Organizations lose between 3% and 4% of their total external spending due to high transaction costs, inefficiencies and non-compliance in the source-to-pay cycle. Imagine how much the bottom line could improve if they eliminated these issues.  

The end-to-end process known as source-to-pay includes all the steps necessary for business to buy products and services from other companies and make payments for them. 

The first step is creation of specialized sourcing plans to determine how to obtain the required products and services. Next, procurement teams choose certain suppliers, enter contracts with them, place orders, confirm that the right products and services have been delivered, and authorize and release payment. 

In addition to these fundamental operations, the whole process comprises the individual tasks required to support it, such as vendor management and spend-category strategy.

According to an analysis by McKinsey, 56% of source-to-pay processes can be totally or mostly automated with current technology. Following is a look at how each step in the source-to-pay cycle improves after automation.

Sourcing is tasked with researching, developing, implementing a plan, and establishing quality and quantity indicators. When done manually, it can be time-consuming and require a large qualified team to perform all these functions. Receiving quotations by post or e-mail can be cumbersome. Teams must manually build a supplier repository to ensure that the information gathered can be used effectively in the future.

Automation allows organizations to run multi-level e-mail campaigns targeting prospective vendors. They can also receive quotations and proposals through a supplier portal that qualifies them according to set criteria. Moreover, only suppliers that adhere to the company's compliance can be onboarded into the system.

Contract management oversees all stages of the process, from creation through execution and final termination or contract renewal. Without automation, contracts must be stored in physical form. In addition, it takes time and effort to study each contract's details, and highlight critical areas. When renegotiating a contract, the team must go through the whole process again.

Automation allows for the storage of hundreds of contracts in one place, and extraction of relevant information within seconds. In this manner, businesses ensure that they don’t miss any critical deadlines, and have the required groundwork in place for renegotiation and termination. Moreover, with pre-made templates, they can quickly draft contracts and send them for approvals and signatures without delays. 

Spend analytics is the collection, processing and analysis of procurement data to identify corporate spending trends. Making sense of that data manually is virtually impossible. Imagine trying to figure out which supplier you spend the most on, and which one is giving you the best discounts. Even if you build spreadsheets, entering each purchase and comparing it with past expenditures can be a burdensome task.

Spend-analytics software fetches data from different sources like your enterprise resource planning (ERP) application, and analyses it using visualizations that present firm spending parameters and key performance indicators. Automated spend analysis dashboards link and analyze procurement spend data with built-in text analysis to uncover patterns, outliers and insights that assist management in making strategic business choices.

Procurement includes all processes starting from identification of need to supplier payment. This includes purchase requisitions, approvals, orders, goods receivable notes, invoice receipts, and payment. Before automation, employees had to compose e-mails when they wanted to put in a request for an item. The messages had a high chance of getting lost or forgotten in the swamp of other high-priority items. Approvals could take months, with additional months needed to place and receive orders. With a high number of unorganized requests, maverick spending and dark purchasing was common.

With automation, employees can put in requests by selecting items through approved catalogs. Notifications and e-mail alerts remind supervisors to approve their team’s requests in a timely manner. Requisitions are flipped into purchase orders within the blink of an eye, and three-way matching ensures that you’ve received and are paying for what you ordered.

Invoice processing encompasses the entire cycle of receiving a supplier invoice, authorizing it, defining a remittance date, paying the invoice and entering it in the general ledger. Manually processing of invoices requires tedious and mundane tasks, and there’s a high chance of errors. For example, the supplier may charge you for something that was never ordered or delivered. Or if you forget to process an invoice timely, it could cost you a penalty and a damaged supplier relationship.

Automated workflows reduce invoice processing time from 45 days to just five days, a reduction of nearly 90%. Moreover, fraud can be avoided with an automated approval workflow and invoice-matching system. And invoices can be stored for future reference.

Supplier management includes assessing supplier performance, defining and establishing delivery and quality standards, and maintaining supplier relationships. Without automation, businesses handle those tasks through Excel files. The result can be supply delays, and therefore delays in delivering the end product.

Automation streamlines supplier communications by increasing order-scheduling transparency, automatically tracking and managing schedules, and following up on any missing information or activities. It can also help inform buyers and sellers about each process and its particular requirements.

Now is the time for efficiency and getting things done. Organizations stuck in manual processes are no longer a part of the competition. Automation removes manual, error-prone and dull tasks and replaces them with effective and productive operations. It allows companies to focus on strategic initiatives, furthering business development and growth. 

Prasanna Rajendran is vice president at Kissflow.