Procurement of Marketing Services – How Not To Be Fired

It is a couple of weeks now since PepsiCo, one of the largest consumer advertisers in the world, announced that they were firing their dozen-strong marketing services procurement team. Instead, the brand managers would be given responsibility for dealing with the agencies and other third-party providers directly themselves.

Where they might need a bit of help, the now defunct procurement team has written a guide that the brand people can refer to in case of Procurement issues. So maybe there is a lesson there - don't write a really effective guide to procurement, you might be doing yourself out of a job! Only joking... but what is clear is that most of the marketing press has greeted PepsiCo's move with delight, which says something about the relationship between the two funictions!

The two big questions for us are - is this the start of a major trend and will we see other organisations going down the same route? And secondly, how can procurement people in the marketing services field  ensure that they are not next on the list?

In fact, these two questions are very closely connected. In terms of the trend, it will be directly linked to the second question around procurement's capability, skills and approach. PepsiCo said this to AdAge:

"You can realize better effectiveness and efficiencies by putting this responsibility on brand teams who are closer to the consumer and allows them to more quickly balance cost value and quality in all of their decisions."

This suggests that if procurement is seen as a function that slows things down and makes life more difficult for the internal marketing stakeholders, in an area that is as dynamic and fast-moving as consumer marketing, then more procurement people and functions will go.

Procurement has to show it is really adding value, as indeed it must in any spend category. And value in marketing is NOT about "saving money". That may be what the CPO or even the CFO wants to see but it is not how the marketing director and their staff see life. Their task is to get the most value in terms of brand growth and profitability and the marketing budget is a tool to help that. The concept of reducing prices with suppliers if it has a negative effect on the brand is clearly not of interest - yet that is what too many procurement people are still focused on.

See our paper "Three Occasions When Procurement Should Spend More" for more on this - the key point is that procurement must focus on value as the marketing function sees it. So it cannot be about simple cost reduction. It must be about how procurement can help their marketing colleagues use the external marketplace better to achieve their brand objectives.

There are many ways in which we can imagine procurement doing that. For instance, offering deep knowledge of the supply markets; great negotiation skills; a creative and relevant "stock" of commercial models that might be used with agencies and other providers; tools and technology that can support effective supplier performance and risk management. You can see how support like that might be attractive to marketing colleagues.

But forcing colleagues to run long-winded, formal procurement processes before they can engage a supplier, or driving down the rates for creative work ("I can find a graphic designer for 20% less than your current firm") is not the way to gain respect and create value in this category. Any marketing procurement function that is principally driven by and measured on "savings" or "cost reduction" should look out - the PepsiCo fate may await you too. And unfortunately, if that happens, you may well deserve it.

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Voices (2)

  1. RJ:

    A colleague of mine once reported a conversation with a Marketing stakeholder that went along the lines of “I’m a £10m a year Marketing man and you’re trying to make me an £8m a year man.”

    In Marketing, as with so many other professional services (e.g. consultancy, legal services, executive recruitment), Procurement has to find a way to focus on values that actually mean something to the stakeholders and that complement their own skills, or at least balance their egos.

    The Marketing guys are employed to make creative decisions and to take responsibility for business growth and awareness. Procurement can support these objectives by ensuring suppliers are motivated and rewarded for achievement rather than inputs and can also promote competition as a way of driving increased creativity. Procurement can also complement Marketing teams by bringing focus on areas where they might not have a natural inclination (e.g. protecting IPR, ensuring continuity of supply, managing the entire supply chain to ensure quality and speed of delivery etc.).

    However, the individual drivers of each organisation (and individual) will differ and so stakeholder management and relationship building, with both internal teams and suppliers, are absolutely critical skills and, let’s face it, not all hard-bitten CPOs and buyers are best equipped to deal with this.

  2. Paul Wright:

    For 25 years I’ve been hearing how finally Procurement is about to be valued by business. This doesnt sound like it. It sounds like a power struggle within Pepsico, with the buyers being the bodies thrown on the table. Do we believe that the buyers were told to stop focussing on price and refused?

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