Source-To-Pay Vs Procure To-Pay: A Comparative Analysis

Are you searching “Source-To-Pay Vs Procure To-Pay” and want to know the similarities and differences between these two concepts? Then you are at the right place. In this article, you will get information about them in detail. So, keep reading…

There are a variety of tactics and solutions to consider when firms want to digitize their procurement and accounts payment operation.

Every passing year appears to bring new concepts to learn and technology to grasp in procurement, as it does in so many other industries undergoing digital disruption. Companies that wish to achieve or maintain a competitive edge, as well as profitability and servings, must keep up with the latest and greatest in not only technology but also business processes. One such innovation currently captivating procurement organizations around the world is source-to-pay (S2P), an extension of the traditional procure-to-pay (P2P) model.

Promising greater spend efficiency and efficacy while reducing costs, source-to-pay holds significant promises as a new way to streamline all aspects of the procurement process. 

Many organizations are turning to source-to-pay in addition to procure-to-pay to improve efficiency while lowering costs.

 Source-To-Pay Vs Procure-To-Pay

But what are the distinctions between Source-To-Pay Vs Procure To-Pay? And which model is the most appropriate for your company? In our most recent guide, let’s delve further.

What is Source-to-Pay?

The process of selecting a supplier and completing all of their payments is known as source-to-pay (S2P). The process starts with unique sourcing tactics to find the company’s best products and services.

In many businesses, S2P operations are required to keep things going properly. The procurement section is in charge of procurement quality. The department has to select the best supplier, negotiate contracts, reduce costs, and streamline the purchasing process.

The Source-to-pay process flows as following

  • Demand: There is a need for a new product or service.
  • Sourcing: Potential vendors are identified and evaluated based on the factors such as current market trends, historic spend, and organizational goals for product development.
  • Bid preparation: All relevant documentation is prepared, reviewed, and approved for distribution.
  • Bidding: Suppliers are invited to submit the required bid.
  • Review and reward:  Potential candidates are reviewed for suitability and the winner is chosen. A purchase order is created for the supplier.
  • Contract Negotiation and management: The buyer negotiates with the preferred vendor to establish optimal contract terms and pricing.  
  • Creation and approval of the contract: The contract is created based on the agreement between both parties. The contract is then reviewed by both parties and signed.
  • Procure-to-pay: The P2P process is then carried out as normal, with optimal pricing and payment terms for goods and services required.

What is Procure-to-pay?

Procure-to-pay is the process of connecting purchasing and accounts payable systems to improve efficiency. It is part of a wider procurement management process that has five stages, namely

  • Selecting products and services: A member of the procurement team recognizes the need for goods and begins the process to obtain them.
  • Requisition: A purchase requisition is created, reviewed, and approved. The pre-approved vendors are ordered for a specific product or service that best suits their pricing and payment terms.
  • Purchase order: Then, a purchase order is sent to the corresponding vendor, which becomes a legal contract once accepted.
  • Receiving and reconciliation: The order is received and cross-matched to the corresponding purchase order.
  • Invoicing and payment: The vendor’s invoice is obtained and checked against the purchase order. The accounting team issues payment and updates the accounting records to reflect the transfer of payment in exchange for goods or services.

For commodities and services that have already been optimally sourced and whose vendors have master data files in the buyer’s procurement system, the procure-to-pay procedure works well.

The procure-to-pay stresses on the cost-saving and value generation from the following

  • Master data management on a cloud-based server, which provides real-time insight.
  • Improved invoice processing efficiency and reduced purchase order cycle times.
  • Process automation, entire transactional data transparency, and on-demand expenditure analysis allow streamlined, value-focused spend management.
  • Better decision-making and forecasting, as well as total spend visibility, improved cash flow, and access to working capital.

Now let’s discuss Source-To-Pay Vs Procure To-Pay in detail.

Comparison between Source-To-Pay Vs Procure To-Pay

A source-to-pay procedure is a more thorough and efficient variant of a procure-to-pay model. While most procure-to-pay systems start with assessing particular needs and presenting administrative requisitions, the source-to-pay takes a step further by including a higher-level component into the procurement process.

The procure-to-pay process normally starts with a request for services and goods and culminates with payment to the supplier by the account management team. Source-to-pay begins with the sourcing of commodities, which is one step ahead of procure-to-pay.

With source-to-pay, strategic sourcing becomes a part of the process, ensuring that the best vendors are selected, and deals are negotiated with them. Internal controls are also assessed from source-to-pay. As a result of this analysis, internal controls are improved, supply chain efficiency is enhanced, and vendor relationship management is simplified. It offers a more comprehensive spend management solution.

The S2P process promotes value, efficiency, and continual improvement in the same way that the P2P process does, but it also adds contract management and strategic sourcing to get the most out of vendors.

The procure-to-pay procedure works well for commodities and services that have already been optimally sourced and whose vendors have master data files in the buyer’s procurement system. However, in circumstances where a need is identified, but a country lacks a reliable source for the goods and services required, the source-to-pay procedure might be useful.

Source-to-pay is ideal when a company needs to identify some new potential vendors to meet demands for new raw materials, finished goods, or services that fall outside their existing supply chain to locate greater savings, less risk, and higher productivity by adding new vendors to their supply chain.

Rather than existing as a separate process distinct from procure-to-pay, source-to-pay can be considered as a prelude to it.

Modern procure-to-pay use tools like procurement incorporate sourcing tools to introduce process automation, efficiency, and accuracy improvements across the entire procurement function. While the source-to-pay benefits from using eProcurement software that supports supply chain management and vendor relationship management.

Let’s Sum Up

After analyzing Source-To-Pay Vs Procure-To-Pay, we believe in an integrated source-to-pay network mindset that allows ideal solutions and various manufacturers to coexist and connect, all while benefiting from our comprehensive, seamless integration and decent foundation.

Also Read:
9 Best Supplier Relationship Management Examples
8 Amazing Benefits Of Using a Staffing Agency to Find a Job

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