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What is Source to Pay?

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Source to Pay, or S2P, is a cycle that starts with the discovery of suppliers and ends with the payment of goods and services bridging these two endpoints with multiple activities.

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Introduction

Source to Pay, or STP or S2P, is a cycle that starts with the discovery of suppliers or vendors and ends with the payment of goods and services. Bridging these two endpoints are activities such as floating a proposal, competitive bidding, negotiation of contracts, and more depending on the industry.

Businesses leverage S2P to gain a competitive advantage in the market, and to bring all the vendors and suppliers on a unified platform. As a result, companies can use a single platform for vendor-facing and internal activities, which will enhance their performance.

Let’s take a look at the role of Source to Pay in determining the profitability of a business and how one can extract more value from it
Source to pay

Difference Between Source to Pay and Procure to Pay

With the above definition of Source to Pay in mind, it is only natural to confuse it for Procure to Pay. However, they are not the same. In fact, Source to Pay is a more refined version of Procure to Pay process.

To understand the differences between the two, let’s first take a look at the standard Procure to Pay process:
  1. An individual recognizes the demand for goods or services and initiates the procurement process.
  2. A purchase requisition is prepared, detailing all the specifications and requirements, and the requisition is circulated for review and approval.
  3. Once the requisition is approved, a purchase order containing all the necessary information is drafted, reviewed, and forwarded to the vendor.
  4. The vendor supplies the goods or service and the receivables are vetted internally.
  5. After the delivery of the goods and services, the vendor raises an invoice that is cross-matched with documentation for purchase orders and receipts.
  6. After the delivery of the goods and services, the vendor raises an invoice that is cross-matched with documentation for purchase orders and receipts.
  7. Upon approving the invoice, the accounts payable (AP) division issues the payment and records the transactions on the ledger.
Now, contrast the above with the Source to Pay process that flows as given below:
  1. An individual recognizes the demand for goods or services and initiates the sourcing process. It may also be triggered for the want of better pricing terms on existing goods and services.
  2. The organization deploys data-heavy tools that forage the market to shortlist vendors based on factors such as their reputation, market trends, service history, etc. The shortlisted vendors are made a part of the vendor master data and receive all communications for the sourcing process.
  3. Companies prepare all the RFx documentation, such as RFQs (Requests for Quotes), RFIs (Requests for Information), RFPs (Requests for Proposals), etc., which are then reviewed, approved, and advertised.
  4. Once the requirements are out, it is fair game and interested vendors can submit their bids.
  5. All the bids are reviewed and the supplier that checks the maximum boxes is awarded the contract.
  6. After selecting the vendor, the parties participate in contract negotiation to identify the terms, pricing, and duration of the contract.
  7. Once the contract is agreed upon and finalized, the contract is reviewed and signed.
  8. Payments are processed as per the terms of the contract and procurement takes place as normal.
From the above, it is clear that Source to Pay offers more exposure to the organization without putting it at risk as most decisions are driven by data-first insights. It also accounts for preventative optimization where measures such as vendor onboarding, contract management, and bidding ensure fairness during strategic sourcing.

Benefits of Having an Integrated Source to Pay Platform

As mentioned above, S2P standardizes internal and external business processes and cuts down the need for multiple ERP tools. As a result, it drives greater efficiency and boosts performance. To elaborate on these advantages, the following are some points in favor of having an integrated Source to Pay platform:

Save Money at the Initial Stages of Procurement

Benefits of Source to pay
While the P2P model engages existing vendors, S2P unlocks opportunities for all suppliers. By opening up the market, you lay the foundation for fair and competitive pricing that will save you money right from the start. Add automation to the mix and you will cut down costs even more!

Maintain Compliance With Business Requirements and Policies

As S2P involves the drafting of a contract where the terms and conditions are laid out and agreed upon, businesses are less likely to experience hiccups while accepting the goods and services. Plus, the contract would be in consonance with the business policies and requirements to align demand and supply.

Boost Collaboration and Communication Throughout Procurement

By bringing employees and vendors on the same platform, you will be giving them a common language to communicate with each other. Such a form of empowerment will allow more effective and meaningful interactions throughout the S2P process.

Minimize Risk and Diversify Sources

Minimize risk
S2P cuts down your dependence on a single vendor or supplier, which spreads out the risk and maintains supply chain continuity despite disruptions. Plus, it is comparatively more secure and resilient than its P2P counterpart.

Establish a Single Source of Truth

Source to Pay standardizes the procurement process and unifies all stakeholders over the same platform. As a result, it acts as a single source of truth for all procurement-related information and supports well-rounded decisions.

Areas in the Source to Pay Process that can be Automated

Automation in the Source to Pay process can play a pivotal role in adding more value to the process. It can be introduced in the following segments:
  • Sourcing - Where automated tools can cast a wider net while scouring for vendors that can meet your business requirements.
  • Purchase Requisition - where all team members can be involved in chalking up the requirements and prioritizing features.
  • Purchase Ordering - where the approved requirements can be distributed amongst vendors across all channels.
  • Bid Management - where all incoming bids can be screened as per a rule-based formula and assigned weighted priorities.
  • Contract Management - where all activities, from drawing up the contract to signing it, can be automated and digitized for expeditious action.
  • Vendor Management - where a centralized repository can be maintained automatically after vetting each supplier’s performance over time.

Conclusion

Source to Pay can be an excellent way to make effective use of resources while empowering your procurement teams. However, automation can streamline this journey and deliver tangible results in the form of greater efficiency, increased savings, and effective procurement with minimal turnaround time. So choose S2P automation for creating lasting value.
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