The source-to-pay (S2P) process covers the end-to-end procurement activities, from the scouting of suppliers to meet specific business requirements, to the payment of the received goods or services.
The S2P process is pivotal for an organization’s risk management, ESG strategy, cost savings, supply chain disruption mitigation, and improving efficiencies.
Usually restricted to its transactional piece (Procure to Pay or P2P), organizations are now moving to more advanced and strategic functions, including category management, risk and performance management, strategic sourcing, advanced contract lifecycle management (CLM), and supplier relationship management (SRM).
In this guide, we’ll cover:
- Source-To-Pay Process
- S2P Process Steps
- Procure-To-Pay and Source-To-Pay Comparison
- Source-To-Pay Benefits
- S2P Process Automation Advantages
- Final Thoughts: A Brief Guide To Source-To-Pay (S2P) Process in Procurement
Source-to-pay is the end-to-end procurement process that involves vetting potential suppliers for an organization, negotiating with them, contracting them, placing orders and paying for their goods or services.
S2P software solutions use data and automation rules to simplify parts of the process including, but not limited to, spend analysis, purchase requisitions, accounts payable tracking, and vendor performance management.
S2P Process Steps
- The S2P process begins with the demand for a product/service. The buying organization could also initiate it to secure better pricing or terms, mitigate potential disruption, or anticipate risks. Often, the initial process is triggered by analysis of the spend data (supplier dependency, category fragmentation, and contract coverage).
- Next, the organization identifies and evaluates the potential suppliers. Requests for information (RFIs), requests for proposals (RFPs), and requests for quotes (RFQs) — collectively called RFx — are sent to suppliers to collect information about their offerings, capacities, pricing model, etc.
- The evaluation stage comes next, where the organization’s sourcing team uses the supplier information collected through RFx to vet suppliers.
Supplier vetting identifies parameters like:
- Technical compliance
- Product quality
- Minimum order quantities (MOQs)
- The procurement team then shortlists suppliers and negotiates with them until they find the best fit.
Within the public sector, the S2P process may include a longer evaluation process with multiple rounds of demonstrations before negotiations begin and supplier(s) are awarded the contract.
Good negotiation leads to significant cost savings, especially when bulk orders are involved.
The contract includes terms around the decided-upon prices and the minimum order quantity.
- In the next step, the buying organization issues a purchase order (PO). It includes the pre-decided pricing and order quantity and is legally binding.
- Once the supplier has acknowledged the PO, goods or services are provided, received, and an invoice is issued by the organization. The last step of the process is the reconciliation of that invoice with a PO (three-way match), and payment of the invoice.
Keep in mind that the delivery of ongoing projects, such as construction or software development, can take time. In that case, a supplier performance clause will be tied to the contract. That helps evaluate how well suppliers are fulfilling the contract.
Procure-To-Pay and Source-To-Pay Comparison
The source-to-pay process includes all the steps of the strategic sourcing life cycle, from vetting suppliers to paying them.
On the other hand, the purchase-to-pay or procure-to-pay process only involves the transactional procurement process. The P2P process begins with the requisition of goods (purchase requisition, or PR) and ends with accounts payable paying the vendor.
The source-to-pay process is a combination of the S2C (Source to Contract) and the P2P process.
The S2P process includes an important part of strategic procurement: vetting the best suppliers and negotiating the best deals with them. A diverse, large, and up-to-date supplier pool is helpful within the public sector S2P.
That means source-to-pay solutions can enhance the organization’s cost savings and business process optimization, even beyond the procurement team.
The contract between a supplier and a buying organization in source-to-pay includes clear terms and conditions. Since those are mutually agreed upon, there’s transparency and better compliance with both the parties’ policies and regulatory guidelines.
Automating the strategic sourcing and procurement process leads to better collaboration, internally and externally, and optimization of the overall supply chain continuum.
The source-to-pay process helps with better supplier management and risk mitigation, anticipation, and forecasting, as well as bottom line string impact.
Organizations can vet suppliers against key benchmarks like:
- Purchase order cycle time
- Number of on-time deliveries
- Small business or MWBE certification (relevant for public sector S2P platforms)
The S2P process boosts supply chain management by reducing dependence on a single vendor.
A big benefit of the source-to-pay process is freeing up human resources that could be used for product innovation and newer ways to approach services. Those are crucial for an organization’s future growth and decision-making.
S2P Process Automation Advantages
Here are a few advantages of source-to-pay process automation:
- Streamlines the supply chain and connects all business processes.
- Increases the efficiency of the procurement process and helps the organization keep track of everything through full reporting and an audit trail.
- Boosts cost savings while avoiding time-consuming manual invoice processing.
- Consolidates the important steps of the S2P process into a single platform.
- Provides real-time insights throughout the S2P process.
- Helps gauge supplier performance against key performance indicators (KPIs) like on-time deliveries, pricing, and invoice cycle time.
- Gives a more accurate and automated estimate of the spend analysis by supplier and product/service category.
- Strengthens vendor relationships by offering transparency throughout the invoice process.
- Boosts better communication between stakeholders since they work on a common platform.
- Provides more accurate business forecasts and market trends, helping stakeholders better strategize the organization’s future growth.
Final Thoughts: A Brief Guide To Source-To-Pay (S2P) Process in Procurement
Automating the S2P process is one of the best methods for procurement cost savings and supply chain management.
mdf commerce is a leader in source-to-pay technology.
With brands like Bidnet Direct, Periscope, and Merx, we’re the leading procurement provider for North American public sector organizations.
We’re proud to host over 6,500 public buying organizations and 500,000+ active suppliers on our networks.
To learn more about making eprocurement more efficient, contact us today.