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Pep+ Investment / Productivity

    Situation

    • Currently, Pep+ related expenses are classified as investments under our existing financial reporting framework. As part of this, we pay a premium in addition to the base price, and this incremental premium is recorded as an investment expense. 
    • Example: Sustainable sourcing' premium that is paid by us to suppliers; certification body such as Rainforest Alliance. Procurement can either negotiate for a better rate with suppliers YOY, OR they can actively negotiate for the certification body to provide us with an improved rate YOY. 

    Complication

    • Recognizing the savings as productivity gains could highlight operational improvements and create an incentive for teams to focus on this topic, while recording it as an offset to investments would maintain consistency with historical accounting treatment. 

    Question

    • How do we treat this per unit reduction?
    • Should this reduction be recognized as a productivity gain, reflecting the tangible efficiency improvements driven by the team's efforts?
    • Or, since the original premium costs were recorded as investments in our financial framework, should the savings instead be recorded as an offset within the investment line? 

    Recommendation

    • Since the cost reduction lowers our operational expenses (e.g., direct procurement costs or premium fees expenses immediately), it reflects an efficiency improvement directly attributable to procurement efforts. 
    • This saving can be recognized as a productivity gain because it improves the cost base and operational performance year-over-year.

    • It highlights the tangible impact of procurement negotiations on reducing expenses. It also encourages a culture of continuous improvement initiatives. 

      Governance

    • Need a mechanism to clearly isolate the base vs premium components. 
    • Premium Rate chance vs PY x current year vol will count as Productivity.
    • If reduction in premium is counted as Productivity in year 1, any subsequent increase in the following years should be counted as negative productivity.