brand consistency, but sometimes less good for the clients pockets. Most Agencies worked on a cost-plus basis, adding a margin of their own onto those third party costs. Indeed, that element of income was a key contributor to most agencies profit. And of course, unfortunately, that structure generated highly perverse incentives. If an Agency could add a 15% margin onto third party costs, it is clear that they actually had a financial incentive to be profligate with the client s money, in order to drive their own income. Any firm would be tempted to exploit that, and some certainly did. Eventually, clients developed a number of alternative options, with the aim of improving value for money from their marketing spend. Some moved away from a cost-plus basis for Agency remuneration and into a wider range of fee mechanisms, such as payment based on activities or outputs, or fixed price arrangements. New players came into the market, such as specialist production houses, who focused on the more operational aspects of marketing, rather than the creative. That gave buyers of marketing services more options in terms of who carried out the various elements of their total requirement, and the concept became known as decoupling; the separation of creative and production activities, costs and therefore procurement focus. That would, in theory, stop the Agencies making excess profit and would concentrate expertise in different specialist areas. Then in the last ten years or so, another step change in complexity has arisen through whole new categories of marketing spend related to developing technology and the move towards digital and multichannel marketing. Twitter with sponsored tweets, pay per click options on social media websites, sponsored YouTube videos and other options we could not have imagined 20 years ago are now also firmly on the brand manager s agenda.

3 De-coupling not a panacea However, the move towards de-coupling creative and production (and indeed other elements of the marketing supply chain) has led to some less positive issues and outcomes. The added complexity of multiple parties, playing different roles in the supply chain, can lead to governance issues that in turn lead to a lack of brand consistency, or the creative element of the process being downgraded. Back in 2006, three professional bodies representing the procurement and marketing industries (CIPS, ISBA and the IPA) produced a guide called Magic and Logic. It is still well worth reading today for procurement and marketing practitioners, and here is a short quote from it as they highlighted another issue with the decoupling concept. Recognising that quality of output is important also means that Procurement respects the agency s quality control role, in particular when considering decoupling of agency services. Where decoupling works best is when the agency is allowed to retain some creative control over suppliers being used. No-one wants to go back to the bad old days of Agency mark-ups and opaque billing. But good creative work has to be funded somehow, and stripping out everything else by over-enthusiastic de-coupling can leave the Agency in a position where the client simply isn t attractive any longer, or good creative work is diluted by what happens elsewhere in the delivery process and supply chain. So where has all this left the buyer of marketing services, particularly those looking at major brands, which inherently face complex issues of geographies, different marketing channels and multiple internal stakeholders? Executives in brand roles and in marketing services procurement must determine how to analyse the complex options, and determine how to structure the various elements of work and potential suppliers. What should they consider in order to spend their budgets wisely and get the most out of their supply chains? Core principles maximising value from the marketing supply chain When faced with complex problems, it is often best to go back to first principles. The absolutely key point to remember must be this (as evidenced by the performance of marketing-driven firms and brands such as Apple or Coca-Cola); saving a few percent on the cost of marketing services through tactical procurement activities is close to irrelevant in the context of the business revenues, profit, brand value and enhanced reputation that can be driven by good marketing. Moving on to more specific recommendations, we d suggest these are a good starting point for any Executive faced with that de-coupling decision or indeed any questions around structuring of the marketing supply chain. Procurement must always be aligned with overall corporate and stakeholder strategy in order to make a sustainable contribution. In this case, that means supporting wider marketing and brand objectives. Consider carefully brand value, consistency, speed to market and creativity as well as cost when looking at de-coupling and other options for structuring the supply chain. Organisations need visibility and understanding of their own internal requirements in order to best manage the external supply chain not as easy as it sounds in large, complex organisations. An optimal supply chain operating model is key. Buyers must understand who is doing what, from who suppliers are using sub-contracted goods or services, and the interactions and transactions between players in the supply chain. This all must be structured to the benefit of the buyer and the brand. Understanding how and where to use competition in the supply chain is vital and a key driver of value not just for controlling costs, but to obtain the real value that arises from successful marketing.

4 Adoption of leading practice technology can help organisations manage the end-to-end process better. This should be informed by a thorough understanding and mapping of the operating model - from the requirement stage through sourcing, to engaging with multiple suppliers, collaboration and transactional management. Buyers and marketers need to understand the technology options now available, particularly for complex situations involving fulfilment and integrated campaigns. On that technology point, large businesses may already have some kind of digital asset management database in place. But many are weak in key areas, such as systemising marketing fulfilment (the tools necessary to operationalise the source-to-pay process for the campaign materials/assets). This is where a proven solution (such as that provided by ProProcure) can add value, bridging the gaps to create a compliant, end-to-end process, from creative idea to payment of the Agency via the incumbent financial systems. Effective brand management and effective marketing services procurement should go hand in hand. The creative, production, and other elements of the overall marketing supply chain need to be aligned with all suppliers involved working towards the same goals. We re not arguing that de-coupling spend is always the right or wrong approach, but do look carefully at the options, make sure you are ready and only then consider If de-coupling is right for your organisation.

5 FOR FURTHER INFORMATION If you wish to discuss the contents of this paper or to find out more about ProProcure please call Jonathan Millbank on + 44 (0) , or ABOUT THE AUTHOR & SPEND MATTERS Peter Smith is the editor of the Spend Matters UK/Europe blog, which he runs in tandem with Jason Busch (whose Spend Matters US site is the most successful procurement publication in the world). Since its launch in October 2010, Spend Matters UK/Europe has quickly become one of the most influential sites in its field, with tens of thousands of visits a month. Peter has an MA in Mathematics from Cambridge University, is a Fellow and was 2003 President of the Chartered Institute of Purchasing and Supply. In his management career, he was Procurement Director for the NatWest Group, the Department of Social Security (the DSS), the largest UK civil government Department, and the Dun & Bradstreet Corporation Europe, as well as holding senior positions in the Mars Group. His first co-authored book, Buying Professional Services: How to get value for money from consultants and other professional services providers, was published by the Economist Books in June For more information visit or ABOUT PROPROCURE LIMITED ProProcure Limited is a global provider of Marketing Spend Management Solutions working with central and local marketing, brand and procurement teams within multi-national brand portfolio companies. ProProcure focus on the marketing fulfilment category. ProProcure s technology and supporting services solutions cover the Source-to-Pay lifecycle and are designed to seamlessly integrate with, and enhance, client s existing investments in E-Procurement, P2P, S2P and ERP technologies. Clients achieve total visibility over spend, stretch budgets by maximising the benefits of order forecasting and aggregation, and achieve measurable reductions in non-compliance, risk and waste. Additionally clients see high levels of end-user and supplier buy-in due to ProProcure s intuitive e-catalogues and outstanding multilingual customer support. ProProcure works with some of the world s most famous brands including SAB Miller, BEAM Global, Johnson & Johnson, Pernod Ricard, and Unilever. For more information visit

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