Consultancy: a tricky area to tame

But it can be done, argues Ed Ainsworth of 4CAssociates using marketing services at the innovative Astra Zeneca as an example.

Spending on consultancy services is booming. In most organisations it is one of the fastest growing categories, The Management Consultancies Association, the trade association for UK-based consulting firms, says its members' revenues have increased by 32 per cent in the last two years and 11 per cent in the last 12 months. But most companies have struggled to procure consultancy services effectively. The category is broad and complex, including services from IT and strategy to HR, marketing and outsourced services, and many organisations have not managed consultancy as a category until recently.

Purchasing professionals have often been excluded from the decision making process in the procurement of consultancy, and tools and processes to track the spend have been limited. A recent industry report by Aberdeen Group, addressing services procurement trends and strategies in Europe, showed that procurement only had a 58 per cent involvement within the consulting category. This is despite the fact that consultancy offers massive opportunities for savings - the Aberdeen Group estimates that organisations can typically save 10 to 15 per cent of their spend on consultancy.

Innovative organisations are increasingly putting in place systems and processes including tight management of suppliers, rates and projects - to ensure they get value for money and control of their consultancy expenditure. Astra Zeneca, the global pharmaceutical company, provides an excellent example. Their global marketing group works with more than 200 consultancies and agencies, and in a year they will carry out more than a 1,000 projects. Managers identified this area of spend as a high priority for savings and value improvement, but with so many suppliers and internal customers, they realised it would require a major change in how they bought marketing consultancy and worked with their suppliers. They then designed and implemented a new system, led by purchasing who teams with the marketing group.

The first step was to ensure all suppliers were trading on the best rates and terms in the market. Best practice consultancy purchasing requires competitive day rates, but also competitive standard activity rates; the lowest day rate consultancy may not offer the lowest cost for a particular project, nor does the most expensive automatically offer poor value for money. A sourcing programme was carried out, using sophisticated e-sourcing technology to collect and negotiate all day rates and key activity rates, while key terms were confirmed with all suppliers.

But putting agreed rates and terms in place is only the first step. Projects must also be tightly scoped and managed. AstraZeneca chose 4CAssociates' Pro4C system as a basis for buying all their marketing consultancy. So they combined their database of rates, terms and capabilities with internal evaluations of supplier performance. Now, the starting point for all projects is a search of the database to check rates, previous projects and suppliers, with accurate benchmarks telling the buyer what price range to expect for their project. This ensures that the best suppliers are considered for each project. The supplier must then complete a detailed scope-of~work document on line, which gets approved by both the customers department and purchasing. On final approval of the scope of work, a purchase order is issued without which suppliers are not allowed to work.

The nature of the scope-of-work process adopted at Astra Zeneca allows for rapid approval for tightly scoped projects, but it also allows purchasing specialists to intervene when there are opportunities to reduce costs or increase value at this stage. Purchasing has full visibility of all projects coming through the system so they can also prioritise involvement as required.

The result is savings of more than 10 per cent of the spend, and savings of up to 50 per cent on individual projects. Savings come from the use of benchmark rates rather than using individually negotiated rates, using lower-cost suppliers, and ensuring that all projects are clearly specified.

Many other large organisations are implementing similar programmes to Astra Zeneca's, all with four similar components. Detailed supplier databases of rates, terms, past projects and capabilities. Buyers can search for approved suppliers, then compare and view capabilities, past internal ratings and past projects.

1. Detailed supplier databases of rates, terms, past projects and capabilities. Buyers can search for approved suppliers, then compare and view capabilities, past internal ratings and past projects.

2. Benchmarked day rates and activity rates. Buyers can automatically benchmark a proposal against rates expected for the same type of supplier and against lower-cost suppliers.

3. Internal processes to monitor all projects. Purchasing and the business buyers can view all current projects and see which ones are over budget or have other outstanding issues.

4. Sign-off and control of the scope of work. The systems have facilities for quick sign-off by key individuals for all work. Finance can sign off from a budget perspective, purchasing from a value-for-money perspective and the business from a scope perspective.

These processes are typically managed by purchasing but involve all buyers in the business. If they are adopted and implemented conscientiously, there is no reason why spending on consultancy should not be effectively controlled like any other area.

Ed Ainsworth is a founder and director of 4CAssociates