Unfortunately with many creative and service categories, revenues alone do not tell the full story since there is no reporting on the value they delivered for their clients (as opposed to say the volume of cars sold by GM last quarter tells how much “value” their customers derived from them). But, as long as the clients are not solely focused on cost reductions AND don’t lose sight of the value a marketing agency provides, this high-spend, high-visibility category is certainly ripe with savings opportunities…if approached properly.

As the economy tightens, all aspects of the business are forced to carefully weigh how each dollar is spent, and be prepared to justify the expenditure. Marketing - a category that was previously protected from price conversations and pressures, in favor of the mindset that you have to pay for good creativity - is no longer exempt from justifying the value of each dollar spent.

Seeing a major marcom player, like WPP, actually complain publicly about the cost reduction strategies of their clients shows that indirect spend is (finally) being aggressively targeted by some large, best-in-class procurement departments. In fact, large multinational corporations like Colgate-Palmolive and McDonalds are stating that they plan to do more marketing and branding activities, but with less money. Companies like P&G and Unilever are stating that they are planning for the long-term and will be spending on marketing even through the economic downtown but, again, expectations are that the value gained from spending each marketing dollar will be high.

How do procurement departments drive cost savings while increasing the value delivered by marketing?

Clients need to make sure that the costs (hours) are truly matching up with their goals and objectives, and their expected outcomes, which is why a rigorous procurement process is essential. If the goals and objectives of the marketing firms and the customer were aligned tightly, there may be less need for up-front investigation and back and forth negotiations to drive down each individual cost component. Get on the same page early, with clearly defined expectations, cost-drivers, and definitions of “success” for both sides.

And a bit of unsolicited advice for marketing firms looking to adapt to this changing marketplace. You must align your goals and objectives with that of your customers! Clients leverage procurement to make sure that they are getting the desired behaviors and values for the price that they are paying while, traditionally, marketing firms approach customers with a price based on cost (which equals hours). Like law firms, the new landscape will require you to break away from your traditional billing models and look to align price with results. In the short-term, that approach can be a competitive advantage. And long-term, your firm will be better prepared to tackle a rapidly evolving marketing world that’s running away from print ads and towards “engagement” on platforms like Twitter, Facebook, etc.

Lynn Rideout is a Manager in Ariba’s Spend Management Services group. Lynn specializes in strategic sourcing projects for indirect spend and services categories.

It’s an interesting new offering at a time when many pros in the field are looking to beef up their resumes and skill sets to either get or keep a job. And as we’ve discussed many times here on SE, now is a hot time to be in procurement - an increasingly strategic department that can save the company money at a time of flat or dropping revenues. So, an online credential program that helps procurement professionals in the trenches keep up with the times is likely an attractive offering.

The course is divided into 4 areas - Negotiations, Purchasing Management, International Procurement, and Global Sourcing Strategy. Personally, when I see coursework and syllabus (syllabi?), I get scared that I’ll hear heavy-on-theory-light-on-action academic meanderings. But the SPSM2 content looks to be pretty pragmatic. For example, the Global Sourcing module includes instruction on a variety of topics, from managing cultural differences to VAT & regulations on international shipments.

Certainly another option for you to consider as you look for career advancement opportunities. And considering yesterday’s Purchasing.com article that stated 88% of CFOs think costs savings are their top procurement priority, yet 46% are NOT satisfied with their procurement organization’s performance in this area, it may be worth brushing up on your skills.

But, I think the issue of training opens up a larger question when put in the context of effectiveness in your role…

Is lack of skills what’s holding you back from being as effective as you can be (particularly if you’re going by the CFOs definition of “effectiveness = cost savings”)? Or are there other impediments in the procurement department?

I know it’s a very sensitive topic, so leave comments anonymously if you must.

Justin Fogarty is Managing Editor of Supply Excellence. For any questions or feedback on the blog or its contributors, Justin can be reached at jfogarty[at]ariba.com.

The full report is available (download it here) and I’ll be blogging about some of the key findings here over the coming weeks. Today, we’ll tackle the highest ranked priorities from the survey.

So, what were the top priorities:

1. Identifying savings opportunities faster is the # 1 focus for most companies - As layoffs mount and credit still remains tight, most companies are focused on identifying and generating immediate savings to cope with the crisis in the short term. Companies are also increasingly looking for quick ROI and immediate savings to demonstrate the value of spend management before seeking the executive support and funding required for a wider roll-out.
2. Increasing spend under management is a key initiative for most companies - Companies are now recognizing the advantages of having more spend under management; ensuring maximum spending leverage and applying consistent and best-practice market diligence, costing, negotiation, and compliance methods to each spending category. Many companies are also taking this opportunity to go after sacred categories like Marketing, Legal, HR, IT, etc.
3. Automating procurement processes is a top priority for many companies - Organizations are feeling the pain of depending on paper and people-intensive processes. Almost two-thirds of the respondents (63%) listed the need for automation across the entire source-to settle process in their top five priorities. Companies realize that automating sourcing, contracts, procure-to-pay and supplier management processes are keys to increasing compliance and accelerating savings.
4. Mitigating risk and managing supplier performance critical for most companies - Mitigating supplier risk and managing supplier performance is one of the main worries for companies today. This can include concerns ranging from how do I meet customer demand if my critical supplies are interrupted to reduced innovations by supplier and deteriorating quality and service from suppliers due to the impact of this recession.

A quick note on the demographics - Participants included more than 225 Procurement, Finance and other executives representing a variety of industries, company sizes and regions. Nearly 85 percent of the participants represented companies with more than $1B in annual revenue. Over 84 percent of the participants were at the manager, director, and VP or CXO level. Companies headquartered in the Americas represented 67percent of the total respondents, Europe followed with 31 percent and the rest representing Asia Pacific/India (1 percent) and Middle East/Africa (1 percent).

Hari Candadai is Director of Solutions Marketing for Ariba and author of The Return to Profitability: Spend Management Priorities to Accelerate Savings and Drive Long-Term Growth, a global study of spend management priorities and strategies.

Tim, the President and CEO of the International Association for Contract & Commercial Management (IACCM), told the story of an IACCM member company that decided to do an experiment with their buy and sell side contracts. They had their in-house legal teams do a blind review (the company name was concealed) of their own contracts to look for misplaced priorities and potential exposure. Their sell side legal team looked at their own company’s buy side contracts and vice-versa for the buy side team, who reviewed the sell side team’s paper. To quote Tim on the findings:

Both sides were apoplectic!

Apparently, they found that their own contracts and legal priorities were often insulating against the wrong types of risks and extremely burdensome, which at best extends negotiation cycle times and wastes expensive legal resources, and at worst actually costs business or introduces new risks.

Now, hopefully in these finals days of the fiscal quarter, your legal team is extremely busy pushing 11th hour contracts through (the economy needs it!). But perhaps as the smoke clears in the coming weeks, an exercise like this “blind” taste contract test is a worthwhile endeavor. No one knows your company’s business better than your own legal team. So if they can uncover efficiencies or deficiencies in your contracts, strategies or risk management process, your organization will be better off. At the very least, this experiment will open up a good dialog between procurement and legal on the topic of risk…and given procurement’s ever increasingly role in risk management, enlisting legal’s help is a big step in the right direction.

Justin Fogarty is Managing Editor of Supply Excellence. For any questions or feedback on the blog or its contributors, Justin can be reached at jfogarty[at]ariba.com.

Manage your Suppliers. Managing a global supply base can be challenging. Many companies have large numbers of suppliers to contend with. Their data is fragmented and spread across multiple systems. And goals, metrics and measurements are inconsistent - if they exist at all. But there are steps that you can take to overcome these obstacles.

• Avoid critical supply problems through pro-active collaboration with your key suppliers
• Rollout performance measurement processes to measure supplier performance consistently in a good recurring cadence
• Award more business to high performers based on quality, timeliness and other key performance indicators
• Ensure that future sourcing activities take performance and quality into account
• Manage more suppliers using automated processes and scoring /analysis tools
• Give suppliers visibility into performance issues and quality problems so that they can act swiftly to correct them

Again, much of this can be automated through technology. But technology alone isn’t the answer. To effectively manage your trading relationships and get the information you need to make better business decisions requires market knowledge, category expertise and best-practice processes. Find a partner who can provide it.

Be realistic. Companies today face more supply risks and challenges than ever before. So don’t think it can’t or won’t happen to you. Protect your company by knowing your risks and identifying the right combination of technology, expertise and services to effectively manage and overcome them.

If you need additional guidance, I recommend visiting our Supply Risk website, which contains a recent CPO Agenda report, risk assessment tools and video interviews with several companies describing the role procurement plays in their risk management strategies.

Sundar Kamakshisundaram is a Senior Solutions Marketing Manager for Ariba, a global provider of spend and supply risk management solutions.

Last fall my colleague, transportation category manager Rachel Rutkoski, provided some excellent advice for companies looking to reduce the risks brought on by these powerful seasonal storms (or any natural disaster disruption). Her advice is worth revisiting today if your supply chain, transportation nodes, or markets reside in or pass through the Gulf states, southeast, mid-atlantic or northeast (which includes just about everyone right?).

What steps did Rachel recommend?

• Get proactive, rather than reactive - If you’re creating a contingency plan when a storm or longshoremen strike is imminent, it’s too late. Few options will be on the table as the procrastinators all scramble. Since you can always be certain there will be events beyond your control in the next few months, it’s certainly worth preparing for them ahead of time.
• Do the math - Floods in the Midwest forced shippers to use more expensive modes of transportation. Modeling costs to determine when it’s wise to pay the premium or wait it out will help you make critical decisions quickly. There are almost always options - the question is whether or not they are worth the added cost.
• Beware the Bullwhip Effect - As we all know, one thing now can have huge impacts down the road. So understanding the inherent inputs, cost drivers, and risks to your supply chain will help you cope with disruptions so they don’t reverberate across your materials, production, distribution, and customers.
• Have a game plan for natural disasters - Obviously, each and every event will be different. But having a plan and an established decision making chain of command will go a long way. The last thing you want is a “Heck of a job, Brownie” situation where everyone is hoping someone else will step in and sort things out.

Even if forecasters are correct and it’s a relatively mild hurricane season, it only takes one storm to wreak havoc on your business. Be prepared.

Justin Fogarty is Managing Editor of Supply Excellence. For any questions or feedback on the blog or its contributors, Justin can be reached at jfogarty[at]ariba.com.

Since companies can’t afford a major supply chain interruption at a time when they’re already struggling with the recession, what concrete steps must be taken to reduce global supply risk?

Assess the Situation. In order to effectively manage supply risk, you must first understand your exposure. To get an accurate picture requires action on a number of fronts, including:

• Analyzing the financial health and stability of suppliers using detailed financial information
• Obtaining proof of financial soundness through site visits
• Creating detailed supplier risk profiles to determine category and industry threats
• Examining commodity and underlying supply market trends to discern the potential impact of supply constraints and price fluctuations across top and sub-tier supply chains
• Investigating the stability of raw material supply and possible effects of trends such as market consolidation and capacity constraints

While key pieces of this task can be automated, it is critical to leverage supporting services and expertise to ensure you get the information you need to develop and execute a sound strategy to conquer your risk. As the saying goes, garbage in, garbage out.

Prepare a Plan B and C. As tough economic conditions persist, the odds that your company will face some form of supply disruption increase. To minimize the impact, you must be able to quickly discover, assess, and on board new supply partners, ensure their information is accurate and up-to-date and continually measure and improve their performance. Sounds complicated. But there are solutions on the market that will enable you to quickly and easily:

• Reduce the cost and time involved in supplier discovery and assessment - which can account for up to half of the sourcing cycle - as well as on-boarding and management so that as suppliers fail, new ones can quickly be identified and brought up to speed.
• Gain a 360-degree view into supplier information including contracts, quotes, performance, certificates, internal stakeholders and contacts.
• Access additional information, performance ratings, and alternative sources of supply.
• Speed supplier assessment and qualification by automating information collection and new supplier approval processes.
• Ensure proper supplier selection, measurement, and risk and performance management.

Invest in them.

In Part 2 of this series, we’ll cover managing your suppliers AND expectations. In the mean time, I recommend visiting our Supply Risk website for additional resources, including a CPO Agenda report, risk assessment tools and video interviews with several companies describing the role procurement plays in their risk management strategies.

Sundar Kamakshisundaram is a Senior Solutions Marketing Manager for Ariba, a global provider of spend and supply risk management solutions.

Myth: Services are so unique, the best way to manage them is through point solutions.

Reality: A service solution should be part of an overall procurement strategy. Procuring any type of services takes place in a larger procurement and corporate ecosystem. To put a point solution in place for each type of service purchased, such as temp labor or print, creates a drain on organizational resources and limits leveraging solutions for maximum value. While print or projects may not be at the top of your list today, they should be on the list for eventual spend management. Instead, implement a single solution that provides seamless integration with your spend analysis, sourcing, contract management, invoice/payment, and supplier management solutions and processes. .

Myth: No budget = No Software

Reality: Analysts have found that hard cost savings are attainable within a short period of time with the right solution, with savings averages ranging from a low of 4.4% up to 7.3%. With Software as a Service (SaaS), implementations are far faster, easier and cheaper than in the past. Combining quick implementations with significant savings, payback within six months and ROIs over 1,000% in the first year are not uncommon. Subscription based pricing also allows many solutions to be installed using operational vs. capital budgets. Many suppliers will provide an ROI calculation free of charge to help establish a business case for your organization. Investigate your pricing options including subscription pricing.

Myth: Vendor-funded software is virtually free.

Reality: Vendor funding has benefits, but be careful of hidden costs. Vendor-funded software is typically encountered when a Managed Service Provider (MSP) is used to procure contingent labor. The MSP may provide their own solution or work with a client to secure a third-party solution. Instead of the customer paying subscription fees directly to the software supplier, the MSP pays them and applies a mark-up to the customer invoice which typically ranges between 0.25 and 0.75 percent. The customer benefits by not writing a big check initially since there is no need for a specific software budget. But the issue becomes how much will be paid for the software in the long run as well as other hidden costs such as integration to your existing systems . Make sure there are no surprises and investigate the total costs for 3 years including tight integration with existing systems such as Sourcing, Contract Management and Invoicing.

Perhaps the biggest myth associated with services procurement is that as the global recession continues, companies can’t afford to invest in a solution to manage it. But the reality is, that with pressure to deliver immediate savings at an all-time high, few companies can afford not to.

If you’re interested in more information on services procurement, I encourage you to download the Myths, Pitfalls and Realities Around Services Procurement whitepaper. It expands on the points above and provides a checklist of questions around technology, metrics and process to support your efforts..

Dan Ashton is Senior Solutions Marketing Manager, responsible for Services Procurement & Content, at Ariba.

In the past few weeks, I’ve seen several presentations from high level procurement pros (D, C or VP level and running the indirect spend programs in their organizations) who have addressed this topic. And in each case, they saw great results by actively recruiting for new procurement headcount from other functional areas of the company.

For example, two weeks ago in Stockholm, Dr. Heinz Schaeffer, CPO for Northern and Central Eastern Europe at AXA, recommended actively pulling people from other departments for open positions in procurement. In the case of AXA - a “financial protection” company in an industry historically distrustful of procurement - recruiting people who had done some procurement tasks in their previous departments was very helpful in building relationships, understand the internal customers needs, and ultimately, gaining results. (Coincidentally, Dr. Schaeffer is presenting a webinar today on his “glocal” sourcing strategy, which may include some discussion of his views on staffing).

Chris Stockwell, VP Procurement Heinz North America, shared a similar perspective last month in his keynote address at Ariba LIVE in Chicago. Chris’ team has aggressively gone after historic indirect spend “sacred cows” in the organization, including marketing spend, which they’ve handled with great success for the last year. Chris said you “need expertise to get buy in from stakeholders” and therefore must “have or hire experts in categories” you are targeting. As I posted previously, Chris’ successful efforts have enabled the procurement team to add headcount during the recession. That headcount has come largely from other departments, such as IT and marketing, and therefore enabled procurement to leverage their new hires’ relationships and category expertise.

It’s a great topic for debate. So, I’d like to open up the floor with a couple questions:

• In your organization, are most in procurement “lifers” in the field or were they pulled in due to unique category expertise?
• If you could pick an ideal indirect team, what would the breakdown be between experience procurement pros vs category experience?
• Any results you’d care to share?

I know it’s a potentially sensitive topic, so leave comments anonymously if you must.

Justin Fogarty is Managing Editor of Supply Excellence. For any questions or feedback on the blog or its contributors, Justin can be reached at jfogarty[at]ariba.com.

Personally, I like to think we’re partially responsible for launching Mark’s broadcasting career with our recent interviews of him in San Francisco and London.

Justin Fogarty is Managing Editor of Supply Excellence. For any questions or feedback on the blog or its contributors, Justin can be reached at jfogarty[at]ariba.com.