The end of the road for marketing procurement?

Is PepsiCo scrapping its procurement department a sign of things to come? By Bronwen Hemming, the finance director at Wieden & Kennedy London

Bronwen Hemming
Bronwen Hemming

An interesting thing happened last week in the world of marketing that probably went unnoticed by most, but got key finance folk and lead account people talking. PepsiCo announced it was scrapping its marketing procurement department.

Wow, I wasn't expecting that. I'd probably hoped for it on a few occasions over the years, but never expected it to transfer from dream to reality.

So why did they do it and does it represent a shift in attitude towards marketing procurement?

PepsiCo says it will shift the responsibility for overseeing agency remuneration back to individual brand teams and that this decision is a result of evolving their operating model to be "more efficient and effective".

Hang on, isn't that what they got their procurement departments in for in the first place? I've never had a procurement person outwardly describe their job as to cut agency prices, it's always been to find savings through more efficient and effective processes. But let's get real here, procurement’s ultimate job is to get the price down and they are often incentivised on doing just that.

So why will removing procurement make PepsiCo more efficient and effective? They say marketing decisions are being made more often in real time and brand teams who are closer to their consumers will be able to more quickly balance cost, value and quality in their decisions.

This sounds sensible and gives a hint that there could be a change in recognising marketing not just as a cost but as an investment that can provide value.

PepsiCo also alludes to having a wealth of procurement tools for the marketers to fall back on and work with. So that begs the question – has PepsiCo marketing procurement done itself out of a job? Has it continued to deliver year-on-year savings to the point of hitting rock bottom prices for advertising? Has it squeezed out the last bit of getting more for less and along the way developed a handy little procurement notebook that can be used when needed by any marketing exec that picks it up?

This is just pure speculation on my behalf, as I've never had any dealings with PepsiCo procurement, but it's highly plausible that further savings targets can no longer be met.

The procurement department may not have been able to change their board’s mind-set to looking at marketing as an investment. So when the next round of savings were requested by the board and the procurement team couldn’t meet the new targets and prove their own value, all that remained to be cut was the cost of the procurement department.

So, procurement teams be warned. PepsiCo’s action could be the defining signal that the time has come to really embrace the value and investment argument of marketing, before the conventional role of marketing procurement comes to an end.

Bronwen Hemming is the finance director at Wieden & Kennedy London

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