Doing it Wrong

Procurement helped to save the US automotive industry (and many others) through innovative strategic sourcing initiatives that improved quality and lowered costs in the 1990s and 2000s. Procurement then turned its attention to media service suppliers, like advertising agencies, but instead of using the successful procurement principles of the past, Procurement engaged in old-school purchasing behavior that has all but crippled ad agencies and reduced advertising quality at the same time. Where did Procurement go wrong? What should happen now?

The procurement revolution of the 1990s and 2000s was founded on the fourteen principles of The Toyota Way, which had the goals of creating enduring strategic partnerships with fewer suppliers, fostering an atmosphere of continuous improvement and learning, getting quality right the first time, and growing together with suppliers and partners for mutual benefit. Long-term plans were shared transparently so that suppliers could participate as equals in finding ways to improve quality and reduce time-to-market. These principles worked spectacularly for Toyota, and they have been adopted around the world in automotive, aerospace, manufacturing and distribution businesses without question.

The opposite has happened, though, for the "indirect cost" suppliers like advertising agencies. Instead of creating enduring strategic partnerships with fewer agencies, Procurement has eliminated AORs and has, instead, significantly expanded the number of agencies, presumably in the belief that creating a large portfolio of "best in class" agencies was the right direction to go. This has increased waste and complexity, on the one hand, and reduced relationship intimacy, on the other hand. Each agency in the "family of agencies" has a reduced voice and reduced influence in their relationships. Insecurity abounds. The number of agency reviews has risen spectacularly. Agencies come and go with no thought about long-term stability or commitment. 

Joint planning has been abandoned. Scopes of work are handled on an ad hoc basis -- with projects handed out among various agencies according to the media whims of the moment. Project fees have been slashed, making it difficult for agencies to field their best resources or do any long-term resource planning. Clients jealously guard customer data in the belief that agencies, who come and go, cannot be trusted with it. Agencies are left in the shadows, waiting to be told what to do.

Overall costs have been reduced, of course, but the hidden costs of complexity, insecurity and loss of commitment have risen exponentially. 

Have advertisers been well-served by these initiatives? Not in the least. Brand growth among major advertisers is significantly challenged, according to recent research by The Boston Consulting Group. Agencies have had to reduce their staffing and capabilities to match the reductions in their fees. Advertiser-agency partnerships have eroded. What's left are relationships between buyers and commodity suppliers.

Toyota, by contrast, remained true to its principles, and when it decided, more than a decade ago, to invest heavily in digital initiatives, it worked with its principal agency, Saatchi & Saatchi Los Angeles (SSLA), providing investment and encouragement so that SSLA could transform itself from a traditional agency into a digital powerhouse, and provide a broader range of marketing services for Toyota's brands. Both Toyota and SSLA have benefited from this vote of confidence.

Elsewhere, though, purchasing has gone in the wrong direction. It's time to put Procurement under the microscope and question its methods and approach.

Credit: Jack Ziegler / The New Yorker / The Cartoon Bank. With permission.