PepsiCo made the decision to eliminate the department in order to be more “efficient and effective”. The move means its brand teams will now be responsible for agreeing agency contracts and fees.
They have been given a ‘procurement playbook’ that will offer advice on practices and procedures that they can use, according to Ad Age, which first reported the news.
“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,” says PepsiCo in a statement.
PepsiCo has explained the decision by saying that with marketers working to increasingly short time frames they need the ability to quickly and efficiently make decisions. In particular, PepsiCo has moved away from more traditional advertising such as big TV ad spots in favour of digital campaigns and is using fewer agencies.
The start of a trend?
Concerns have been growing about the role of finance and procurement in agency pitches and negotiating payment terms.
Speaking at a recent Guardian event, Scott Knox, managing director of the Marketing Agencies Association, said there has been an “alarming rise in tactics” – such as procurement asking for 120-day payment terms or requesting that agencies accept a 5% rebate to fund brand’s CSR activity – over the past 18 months.
With that in mind, many in the marketing industry have welcomed the decision, seeing it as a sign that the client agency relationship will now be more focused on value and creativity than cost. It is also a sign that marketers are taking on more responsibility for company growth.
Hailo’s CMO Gary Bramall explains: “It’s great news for progressive marketers who are laser focused on business growth. Putting these decisions at the coalface of the relationship can only mean better decisions that are informed by real-time data from the business, brand and customer.
“It’s time for marketers to step up to the plate and take responsibility for cost and growth.”
Gary Bramall, CMO, Hailo
However Bramall questions whether this would be the right move for all brands, particularly those that are more traditional in their marketing and view digital as “a part of the mix rather than being ‘the mix’.”
ISBA’s consultancy manager Traci Dunne does not believe this is a broader trend. She says that during this time of “huge change and evolution when commercial rigour and clear rules of engagement are so essential for success” it is highly unlikely that marketing procurement departments will entirely disappear.
“There is a lot of ‘good stuff’ that would inevitably fall by the wayside in the absence of procurement such as agency evaluation and feedback; signed and agreed contractual terms that protect both client and agency and on-time payment of invoices, fees and bonuses; not to mention fair roster management and allocation of briefs,” she adds.
Simon Carter, marketing director for Fujitsu in the UK and Ireland agrees that PepsiCo is a “unique brand” and that the role of the procurement officer has many more years left in it for most companies.
“Procurement tests and challenges the client marketers to ensure that we know really what we are looking for, that we go into a pitch with some clear criteria upon which to base our decision.”
Simon Carter, marketing director, Fujitsu UK and Ireland
“Plus they provide a barrier of objectivity on tough negotiations with people who you will soon be working with and who you will be wanting to put heaven and soul into your brand fresh from having been dragged over the coals over hourly rates, termination clauses and IP ownership terms.”
The future of marketing procurement
Tina Fegent, a marketing procurement consultant, believes PepsiCo will end up reversing its decision because managing commercial relationships with agencies is too complex. She says that while many in the marketing industry seem happy about the decision, this simply shows they don’t understand the added value of a good marketing procurement team.
“I don’t feel that marketing teams have the bandwidth or the skillset (with or without a handy procurement manual that is probably out of date as soon as it is written) to do what a really good marketing procurement team does for an organisation,” she explains.
“The more advanced organisations that have had marketing procurement in place for many years are really embracing the vital role we play between marketing, agencies and the finance department where procurement usually reside. We are facilitators and intermediaries in this relationship.”
That doesn’t mean, however, that the relationship should not change or procurement teams can’t innovate. The way agencies are remunerated is changing, take the example of the relationship between Mumsnet and DigitasLBi. DigitasLBi was brought on board to develop innovative new apps for the brand and will be rewarded based on how successful they are in achieving Mumsnet’s strategic objectives, not just by completing the work.
In many cases, claims Fegent, the role of marketing procurement is actually increasing because they are seen as agents of change and a key partner.
She explains: “Sectors such as FMCG, telecoms and finance have really experienced marketing procurement teams that are looking at creative remuneration schemes to incentivise and reward the agency; putting innovation on the agenda; driving added value; looking at ways of working and driving efficiencies; investing time in relationship management; making it 360 degree to build longer and deeper relationships and pushing back often against extended corporate payment terms to make them work for the agencies.”
The key, clearly, is for the marketing department to ensure it has a good relationship with procurement and that the two functions are working together to get the best outcome – both creatively and in monetary terms.
ISBA’s Dunne concludes: “Procurement must be a trusted advisor to marketing, helping to drive the value not cost debate and further enabling the evolution of remuneration models to reflect the complex marketplace.”