Assessing Solutions: Source to Pay vs Procure to Pay
- Posted by: David Watters
- Category: Best Practices
Businesses are inundated with technology solutions that claim to solve a range of different problems with finance and procurement functions a strong focus for solution providers hoping to help automate and connect usually disparate processes. The evolution of technology solutions for finance and procurement operations has shifted from focussing on invoice processing, (through accounts payable automation), to the procure to pay process to more recently the whole Source to Pay lifecycle. For business leaders looking to improve their operational efficiency in how they buy and pay for goods and services, it can be a bit of challenge to know what scope they should be looking at.
To help business leaders identify the right scope, we take a deep dive into assessing Source to Pay Solutions vs Procure to Pay solutions focusing on the value that those solutions should be driving and who they are most suited towards.
What does Source to Pay mean?
First things first, let’s get some definitions out there so we can be clear on how it all fits together. The best way to highlight the differences between source to pay and procure to pay is to consider the whole lifecycle.
The process flow below highlights the full Source to Pay lifecycle which goes all the way back to how goods/services are sourced, bidded for and ultimately contracted for. The Procure to Pay lifecycle (highlighted in red) looks at how goods/services are ordered and then paid for from a supplier.
What Value should Procure to Pay solutions deliver?
Procure to pay solutions are focussed on ensuring that the process to order goods/services is as straightforward as possible and that the relevant ordering information is linked to the corresponding invoice automating both the coding and approval of the invoice. Procure to pay solutions should be delivering value in the following ways, for example:
- Greater cost control: Reduces maverick and non essential business spend through the requirement of purchase orders helping to ensure spend is managed prior to any commitments being made to suppliers.
- Increased compliance and risk mitigation: Invoices are matched to approved purchase orders ensuring that spend is pre-approved with a full digital audit trail.
- Visibility over spend: utilising purchase orders should enable you to be able to run highly detailed, on-demand spend analysis reports to identify where you are spending your money and highlight any areas for cost improvements or supplier consolidation.
- Lower your cost of processing an invoice: procure to pay automation can help free up staff from manual data entry tasks and, through purchase order matching, streamline the invoice coding and approval process as well. These efficiencies combined can lower your costs to process each invoice saving you money.
- Greater visibility over upcoming liabilities: through digitized pre-approval of spend you can run on-demand reports to understand the impact on your cash flow to aid with financial decision-making and forecasting.
- Drive your procurement policies: through a seamless user experience and rules embedded into the purchasing experience you can ensure adherence to your procurement policies and push compliance with preferred vendors.
What Value should Source to Pay solutions deliver then?
In terms of driving real cost savings and improved supplier relationships – quite a bit. Procurement is at its most powerful in an organsiation when they have access to high quality spend and supplier data on-demand. This is where Source to pay solutions really deliver value, for example:
- Connect contract activities to spend – one of the biggest challenges that procurement professionals have is tracking spend against a contract, with an integrated source to pay solution that can hold the contract information and then link spend to that contract, procurement professionals have access to this data easily.
- Continuously building data driven insights – with your sourcing and contracting activities connected to your procure to pay activities you can effectively run real time reports on spend for a category to inform a sourcing event and negotiate the best price. Once this contract is executed you can track spend against that contract to ensure volume discounts are achieved and in the future the data can feed into future sourcing events.
- A single source of truth for business spend management – source to pay solutions ensure that you have, in one place, a full view of where your organisatons is spending their money and manage relationships with their suppliers. Removing the need for multiple repositories of data and information
- Simplifying contract administration – when are contracts due for renewal? What risks do your contracts pose for your organisation? Where are your contracts actually held? Whilst they sound like basic questions, source to pay solutions provide an effective way to reduce the manual workload in contract administration with automated reminders and extensive metadata search capabilities.
Should I be considering a Source to Pay or Procure to Pay Solution?
Like with most complex questions the answer is not straightforward. To get a complete answer for your organisation you should be undertaking a review of what you are doing at the moment, where the main levers of value can be utilised and where your organization’s biggest risks lie. This will help you understand whether looking at Source to Pay or Procure to Pay solutions is best for you. Typically we find that organisations that fulfil more than one of the following should probably be looking at Source to Pay as opposed to Procure to Pay:
- Large, diverse supplier base
- Business model that is heavily reliant on a stable supply chain
- Large contract database
- Business model that may require demand for new good/services not part of their current supply chain
- A need to locate greater savings, lower risk or raise productivity by adding new vendors to their supply chain
We have helped over 70 organisations automate, optimise and transform their source to pay operations and understand that a cookie cutter approach doesn’t work. Contact us today to organise an obligation free consultation: https://www.valtatech.com/advisory/
Benchmark your finance and procurement operations with our free online tool. Head to https://www.valtatech.com/best-practises/finance-and-procurement-benchmark/ to access the assessment.