What is Source to Pay Life Cycle?

To excel, organizations must innovate to optimize their procurement operations. Source-to-Pay (S2P) is an area with huge potential for optimization. By digitally transforming the end to end S2P processes, one can better align their purchase to pay process, enhance collaboration, increase data visibility, and drive cost savings.

So, “What is S2P Life Cycle?” It is a process of strategic sourcing and procuring products or services from suppliers, which includes supplier identification, negotiation, engagement, and finally the payment for the acquired goods or services.

Briefly, the steps involved in Source to Pay (S2P) life cycle are as outlined below:

1. Demand & Approvals Phase:

At this stage the need for a product or service is identified and approved by right stakeholders.

2. Source to Contract (S2C) Phase

• Spend Analysis & Optimization: Strategies to reduce maverick spends, save cost and drive strategic procurement decisions throughout the Source-to-Pay life cycle
• Strategic Sourcing & Supplier Management: Find the right supplier to support the demand.
• Bid preparation: Create RFx documents and receiving responses from suppliers.
• Supplier Selection: Review and select preferred vendors based on quality.
• Contract management: Negotiate pricing and contract terms with selected vendors.
• Contract signing: Finalize and sign the contract with supplier.

Explore our Source to Contract solution

3. Procure to Pay (P2P) Phase

• Purchase Order: Hand over the process to the procurement team for purchase order preparation.
• Procurement Process: Handle purchase orders and requisitions with supplier.
• Receipt of good/services: Delivery of required good sore services
• E-invoicing: Process vendor invoices.
• Payments: Make payments to vendor to complete the process.

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Why is digitization at each step of S2P life cycle important?

Digitizing the S2P life cycle requires a transformation across all stages, from strategic sourcing to purchase to pay process.
Following are main drivers of digitization:

• To increase Efficiency and Speed, reduce processing times.
• To get accurate real-time data of spending, supplier performance, and procurement process, so as to identify the opportunities for improvement.
• To achieve seamless collaboration with suppliers, leading to better supplier relationships and improved supplier performance.
• To ensure compliance with procurement policies, regulatory requirements, company standards, and to reduce risk of fraud and non-compliance during audits.
• To centralize data, improve data security and reduces the risk of data loss.
• To be able to scale up to accommodate growing needs.
• To allow seamless integration with other enterprise systems, like ERP, finance, and inventory management systems, creating a connected ecosystem that enhances the overall procurement process.
• To be user-friendly, leading to higher user adoption & efficient procurement team.
• To enable procurement professionals to shift their focus from tactical tasks to strategic decision-making.
• To reduce the need for paper-based documentation, contributing to a more sustainable and eco-friendly procurement process.

Digitization is crucial for the Source-to-Pay (S2P) processes as it can help make informed strategic decisions. By embracing source to pay software and using the cognitive data driven approach, businesses can transform their procurement department into more agile, strategic, structured and competitive function.

Also, read our blog on Procurement Challenges – How AI Can Solve it?

What is the scope of digitization in end to end S2P life cycle?

According to McKinsey reports, 56% of S2P workflow tasks, 88% of the transaction tasks (order placement, receiving etc.), 93% of payment processing activities, 47% of the tasks related to supplier selection and negotiation are eligible for digitization. Digitizing the source to pay process can reduce spending by 3.5%. So there is huge scope of digitization in the entire S2P workflow. Putting AI at the center of automation and using it to assist digitization at each stage, certainly provides an extra edge to your organization.

1. Digitization at the Demand & Approval stage of the Source-to-Pay (S2P) lifecycle:

• Demand Forecasting: To predict demand patterns accurately based on factors like seasonality, market trends, and external events, one can implement ML/AI algorithms.
• Automating the Requisition process by setting up a system where inventory levels can trigger automated creation of purchase requisitions. This can also be integrated with procurement systems to ensure timely restocking.
• Visibility & Collaboration by creating a platforms where different departments can discuss their demand projections, using cloud-based tools that can enable real-time collaboration on demand planning among stakeholders.
• Automating Approval Workflows for purchase requisitions, ensuring that they are routed to the appropriate stakeholders for review and approval.
• Creating a centralized data repository for demand-related data, allowing all stakeholders to access version controlled accurate demand information.
• E-Signature solutions to enable electronic signing, reducing the need for physical signature, pen & paper

2. Digitization at Source to Contract stage of the Source-to-Pay (S2P) lifecycle:

Digitization at Spend Analysis and Optimization stage

• Automating Spend Data Collection from different sources like ERP systems, invoices, procurement & external sources.
• Tools for Spend Data Cleansing & Enrichment to resolve inconsistencies and duplicates.
• Spend Classification using AI/ML algorithms to categorize spend data into relevant categories and sub-categories.
• Dashboard creation for Real-time Spend Visibility and insights into spend patterns
• Utilizing predictive modeling to forecast potential savings opportunities based on historical spend data and market trends.
• Bench-marking with Market to gain visibility into how your organization’s spend compares to relevant peers.
• Automating and Customizing Spend Analysis Reports on a regular basis.
• Automating the identification of tail spend through predefined rules. Handle low-value, high-volume transactions more efficiently
• Utilizing the power of AI tools to identify potential cost-saving opportunities within spend.

3. Digitization at Strategic Sourcing & Supplier Management stage:

• Creating digital RFx automatically using templates.
• Creating Supplier Diversity Portals for diverse suppliers to register and participate.
• Allowing Electronic bid submission & Supplier Responses through portal.
• Automating Supplier Selection process using data analytics to identify suppliers matching your company policy’s/ ESG mandates, regulatory and other criterias.
• Digitally comparing bids and evaluate supplier responses.
• Evaluating Vendor proposals through appropriate algorithms
• Vendor evaluation with AI-based supplier recommendations
• Automating Supplier Verification process for compliance checks.
• Assessing Supplier Risk utilizing data driven cognitive sourcing approach
• Automating Supplier On-boarding process during data collection and document submission.
• Implementing Supplier Collaboration Platforms for real-time communication.
• Monitoring Supplier’s Real-time Performance using dashboards to take adequate actions at right time.
• Generating scorecards for vendor evaluation based on given criteria
• Allowing Suppliers to submit bids electronically via a portal.

Read our blog on Procurement Risk Management: A Cognitive Data Driven Approach

4. Digitization at Contract Lifecycle Management stage:

• Automating Contract Creation using templates and predefined clauses
• Integrating E-signature tools for digital contract signing.
• Creating Digital Contract Repositories to store contracts in centralized and easily accessible digital repositories.
• Setting of Automated Renewal Reminders for contract renewal dates.
• Using AI-powered Clause Analysis to review contract clauses for risks and compliance.

5. Digitization at Procure to Pay stage of the Source-to-Pay (S2P) lifecycle:

• Automating Purchase Requisitions based on inventory levels or automated demand signals.
• Creating Electronic Purchase Orders thereby reducing paper-based processes.
• Implementing E-Procurement for streamlined order placement and approvals.
• Tracking of Real-time Order Status Updates by stakeholders.
• Automating Invoice Data Capture using AI/ML based algorithms.
• Automating Three-Way Invoice Matching purchase orders and receipts.
• Automating Invoice Approval Workflows for efficient invoice approvals.
• Digitizing Payments for faster and secure transactions.
• Automating Dynamic Discounting for early payment incentives.
• Automate Payment Reminders: Send automated reminders to ensure timely payments.
• Creating Supplier Management: Self-Service Portals to submit invoices and track payment status.
• Automating Expense Reimbursement to Streamline expense submission and approvals.
• Keeping Digital Records for audits and compliance.
• Spend Analysis patterns and identifying cost-saving through AI-driven Spend Analytics
• Integrating Account Payable processes with ERP systems for seamless data exchange.

As can be appreciated from above list that there is a huge scope for digitization in the entire S2P lifecycle and hence there exists multiple opportunities for cost savings, increasing the efficiency of the sourcing and procurement process and making more informed decisions at each stage using the potential of digital tools and assets.

Read our blog on 5 Cognitive Technologies to Look Out For in the Future

How to make the complete digitization journey smooth?

Before you start your digitization journey, its important to evaluate following:

• Assess Existing Processes: Understand existing processes. Identify pain points, inefficient processes and areas that need digitization.
• Define Clear Objectives: Object can be to improve efficiency, reduce errors, enhance customer experience, or achieve cost savings etc, It important to have clear vision of objective
• Engage Relevant Stakeholders: Take inputs from relevant stakeholders, including end-users, managers, IT teams, procurement team, and decision-makers who are finally going to be effected due to the process change.
• Determine Budget and Resources: Determine the budget & resources required for digitization. It involves expenditure related to software, hardware, training, and ongoing maintenance costs.
• Select the Right Technology Partner: Choose source to pay software that best aligns with your goal and are also scalable, user-friendly, and can integrate well with existing systems.
• Ensure Data Security and Privacy are in compliance with relevant regulations and standards.
• Change Management Plan: It important to plan that how you will adapt to new technologies with training and support ao that the transition is smooth.
• Redesign Process to maximize the benefits of digitization. System level automation can give better results than point automation.
• Conduct pilot tests with to identify any potential issues that need attention.
• Create a continuous feedback mechanism during and after implementation to enable timely adjustments and improvements.
• Data Migration and Integration: Plan how existing data will be migrated to the new system and how it will integrate with other systems. Selection of a completely in-house built solution suite might make it easier.
• Identify Risks and Mitigation Plans that might pop-up during implementation
• Set Timeline and Milestones: Regularly review progress to ensure the project is on track.
• Develop Communication Plan to keep all stakeholders informed about the updates and benefits of digitization.
• Test and Validate the new system in different scenarios to ensure it functions as intended
• Track Continuous Improvement: Digitization is an ongoing process. AI/ML need to be trained on your specific scenarios. Make sure to track the continuous and incremental improvements in the new system.

Merlin Experience Center- Try your hand with AI-based cognitive Source to Pay