A smart channel strategy: the key to Source to Pay success

Organisations facing the choice of a new Source to Pay (S2P) or Purchase to Pay (P2P) system often focus on ease of use, integrations and technical functionality. But according to Ruud Hoeben, Consultant Source to Pay at Spendlinq, they overlook an important success factor: “Without a well-considered procurement channel strategy, you risk the truly important orders staying outside the system. And then you miss exactly the control and efficiency you’re trying to achieve with a solution like that.”

Many organisations think of ‘procurement channels’ as simply the way orders are placed, for example free-text requests or catalogues. But a good procurement channel strategy goes much further than that, Ruud explains. “It covers the entire P2P chain. So not just the purchase request, but also approval, order processing, goods receipt, invoice matching and even the exchange of transactions with suppliers. It’s a complete framework in which you describe, for each type of purchase, which path the transaction must follow, based on risks, contractual agreements, compliance requirements and operational processes.”

Not every order is equal

This is badly needed, because not every order is equal. “An order for office supplies via an e-catalogue is relatively simple. But what do you do about hiring external IT consultants? Or leasing specialist production equipment? Those processes are far more complex. If you don’t set up your system for them, people will arrange it outside the process. And that undermines the entire chain,” says Ruud.

That’s why Spendlinq starts every Source to Pay project with a thorough analysis of existing spend. “We carry out a spend analysis, looking not only at where the money goes, but also how it gets there. Which categories are ordered through the system, and which aren’t? Where do most deviations occur? Which suppliers deliver under contracts, and which on the basis of ad hoc agreements?” All these insights form the basis for designing the channel strategy.

Every sector has its own dynamics

The approach differs considerably by sector, Ruud confirms. “In the private sector, for example, an international manufacturer often deals with direct materials, components and technical services. There you want orders tightly linked to production planning and inventory management. Think of MRP integration, partial receipts and just-in-time deliveries.”

In the logistics sector, it’s often transport services, fleet management and maintenance contracts that need extra attention. “In these processes, services are central, with contractual price agreements or monthly consolidated invoices.”

In retail, it’s all about standardised flows of goods, with fast lead times and frequent supplier changes. “Punchout catalogues, volume agreements and e-invoicing via EDI are standard there, but shop fit-outs or temporary campaigns need more tailoring.”

Business services also bring specific challenges. “Think of marketing spend, software licences or hiring consultants. These are often underpinned by contracts, and you want to work with pre-approved budgets or call-off orders.”

The public sector raises different questions again. At a ministry, you often see complex advisory engagements, IT projects and legal services. There, ordering processes must not only be compliant but also audit-proof.

In university education, much revolves around research collaborations, guest lecturers and grants. That calls for links with project funding and tracking spend by cost object.

And in a hospital, you have both stock-driven medical products and maintenance contracts for equipment and external facility services. A good system has to cope with that, in terms of both structure and governance.

Adoption and change management

What many organisations underestimate is that a procurement channel strategy only works if users actually follow it. “What matters is that people can find their way in practice, otherwise they’ll look for detours. That’s why ease of use is essential. The simpler and more logical a channel feels, the greater the chance it will really be used.” Spendlinq therefore also focuses on adoption and on guiding change programmes. “We don’t just support the design, but the rollout too. For example training, onboarding and building support. You want people to understand why a channel exists, and how it helps them,” says Ruud.

Clear ground rules

Governance plays a part too. “You want clear ground rules: who can use which channel, and when? What happens when someone deviates anyway? Good systems help you with that as well, with warnings or automatic blocks. But the foundation lies in policy.”

You also need to make sure contracts are properly registered and linked to the right channel. “It still happens too often that an organisation has neatly concluded framework contracts, but they aren’t used in practice. People then order outside contracts anyway, and you miss out on discounts, agreements and compliance.”

Supplier segmentation helps you choose the right channel. “Not every supplier can or wants to work through the same channels. Large strategic suppliers can often connect via EDI or portals, while suppliers that are only used occasionally send a simple PDF. You need to take those differences into account in your strategy.”

Steering towards sustainability

If you want to encourage sustainable or inclusive suppliers, you can build that into your channel strategy too. “For example by showing preferred suppliers in e-catalogues, or by offering specific filters for CSR criteria. That way you steer towards the behaviour you want without forcing it.”

Don’t forget costs and technical prerequisites

Costs play a part too, Ruud emphasises: “Some channels are more labour-intensive than others. Creating a free-text request with multiple approvals is therefore more expensive than a catalogue order. That means you have to think carefully: where is tailoring worth it, and where is standardisation the better choice?”

The technical prerequisites are another critical point. “If your master data isn’t in order, for example supplier data, item lists or cost objects, the process fails, however good your strategy is. And you need to think about integrations with your ERP, HR or project administration systems. These are crucial for things like allocating costs automatically or managing authorisations properly.” In addition, the system needs to be flexible enough to genuinely support different channels and workflows. “Unfortunately, we still see too often that organisations come up with something that can’t be properly configured in the chosen solution.”

Keep improving

Once the system is up and running, the work doesn’t stop. Ruud continues: “You need to monitor whether it really works. How many requests go through the intended channel? How many are still handled manually? How long do approvals take on average? Those kinds of insights are needed to improve.” Spendlinq helps organisations with KPI dashboarding and further development. “We advise customers to revisit their channel strategy every year. Suppliers, processes and priorities change. Your strategy has to move with them.”

Procurement reality

Ruud’s most important advice for organisations on the eve of a software selection: “Don’t start with the system requirements, start with your procurement reality. Draw up a sharp procurement channel strategy. Then you know exactly what you need, and suppliers can really show whether their solution moves your organisation forward.”