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Vendor Evaluation

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At the end of this unit, you will

Vendor Evaluation: Unit Objectives

be familiar with the levels of vendorevaluation and the different evaluationcriteria

be able to differentiate between and makeuse of the various options for maintainingvendor evaluations

understand the process of evaluation withrespect to certain automatic subcriteria

be acquainted with the analyses availablefor the purposes of vendor evaluation

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Vendor Evaluation: Business Scenario

You wish to use the vendor evaluationfunctionality to provide yourself withcomprehensive information for yournegotiations with vendors. To do so, youmust define in Customizing the criteriaaccording to which evaluation is to takeplace and how which aspects of yourvendors’ performance are to be rated. Youmust also carry out an evaluation of yourvendors at regular intervals, in order tokeep the data up to date.

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Function of Vendor Evaluation

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Vendor evaluation: general

Vendor B

Vendor A

Vendor C

ServiceServiceDelivDeliv..QualQual..PricePriceOverallOverall

Evaluation for material 1

ServiceServiceDelivDeliv..QualQual..PricePriceOverallOverall

The vendor evaluation functionality supports you in optimizing the procurement process. It facilitates the process of source selection and the ongoing surveillance of existing supply relationships. You can quickly spot any difficulties that may arise during the procurement of materials and services.

In the R/3 System, the Vendor Evaluation component is fully integrated into the MM Purchasing module within Materials Management. This means, for example, that data such as delivery dates, prices and quantities deriving from purchase orders is used.

Vendor Evaluation uses data from the Quality Management module (such as the results of incoming inspections or quality audits).

Vendor Evaluation accesses basic Materials Management data, Inventory Management data (such as goods receipts), and data from the Logistics Information System (LIS).

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Scoring Levels in Vendor Evaluation

Weighted

Weighted

Overall score

Scores formain criteria

Scores forsubcriteria

Individual scores

To be able to assess a certain vendor's performance in comparison with others', you need to define a scoring range. The vendor evaluation system offers you a three-level scoring system from 1 to 100 points, allowing you to carry out a comparative appraisal of your vendors.

The overall score gives you a general idea of the performance of your vendors, allowing you to compare them at a glance. The overall score is arrived at from the scores a vendor was awarded for all main criteria. The scores for main criteria reflect a vendor's performance more accurately than the overall score.

The main criteria are: "Price", "Quality", "Delivery", "General Service/Support", and "External Service Provision" (for the evaluation of external service providers). If required, you can also define other or further criteria.

You can divide each main criterion into several subcriteria. The latter are the smallest units within vendor evaluation for which scores are calculated.

The scores achieved by a vendor for the individual criteria may be of varying significance to you. The weighting factor takes account of this.

The organizational level at which vendors are evaluated is the level of the purchasing organization. Each purchasing organization evaluates the vendors assigned to it.

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Semi-automaticsubcriterion

Types of SubcriterionOverall score

Scores for maincriteria

Scores forsubcriteriaManual

subcriterionAutomatic

subcriterion

Pc. % Conditions

$

Pc. % Conditions

$Individual scores

Subcriteria are differentiated according to the methods by which the scores for them are determined. They can thus be subdivided into manual, semi-automatic, and automatic criteria.

In the case of manual subcriteria, you enter a blanket score for the subcriterion in evaluation of a vendor. The system takes account of this score in calculating the higher-level main criterion.

Instead of awarding a vendor a blanket score for all his materials, with the semi-automatic subcriteria you maintain a number of scores at info record level for all materials that are of importance to you. The average value of these scores is included as the score for the subcriterion in the score for the higher-level main criterion.

In the case of automatic subcriteria, the rating can be determined from data that arises through normal online activities in the system. This data enters the vendor evaluation system via statistical files (e.g. through the process of automatic updating).

The automatic subcriteria that are predefined in the standard system suffice for the evaluation of a vendor from whom you procure materials (that is to say, you need not necessarily maintain scores for manual or semi-automatic subcriteria in order to carry out evaluations).

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Automatic Subcriteria: Overview

Main criteria

Price

Quality

Delivery

Service

SubcriteriaSubcriteria

Price levelPrice historyGR inspectionRejection/complaintsAuditOn-time deliveryQuantity reliabilityShipping instructionsConfirmations

You use the subcriterion “price level” to evaluate the relationship of a vendor’s price to the market price.

You use the subcriterion “price history” to evaluate changes in a vendor’s price over time in comparison with the market price.

You use the subcriterion “GR inspection” (“incoming inspection”) to evaluate the quality of the materials supplied by a vendor. The quality inspection takes place at the time of goods receipt.

You use the subcriterion “rejection/complaints” to evaluate whether and/or how frequently the materials supplied by a vendor are found to be faulty after having successfully passed through incoming inspection (e.g. during the production process, on the shopfloor), resulting in additional expense and loss of time due to reworking, fault rectification, preparation of rejection reports, return/replacement of parts, etc.

You use the subcriterion “audit” to evaluate the effectiveness of the quality assurance system an enterprise employs in the manufacture of its products.

You use the subcriterion “on-time delivery performance” to evaluate how well a vendor adheres to prescribed delivery dates.

You use the subcriterion “quantity reliability” to evaluate the extent to which a vendor delivers the exact quantities ordered.

You use the subcriterion “compliance with shipping instructions” to evaluate how exactly a vendor complies with the instructions you issued regarding the shipping or packing of a material.

You use the subcriterion “confirmation” to evaluate the degree to which a vendor adheres to the delivery dates set out in confirmations (such as shipping notifications) that he has previously sent to you.

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Vendor Evaluation: Maintenance

Purch. organization 1000

Weighting keysWeighting keys

Vendor evaluation

record

Semi-automatic

criteria

Manualcriteria

Auto-matic

criteria

Vendor A

Calculationlog

You can use the Maintain Vendor Evaluation function to maintain all subcriteria (including the manual subcriteria).

You must first assign weighting keys to any vendors that have not yet been evaluated. The weighting key is a code under which the weighting shares for a group of main criteria are combined and stored. The system can calculate the overall score on the basis of the weighting key and the scores for the main criteria.

The calculation of the scores for the automatic subcriteria is recorded in a log.

The name of the person responsible and the date of evaluation are recorded in the vendor evaluation.

Changes are listed in the change documentation.

You can record the evaluation the system has arrived at for a vendor in an evaluation sheet and print the latter out. The evaluation sheet header shows the name of the person who created the sheet, the date it was created, and the name of the vendor. Below this are the overall evaluation and the scores for the individual main criteria. The scores for the subcriteria belonging to each main criterion are listed under the heading "Detailed evaluation".

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Automatic Re-Evaluation

Purch. organization 1000

Weighting keysWeighting keys

Oldvalues

Newvalues

. . .

. . . . . .. . .

AutomaticAutomaticcriteriacriteria

Semi-Semi-automaticautomatic

criteriacriteria

Vendor A

Save

Vendor evaluation

record

Calculationlog

The Automatic re-evaluation function enables you to update the scores for the automatic and semi-automatic subcriteria for a vendor.

If a vendor has never previously been evaluated, you must first specify a weighting key.

The manually maintained scores of the last evaluation remain unchanged, so that the results are comparable.

You are provided with a comparison of the old and newly computed points scores for all automatic and semi-automatic subcriteria. If you wish, you can replace the old scores by the new ones.

The calculation is recorded in a log.

You can display the evaluation using the SAP Hierarchy or Presentation Graphics function to obtain a better overview. The graphical display offers the advantage of enabling you to see at a glance how scores are developing over time.

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Evaluation in the Background

WeightingWeightingkeykey

WeightingWeightingkeykey

WeightingWeightingkeykey

AutomaticAutomaticcriteriacriteria

Vendor A Vendor NEW Vendor CVendor B

Vendor evaluation

record

Calculation log

You can have your vendors regularly evaluated in the background. The Evaluation in the Background function is available for this purpose.

If you wish to initiate a background processing request for vendor evaluation, you need a variant. The latter defines the number interval of vendors to be evaluated, for example.

You can either update existing evaluation records, or have new records created for not-yet-evaluated vendors.

When creating new evaluation records, you can either assign all new records the same weighting key or have these records created without weighting keys. You must manually reprocess evaluation records without weighting keys after their creation. You can find relevant records by running the Vendors without weighting keys analysis. From the analyisis, you can branch directly to vendor evaluation maintenance.

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Quantity ReliabilityPur. order GR Del. sched.

Sch. line 1GR

Points score

Smoothing

Calculate% variance

“Del. compl.”ind. X

No quantity reliability update !

Vendor evaluation

CustomizingCustomizingsettings for settings for purchasing purchasing organizationorganization

Goods receipt

Goods receipt

100 pc. 90 pc.100 pc.

100 pc.

You use the subcriterion “Quantity reliability” to evaluate the extent to which the quantities a vendor has sent you match up with the quantities specified in your purchase orders.

Before a vendor’s quantity reliability can be determined, the PO item in question must be closed.

The system determines the difference between the GR and PO quantities and converts this difference into a percentage variance.

The points score determined is updated in a statistics record after application of a smoothing formula and then included in the vendor evaluation. The smoothing formula is defined in Customizing.

Over- and underdelivery tolerances are not taken into account in the vendor evaluation.

There is no evaluation of quantity reliability with respect to scheduling agreements.

Reversals of goods receipts are not taken into account in vendor evaluation.

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On-Time Delivery PerformancePur. order

100 pcs.Statistics-rel. delivery date

Minimum quantitycheckEnd

GR10 pcs.

Pur. order

100 pcs.Statistics-rel. delivery date

GR100 pcs.

Points score

Smoothing

Calculate% variance

Vendor evaluation

CustomizingCustomizingsettings for settings for purchasing purchasing organizationorganization

Goodsreceipt

Goodsreceipt

12.20 12.20 12.20 12.19

You use the subcriterion “On-time delivery performance” to evaluate a vendor’s adherence to delivery dates.

At the time of a goods receipt against a purchase order, the system checks whether the specified delivery date (statistics-relevant delivery date) has been adhered to or whether delivery was made early or late.

If the delivery date was not adhered to, the system can convert the absolute delivery date variance into a percentage variance using the Customizing parameter Standardizing value for delivery time variance and evaluate the latter. If you assign a low standardizing value, a large percentage variance results for relatively small date variances in days. If you specify a higher standardizing value, the percentage variance will be relatively low. The points value thus determined is updated in a statistics record after application of a smoothing formula and included in the vendor evaluation.

If a goods receipt covers several lines of a delivery schedule, this calculation is carried out for each schedule line.

If the delivery date was adhered to, the system checks whether you have maintained any system settings for the Customizing parameter Minimum delivery percentage and, if so, which.

If you have not maintained a minimum delivery percentage, receipts of fractions of the PO quantity are also taken into account in the computation of the score for on-time delivery performance.

If you have maintained a minimum delivery percentage and the minimum quantity was not reached, the system does not determine an on-time delivery performance score for the goods receipt in question.

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Price Level

Calculate% variance

Points score

Vendor evaluation

CustomizingCustomizingsettings for settings for purchasing purchasing organizationorganization

Comparisonprice

Market priceAverage priceSingle/solesourcing

<>=?

Info record

Vendor AMaterial 1Effective price

Pc. % Conditions

$

Pc. % Conditions

$

You use the subcriterion “price level” to evaluate how a vendor’s price for a material compares with the prices of other vendors or with an average price.

All materials for which the vendor’s conditions have been maintained (e.g. in info records) are examined.

To determine a vendor’s price level, the system compares the vendor’s valid effective price with the market price for each material or the average price derived from all info records for the material and determines the percentage variance.

If a material is procured from one vendor only, the Customizing parameter Single/sole vendor determines whether or not this exceptional situation is taken into consideration in the vendor evaluation. If you have set this indicator, the system assumes that effective price of the vendor to be evaluated is the market price when calculating the score for the price level. This means that the market price and the effective price are identical. There is a variance of zero percent and the vendor is awarded a good score. If you do not set the indicator, the single or sole vendor situation is not taken into account (that is to say, the system does not determine a score for the price level in respect of this material).

The system computes the average score from the sum of the individual scores determined. This average represents the score for the subcriterion.

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Analyses in Vendor EvaluationRANKING LIST

General vendor evaluationGeneral vendor evaluationOverall Price Qual. Deliv. ServiceOverallOverall PricePrice QualQual.. DelivDeliv.. ServiceService

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84

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Vendor B

Vendor A

Vendor C

EVALUATION PER MATERIAL/MATERIAL GROUPGeneral vendor evaluationGeneral vendor evaluation

Overall Price Qual. Deliv. ServiceOverallOverall PricePrice QualQual.. DelivDeliv.. ServiceService84

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Vendor A

Vendor C

EVALUATION COMPARISONEvaluation for material 1Evaluation for material 1General vendor evaluationGeneral vendor evaluation

OverallOverall PricePrice QualQual.. DelivDeliv.. ServiceService

84 75 92 88 81Vendor AOverall Price Qual. Deliv. ServiceOverallOverall PricePrice QualQual.. DelivDeliv.. ServiceService

88 81 93 92 86

The Ranking list sorts your vendors in descending order according to their overall scores. This gives you an overview as to which vendors rank among the best, which perform moderately well, and which are below average. The scores for the individual main criteria are displayed in addition to the overall score. The system also calculates the average values for the individual scores, on the basis of which you can see by how many points a vendor deviates above or below the average value.

The list of Evaluations per material or material group provides you with a ranking list based on a certain material or material group. This analysis enables you to determine which vendors of a particularly important material have performed well, moderately well, or poorly. If you have entered a material group, you can specify whether the system is to search only for materials with a master record (1), only for materials without a master record (2), or for both (no entry) within this group.

The Evaluation comparison is an analysis that compares the general evaluation of a vendor with the latter’s evaluation in respect of a certain material. This analysis differs from the others insofar as you can use it to take a closer look at a vendor without comparing this vendor with others. Instead, the overall evaluation, which is composed of the scores relating to deliveries of all materials, is shown in relation to the evaluation the vendor would obtain if this evaluation were based on one certain material only.

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Configuration Options

XX

XX

XX

XX

Over. Over. PricePrice QualQual.. Del.Del. ServServVendor B

Vendor A

Vendor C

Points scores forautomatic

criteriaWeighting key

Listparameter

General control

parameters

Weighting of main criteria

Weighting of subcriteria

Main criteria

Subcriteria

Pur. org.-specific General

You make general settings for the following:

Weighting keys

Main criteria and subcriteria

List parameters and list structure

The following settings relate to an individual purchasing organization in each case:

Control parameters

Evaluation criteria and their weighting

Points scores for automatic subcriteria

The control parameters you can maintain for each individual purchasing organization include the following:

Best score

Applicability period

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Control Parameters: Purchasing Organization

General parametersGeneral parameters Parameters for subcriteriaParameters for subcriteria

Best score

Applicability period

Layout set

Price level

Single/sole vendor

Audit

Average of all lots

Rejection/complaints

As percentage of purchase volume

On-time delivery

Smoothing factor

Std. del. time variance

Min. deliv. percentage

Quantity reliability

Smoothing factor

Shipping instructions

Smoothing factor

Certain Customizing parameters for vendor evaluation are set on a purchasing-organization-specific basis. For example:

With the parameter Best score you specify the maximum number of points attainable by a vendor in your scoring range.

The Applicability period determines how far into the past data is used for the evaluation of a vendor.

The Layout set (form) determines the layout of the printed vendor evaluation sheet.

You also define which evaluation criteria are to be relevant for each purchasing organization and how they are to be weighted. Furthermore, each purchasing organization defines its own scoring range for the evaluation of the automatic subcriteria.

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Vendor Evaluation: Summary

Vendor Evaluation supplies you withsummary information on your vendors andsupports you in the process of vendorselection.

Various maintenance functions are availableto evaluate vendors.

Evaluation with respect to automaticsubcriteria is based on normal onlineactivities. Customizing settings decide whichpoints score is awarded for which aspect of avendor’s performance.

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