Improve Procurement Cycle Times and Reduce Costs with Source to Pay

To ensure each project is a success, government contractors need to juggle countless responsibilities. Not only do they have to quickly find the resources they need to complete projects and manage them efficiently — on time and on budget — they also need to collaborate with subcontractors, work with direct and indirect material suppliers, and keep stakeholders aligned across multiple communications channels. If that weren’t enough, they must ensure their processes and systems comply with ever-changing government regulations.

Add it all up, and it is no surprise that the average contracting firm spends 40–50% of its overall costs on the resources supporting procurement.

This juggling act is even more difficult when data is spread across different systems and contractors rely on multiple channels of communication — like email, phone calls, video calls, and even snail mail and faxes. Simply put, it’s more difficult for contractors to procure materials efficiently when they’re using several disparate systems — not to mention the resulting nightmares that materialize should an audit occur. Without a consolidated procurement platform guiding the process, contractors need to absorb additional costs and spend more time sifting through emails to find things like purchase order negotiation details and approval information.

As it stands, procurement teams are busy keeping up with supplier approvals, order statuses, and delivery timelines. When this information is spread out across systems and you don’t have access to a single source of truth, finding all the data you need is a tall order — and a task that simply can’t be done with any sense of urgency.

Making matters worse, disparate systems also make it difficult to uncover key learnings that could help you make better decisions to reduce cycle time and bake more efficiency into your procurement processes.

Key challenges government contractors face

Government contractors have their work cut out for them when economic conditions are ideal. But today, their work is even harder due to a confluence of factors, including supply chain challenges, rising inflation, and labor shortages.

What happens if you have a sales order for a certain item, but you have to wait six months for the materials you need to complete the project? To combat long lead times, contractors need to order supplies well in advance — which is only possible with a streamlined process that enables you to look into the future and know what materials you will need.

Similarly, to ward off inflation, contractors need to be able to get quotes quickly to ensure they can get the best products and services at the best price from the right vendor. Once again, this is only possible when there’s an efficient, streamlined procurement process in place.

With so many compounding challenges and moving parts, it is no surprise that procurement remains a major problem for contractors of all sizes. When you’re leveraging multiple systems, paper and digital documents, and multiple teams to manage the source-to-pay (S2P) process, it can be even more challenging.

What is the source-to-pay process?

Source-to-pay (S2P) is a process that begins with sourcing out a supplier of goods or a subcontractor of services, negotiating with them, and ultimately contracting with them. The process ends when a shipment is received, or the services are rendered, and a payment is made.

These are the key steps in the S2P process:

• Sourcing. Contractors must identify, vet, and select new suppliers, vendors, and subcontractors.
• Contracts. Once a contractor has agreed on an ideal partner, they need to execute an agreement.
• Procurement. After the ink is dry, contractors then need to manage the process of approving and ordering goods and services.
• Resource management. During the engagement, contractors need to find and track labor and record time and expenses.
• Accounts payable. Once services are rendered, contractors collect invoices and match them to AP vouchers and purchase orders.
• Performance. After the contract is fulfilled, contractors need to conduct retrospectives, analyzing what went wrong and what went right, to ensure the project is a success and improve processes for next time.
• Compliance. Throughout the engagement, contractors must work diligently to ensure they are meeting all government and contractual regulations, including double-checking that they’re working with the right partners (e.g., a woman-owned or veteran-owned business, depending on the project requirements).

With so many steps to complete, it comes as no surprise that the S2P process touches a number of teams, including folks involved with:

• Business development
• Contract management
• Subcontract management
• Purchasing
• Receiving
• Project management
• Finance and accounting

What does it look like if you maintain the status quo? Imagine you’re communicating with a potential partner across several different channels: phone, mail, email, and fax. Instead of having all your data in one place, you’re spending hours or even days trying to track everything down. Not only is this not an efficient way to spend your time, it can also lead to payment delays for suppliers and vendors.

Now, imagine you’re using that old, outdated system, and it’s time for an audit. Are you ready to handle all the work it entails?

When you’re relying on disparate systems to facilitate the S2P process, it’s extremely challenging for all these teams to work together in harmony. On the flip side, when you’re able to streamline the process, you’re making all these jobs easier — leading to happier teams, increased engagement and productivity, and a healthier bottom line.

What does a streamlined source-to-pay process look like?

A streamlined source-to-pay process is a highly integrated procurement process that enables contractors to link opportunities, contracts, and projects, and tie that information together with time and material collection, budget planning, payment, analysis, and compliance reporting. Information flows from one step to the next through the process, reducing manual data entry while enabling teams to work faster and reduce cycle times. Simply put, a streamlined process enables you to manage all relevant contract and subcontract data in one place, which makes it easy to collaborate with stakeholders and leads to less back and forth and fewer disputes about things like purchase orders and invoices.

If contractors wish to truly streamline the S2P process, they need to invest in technology that’s purpose-built to help users achieve that goal. The right solutions should enable contractors to:

• Connect project data across the entire S2P process to consolidate communications and eliminate confusion
• Bring automation, accuracy, and acceleration to the invoicing process to free up time and reduce payment errors
• Streamline the contract and subcontract management process by ensuring all important data stays in the same place
• Ensure reporting accuracy to maintain compliance and enhance audit-readiness
• Ease the handoff between teams to keep everyone aligned and on the same page

By digitizing the entire S2P process, contractors can streamline communication across teams to reduce cycle times, improve efficiency, and reclaim time that they can then invest in focusing on strategic work, like managing lead times more effectively and making data-driven decisions about how to combat supply chain issues and rising inflation. By shortening procurement cycle times, contractors can then reduce procurement costs considerably, since time is the biggest driver of those costs.

With a modern, fully integrated S2P platform, all critical communications, documents, and contract data lives in one place, making work easier for all involved parties. As a result, you can eliminate disputes while also relying on technology to automate critical processes.

For example, modern systems can facilitate that process automatically instead of conducting two- or three-way matching by hand to ensure an invoice aligns with a purchase order. In turn, critical metrics — like days payable outstanding and supplier days sales outstanding — improve. With everyone working from a single source of truth, parties don’t need to worry about running into any surprises.

How to streamline the source-to-pay process

Streamlining the S2P process is only possible when you have an integrated platform that brings all relevant people, data, and communications together in one place. But technology, on its own, is never a panacea.

In addition to having the right tools in place, you also need to follow proven best practices to optimize your S2P strategy and build a more efficient, more profitable operation.

1. Ensure you are only pursuing the most profitable opportunities

If you end up spending the bulk of your time pursuing wrong-fit opportunities that either don’t pay enough or are impossible for you to win, you won’t have a truly streamlined S2P process. Instead, you need to ensure that you’re only pursuing the right opportunities and sourcing the best vendors. By identifying opportunities early, you can improve win rates, build better relationships with vendors, and transform into a data-driven operation that doesn’t make decisions based on gut instinct.

2. Create standard operating procedures

Think about your procurement processes — like the single step of submitting a requisition for approval. Do you have an SOP for that? Do you know who needs to be notified and what information they need? Or are you relying on a couple of different people to handle these responsibilities — and spending time tracking them down? Such an approach, of course, will slow down the S2P process.

This is a simple example, but with so many steps in the S2P process, the need for SOPs becomes clear. To create your own SOPs, gather all stakeholders, outline the steps in the process, and agree upon procedures that can get everyone on the same page.

3. Optimize your practices over time

No matter how good your process is today, it can always improve. By collecting business intelligence and using analytics, you can pinpoint potential sources of friction in your process and any extra steps that might hurt you. For example, are your buyers and your suppliers negotiating quickly enough? If not, it might be time to look for new partners. Assess your S2P process on a regular basis, use data to adjust it accordingly, and you’ll build an incrementally more efficient process over time.

To learn more about Deltek Costpoint and how you can optimize your S2P process, including what to look for in a source-to-pay system, check out this on-demand webinar: Steps to Improve Procurement Efficiency.