What is Source-to-Contract? All you have to know

‘’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. 

‍

How helpful does that sound?

‍

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. 

‍

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.

‍

The solution? 

Digital processes 

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

‍

Why Automate your Source-to-Contract workflow?

Templates

Utilizing templates for tenders and product or price requests can significantly benefit your operations. As it will save you time and increase the number of bids  you might  receive.

Standardization

Implementing standardized formats facilitates direct price comparisons and detailed cost breakdowns. It certainly  makes it easier to track your budget and how is your planned spending and pinpoint the best deals, as well as areas ideal for negotiation.

Integration

A digital S2C framework lays the foundation for a fully integrated source-to-pay (S2P) process. This covers everything from initial demand identification to inquiries, order placement, and invoice processing.

‍