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Is Your Source to Contract Process Broken?

Source to Contract Process
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The source to contract process can often be hindered by disconnected instruments and overly manual procedures. The source-to-contract process, being the more strategic of sourcing & procurement, requires careful forethought and process optimization to ensure maximum savings, and optimal supply.

Unifying the end-to-end processes from supplier selection to contract administration is the key to moving forward by changing source-to-contract. Through workflow optimization, resilient and value-driven procurement can gain speed, control, and insights.

If you feel your S2C function is underperforming or has a few gaps, read on as we explore the ideal S2C process, and what it takes to master one.

Step 1: Sourcing Strategy Development

The first stage in this process is to identify organizational needs for direct – raw materials, inputs for core products, and indirect – misc. services, IT, or other indirect spending. Cost visibility by supplier/category is provided through spend analysis.

Based on timelines, costs, quality, reliableness, and other considerations, buyers choose the best sourcing strategy:

  • The RFI gathers basic information on supplier capabilities.
  • RFP promotes bidding competition for layered demands.
  • The price of commoditized purchases is compared in RFQs.

After determining the requirements and methods, procurement develops a strategy for locating, evaluating, and choosing suppliers that take into account market analysis, risk assessment, and selection criteria.

A strategic sourcing plan paves the way for strong supplier relationships that are in line with organizational priorities — from cost to quality to sustainability.

Step 2: Supplier Identification, Selection, and Negotiation

Any good sourcing strategy places a strong emphasis on locating competent suppliers and negotiating favorable contracts.

Making a list of suitable partners requires extensive study based on needs, databases, and previous performance. Pricing, quality, lead times, sustainability, risk considerations, and compatibility are some of the elements that these suppliers are assessed on.

Weighing both objective criteria, such as cost and delivery, and subjective ones, such as cultural fit, is necessary when narrowing down the pool of top suppliers. Prior to signing a contract, negotiations with shortlisted vendors are meant to obtain the best terms. Although price is important, talks also cover volumes, service levels, sustainability, and more.

Cost models and accurate benchmarking of spend offer valuable perspective. Clarity about compromises like lead time and quality is also beneficial. Deals that are built on trust and transparency result from an optimization mindset that is centered on win-win interactions. Thorough negotiation ensures that finalized contracts match organizational requirements.

Step 3: Contract Creation and Review

After talks, the provisions are recorded in a contract. Standard wording from templates is incorporated into the contract before specifics are established.

In a thorough review process, specialists examine the contract to find risks, check for accuracy, and confirm compliance.

A contract that is adequately constructed includes:

  • Clearly defined terminology that leaves no possibility for ambiguity
  • Service standards, performance KPIs, and quality benchmarks
  • Pricing plans and payment procedures
  • Intellectual property rights and liability provisions
  • Confidentiality, audit, and insurance requirements
  • Termination terms, expiration dates, and renewal choices

Relationships that are in line with expectations and risk tolerance depend on airtight contracts.

Step 4: Contract Approval and Execution

To ensure validity, the contract must go through approval protocols before being executed. According to the delegation matrix, department heads and leadership provide online or written permission. The process is sped up for faster completion with automated routing.

Following approvals, the agreement is then formally executed by all parties. To ensure that everyone understands the obligations, terms & conditions must be communicated both internally and externally.

Step 5: Contract Management and Compliance

The source-to-contract process continues after the contract is executed; careful monitoring and tracking of compliance are essential throughout the term of the contract. The supplier’s compliance with the terms, conditions, and service standards is ensured by ongoing monitoring. Analytics show areas of underperformance or external risk.

By storing contracts in a centralized repository with automated expiry/renewal alerts, handling alterations, amendments, and renewals is simplified. Workflows for developing corrective action plans are used to address disputes with suppliers.

Systems for compliance keep track of modifications to regulations and certifications to enable proactive risk mitigation. Regular audits determine how well value is delivered. Future agreements will take into account the learnings acquired. Compliance with obligations is ensured via non-compliance sanctions and termination procedures.

Step 6: Supplier Relationship Management and Performance Evaluation

The source-to-contract process encourages relationships based on common objectives, transparency, and trust. Collaboration on novel ideas, developments, and difficulties is made possible by regular communication.

Performance is regularly discussed, rather than simply at reviews, and agreed-upon KPIs like quality, cost, responsiveness, sustainability, and risks are used to monitor progress. Those who perform above expectations are recognized, while those who need to improve undergo root cause analyses and improvement plans.

Procurement commits to mutual learning and growth for shared success by linking supplier performance with business outcomes. Supplier networks are optimized for resilience through proactive relationship management and remedial guidance.

Market leaders are aware that suppliers have untapped capabilities. Contracts that capture criteria allow for the consistent delivery of value by energizing collaborations in engaged interactions.

Step 7: Risk Management

Suppliers are subject to risk profiling during the sourcing and selection process that takes into account their financial stability, compliance status, capacity for business continuity, and other aspects.

Contracts often contain clauses addressing liability, insurance, termination terms, and sanctions in order to cover identified risks. After contracts are signed, risks continue to be monitored through external data feeds on the market and financial red flags, legislative developments, and potential worldwide threats to suppliers.

Risk tolerance and cost are balanced by mitigation tactics such as buffer stockpiling, multiple sourcing, and contingency supplier onboarding. Rapid response is made possible by proactive planning for events like natural disasters, unstable political conditions, production delays, or bankruptcy.

A resilient source-to-contract depends on continuously increasing risk management capabilities as the world’s volatility increases.

Introspect

You’ve now had a detailed look at what a good S2C process looks like, from sourcing to risk management.

Each phase is essential in promoting adaptability, conformity, and synergistic relationships:

  • Aligns procurement with enterprise priorities through sourcing strategy
  • Prudent supplier selection builds strong supply networks
  • Contracting encapsulates partnerships at their core.
  • Thorough management and risk reduction prevent interruptions.

Major organizations, including Zycus’ Fortune 500 customers are deploying comprehensive source-to-contract suites to minimize costs and risks while accelerating processes. Comprehensive transparency is made possible by unified data and workflows, which enhance decision-making.

If you feel your source-to-contract process can use some overhauls, say yes to see how Zycus can help transform your S2C function!

Related Read:

  1. Linking Source-to-Contract & Procure-to-Pay
  2. Source-to-pay vs Procure-to-pay: A Guide
  3. Mastering Procurement: Demystifying Source to Contract (S2C)
  4. Your Guide to Source-to-Contract
  5. Streamlining Procurement: Source-to-Contract Best Practices Unveiled
  6. Decoding Procurement Jargon: Source to Contract vs Procure to Pay
  7. Beyond Cost Savings: The Hidden Benefits of Source to Contract Automation
  8. Research Report – Forrester’s Overview Of 30 CLM Vendors – Now Tech: Contract Lifecycle Management
  9. Mastering Procurement: Demystifying Source to Contract (S2C)
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