Source-to-Pay vs Procure-to-Pay: What you need to know

In the realm of procurement and supply chain management, two processes often take center stage: Source-to-Pay (S2P) and Procure-to-Pay (P2P). While these terms may sound similar, they represent distinct approaches to managing the procurement lifecycle. Understanding the nuances between these two processes is crucial for organizations seeking to optimize their procurement operations, achieve cost savings and foster strategic supplier relationships.

Source-to-Pay (S2P) meaning

Source-to-Pay (S2P) is a comprehensive, end-to-end process that encompasses the entire procurement lifecycle, from identifying the need for goods or services to making the final payment to suppliers. It is a holistic approach that integrates strategic sourcing activities, such as supplier identification, evaluation and selection, with the traditional procure-to-pay process.

The S2P process typically involves the following key steps:

1. Needs identification: Determining the requirements for goods or services and defining specifications.
2. Sourcing: Conducting market research, identifying potential suppliers and soliciting proposals or bids.
3. Supplier evaluation and selection: Assessing potential suppliers based on criteria such as pricing, quality, reliability and compliance.
4. Contract negotiation and authoring: Formalizing the terms and conditions of the supply arrangement, including pricing, delivery schedules and other requirements.
5. Procurement and ordering: Creating and approving purchase orders and placing orders with the selected supplier.
6. Receiving and inspection: Verifying that the received goods or services meet the specified requirements.
7. Invoice processing and reconciliation: Processing and verifying supplier invoices, ensuring alignment with purchase orders and contract terms.
8. Payment processing: Approving and processing payments to the supplier.

Throughout the S2P process, data is collected and analyzed to optimize future sourcing decisions, procurement strategies and supplier relationships. Effective S2P management helps organizations optimize spending, enhance supplier relationships and improve overall procurement performance.

What is Procure-to-Pay (P2P)?

Procure-to-Pay (P2P) is a specific subset of the broader S2P process, focusing primarily on the transactional aspects of procurement. It encompasses the activities involved in ordering, receiving and paying for goods and services once suppliers have been identified and contracts have been established.

The P2P process typically includes the following steps:

1. Requisition: Creating a purchase requisition that outlines the required items, quantities and purpose of the purchase.
2. Approval: Reviewing and approving the requisition to ensure compliance with budgets, policies and organizational needs.
3. Purchase order creation: Generating an official purchase order that details the specifics of the order, such as product descriptions, quantities, prices and delivery dates.
4. Order fulfillment: The supplier acknowledges the purchase order and delivers the requested goods or services.
5. Receiving and inspection: Verifying that the received goods or services match the purchase order and contract terms.
6. Invoice processing and reconciliation: Processing and verifying supplier invoices, ensuring alignment with purchase orders and contract terms.
7. Payment processing: Approving and processing payments to the supplier.
8. Record keeping: Maintaining accurate records of all transactions for accounting and auditing purposes.

The P2P process is critical for ensuring efficient and cost-effective procurement while maintaining compliance with company policies and external regulations. It involves close coordination between procurement, finance and receiving departments.

What’s the difference between Source-to-Pay and Procure-to-Pay?

While S2P and P2P are closely related and share some overlapping elements, they differ in scope and focus in five key ways:

1. Strategic vs. transactional: S2P adopts a strategic approach by integrating sourcing activities, supplier management and cost optimization strategies. In contrast, P2P focuses primarily on the transactional aspects of procurement, such as ordering, receiving and paying for goods and services.
2. Scope: S2P encompasses the entire procurement lifecycle, from identifying needs to making final payments. P2P, on the other hand, is a subset of S2P, concentrating on the latter stages of the procurement process, starting from the creation of purchase requisitions.
3. Supplier management: S2P involves proactive supplier identification, evaluation and selection, as well as ongoing supplier relationship management. P2P typically assumes that suppliers have already been identified and contracts have been established.
4. Cost optimization: S2P provides opportunities for cost optimization through strategic sourcing, supplier negotiations and spend analysis. P2P focuses more on process efficiency and compliance with established contracts and pricing agreements.
5. Data and analytics: S2P generates and leverages data throughout the entire procurement lifecycle, enabling organizations to make informed decisions and optimize future sourcing strategies. P2P primarily utilizes data for transactional purposes, such as invoice reconciliation and payment processing.

Benefits of implementing a Source-to-Pay solution over Procure-to-Pay

Implementing a Source-to-Pay (S2P) solution offers numerous advantages over the traditional Procure-to-Pay (P2P) process. What do those look like?

• Comprehensive spend management: S2P solutions provide a holistic view of the entire procurement lifecycle, from sourcing to payment. This comprehensive approach allows organizations to manage their spend more effectively by integrating strategic sourcing with transactional procurement activities. The result is better control over procurement processes and enhanced visibility into spending patterns.
• Enhanced supplier management: S2P solutions facilitate better supplier management by incorporating supplier onboarding, evaluation and performance monitoring into the procurement process. This ensures that organizations can build and maintain strong relationships with their suppliers, leading to improved supplier performance and reduced supply chain risks.
• Cost savings: By integrating strategic sourcing activities, S2P solutions enable organizations to negotiate better prices and payment terms with suppliers. This leads to significant cost savings through optimized procurement strategies, reduced maverick spending, and more competitive bids from potential suppliers. See how we saved one manufacturing giant 27% on sourcing. 
• Improved compliance: S2P solutions enhance regulatory, procedural and contractual compliance by automating compliance checks and ensuring adherence to established procurement policies. This reduces the risk of non-compliance and associated penalties, while also improving overall procurement governance.
• Streamlined processes and increased efficiency: S2P solutions automate and streamline various procurement processes, from supplier selection and contract management to purchase order creation and invoice processing. This reduces manual effort, minimizes errors and speeds up procurement cycles, leading to increased efficiency and productivity.
• Better data and analytics: S2P solutions provide real-time data and analytics capabilities, enabling organizations to make informed decisions based on accurate and up-to-date information. This includes spend analysis, supplier performance evaluation and forecasting, which help optimize procurement strategies and improve overall procurement performance.
• Enhanced collaboration and communication: This source-to-pay process facilitates better collaboration and communication among all stakeholders in the procurement process, including procurement teams, suppliers and other business partners. This leads to improved transparency, trust and coordination, resulting in more effective procurement operations.
• Risk mitigation: S2P solutions help mitigate procurement risks by providing tools for supplier risk assessment and management. This includes evaluating suppliers against key performance indicators (KPIs) and benchmarks, ensuring that suppliers meet quality, delivery and compliance standards.

Source-to-Pay platform from DSSI

DSSI offers a comprehensive Source-to-Pay solution with end-to-end transaction processing capabilities supported by our web-based eProcurement system, Epic®.

DSSI's Source-to-Pay platform includes the following key features and benefits:

• Rapid implementation: We understand that speed is key for procurement leaders. We ensure a rapid enterprise-wide implementation, with the first client facility fully supported within eight weeks, and subsequent facilities implemented in six to eight-week intervals, depending on the complexity of purchasing requirements.
• Baseline measurement and performance tracking: We establish baseline prices for items and services, set process performance objectives and track program-related savings and improvements, working closely with your finance and accounting teams.
• Sourcing and catalog management: Our experienced category managers maintain daily interactions with clients and suppliers to identify new purchasing requirements, process requests for quotes (RFQs) and manage catalog content updates.
• eProcurement platform: DSSI's Epic® platform provides: 
  • Electronic requisition processing
  • Automated approval routing
  • Location-level cost savings tracking
  • Local part number storage
  • Supplier performance management
  • Urgent order support
  • Budget tracking
  • Supplier order acknowledgment
  • Delivery follow-up
  • Invoice consolidation
  • Flexible invoice presentation methods
• Performance management and reporting: We offer real-time and extensive reporting on various aspects of the procurement process, including user spend, program compliance, purchasing process performance and supplier performance, enabling clients to set explicit goals and monitor progress.
• Procurement support services: DSSI provides on-site and shared service center resources to support daily purchasing requirements, such as requirements gathering, requisition processing, RFQ and spot buy processing, supplier performance management, delivery follow-up, receipting and supplier management.

By leveraging DSSI's Source-to-Pay solution, organizations can streamline their procure-to-pay processes, achieve cost savings, improve compliance and enhance overall procurement efficiency.

While Source-to-Pay (S2P) and Procure-to-Pay (P2P) are related concepts, they represent distinct approaches to managing the procurement lifecycle. S2P adopts a strategic, end-to-end perspective, encompassing sourcing, supplier management and cost optimization strategies. In contrast, P2P focuses on the transactional aspects of procurement, such as ordering, receiving and paying for goods and services. 

By understanding the differences between these two processes, organizations can make informed decisions and implement the most appropriate approach to optimize their procurement operations and achieve their desired outcomes.