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PepsiCo recently announced the eradication of its global marketing procurement department in an effort “to evolve their operating model to be more efficient and effective”.

I can imagine that this news came as a shock to most procurement professionals worldwide – I for one was taken aback by the decision. Comprehensibly so, after all, it is an incredibly drastic move for such a renowned and influential company.

While PepsiCo peddles this resolution as a means to stay competitive in todays fickle and every changing business climate, I just can’t help but think about the intrinsic risks associated with such a transformation.

Here are some of thoughts on why I think a move like this can be detrimental – the proverbial cutting the nose to spite the face.

1. Trivializing the importance of developing external client relationship
Beyond identifying cost reduction opportunities, understanding technology and managing online systems, and streamlining purchasing processes, one crucial job function of any procurement department is building strong working relationships both internally and externally with key suppliers.

The weightiness of the latter skill cannot be overemphasized.

As anyone in a client-service role will tell you, the time investment needed towards the successful development of internal – and especially - external client relationships (such as suppliers) requires an extensive amount time.

PepsiCo’s decision appears to underestimate the aptitude of procurement management staff in curating and nurturing such supplier (and other external client) relationship; such skill cannot be said for every other department.

2. Not everyone is an efficient organizational bargainer
While most roles in today’s corporations require some kind of bottom line savings in order to be successful, not everyone has the macro-foresight associated with identifying corporate related price discount.

Unlike other Managers, procurement specialists have the distinctive and intimate understanding of a company’s short and long term needs, and as such, they are able to embark on shrewd cost savings endeavors as the indispensable financial mouthpiece of the organisation.

3. Thwarting supply management knowledge and skills
Knowledge of supply management is another acute proficiency that would be considered a loss for a company that axes its procurement management department.

CPOs and their cohorts have such a nuanced comprehension of supply management - a derivative of years of academic and experiential investment –, which of course cannot be gleaned from a “company playbook” or a “crash course”.

4. Quality output sacrificed
With PepsiCo transferring the marketing procurement roles and responsibilities to it’s Brand Managers – who already have so much on their plate – I can bet my last dollar that this proposed juggling act will come at an expensive cost with regards to output quality.

Issues like financial systems, contractual compliance, and financial due diligence are tasks that require a specific competence. You need someone whose role it is to ensure such demands are met. By piling such delicate role(s) onto an employee – who has no prior experience with said function – it’s not hard to predict that such balls will be dropped and the overall quality of the work of such worker will tank drastically.

5. The resulting learning curve will be extremely steep
Intrinsically, procurement management is a deeply layered and nuanced job function: one that goes beyond just saving costs for the company (an assumption that many tragically have).

In the same vein, the time it will take to become proficient in such relating matters by neophytes will take longer than expected.

With such pronouncement, PepsiCo clearly betrays the aforementioned defective notion – they’re in for a rude awakening.

With all that has been said, I’m in no way positing that current procurement professionals have nothing to worry about, on the contrary, this dire move by PepsiCo should be a stern wake up call: specifically, to ensure that they’re adding value to their respective companies.

I’m incredibly curious to see how PepsiCo makes its way through this game-changing transition.

Let me know what your thoughts on this issue.

 

Written by Pip Spibey-Dodd @Locomote

 

 

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