‘’We need to find a new supplier’’ ‘’We must source new materials for this project’’

How many times have you heard or said those phrases? When it comes to finding new suppliers or getting those materials for an upcoming project, you know that there are going to be a lot of steps that need to be followed. It’s a combination of strategy, action, and operations that can be a bit confusing sometimes. 

That’s why it’s more simple to encompass everything in a single definition: 

Source to Contract (S2C)

Curious to learn more? 

Definition of Source to Contract  

Put it simply, source-to-contract refers to the end-to-end process of managing supplier relationships, that’s from the very search for options point to awarding the final contract. Just like you would follow a series of indications on the map to arrive at a new destination, the source-to-contract process works to help your organization not only find the right suppliers but also obtain favorable contract terms and maintain positive and lasting relationships with suppliers. 

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How helpful does that sound?

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Key Steps in Source-to-Contract

Sourcing strategy

How can you start a search if you aren’t sure of what are you looking for? The first step in the S2C process is to develop a sourcing strategy. You’ll want to begin by understanding what your business needs, depending on the size of your company you could use some input from relevant stakeholders. Next, research the market to evaluate trends, supplier options, and pricing. Finally, create a plan outlining how you'll approach sourcing, will you limit your search to one supplier? Are you looking for more diverse options? What about the markets? 

Identify ideal suppliers 

Okay, now that you have the strategy covered, it’s the moment to find and vet potential suppliers to make sure they can meet your needs and maintain quality.  Once you have, ideally a list with different options you can send out Requests for Information (RFIs) to learn about their experience. Remember to consider more than just the price, quality, performance and even attitude are perhaps even more important. 

Open the bidding process 

With your qualified suppliers in place, move on to sourcing execution. Send out Requests for Proposals (RFPs) or Requests for Quotations (RFQs) to detail your needs, criteria, and deadlines. After this is completed, it’s bidding time. Carrying out an e-auction is the simplest way to collect the right bids. Then, select the supplier that best meets your criteria and finalize the deal through negotiation.

Award the contract 

Have you chosen the ideal supplier? Amazing, now the only thing that’s pending is to negotiate and create the contract. You’ll have to discuss and agree on pricing, delivery schedules, and payment terms. Then, draft a contract outlining these terms, including scope, performance metrics, and confidentiality clauses. Have your legal and procurement teams review the contract to ensure it meets all the required criteria, get approval if needed, and voila the job is done. 

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Benefits of Implementing Source-to-Contract

It saves money 

The whole purpose of source-to-contract is to create a single workflow that allows you to search for the best price and the best quality. So you can guess that it will definitely contribute to cost reduction.

Higher efficiency levels 

If something saves you money, would you say that it also increase your efficiency levels? With S2C the answer is a sound yes. A major advantage of this processes the increased efficiency it brings to procurement. Combining sourcing and contracting into one workflow, you can eliminate redundant tasks and save time on manual processes.

Positive relationships with suppliers 

S2C allows for more transparent communication with suppliers. Standardized processes are the road to foster trust and build stronger relationships. This not only positively impacts  collaboration but also leads to better negotiation outcomes. If your suppliers feel valued and understood, they’re often more willing to provide favorable terms and quality service. 

Compliance

Another bonus of source-to-contract is that it helps ensure that your procurement processes adhere to necessary regulations and internal policies. Specially with automation you can set up compliance checks, reduce the risk of errors and ensure that every contract meets legal requirements.

Risk reduction 

Source-to-contract procurement strategies can minimize the risks associated with critical business decisions. Vetting suppliers and enhancing compliance, means that you can lower the potential risks of engaging with third-party suppliers. 

Challenges in S2C

• Error-Prone: Manual entries often lead to mistakes.
• Limited Collaboration: There’s often a lack of opportunities for teamwork between buyers and suppliers.
• Status Updates: It can be tough to get real-time reports on outstanding deliveries.

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The solution? 

Digital processes 

The key to have a source-to-contract process that works for you and your potential suppliers lies on automation.

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Key Performance Indicators (KPIs) for Source-to-Contract

Okay, so at this point, you know that source-to-contract can make wonders for your business and the way you manage your supplier relationships. But how do you know if your process is truly delivering value? That’s where KPIs come in.

Tracking the right metrics for your business helps you assess efficiency, cost savings, supplier performance, and contract compliance, giving you a data-driven approach to adjust or improve your procurement workflow.

Here are some of the most important indicators to use:

Sourcing cycle time

What it measures: The average time taken from identifying a sourcing need to selecting the right supplier.

Why it matters: You know how it goes: a long sourcing cycle can delay procurement, impacting your business operations. Reducing this time increases agility and competitiveness.

Cost savings percentage

What it measures: The percentage of cost savings achieved through negotiation, supplier selection, and competitive bidding.

Why it matters: Procurement, after all, works to secure the best value. A high-cost savings percentage is a good indicator of effective sourcing strategies.

Supplier compliance rate

What it measures: The percentage of suppliers adhering to contract terms, delivery schedules, and compliance requirements.

Why it matters: Having confidence that your suppliers meet contractual obligations reduces risk and strengthens positive relationships.

Contract approval time

What it measures: The average time taken to approve and finalize a contract.

Why it matters: A slow contract approval process can lead to delays in onboarding suppliers and executing procurement strategies.

Percentage of spend under management

What it measures: The proportion of total procurement spend that is actively managed through strategic sourcing and contract agreements.

Why it matters: Higher managed spending indicates better cost control, supplier oversight, and risk mitigation.

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Supplier risk score

What it measures: A risk assessment score based on supplier financial health, compliance, performance history, and geopolitical factors.

Why it matters: A direct approach to supplier risk prevents disruptions in your operations and helps you build a resilient supply chain.

Contract renewal and compliance rate

What it measures: The percentage of contracts renewed before expiration and compliance with agreed terms.

Why it matters: Managing contract lifecycles efficiently prevents lapses in service and is how your business can get the most value from agreements.

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How do Digital Platforms Improve the Source-to-Contract Process?

Is there any way you can make source-to-contract simpler?

Yes, and it begins with digitalization

Procurement software solutions centralize and automate key S2C activities, giving you a seamless workflow from sourcing to contract management. 

Here’s how they add value:

• Improved Transparency: Digital platforms are great for gaining real-time visibility into sourcing activities, supplier performance, and contract statuses, reducing blind spots in procurement.
• Enhanced Compliance: Automated workflows assist your company in checking if contracts adhere to company policies and regulatory requirements, reducing compliance risks.
• Better Supplier Collaboration: Cloud-based platforms facilitate easy communication and document sharing with suppliers, changing for better negotiations and approvals.

Key Areas Where Automation Transforms S2C

Automated supplier selection

Gone are the days of manually reviewing supplier bids and wasting hours going over an endless list of information.  AI tools analyze supplier responses, assess risk, and recommend the best fit based on your predefined criteria.

Smart contract management

Contract lifecycle management (CLM) software automates contract drafting, approval, and renewal processes. Features like e-signatures and automated risk analysis are how you make sure your contracts are executed faster and with fewer errors.

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Compliance and risk management

Automation tools continuously monitor supplier compliance, flagging potential risks before they become major problems. This helps your business to stay ahead of regulatory changes and supplier performance issues.

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Cost and spend analysis

Procurement platforms use AI-driven analytics to track spending patterns, identify cost-saving opportunities, and prevent maverick spending, giving procurement teams greater financial control.

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