What is Source to Pay (S2P)?

Source to Pay, also known by its acronym S2P, is the process of sourcing the raw materials or inputs required to produce a product or provide a service and making payment for the products purchased from suppliers.

Every manufacturing or service company needs to manage this process effectively. After all, the reward for implementing the best solutions is to build the company's value, its competitive advantages and its profits.

What benefits should a well-implemented, effective Source to Pay process deliver?

The benefits of implementing an effective Source to Pay process can be grouped into four areas. The quality of the process can be measured using tools such as Business Process Mining. The software supporting the Source to Pay process should enable:

1. Elimination:
   • errors in communication with R&D and suppliers for changes to documentation, specifications, revision of drawings
   • risks of working with suppliers on outdated General Terms and Conditions, Logistics Requirements or the work of the supplier's employees on the customer's premises based on health and safety rules
   • the need to use Excel to collate tenders, e.g: NPV, prepayments, lead time differences, supplier evaluation sheets. Critical parameters should be collated by AI
   • see more...
2. Systematisation:
   • cooperation and coordination working between R&D, Quality, Purchasing in the company
   • tendering processes in cooperation with internal business partners in organisations that are virtual or geographically dispersed
   • principles for comparing suppliers, TCO parameter selection, risk model for hard and soft parameters
   • see more...
3. Standardisation:
   • framework for cooperation with direct production suppliers. At the same time, it will enable complexity management for indirect production suppliers. The aim should be to generate Value from collaboration with suppliers.
   • RFx templates, TCO, lists for assortment groups in the framework of material category management
   • contract renewal rules, switching suppliers on a project, selection of suppliers for new projects
   • see more...
4. Automation:
   • collecting offers from suppliers to BOM-u to make offers to the customer through sales
   • defined budgetary and savings objectives on complex projects
   • preparations for negotiations
   • see more...

What are the key steps of the Source to Pay process?

The S2P process consists of several basic steps. However, let us start with step „0”, i.e. the preparation and implementation of purchasing structures and processes for the proper execution of the entire process. This step is the starting point, allowing, among other things, for the standardisation of purchasing processes, the best use of the resources at hand and better control over the execution of contracts and supplier relations. Purchasing structures and processes should be prepared in such a way as to ensure the best fit with the company's business objectives.

If the company has prepared and implemented purchasing processes that meet its needs, it can proceed to the selection of suppliers. Here, too, it is worth paying attention to a number of important issues.

• Firstly, suppliers should offer products whose quality and level of innovation meet the needs of the purchasing organisation.
• Secondly, products should be priced appropriately - so that we have the opportunity to optimise costs.
• Thirdly, suppliers should meet the company's expectations in terms of finances, level of management, willingness to grow or openness to change. All of these issues are subject to purchasing negotiations to identify preferred contractors.

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  Eveneum Strategic Sourcing Application

  • Supplier relationship management
  • Risk analysis and risk-based decision-making model
  • Total cost of ownership [TCO]

S2P vs P2P - next steps in the process

The next steps in the S2P process are placing orders, receiving deliveries and settling invoices. This part of the process is also known as P2P. When a product is accepted or a service is received, inspections are made. These are designed to determine whether the goods delivered conform to the order, meet the buyer's quality requirements and are priced according to the terms of the order.

The final step of the S2P process is to receive invoices and make payments to the vendors. Once the transfers have been made, the cycle comes to an end.

Of course, economic reality is forcing companies to use increasingly modern tools to support the purchasing process. Many companies work with advanced IT systems. These support buyers in their day-to-day work - for example, they allow better preparation for purchasing negotiations. However, they also support managers when making key decisions for the company.

Read more about the effectiveness of S2P through digitisation at:

• Disrupted Category Management. Reconnecting again to business.
• Non-digitised purchasing vs. Industry 4.0

Eveneum supports merchants throughout the S2P process. Based on market best practice, we offer tailor-made solutions to achieve market advantages over competitors. Eveneum Strategic Sourcing Application [ESSA]. Includes S2P best practices for industry and high-tech industries. Feel free to contact us.

About the author:

• 

  Rafał Dados

  18 years of experience in project and strategic purchasing. For the last 10 years he has been co-owner of Eveneum, a company specialising in consultancy and training for purchasing in industries requiring relationship building and trust between partners. His speciality is supporting clients in project procurement and early engagement of suppliers and the procurement department in development work. He carries out projects such as contract negotiations, supplier searches and negotiating terms and conditions on behalf of clients. Speaker at national and international purchasing conferences. Lecturer in the purchasing faculty at the Jagiellonian University.

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