In order for procurement teams to source the best quality, maximize benefits, and improve cost savings, sourcing and purchasing need to be managed effectively.
In this post, we’ll highlight the differences between source-to-pay and procure-to-pay, how they support the procurement process, and how process automation can help digitize and integrate S2P and P2P functions to improve the efficiency of your procurement team.
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What is source-to-pay (S2P)?
Sourcing is a key function within procurement, and it ensures that procurement teams find quality suppliers that don’t break the bank and are compliant with business standards and needs. The source-to-pay process includes activities like:
- Selecting and negotiating with suppliers
- Managing supplier and vendor information
- Performance and spend management
This process often involves software to automate repetitive or manual steps for better communication between internal and external collaborators, data accuracy, and process efficiency.
What is procure-to-pay (P2P)?
The procure-to-pay process is what weaves the purchasing department with the accounts payable department to complete payment for sourced goods and services. The P2P process includes steps like:
- Enforcing compliance
- Preparing and submitting purchase orders from approved purchase requisitions
- Receiving and reconciling vendor and supplier invoices
- Paying for sourced goods or services
This process often involves procure-to-pay software solutions to streamline and centralize processes, important information, and approvals to minimize delays, errors, and potential risks that could negatively impact an organization.
Difference between source-to-pay and procure-to-pay
To best understand the key differences between these two workflows, let’s zoom out and take a wider look at how they fall within the bigger picture of procurement.
Procurement is a strategic process used to fulfill the 5 Rights: obtaining the right quantity of products/services from the right place at the right price with the right quality and delivered at the right time.
To do so, purchasing needs to be woven into the overall procurement cycle to ensure that the best goods/services, value, and cost are sourced, negotiated, and acquired. That’s where S2P and P2P come in. Below is an illustration of how source-to-pay and procure-to-pay support and connect steps in the overall procurement cycle.
Within this larger process, source-to-pay includes steps related to sourcing, like spend and category management, and any step with information that may inform sourcing. Procure-to-pay includes generating purchase orders, receiving, processing and reconciling invoices, and issuing payments.
Which process model is the best?
Both models serve different purposes and provide different benefits and procurement team needs will vary, so deciding which process model is best isn’t black and white. However, there are some common disadvantages that teams face with each process model that can overshadow the benefits.
| Source-to-pay model | Procure-to-pay model | |
|---|---|---|
| Purpose | – Holistic end-to-end approach to strategic sourcing and management – Identifies best suppliers/vendors for goods and services – Improves compliance and payment accuracy | – Focused on integrating purchasing and accounts payable – Improves compliance and payment accuracy |
| Advantages | – Improves compliance – Increases overall costs savings for business – Greater control and visibility over spend management – Ideal for more complex sourcing needs | – Eliminates manual invoice processing errors – Visibility into spending Ideal for simpler sourcing needs |
| Disadvantages | – High cost of software or solution implementation – May be difficult to customize | – High cost of software or solution implementation – Lack of supplier control |
Can S2P and P2P be used together?
Yes. In fact, it’s ideal for both to exist as formal processes within the larger procurement management model. That’s because both serve as additional layers of security and visibility for procurement and purchasing teams.
Source-to-pay achieves that by informing the strategic sourcing process and leading to more effective negotiation between buyers and vendors/suppliers and identifying savings opportunities. The primary purpose of purchase-to-pay is to integrate the purchasing and accounts payable to streamline the invoicing process and eliminate payment errors.
However, for some teams, the solution may not be two formal processes. Instead, the solution may be developing a hybrid source-to-pay and procure-to-pay process for better control over suppliers and spending without redundancy or invisible inefficiencies.
No matter the approach, the answer is a resounding yes. S2P and P2P can be used together and can be maximized with the right software.
What you need to know about the strengths and limitations of each of the major automation options available today Buyer’s Guide to Automation Platforms
Benefits of automating S2P and P2P
ProcureCon’s 2022 CPO Study reports that the 10 key areas chief procurement officers are currently focused on in the next 12 months are:
- Process improvement (39%)
- Minimizing supply chain disruption (38%)
- Improving sustainability (34%)
- Mitigating the effects of inflation (32%)
- Technology implementation or transformation (29%)
- Improving alignment with business stakeholders (29%)
- Improving supplier performance or supplier management (28%)
- Delivering bottom-line savings (27%)
- Adding headcount or filling open positions (25%)
- Upskilling current team (19%)
However, when it comes to implementing solutions for these focus areas, CPOs consider change management a significant (39%) or somewhat of a challenge (20%).
The solution? A flexible and customizable low-code automation solution that can bridge the gaps within procurement and centralize the processes, people, systems, and tools involved throughout related processes.
In addition to resolving barriers to adoption (like high implementation costs), and maximizing benefits (like operating more efficiently), process automation software can digitally transform manual and bureaucratic workflows into more integrated and intuitive processes. Here’s how:
| Processes before | Processes after |
|---|---|
| Disconnected and siloed processes | Integrated and centralized processes for silo-free collaboration |
| Manual and repetitive tasks introduce human error and create redundancies | Manual tasks are automated, which saves time, improves communication, and reduces the chance of missing payments |
| Information and documents, like invoices and contracts, are difficult to track and require manual processing | Control and visibility across all procurement-related processes and document management |
| Lack of visibility into process, supplier, and financial performance | Better strategic sourcing, finance, compliance, and risk management |
| Financial losses and strained supplier/vendor relationships due to errors or delayed/missed payments | Improved supplier relationships, faster request cycles, lower implementation costs, and quick deployment |
Pipefy: The end-to-end P2P solution
Pipefy helps businesses deliver value by centralizing and streamlining the processes, people, systems, and tools used to fulfill requests, approvals, and payments.
Processes are integrated into a single platform to create fluid and agile collaboration, not rigid parameters. The back and forth between numerous tools is eliminated, in addition to the time-consuming redundancies, inefficiencies, and errors that can lead to strained supplier relationships and financial losses for the business.
