What is the right size of your Procurement function?
On every budget exercise, CPO's ask themselves the same question "Do we have the right number of Buyers? ". Unfortunately, there is no easy answer to that question.
First difficulty is the fact that behind the generic term "Buyer" there are very different functions: Program Buyers to support projects from bid to completion, Category Buyers in charge of consolidating and sourcing items belonging to one category, and tactical Buyers who cope with day-to-day operations involving third party expenditures.
Second difficulty, not all Buyers are dedicated full time to Procurement activities, and some of them do not even bear the title of Buyer. This is where we start talking about FTE's.
Nevertheless, the first approach consists in evaluating as precisely as possible the number of FTEs needed to perform the function. The idea is to review all processes, list all Procurement related actions to be carried out, evaluate the workload required for each of them and generate the theoretical number of Buyers required. Not easy to achieve, but it is definitely a rigorous approach to check the coherence of the actual FTE's.
With productivity in mind, an additional technique would be to analyze the current function and to identify all initiatives likely to generate a better efficiency, hence a decrease in FTE's. This may involve process simplification, changes in governance, or Robotic Process Automation in S2P.
Finally, once we come up with a rather coherent number of FTE's, the next idea that makes sense is to compare with best-in-class organizations. This seems to be an easy step due to the amount of data that is published on the subject.
However, the Procurement function varies considerably from one company to another even in similar industries. The mix of buyers and the level of process automation can be very different. Moreover, procurement should be seen more as a value creator for the business than a mere process activity. There is, therefore, no obvious correlation between its performance in the company and the size of its workforce.
In conclusion, to reach its optimal size, Procurement should focus on four items: (1) Focus on high value purchases and delegate to the users certain tasks or categories, (2) Automate as much as possible the tasks with low added value, (3) Keep buyers at the highest possible level of competencies, and (4) provide them with the tools they need to perform them as efficiently as possible.