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Vendor Evaluation

SAP AG

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Vendor Evaluation: Unit Objectives


At the end of this unit, you will
be familiar with the levels of vendor

evaluation and the different evaluation


criteria
be able to differentiate between and make

use of the various options for maintaining


vendor evaluations
understand the process of evaluation with

respect to certain automatic subcriteria


be acquainted with the analyses available

for the purposes of vendor evaluation


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Vendor Evaluation: Business Scenario


You wish to use the vendor evaluation

functionality to provide yourself with


comprehensive information for your
negotiations with vendors. To do so, you
must define in Customizing the criteria
according to which evaluation is to take
place and how which aspects of your
vendors performance are to be rated. You
must also carry out an evaluation of your
vendors at regular intervals, in order to
keep the data up to date.

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Function of Vendor Evaluation


Vendor evaluation: general
Qual. Deliv.
Overall Price Qual.
Deliv. Service
Vendor B

90

92

90

93

85

Vendor A

84

75

92

88

81

Vendor C

81

90

76

74

84

Evaluation for material 1


Qual. Deliv.
Overall Price Qual.
Deliv. Service
88

81

93

92

86

90

94

92

88

86

80

85

82

79

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SAP AG

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


Overall score

Weighted
Scores for
main criteria
Weighted
Scores for
subcriteria

Individual scores
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SAP AG

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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Types of Subcriterion
Overall score

Scores for main


criteria

Manual
subcriterion

Semi-automatic
subcriterion

Automatic
subcriterion

Scores for
subcriteria

Pc.
Pc.

%
%

Conditions
Conditions

$$
Individual scores
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SAP AG

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

Subcriteria

Price

Price level
Price history
GR inspection
Rejection/complaints
Audit
On-time delivery
Quantity reliability
Shipping instructions
Confirmations

Quality
Delivery

Service

SAP AG

You use the subcriterion price level to evaluate the relationship of a vendors price to the market price.
You use the subcriterion price history to evaluate changes in a vendors 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

Vendor A

Purch. organization 1000

Vendor
evaluation
record

Weighting keys

Automatic
criteria

Semiautomatic
criteria

Manual
criteria

Calculation
log
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SAP AG

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
Old
New
values values

Vendor A

...
...

...
...
Calculation
log

Purch. organization 1000

Weighting keys

Automatic
criteria

Semiautomatic
criteria

Save
Vendor
evaluation
record
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SAP AG

The Automatic re-evaluation function enables you to update the scores for the automatic and semiautomatic 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

Vendor A

Vendor B

Weighting
key

Weighting
key

Vendor C

Vendor NEW

Weighting
key
Vendor
evaluation
record

Automatic
criteria
Calculation
log

SAP AG

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 Reliability
GR

Pur. order

100 pc.

90 pc.

Del. sched.
Goods
receipt

Del. compl.
ind. X

Sch. line 1
100 pc.

Smoothing

Goods

100 pc. receipt

No quantity reliability
update !

Calculate
% variance
Points score

GR

Customizing
settings for
purchasing
organization

Vendor evaluation

SAP AG

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 vendors 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 Performance


Pur. order

GR

100 pcs.
Statistics-rel.
delivery date

10 pcs.

12.20

End

Goods
receipt

Pur. order

GR

100 pcs.
Statistics-rel.
delivery date

100 pcs.

12.20

12.20

Minimum quantity
check

Goods
receipt

12.19

Calculate
% variance
Points score
Smoothing

Customizing
settings for
purchasing
organization

Vendor evaluation

SAP AG

You use the subcriterion On-time delivery performance to evaluate a vendors 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

Info record

Comparison
price

Vendor A
Material 1
Effective price

<>=
?

Pc.
Pc.

%
%

Market price
Average price
Single/sole
sourcing

Calculate
% variance
Points score

Conditions
Conditions

$
$

Customizing
settings for
purchasing
organization

Vendor evaluation
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SAP AG

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

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

To determine a vendors price level, the system compares the vendors 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 Evaluation


RANKING LIST
General
General vendor
vendor evaluation
evaluation
Overall
Overall

Price
Price

Qual.
.
Qual
Qual.

Deliv.
. Service
Deliv
Deliv.
Service

Vendor B

90

92

90

93

85

Vendor A

84

75

92

88

81

Vendor C

81

90

76

74

84

EVALUATION PER MATERIAL/MATERIAL GROUP


General
General vendor
vendor evaluation
evaluation
Overall
Overall

Price
Price

Qual.
.
Qual
Qual.

Deliv.
. Service
Deliv
Deliv.
Service

Vendor A

84

75

92

88

81

Vendor C

81

90

76

74

84

EVALUATION COMPARISON
General
General vendor
vendor evaluation
evaluation
Overall

Vendor A

84

Evaluation
Evaluation for
for material
material 11

Price

Qual.
Qual.

75

92

Deliv.
Deliv. Service

88

81

Overall
Overall

88

Price
Price

Qual.
.
Qual
Qual.

81

93

Deliv.
. Service
Deliv
Deliv.
Service

92

86

SAP AG

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
latters 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
X

X
X

X
X

Pur. org.specific

General

Points scores for


automatic
criteria
Weighting of
main criteria

X
X

Weighting key

Over. Price

Qual.
Qual.

Del.

Serv

Main criteria

Vendor B
Vendor A

Weighting of
subcriteria

Vendor C

Subcriteria

General
control
parameters

List
parameter

SAP AG

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 parameters
Best score
Applicability period

Parameters for subcriteria


Price level
Single/sole vendor

Layout set

On-time delivery
Smoothing factor
Std. del. time variance

Audit

Min. deliv. percentage

Average of all lots


Quantity reliability
Rejection/complaints
As percentage of
purchase volume

Smoothing factor
Shipping instructions
Smoothing factor
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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 with

summary information on your vendors and


supports you in the process of vendor
selection.
Various maintenance functions are available

to evaluate vendors.
Evaluation with respect to automatic

subcriteria is based on normal online


activities. Customizing settings decide which
points score is awarded for which aspect of a
vendors performance.
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