Supply Business - March 2014 preview

The supply review for business leaders

BRANDING BT SPORT COO HIGH PERFORMANCE CULTURE DEALING WITH A NEW BOSS

SUPPLY BUSINESS

SUPPLYBUSINESS MARCH 2014

MARCH 2014 VOLUME 2 NUMBER 2

BRAND RECOGNITION Why CPOs are adopting marketing techniques to get procurement noticed

VOLUME 2 NUMBER 2

Supply in disaster oямАer inspiration | Measuringculture SRM INSIDE Dealing with a newzones boss | CEOs BT Sport COO | High performance P00 SB6 Cover 2.5mm v1.indd 1

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BRIEFING Advice, research and handy miscellany for the senior decision-maker

The Warwickshire-based luxury car maker urged customers to take their cars in to get their pedals replaced, which would take ‘less than an hour’

ROUND-UP

SUPPLIER CAUSES ASTON MARTIN RECALL armaker Aston Martin is recalling 17,590 cars – most of its sports cars built since late 2007 – due to a substandard component provided by a Chinese supplier.

The luxury marque is contacting customers because cars “may exhibit a defect in the throttle pedal” after it was discovered a “counterfeit material” had been used in the moulding of the pedal.

The cars affected include left hand drive models built between 11 November 2007 and 31 December 2013, and right hand drive cars made between

Photography: Aston Martin, Crown Copyright

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May 2012 and 31 December 2013. The new Vanquish Coupe, Vanquish Volante and Cygnet are not part of the recall.

An Aston Martin spokesman said: “Although there has been no report of any accidents or injuries involving the throttle pedal, Aston Martin’s commitment to customer safety is paramount, which is why the company is taking this action.

“The recall work takes up to an hour to complete and will be carried out with no charge to the customer.”

The firm said it intends to have the part manufactured in the UK in the future.

Procurement still has work to do Only a third of chief executive officers believe their procurement departments are well prepared for “transformative change”, according to research.

The 2014 PwC Global CEO Survey found 33 per cent of CEOs thought their procurement and sourcing departments were ready for the changes necessary to capitalise on global trends, compared to 56 per cent who felt their finance departments were. Only R&D departments were less ready than procurement in the eyes of bosses, with 28 per cent

of CEOs believing they were well prepared.

At the same time, just 6 per cent of CEOs thought supply chain would be the “next big thing” to impact business and society over the next 10 years, with technology and the role of government taking the top spots.

However, 64 per cent of bosses planned to implement a cost reduction initiative in the following 12 months, a quarter of bosses planned to outsource a business process or function, and 14 per cent were planning to “insource” a previously outsourced process.

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Sound bites Joint venture tips for competitors When forming a procurement joint venture with a competitor, companies should assess whether there is a business opportunity, select the right entry strategy and make sure it adds value.

So says Salvador Serra de Paz, chief procurement officer at NH Hotels, which formed a procurement joint venture with Husa Hotels four years ago to create a new company called Coperama. Through this, the chains buy food and beverages, cleaning supplies, room items and hires temporary staff.

EU procurement directive welcomed The overhaul of public sector procurement directives agreed by the European Parliament has been broadly welcomed.

Political parties and trade bodies have been positive about how the changes will encourage more SMEs and public sector mutuals to bid for contracts while putting more emphasis on social and environmental impacts in the tendering process.

However, concerns have been expressed that the social criteria do not go far enough, while problems around abnormally low tenders in construction contracts have not been addressed.

Governments have two years to transpose the directives into law but the UK government has said it will do this “quickly”.

Insurers worried by supply risks Supply chain disruption, natural catastrophes, and fires or explosions worry global insurance companies the most in the coming year.

The Allianz Risk Barometer 2014 found 43 per cent of corporate insurance experts are worried about business interruption and supply chain risk. This is down slightly from

last year’s 46 per cent. Natural catastrophes are second on the list, worrying 44 per cent while fires or explosions are the third biggest concern, worrying 24 per cent. The report said business interruption and supply chain losses account for around 50 per cent to 70 per cent of all insured property losses.

Supply chain ‘not a source of value’ Eight out of 10 supply chain managers do not see their supply chain as an “enabler of business strategies” within their company.

A poll by Hitachi Consulting, also found 55 per cent do not regard their business’s supply chain as a “fundamental source of business value and competitive advantage” and 29 per cent see it as “purely an operational function”.

Cathy Johnson, vice president at Hitachi Consulting, said: “These figures are far from reassuring. It seems that senior executives understand the importance of the supply chain, yet the managers who deal with it on a daily basis do not.”

Coca-Cola looking to save $1 billion Coca-Cola is looking to save $1 billion through its supply chain over the next two years. The business’s full-year financial results reported an 8.4 per cent decline in net income over the past year.

The drinks company said it will save money through “global supply chain optimisation” and IT “standardisation”, to be spent on media campaigns. The move is part of its productivity and reinvestment initiative. The report said: “Productivity is a core pillar of our 2020 Vision and a priority of our company as we design and implement the most effective and efficient business system.”

FOR MORE LATEST NEWS GO TO WWW.SUPPLYBUSINESS.COM SINESS.COM

Executives, politicians and authors on matters of business, procurement and supply

“I think there is a chance for Britain to become the reshore nation.”

UK prime minister David Cameron tells the World Economic Forum the government would provide dedicated support for businesses to bring production back home.

“What do you expect from a football organisation?

Do you expect us to interfere in matters of state? I think it is more important to try to persuade people, rather than pressure. I think Qataris are intelligent enough to understand what kind of developments are expected for 2022.”

Fifa executive committee member Theo Zwanziger defends the world football governing body’s role in trying to improve human rights in supply chains in Qatar ahead of the 2022 World Cup. “Together with our farmers we have invested in where and how food is produced, and as we work towards our commitment to double the amount of British food we sell by 2020 our farming development groups and UK producers will be key to this.”

Outgoing Sainsbury’s chief executive Justin King highlighted the importance of the firm’s suppliers at the recent National Farmers’ Union conference.

“Two years ago, I told several colleagues that we needed a hard goal, a commitment to reasonably conclude that the metals used in our microprocessors are conflict-free. ict free. We felt an obligation o to implement changes in our ou supply chain to ensure that our business and our products were not inadvertently fu funding human atrocities in the Democratic Democra Republic of the Congo. Even though we have h reached this milestone, it is just a star start. We will continue our audits and resolve issues that are found.”

Intel CEO Brian Krzanich pu put the fight against conflict minerals centre stage at thi this year’s Consumer Electronics Show in Las Vegas.

“During Q4, we achieved non-GAAP gross margin of 25.2 per automotive gr cent. We did this by reducing vehicle cost, prima primarily through component cost reductions reduc as well as increased manufacturing and supply ch chain efficiency.”

Elon Musk, Musk Tesla Motors CEO, credits the firm’s supply chain for its stron financial performance. recent strong MARCH 2014 SUPPLYBUSINESS MA

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OPINION

EXECUTIVE COACH

DICK RUSSILL Need advice? Send your questions to editorial@supplybusiness.com Why is it so hard for companies to treat procurement as an integral part of their business model?

Thank you for this question from Australia, which proves that we have a global challenge to change perceptions. Is Adam Smith responsible?

While he revolutionised the mechanics of business by breaking down complex activities into smaller segments, in the process he possibly damaged our understanding of what makes businesses tick in the first place.

If procurement’s role is specified as being to control supply expenditure then Smithsonian excellence equates to spending as little as possible. Cost-saving dogma then perpetuates the impression that incurring costs is an inevitable but undesirable consequence of being in business. Conversely it is investing in supply costs that enables organisations to be in business in the first place. Many have advocated this premise in recent years, but unsuccessfully if your question is anything to go by. Perhaps we have been too focused on promoting procurement’s role. In contrast the long-established ‘scientific method’ says that, if you believe in a premise or theory, you don’t try to prove it but focus on demonstrating what would happen if the theory is ‘right.’ If this succeeds the theory is proved. Here are some true facts that prove why procurement should be taken seriously: there is science and strategy in it; we may need suppliers more than they need us; supply markets are jungles and are instinctively self-serving rather than customer-benign; and company in-fighting and prima donna behaviour costs money and creates risk.

Focus on these and perhaps the main story will tell itself. Quod erat demonstrandum!

I am COO in a firm which buys underperforming companies and transforms them. A recent acquisition has great prospects but we find that procurement is starting from a much lower (price-fixated) base than we first thought. What do you look for as indicators of procurement’s impact?

You advise that you make these assessments before a bid for the target company is made, so use the following labels to judge what best describes procurement’s current status.

from procurement. Suppliers are regarded as sources of value and competitive advantage.

Supply market cycles and cost drivers are understood and monitored.

While these are good indicators, more rigorous due diligence will provide better estimates of potential cost savings and value generation. Stepping up from ‘silo service’ to ‘corporate clout’ will yield big cost savings.

Moving on to ‘intelligent organism’ releases at least similar cost savings with the bonus of larger benefits coming from transformed company organisational effectiveness, competitive advantage from superior supply chains, and enhanced order-winning capability. While many takeovers aim to improve the effectiveness of a business model, intelligent organisms have the potential to make the leap to a new one.

“Supply markets are jungles and are, instinctively selfserving rather than customer-benign ” ‘Silo service’ applies when production planning demands overly dictate procurement activity. Procurement exists to serve the system. Buyers try to optimise the size and timing of purchase orders but managers only become excited when KPIs reveal overdue PO placement, late deliveries, and high inventories. Active supplier management takes a back seat.

‘Corporate clout’ procurement contributes to profit by managing supply ‘categories’; aggregating demands; standardising, and doing bigger deals with fewer suppliers. Some procurement activity is centralised and procedures exist to bring standards and consistency into both central and delegated procurement. Suppliers are usually given a hard time.

In ‘intelligent organisms’ procurement is at the heart of the business and managed in an even-handed way with internal operations and sales. One successful company says it makes its business from selling and its profit

I am planning an event to raise my company’s procurement risk management (PRM) profile.

Should we invite suppliers to it?

No. You tell me that boxes are ticked and risk updates produced... but PRM goes off the radar until the next risk review. Further, it seems that nonprocurement colleagues do not feel they have to be involved. So, the immediate priorities are to engage with nonprocurement folk to show that they are directly involved in the procurement process; that this is a cross-business activity; and that supply markets are ever-changing and hurt the unprepared.

Your event should involve a cross-section of the company and inspire them to see procurement in a new light. Diplomacy, as well as lecturing, is required! Be ready to demonstrate how procurement’s early involvement can heighten their chances of success. These sensitive internal issues will not surface if suppliers are present. Once internal relationships have been strengthened involve key suppliers. A useful activity would be to map detailed supply chains... update your intelligence on how each is doing and what their plans are.

DR RICHARD RUSSILL is a business coach, presenter and author specialising in supply risk, cost and relationship management (www.russill.com)

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OPINION Paying it cool is half the battle in poker – and in business

TOOLS OF OTHER TRADES

TIM GLOCKS The psychology behind poker can help you build a winning hand in business here are many similarities between business and playing poker. A professional poker player needs a full understanding of risk, to be able to exert strict control over costs and have a sound and well thought-out strategy in much the same way any successful organisation needs a long-term business plan.

As soon as a poker player has been dealt their first two playing cards (known as pocket cards) from a freshly shuffled deck, they need to know the value of those cards and whether it is worth investing their bankroll and continuing to play that hand.

However a poker player needs more than confidence in their hand, they also need to master the fine art of reading their opponents.

Even the lowest valued poker hand can end up winning the pot. If a player can truly master the skill of reading their opponents, by looking for “tells”, then it is possible to bluff them.

Keeping cool under pressure is the key to becoming a successful poker player. But many poker players can, unbeknown to themselves, give away the value of their hand through a series of tells. Being able to override and hide these body language expressions is what separates a good player from a bad one.

Photography: Getty, iStock

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Below are some of the ways a poker player can inadvertently give away the value of their hand: Facial expressions. When a poker player first checks their pocket cards

“If a player can truly read their opponents, then it is possible to bluff them” their facial expression is often key to determining just how good that hand is, especially if the player then repeatedly checks their hand.

Constantly lifting the cards to check them can be a noticeable “tell” that they are holding a high value hand.

Body movements. Few poker players can hide their body movements. They may be quite small and unnoticeable, but will be clear to a professional poker player.

A player holding a high-value hand will often rub a ring they are wearing with their thumb or play with and rub a necklace or chain they are wearing. They can also display some other form of body tic, such as rubbing their cards with their fingers or repeatedly playing with their stack of chips.

Overcompensation. Often, a poker player who is bluffing will overcompensate for their body movements or expressions. When bluffing you need to give the impression your hand is unbeatable, ble, so a player will often behave in a laid-back fashion, or appear overconfident in the way they are e

TIM GLOCKS is a retired professor who regularly plays poker as a hobby and in online tournaments.

He is also a contributor to poker-online.com

playing that hand. Once a poker player starts to notice opponents’ unique tells they also need to keep p in mind they may be faked. d.

As such some poker players will ill give the impression their hand is a poor value one when it is in fact of high value. This is another skill poker players need to master and be aware of.

Reading your opponent via little tells, facial expressions and body movements will help a poker player from time to time. But poker is by its very nature a game of probability and as such there are many players who will only ever play a hand if it has a good chance of winning. These players are often referred to as ‘grinders’. Their gameplay and playing strategy is slow and often laborious, but by playing only the best hands their chances of winning the pot are much higher than those players who tend to rely on bluffing.

A player may be able to learn how to play any of the many different variants of poker in minutes, but truly mastering the game takes years.

Only once a player has mastered the art of reading their opponents by looking for obvious, or not so obvious tells, and knows when to play or fold their hand while understanding the odds of ev every single hand dealt, will the have an increased chance they of winning.

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ANALYSIS

150m

ECONOMICS

MINT SOURCES

Expected number of passengers annually at Istanbul's proposed new airport

The economist who coined the term BRIC economies has identified four new emerging nations – Mexico, Indonesia, Nigeria and Turkey – to keep an eye on. John Glen explains what businesses need to know about them. n November 2001 economist Jim O’Neill authored the Goldman Sachs paper Building Better Global Economic BRICs and the term was forever imprinted in the global economic lexicon.

In the intervening period enormous amounts of analysis has occurred mapping the economic emergence of Brazil, Russia, India and China. While the breakthrough of these economies is beyond any doubt, attention has now turned to trying to identify which countries will be next to emerge.

International capital flows want to identify those economies that will give them the returns they have enjoyed in the BRIC countries, at a time when the relative maturity of those economies means rates of growth are bound to slow down. Global corporations want to identify those economies they must focus on as drivers of sales growth.

Governments too may wish to purchase the economic infrastructure associated with the emergence of a new set of

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entrepreneurs who form a wealthy middle-class of consumers in those societies.

Now, O’Neill has identified four economies – Mexico, Indonesia, Nigeria and Turkey – he believes will be the next set of nations that global capital and corporations cannot afford to ignore. In 2007 O’Neill’s former employer Goldman Sachs spread its bets wider, identifying a ‘Next 11’ (see box) it thinks will provide explosive growth over the next decade.

The N11 list indicates some of the problems that exist when trying to identify the next stellar economic performers. Political instability in Egypt and Pakistan has greatly hampered the emergence of their economies in recent years, while the emergence of Iran in the early part of this century has been brought to a halt by economic sanctions. You could also argue South Korea was already a significant economic power and therefore a puzzling inclusion.

So what is attraction of the MINT economies? All four have young populations, which means they have sufficient

PROJECTED GROWTH IN AVERAGE INCOME ($000) 2000

2012

2050

Mexico

7

10.6

48

Indonesia

0.8

3.6

21

Nigeria

0.2

1.4

12.6

Turkey

4.1

10.6

48.5

Sources: IMF/Goldman Sachs

labour available to fuel growth.

They also have favourable geographies. Mexico is located on the doorstep of the world’s most voracious consumers in the US and can enjoy the general improvement in the performance of the Latin American economies.

Turkey is the bridge between east and west, which presents enormous economic opportunities. This is illustrated by the commercial success of its national airline which is capable of replicating the same business model as Emirates in that its location allows it to connect the maximum number of city pairs flying up to 12 hours east and west of Istanbul.

Indonesia is located at the heart of southeast Asia and enjoys good links with China.

Nigeria represents the possibilities that exist in sub-Saharan Africa. The exploitation of mineral wealth has driven the growth of economies in the region from Angola to Nigeria, but the continent is rife with political risk. Whereas 10 years ago the risk was so large investors were scared to go to Africa, the economic prize is now so large investors are frightened not to.

Such is the growth of the emerging sub-Saharan African economies that consumption from an emerging and very young middle class is as important a driver of growth as the exploitation of mineral wealth. Luanda, the capital city of Angola, is now one of the

most expensive real estate markets on the planet.

Backing risk takers The emergence of a middle class in the MINT economies is an important driver of growth as these individuals are the risk takers. But they also require capital to fund the growth of their economies. In recent years they have enjoyed significant capital flows as banks in Europe, the UK and US have sought higher returns than those offered at

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The ‘Next 11’

Photography: Getty

ASIA home. Successive rounds of quantitative easing (QE) in Europe and the US have provided banking systems there with significantly enhanced levels of liquidity, much of which has found its way into emerging economies. This has allowed emerging economies to feast on a supply of cheap capital.

This might appear to be a good thing, but it masks a major problem. The US Federal Reserve announced it will have to start tapering QE, (slowly)

reducing the amount of liquidity in the US banking system. This creates a fear that loans made to emerging economies will be called back (to the US). In the past nine months we have seen the implications of this for emerging economies as the value of the Indian rupee has fallen by approximately 30 per cent.

There is also a fear – a hangover from the 1997 Asian financial crisis – that when funds are called back it may

Bangladesh Indonesia Iran Pakistan Philippines South Korea Turkey Vietnam

AFRICA Egypt Nigeria

AMERICAS Mexico

reveal they have not been properly allocated and borrowers may not be able to repay. There is no evidence this is the case but the fears of the global financial markets was best articulated by Harvard professor Carmen Reinhart in August 2013 when the Federal Reserve met at Jackson Hole. “It could get very ugly… emerging markets had a capital flow bonanza lasting several years, the golden boom years, and the probability of a banking crisis, the probability of a currency crash, the probability of a default, all increase afterward,” she said.

The emerging middle classes in MINT economies are not only risk takers, but also important consumers. To fully exploit the opportunities this presents, it is important organisations are aware of who these people are.

Unlike many western economies, income is not an increasing function of age. The entrepreneurs in emerging nations are younger than those in developed economies and therefore more of the middle class incomes are controlled by younger consumers. As a result the pattern of demand reflects the goods and services those consumers wish to purchase, to put it crudely, bling and brands.

Further the consumption in emerging economies is likely to occur in newly-built mega global cities which in the next twenty years will create enormous demand for infrastructure, such as the new international airport that is planned for Istanbul.

The MINT and N11 countries represent enormous potential for growth in the global economies and create opportunities for western capital and corporations.

Those opportunities have associated risks, but the prize is so large that the dangers have to be managed, because withdrawing from the challenge is increasingly not an option.

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COVER STORY BRANDING

GETTING YOUR MESSAGE ACROSS Rima Evans looks at how procurement teams are turning to branding and marketing to boost their corporate programmes and get other sta on board Illustration by F E R N A N D O V O L K E N T O G N I

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randing works. We eat brands, drink them and wear them – and even appoint celebrities as brand ambassadors. Brands drive shareholder value and create wealth and power that transcends geographical and political boundaries as well as cultural differences.

Their inherent advantage is in creating an emotional connection with people, fostering loyalty and engagement as well as being inspirational.

“We are all exposed to branding every day of our lives and it helps us decide how we are going to act or how we are going to behave,” says Jim Heininger, founder of Dixon|James Communications, a consultancy that specialises in branding and marketing communication.

It’s unsurprising then that, increasingly, procurement is turning to branding to boost the success rate of corporate programmes and initiatives that might otherwise have lip service paid to them but in reality have negligible impact on employees. Marketing principles are being adopted to deliver weighty performance improvements, effect change and push procurement to the forefront of the organisation where it can assert greater strategic influence and, in turn, earn increased credibility.

A recent example was Rolls-Royce’s ‘Project Thor’ implemented by the business’s global indirect procurement function to transform its management of spend and instil culture change. The name was chosen since Thor is the Norse god of thunder, war and courage – which, according to the then strategic programmes executive Mikkel Lykke Larsen, gave the spend project extra credibility, improved the image of buyers and helped employees see it as an opportunity for “collaborative cost reduction” rather than purchasers

“coming to beat up suppliers”. This last point is fundamental, says Heininger.

“Branding in a corporate environment gives employees a sense of the outcome or the advantages of being a part of an initiative in a compelling way.

It is an opportunity to communicate to their employees in a more inspiring, refreshing and engaging way that will further their participation in the overall effort. It’s a different approach

“INCREASINGLY PROCUREMENT IS TURNING TO BRANDING TO BOOST THE SUCCESS RATE OF CORPORATE PROGRAMMES” but brings improved results.”

Heininger’s experience has been that branding techniques are usually only employed after a number of failed attempts at implementing new programmes.

“We have found that many companies attempted spend management programmes in the past but their purchasing/procurement teams often operated in a silo without the benefit of seasoned communications and change management support.

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FEATURE MEDIA BUYING

TRY IMPROVE GOVERNA D TODAY! NCE

R CKS? Tom Denford says media spend falls under the radar far too often and it requires diligent governance to be able to deliver properly

Photography: Corbis

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ig companies – especially listed ones – have an array of procedures to ensure that money is spent wisely. Those procedures typically cover all areas of significant business investment but often with one key exception – media budgets.

But for any sizable consumer-facing brand, media is no small sum in the profit and loss account. Typically, 60 to 80 per cent of total marketing communications budgets is spent in this way.

But, possibly because marketing as a whole is poorly understood by corporate leaders, media governance is all too frequently overlooked.

The same CFO that wouldn’t sanction the build of a new factory or investment in new technologies without intensive scrutiny and robust purchasing procedures, usually cannot apply the same procurement diligence to media. The result is not

surprising; globally, billions of dollars of marketing budgets are being wasted due to a lack of procedure to protect and guide investment decisions.

Let’s be very clear here, many large advertisers do instruct one of the many media auditing firms to give them annual reports on their media performance.

But media auditing alone is not media governance.

Auditing will give perspective on the prices paid by the media agency but the audit will not tell you if marketing are making the right decisions in media, if the agency is being briefed correctly and that you are indeed buying the right types of media (albeit for a discount).

Proper media governance is largely an internal procedure, making sure that there is sufficient process and oversight of how a company’s media budgets are managed to deliver specific key performance indicators for the business.

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Sadly this discipline is often lacking from many large international advertisers.

A far riskier spend ID Comms met with a global brand recently, a company spending close to $1 billion on media each year and significantly more on advertising than they do on some of their key raw materials. But while they could talk eloquently about the intricate procedures and oversight that had been developed to manage the purchase of raw materials, they had no management processes designed to offer the same level of protection for the company’s investments in media – a far larger sum with greater risk of value loss.

This is ironic because you can argue that media – if you view it as a commodity – is a far riskier purchase than paper, water, coal or oil, for example. It’s riskier because it is an intangible, it doesn’t get delivered on a Monday morning in a big truck that can be weighed and measured and the quality and value of media is far harder to determine.

The bottom line is it is incredibly hard to keep media accountable, and companies need to implement sufficient governance to protect the value of their spend on an ongoing basis.

Conducting some form of regular media audit is usually a component of this but companies should be going far further to protect the value of their investments.

As company boards take an increasing interest in the return they are getting from their advertisng spend, marketing will have to become much more accountable for the way it spends the company’s money.

Companies that commit to and implement better media governance will protect and improve the value of media spend in the following ways: 1. Ensuring the right decisions are being made along the whole value chain, including setting the right key performance indicators internally and creating the right strategies for media performance, working with the right external suppliers and having the right contracts and commercial incentives in place to ensure suppliers are transparent and deliver high performance.

2. Minimise waste by helping marketers with

processes to better identify the right media opportunities to deliver their marketing objectives.

3. Ensure companies get value for money by holding agencies to account for service and strategy delivery and making sure agencies are focused on meeting the client’s objectives (rather than their own).

4. Deliver the checks and balances needed to improve the transparency of media trading practice, keeping the agency straight in its handling of your budget and giving the client more visibility of how budgets are being invested.

5. Make marketing spend more accountable, which transforms it into a business growth lever (rather than just a cost) and therefore more interesting to both the board and shareholders.

Proper, ongoing media governance gives marketers and procurement leaders more control and helps manage their agency partners and it raises the profile of media as a business investment.

A great media director who leads a best-in-class governance programme can add millions to the bottom line of a company of any significant size. All too often though such work passes unnoticed by senior management when it should be celebrated and valued; a reflection of the wider corporate attitude towards media as a priority investment.

We recommend that large advertisers should be investing a proportion of their budget into media governance, acquiring and implementing best practice techniques, processes and tools that will protect and maximise the value of their media spend.

As a rule of thumb it would never exceed one per cent of total media spend – which means media budgets can be divided broadly into 95 per cent working spend, 4 per cent agency fees and 1 per cent media governance.

Companies could invest that 1 per cent internally, building up their own knowledge and resource, or they could look for external partners to provide some or all of this knowledge and resource.

The bottom line is that media is one of the single largest investments a large company will make each year. It demands proper diligence and far better governance to deliver better performance.

“MAKE MARKETING SPEND MORE ACCOUNTABLE, WHICH TRANSFORMS IT INTO A BUSINESS GROWTH LEVER RATHER THAN A COST”

TOM DENFORD is co-founder of ID Comms, the global media management consultancy

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IUNDERCOVER A N C I D CPO ER The head of procurement at a large global business gives his reflections on corporate life

Perception is reality was listening to an executive breakfast briefing recently, where someone said they thought procurement had a ‘reputational problem’. Woken from my pre-coffee slumber, this statement had me fascinated.

A ‘reputational problem’? What’s that? And does my procurement organisation have one?

It’s at this point procurement consultancies usually launch a competition or a survey to get industry feedback, presumably to provide a ‘burning platform’ for some ‘thought leadership’. In continuing to listen to the ensuing debate on reputational problems, I remembered one consultancy telling me they thought procurement had a ‘branding challenge’.

Talking to our PR director recently he said: “It’s all in the name”. He was referring to how reality was established through good creative marketing, using the correct language to support the chosen message. The mechanisms by which a brand is established and maintained – or as Gerald Ratner rather famously found out, destroyed through the inappropriate use of language.

Not being a very good marketer I am always a bit suspicious of these sorts of constructs. It all too quickly becomes too much style over content. But I admit this sort of crafting of the message seems to be everywhere, and we may be too quick to dismiss it at our peril.

A board meeting I recently attended discussed a policy relaunch. There was much talk about the policy itself, but what surprised me was the depth of debate on how the messaging of the policy should be crafted to ease its launch into the corporate environment. I guess the marketing was as important as the policy itself. Maybe the branding would ensure people read and aligned to it?

The essence of a good brand is that the image creates a sense of ownership and association and hence value.

So is the reputational problem in procurement one of brand image? Perhaps I had missed the crucial point – that branding is where the perception of value begins.

Would procurement be better at creating value if it had a better brand? Or would organisations perceive we provided better value, if our brand was stronger?

If you say you’re a doctor or an engineer, people get a sense of whom you are and the role you undertake. But if you say you procure – you are a verb, not a noun. Does

Illustration: Rob Ball

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our profession need to be rebranded? HR and IT have been through a number of iterations over a couple of generations. But I have no idea whether the changes in corporate naming have increased their value or whether the rebrand improved the perception of the value creation. I am left in no doubt though that this is the rub of the issue when executives talk about ‘reputational problems’ or ‘brand challenges’ – what they really mean is the value being created by procurement.

A recent email from Nelson Hall quoted research into the perceptions of procurement. It suggested more than 50 per cent of senior finance executives were not satisfied with procurement in their business. In particular, the function’s “inability to think and act as a strategic business partner in pursuit of organisational growth, improved performance and enhanced shareholder value”.

Procurement professionals need to start talking in business terms.

Raising concepts such as competitive advantage, control, operational performance, shareholder value, risk, innovation and return on investment. This is where reputation is built. Relying on conversations that focus on concepts such as five-step sourcing, Porter’s five forces and category maps or, dare I say it, just savings – however they have been measured – leaves the business with a mono-dimensional view of the work we do. We read that savings are a poor metric, and in pursuit of savings, the bigger picture and concept of value is often lost resulting in damage to the procurement brand.

I am following closely the debate around CIPS’ campaign to licence the profession and am fascinated by the arguments for and against. If licensing ensures members will be able to talk ‘business’, as opposed to just the language of procurement, this surely must be a good thing. This will improve our branding and ultimately deal with any ‘reputational problem’.

“We need to start talking in business terms. Concepts such as risk, control, innovation and shareholder value”

AGREE? DISAGREE? Email me at undercovercpo@ supplybusiness.com to share your thoughts

50 SUPPLYBUSINESS MARCH 2014

p50 SB6 Undercover CPO v3.indd 50

13/03/2014 12:22