Source-to-Contract Process

Source-to-award, or source-to-contract, is a group of procurement activities that can be optimized virtually overnight — with the right tools. Digital platforms that allow for automated bidding, virtual purchase orders, and online payments, as well as collaboration with suppliers, make the source-to-contract process more manageable, transparent, and compliant. 

First, let’s take a look at what source-to-contract means and the steps involved with completing this vital procurement activity. Then, we’ll outline some ways in which a procurement platform can help improve a range of source-to-contract activities. Ultimately, automating your source-to-contract process frees up your procurement team to do more high-value tasks while keeping your purchasing function running smoothly. 

What is source-to-contract?

Source to contract is the set of procurement processes that a company undertakes to source products or services. It includes activities such as developing a sourcing strategy, getting quotes, negotiating a contract, and rewarding the contract to a supplier. 

Source-to-contract, sometimes known as source-to-award, encompasses the entire procurement cycle that contributes to the final delivery of goods or services. This might include finding suppliers, developing and implementing strategic sourcing, managing an RFx process, negotiating a contract, and performance management with vendors. “The source to contract phrase truly refers to the entire system of procurement altogether,” wrote one procurement expert.

Because procurement can look different at every organization, the source-to-contract steps also vary. Typically, however, the source-to-award process includes the procure-to-pay process, as well as strategic sourcing and supplier relationship management. Here are some of the key steps involved in source-to-contract. 

Steps in the source-to-contract process

The steps will vary depending on the urgency and frequency of the source-to-contract process, as well as the size of the organization. For instance, smaller organizations that regularly re-bid the same contract on a set schedule will likely not need to undergo every step in this source-to-award process as outlined. 

Step 1: Sourcing and vetting

The source-to-contract process starts, naturally, with sourcing. Sourcing activities include everything up until the actual purchase of a good or service. Sourcing starts by identifying a need in an organization and creating a shortlist of qualified vendors who can meet that need. In the sourcing phase, a procurement expert will gather information about budget, lead times, and order quantities. 

In strategic sourcing, the procurement expert will dedicate time and effort to researching and vetting suppliers who can deliver on time, at a high quality, and in the right quantity. Sourcing becomes a value-add to an organization when it efficiently and cost-effectively finds exactly the items the company needs from suppliers that prove to be reliable over the long term.

Step 2: Host a bidding process

From the shortlist of pre-approved vendors created in step one, host an RFx process to get what you need. Issue an RFQ or RFP if you are sure you want to make a purchase, and you know the specifics of what you want to buy. If you aren’t sure, consult this guide to learn more. 

[Read more: RFQ vs. RFP vs. RFI: What's the difference?] 

If you’ve issued this bid before, you may be able to shorten the bidding process while still staying compliant. Platforms like Fairmarkit can automate many parts of the sourcing and bidding process. 

Step 3: Award the contract

Once you’ve chosen your supplier, negotiate the terms and award the contract. Create a purchase order that will finalize the buying of the good or service. The purchase order documents the final contract negotiation, including the total costs, description of the goods or services, quantities ordered, and the approval workflow. 

Circulate the purchase order for approval and prepare to receive your goods and services! Once the contract has been fulfilled (and paid for) the source-to-contract process is complete. 

How to manage the source-to-award process

While the steps laid out here may seem streamlined and organized, rarely do things work out smoothly without the right tools in place. Managing the P2P process requires the right procure-to-pay platform to make it seamless. Here’s how the source-to-award process might look when digitized: 

1. Someone on the buyer side logs into the platform and issues a purchase requisition. This purchase requisition is received and reviewed by the procurement team. 
2. The procurement team selects a vendor from its database of pre-approved suppliers or initiates an RFX process. The procurement team completes a digital purchase order which is routed for approval and sent to the selected supplier. 
3. The supplier fulfills the purchase order, sending the goods to the buyer. Then, the supplier sends a digital invoice. The buyer confirms that it received the products and sends a digital receipt accordingly. 
4. The buyer’s accounts payable team receives the invoice and transmits and e-payment according to the supplier’s requests. 
5. Invoices and payments are reconciled by both parties through an automated approval workflow; signatures are collected, the transaction is completed. 

The P2P platform streamlines the source-to-award process, as well as makes it easy for everyone to see the stage to which the procurement request has advanced. On both the buyer and supplier sides, it’s easier to reconcile everything at the end of the month with automated features that allow accounts payable teams to oversee cash flow. 

Ideally, automation will take on many of the time-consuming steps required by the source-to-contract process. A tool like Fairmarkit can integrate into ERP and P2P systems, adding a layer of automation to the technology you already have. This empowers your team to do their job more effectively. 

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For more advice on managing the source-to-contract process, check out Fairmarkit’s blog, The Source.