The Difference Between Source-to-pay And Procure-to-pay

Procurement has been seeing some digital disruption just like any other field. You will get to see new terms and technologies about the field introduced. If your company wants to remain competitive, you will have to adapt to these new technologies, or else you will lag behind. 

The most interesting invention in the field is source-to-pay, an “enhancement” of the traditional procure-to-pay. Is there a difference? And, is one method better than the other? We are here to answer all of your questions. Here is the difference between source-to-pay and procure-to-pay.

Procure-to-pay

Procure-to-pay, also known as purchase-to-pay, uses modern software to perform its functions. Tools like procurement solutions, enterprise resource planning(ERP) software, and procurement spend analysis software improves the efficiency and accuracy of the entire procurement process. Here is the workflow of procure-to-pay:

• Demand

This step may be the most basic one, but it is the most important as well. You need to recognize the need for some product or service to maximize your profit.

• Requisition

Initially, a purchase requisition is made and then it is reviewed and approved by the company. A purchase requisition is basically a document used by employees to purchase goods or services on your firm’s behalf. Most companies use some eProcurement solution to buy goods and services on good pricing from a pre-approved set of vendors.

• Purchase order

The PO or purchase order is made after the purchase requisition is approved. The order is yet again reviewed and approved. After being approved, the purchase is made and the order is sent to vendors and the contract is made official.

• Reviewing the goods and services

After receiving the goods and services from the vendor, they are quality checked and also cross-matched to the corresponding purchase order.

• Invoice

After the vendor sends the invoice for the order, it is yet again cross-referenced with the purchase order. Any exceptions are noted and dealt with.

• Payment

The accounting team of your company issues the payment and updates the account to reflect the purchase.

Source-to-pay

Source-to-pay does not exist as a different process from procure-to-pay. Some of the steps in S2P are very similar and it benefits from the same software that supports P2P. Source-to-pay adds a strategic sourcing part to the process rather than directly moving on to the requisition part. Here is how S2P works:

• Demand

It is the same as in P2P.

• Sourcing

The data on current market trends, historic spend, and goals of the organization is analyzed for product development. After analyzing the data, potential vendors are identified. After evaluating the candidates, promising ones are kept in the collection of vendor master data

• Bidding

Initially, all “request for” or “RFx” documentation is prepared, evaluated, and approved. After this, suppliers are asked to submit their respective bids.

• Reviewing

A winner is chosen depending on its review and depending on what’s required a purchase order or contract is created.

• Contract creation

After reaching an agreement on all the terms, an official contract is created. This is reviewed by both parties for any corrections and then signed.

• P2P

After all of the above steps, the procure-to-pay process can be executed.

When we add the first 5 steps, it provides value in the form of optimization. You can easily collect insights from the collected data and perform vendor evaluations on it as well. All and all, S2P is not that a distinct process from P2P; it adds a few steps to the process to make it more efficient.