Earlier this year the highly regarded procurement analyst Jason Busch heralded 2013 as ‘the year of Source to Pay (S2P) adoption in small to medium sized enterprises’. But at a time of continued economic uncertainty for many, is adding another cost line to already-strained IT budgets really a smart move? When it’s one that can deliver significant short term payback and resource reduction, the answer must surely be yes.

For many SMEs the first questions may be ‘what is Source to Pay’? Put simply, S2P systems deliver big cost savings by providing the tools to negotiate the best possible deals from suppliers, ensure employees buy compliantly from those suppliers and reduce process overheads by automating the exchange of orders and invoices.

Source-to-Pay software takes the legwork out of that entire sourcing and purchasing cycle, from the starting point of analysing spend and selecting suppliers, through to the endpoint of paying the supplier correctly. To aid understanding of this issue and solution I’ve identified five sourcing and purchasing pain points that are remedied by Source to Pay. In this post I will focus on the first of these – selecting your preferred suppliers.

So here’s the scenario - you decide to review your purchasing in a particular spend category that comprises hundreds of different products and a range of services, let’s say facilities management. This process shows that different departments are buying varied elements of this category from a number of different suppliers, creating many small ad hoc purchases at non-competitive prices. You decide to put out a tender to a vetted list of suppliers for a stripped down set of standard services. The aim is to consolidate what you buy and from whom so that you can increase buying power and negotiate a better price.

But going out to tender manually requires significant resource and is so long-winded and error prone that the process of reviewing suppliers never really gets off the ground. Writing effective tender invitations, then sorting through and evaluating varied and difficult to compare responses, slows the process and makes it harder to compare offers from suppliers. Your opportunity to reduce costs and ensure contractually secure products and services are used by the business falls at the first fence.

Source-to-Pay can largely automate this process. Tenders can be constructed within the system from pre-defined clauses dragged and dropped into place. Then suppliers actually respond within the system too, eliminating paperwork and manual checking. The system also automatically checks, compares and scores responses against chosen criteria. So significant are the productivity benefits of Source to Pay in this area that mid-sized organisations often see a reduction of around 85% in the time it takes to manage the tender process.

So Source to Pay has the potential to get your supplier and spending review off to a flying start with effective preferred supplier selection, but it doesn’t stop there. It’s an integrated cycle and in the next post we’ll look at the next two pain points it remedies – supplier contract management and maverick spend management.