Supply chain technology is always changing and evolving and new procurement tools are released often. However, the utility of these evolutions is sometimes clouded by the sheer number of three-letter acronyms that the average sourcing specialist in procurement has to dig through. Because of the confusion around these technologies, today we will break down the difference between Source-to-Pay vs Procure-to-pay.
What is the P2P process?
While it varies from business to business, the P2P process can be largely rendered down into certain steps, including:
Demand – Someone within the company realizes the need for certain goods or services and communicates that they need a purchasing team.
Requisition – A purchase requisition is created and then reviewed and approved by the required stakeholders.
Purchase order – Once the purchase requisition is approved, a purchase order is raised and sent for approval. Once approved, this PO is sent to the vendor or supplier.
Items received – The goods or services ordered are delivered or delivered upon.
Invoicing – The vendor’s invoice is checked against the PO and any inaccuracies are checked with the vendor.
Payment – The accounts payable team makes payment on the invoice.
Advantages of Procure-to-Pay
There are several advantages associated with the Procure-to-Pay model:
Improved Visibility – Since the entire process is digitized, organizations have better visibility into their spending. This helps with identifying cost-saving opportunities and areas of improvement.
Reduced Costs – The P2P model can help organizations reduce their overall costs by streamlining the procurement process and eliminating manual errors.
Greater Efficiency – By automating the procure-to-pay process, organizations can improve their overall efficiency and speed up the time it takes to get goods and services.
Disadvantages of Procure-to-Pay
There are a few disadvantages associated with the procure-to-pay model:
High Implementation Costs – One of the biggest drawbacks of PTP is the high implementation costs. Organizations need to invest in the necessary technology and training in order to get the most out of this model.
Lack of Control – In a Source-to-pay model, buyers have more control over the procurement process as they are sourcing the goods and services themselves. With Procure-to-pay, buyers are relying on suppliers to provide a range of goods and services, which can lead to a lack of control over the process.
Potential for Inefficiency – Because PTP relies on automated systems and processes, it is important that these are implemented correctly in order to avoid the potential for inefficiency. If the process is not followed correctly, this could lead to delays.
What is Source-to-Pay (S2P)?
Source-to-Pay is a refinement or evolution of the Procure-to-Pay model as it adds another layer to the process, strategic sourcing.
In order to strategically source the best possible price for goods and services, S2P uses digital networks and the data they create to gain better visibility into the procurement process.
Through those insights, S2P software is able to strengthen compliance, negotiate better prices, and make more accurate forecasts.
Essentially, S2P adds an integrating spend management solution to P2P that allows companies to effect savings through tighter internal controls, greater supply chain efficiency, and better vendor/supplier relationship management.
What is the S2P process?
As with the P2P process, the S2P process will vary by organization, but the basic outline should include:
Demand – A need for new inventory or a reassessment of prices and contracts is identified.
Sourcing – The S2P platform uses data generated from market trends, historic records, and user-entered data to identify and assess the available options for meeting the organization’s needs.
Contract management – The Sourcing team negotiates with suppliers, taking into account quality, price, delivery time, payment terms, etc.
Order placement and tracking – Once a contract is in place, orders can be placed electronically through the system and will be tracked through to delivery.
Invoicing and payment – Upon delivery, the goods or services are inspected and an invoice is generated. This is processed through the Accounts Payable team, which makes payments to the supplier.
Advantages of Source-to-Pay
There are several advantages associated with the Source-to-Pay model:
Reduced administrative and processing costs – Automated processes mean that there is less need for manual intervention. This can lead to cost savings.
Greater control over the supply chain – The Source-to-Pay model gives organizations greater visibility and control over their supply chains, which can improve efficiency and reduce the risk of disruptions.
Improved compliance – Automated processes can help to ensure that organizations comply with regulations and contracts.
Increased agility – The Source-to-Pay model can enable organizations to be more responsive to changes in the market, by allowing them to quickly adapt their procurement processes
Disadvantages of Source-to-Pay
There are some disadvantages to the Source-to-Pay model. These include:
Higher costs – The implementation of a Source-to-Pay system can be expensive, and may require the reengineering of business processes.
Inflexibility – The Source-to-Pay model can be inflexible, and may not be suitable for all organizations, as it can be difficult to tailor the model to specific organizational needs
What’s the difference between Source-to-Pay vs Procure-to-Pay?
The primary difference between Source to Pay and Procure to Pay is the scope of each model. Procure-to-Pay is focused solely on the procurement process, while Source-to-Pay encompasses the entire sourcing lifecycle, from supplier selection to contract management.
The benefit of the more holistic approach offered by Source-to-Pay is that it can lead to cost savings and efficiencies throughout the entire organization, not just in the procurement department.
However, this comprehensive approach can also be a drawback, as the Source-to-Pay model can be inflexible, and may not be suitable for all organizations, as it can be difficult to tailor the model to specific needs.
This means that source-to-pay can be more suited to organizations with a complex sourcing process, while procure-to-pay may be better for those with a simpler procurement process.
The table below summarizes the key differences between the two models:
| Category | Source-to-Pay | Procure-to-Pay |
|---|---|---|
| Process | Encompasses the entire sourcing lifecycle, from supplier selection to contract management. | Focused solely on the procurement process, from identification of needs to supplier selection. |
| Advantages | Can lead to cost savings and efficiencies throughout the entire organization, not just in the procurement department. | Easier to tailor to specific needs than the Source-to-Pay model. |
| Disadvantages | May be inflexible and not suitable for all businesses. | May be less efficient than the Source-to-pay model. |
As you can see, there are pros and cons to both sourcing models. However, there is still the option to combine both models into what is known as a hybrid model. This allows businesses to focus on specific areas of the procurement process that need improvement.
What is a hybrid P2P/S2P model?
The combination of Source-to-Pay and Procure-to-Pay models is beneficial because it allows for the strengths of both models to be used. The Procure-to-pay model can help businesses that have a lot of procurement activity, while the Source-to-pay model can help businesses who want more control over their sourcing process.
Adopting this hybrid model can be advantageous because it allows for the best of both worlds. The Procure-to-pay model can help to improve the efficiency of the procurement process, while the Source-to-pay model can help to ensure that the right suppliers are chosen.
However, there are some disadvantages to consider before making a decision about which sourcing model is best for your business. One potential disadvantage of the Procure-to-pay model is that it can be more difficult to track spending. This is because the process is decentralized and there are many different invoices that need to be tracked.
Another potential disadvantage of the Source-to-pay model is that it can be more time-consuming. This is because the process is more manual and there are more steps that need to be followed.
These drawbacks can be compounded in a hybrid model, where some procurements are processed through the Procure-to-pay model and others are processed through the Source-to-pay model.
Hybridizing for the best of both worlds
Despite the potential disadvantages, there are many advantages to using both models. For example, the Source-to-pay model can help businesses save money by allowing them to negotiate better prices with suppliers. The Procure-to-pay model can help businesses save time by automating the procurement process.
Ultimately, businesses need both Source-to-pay and Procure-to-pay to get the best results. By using a combination of these models, businesses can streamline their procurement process and save money and time.
