Marketing Procurement – Value vs. Savings

We are living in a time of sustained inflation. Consecutive global crises such as the COVID-19 pandemic and the Russian invasion of Ukraine are driving up prices in almost every sector.

While the lion’s share of these increases are in customer goods – most notably food and household items – and utilities such as energy, price rises in one area will always have an impact on others. Naturally, this includes the procurement of services such as marketing as the cost of doing business increases across the board.

"Procurement professionals have been used to driving year-on-year cost reduction," writes Procura Consulting. "Without any intervention, the baseline will trend upwards, and buyers will not be able to use simple market levers, such as competitive tendering, auctions, and leveraged negotiation to make savings."

However, as many companies scramble to make savings in their operation as a way to offset these increases, it’s important to remember that gaining real value from any expenditure is far more important than any cost cutting endeavor. Value ensures any money you do spend, results in a profitable increase in business.

The Issue with a Cost Focus

The role of procurement has traditionally largely been about finding the products or services a business needs and acquiring them for the best price possible. And, while this is certainly still the case, focusing too strictly on cost brings with it certain issues.

The old adage of "you get what you pay for" certainly rings true here. Most people reading this will have, at some point in their lives, opted for a product or service because it was the cheapest on offer, only to have their fingers burnt when it proved to be a sub-par offering in terms of quality. Choosing the best product purely from a price perspective can turn our more expensive in the long term as resources need to be expended dealing with any fallout from bad service and sourcing an alternative.

Buy nice, don’t buy twice.

Another issue with a strict cost focus is there’s only so much you can take out in terms of savings. Basic category analysis can help procurement teams identify easy cost saving opportunities, but as the category matures, those savings become increasingly elusive – unless you want to start harming your suppliers.

Which brings us elegantly to supplier relationships. Maintaining good standing with suppliers needs to be a priority for procurement teams looking to create long-term business relationships. However, constantly demanding lower prices – even if your organization is large enough and has the buying power to do so – will damage your chances of establishing long term relationships and missing out on benefits such as preferred customer status and early access to supplier led innovations.

A Value Based Mindset

As you can see, there are many issues with focusing too closely on cost savings, which can actually end up costing your organization more in the long-term. It is far better to ensure there is a balance between cost and value to get the most out of the marketing services you acquire for your organization.

Embracing innovation and boosting strategy decisions will help procurement become more integrally involved with the organizations they serve. Giving procurement a seat at the table from the onset while building strategies will benefit the entire organization in terms of the value it can bring.

Partnering with Suppliers to discover new approaches to business issues will help procurement – and by extension the whole organization – develop those long-term relationships we discussed above. Embedding a culture which supports and promotes supplier-friendly processes benefits all stakeholders in the value chain.

"Value creation is a major competitiveness issue for companies and will be one of the top purchasing priorities for the next decade," writes Manutan. "As the external resource manager at the heart of the company's ecosystem, the procurement department is uniquely placed to make a contribution in this area. Indeed, a new approach and management of the customer-supplier relationship are likely to produce significant and long-lasting results."

Digital solutions also help your organization save time and money. Working more closely with suppliers to create value means creating the opportunity to establish new digitally transformed processes which will create increased levels of convenience and reduce the time and cost of procurement. Automated processes and data-driven decision making will also reduce errors and make your organization more flexible and agile.

Final Thoughts

Making cost savings will continue to an important role for procurement. However, these savings must be weighed against the value they bring to the organization as a whole to ensure you are not creating a false economy within your brand.

The cost/value equation is sure to be part of the conversation at ProcureCon Marketing 2022, taking place in November at The Westin Rancho Mirage Golf Resort & Spa, Palm Springs, CA.

Download the agenda today for more information and insights.