If you’re responsible for handling your business’s supply chain management or procurement efforts, you’ll want to be familiar with two processes: source-to-pay (S2P) and procure-to-pay (P2P). These processes can help companies optimize procurement, ensuring their supply chain operates as intended while keeping costs under control.
But while S2P and P2P are closely related, they aren’t identical – and to optimize your business’s procurement efforts, you’ll have to know which one you should focus on first. Keep reading for a closer look at S2P vs. P2P and advice on making the best decision for your company’s needs.
Understanding source-to-pay and procure-to-pay
Before doing anything else related to S2P and P2P, you’ll want to have a working definition of these procurement processes. With that in mind, here’s what you should know about:
Source-to-pay
The source-to-pay process covers many tasks businesses tackle while sourcing goods and services. It consists of the following steps:
- Needs identification: At the start of the S2P process, companies define and identify their goods and services requirements.
- Sourcing: Next, businesses perform analysis and market research to find high-quality suppliers for the goods and services they need.
- Supplier evaluation and selection: While evaluating potential suppliers, companies consider the quality, price, reliability and compliance they bring to the table.
- Contract authoring and negotiation: After choosing a supplier, companies must establish a formal supply arrangement by creating a contract. This document will include guidelines for delivery schedules, pricing and more.
- Procurement and ordering: Once a contract is in place, businesses can create/approve purchase orders (POs) to buy goods and services.
- Receiving and inspection: When a shipment of goods arrives, companies should inspect and verify that shipment against their purchase order and contract terms. By doing so, they can ensure their supplier delivers the compliance and quality they expect.
- Invoice processing and reconciliation: At this point, the S2P process moves to accounts payable, which processes and verifies supplier invoices.
- Payment processing: Finally, payments to suppliers are approved and processed.
Procure-to-pay
The procure-to-pay process is not fully distinct from S2P. Instead, this term describes the second half of the S2P process, which focuses on the operational side of a company’s procurement efforts.
While going through the P2P process, businesses take care of:
- Requisition: As the first step in this process, companies create purchase requisitions detailing their required items, the quantity they need and the reason why they’re making a purchase.
- Approval: Next, businesses must review purchase requests to make sure they are legitimate and in line with their needs and budget.
- Purchase order creation: When a company is ready to place an official order, it will create a PO – a document detailing its required quantities, prices, product descriptions and delivery dates.
- Order fulfillment: Once they have received a PO, suppliers acknowledge it and deliver goods and services.
- Receiving and inspection: Businesses then inspect and verify the goods they receive.
- Invoice processing and reconciliation: If everything is in order, companies process and verify their supplier invoices.
- Payment processing: With the invoices processed, businesses approve and send supplier payments.
- Record keeping: As a final step, companies record the documents involved in this process (among other details) for auditing and accounting.
How are S2P and P2P different?
Since the S2P process and the procure-to-pay cycle are closely linked, it can be easy to confuse the two. While comparing S2P vs. P2P, remember these processes differ in terms of their:
- Scope: During the S2P process, your company will do everything from identifying supply needs to processing payments after receiving an order. However, the P2P process only covers the tasks included in the second half of the S2P cycle.
- Focus: The S2P process covers activities such as supplier evaluation, contract negotiation, supplier relationship management and market analysis. On the other hand, P2P deals solely with ordering, receiving and purchasing goods and services.
- Related tools and technologies: Your business’s S2P process will rely on tools built for supplier evaluation, market analysis and contract management. Meanwhile, P2P requires software and systems designed for invoicing, procurement and payment processing.
- Effects on business strategies: The S2P process can directly influence how a company sources supplies among other elements of a business strategy. While P2P can have an impact on a business’s procurement efforts, it does not directly affect business strategy in the same way.
Should we look at P2P or S2P?
Now that you know the differences between S2P and P2P, it’s time to answer one more question: “Which of these processes should your business focus on?” Ultimately, there’s no single right answer, and your company’s decision will vary depending on its current needs and the nature of its challenges.
Pain points contained within the P2P cycle
If your invoicing is prone to errors or your approvals are simply taking too long, there’s a good chance there are just some bottlenecks in your P2P process. These can take the form of external communication challenges or formatting disconnects on important documents like purchase orders. They may also be purely internal issues like an approval process that isn’t supported by core system integrations providing high data visibility.
Automation solutions are some of the best options for correcting many P2P inefficiencies. These investments can also support challenges arising from rapid growth and an inability of legacy systems and strategies to scale. In nearly all cases, one of the first places leaders should look when experiencing procurement issues is anywhere manual workflows exist. With high error rates, resource-heavy approaches and limited scalability, these are obvious places where P2P breakdowns can originate.
Broader S2P cycle concerns
When the problems appear to be more strategic or systemic, it’s time to start examining your S2P cycle. For instance, if purchase order breakdowns are a common theme with all your suppliers, it suggests there’s a larger strategy problem relating to internal workflows, data system architecture, scaling challenges, supplier vetting or even market analysis.
These types of problems often require a deep examination of every corner of your business to uncover how inefficiencies may be impacting the overall sourcing and procurement process. It may be that manual workflows or a lack of ERP/CRM integration in areas like accounts payable, compliance and even reporting could be the answer to problems that are ultimately manifesting (painfully) in your procurement process.
Unlike P2P, S2P considerations also require leaders to think about how the procurement process impacts other departments. For instance, manual workflows that drag down your P2P cycle can directly impact billing, finance, cash flow and decision-making by transferring errors and inefficiencies in data streams. Software solutions that correct the problem for procurement within an ERP may represent significant opportunities – or pose serious challenges – for other departments.
In these cases, leaders will need to take a holistic view of these investments and select software, systems and platforms that maximize value across the business.
Streamline your procurement strategy with Zone
No matter where you fall in the S2P vs. P2P debate, you’ll need an efficient procure-to-pay process that delivers reliable results. Zone & Co can help automate your P2P process and make other improvements with products like:
- ZoneCapture: With ZoneCapture, your company can employ AP automation for invoice capture – reducing processing times and errors alike.
- ZoneReconcile: ZoneReconcile gives businesses the ability to handle reconciliation tasks within NetSuite and helps speed up this process with automatic transaction matching.
- ZoneApprovals: Companies using ZoneApprovals can automate their approval processes and accept or reject approvals in bulk.
Are you ready to see how tools like these can take your P2P process to the next level? If so, take the first step by setting up a demo of the Zone AP Automation solution today!
FAQs
What is the difference between S2P and P2P?
The S2P process covers every step of the procurement process, from identifying needs and finding suppliers to processing invoices and approving payments. Meanwhile, the P2P process is a subset of the larger S2P process that focuses on ordering, buying, receiving and paying for goods and services.
Which is better for my business: S2P or P2P?
The answer to this question will depend on your company’s current situation. If your P2P process isn’t as efficient as it should be, it may be wise to focus on improving this process before dealing with S2P as a whole.
Can P2P be integrated into an existing S2P framework?
Since P2P is already part of the S2P process, P2P improvements can and should be part of your company’s S2P framework. However, companies making these improvements will need to consider their potential effects on the broader S2P process.
