Source-to-Contract: The Key to Streamlining Your Business

Procurement will become a big headache if you don’t modernize your outdated processes. When it comes to procurement, manual time-consuming processes are a big hurdle to gaining a competitive advantage. In addition, it affects productivity, accuracy, and financial gains and hinders successful outcomes.  

Procurement and accounts payable processes are the heart of any business and are crucial points of transformation. The procurement team is responsible for managing the flow of resources, forecasting costs, analyzing risks, and negotiating the best prices with the best suppliers. 

From sourcing to contracting to procuring to paying – it’s a complex cycle all together which is prone to inefficiencies. This blog highlights the source-to-contract process, the difference between source-to-contract vs. procure-to-pay, the need for strengthening them, and how Cflow can be your best choice for procurement.

Source-to-Contract Defined

Sourcing is the process of identifying, evaluating, and selecting the most suitable suppliers for procuring goods and services. Sourcing should be applied strategically to get maximum cost benefit. On the other hand, the contract process includes creation, negotiation, conditions, compliance, and approval phases between a vendor and supplier.

The source-to-contract (S2C) is defined as the procurement process that a company undertakes which includes formulating sourcing strategies, getting quotes, contract negotiations, and approving and rewarding suppliers with the contracts. It plays an important role in delivering the final goods and services. The source-to-contract phase pretty much includes the entire procurement cycle in a business.

How Does It Work – Source-to-Contract?

As accounting professionals you don’t need to have extensive knowledge of procurement, but knowing the fundamentals is always helpful. The source-to-contract typically includes the following stages:

• Formulating sourcing strategy
• Identifying potential suppliers and evaluation
• RFx
• Negotiation and selection
• Creating contract and approval
• Contract management and compliance

Some of these stages may vary depending on the organization’s procurement needs but these are the key stages that make up a complete source-to-contract process. 

Before you start making the sourcing strategy you need to do a “spend analysis.” Here you will be using a source-to-contract software like Cflow which enables you to identify maverick spending and get better visibility over finances. Also, you can improve overall compliance regulations and manage contracts effectively. 

1. Formulating a sourcing strategy

You will understand your organization’s sourcing needs, goals, and strategies. Then a strategy is developed based on whether to source the goods and services externally or internally. A thorough evaluation of the organization’s needs is necessary.

2. Identifying potential suppliers and evaluation

Suppliers are identified and selected based on certain criteria such as capacity, cost, quality, capability, and compliance. With this evaluation, you can easily identify the list of suppliers who meet the procurement needs and evaluate them accordingly. 

3. RFx

RFx can include anything – request for proposal (RFP), request for information (RFI), request for quotation (RFQ), request for information (RFI). It encompasses the formal request process. 

After identifying and evaluating the potential suppliers, you will need comprehensive information regarding the goods, services, cost, quality, and delivery of the intended products based on the firm’s needs. Your organization will come up with an RFI including all the necessary information for a negotiation and contract.

Following the RFI, the selected suppliers will receive an RFP or RFQ which encompasses the detailed specifications of products, terms and conditions of purchase, and other compliance regulations. Interested suppliers or vendors will reply with quotes or proposals. 

4. Negotiation and selection

After receiving the proposals from suppliers now the organization will get ready for negotiation. They will meet with the suppliers and negotiate purchase costs, altering terms and conditions, prices, and other terms in the contract. The suppliers will be selected based on the best value that they can deliver to your firm and that both parties are equally benefited. 

5. Creating contract and approval

Now the terms and conditions discussed with the selected suppliers will be put into words in the form of a formal contract. The contract should include all the procurement terms and conditions, deliverables, cost, quantity and quality, ownership of intellectual property, and other procurement aspects.

Upon delivering the formal contract it is sent for approval to the relevant stakeholders, legal procurement team, and management team. The contract goes through several stages of review before the final approval. Once all the conditions are met and reviewed the contract is approved.  

6. Contract management and compliance

Once the contract is approved and signed it should be managed properly to establish a long-lasting relationship with the suppliers. You need to monitor their performance and ensure that the contract conditions are always followed. You can use KPIs and resolve any issues that could occur in a timely manner.  

Now that you have seen the different stages, let’s see how it actually works. It involves three steps: 

1. Supplier sourcing
2. Conducting a competitive tender
3. Contract allocation

7. Supplier sourcing

This step involves strategic sourcing where you will come up with a list of eligible suppliers who can fulfill all the requirements of your organization. This is done by a procurement expert who will compile data and formulate a budget, lead times, and order quantities during the sourcing stage. The procurement expert spends time vetting the best suppliers who can provide the best quality products and services needed. When sourcing is done economically, it adds value to the procurement process and enhances business efficiency.

8. Conducting a competitive tender

This is the tendering phase where a bidding process is conducted. This event can be used when you need a list of potential products and services offered by the selected suppliers. Here RFP and RFQ are sent and received.

9. Contract allocation

The contract is awarded to the supplier whose proposal meets your procurement requirements. To complete a purchase, a purchase order is created that includes all the terms and conditions. Then it moves to the approval workflow and documentation of the contact agreement. 

When the contract is approved and documented the source-to-contract process is finally completed.

Source-to-Contract vs Procure-to-Pay

In the realm of procurement, both S2C and P2P are used simultaneously and are distinctively related to each other yet so different. 

Source-to-Contract (S2C)	Procure-to-Pay (P2P)
This mainly includes the pre-procurement stages such as strategic sourcing, selecting the suppliers, negotiation, contracting, and management.	On the other hand, P2P encompasses the complete procurement cycle from payment to supplier relationship management.
The main goal of S2C is to find the best supplier, negotiate the best terms and conditions, and establish a contract that meets your firm’s needs by optimizing costs and benefits for both sides.	P2P focuses mainly on the automation aspects. It helps streamline and automate the procurement process ensuring that every aspect of procurement falls under the compliance regulation, manages supplier transactions, and controls spending efficiently.
The S2C process includes activities such as supplier identification and evaluation, RFx, negotiation, contract and spend analysis.	The P2P process includes activities such as order creation, invoice processing, approval, goods receipt, and vendor performance analysis.
The S2C process focuses on establishing relationships with potential suppliers during the sourcing and contracting phases. They ensure that the relationships align with the organization’s goals and objectives.	The P2P process focuses on the interactions with the suppliers rather than relationship building. It focuses primarily on transactional efficiency, compliance, and accuracy which foster collaboration and enhance the efficiency of the performance.
In terms of technology, S2C depends on strategic sourcing and contracting software and procurement lifecycle management tools that streamline the different activities such as supplier discovery, RFx and sending proposals, creating contracts, etc.	The P2P process depends on procurement software and enterprise resource planning (ERP) tools to automate the purchase process workflows, use approval workflows, automated invoice processing and management, etc.

Benefits of S2C

• Throughout the procurement lifecycle, a proper source-to-contract process can help in saving cost, optimizing spending, streamlining supplier selection and negotiation, and helping procurement teams to concentrate on critical tasks. 
• Enhanced supplier relationships resulting in openness, transparency, communication, and a better understanding of the customers. This helps procurement teams to come up with innovative solutions.
• The source-to-contract process enhances risk mitigation and helps it incorporate into the procurement lifecycle. They help procurement teams focus on analyzing supplier efficiency, financial stability, compliance, and adherence to rules. 
• Improved accountability through proper auditing and documentation of strategic sourcing tactics which helps in decision making.
• S2C helps in making informed decisions and derive data-driven insights from spend analysis, market research, and supplier KPI measurement. Adopting an S2C tool like Cflow can optimize procurement activities further and improve the overall organization’s competitiveness.

Why Cflow?

Cflow offers solid source-to-contract services that enable you to have a holistic approach to your spending, suppliers, and contracting. Cflow offers customized functionality for conducting spend analysis, sourcing, supplier management, contract management, etc. 

Cflow offers advanced analytics and real-time data to monitor your spending which helps gain deeper insights on your organization’s procurement activities.

For sourcing, Cflow lets you streamline and vet the best suppliers with its automation. Since it is completely cloud-based, contract management becomes simple where every piece of information is stored and accessed from a centralized location providing maximum visibility and eliminating the need for paper-based manual documentation processes. 

In addition, Cflow acts as a unified procurement platform that offers additional functionalities such as supplier risk performance, supply chain collaboration, inventory control, e-procurement, and much more. 

Interested? Visit Cflow for more information and sign up for a free demo today!