The CPO's Corner
What Should Procurement Know about Agency Activity? Where are Funds often Wasted? (Part 1 of 2)
Agency spend is a challenging one. The processes we can use in other areas of spend don’t always translate well when the dynamic factor of creativity is folded in. So how can a sourcing professional be sure they are making the best use of company funds? To get the answer, I turned to some advertising professionals in my network, who observed that budgets dollars are often wasted as a result of poor project management, ill defined deliverables, incorrect staffing plans and too many rounds of revisions. That’s a lot for a single response, so we’ll do this in two parts. The first recommendation is to be rigorous in accounting for the dollars you are paying outside agencies. If there are several agencies that appear to have the right ideas and chemistry to support your brand, you should absolutely competitively bid them. In today’s world, agencies expect to bid. If all you do, though, is negotiate down the fees and walk away you are leaving yourself vulnerable. Agencies have been known to cut corners internally or double book resources (work on multiple clients) to recoup income they may have lost during the negotiation process. (Yes, this happens. I experienced something similar when someone on my team audited one of the Big 4 consulting firms working for us and found that they were double billing the resources on our account).
Unlike direct manufacturing suppliers, agencies are billing hours not counting widgets. So they have good internal project tracking systems. You just have to make it sure that they are capturing data at a detailed enough level so that you can look at each project they are working on, not just the entire account. “X” hours spent on video creation isn’t going to be helpful. “Y” hours spent on this deliverable and “Z” hours on another are at a granular enough level to be actionable. If the amount of time exceeds the agreed-upon level and there isn’t a satisfactory rationale for the gap, then a conversation needs to ensue on the agency providing a credit. Supplier Management is absolutely fundamental here, so that potential overspending can be stopped before budgeted funds are gone.
Don’t forget T&E. Your company should be communicating monthly deadlines and expecting agencies to submit expenses so they can also be tracked. It’s a nasty surprise when a big bill comes in at the end. Agencies are quite capable of honoring your normal T&E process, but you need to make sure it’s communicated.
All leads within a brand should be asking for regular updates on their run rate. The more rigorous this process, the more that your company can be compensated when things go awry, and the more you and your agency can avoid lengthy arguments on invoices.
Joanna Martinez is a global procurement / supply chain leader and the founder of Supply Chain Advisors LLC. She is a frequent lecturer and blogger on procurement topics and also provides coaching, strategy development, training, and cost reduction opportunity assessment. Her clients range from Fortune 100 companies to technology startups.
As either regional or global CPO, Joanna has led transformation initiatives for companies in many different sectors: among them Johnson & Johnson (consumer products), Diageo (beverage), AllianceBernstein LP (financial services) and Cushman & Wakefield (real estate services, property management). She has also held client-facing roles, effectively giving her the opportunity to “sit on both sides of the table”.