F100 Global Retailer was looking to source Agency of Record (AOR) in their largest division (Latin America). The AOR contracts were expiring, and client wanted to source a new agency for online and offline requirements. They had not replaced their agencies in over 3 years – the annual current spend of $67MM in was divided among 11 incumbent agencies.
The current fee structure thought to be high (proven correct with savings of 50%), and the rebates were low (only 5% – the marketing team was convinced this was low given the spend size and knowledge of competition).
Procurement and Marketing had never worked together in the past and Marketing viewed Procurement with distrust and lacking in the subject matter expertise needed to support this area. To build a common understanding, an outside consultant, Alan Rice facilitated several workshops to share knowledge between the two departments. Marketing learned how the Strategic Sourcing process worked, along with examples from other internal projects and the consultant’s experience with other external projects. Additionally, one-on-one discussions were held with the Chief Marketing Officer and his direct reports to establish a strong relationship and build a bridge as a trusted advisor.
After establishing a cross-functional team from Marketing, Finance and Procurement, business requirements were defined, and roles & responsibilities were communicated to the project team. The team assembled internal & external data and analyzed marketing spend over the previous 2 years, and the projected media budgets for the coming year. Agreed upon sourcing strategy included an RFI round, potentially 2 rounds of RFPs and potentially a final Reverse Auction round.
RFI Round – RFI was run to collect data from potential new agencies and the incumbent agencies were asked to provide detailed spend reports for the previous 2 years.
RFP Rounds – 11 agencies were invited to participate in the first RFP round. They were all measured on assurance of supply, creative quality, service, costs (fees & rebates) and innovation, as defined by the internal marketing stakeholders during business requirements identification. Given the results of the first RFP round including the fact that the proposed fees were still not significantly different, a second RFP round was designed and it included a 3 year agreement term (vs. original 1 year). In the second round, the fees only came down slightly, so this triggered the need for an auction, as defined in the strategic plan. Given the nature of fees needing to be reduced and rebates increased, a Reverse Auction was selected – the first that the retailer had ever run in marketing. 9 agencies were invited to participate in the last round process and 4 separate Reverse Auctions were run the same day. Two for fees (online/offline) and two for rebates (online/offline)
CRITICAL SUCCESS FACTORS
- Trust was built between Marketing and Procurement, leading to the first successful joint project.
- Marketing saw that Reverse Auctions are a viable way to obtain the best value for their marketing budgets.
- Marketing was educated on the category management sourcing process and had buy-in.
- The Reverse Auction generated a fierce competition among the agencies.
- Fees reduced by 50%
- Rebates increased from 5% to 35%
- Creative media services were consolidated into 1 agency of record, thereby achieving standardization in creative content and messaging.
Meet Alan Rice – OnDemand Network Member Since 2009
Alan has over 20 years of experience as a CPO and senior procurement executive. He is known as strategic thinker who challenges the “Status Quo” and consistently achieves above average savings results for his clients. He has extensive international experience in Procurement, Strategic Sourcing and Supply Chain Management. He has sourced billions of dollars’ worth of goods & services globally across many industries in such categories as Marketing, IT, Telecommunications, HR, Travel and Corporate Service. Alan is fluent in English, Spanish and Portuguese, and holds a BS degree from Florida State University and MS from AERCE in Spain.