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Your Guide to Source-to-Contract

Guide to source-to-contract
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What is Source to Contract

“source-to-contract” (S2C) refers to a sourcing strategy that collates procurement process of sourcing products and services from suppliers. It is end to end sourcing strategy that tries to optimize the procurement process.
S2C starts from aligning sourcing decisions with an organization’s strategic objectives. This helps to cut costs, build relationships with suppliers, and increase overall effectiveness.

S2C is highly relevant part of procurement process that is critical to shortlist the right suppliers.
Finding suppliers, creating, and implementing a strategic sourcing plan. Managing an RFx process, settling on a deal, and managing vendor performance are a few examples of source to contract.

Source to contract process is often used interchangeably sometimes used for procuring to pay. So decoding the jargon source to contract vs procure to pay is important, you can read all about in our comprehensive guide to source-to-contract.

The Source-to-Contract Process

The Source-to-Contract process typically includes the following key stages:

The Source-to-Contract Process

Spend Analysis: Before the source to contract even starts, organizations need better spend visibility. Spend analysis software in this case can helps enhance the visibility in maverick spends & cost avoidance. Granularly classify spending to improve overall compliance.

To get deeper understanding of spend management you can check out these seven steps.

Sourcing Strategy Development: Organizations specify their sourcing process, requirements, goals, and strategies. When deciding whether to source goods or services internally or externally, they evaluate their needs.
Read our blog on: Love Your Sourcing Strategy by letting it go

Supplier Identification and Evaluation: Potential suppliers are discovered and assessed on parameters of capability, quality, cost, compliance, and capacity. Organizations can choose suppliers who meet their needs with the help of this evaluation.

Request for Information (RFI): To obtain comprehensive information from potential vendors, organizations may issue RFIs. This aids in comprehending the capabilities, services, and capacity of suppliers to satisfy the demands of the firm.

Request for Proposal (RFP) or Request for Quotation (RFQ): Selected suppliers receive RFPs or RFQs that detail the precise specifications, conditions, and terms of the purchase. Then, suppliers reply with thorough proposals or quotes.

Negotiation and Supplier Selection: Organizations negotiate with suppliers to alter terms, prices, and other aspects of the contract. The suppliers get selected based on the best overall value they can deliver to meet requirements.

Contract Creation: Specify the terms and conditions of the procurement in formal contracts. This covers the deliverables, cost, terms of payment, requirements for quality, ownership of intellectual property, and other pertinent aspects.

Contract Approval: Relevant stakeholders within the organization, including legal, procurement, and management teams review and approve the contract.

Contract Management and Compliance: Managing supplier relationships after a contract is signed is essential. This allows organizations to keep track of performance, and ensures that the conditions of the contract are being followed. This includes monitoring key performance indicators (KPIs), managing adjustments, and resolving any problems that could occur. For more info, read our Ultimate Guide to Contract Management: Benefits & Best Practices

Source to contract software can help streamline and automate different phases of the source-to-contract process. Source to contract software make the process more cost effective, transparent, and trackable. There are a lot of hidden benefits beyond cost savings for using automated source to contract software. Read here: Beyond Cost Savings: The Hidden Benefits of Source to Contract Automation

Source to contract software gives businesses insight into their sourcing operations. It empowers them to make decisions that are in line with their business goals.

Checkout how a leading relocation service provider used Zycus source to contract software to transform its source to contract process.

Source to Contract process Steps

Size of the organization’s can alter steps, the source-to-contract process’s frequency and urgency, and other factors. For instance, smaller businesses that routinely rebid the same contract on a predetermine d schedule probably won’t have to go through each step.

Steps in the Source-to-Contract process

Step 1: Sourcing and vetting

Naturally, the source-to-contract process begins with sourcing. All steps leading up to the actual procurement of an item or service are considered sourcing activities. A shortlist of eligible vendors who can fill the requirement is created by first recognizing it in the organization and then beginning the sourcing process. A procurement specialist will compile data on budget, lead times, and order quantities during the sourcing phase.

In strategic sourcing, the procurement specialist will invest time and energy into finding and vetting suppliers who can provide goods and services on schedule, with the desired level of quality, and in the required quantity. When sourcing successfully and economically locates the precise products the business requires from suppliers that consistently demonstrate their dependability, it adds value to the organization.

Step 2: Host a bidding process

Host an RFx process to obtain the items you require from the shortlist of pre-approved vendors you created in step one. If you know exactly what you want to buy and are certain that you want to make a purchase, submit an RFQ or RFP.

If you’ve submitted this bid before, you might be able to expedite it while still adhering to the rules.

Step 3: Award the contract

After deciding on a supplier, agree on the conditions and award the contract. To complete the purchase of the commodity or service, create a purchase order. The buy order includes the overall costs, a description of the goods or services, the quantities ordered, and the approval workflow. It also documents the final contract agreement.

Send the purchase order around for approval and get ready to get your products and services! The source-to-contract process is finished after the contract has been completed (and is paid for).

Best practices in Source-to-Contract process

For successful delivery of any product or service or operation one needs to follow the best practices. Here are some best practices to consider while conducting S2C process:

Best practices in Source-to-Contract process

1. Clear Sourcing Strategy:

  • Develop a clear sourcing strategy aligned with organizational goals.
  • Define the scope, objectives, and key requirements of each sourcing initiative.
  • Determine whether to source goods or services internally or externally.

2. Supplier Segmentation:

  • Segment suppliers based on their criticality, capability, and strategic importance.
  • Allocate resources and efforts based on the segmentation to maximize value.

3. Supplier Collaboration:

  • Foster open and collaborative relationships with suppliers.
  • Involve suppliers early in the sourcing process to gain insights and innovation.

Great supplier collaboration build robust supplier networks can unlock incredible synergy in the procurement process.

4. Market Research:

  • Conduct thorough market research to understand trends, pricing, and supplier capabilities.
  • Use market insights to inform negotiation strategies and supplier evaluations.

5. Supplier Evaluation and Selection:

  • Use a structured process to evaluate suppliers based on criteria like quality, cost, compliance, and capacity.
  • Select suppliers that align with both short-term and long-term organizational goals.

6. Transparent RFP/RFQ Process:

  • Create clear and detailed Request for Proposal (RFP) or Request for Quotation (RFQ) documents.
  • Include all relevant information and requirements to ensure accurate supplier responses.

7. Effective Negotiation:

    • Conduct negotiation sessions focused on achieving mutually beneficial outcomes.
    • Consider variables beyond price, such as payment terms, quality standards, and delivery timelines.

Here are 11 tips for successful supplier negotiation.

8. Digital Tools and Automation:

  • Implement e-sourcing and procurement platforms to streamline and automate processes.
  • Leverage data analytics to identify sourcing opportunities and track supplier performance.

9. Standardized Contracts:

  • Develop standardized contract templates with clear terms and conditions.
  • Customize contracts based on specific sourcing requirements while maintaining consistency.

10. Contract Compliance and Management:

    • Monitor contract compliance using Key Performance Indicators (KPIs) and regular audits.
    • Establish a structured process for handling changes, amendments, and renewals.

While following the best practices here are three things to avoid during contract management.

11. Supplier Risk Management:

  • Identify potential risks in the sourcing process and develop mitigation strategies, here are four formulas for supplier risk management.
  • Establish contingency plans to address supply chain disruptions or other unforeseen events.

12. Cross-Functional Collaboration:

  • Involve cross-functional teams from legal, finance, operations, and other relevant departments.
  • Collaborate to ensure contracts align with organizational requirements and compliance.

13. Continuous Improvement of S2C Process:

  • Regularly review and assess the S2C process for areas of improvement.
  • Incorporate feedback from stakeholders and suppliers to refine strategies.

14. Training and Development of Procurement Teams:

  • Invest in training for procurement teams to keep them updated on best practices and industry trends.
  • Encourage professional development to enhance skills and knowledge.

15. Performance Measurement:

  • Establish metrics to measure the success of your sourcing initiatives.
  • Monitor savings achieved, supplier performance, and overall process efficiency.

Implementing these best practices can help organizations optimize their Source-to-Contract process, driving value across the entire procurement lifecycle. Flexibility and agility are essential. Tailoring these best practices to unique industry and organization needs can deliver great output.

Here is a detailed look on the best practices for source-to-contract process.

Benefits of a Source-to-Contract process

Automating Source-to-Contract (S2C) process can offer numerous benefits to organizations, enhancing their procurement activities and overall business operations. Here are five important benefits of adopting automated Source-to-Contract process:

Benefits of a Source-to-Contract process

Cost Savings and Efficiency:

Organizations can find cost-saving possibilities throughout the procurement lifecycle with the help of S2C processes. Companies can improve pricing terms and cut costs by streamlining supplier selection, negotiation, and contract administration. Processes that are effective also save time, allowing procurement teams to concentrate on critical projects.

Enhanced Supplier Relationships:

Collaboration with suppliers is essential to a successful supply-to-consumer process from the beginning of sourcing. As a result, supplier relationships are strengthened and are built on openness, communication, and understanding. Better ties can result in more advantageous terms, superior service, and easier access to innovative ideas.

Risk Mitigation and Compliance:

Efficient supplier risk assessment and risk management techniques are incorporated into the procurement lifecycle via S2C processes. Minimize potential interruptions and guarantee compliance with legal and regulatory obligations by analyzing suppliers’ competencies, financial stability, and adherence to rules.
We did a webinar covering the best practices for supplier risk assessment, this could help you get deeper insights.

Transparency and Accountability:

Clear record of decisions made is provided through documented sourcing tactics, supplier evaluations, negotiation results, and contract conditions. This improves decision-making and auditability in addition to aiding in progress monitoring.

Strategic Alignment and Data-Driven Insights:

S2C processes give procurement teams the ability to coordinate their efforts with the objectives and strategies of the organization. Making informed decisions is aided by data-driven insights from market research, supplier performance measurements, and spend analysis. This alignment encourages wiser resource management and the pursuit of long-term goals.

Overall, adopting a Source-to-Contract process empowers organizations to optimize their procurement activities, create value, and strategically manage supplier relationships, ultimately contributing to improved operational efficiency and competitiveness.

Zycus S2C Suite helps enterprises utilize the best-in-class AI-powered insights. It makes the transition from tactical to strategic sourcing very smooth. This allows businesses to discover saving opportunities, mitigate risk and ensure compliance.

Zycus Source to Contract solutions are as follows:

If you wish to learn more, we will be happy to demo. Click here to request a demo.

Related Read:

  1. Blog – Linking Source-to-Contract & Procure-to-Pay
  2. Blog – Streamline Your Procurement Processes with Integrated Source to Pay Platforms and Autonomous Quick Sourcing Technologies
  3. Blog – Is Your Source to Contract Process Broken?
  4. Download White Paper – Source-To-Pay Transformation With AI And RPA – A study by ISM and Zycus
  5. Blog – Mastering Procurement: Demystifying Source to Contract (S2C)
  6. Streamlining Procurement: Source-to-Contract Best Practices Unveiled
  7. The Why, What & How of Contract Management
  8. Unlocking Efficiency: A Guide to the Basics of Strategic Sourcing
  9. Press Release – Netcare South Africa selects Zycus to strengthen its source-to-contract processes
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