A lot of people often ask us, ‘What is source to pay process?’ Many people are under the impression that procure-to-pay and source-to-pay is the same thing. And we can see why it may be easy to confuse the two.
Procure to pay is an end-to-end process that involves sourcing, placing orders for goods with the chosen suppliers, delivery of goods, and paying for the goods. In this stage, the procurement teams plan what they intend to buy, negotiate the price, make the actual purchase, and handle the inventory.
Source-to-pay (S2P) on the other hand is a sub-process of the procurement life cycle and involves supplier identification, vendor evaluation/vetting, contracting, and payment for the goods. Before any purchases can be made, however, one must first source the goods. You must find and vet potential suppliers.
The Source to Pay Life Cycle
The S2P process is time-consuming and without a proper strategy, sourcing and procurement teams will waste valuable time. Let’s explore a typical source to pay life cycle and how this would fit into a procurement year.
1. Finding Suppliers
In this initial step of the source to pay life cycle, expansive market research needs to be carried out to identify potential suppliers. During this stage, sourcing teams will send out Requests For Information (RFIs), Requests for Proposals (RFPs), and possibly Requests for Quotes (RFQs). ProcurePort offers sophisticated e-sourcing RFX templates that make collecting and processing vendor information easier. In addition to requesting information from vendors, some sourcing teams may also use e-auctions in their source to pay life cycle.
E-auctions are used by sourcing teams to get the best deals for raw materials and goods. E-auctions are remarkably similar in nature to real-life auctions. In this case, suppliers are auctioning their goods and services and trying to outbid each other. The purpose of this process is to not only find reliable suppliers but suppliers with affordable price ranges.
ProcurePort has developed one of the leading reverse online auction software on the
market. Easy-to-use, allowing bidding in real-time, and aggregating scores automatically, make your vendor selection process easier. Our software keeps cost savings anywhere between 18% to 40%.
3. Evaluating/Vetting Suppliers
With the various RFX information sent back by suppliers and results from the e-auction, sourcing teams can begin to vet the different sellers to find suitable matches. Sourcing is a game of balance. The raw materials must be affordable enough so that after a product has been fabricated the company can realize a profit. Evaluating suppliers takes into consideration more than just quality, but looks at pricing, minimum order quantities, delivery times among other factors. Once a satisfactory supplier has been identified, negotiations can begin.
4. Negotiating and Contracting
After going through the information supplied by the various vendors, the sourcing team may select up to three vendors whom they will engage with. This is the negotiating and contracting phase. Because businesses are always looking for ways to keep production costs low along the supply chain, one area where costs can be minimized is at the sourcing stage.
If larger quantities are sourced, this can push the purchasing price of goods down. With prices determined and order quantities resolved, contracts can be issued out. Again, thanks to ProcurePort’s contracting software, you can streamline the contractual process, store documents in one central place, and manage everything from a centralized portal.
5. Goods Delivery and Payment
The final step in the source to pay life cycle involves goods delivery and payment. This is the end process. Depending on the needs of the business a delivery schedule and automatic payment system may be set up that ensures that throughout the year, raw materials are delivered on time in a manner that doesn’t disrupt production.
Invest in next-generation sourcing solutions
Are you looking for e-sourcing solutions that will help you cut back on costs, simplify operations, and keep data stored in a central location? Request a free demo of the industry’s leading e-sourcing and procurement solutions. To discuss more, contact one of our solutions specialists to find out how ProcurePort can assist you with your source to pay life cycle.