On November 12, AdAge broke a story concerning the elimination of a centralized marketing procurement team. In a move seen as many within the agency space as a major victory for advertisers, the story has quickly become convoluted, making it difficult to truly understand PepsiCo’s actions, and their broader implications on marketing procurement.
To summarize, PepsiCo had a dedicated marketing procurement team of 12 people that were responsible for overseeing agency compensation for the many individual PepsiCo brands. Few would disagree that marketing and advertising are incredibly fast moving industries, and that decisions can sometimes be hindered through a bureaucratic process. In an effort to reduce the corporate layers responsible for managing and approving marketing decisions, PepsiCo is also electing not to employ a dedicated procurement professional in each brand, and will have each brand manage the process uniquely.
The value of marketing procurement is often questioned. Advertisers and marketers alike remain unsure of the value presented by a seemingly cost-conscious department. However, the financial downturn of 2008 underpins the importance of procurement, with and ISBA survey stating that 33% of marketing professionals genuinely believed their departments were not efficient with their spend, and that they wanted to achieve greater value. Furthermore, another study by the World Federation of Advertisers in 2014 found that 51% of their respondents simply handed off negotiations and implementing to their procurement teams.
PepsiCo is not making a broad statement concerning the value of procurement in marketing. Rather, they are simply acknowledging that the two departments work differently and that forcing them to work harmoniously proved incredibly difficult. Instead of bringing two fundamentally different organizations together, PepsiCo is allowing their brands to make their purchasing decisions, and is trusting these teams to identify cross-functional employees capable of being marketing-minded and procurement-conscious.
The move to eliminate this centralized department is logical on behalf of PepsiCo. In an effort to build a lean and agile organization, any potential bottlenecks must be eliminated, and by switching the responsible to the individual brands, corporate PepsiCo is no longer housing an additional layer. While the long-term implications of their decision will be closely watched, PepsiCo is charging its brands with the difficult responsibility of negotiating.
While bringing in a marketing individual to make these negotiations provides an additional strategic layer, a well-staffed and experienced procurement team would also provide that lens. Marketers will have to become more comfortable with tough negotiations, and be forced to justify their decisions as more than just cost cutting to achieve best-in-class contracts.
In a far more critical report, MediaPost proclaims PepsiCo has “seen the light,” and that “agencies rejoice.” This article does little more than proclaim that procurement is nothing more than a bureaucratic layer that provides no utility, and that search firms are also irrelevant at this time. The article is critical of taking any responsibility away from internal marketing departments, and claims that outside organizations complicate the matter, equating the agency selection process to “second-grade math.” The article makes a single valuable point questioning the value of an external player involved in the process, but neglects to understand that PepsiCo’s marketing department was engrained in the agency relationship. Both procurement and marketing fall under the same umbrella, which is PepsiCo. The organizational objectives for both departments should have been exactly the same, and if they were not, that is more of a management issue than a capabilities mismatch.
Today is not a day to celebrate, as MediaPost claims. Today, and many days to come, are a time to watch and understand the implications of choosing to place procurement responsibilities with each brand. Procurement is valuable, and those who disagree hold a pre-conceived notion that procurement is only concerned with cost savings, and does not understand marketing. Marketing is volatile and fluid, and while I agree more layers are not the answer to fixing problems, charging individuals unfamiliar with procurement processes may not have the intended consequences.
Supplemental Information was also taken from an article by The Drum