What is the difference between procure-to-pay vs source-to-pay?
As procurement systems and processes gradually take on more technological aspects new terms emerge.
One such term is source-to-pay (S2P) which has its roots in procure-to-pay. And it is one of the roles of a sourcing specialist on a procurement team to understand them.
But what exactly is S2P and how does it differ from P2P? We’re here to break it down.
Let’s dive right into it.
What is Source-to-Pay?
The Chartered Institute of Procurement and Supply (CIPS) defines source-to-pay as:
“…an improved version of spend management compared with P2P as it includes solutions for sourcing.”
What does this mean?
Simply put: one of the major distinguishing features of the source-to-pay process is the additional layer that’s added – i.e. strategic sourcing – an aspect that’s not common in the procure-to-pay process.
This unique aspect of the source-to-pay process enables procurement teams to develop a spend management solution that’s even more streamlined and integrated.
Among some of the goals of the source-to-pay process are the refinement of supply chain efficiencies, improvement of vendor-buyer relationship, and consolidation of internal control measures.
Now, looking at procure-to-pay, what is it all about?
What is Procure-to-Pay?
Relying once again on a definition provided by CIPS, we see that procure-to-pay, also known as purchase-to-pay, is a:
“…process flow from the requisition and purchase through to payment and accounting for purchases.”
We’re being told that the P2P process is an end-to-end process that begins with the requisitioning of goods and services and ends with settling of accounts.
The major objectives of the purchase-to-pay process revolve around creating value and realizing cost savings.
This is done in particular through the automation of these processes thanks to e-procurement solutions.
Now, what are those elements that set apart procure-to-pay vs source-to-pay?
Let’s examine three of the core differences.
3 Differences Between S2P and P2P?
Because of the great similarities between procure-to-pay vs source-to-pay, a lot of people find it difficult to see that the two processes do have differences that serve to distinguish them. It is these separating features that we are going to look at below.
Difference 1: The Initial Step
Undoubtedly the biggest difference between the procure-to-pay vs source-to-pay processes lies in the initial step of each process.
The procure-to-pay process begins with the requisition of particular raw materials, goods, or services while the source-to-pay process starts much earlier with a search for new vendors.
This point leads us to the next observable difference…
Difference 2: The Key S2P Element
Source-to-pay has this inherent element of strategic sourcing attached to it that’s not found in the purchase-to-pay process.
Strategic sourcing is a pretty comprehensive aspect of S2P that involves sourcing the best vendors, evaluating them, and then proceeding to contract them.
Difference 3: The Aims of Each Process
The final difference between procure-to-pay vs source-to-pay lies in their objectives.
Procure-to-pay processes are ideal for purchasing goods and services through vendors that are already qualified and familiar with the enterprise.
These suppliers are generally already well acquainted with the organization’s setup and unique procurement needs.
Businesses turn to the source-to-pay process when there is a need for new suppliers offering lower prices for goods and services, more favorable terms, or even new goods that old vendors aren’t supplying.
The S2P process is particularly effective at achieving these aims.
Why Knowing These Differences is Important
Being cognizant of the differences that lie within these two processes allows businesses to align their requirements accordingly and hence come up with a suitable procurement strategy.
If there is a need to engage new vendors, procurement teams will know to switch to S2P. And if there is no requirement to find new suppliers, they will turn to their existing vendors.
Now, you may be asking how you too can enjoy the benefits that come with S2P and P2P? In order to answer this question, we have to look at the software that makes all of this possible.
The Case for Using S2P and P2P Software
The increasing digitalization of the procurement industry has led to significant changes to processes.
For the source-to-pay and purchase-to-pay processes, much of the purchase-to-pay software has brought advantageous results and given enterprises a competitive edge.
Here are just some of the benefits that come with using modern procurement solutions:
Real-time analysis of data
Procurement teams have on-hand immediate insight into what’s happening regarding requisitions, purchase orders, delivery times, invoice approvals, and more.
Long-term cost savings
Not only does the consolidation of procurement activity on a centralized platform provide visibility but it allows the procurement team an opportunity to realize cost savings through the merging of purchase orders.
Lower processing costs
P2P software offers the potential of lowering processing costs. This is very welcome if you consider how expensive various parts of the process (e.g. manual creation of purchase orders can be). According to an APQC study, the average cost of manually processing one purchase order is $506.52.
Gone are the days of physically processing requisitions, drafting purchase orders across spreadsheets, and creating invoices. Everything can be done with a few clicks and templates now.
In order to properly consolidate a supply chain, you need both P2P and S2P processes. Making use of them ensures a high level of procurement campaign efficiency.
These efforts are further enhanced by having the right solutions integrated into your ERP.
So, if you’re looking for an intuitive and trusted procurement solution capable of helping you address procure-to-pay, contract management issues, spend analysis, and purchase requisition matters then consider ProcurePort.
Our clients include enterprises and organizations such as UNOPS, HUD.GOV, and conEdison.
To discuss procurement software with a consultant or to schedule a demo of our solutions, contact us today.