The shift towards innovation and value creation for procurement functions requires procurement leaders to reimagine how work gets done across the source-to-pay value stream. In a post-COVID-19 world, procurement leaders will need to transform the procurement function and source-to-pay processes to become strategic enablers who improve competitive advantage. Emerging technologies such as RPA and AI mean that over 50% of the source-to-pay process could be automated. Combined with other improvement levers such as process simplification, standardisation and outsourcing, a significant amount of time can be saved to free buyers to work on strategic category management, managing supplier relationships and managing spend.

1. Designing the source-to-pay
process of the future
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2. CONTENTS
1
THE CHANGING ROLE OF
PROCUREMENT
2 WHAT IS SOURCE-TO-PAY?
3 WHICH LEVERS?
2
4 UNEARTHING OPPORTUNITIES ACROSS
EACH LEVER

3. THE CHANGING ROLE OF
PROCUREMENT
The shift towards innovation and value
creation for procurement functions
requires procurement leaders to
reimagine how work gets done across
the source-to-pay value stream. In a
post-COVID-19 world, procurement
leaders will need to transform the
procurement function and
source-to-pay processes to become
strategic enablers who improve
competitive advantage.
Industry benchmarks suggest that
organisations typically waste 3-4% of
their overall spend on excessive
transaction costs, inefficiency and
non-compliance. This spend leakage is
significant, and with revenues being
squeezed across many industries, the
need to address it has never been
greater.
Understanding and adopting the
proliferation of digital tools is no longer
optional for procurement functions that
want to be best in class. Despite this,
adoption is slow.
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Procurement departments are still in
the early stages of adopting
technologies such as robotic process
automation. According to Gartner,
only 8% of procurement teams are
using RPA and 73% currently have no
plans to adopt RPA at all.
Industry benchmarks
suggest that organisations
typically waste 3-4% of their
overall spend on excessive
transaction costs,
inefficiency and
non-compliance
Designing the source-to-pay process of the future | The changing role of procurement

4. WHAT IS SOURCE-TO-PAY?
Designing the source-to-pay process of the future | What is source-to-pay?
CONDUCT
STRATEGIC
SOURCING
CONDUCT
SOURCING
ANALYTICS
MANAGE
SUPPLIER
SELECT
VENDOR AND
NEGOTIATION
PROCESS
PURCHASE
REQUISITION
PROCESS
INVOICE
PAYMENT
PROCESSING
Conduct
business
needs
assessment
Execute
sourcing
strategy
Conduct bid
analytics
Conduct
contracting
analytics
Conduct
supplier risk
analytics
Define
business
requirements
Develop
RFP/RFQ
Evaluate
proposal
Negotiate
contract
Develop
strategy
Monitor
supplier
performance
Manage
supplier
contracts
Manage
supplier
master data
Raise
purchase
requisition
Issue
purchase
order
Approve
purchase
order
Raise invoice
Conduct two-
or three-way
match
Approve
invoice
Process
payment
Issue goods
receipt
Source-to-Manage Procure-to-Pay
Source-to-pay is a process that starts with sourcing, negotiating
with and contracting the supplier of goods and ends with final
payment of those goods. It is a large, complex process that cuts
across procurement and finance functions.
Emerging technologies such as RPA and AI mean that over 50% of the source-to-pay
process could be automated. Combined with other improvement levers such as
process simplification, standardisation and outsourcing, a significant amount of time
can be saved to free buyers to work on strategic category management, managing
supplier relationships and managing spend.
A typical source-to-pay process framework
*not exhaustive

5. WHICH LEVERS? ASKING THE
RIGHT QUESTIONS
To unearth opportunities to optimise source-to-pay, organisations
should use multiple improvement levers. Combining traditional
lean process improvement techniques to remove waste and
re-work with various digital and automation capabilities can
produce transformational results. Revealing opportunities doesn’t
need to be complicated. It simply entails asking the right
questions.
Standardisation
Creating one best way of
executing a process or
activity
Improvement levers
to pull across
source-to-paySimplification
Identifying and eliminating
non-value-add steps, waste
and re-work
Intelligent Automation
Revealing opportunities to automate
processes and activities using
multiple digital capabilities
e.g. RPA, Machine Learning, NLP or
Cognitive Agent
Transition/Outsource
Identifying opportunities to
transition work to another
location
Key themes that successful procurement functions can address with this approach:
● Foster intelligent automation to automate boring, repetitive work and
predict the future using data
● Unlock efficiency and cost-saving opportunities from source-to-pay
● Free buyers to do what they do best, i.e. manage supplier relationships and
spend
● Reduce tail spend to reduce cost and improve spend visibility
Technology
Identifying improvements via
new features or system
enhancements
Designing the Source-to-Pay process of the future | Which levers?

6. KEY QUESTIONS FOR UNEARTHING
OPPORTUNITIES ACROSS EACH LEVER
Simplification
How might we remove
non-value-add activity and
reduce waste and rework?
While this question will be familiar for
any organisations that have embraced
lean, it remains as relevant as ever. We
worked with a large
telecommunication company and
found that the average time from the
submission of an existing supplier
work package to purchase order
approval was 46 days. One of the key
drivers was duplication of approvals
and excessive approval cycle times. As
a result, 95% of suppliers ended up
working at risk without an approved
purchase order. To address this,
process simplification improvements
were suggested and delivered which
eliminated duplicate approvals.
Standardisation
Is there one best way of carrying
out this process today?
In many cases, the same procurement
processes are carried out differently
across multiple business units,
geographies and categories. There are
often opportunities to harmonise
processes to reduce variation.
However, when it comes to category
management, standardisation can
deliver superior supply chain
performance and cost savings by
allowing procurement teams to
leverage their spend across fewer
manufacturers and maximize
operational efficiency by managing
fewer stock-keeping units.
Designing the source-to-pay process of the future | Key questions

7. Intelligent Automation
Robotic Process Automation
Is the organisation carrying out
rules-based, repetitive activities?
Robotic Process Automation lends itself
to activities that are rules-based and
transactional in nature. RPA is suited to
source-to-pay activity in which there is no
room for interpretation.
A typical RPA use case in source-to-pay:
A majority of companies continue to
match invoices, purchase orders and
goods/services receipts manually. This
work is accompanied by manual
resolution of issues like mismatches
between the prices and quantities on
POs and those on invoices. Automated
matching bots can be employed earlier in
the process and toward the front-end.
Using intelligent character recognition
and confidence intervals to automatically
identify mismatches helps minimise the
need for manual intervention and
queries.
Intelligent Automation
Smart workflow
How might the workflow and key
rules and decisions be digitalised
and automated end-to-end?
Full end-to-end digitalisation of
source-to-pay can be achieved with
Smart Workflow, a process
management software tool that sits
between humans and digital
capabilities such as RPA to manage the
hand-offs and provide real-time
visibility on status.
A typical Smart Workflow use case
across source-to-pay:
Contract Management
Smart Workflow can be used to
automatically scan contracts, extract
terms, predict approvals and send
remaining documents to procurement
resources to process. The length of the
whole contract review process can thus
be reduced dramatically.
Designing the source-to-pay process of the future | Key questions
KEY QUESTIONS FOR UNEARTHING
OPPORTUNITIES ACROSS EACH LEVER

8. Typical machine learning use cases in
source-to-pay:
Supplier risk management
Procurement leaders can adopt
machine learning to make predictions
on supplier risk based on supplier
stability and financial viability.
Invoice processing
Organisations are also using machine
learning algorithms to match invoice
data to the correct spend category,
automatically sorting procurement
spend into categories and
sub-categories.
Intelligent Automation
Machine Learning
Are there outcomes that can be
predicted using data?
With the right data, machine learning
can be used to process tasks that
involve more complex rules. By
defining the inputs that enable
predictions, organisations can
automate tasks that would otherwise
require human judgement.
Designing the source-to-pay process of the future | Key questions
KEY QUESTIONS TO UNEARTH
OPPORTUNITIES ACROSS EACH LEVER

9. Intelligent Automation
Natural language processing
How might insights be derived
from language translation,
semantic understanding and
text summarisation?
Natural language processing (NLP) is
focused on understanding,
interpreting and manipulating
human language. For procurement,
NLP can unlock insights from textual
data. NLP entails applying
algorithms to identify and extract
the natural language rules such that
the unstructured language data is
converted into a form that
computers can understand.
KEY QUESTIONS TO UNEARTH
OPPORTUNITIES ACROSS EACH LEVER
A typical NLP use case across
source-to-pay:
Contract mining
Legal contracts contain valuable
information for procurement,
including payment terms,
termination dates and re-negotiation
rights.
Whereas contracts have previously
been stored offline or in shared
folders and thus not readily
accessible to procurement teams,
text parsing enables the contracts to
be mined for the data. Optical
character recognition enables text to
be automatically identified within
previously un-digitised images
including photographs and scans of
contracts.

10. Transition/outsource
Which processes or activities are non-core and don’t require
proximity to the central team?
Offshoring or outsourcing of procurement processes remains a viable option to
release capacity and reduce cost. Typically, transactional activity is the most obvious
procurement process to outsource. This includes typical day-to-day buying activity
such as reviewing and approving purchase orders. However, it’s also possible to
achieve cost savings for more strategic buying activity such as the management of
category groups that aren’t as closely managed. Typically, these are indirect
categories.

11. CONDUCT
STRATEGIC
SOURCING
CONDUCT
SOURCING
ANALYTICS
MANAGE
SUPPLIER
SELECT
VENDOR AND
NEGOTIATION
PROCESS
PURCHASE
REQUISITION
PROCESS
INVOICE
PAYMENT
PROCESSING
Conduct
business
needs
assessment
Execute
sourcing
strategy
Conduct bid
analytics
Conduct
contracting
analytics
Conduct
supplier risk
analytics
Define
business
requirements
Develop
RFP/RFQ
Evaluate
proposal
Negotiate
contract
Develop
strategy
Monitor
supplier
performance
Manage
supplier
contracts
Manage
supplier
master data
Raise
purchase
requisition
Issue
purchase
order
Approve
purchase
order
Raise invoice
Conduct
two/three-way
match
Approve
invoice
Process
payment
Issue goods
receipt
A SUMMARY OF TYPICAL USE CASES
SHOWS SIGNIFICANT OPPORTUNITIES IN
SOURCE-TO-PAY
Machine Learning
Supplier risk
management
Use ML to make
predictions about
supplier risk based on
supplier stability and
financial viability
Machine Learning
Invoice processing
Use ML algorithms to
match invoice data to the
right spend categorySmart workflow
Contract management
Use Smart Workflow to
automatically scan contracts,
extract terms, predict approvals
and send remaining documents
to procurement resources to
process
Natural Language Processing
Contract mining
Use NLP to mine valuable
information from legal
contracts on termination
dates, payment terms and
re-negotiation rights
Transition/outsource
Strategic category
management
Use strategic
outsource partners to
manage non-core
categories
Robotic Process
Automation
Two/three-way
match
Use RPA to carry
out the two- or
three-way match
*not exhaustive
Simplification
Purchase order approval
Eliminate duplicate PO
approvals

12. IN SUMMARY
To increase business value from sourcing
and procurement functions, organisations
must go beyond foundational approaches.
By accelerating digitalisation and
combining various improvement levers,
procurement leaders can weather the
current storm and thrive in the
post-COVID-19 world.
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13. Author
ARRON CLARKE
Managing Director
Hudson&Hayes
Hudson&Hayes is a transformation and operational excellence
consultancy providing a broad range of services and solutions
from strategy to execution.
With top transformation talent and a unique and integrated
approach to operational excellence, Hudson&Hayes helps
organisations deliver on their strategy, unlock efficiency and
enable continuous improvement.
www.hudsonandhayes.co.uk
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