PepsiCo Fires its Marketing Procurement Team, Shifts Work to Brand Managers

Pepsi

In a move that will have a lot of procurement professionals looking over their shoulders, PepsiCo has eliminated its global marketing procurement team.

The maker of Pepsi, Tropicana and Quaker runs one of the world’s most respected brand and marketing firms. But a push for improved speed and flexibility, essential in this age of quickly produced multichannel advertising, has caused Pepsi to reconsider a centralized procurement department's role in that effort.    

“We continue to evolve our operating model to be more efficient and effective,” Pepsi said in a statement to Ad Age magazine. “These changes are made with careful consideration and are necessary for us to stay competitive while meeting the future needs of our business. Unfortunately, as a result of these changes, some positions have been impacted."

The marketing procurement team was about a dozen strong, and some have apparently been placed elsewhere. But the responsibility for handling agency relationships, media buying and presumably the other elements of marketing services procurement — which can include sponsorship, direct mail and design — have been given to brand executives.

New Priorities

The driver here is a need for speed and flexibility. The days of advertising being based around huge TV and press campaigns, with relatively long lead times and structured processes, are gone in this world where multiple digital channels vie to reach the market and get the consumer’s attention. Brands and brand managers have to move quickly and increasingly work on a project basis, probably with many different service providers rather than one or two large agencies.

So procurement functions working on a traditional sourcing basis, with lengthy competitive processes, adversarial negotiation and a cost-reduction focus, may find themselves seen as dinosaurs by their brand colleagues as well as the market. Now we don’t know whether that was the case here, but clearly the marketing procurement team had not convinced the business that they are truly adding value.

That must be a bit of an indictment. A dozen people couldn’t have cost more than a couple of million all in, probably less. Pepsi spends more than $2 billion a year on advertising, so the procurement team only had to add 0.1 % of value to that spend in order to pay their way.  

Procurement Value

As a respected industry leader, PepsiCo will no doubt be looked at by other firms, and we suspect a lot of CMOs are licking their lips at the prospect of getting rid of procurement teams, which many marketing executives feel constrain their activities. Read the comment on the article in Ad Age from Bill Crandall, who is delighted that “the worm has turned”:  

“Over the last 15 years, I’ve sadly watched the devolution of client brand management and agency account management marketing prerogatives as client-side procurement departments’ quests for cost reductions have trumped the logic and experience of sound brand marketing initiatives and agency hires”.

But how should procurement people, particularly in the marketing services area, react to this? The key point must be to understand that procurement must focus on value, not cost and price in this category. You can always find an agency willing to work for a bit less, or a cheaper price for web-based (probably fake) “eyeballs.” But what is important is finding the value, the multiplier effect that great marketing can have. Procurement needs to use its commercial nous to work with brand colleagues in identifying how to get the maximum value from the marketplace. That is very different from beating up agencies on their hourly rates.

Remember, someone is still going to be doing the “procurement work” at Pepsi. This is just a reminder that the people who do that don’t have to be part of the procurement function, or even badged as “procurement professionals.”

We would also recommend you read our briefing paper, titled “Three Occasions When Procurement Should Spend More.  It uses marketing services as the key example of why a focus on value, not cost, is key. It even gives a model that uses economic thinking to answer the old question, “If we save money on  marketing spend, should it be re-invested in buying more marketing services or returned to the CFO?”

Yes, there is a logical answer to that question.

Voices (8)

  1. JustDesserts:

    Best news in a long time. I worked with their “esteemed” procurement department. They had no idea what they were buying or what the relevant consideration factors were. Additionally, they were not open to information that would have made them more educated buyers. They did not involve the actual users during the process and drove decisions that, while on the surface, may have seemed the lowest cost, proved to be very costly to their organization in the long run. One can only hope other large companies follow suit.

  2. Ken Hartman:

    One can only imagine the reaction to this move by Madison Ave. Champagne and single malt fueled celebrations the likes of which have not been see since the days of Don Draper. I suspect this is a temporary move until Finance starts seeing the Marketing spend skyrocket.

    1. Peter Smith:

      Don Draper indeed…love the picture you conjure up! (Mad Men for me is up there with West Wing and fawlty Towers as bets TV shows ever). But on a serious note, marketing budgets tend to be fixed by the CFO and overspending will be a CMO / CFO issue. Procurement’s role SHOULD always be to help the CMO get the most value out of that budget. If that releases a “surplus” then it is an interesting debate in terms of what can be done with that (download my paper to find out…)

    2. bitter and twisted:

      Sterling Coopers profits actually came from their savvy media buyers not the creatives.

  3. William S.:

    PepsiCo Procurement and PepsiCo Marketing were teams operating under different goals. Also, there was Global Proc, but not Global Mkt.
    So, local Mkt teams operates in different ways and structures, what makes very difficult for any Global Procurement team to engage efficiently.
    And also: yes, some of the old procurement folks were indeed old dinosaurs… Unfortunately…

  4. Bitter and twisted:

    This is bad news. As we all know, eveyone outside an official Procurement Department is a corrupt spendaholic incapable of being taught even the most rudimentary purchasing skills to complement their category knowledge.

  5. Matt Miller:

    If procurement established a process that drove speed and efficiency for the marketing pros would that have been enough to prove value? Perhaps procurement was being measured on savings thus creating goal misalignment. There were probably multiple causes

  6. Andrew Karpie:

    This is really fascinating. Internal disintermediation, move to direct sourcing.

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