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Wising up to marketing costs
Lisa Wichmann
Marketing seems to be one of the final frontiers in strategic sourcing. While other areas, such as IT and operations, have fallen into line, the marketing department is still running with a rather long leash.
Not that you can blame them. Marketers have a tough job—coming up with brilliant ad campaigns, and getting them printed at maximum speed for competitive advantage. Many use external creative agencies, which often let artistic appeal completely eclipse cost efficiency.
But companies such as Bank of Montreal and Ontario Lottery and Gaming are using sound strategies to save millions of dollars on marketing, without missing deadlines or diluting the creative intent.
Their approach is two-fold. They use a category specialist model for buying; and they outsource much of their print management, in this case to a company called PGeMarketing Services (Markham, Ont.).
With years of experience in executive-level marketing, Rudi Engel, CEO of PGe, is all too familiar with the dynamic that often exists between marketing and purchasing.
"Having been a marketer, I know we used to fall back on the old line that ‘we have to react quickly in the marketplace. We can't get bogged down in the bureaucracy of [purchasing's] processes. We have targets to hit and we have to do it fast, so get out of the way'."
For many organizations, the speed and creativity required in marketing makes it counter-intuitive to strategic sourcing. “So the diligence that’s done on other things that purchasers get involved with isn't done of that piece of the puzzle," Engel explains. "And that's unfortunate, because if you examine those specifications carefully, there are often better ways to get the same end result."
Engel can prove it. The Bank of Montreal has saved approximately $4 million over the past five years on marketing and print improvements. Ontario Lottery and Gaming has saved $1 million over two years, by reassessing how it handles marketing.
Small changes, big savings
It's not that these companies print less, or launch cheaper campaigns. Rather, they employ e-procurement, develop positive relationships with marketing, and outsource print management to get a second opinion on how brochures and other materials should be produced.
PGe is one of the third-party companies providing that second opinion. It's not a print broker, but a full-service print management and e-procurement firm. It's a unique company, but it does have some competition from organizations such as Pareto. These companies fill an important void in marketing production, by injecting more cost responsibility.
"We sort of create that triangle between the client, ourselves and the [creative] agency...to say, 'look if you do it in four colours versus six, or this size versus that size, you're going to avoid hundreds of thousands of dollars in production costs'."
Often, the changes have minimal impact on the overall look and feel of the product, nor do the adjustments—which might involve shaving a quarter inch off the size of a brochure—slow the project down.
Which begs the question: why don't the agencies make these suggestions? Some do, Engel says. But more often than not, the agency prides itself on being creative and artistic, and may not be inclined to delve into cost-saving details.
Once the specifications are agreed upon by the client and the agency, PGe taps into its database of more than 300 pre-approved print vendors. It issues an RFP electronically, working in partnership with the client, and manages the bids.
Once the bids are in, PGe creates a shortlist and oversees the management of the project. It also has a contingent of professional proofreaders on staff to eliminate what every company dreads—costly typos and mistakes in their literature.
"There's a ton of money being wasted on rework," Engel says. "So if you catch this stuff up front, you're either saving money because you don't have to do it again, or you're saving a lot of embarrassment."
The proofreaders go in person to the print shop, to approve the job before it runs, he adds. "They’ll check virtually everything. For example, they'll call a phone number on the brochure to make sure it's the right phone number...They'll make sure the colours and logos are right, and that the terms and conditions at the bottom of the campaign are correct. They proof it for grammar and punctuation."
PGe's staff also consists of printing experts, four of which have a 100 years aggregate experience in competitive bidding and supplier management, which aids tremendously in discovering new vendors and assessing proposals.
An eye for detail
The company puts a lot of focus on small details that alone, seem insignificant. Put together, these minor elements add thousands of dollars to marketing jobs.
"We really know a lot about Canada Post and few people, including agencies, I would venture, know that much about it," Engel says. "The rules are very challenging. If it's a call to action, which is to say 'buy my service' on a piece of mail, it's a different rate than [a mailing that says] 'thank you for your business'. And it's not all that intuitive."
Then there's the pitfall of minimum orders—another source of waste. For instance, a company might be forced to buy 500 brochures when they require only 150. Or they may need additional copies down the road. PGe negotiates these "overage" issues with the print vendor ahead of time, and builds the terms into the contract.
Because it's buying on behalf of so many companies, it has plenty of clout to negotiate more favorable terms and costs with suppliers. It also brings the value of electronic procurement to the table.
"Virtually 100 per cent is done through e-procurement," Engel says. "So we train the supplier, which takes all of 90 minutes. We give them a password and they get an automatic e-mail generated by our system, saying 'you have an RFP waiting.' They click on the link...put in their user name and password and it shows the RFQ...So they do their costing analysis and put in their response and it comes back to our system."
Bids are ranked low to high, unless there are reasons to override the process, such as an opportunity to aggregate volume. The client is invited to vet the bids too, or they can leave it up to PGe.
As the projects are put into production, the purchasing manager receives regular reports on who won the business, how much the job is costing, and what RFQ process was in play. For many purchasers, it's the first time they've been party to that kind of visibility in marketing.
"They can audit it whenever they like, so they can see that the appropriate number of quotes are being generated for every job over X dollars...We work with the purchasing people to define that company's business rules and then build them into our process in working with the marketing person."
Organizations with in-house expertise in print management may simply opt to buy a licence for PGe's e-procurement software tool. It allows them to keep their print suppliers organized in a database, generate standard RFQs and handle bids electronically.
That’s a big selling point for Ontario Lottery and Gaming Corp. (OLG) which outsourced its print management to PGe in 2002. Back then, it was taking a hard look at its marketing costs and processes, says Brenda Gibbons, Toronto-based director of procurement.
"We were always one of those standard traditional companies that bought all of our print requirements through the agencies," Gibbons says. "So we sort of broke down what the agency did and looked at the business processes...We took out the low-value tactical activities and said, 'we could outsource these [elsewhere] and not have to pay a premium."
The sourcing strategy also included taking an enterprise view of marketing spend, to aggregate volumes for discounts, and making the purchasing department more useful to its internal clients.
"We asked questions such as 'why is a marketing guy spending so much time with the vendor on what appears to be a purchasing issue when he could be spending it on his core business?'"
Ideas were generated to make the procedures more efficient, and to take better advantage of procurement's expertise. But Gibbons emphasizes the success of the project hinged on the approach.
"It was hand-in-hand with the marketing group," she says. "The sell to the senior executive happened first, and they pushed it down as a soft-sell to the [marketing] people...so there wasn’t a threat."
E-procurement has a significant presence at OLG, both through PGe's assistance and the organization’s own efforts. "All of our procurement systems are online, from requisition to cheque," Gibbons says.
PGe helped OLG establish an electronic roster of print suppliers, which is useful when buyers want to approach vendors directly for small jobs, instead of issuing a tender through PGe.
Outside of the partnership with PGe, Gibbons and her colleagues have put a lot of effort into creating a positive, productive culture. Procurement is positioned not as an encumbrance, but a value-add.
"The biggest thing in marketing is they need to get things going and they have deadlines. So we find creative ways to meet their needs within our auditing requirements and our regulatory requirements. We're the second-most regulated industry in Canada, next to nuclear energy. So we've got a lot of parameters we have to work within."
Procurement is handled by commodity specialists "in order to build the confidence of the user areas," she says. For example, one of OLG's specialists came from a printing background.
"We hired her more for her expertise in the actual industry she would be supporting in our group, rather than all her strengths in procurement...We have supported her in her advancement in procurement and her continuing education," she adds.
"So now we've been able to develop someone on the procurement side who already has the industry knowledge...She's talking [marketing's] jargon and can relate to them and understand their frustrations and come up with more creative solutions to their needs."
The approach has also found favour at Bank of Montreal (BMO), which initiated strategic sourcing in 1997. BMO has a strategic sourcing department whose job is not buying goods and services, but applying consistency and diligence.
"We provide strategic thought leadership and ongoing governance over our external partner [and supplier] relationships and the internal procurement practices," says Cathy Hazell, senior manager with procurement and strategic sourcing with BMO in Toronto.
BMO uses a category management model for areas such as operations, advertising/marketing, technology, and corporate real estate. The strategic sourcing department ensures the various departments aren't buying in silos.
"It provides a common process across a diverse group of buyers," she explains. "It allows each business to manage its spend, but it allows the bank to leverage enterprise volumes and provide ongoing expense management strategies."
PGe plays a role in BMOs strategic sourcing too, by providing automated purchasing for commercial print and translation services. Requests for translation services filter through PGe's electronic procurement tool, which organizes pre-approved vendor information and RFP templates. It also ensures the bank is leveraging enterprise-wide volumes.
"The e-tool allows us—instead of having set pricing—to go out on a regular basis and quote, and take advantage of a commodity market," Hazell says. Added to that is the increased visibility. "We've been able to drive the reporting and information and really understand the consumption."
At both BMO and OLG, marketing and purchasing are operating in sync, with checks and balances in place for creative intent, deadlines and strategic sourcing.
The efforts are manifesting themselves in real cost savings and a healthier, more productive relationship between two departments that all too typically, find themselves at odds.
Lisa Wichmann, editor of Purchasing b2b, may be reached at lisa.wichmann@pb2b.rogers.com
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