Did the CFO set Procurement up for Failure in Marketing?

The news last year that Pepsico had disbanded its Marketing Procurement function has been met with mixed reactions.

This article has been reproduced with kind permission from Darren Woolley, Founder & Global CEO of TrinityP3 Marketing Consultants.

The ANA was quick to explain that this was not evidence of the failure of Procurement in marketing, which they said from their polling “was here to stay”. Likewise the WFA said that the Pepsico move was evidence of the need for a more responsive and customer centric focus to their strategy.

And while I do not believe this is the end, it does concern me that in the past 15 years there are a number of examples which suggest procurement has often been set up for failure when it comes to marketing. And I believe the person responsible is usually the Chief Financial Officer. The CFO is, after all, responsible for the financial management of any organisation, and is often the C-suite executive the procurement team report to.

Not the first marketing procurement function to disappear

While the Pepsico decision is the most high profile example of a marketing procurement function disappearing, it is not the first, and likely not to be the last. During 2007, we were working with a procurement team of a food company, who were recruiting to build a specialist marketing procurement function within procurement.

The team of three were very successful in the first year of engaging with marketing and identifying a number of major projects that resulted in significant savings including packaging design and print, media and agency fees.

In the second year, the team delivered only moderate savings as their focus shifted to process optimisation and risk mitigation as further cost cutting alone was agreed to be potentially detrimental to marketing effectiveness. In the third year they were disbanded. The reason given was the projected savings did not justify the cost of maintaining the procurement team.

The short termism of a savings focus strategy

I remember one of our procurement clients providing me with their contract that they were intending to use with the successful agency of the tender they were managing. They asked us to review the contract to see if it was suitable.

I noticed that there was a clause that the agency was responsible for identifying and delivering a 5 per cent improvement in efficiency each year of the contract with a corresponding reduction in fees and costs.

When I bought this to their attention and the fact that the efficiency of the process depended on the brand team as well, considering it was a co-creation process, they looked quizzical. They explained that this was a fairly standard manufacturing clause and wasn’t the agency manufacturing advertising?

In our discussion I was able to highlight where this metaphor did not hold up to interrogation. If you consider it to be a manufacturing process, then it is one where the product goes through iterations of design until the final product design is approved. Then a prototype is produced which again goes through iterations of approval before the project is delivered. Then the whole slate is wiped clean and the process starts again from scratch.

Ultimately, while I made the point well, it failed, as the 5 per cent reduction was already budgeted by finance to be delivered no matter if the agency was able to deliver it or not.

Is there no value in performance management?

We have found that where procurement is focused on delivering cost reduction, either to justify their existence and ensure their survival, or to deliver the objectives of the CFO, there is an underlying belief that the marketing function is a cost and not an investment.

But the fact is that technology, and especially digital marketing, means there are increasing ways to be able to track and manage the performance of the marketing plan against marketing and business objectives.

Giving procurement a broader commercial focus, and not just a cost reduction focus, would position the function as the ideal commercial partner in this accountable marketing world. The procurement team could be aligned to marketing, to manage the measurement and optimisation of the marketing function, to improve performance and return on marketing investment.

Who is focusing on risk management and contract compliance?

Technology has had another impact on marketing and that is an increase in workload. This comes as marketers are often increasing the number of specialist agencies and suppliers to implement the marketing plan across and increasing number of channels.

With a growing roster of suppliers, it means that the marketers also have an increased burden in managing the agencies and their contracts. Compounding this is the increased burden of managing issues such as intellectual property issues, consumer legislation compliance and the like.

Again, procurement as a commercial partner is ideally placed to assist marketing manage these issues to minimise risk by ensuring compliance to contracts and government legislation. It means that instead of just counting savings, there is an opportunity to account for the avoided costs that would arise through poor or non-existent compliance management.

Before anyone says it is not a big issue, most commercial lawyers will tell you that these issues are on the rise, it is just that the advertisers involved will pay significant sums and take extraordinary measures to ensure the issue does not become public.

The role of Math Men and Mad Men in marketing today?

There has been a lot of discussion about the rise of the Math Men, replacing the traditional Mad Men (and Women of course) of advertising. This conversation usually relates to rise of data scientists and econometric modelling. But in fact there is a role for a more commercially focused function within marketing.

Procurement is usually positioned within organisations as the sourcing function, but increasingly procurement has a broader role of identifying commercial opportunities to improve the financial performance of the organisation, while identifying and mitigating risk and ensuring compliance.

That is until it comes to marketing, where it appears that the CFO agenda is to use procurement simply as a razor gang on the marketer’s budget. The problem is this focus on costs is, as we have shown, is a short term strategy and overlooks the wider opportunity of having procurement act as the analytical and commercially focus partner to the marketing team. In a way they become part of the Math Men within marketing to complement the Mad Men.

Procurement is a commercial function not simply a financial one

The increasing complexity of marketing and the impact of technology has already seen the rise in the need for a more analytical approach. Rather than the CFO using procurement as a razor gang on marketing, beyond the first cut to remove obvious excesses, the role should be to assist marketing in managing and measuring performance.

After all, who better to work in partnership with marketing and help report the effectiveness of the marketing investment to the CFO and the C-suite than the procurement team? The best procurement professionals are commercially aware and analytical and able to work with their marketing colleagues to provide the increased level of analysis required in this digital and data driven world.

Ultimately it achieves the longer-term goals of any business in driving profit as no-one is able to slash their cost to growth.