0 © 2009 Wellesley Information Services. All rights reserved. Do Your Suppliers Measure Up? How to Find Out Using Vendor Evaluation (VE) Functionality

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© 2009 Wellesley Information Services. All rights reserved.

Do Your Suppliers Measure Up? How to Find Out Using Vendor Evaluation (VE) Functionality Within SAP ERP

Isaac MazliachS.D.M. Consulting

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What We’ll Cover …

• Vendor Evaluation (VE) — what and why?• Quality scores• Delivery scores• Price scores• Manual scores• Buyer’s Negotiation Sheet• Determination of the “best” vendor• Illustration: Integration of QM in Purchasing with Vendor

Evaluation• SAP ERP Vendor Evaluation and SRM• Wrap-up

Overview

• Vendor Evaluation supports you in optimizing your procurement processes for both materials and external services. In an SAP system, Vendor Evaluation is completely integrated into the MM Purchasing component within Materials Management.

• Vendor Evaluation accesses basic data from Materials Management, data from Inventory Management (for example, Goods Receipts), and data stored in the Logistics Information System (LIS). Vendor Evaluation also makes use of data from Quality Management (QM). This can include the results of incoming inspections or quality audits, for example.

• Vendor Evaluation supports you in selecting sources of supply and in the ongoing monitoring of existing supply relationships. You can quickly identify any difficulties that may arise during the procurement process and take remedial measures in collaboration with the relevant vendor on the basis of detailed information.

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Vendor Evaluation Component

• The Vendor Evaluation component supports you in optimizing your procurement processes in the case of both materials and services

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Vendor Evaluation Analyses

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Vendor Evaluation in Source Determination

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Scoring Levels in Vendor Evaluation

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List Displays for Vendor Evaluation

• SAP Menu Logistics Materials Management Purchasing Master Data Vendor Evaluation List Displays Ranking Lists

• SAP Menu Logistics Materials Management Purchasing Master Data Vendor Evaluation List Displays Evaluations per Material/Material Group

• SAP Menu Logistics Materials Management Purchasing Master Data Vendor Evaluation Compare Evaluations

• SAP Logistics Materials Management Purchasing Master Data Vendor Evaluation Standard Analysis

• SAP Menu Logistics Materials Management Purchasing Master Data Vendor Evaluation Changes

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Automatic Subcriteria

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Main Criterion Quality

• Goods Receipt (GR) lots This subcriterion evaluates the quality of the materials

supplied by the vendor. The quality inspection (incoming inspection) takes place at the time of Goods Receipt.

• Quality Audit This subcriterion assesses the effectiveness of the quality

assurance system employed by an enterprise in the manufacture of its products.

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Main Criterion Quality (cont.)

• Complaints level (shop floor complaints/rejection) This subcriterion is used to assess whether, after passing the

quality check on Goods Receipt, materials delivered by a vendor proved unusable during the subsequent manufacturing process, thus resulting in extra effort and expenditure. This score is determined in Quality Management and then passed on to Vendor Evaluation in Purchasing.

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Main Criterion Delivery

• On-time delivery performance This subcriterion is used to assess the extent to which a vendor

delivers ordered goods punctually• Quantity reliability

This subcriterion is used to assess the extent to which a vendor delivers the quantities specified in Purchase Orders

• Compliance with shipping instructions This subcriterion is used to assess how closely a vendor

complies with the instructions given with regard to the shipping or packing of an ordered material

• Shipping notification reliability This criterion is used to assess whether a vendor adheres to the

delivery date promised in his confirmation. That is, whether the goods actually arrive on the confirmed date.

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Main Criterion Price

• Price level This subcriterion evaluates the relationship of a vendor’s

price to the market price. Vendors offering a price that is below the market price are awarded a better score; if a vendor’s price is above the market, they are awarded an inferior score.

If no market price has been stored in the system, the average of all current info record prices is taken.

• Price history This subcriterion evaluates how a vendor’s price has changed

over time in comparison with the development of the market price (or the average of all info record prices).

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Scoring Levels in Vendor Evaluation

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Manual and Semi-Automatic Criteria

• Manual criteria You enter the score yourself when carrying out the Vendor

Evaluation manually• Semiautomatic criteria

You enter scores for a material at info record level (Extras Vendor Evaluation), for example, for the criterion Market Behavior. These scores are entered in the score of the main criterion when carrying out Vendor Evaluation.

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Buyer’s Negotiation Sheet

• You can print out information about vendors and the materials they supply in a buyer’s negotiation sheet

• The latter is a summary of important vendor and material data (taken from the purchasing info record), which buyers may need to print out and take with them for the purposes of contract negotiations. The buyer’s negotiation sheet contains information such as:

A vendor’s current prices and conditions Internal consumption/usage statistics on the material Total value of POs issued to the relevant vendor to date Vendor Evaluations

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Buyer’s Negotiation Sheet (cont.)

• You can output the Buyer’s Negotiation Sheet in the following forms: For a material – provides an overview of conditions and

ordering transactions with regard to all vendors that have supplied the material and for whom purchasing info records exist

For a vendor – provides ordering data from all purchasing info records relating to the relevant vendor with regard to one or more materials

• You may want to consider changing the report layout from SAP’s standard output using custom ABAP. The output is in the form of a layout set (such as a PO printout).

Buyer’s Negotiation Sheet: Use

Buyer’s Negotiation Sheet: Customizing

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Prerequisites for Vendor Evaluation

• You can start the Vendor Evaluation process if the following questions have been addressed:

Have you maintained the system settings? Do you have the required authorizations? Which vendor do you want to evaluate? (Vendor key) Which purchasing organization is to evaluate the vendor?

(Purchasing organization key) Is this the first time the vendor has been evaluated? If not, when was the last evaluation?

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Manual Maintenance of Vendor Evaluation

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Manual Maintenance of Vendor Evaluation (cont.)

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Evaluating Vendors: Steps

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Evaluating Vendors in the Background

• Master data Vendor Evaluation Follow-on functions Evaluation in the background.

• In background processing, you usually evaluate vendors belonging to the same group (that is, vendors who have the same weighting key). However, it is possible that you have selected an interval that contains different groups of vendors and have therefore not entered a weighting key.

• To ensure that the scores are calculated correctly, you must therefore subsequently maintain the weighting key for such evaluation records at certain intervals of time.

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Evaluating Vendors in the Background (cont.)

• The evaluation records in question can be determined using the analysis report Vendors Without Weighting Keys

• This function can be found in the purchasing menu under Master data Vendor Evaluation Follow-on functions Vendors without weighting key

• From this report you can branch directly into the screens for maintaining evaluations

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Ranking of Vendor Evaluations Based on Material/Material Group

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Record Results: Characteristics Overview

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Record Usage Decision: Characteristics Overview

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Quality Scores as a Function of Usage Decision

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Quality Criterion in Vendor Evaluation

• According to the Usage Decision in the Inspection Lot – a score is derived. The scores are computed into the automatic subcriterion “GR inspection” in the “Quality” criterion of the Vendor Evaluation.

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Goods Receipt — Quality Inspection Score Calculation

Goods Receipt — Quality Inspection Score Calculation (cont.)

• If a material is subject to incoming inspection, part of the delivered material is checked by the quality assurance department when goods are received against a Purchase Order. An inspection lot is created. After the inspection or testing, the

person responsible in Quality Management then enters a result and makes a decision as to whether the material can be used.

All the incoming inspection lots are stored in a file with their scores.

When you run an automatic re-evaluation for a vendor, the system selects all the incoming inspection lots for the vendor that lie within the validity period and calculates the average of the scores. The result is the vendor’s score for the quality of goods received.

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Quality Audit Score Calculation

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Quality Audit Score Calculation (cont.)

• A Quality Audit has taken place in one of your vendor’s plants. This means that either your own company has carried out a check to determine how the vendor ensures that his products are of a high quality, or the vendor has carried out the audit himself.

• An audit lot is created by Quality Management. When the audit has been completed, the person responsible determines a score for this audit lot.

• All the audit lots are stored in a file, along with their scores.• When you run an automatic re-evaluation of a vendor, the system

selects all the audit lots for the vendor within the validity period. • The parameter Quality Audit is read from Customizing.• If the indicator is set, the system calculates the average score for

all the Quality Audits in the validity period. The result is the vendor’s score for the Quality Audit.

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Complaints/Rejection Score Calculation

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General

• As of SAP ERP 6.0 and SRM 5.0, you may choose between two SRM installations: SRM as add-on to your SAP ERP 6.0 server SRM as a separate system

• When you are executing procurement transactions with SAP SRM, you should use the Vendor Evaluation in SAP SRM because all the evaluation data can be combined there. Currently, in SAP ERP 6.0, the data from SAP SRM is not available.

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General (cont.)

• In SRM you may evaluate your suppliers on the basis of Web-based surveys To meet your specific requirements, you can configure

individual surveys and questionnaires, select the criteria that you want to evaluate, and stipulate when the evaluation is to take place

After the data has been transferred to SAP NetWeaver® Business Intelligence (SAP NetWeaver BI), several reports are available to help you to analyze the result, select suitable vendors and negotiate best conditions

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Supplier Qualification

• You can use your SAP portal to allow potential vendors to register themselves for specific product categories

• Once a supplier has registered, the registration system sends the supplier one or more questionnaires. This way, you as a purchaser have additional detailed information available on potential suppliers.

• Once the purchaser has accepted the suppliers as potential business partners, the suppliers can be transferred to the operational procurement system via a defined interface

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Managing Supplier Relationship

• You can decide whether your supplier is to become part of the SAP Supplier Self Service (SUS). Then the supplier could, for example, independently change his own data, or create follow-on documents and send them to the SRM Server System.

• From SAP Enterprise Buyer (SAP EB), the changed data can be sent via SAP NetWeaver Exchange Infrastructure (SAP NetWeaver XI) to the back-end SAP ERP system that is assigned to the supplier in question. The supplier’s master data is then automatically updated with these changes.

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Evaluating and Monitoring of Supplier Performance

• You can use this business process to evaluate suppliers using questionnaire-based surveys. In the Supplier Survey Cockpit you can easily create surveys and distribute them via email.

• Evaluation is also used with the confirmation and invoice applications to evaluate day-to-day activities on the basis of operational documents: Triggered when entering a

confirmation in SAP Supplier Relationship Management (SAP SRM)

Triggered when entering an invoice in SAP SRM

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Resources

• SAP Course SCM520: Purchasing www.sap.com/usa/services/education/index.epx

• Filip Roodhooft and Jozef Konings, “Vendor selection and evaluation an Activity Based Costing approach” (Department of Applied Economics, Catholic University Leuven, Leuven, Belgium, 1995) *

• Srinivas Talluri and Ram Narasimhan, “Vendor evaluation with performance variability: A max–min approach” (Department of Marketing and Supply Chain Management, Eli Broad College of Business, Michigan State University, N370 Business Complex, East Lansing, MI 48824, USA, 2000) *

* Google with full title of article to locate download sources

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Resources (cont.)

• http://help.sap.com MM Vendor Evaluation

http://help.sap.com/saphelp_erp60_sp/helpdata/en/8d/b985b0414511d188fc0000e8322f96/frameset.htm

SAP Supplier Relationship Management http://help.sap.com/saphelp_srm2007/helpdata/en/

74/344c430fab4d0bbc30996d56cc293a/frameset.htm

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7 Key Points to Take Home

• Vendor Evaluation should be used for your main suppliers• If you have a QM system working — it can be integrated with

the VE• VE standard customizing depends on your purchasing organization

— you may have to use user exits to influence the scores in case your purchasing organization structure does not fit

• Use automatic scoring as much as possible — this avoids the use of subjective data

• Customize and implement a Buyer’s Negotiation Sheet — it may help get better deals from your suppliers

• You may integrate SRM with VE — the results will be reported in BW

• Don’t hesitate to implement user exits to implement your own scoring methods

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Your Turn!

How to contact me:

Isaac Mazliach

[email protected]

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Disclaimer

SAP, R/3, mySAP, mySAP.com, xApps, xApp, SAP NetWeaver®, Duet™, PartnerEdge, and other SAP products and services mentioned herein as well as their respective logos are trademarks or registered trademarks of SAP AG in Germany and in several other countries all over the world. All other product and service names mentioned are the trademarks of their respective companies. Wellesley Information Services is neither owned nor controlled by SAP.

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0 © 2009 Wellesley Information Services. All rights reserved. Do Your Suppliers Measure Up? How to Find Out Using Vendor Evaluation (VE) Functionality