Source-to-pay (S2P) is a procedure that begins with locating, negotiating with, and contracting with a product provider and ends with ultimate payment for those items. To increase procurement efficiency, S2P software uses technology, big data, and digital networks.
Businesses that use Source-to-pay to gain a competitive edge have all of their spending and all of their suppliers in one place. To increase performance, visibility, and value, this platform integrates the entire source-to-pay process internally and throughout the entire process.
Spend analysis, sourcing, contract management, and supplier management (which includes supplier information, risk, and performance management) are all part of the Source-to-Pay process, as are downstream activities like e-procurement, purchase orders, invoice automation, and accounting payable processes.
Those who adopt a source-to-pay platform:
- Increase sourcing savings through enhanced visibility into procurement
- Integrate critical processes into a single platform to receive signed contracts faster
- Strengthen procedural, regulatory, and contractual compliance
- Improve collaboration, trust, and spend among trade partners
- Negotiate better pricing and have more accurate forecasts for those who use a source-to-pay platform
Source-to-pay software turns a time-consuming and inefficient procurement process into a chance to boost productivity, cut costs, improve transparency, and add value. Collaboration between buyers and suppliers increases, agreements are completed faster, and human errors are reduced or eliminated entirely when source-to-pay best practices are incorporated.
Comparing Procure-to-Pay and Source-to-Pay
A S2P process is a more thorough and robust variant of a procure-to-pay (P2P) procedure. While most procure-to-pay procedures start with identifying internal needs and submitting departmental requisitions, the Source-to-Pay process goes a step further by including a higher-level element into the procurement process.
While the P2P and S2P have many similarities, recognizing the differences is critical to developing a thorough procurement plan.
Modern procure-to-pay systems, also known as purchase-to-pay, employ tools such as procurement solutions, enterprise resource planning (ERP) software, and expenditure analysis to improve process automation, efficiency, and accuracy across the procurement function. Reduced purchase order cycle times and invoice processing efficiency gains realized through three-way matching, e-Invoicing, and internal process optimization.
- Real-time insights offered by master data management on a cloud-based server
- Reduced purchase order cycle times and invoice processing efficiency improvements realized through three-way matching, e-Invoicing, and internal process optimization.
- Process automation, complete transactional data transparency, and on-demand expenditure analysis allow streamlined value-focused expenditure management.
- Improved cash flow and working capital access thanks to enhanced decision-making and forecasting/reporting, backed up by total spend visibility.
Business processes differ from one organization to the next, but the P2P workflow generally looks like this:
- Demand: A member of the procurement team or someone outside of it detects a demand for products or services and begins the process of procuring them.
- Purchase Requisition: A purchase requisition is generated and sent for approval and evaluation. The ordering party should ideally use an eProcurement system to choose from a pre-approved list of vendors and specific items and services that comply with the best pricing and terms for that particular need.
- Purchase Order (PO): The purchase requisition is used to establish a purchase order, which is then sent for approval and review. The purchase order is forwarded to the appropriate vendor after approval, and once accepted, it becomes a formal contract.
- Received goods and services: Orders for items are checked, and receiving documentation should, ideally, be automatically cross-matched to the appropriate PO. Exceptions result in returns, refunds, or further documentation, depending on the situation.
- Invoicing: The invoice from the vendor is received and compared to the purchase order and other papers. Exceptions are identified and dealt with as circumstances dictate. Invoices that have been properly reconciled are sent to be paid.
- Payment: The accounting payable (AP) team processes payments and modifies accounting records to reflect the transfer of funds in exchange for products and services.
For commodities and services that have already been optimally sourced and whose vendors have master data files in the buyer’s procurement system, the P2P method works well.
However, when a need is identified but a company lacks a current (or at least sufficient) source for the goods and services required, the source-to-pay procedure might be useful. S2P promotes value, efficiency, and continual improvement in the same way as P2P does but adds contract management and strategic sourcing to the mix.
Source-to-pay is appropriate when a company needs to find new potential vendors to meet the demand for raw materials, finished goods, or services that lie outside of their existing supply chain, or when a company wants to add new vendors to their supply chain to find greater savings, lower risk, and more productivity.
Rather than being a separate procedure from procure-to-pay, S2P might be thought of as a precursor to it. It makes use of eProcurement software, which helps with supply chain management and vendor relationship management.
Some ERP solutions, such as SAP and SRM, provide sourcing tools, but the procurement software you choose should ideally support S2P as part of its overall procurement optimization. S2P processes vary by company, much as they do with P2P, but they often look like this:
- Demand: There is a demand for new goods and services or for better prices and terms on existing ones.
- Sourcing: Potential vendors are found and evaluated using data analysis based on aspects such as current market trends, historical spending, and overall organizational goals for product development. Candidates that show promise can be onboarded for vendor master data gathering and engagement with the buyer’s procurement tools and workflows.
- Bid Preparation: All applicable “RFx” documentation, such as requests for quote (RFQ), requests for proposal (RFP), requests for information (RFI), and so on, is prepared, reviewed, and authorized before being distributed.
- Bidding: Vendors are invited to submit the necessary bids. Bidding is open to all interested providers.
- Evaluation and Reward: Candidates are evaluated for suitability, and the winner(s) are picked. A purchase order, contract, or both will be created depending on the supplier’s intended role.
- Contract Negotiation and Management: The buyer negotiates to achieve optimal contract terms and prices with vendors who will be added to the procurement software as preferred vendors with a relationship extending beyond the current offer.
- Contract Creation, Review, and Approval: After the parties have achieved an agreement, the contract is written, reviewed for legal and informational accuracy and completeness by both parties, and signed.
- P2P: The procure-to-pay process can now proceed normally, with the best possible pricing and payment terms for the goods and services necessary.
Source-to-pay adds value by allowing for proactive optimization. To undertake vendor evaluation and onboarding, contract management, and thorough, strategic sourcing, procurement teams can use the insights from the data collected and analyzed utilizing their existing procurement technology.
As a result, these vendors will be a part of this optimized system from the moment they join the supply chain, making it simple to assess vendor performance against key performance indicators (KPIs) such as price, on-time deliveries, and cycle durations for purchase orders and eInvoicing, and update the supply chain based on the findings.
With every vendor and every transaction becoming part of the automated processes and real-time data management that drives continuous improvement, the entire supply chain may be connected in this way over time.
What are the Benefits and Advantages of S2P and P2P?
The S2P procedure is excellent at achieving these aims when firms need to identify new vendors who offer better terms, lower costs, or new commodities that current suppliers don’t supply. Both S2P and P2P techniques can be used to combine a whole supply chain, resulting in increased procurement efficiency.
Other benefits of source-to-pay and procurement-to-pay include being able to:
- Consolidate critical processes into a single sourcing and procurement platform.
- Increase spending and coordination among suppliers and other trading partners.
- Improve regulatory, procedural, and contractual compliance
- Achieve more accurate and consistent forecasting
Suppliers can also be evaluated against numerical standards using P2P and S2P tools. These are some of them:
- Cycle times for e-invoicing and purchase orders
- Number of on-time deliveries
- Real-time data analysis
- Long-term cost savings
- Process automation
- More accurate spend analysis
- Reduced processing costs
- Easier cash flow analysis
- Business processes are simpler
- Streamlined supply chain management
- Risk management is more efficient
- Supplier information is easier to track
- Overall user experience is better
Source to Pay—The Next Level in Spend Optimization
Traditionally, the procure-to-pay process starts with a requisition for goods and services and finishes with accounting payable issuing payment to the vendor. Source-to-pay incorporates strategic sourcing into the process, resulting in a tighter-knit spend management system.
A source-to-pay integration aims to increase value by strengthening internal controls, improving supply chain efficiency, and managing vendor relationships.
The Automation Potential of Source-to-Pay
It’s been difficult to identify how much of the complete end-to-end process can be automated or where the major sources of value are because source-to-pay is such a vast and diverse group of procedures.
As a result, we embarked on a novel analysis that broke down source-to-pay into a huge number of individual jobs. This allowed us to determine how easily each task could be automated using existing technologies, as well as which technologies would be best for achieving that level of automation.
Any task’s automation requirements will be determined by the precise combination of capabilities necessary, as well as the level of complexity associated with those skills. Some jobs, for example, may just demand a small level of pattern recognition (such as data-lookup tools in spreadsheets), while others may necessitate the capacity to recognize extremely complicated patterns (for instance, assessing which suppliers are most likely to cease being a sustainable source of supply).
It’s always preferable to start at the beginning when it comes to establishing long-term value. Better supplier management, simpler processes, less maverick spending, and knowing that every purchase has the best payment terms, customer service, and pricing are just a few of the advantages that adding source-to-pay to your procure-to-pay process may bring to your firm.