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Source-To-Pay (S2P) Automation in 2024: in-Depth Guide

Source-To-Pay (S2P) Automation in 2024: in-Depth GuideSource-To-Pay (S2P) Automation in 2024: in-Depth Guide

Procurement teams are under pressure to purchase products and services faster to satisfy companies’ wish to operate with more agility. Advances in automation can significantly accelerate the source-to-pay processes. Keelvar’s recent report shows that 89% of sourcing experts  say automation will reduce time spent on manual tasks and  86% think it will result in extra time for more strategic initiatives.1

What is a source-to-pay (S2P) process?

Source-to-pay (S2P) is the process from selecting a supplier to completing all their payments. The difference between S2P (Figure 1) and P2P was the process of specific sourcing strategies to gather the optimal products and services for the company. Nowadays, tools such as P2P suites tend to overcome this. With strategic sourcing, companies also proceed with the processes involved in P2P cycle. All steps are as follows:

  • Budgeting
  • Need identification
  • E-purchasing
  • Employee expenses
  • Accounts payable
  • Supply chain financing
  • Payments

In addition to these critical tasks, the overall value stream also includes the activities required to support the end-to-end operation, such as vendor and master data management. Below you can find what an S2P process looks like step by step. See our in-depth guide to master data management to learn more about its use cases, best practices, and benefits.

Steps of S2P. Source: McKinsey

How to automate S2P processes?

Advances in technology have significantly increased both the number of operations that can be automated and the degree of automation that is feasible. Below you can find the technologies that can help S2P processes to work more efficiently.

Machine Learning (ML) Algorithms

ML algorithms can handle tasks that include complex rules and require some form of pattern recognition to be correctly executed. There are numerous examples of implementation of AI in sourcing and procurement. To discover more, check out:

Robotic Process Automation (RPA)

Most RPA software use basic rules to simulate repeatable activities that would otherwise be performed by human-machine users. A significant benefit of RPA is that, unlike conventional system integration methods requiring access to the underlying code of each particular software program, bots performing different tasks need access to other software in the same way as human users might, through the user interface. As a result, RPA bots are easy to integrate to processes.

However, most repetitive activities in S2P can not be automated by simple rules. For example, modern invoice extraction requires deep learning as we explained in our in-depth article on the topic. Therefore, RPA software typically only automate a minor part of the S2P process, the data transfer between different systems.

Yet, RPA can be combined with invoice automation solutions to reach higher levels of automation. McKinsey indicates that a large basic material company found that by adding scanning bots and coding invoices directly to its ERP program, it could eliminate invoice processing costs by 80%.2

Smart Workflow Technologies

Smart workflow technologies can connect tasks performed by various people and machines to a cohesive process with well-defined tasks— even if the combination of tasks varies dramatically from case to case, as in risk management processes for supplier certification.

As an example, a business-service company is piloting a smart workflow approach that dynamically works between procurement and financial systems, depending on the risk-management rationale of the supply contract. The program then assigns tasks to all participants in the on-board, risk management, and supplier certification activities.

Conversational AI

Cognitive agents can be deployed if a broad knowledge base needs to be searched quickly to decide the appropriate course of action. Chatbots used by a variety of financial-service organizations to assist contact-center workers may respond to a wide range of customer questions by selecting appropriate responses from a previously recorded collection of answers.

Examples show that forms of conversational AI such as sourcing transportation bots can also:

  • create validation rules for mandatory field controls
  • analyze carrier bids
  • benchmark cost performance
  • optimize scenario analysis

What are the main challenges?

The S2P processes are essential to keep things running smoothly in many industries. Procurement quality is the responsibility of the procurement division. The department must find the right supplier, negotiate contracts, reduce spending, and find ways to simplify the buying process.

Unifying Systems and Processes

Large departments within companies have their procurement processes and resources, making data consolidation challenging and inconvenient. Sourcing and accounts payable are all handled by a separate department, and departments usually tailor the process for their particular purpose.

Besides, companies usually use more than one ERP program, making it impossible for vendors and business data to provide a consistent and standardized source of reliable data. They mostly produce slow, error-prone, and manual procedures, such as working with paper invoices, which end up causing extra labor costs.

For some of the ERP systems that include AP automation, check:

Lack of Governance and Compliance

Regulation and implementation in procurement systems tend to be inflexible. The main idea of pre-approval spending can also be seen as needless bureaucracy, which results in non-contracted spending and ad-hoc purchases.

Management Apathy

Management teams in businesses often see procurement processes as non-critical to company operations, which means that technological improvements and process enhancement are usually of low importance. As such, inefficiencies frequently show up as a result of the long-term use of old technologies.

Lack of Adoption

Users want easy and intuitive experience in their business environment, and many procurement processes do not meet these standards. Since procurement software is usually developed by purchasing specialists who are more familiar with complexities, applications are often full of features and lack the correct emphasis on usability.

Change Management

Procurement involves both the procurement department and the units making purchases to sustain their business activities. Both of these units have constantly changing processes which makes it hard to produce a set of stable requirements for company’s needs from a procurement system.

What are the main benefits?

By automating S2P processes, companies can achieve the following benefits:

  • Reduced expenses, like invoice processing costs and back-office costs
  • Faster process, as digital agents can work continuously
  • Fewer errors due to less human intervention
  • Greater visibility and transparency for better decision-making
  • Reduced complexity as different S2P processes can be unified and standardized
  • Enables the finance operations team to focus on higher value-added activities

Which are the leading vendors?

S2P automation vendors help businesses streamline procurement processes and increase performance by using a single system instead of separate solutions. Procurement practitioners often use these tools, but the software can also be used by accountants to track invoices and payments. You can visit our vendor list to learn more about S2P market leaders with enhanced P2P capabilities.

For tasks like invoice processing, businesses can leverage document capture tools, as well. You can find our full list of document capture vendors on our website.

You might also want to take a look at our other articles on this field to learn more.

If you have questions about how S2P tools can help your business, don’t hesitate to contact us:

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Access Cem's 2 decades of B2B tech experience as a tech consultant, enterprise leader, startup entrepreneur & industry analyst. Leverage insights informing top Fortune 500 every month.
Cem Dilmegani
Principal Analyst
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Cem Dilmegani
Principal Analyst

Cem has been the principal analyst at AIMultiple since 2017. AIMultiple informs hundreds of thousands of businesses (as per similarWeb) including 60% of Fortune 500 every month.

Cem's work has been cited by leading global publications including Business Insider, Forbes, Washington Post, global firms like Deloitte, HPE, NGOs like World Economic Forum and supranational organizations like European Commission. You can see more reputable companies and media that referenced AIMultiple.

Throughout his career, Cem served as a tech consultant, tech buyer and tech entrepreneur. He advised businesses on their enterprise software, automation, cloud, AI / ML and other technology related decisions at McKinsey & Company and Altman Solon for more than a decade. He also published a McKinsey report on digitalization.

He led technology strategy and procurement of a telco while reporting to the CEO. He has also led commercial growth of deep tech company Hypatos that reached a 7 digit annual recurring revenue and a 9 digit valuation from 0 within 2 years. Cem's work in Hypatos was covered by leading technology publications like TechCrunch and Business Insider.

Cem regularly speaks at international technology conferences. He graduated from Bogazici University as a computer engineer and holds an MBA from Columbia Business School.

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