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What does Source to Pay (S2P) mean?

Source to Pay, also known under the abbreviation S2P, is the process of obtaining raw materials or components necessary to manufacture a product or provide a service and to pay for products purchased from suppliers.

Each production or service company must effectively manage this process. The prize for implementing the best solutions is building the company's value, its competitive advantage and achieving profits.

What advantages should efficient Source to Pay process deliver?

The advantages of well established Source to Pay process can be grouped in the four buckets. The efficiency of the process can be measured with Business Process Mining software (read more in Polish language). The best in class Source to Pay process and relevant software should enable you to:

  1. Eliminate:
    • issues with errors in communication and specification revision change control, through easy parent project tracking and robust communication to suppliers
    • outdated Terms&Conditions, Health&Safety or Logistic requirements usage. Cascade down at once new revisions of key risk mitigation documents
    • need to calculate in Excel: NPV, step payments, energy usage and other parameters which are mission critical to take decision. All these factors can be embedded in at glance comparison
    •
  2. Streamline:
    • cooperation and coordination between R+D, Quality and Purchasing departments
    • sourcing for and cooperation with your internal business partners spread geographically among multiple sites, technical centers, centers of excellence
    • comparing and selecting RFx winners based on visual TCO graphs, starting from Total Project Value, through hard TCO measures, to risk soft factors
    •
  3. Standardise:
    • framework with direct suppliers. While tools for indirect purchasing have to deal with spend diversity, ESSA focuses on repeatability and continuous improvement of VALUE
    • if you have your templates for category strategy, reporting or ERP feeding, then ESSA provides user friendly generator of templates
    • contract extension, supplier resourcing, new project sourcing, obtaining budget quotation. ESSA enables KPIs sets formation, selecting documents and TCO parameters to take decision on Total Cost of Ownership principles
    •
  4. Automatise:
    • collecting suppliers’ offers for BOM to submit quotation to your customer
    • setting budget and stretch objectives on complex projects
    • preparation for negotiation
    •

What are the most important steps of the Source to Pay process?

The S2P process consists of several basic steps. Let's start with the step "0", it is the definition of purchasing organisation structure and processes for the proper implementation of the entire process. This step is a starting point, allowing, among other things, for the standardisation of the processes, the best use of available resources and better control of contract performance and relationships with suppliers. Purchasing organisation structure and processes should be adjusted to the business objectives of the company.

Having completed step 0 we can start selecting suppliers. Here it is worth paying attention to the following important issues:

  • First, suppliers should offer products with quality and level of innovation meeting the needs of the company and maintaining its reputation – optimisation of the value.
  • Secondly, products should be properly priced – optimisation of the cost.
  • Thirdly, suppliers should meet the company's expectations in terms of finances, management level, propensity for development or openness to change.

All of these issues are subject to negotiation, whose aim is to select preferred partners.

Automotive Industry Example
Heavy Duty Industry Example
  • ESSA

    Eveneum Strategic Sourcing Application

    • Supplier Relationship Management
    • Risk analysis and modeling
    • Total Cost of Ownership

S2P and P2P - the next steps in the process

The next steps of the S2P process are placing orders, collecting deliveries and settling invoices. This part of the process is also known as P2P. When accepting the product or receiving the service, checks are made. They are intended to determine whether the delivered goods are in accordance with the order, meet the buyer's quality requirements and whether they are valued in accordance with the terms of the contract.

The final step of the S2P process is to receive invoices and make payments to sellers. After making transfers, the cycle ends.

Of course, the economic reality forces enterprises to continuously improve tools supporting the purchasing process. Many companies use advanced IT systems. They support buyers in their daily work - for example, they allow for better preparation for negotiations. Systems also support the management when making key decisions for the company.

More about Source to Pay process topic:

Eveneum supports buyers in the whole S2P process. Based on the best market practices, we offer "tailor-made" and agile solutions, allowing to achieve competitive position on the market. Eveneum Strategic Sourcing Application [ESSA] contains the best S2P practices for industry and high technology industries. We invite you to contact us.

About author

  • Szymon Tochowicz

    Szymon Tochowicz

    Head of procurement, aerospace engineer with 18 years in strategic sourcing. Managed teams of strategic buyers and category managers at the regional and global levels. Responsible for the project “Why Purchasing?” promoting procurement as a function. In Eveneum he is involved in consulting projects and customized trainings. He is specialized in automotive, aerospace, defense and energy industries. Trainer at the European Institute of Purchasing Management and lecturer at the Jagiellonian University.

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