Procure-to-Pay (P2P) and Source-to-Pay (S2P) are not just fancy acronyms used by consultants, procurement and finance professionals. Behind these terms are whole concepts of processes that manage how goods and services in your business are requested, sourced, received and paid.
There are an increasing number of P2P and S2P technology solutions providers on the market. This reflects the increasing digitisation trend in procurement to manage both operational and strategic processes more effectively.
Table of Contents
- What is P2P in Procurement?
- Is P2P the same as S2P?
- What is the difference between P2P and S2P?
- How does S2P in Procurement add more value?
- What steps are involved in Source-to-Pay?
- Key advantages of using Procure-to-Pay and Source-to-Pay technology
- Hard Cost Savings
- Value Drivers
- Possible Disadvantages of using P2P and S2P software
- Can you combine P2P and S2P in procurement software?
- What’s the best S2P or P2P software for mid-market and SMEs?
What is P2P in procurement?
P2P refers to the Procure-to-Pay process, not to the technology itself. We’ll cover the plethora of software solutions available to handle the entire P2P process or its specific steps later.
The digital P2P process provides intelligent transaction automation between your company, suppliers and their receipt of payments. It begins when you requisition goods or services, and ends with the payment transaction.
In North America and Western Europe, P2P was a manual process until the early 1990s and was done on paper entirely. Gradually, its components were transferred online thanks to digital transformation.
One of the first things to be digitised was the transfer of money from customer to supplier, via bank transfer. Then, with the growing popularity of Enterprise Resource Planning (ERP) systems such as SAP and Oracle during the late 1990s and early 2000s, converting requisitions into purchase orders (POs) was done electronically. Email then gradually replaced the fax machine to transmit POs and invoices. And now, the early adopters are using technology to automate much of the P2P process.
Is P2P the same as S2P?
The answer is no: P2P and S2P are not the same and definitely can’t be used as synonyms.
However, procure-to-pay is definitely a subcomponent of the entire source-to-pay process. P2P forms the later (or “downstream”, to use consultant jargon) stages of the S2P procurement process.
The key difference is that S2P includes the important stage of strategic sourcing, which is performed before you. place orders for any goods and services from a vendor. Industry jargon refers to sourcing and the negotiation of terms and conditions as the “upstream” part of the process.
It enables:
- Building stronger relationships with your key suppliers
- Competitive bidding, which optimises cost
- Evaluating non-price factors important to your organisational objectives e.g. quality, lead time, sustainability
- Performing the appropriate pre-qualification of suppliers. This can include more detailed audit and due diligence processes, especially on critical suppliers
- Through using S2P software, it ensures your proposals are received in the same format.
- Improvements to end-to-end supply chain efficiency.
- Negotiation of terms and conditions, without the need to imminently issue a PO as is the case in more transactional processes.
Contracts are usually not covered by S2P technology platforms. We covered the difference between S2P and S2C (Source-to-Contract) in a separate article.
What is the difference P2P and S2P?
The main difference between P2P and S2P is the complexity and added value of the tasks being performed.
The P2P process deals predominantly with administrative purchasing tasks.
This part is about building process excellence and automation across your organisation. The goal is usually to develop the most efficient transactional procurement operations. This is usually achieved by reducing the number of manual touch points and implementing technology to automate any non-value added tasks.
P2P technology, when designed well, can improve user experience. It should enable your stakeholders to fulfil their needs, with a minimal amount of contact with your operational procurement team.
This in turn frees up your team members to concentrate on activities that drive more value. Eliminating this “busy work” from their email inbox means that they can focus on your organisation’s more strategic objectives.
High volume of emails between requisitioners, purchasing and accounts teams would be considered waste if it were a manufacturing process. For non-complex purchases, implementation of technology to digitise this is a logical first step.
The next step is using automation to increase P2P digitisation and efficiency to a more advanced level.
Examples of this are:
- Robotic process automation (RPA) in the requisition-to-PO process
- Optical character recognition (OCR) to perform three-way invoice matching in accounts payable automation.
How does S2P in Procurement add more value?
The sourcing step in the S2P procurement process can focus on the more strategic procurement side of things.
Depending on the complexity and features of the tool, S2P technology can either be a simple operational sourcing requirement such as an RFQ (request for quote) module, or a more complex strategic sourcing module.
Some of the more advanced procurement software offering source-to-pay functionality can also provide:
- Reverse auction capability, with complex functionality for bid and proposal evaluation criteria.
- Supplier qualification / onboarding module which contains a vendor master data management portal
- Integration with external, third party data for variables such as commodity pricing, ESG scores, credit checks, financial health and so on.
What steps are involved in Source-to-Pay?
Key advantages of using Procure-to-Pay and Source-to-Pay technology
Each procurement software solution has its own advantages and disadvantages. These must be taken into account in order to save time and reduce costs. Nonetheless, these are the main advantages of using P2P and S2P software:
Hard Cost Savings
Reduction in maverick spend
Overall costs in the P2P process are reduced thanks to improvements in cost analysis capabilities. This is due to spend and supplier data being consolidated in one single system.
In addition, a more user-friendly interface will result in stakeholders wanting to use the system. Previously, they would instead try to bypass a bureaucratic process or a clunky ERP system.
Channelling spend through preferred vendors
Stakeholders should define the specification or what it is that they want to buy, but then Procurement should be responsible for sourcing it.
Having P2P software in place means that the requisitioner can be guided towards preferred suppliers with negotiated pricing and terms, rather than doing their own thing.
Reduction in manual processing
Automation and digitisation of the procure-to-pay process significantly reduces the number of human errors and incorrect data in the system. It also digitises and automates steps which previously required human input.
This in turn can reduce the headcount needed to perform administrative tasks.
Speeding up the supplier intake process
It usually takes several days to collect the necessary data. Source-to-Pay tools reduce the time for supplier onboarding through the elimination of email and Excel-based processes. Quicker onboarding of suppliers can mean faster delivery of projects that deliver bottom-line value.
Cleaner data and better analytics
With a P2P automation software, you will create a large-scale digital repository. All orders go through a streamlined approval and confirmation process, before they are sent to the supplier.
Your buyers, financial controllers and cost centre owners can easily track the history of all previous orders from any supplier or against any single cost centre.
Value Drivers
New opportunities for cooperation with suppliers
With s2P software, a sourcing module may help to discover new potential vendors, or uncover additional categories of spend that existing, incumbent suppliers are able to serve.
End-to-end supply chain visibility ensures more synergy in cooperation. The buyer matches all transaction data with a single click, and the supplier can access the status of their invoices via an online portal.
Efficient supplier management
Each contractor has its own working conditions, individual schedule, etc. It makes it difficult to navigate through multiple suppliers. In conditions of turnover, effective management of the life cycle of contracts becomes very problematic.
More resources to spend on strategic tasks
Robotic process automation (RPA) works continuously. It relieves your procurement department of routine tasks. Using the S2P concept, they can focus on important strategic tasks, for example, planning, performance analysis and non-standard procurements with complex requirements.
Possible Disadvantages of using P2P and S2P Software
Potential disadvantages of digitisation in P2P and S2P can include the following. All of them can be avoided with both adequate preparation, and ensuring that you select an agile, user-friendly digital P2P or S2P tool:
High implementation costs
The more complex the software, usually the higher the cost of implementation. Simplicity is key here. You’ll often see a faster ROI with less complex software.
Long implementation period
This is primarily due to the need for preparation and an effective change management strategy. You should see it as an investment, not a cost. The positive result is then obvious. However, some systems certainly require much longer to implement than others.
You can implement the most user-friendly and agile systems in weeks, rather than months or years.
Poor data as a cause of failure
Messy data is the elephant in the room that you can’t ignore. And while software can help to drive a S2P or P2P transformation, it will be a whole lot tougher with dirty data.
Pursuing digital transformation before fixing your data problem is like putting the cart before the horse. Yes, digitisation can help to optimise and improve your data over time. But don’t expect to feed garbage into the system and get coherent analytics out the other end without cleaning up your data first.
Lack of cross-functional buy-in
Implementation of the S2P process may fall under the responsibility of different teams within your organisation. These teams have different business goals. When considered individually, each step works perfectly, but the smooth cooperation between the various parties can be difficult.
Having a board level sponsor, usually the CFO or COO, is absolutely key to ensuring success.
Can you combine P2P and S2P in procurement software?
Yes!
Although there is a distinct difference between P2P and S2P, you can take advantage of both models.
More complex purchases can be made through the S2P process, using a sourcing module. For example, those that require a more careful or diligent selection process when it comes to selecting a supplier.
You can carry out the rest of the purchases that are more transactional in nature using the P2P process.
Selecting a simple, user-friendly and intuitive system is a key component of a successful digital transformation project. This is especially the case in mid-market businesses, where there often isn’t a mature procurement function.
However, it is important to remember that your success or failure with the implementation of any procurement technology is always determined by its users. Without a proper change management processes such as training, ongoing communication and operational support, your stakeholders may sabotage the new concept.
What’s the best S2P or P2P software for mid-market and SMEs?
If you’re at the start of your journey and are looking for an overview of source-to-pay and procure-to-pay software providers that support mid-market businesses, then contact us and let’s have a chat.
You can also search and filter on our website for all of the different S2P and P2P solutions that are specifically targeted at SMEs and mid-market businesses rather than large corporates.
We can give you a solid understanding of who the players are and how they stack up against each other. There are many factors you should consider when selecting the right procurement software provider.
Don’t fall into the perceived safe option of purchasing a legacy brand suite that was designed to serve enterprise customers.
It will not only cost you a fortune in consultancy for the implementation. It will also take 3 or 4 times longer to implement than an agile solution designed for mid-market businesses with smaller procurement teams.
