There’s an abundance of sourcing and procurement terms out there, enough to confuse even the most seasoned professional. Our essential guide to source-to-contract delves into the meaning of the term and explores how you can streamline this process.
What is Source-to-contract?
Put simply, it’s the process of taking a supplier through the initial selection process to contract management, where agreements are decided upon, drafted into legal documentation, and managed on an ongoing basis.
The supplier they select will need to meet various criteria. This could be a satisfactory health and safety policy, their cost, or that they have sustainability targets. It depends on the priorities of the buying company.
For example, a food manufacturing organisation may need a new supplier of a raw ingredient, such as cooking oil. The organisation might be implementing a new sustainability initiative, so the cooking oil would need to be RSPO certified.
They would launch the source-to-contract process to identify and onboard a supplier who could meet these criteria, after thorough assessment.
Stages of Source to Contract
In its absolute basic terms, the source-to-contract process consists of four key stages.
Sourcing and Supplier Selection
In this stage, the need for a new supplier has been identified. The criteria the new supplier needs to fulfil are established, and a new sourcing project is kicked off.
The buying organisation will open an RFx. In essence this involves a set of questions that determine whether the supplier meets the needs of the project.
Potential suppliers will submit tender responses, putting themselves forward as potential buyers. The buying company reviews these answers and invites select suppliers to the next stage.
Discover how our clients manage supplier tenders with ARCUS® eRFX here.
Supplier Auctions or Bidding
After suppliers who meet the criteria have been selected, the buying company may decide to enter the suppliers into a stage of bidding. This determines how much the buying organisation will need to pay for their services. This can be done via an eAuction.
With ARCUS® eAUC, users can configure the auction set-up to their needs, creating a more competitive environment to drive down supplier bids. Based on the results of both the tender and the bidding, the buying organisation will select a supplier.
To discover more about ARCUS® eAUC, see the page here.
Supplier Onboarding
When a supplier is selected, supplier information may need to be onboarded to ensure that they are compliant with regulations, legislation and so on.
ARCUS® Supplier Information Management (SIM) allows you to collect, manage and maintain supplier information, you can see the product webpage here.
Contract Management
After the supplier has been selected, and required information has been onboarded the agreement between the two organisations needs to be formalised into a legal document. In the contract management phase, a contract is drafted and agreed upon, then signed by both parties.
The contract will be valid for a period that is agreed upon by both parties until the expiration.
Our clients use ARCUS® Supplier Contract Management (SCM) to track and manage the lifecycle of their supplier agreements. To discover more about the software, see the product page here.
Pain Points Across Source-to-contract
Though source-to-contract is an incredibly important section of the overall procurement process, it’s not without its share of difficulties.
Long Sourcing Cycles
Large organisations with an already expansive base of suppliers are likely to receive excessive supplier responses.
The sourcing process can drag if strict deadlines are not enforced. Suppliers can send incomplete answers, or input data into the system incorrectly. These issues may not seem much in isolation, but when they occur frequently across a large supply base it bloats the sourcing cycle.
This means projects take longer to complete.
No Oversight
Without any kind of system in-place to manage the source-to-contract process, it’s difficult to maintain any kind of oversight.
This leads to a host of other issues, including difficulty assessing whether the suppliers meet the criteria, or identifying project process.
Supplier Risk
Without efficient processes in place to manage source-to-contract, organisations are much more susceptible to supplier risk.
If there is no standardised method of response submission, the process of supplier selection can require a great deal of rekeying. This leaves the organisation open to risk from error.
Benefits of Source-to-Contract Software
Implementing software across source-to-contract can help to overcome pain points.
Digitising source-to-contract drives standardisation, enforcing a single method of supplier responses. By digitising the process users can save time, maximise data value and discover the benefits of streamlined supplier management.
However, digitisation is just the first step to achieving optimised source-to-contract processes, but these can be further transformed using smart technologies.
For example, Artificial Intelligence can scan and verify documentation at the point of upload during the tender stage, implementing due diligence into source-to-contract processes from the initial supplier selection phase.
Similarly, if it’s part of the selection criteria that a supplier must have a specific certification, by integrating with specific online databases, it’s easy to verify their membership, and saves the trouble of having to complete manual checks.
Discover the additional benefits of source-to-contract software through our webpage here.
Maximising Data Value
Sourcing have targets to track, but the lack of oversight poses issues for progress evaluation.
By implementing data visualisation into your source-to-contract process, sourcing teams can identify progress towards their goals, including tracking savings over time. This means they can easily demonstrate progress to senior management.
ARCUS® Analytics, our comprehensive data visualisation module, allows users to track progress towards project goals over time.
To discover more about ARCUS® Analytics, see our webpage here.
To discover more about developing an optimal source-to-contract process, see our article on the subject here.
Why ARCUS® Source-to-contract?
At Trade Interchange, our ARCUS® Supplier Management Software has modules that expand this process, including:
Strategic Sourcing
At the initial stage of sourcing, selecting specific goals for the project can help align your sourcing strategies with overall business goals.
Our software ARCUS® Strategic Sourcing Management (SSM) allows you to record and track sourcing project goals from beginning to completion, ensuring that your sourcing projects are always in-line with your business goals.
To learn more about ARCUS® SSM, see the product webpage here.
Performance Management
After the contract has been agreed, and the agreement is active, it’s good practice to regularly assess supplier performance to ensure they are meeting specific KPIs. With ARCUS® Supplier Performance Management, our supplier scorecard software, you can regularly assess how suppliers are performing.
To conclude, source-to-contract doesn’t have to be a complicated process. With the right system in place, with the right approach, you can overcome the inefficiencies that hinder progress.
If you’d like to book a consultation to discover how we can digitise your source-to-contract processes, you can do so through the form here.