Jack Macfarlane, founder and CEO of DeepStream, discusses the stages of source-to-contract management, the advantages it can offer procurement teams, and details how common risks can be mitigated
In the complex global marketplace, characterised by ongoing geopolitical tensions, establishing a robust supply chain is not merely a business advantage but essential.
For example, procurement fraud has had a substantial financial impact in the UK, costing both the private and public sectors billions of pounds annually.
One key strategy to address these vulnerabilities is source-to-contract management, which merges sourcing with contract administration to bolster operational continuity and safety.
This strategy has proven pivotal in reducing risks and boosting productivity.
Discovering source-to-contract management
Source-to-contract management is a strategic procurement method that spans the entire lifecycle of procurement, from supplier identification to contract finalisation.
It aims to optimise operations, guarantee supplier dependability, secure competitive pricing, and strengthen supply chain security.
With a historical reliance on manual approaches, this management style has transitioned towards digitalisation, adopting technologies such as artificial intelligence to enhance security and efficiency in procurement.
These advancements facilitate real-time analytics, improve decision-making, and enable better supplier performance tracking and adaptability to market changes.
The core objective of source-to-contract is to pinpoint and establish agreements with top-tier suppliers at competitive prices, following a systematic process that begins with thorough supplier evaluation and includes extensive market and internal research to establish sourcing criteria.
Following this, a structured bidding phase begins, which involves distributing requests for information, proposals, and quotations, encouraging suppliers to offer competitive rates within a currently challenging market environment.
The process culminates with selecting a supplier that best meets the established criteria, followed by contract negotiations and implementation.
What are the benefits of source-to-contract management?
Adopting a source-to-contract framework significantly enhances procurement efficiency by synchronising goals and actions throughout the procurement phases.
This improves financial and operational results and increases return on investment (ROI).
Tracking ROI involves aligning metrics to monitor supplier performance effectively and regularly, which informs data-driven procurement decisions. Additionally, explicitly tracking monthly savings offers tangible insights into the financial impact of procurement strategies.
Beyond financial gains, this approach also delivers intangible benefits such as increased transaction speed and improved customer satisfaction, which, while not directly monetisable, significantly boost competitive advantage and customer loyalty.
Moreover, effective communication and trust-building between departments refine procurement processes, foster continuous improvement, and better align with organisational objectives.
This strategy reduces costs and enhances financial management, but it also strengthens business relationships through increased information exchange and communication between buyers and suppliers, thus improving supply chain integration and expectation management.
These strengthened relationships enhance decision-making capabilities, allowing businesses to better anticipate and mitigate future challenges, reduce the impact of potential disruptions, and strengthen market positioning.
Lastly, source-to-contract management integrates Environmental, Social, and Governance (ESG) factors into supply chain operations, aligning all links in the supply chain with a company’s sustainability, regulatory, and ethical goals.
Using source-to-contract management to set criteria for environmental impact, such as carbon footprint and waste management, and enforcing compliance with fair labour practices through contractual clauses that allow for audits and penalties for non-compliance, is a brilliant way to identify suppliers with sustainable practices and ethical labour standards that ensure a company’s procurement strategies contribute positively to environmental conservation and social responsibility.
This too fosters transparency and adherence to anti-corruption practices, enhancing the overall integrity of the supply chain.
Accurate and effective deployment averts common risks
The well-structured nature of source-to-contract management frameworks, characterised by strict controls, transparency, and increased accountability, significantly boosts vendor management and contract integrity. These features are essential in reducing risks and protecting businesses.
However, the success of source-to-contract in mitigating risks largely depends on its accurate and effective implementation. An effective source-to-contract strategy includes efficient communication, precise document management, robust bidding platforms, and adept data collection and analysis capabilities.
Unfortunately, common human-oriented issues such as faulty needs assessment, inadequate vendor selection, and disorganised vendor management can heighten the likelihood of fraud and legal complications.
To counter these issues, automation, and digitalisation are crucial. They enhance real-time data analytics, improve informed decision-making, increase efficiency in monitoring supplier performance, and offer flexibility to adapt to market changes and demand shifts.
Moreover, the use of centralised digital platforms aids in thorough, real-time auditing processes, which simplify the identification of discrepancies and help minimise the risk of fraud.
It must be emphasised that there is still a need for careful monitoring and strong security protocols in the deployment of technology solutions in source-to-contract management.
Determined criminals find ways to use these systems to modify data, hide dubious activities, generate fake invoices, or skew vendor selection during the bidding phase.
Training staff to use these new systems effectively and proficiently is an added deterrent to criminals, empowering employees to spot anomalies and red flags.
Legacy processes are deeply entrenched within a business’ current procurement strategy, which can sometimes be the cause for resistance to change when it comes to implementing new and digitalised technologies.
However, the investment is worthwhile given its many benefits and defences against fraud and other cyber security risks.
Jack MacFarlane
Founder and CEO of DeepStream
