How you can Bridge the Gap between Procurement and Marketing
We’ve seen the damage that a disconnect between marketing and a company’s supply chain can do to a brand’s reputation. A video game company launches a new product but underestimates demand and leaves customers empty-handed. Or a company has accepted a big order on a tight deadline but finds sufficient raw materials and components aren’t available at any price.
These scenarios can happen when marketing. Why? Because Procurement and supply chain management groups operate in silos.
While it may seem like marketing and procurement functions wouldn’t interact often, the opposite should be true. Each group influences the entire value chain of the company. Procurement requires information from marketing to do its job, and marketing can benefit from insights and experience from procurement.
However, there’s room for improvement. In the From Insights to Impact: Driving High-Performance Procurement report 39% of procurement departments surveyed said they never or rarely collaborate with sales and marketing. Contrast that with the 67% regularly collaborating with finance, for example.
With strong collaboration between marketing and procurement, organisations can reduce the cost of goods sold and improve customer satisfaction and profitability.
What is Marketing All About?
While marketing may not be the first thing that comes to mind when you think about supply chain management, these disciplines are highly complementary. One cannot succeed without the other.
Marketing has been defined as ‘the process by which companies engage customers, build strong customer relationships and create customer value in order to capture value from customers in return.’
Procurement and supply chain functions contribute to the creating and capturing customer value elements of that equation. Marketing and sales can succeed only when there are products to sell and staff to produce, distribute, market, and manage the finances. Procurement plays a significant role in ensuring each of those elements is able to function as it should.
Ideally, marketing shares demand forecasts with procurement and supply chain management. These teams use the marketing plan to develop master production and distribution schedules. They are charged with securing critical supplies and services to support the program.
A culture of communication throughout the organisation fosters collaboration, ensuring budgets are distributed appropriately to maintain a customer-centric focus.
The marketing-driven tactical plan should guide procurement and supply chain resources. Warehouse space, transportation, inventory investment, labour resources, and more should align to ensure the success of the plan.
That’s the goal. However, reality often intrudes on the best-laid plans.
Marketing forecasts are not always accurate, despite everyone’s best efforts. Procurement and supply chain may not have the tools and visibility they need for precise planning.
Tools such as Sales & Operation Planning (S&OP) software can help coordinate operations to improve the efficiency and effectiveness of the process.
Procurement and Marketing Collaboration
Don’t wait for a technology tool to improve communication between procurement and marketing. Closer relationships can begin with a commitment to work together better. The synergy between procurement and marketing leaders can translate to opportunities to save costs or generate higher revenue opportunities for the business.
Pricing forecasts. Procurement can alert marketing to rising costs for raw materials and components. Products could be redesigned to use less-expensive materials. Or promotional plans could be redirected to sell products with higher margins. Expensive promotional programs can be allocated to where they have the most impact on the company’s bottom line.
Transportation challenges. Supply chain can let marketing know if product will be delayed due to port labour disruptions or container or driver shortages. Rising transportation rates in specific lanes could signal a long-term rise in the landed cost of materials and components. It could be time to find alternative sourcing for critical materials.
Demand forecasts. Marketing should share demand forecasts so procurement can gear up to ensure production and marketing strategies pay off. Procurement can provide a competitive advantage if your company can secure materials at lower prices than the competition. Supply disruptions may lead to customer dissatisfaction and revenue losses because products aren’t available to ship.
Product Development. Marketing typically works with a research and development group to develop additions to a product line. By looping procurement into the process early, costs can be taken into account to build an accurate estimate of the product’s profitability. Procurement pros with market knowledge can help guide decisions on materials, components, and transportation to support the profit margin forecast. Supply chain experts also weigh in on the costs of adding new products to the warehouse and fulfilment system.
While procurement and supply chain management may not be the first thing that comes to mind when you consider marketing, both disciplines are essential to the efficiency and effectiveness of operations and profitability.
To learn more about what procurement can learn from marketing in supplier relations, watch our latest webinar on Supplier Marketing 101.