The Cost Conversation

Jillian Gibbs, founder and CEO of Advertising Production Resources, recently wrote a column for Adweek entitled “Preferential Treatment: How to Make Preferred Vendor Lists Work.” In her piece, Gibbs discusses Procter & Gamble’s recent move to create a preferred vendor list of production companies, and quotes me as saying that all such lists are “ill-conceived.” While I agree with much of what Gibbs outlines in her piece, the point about preferred vendor lists needs clarification. It is, in fact, a misquote. 

I believe P&G’s current approach to creating a preferred vendor list is ill-conceived, primarily because it takes the approach of creating a custom product (a commercial) and attempts to quantify its individual costs in the same way it may when buying ingredients for manufacturing a bar of soap or purchasing office supplies.

As opposed to how Gibbs portrayed my opinion, I believe that intelligent preferred vendor lists that make sense should be explored and encouraged. But a preferred vendor list should offer value for the vendor as well as the buyer — and no, the honor of potentially working for a client is not it. There are ways to find efficiencies — ones that benefit the client, the producer and the process. When agreed to, these would be the basis of creating such relationships.

For instance, in exchange for a certain volume of work, a production company might be able to lower its costs; or, if the client was to set up a fair, direct payment schedule with the production company and guarantee timely payment (a rarity these days), the production company could use that cash flow as a consideration to lower overall cost.

While this type of approach to preferred vendor lists makes more sense than attempting to dissect and quantify individual costs for custom products, it is still not a silver bullet to reducing the overall costs associated with producing advertising content. Rather than look for incremental cost savings, clients should look to optimization — getting the most out their investment. 

In this current climate, everyone is concerned about costs and is exploring savings techniques. On the client side, the procurement department now has a huge say in how advertising content is created. They oftentimes have oversight of agency payment schedules and, increasingly, production costs. It is crucial that they understand that standard procurement matrices can’t be applied to the creation of custom creative products.

Optimization is something being championed by Laurence Boschetto, the CEO of Draftfcb, who was recently quoted as saying, “We need to be able to speak fluently and comfortably in marketing, procurement and finance to truly change the dialogue from a cost-centered conversation to a performance-based one.”

This is something that we should all heed. Optimization should be the mantra. And from the start, clients and agencies should know the scale of the project before the process even begins — if the scope of a job is clearly articulated, then everyone knows what to expect in terms of time, cost and manpower. In this scenario you can optimize efficiencies while still delivering on expectations. Bundling projects can help greatly; deciding to add two Web films at the last minute won’t. If you are realistic from the get-go, plan ahead and put together a reasonable schedule, there are many ways to find real efficiencies and deliver a great creative product.

There is a crucial element to the process, which directly relates to cost savings, but is not even being addressed. That element is competition. Production companies aggressively compete for work. That competition keeps prices on individual elements low, especially when using a transparent bidding system like the AICP Bidform. Efficiencies are all in creative problem solving and the approach to the production. This is inherent in the current system — and is counter to what is being proposed by the P&G system. This is the second point of what I find ill-conceived about their approach.