What PepsiCo cutting global marketing procurement team means

PepsiCo is cutting its global marketing procurement team which has also resulted on several job losses.

With a leaner structure in place, the move will see the individual brand teams take responsibility of the marketing ad spend going forward. In a statement PepsiCo said the move was an evolution to its current operating model and set to be “more efficient” and “stay competitive” for the future.

"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," said Pepsi in a statement to Marketing.

While the move might indicate Pepsi’s trust in its marketers (and its surrender in creating a love story between procurement and marketing), Greg Paull, principal consultant of R3 said the company now needs to ensure its marketers are not getting carried away with their ad spends.

Since the company’s arch rival Coca-Cola, migrated to a value-based payment system for its agencies in 2009, it is hardly news that PepsiCo has been looking for a fresh new approach – and this might be it as it looks to create a sharper approach to its organisational structure.

“PepsiCo is now trying to get its marketing team to motivate and drive the best agency practices forward. It is imperative however for each of the brand teams to appoint an individual to take lead on cost management. Otherwise, the company can run the risk of over-paying for agency services,” said Paull.

While Pepsi might have an early start in the arena, Paull says they certainly won’t be the last given the often friction between procurement, marketing and agencies. However, this certainly doesn't mean the role of procurement in marketing will be wiped out completely.

Make friends with procurement

Paull added for marketing teams which still have to deal with their procurement counterparts when it comes to rationing ad spend, it would be good to keep in mind that marketing services is the only items in the demand chain procured where cost is not the most crucial factor.

“Since agencies produce commercial art, the challenge is to make sure the output generates the most business and brand value. More progressive markets are changing the way they pay their agencies to reward great work that works."

During Marketing's annual event The Futurist Live last year, several marketers said that procurement now is getting involved in discussion of marketing strategies earlier and earlier. A World Federation of Advertisers survey done amongst marketers  showed that in 2014, 51% of respondents said that procurement led the agency remuneration process as opposed to 2011 – where only 43% said so.

While this initially did not sit well with agencies, who tended to oppose the cost-cutting tendencies of procurement, the trend is slowly gaining favour with marketers.

Madhav Nayak, the marketing director for fabric conditioners – Southeast Asia, Australia and New Zealand – at Unilever, said there are huge opportunities in involving procurement early.

“Procurement can be an ally. One important thing that we should realise is that cost is as important to marketing as it is to procurement." said Nayak. He added that procurement partners today should help marketing teams look at where the costs are, where the leakages are and where the company can save money.

Read also:
Why marketing needs to stop blaming procurement
5 reasons why the procurement guy hates you

Procurement to play a bigger role in agency remunerations