PepsiCo scraps marketing procurement function

PepsiCo has axed its marketing procurement department, handing full number crunching responsibilities for agency fees and other advertising costs to its brand teams.

The snacks maker said the decision was necessary to it remaining competitive in an environment where cost cutting and value building are paramount. It was first reported by Ad Age, which quoted a PepsiCo executive saying it has a “procurement playbook” its marketers can dip into should they feel overwhelmed by the additional responsibilities.

And while there will be redundancies as a result, having procurement sit within the brand teams chimes with PepsiCo’s wider efforts to create a leaner organisation.

In a statement emailed to The Drum, the business said: We continue to evolve our operating model to be more efficient and effective. 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. These are never easy decisions but we are committed to supporting affected employees by offering severance packages and comprehensive career transition support.”

PepsiCo’s move could fundamentally impact how it not only pays its agencies but also makes procurement a more integrated part of its marketing strategies. Procurement officers are often the ones having difficult conversations with agencies so the marketers don’t have to. However, with it now under the remit of brand teams, there’s scope to have those discussions with a more strategic slant so that it’s not seen as just cost cutting.

Scrapping marketing procurement might seem left-of-field for an FMCG company that’s pushing to resolve that unique tension between the two disciplines but PepsiCo has wanted to make changes for some time. It’s building tools and introducing training to spur greater returns on its marketing outlay that will be underpinned by wider efforts to create a leaner global structure. Part of this has seen the Pepsi maker try and harmonise its new product development efforts and global brand management.

In giving its marketers the keys to the procurement playbook, PepsiCo is basically saying it had given up on trying to make the two disciplines work in harmony. Whether this becomes a precedent remains to be seen as other companies like Deutsche Telekom believe the specific skills of marketing and procurement need to be brought together in order to better balance cost control and value creation.

Procurement has become a hot topic in the wake of the financial crash in 2008, with advertisers debating its role in a market where more marketing is expected to be done for cheaper. An ISBA study of 93 marketing and procurement professionals from last year found that more than a third of clients agreed that their agencies aren’t cost-conscious and genuinely seek out greater value for them. It’s an issue compounded by a separate study by the World Federation of Advertisers in 2014 that found that more than half of its members (51 per cent) had handed the negotiations and implementation of contracts to procurement over the last decade.

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