Headcount Benchmarking: How Many People Do I Need in the Procurement Function?

Introduction

The procurement function is responsible for buying all of the things that a business needs to operate. Ensuring that your procurement team is staffed with the right number of people is essential for maintaining cost-effective and streamlined operations. However, determining the optimal headcount for your procurement function can be tricky.

In this blog, we will address this challenge by looking at the following topics:

1. What is Headcount Benchmarking?
2. Explaining The Procurement Function
3. Headcount Benchmarking Your Procurement Function in 6 Steps
4. Common Mistakes When Benchmarking the Procurement Function
5. Conclusion

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What is Headcount Benchmarking?

Headcount benchmarking is the process of comparing the number of employees in one part of a business, to those in the same area within similar companies (factoring in things like the industry, geography, and revenue). The primary goal of most headcount benchmarking exercises is to evaluate an organization before making important workforce decisions.

Benchmarking involves gathering data on various metrics such as the ratio of procurement staff to total employees (a.k.a. procurement as % of total employees), the distribution of procurement roles, and the efficiency of procurement operations. Let’s now take a look at the procurement function in a bit more detail.

Explaining The Procurement Function

The procurement function is a critical component of any organization’s operations. People who work in this function are responsible for ensuring that the organization obtains the right products, at the right price, at the right time, and in the right quantity. Key responsibilities of the procurement function include:

1. Sourcing and Supplier Management: Identifying, evaluating, and managing relationships with suppliers to ensure a reliable supply of goods and services.
2. Contract Negotiation and Management: Negotiating contracts with suppliers to secure favorable terms and conditions, and managing those contracts to ensure compliance and performance.
3. Purchase Order Management: Issuing purchase orders, tracking deliveries, and managing inventory levels to ensure timely procurement of goods and services.
4. Cost Management: Monitoring and controlling procurement costs to achieve cost savings and budgetary goals.
5. Risk Management: Identifying and mitigating risks associated with the supply chain, including supplier risks, market risks, and operational risks.
6. Compliance and Governance: Ensuring that procurement activities comply with internal policies, industry standards, and regulatory requirements.

The procurement function often varies between companies. This is mostly due to differing levels of raw materials required in some industries compared to others. When it comes to benchmarking, make sure that you use industry-specific benchmarks (at a minimum).

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Headcount Benchmarking Your Procurement Function in 6 Steps

Here are the six key steps that we recommend that you use to benchmark the procurement function effectively:

1. Define The Objectives

Like any other project, you must first set out your objectives when headcount benchmarking. These objectives typically involve reducing costs, improving efficiency, or evaluating the current staffing levels. By setting well-defined goals, you will focus the rest of the benchmarking process and concentrate your efforts on the most important areas.

2. Select Your Benchmarking Metrics

Identify the key metrics you will use to compare your procurement function against others. Standard metrics include:

• Procurement as % of Total Employees: The number of procurement staff members compared to the total number of employees.
• Cost per Procurement Staff Member: The total cost associated with each procurement staff member, including salary, benefits, and overhead.
• Procurement Spend per Employee: The total procurement spend divided by the number of employees.
• Supplier Lead Time: The average time it takes for suppliers to deliver goods and services.
• Purchase Order Cycle Time: The average time it takes to complete a purchase order from request to delivery.
• Contract Compliance Rate: The percentage of procurement contracts that are fully compliant with terms and conditions.

3. Collect Data

Collect data from internal sources to begin the benchmarking process. This internal data should include staffing levels, budgets, and performance metrics specific to your procurement department. Ensuring this data is accurate, current, and relevant is crucial for a meaningful comparison.

Additionally, gather external data from industry reports, benchmarking services (such as CompanySights), or peer organizations. This external data will provide a broader context and benchmarks against which to measure your procurement function. Like the internal data, it must be precise, up-to-date, and comparable to be effective.

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4. Analyze The Data

Compare your internal data with the external benchmarking data and metrics that you have collated. From here, you can identify areas where your procurement function is performing well and areas where it may not be so good. It’s usually helpful to input the data to a visualization tool, such as Power BI (or even just graphs in Excel). That way you can look for patterns and trends that could indicate underlying issues or opportunities for improvement.

5. Develop The Plan

Following your analysis, you should develop a plan that addresses the identified gaps. This plan should include specific initiatives, timelines, and responsible parties. It’s important to ensure that the plans are realistic and aligned with your overall business strategy.

6. Implement The Plan

Execute the plan. This is always easier said than done. It will involve making many changes to your procurement function. This could involve hiring additional staff, investing in new technologies, or restructuring specific things. Monitor the implementation process closely to ensure that it stays on track and achieves the desired outcomes.

Common Mistakes When Benchmarking the Procurement Function

While benchmarking can provide valuable insights and drive significant operational improvements, it is important to avoid common mistakes that can undermine the effectiveness of the process. Here are three common mistakes to watch out for:

1. Comparing Apples to Oranges

One of the most common mistakes in benchmarking is comparing dissimilar organizations or functions. It is important to ensure that the organizations or functions that you are benchmarking against are comparable in terms of size, industry, and complexity. Comparing your procurement function to a vastly different organization can lead to inaccurate conclusions and misguided actions.

To avoid this mistake, carefully select a benchmarking data provider who has data from organizations that are similar to your company. This will ensure that the insights you gain are relevant and actionable. Learn more about our company-specific benchmarking data here.

2. Ignoring Contextual Factors

Benchmarking data must be interpreted in the context of your organization’s unique circumstances. Factors such as organizational structure, market conditions, and strategic priorities can significantly impact procurement performance. Ignoring these contextual factors can lead to incorrect conclusions and inappropriate actions.

To avoid this mistake, consider the broader context when analyzing benchmarking data. Take into account factors that may influence performance and tailor your action plan to address the specific needs and challenges of your organization.

3. Focusing Solely on Quantitative Metrics

While quantitative metrics are important, they do not tell the whole story. Focusing solely on numbers can overlook qualitative factors such as employee skills, supplier relationships, and organizational culture, which can have a significant impact on procurement performance.

To avoid this mistake, complement quantitative metrics with qualitative insights. Conduct interviews with procurement staff, gather feedback from suppliers, and consider the overall health of your procurement processes. This holistic approach will provide a more comprehensive understanding of your procurement function and help identify meaningful improvements.

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Conclusion

Headcount benchmarking is used many professionals to evaluate the performance of the procurement function. Through comparing procurement staffing levels to industry benchmarks, you can pinpoint areas for improvement, support staffing decisions with solid data (or advice if you’re a consulting), and leverage best practices to make the procurement function even better.