The Definitive Guide to the Source-to-Pay Process

To better consider the digital evolution of source-to-pay, let us first look at the process in a nutshell. Source-to-pay is an umbrella term coined to describe the interconnected set of procurement, supply chain, finance, IT, and legal activities that companies undertake to identify, source, fulfill and pay for goods and services. All goods and services that companies procure, from raw materials to manufactured products to office supplies, fall under this umbrella term.

The source-to-pay process begins long before the execution of an individual transaction. The process kicks off with source-to-contract activities, including: business needs assessment, industry and supplier analysis, planning and executing sourcing strategies based on the organization's spend profile and supplier base, and contracting with suppliers. Beyond source-to-contract, the procure-to-pay process includes the transactional flow of order management, delivery management, payment authorization, and compliance. End-to-end processes for the entire source-to-pay function include ongoing activities such as risk management, supplier management, and category management.

To maximize impact, enhanced capabilities must be put in place to drive value. Organizations looking to implement a successful and continuously improving source-to-pay program need to look beyond just software and focus on a comprehensive set of "enablers". These enablers should include an “embrace change” mindset and culture, a system of success measurement, a sustained investment in improving digital capabilities, and a desire to adopt leading management practices. Although not directly related to the purchase of goods and services, these enablers drive value by enhancing the ability to efficiently and effectively execute source-to-pay processes. More and more, decision makers are leveraging source-to-pay as the catalyst for the meaningful business transformation required to meet the challenges facing modern organizations.

In a world of growing uncertainty, where the pace of change is driving more risk and opportunity than ever before, source-to-pay is playing an essential role in safeguarding business viability. Modern organizations are operating in a landscape of "increasingly complex conditions, including:

This translates into procurement organizations facing operational and tactical pressures. Below, some of the major challenges include:

Most commonly, procurement organizations look to digitize source-to-pay due to rising competitive pressure, increasingly needs of internal stakeholders, and broad corporate mandates for digitization.

Digital transformations enable a shift towards leading-edge capabilities that drive excellence across the source-to-pay value chain while allowing organizations to adapt to new trends and external uncertainties. Digitalization empowers strategic agendas, promotes business continuity, and reduces risk while contributing to perennial objectives such as achieving cost savings, increasing efficiency, and improving working capital. Organizations that are slower to adopt new technologies face an uphill battle to remain competitive, as they are increasingly lagging behind more mature performers. Leaders need to use digital levers to reshape and redirect their efforts towards sustainable value-added activities.

Through digital efforts, organizations can continue to mature through a series of steps, with each step bringing more business value as capabilities are built-in and efficiencies are unleashed, automation and, in the process, creating smarter, predictive processes that allow them to be proactive rather than reactive.. Market-leading Software as a Service (SaaS) solutions are at the forefront of streamlining and automating processes, freeing resources from manual and redundant tasks, and enabling finance and procurement teams to grow as strategic partners. Moreover, source-to-pay SaaS solutions capture real-time spend data and deliver powerful insight to the right people at the right time. The generated insights can empower better decision-making, highlight cost-saving opportunities, and promote ongoing risk identification and monitoring.

Source-to-pay solutions centralize and automate processes covering the entire lifecycle in a single platform, including ongoing activities such as supplier management, risk management, and spend analysis. While laying the groundwork for value chain excellence, SaaS solutions also offer a simple and intuitive buying experience that users will embrace.

The SaaS model has flourished within procurement and finance functions due to its flexibility and scalability. SaaS solutions' modularity enables organizations to shape their application landscape to realize their short-term objectives, as well as to support their medium to long-term objectives. Should an organization need to expand its scope, additional modules could be easily deployed. That said, value will be maximized once the end-to-end source-to-pay process is fully enabled by a single platform.

The charts below identify basic and advanced capabilities of market-leading source-to-pay solutions.

Cost Reduction:
A combination of data analytics, strategic sourcing events, supplier discovery tools and spot buying tools, drive lower unit costs and total cost of ownership for business partners.

Risk Reduction and Compliant Buying Enablers:
Contract templates, clause libraries, and workflows ensure contracts are standardized, visible, and managed throughout their lifecycle. In addition, features such as integrated catalogs and contract value limits help ensure downstream compliance.

Compliant Buying and Process Efficiencies: 
Integrated procurement and contract management features ensure organizations pay the prices they negotiated. Catalogs, workflows, and automated purchase order generation and transmission help keep the buying process simple and fast.

Process Efficiencies and Cash Management: 
A transition to supplier-entered digital invoices and automated matching significantly reduces manual effort in accounts payable. These improvements also allow organizations to use tools like supply chain finance, dynamic discounting, and card programs to better manage cash flow and capture discounts.

In addition to quantifiable benefits, there are several intangible benefits that are not directly measured against the potential savings or cost reductions that result from digitalization.

Introducing and monitoring incentives and key performance indicators (KPIs) are vital to the successful management and continuous delivery of benefits realisation.

Key Performance Indicators (KPIs) are a solid starting point for any transformation initiative and help drive performance throughout the journey. The indicators should stem from a company’s business objectives and translate to-be states into measurable results. Priorities, activities, and decisions made throughout the transformation will be assessed against these metrics, from the planning phase to sustainment. A transformation initiative will be successful when KPI objectives are met and sustained well after implementing a particular technology.

Organizations should explore the use of innovative tools to seize new opportunities and to stay ahead of the curve. Deploying a source-to-pay SaaS solution is an ideal launchpad for the introduction and adoption of other advanced technologies. Emerging technologies can leverage the value created by SaaS solutions, such as richer data and automated processes, to identify further opportunities, increase the degree of automation, and empower proactive and intelligent decision making. Technologies relevant to the source-to-pay space that are bound to generate significant interest include:

Organizations need to view digitization as business transformation enabled by technology. Approaching digital procurement transformation through this lens keeps people at the heart.

In theory, technology should enable users to perform their job more intelligently, collaboratively, and efficiently; however, the blend of people and technology is never that simple. If users are not adopting the tool, tangible value will never be realized. Organizations must work harder to understand how their users think and behave, ensure that new technologies provide a great experience, and match their needs and the needs of the business at large. Mindset shifts, behavior change, and leadership support are the real determinants of a successful digital workplace.

Improvement begins with understanding our existing strengths and weaknesses. An analysis of the current state should be carried out in the early stages of any transformation. The diagnosis typically includes a maturity assessment and a review of stakeholder feedback to understand the opportunities that underpin any software investment.

A maturity assessment is performed to provide a baseline of existing competencies. An organization's ability to identify, realize, and sustain value is primarily a function of its procurement function's maturity. As part of this exercise, they compare their capabilities with those of the best performers and leading practices and identify strengths and areas for improvement. The maturity level is an aggregate of several dimensions, most commonly, strategy, capabilities, and enablers.

The case for digitalization will be used to develop areas for improvement and take the strengths for which the organization wants to be known to the next level. The outcome of the assessment will help define the future state operating model and the objectives of the transformation.

Today, organizations have an ever-expanding ecosystem of technologies at their disposal. While the range of options is great news, it can also be quite daunting. Investing in the right technology can make or break a digital transformation. The software buying process requires prior preparation and consists of several steps; typically, it includes building a business case, compiling requirements, developing and issuing an RFP, evaluating responses, and selecting the winning vendor.

A few practices can make the process run smoothly:

Historically, more mature and digitally-inclined procurement teams outperform more novice teams in the range of KPIs they track, the frequency with which they measure success, and expected technology levels. Planning for success is instrumental in ensuring that value is continuously yielded both during and after a technology is deployed. This acts as a recipe for sustainable incentives. A plan develops a shared understanding of success, how to achieve it, and what needs to be measured. It describes the relationship between the transformation vision and the underlying objectives, positioning the technology as a vehicle towards realizable value. It also specifies the right metrics that will contribute to achieving the strategic goals.

The plan should be reviewed regularly and refined as the transformation evolves and the organization itself matures.

Vision should be fit-for-purpose and aspirational. 
Streamline source-to-pay processes to improve efficiency, increase spend visibility, reduce costs, and promote collaboration and value-added engagement.

Breaking down the vision into controllable outcomes.

KPI’s to measure success of objectives, prioritized for the next step on the market curve.

By building a roadmap focused on predictable strategic outcomes, organizations can generate and capture value along their transformation journey. A roadmap is an approach to outlining and managing digital transformation efforts with the future in mind. It provides a structured way to navigate the different initiatives required to achieve objectives by deploying source-to-pay applications. The roadmap prioritizes opportunities and recommends a path based on the appetite for change, ease of implementation, budget, effort, and risk, among other dimensions. It includes phases, dependencies, and resource requirements and breaks down the transformation into manageable activities.

Initiatives that maximize quick value should be tackled first as a means to build smart momentum. It generates buy-in from senior leadership to leverage investments for long-term initiatives and improves user adoption by providing a great first impression.

For the implementation of a digital tool to be set up for success, adequate planning and execution of activities are fundamental to staying on time and within budget. The implementation will be considered a success when it meets its objectives and delivers tangible benefits as described in the success plan or business case. Integrating well-tailored methodologies and best practices throughout an implementation can help create value and drive organizational change in a measured and sustainable manner that persists post-technology deployment.

There is no magic formula for guaranteed success; nonetheless, the following practices can help lay the foundation for a successful implementation.