Procurement’s Definition of Value Must Be Maximum Growth and Impact

By Bill Duggan

Last week, ANA released the report, "Procurement 2022: The Good, the Bad, and the Ugly." One of the most fundamental debates about procurement is their definition of value. Is it lowest cost or maximum growth and impact? In the new report, we asked procurement, as well as marketing and agencies, "Please indicate where on the continuum below the marketing procurement group stands in terms of its definition of what constitutes value."

Procurement is much more likely than the other constituents to perceive that their definition of value is maximum growth and impact. Agencies lean to procurement's definition of value being lowest cost. Marketing is right between the two.

I think many non-procurement people in the industry are surprised about procurement's perception of itself. Many just don't believe it and feel that procurement is all about driving cost down. Or at least mostly about driving costs down.

One of the key conclusions and recommendations of the report it that procurement should focus more on value and less on cost. Focusing on cost rather than building value has been a long-term criticism of marketing procurement. Consider as an analogy the business of financial planning. Most people choose a financial planner based on factors such as the reputation of the firm/individual and personal referrals.

The role of the financial planner is to build portfolio value while managing risk. Cost may be a factor, but usually it's a lesser consideration. Do you want the most inexpensive planner or one who will help you achieve your financial goals? Consider that same thinking for an agency partner. You don't necessarily want the cheapest agency partner. You want the one who can provide the greatest value by driving maximum growth and impact.

This perspective was supported with qualitative feedback. In response to the question, "What could procurement, marketing, and agencies do to improve relationships with one another?," agencies very clearly responded that procurement should focus more on value and less on cost. Some specific comments were:

  • "Be more about value in the business partnership versus the current focus on operating in a silo that is about getting cost down."
  • "Expand the definition of value beyond efficiency into measures of effectiveness."
  • "Marketing procurement needs to be more open to understanding value and effectiveness and not just efficiencies."
  • "The main criteria for procurement should be about getting the most value from the agency partners, and not about lowering costs."

Procurement – please take note!

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The views and opinions expressed are solely those of the contributor and do not necessarily reflect the official position of the ANA or imply endorsement from the ANA.