Allen Bernard - November 19, 2019

PepsiCo Uses TBM to Rein in Vendor Spend

Prior to implementing TBM, PepsiCo had very little insight into where their IT dollars were going, hampering digital transformation. Particularly opaque was their vendor spend. The introduction of TBM changed all of that.

 

 

Case study

When most people think about Pepsi, they think about a fizzy cola in a red, white, and blue can. What they don't often think about is that Pepsi is just one of 22 well-known brands like Frito-Lay, Tropicana, and Quaker that make up Pepsi's parent company, PepsiCo. With 2018 sales topping $64B and business in over 200 countries, PepsiCo, by any measure, is a massive global operation.

As with any multinational organization, technology plays a very important role in keeping the far-flung enterprise humming. But understanding where IT's budget was going and the value it was creating was a difficult challenge.

"IT at PepsiCo is on a transformational journey," said Sanjay Mehta, a senior director within PepsiCo's IT group who leads the TBM program. "This transformation journey includes … higher usage of cloud, digitalization, moving at the speed-of-business. All of these areas need significant funding. In the past, before we established the technology business management program, we had no transparency into IT spend—and we have a very significant IT spend."

 

Optimizing vendor spend

One of the biggest pain points in was vendor spend. PepsiCo uses hundreds of third-party suppliers to manage its operations. But with such a large global footprint, there can be a lot of missed opportunities to lower costs by optimizing this spend.

Without the data and reporting to understand where their vendor dollars were going, it was a significant challenge to find areas—both geographic and service-related—where eliminating vendor overlap and increasing their engagement with strategic partners could lower costs.

"As an IT group we wanted to focus more on delivering value to business strategy and also invest in key areas where there is an opportunity for PepsiCo to go after," said Krishna Mettem, PepsiCo's senior manager of TBM "We started transitioning more and more work towards our suppliers and vendors. Because of the way our IT organization is, everyone has their preference on the type of vendors they work with. As a result, we ended up with lot more vendors than we can manage."

Validating hundreds of separate invoices by matching them to services-rendered became a major challenge. This labor-intensive manual process wasn't very efficient, taking up to a week to complete for the larger suppliers.

 

Automating the answers

In order to see inside the black box of vendor spending, they began searching for a way to automate IT's financials, including vendor management. This is when they discovered TBM Vendor Insights.

"Late in 2017, we started looking at how do we do better in terms of knowing where we are spending in information technology, knowing where there are opportunities for optimizing those costs and reinvesting the capital that we save into our transformation programs for the business,” said Mehta.

"As we started looking, we realized that there are a number of companies who have already chartered the path on this journey to establishing a technology business management program and they were very successful in achieving the transparency and the insights that optimized the cost for them. And so we established the TBM program office … we have been on this journey for now almost three years and it has been a fantastic journey achieving great results."

 

Saving millions

Since implementing TBM, PepsiCo has been able to reallocate millions of IT dollars from run-the-business to grow-the-business initiatives. Through reporting, they work with the business to decide where those savings will be reinvested. Digitalization, eCommerce, business process automation, and updating communications and collaboration platforms are all top priorities.

"Outside IT spend overall has remained similar to what it was when we started on TBM journey," said Mehta. "What the difference is, is that we are able to take more and more dollars out of what we call baseline-run, which is just keep-the-lights-on, and reinvesting those saved dollars into the new areas that allow our business to grow.

"We realized that by bringing together operation and financial data, we were immediately starting to see certain insights that we did not have available before. In a nutshell, what we have achieved is a faster process, a better process, and very high multi-million-dollar cost savings for PepsiCo. And that's where TBM has been instrumental in achieving that goal."

As an added bonus, onboarding new vendors has become a point-and-click process; vendor billing validation takes hours instead of days or weeks; IT and the business now have proactive conversations about costs and whether or not the services being billed for were delivered as promised.

"As a result of automation, the biggest benefit we saw is the amount of time our teams are spending on doing this validation manually has drastically gone down," said Mettem. "There is definitely more time for our supplier management team to focus on more value-add activities and also managing the risk and governance with the vendors, and also ensuring they are delivering on their contractual commitments—the SLAs, and performance obligations."

 

Next steps

Building on these successes, the supplier management teams will focus on lowering unit costs by renegotiating contracts based on highly-accurate consumption data generated through TBM. The goal is to lower the overall number of vendors by moving away from narrow, one-off contracts and shifting this work to their strategic suppliers. They also will use these insights to lower business-side demand in order to free up more funding for innovation.

IT finance also plans to expand TBM to line of business and service owners in order to start influencing consumption by showing them how their demands for technology and services impact IT's bottom line.

"The TBM concept is interesting in that it gives you a data-driven framework for organizations to look at optimizing their IT spend and communicating the value of IT back to the business teams," said Mettem. "If we are spending more dollars on non-business value services, that gives us an opportunity to reduce that spend and shift those dollars to more growth areas or growth services."

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