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PepsiCo has eliminated its global marketing procurement department and will shift responsibility for overseeing agency compensation and other marketing activities to individual brands, Ad Age has learned. The move -- which resulted in some layoffs -- could lead to significant changes in how Pepsi deals with its agencies as well as spark a broader conversation across adland about the value of corporate procurement departments.
"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," a PepsiCo spokesman said in a statement to Ad Age. "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."
The company's marketing procurement department employed roughly a dozen people and oversaw agency relationships and media. Some employees have been placed elsewhere in the company. But PepsiCo will not install a procurement person for each of its many brands, which include Pepsi, Mtn Dew, Doritos, Quaker and Gatorade. Rather, procurement activities will fall under the responsibility of brand executives.
Companies began creating centralized marketing procurement departments 10 to 15 years ago as a way to save money and get better return of investment on marketing functions such as agency activities. But procurement has been under pressure in recent years, not only from agency executives -- who have long loathed it -- but also from some marketers. An Association of National Advertisers survey from earlier this year revealed that only 47% of clients believed procurement added value, while only 10% of agency respondents said it added value to the client-agency relationship.
Agencies are often pressured to "deliver savings to procurement, but they have to deliver performance and sales for marketing [departments]," one procurement executive who is not affiliated with PepsiCo said in an interview this week. "If marketing is investing in an agency to deliver a strategy and a platform that is going to deliver sales, and procurement wants to get the same for the less … the agency gets caught in the middle."
PepsiCo's goal is to improve speed and flexibility in an era in which brands must pump out marketing content on a weekly and sometimes daily basis, as opposed to the old days of relying mostly on big TV campaigns. PepsiCo in recent years has relied less on agencies of record and more on project work sourced from multiple shops.
Marketing decisions "are being made more often in real time," said a PepsiCo executive. "You can realize better effectiveness and efficiencies by putting this responsibility on brand teams who are closer to the consumer and allows them to more quickly balance cost value and quality in all of their decisions."
But eliminating procurement departments carries risks, said the the procurement executive who is not affiliated with Pepsi. Brand executives might find themselves burdened by having to spend more time on financial systems, contractual compliance and financial due diligence, this person said.
Asked about those concerns, the PepsiCo executive said the company has built a playbook of procurement practices and procedures that brand teams can use, and that has made the new structure possible. "I don't think it's burdening them," the executive said. "I think it's actually helping them to quickly react and get things done."