SAP Basics 101: Vendor Evaluation in SAP Procurement
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Vendor Evaluation
The Vendor Evaluation component supports in optimizing procurement processes in the case of both materials and services. Vendor evaluation is usually proposed to be done considering primarily the Quality,Price, Delivery and Services aspects. Quality score with a weightage of 30%, Price score with a weightage of 30%, delivery score with a weightage of 30% and Services score with a weightage of 10% to edge out vendors who continuously supply materials not confirming to order specifications and delivery terms.
Procurement of Materials:
The Vendor Evaluation component helps in selecting sources of supply and facilitates the continual monitoring of existing supply relationships. It provides with accurate information on prices, and terms of payment and delivery. By evaluating vendors, competitiveness of enterprise’s can be improved. On the basis of detailed information, and in collaboration with the relevant vendors, you can quickly identify and resolve any procurement problems that may crop up from time to time.
Procurement of Services:
The reliability of vendors from whom services are procured on a plant by plant basis can be checked. It can be determined whether the vendors perform the services within the specified timeframes and appraise the quality of the work carried out. 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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The main criteria form the basis for assessing the performance of a vendor. The system calculates the vendor’s overall score from the scores achieved for the main criteria. The scores for the main criteria are a more accurate representation of the performance of a vendor than the overall score. Main criterions available in SAP are Quality, Price, Delivery and Service.
The main criteria have sub criterions. The system calculates a score for the relevant higher-level main criterion based on the scores a vendor receives for the various sub-criteria. There are three types of sub-criterion namely
- Manual, wherein scores are entered by user before carrying out an evaluation.
- Semi-automatic, wherein scores are entered at info record and service entry sheet level.
- Fully automatic, wherein system calculates the scores for automatic sub-criteria on the basis of data from other areas of the enterprise outside the Vendor Evaluation system (for example, Goods receiving & Quality Management). Once all the criteria are defined vendor evaluation programs can be Vendor evaluation shall be done based on the following Main criteria’s and sub-criteria’s and the weightage factor for main criteria and the corresponding Sub-criteria’s shall be as detailed below:
Quality
- Goods Receipt (Material Procurement).
- Service Entry Sheet (Service Procurement)
Delivery
- On Time Delivery
- Quantity Delivery
Price
- Price Level
- Price History
Services
- Reliability
- Innovation
Flexibility
- Goods Receipt / Service Entry:
This subcriterion is used to evaluate the quality of the material / service vendor delivers. The average score is calculated at the time of clearance of GR (Goods Receipt) / Service entry after inspection for clearance.
GR inspection can be scored as follows:
This subcriterion is used to determine how precisely a vendor has adhered to the specified delivery / completion dates. The points are calculated on comparison of the actual date of receipt of material (GRN date) and the delivery date as per PO. In case of service vendors actual job completion date shall be compared with committed completion date mentioned in the order.
The variance Scores can be
- ii) Quantity Reliability:
This subcriterion is used to determine whether a vendor has delivered the quantity specified in the order. A vendor’s score can be updated on activation of purchase order delivery completion indicator.
iii) Shipping instructions: -
This subcriterion is used to determine how precisely a vendor complies with our instructions for the shipping or packing of a material. The variance between our instruction and actual shall give the score points as follows
- iv) Notification reliability:
This subcriterion is used to determine whether a vendor adheres to a previously confirmed delivery date (that is, whether the goods are actually received on the date previously confirmed by the vendor).
The variance between the actual delivery date and the actual creation of the date of dispatch (Shipping notification creation date) of import material (from sea/air port) shall be scored as follows
This sub criterion compares relationship of a vendor’s price to the market price. If the vendor’s price is lower than the market price, he/she receives a good score; if it is higher than the market price he/she is assigned a poor score. On the basis of the sub criterion “Price Level” you can compare a vendor’s price to the current market price. The market price (like escalation / de-escalation / Wholesale index etc) is to be maintained manually for each material at the Purchasing Organization level. If the market price not available then the lowest price of all vendors for the given material to be considered for comparison.
This sub criterion compares the development of the vendor’s price with the market price/Moving average price (MAP). On the basis of the sub criterion “Price History”, it can be determined whether the vendor’s price has increased or decreased over a certain period in comparison( POvs MAP ) with changes in the market price over the same period. Scores shall be based on the variance as detailed below.
4) Service
This main criterion serves as a basis for evaluating those vendors employed as external service providers or for after sales services / support provided by material supply vendors.
Vendors/service provider’sservice scores are entered manually. Commercial / purchase department shall rate / rank the service satisfaction and accordingly shall be scored as detailed below.
Is vendor being innovative (Ex: Suggesting utility value, cost effective alternative product, methodology etc) on behalf of Organization? Is he spending some money, time etc. for our company? Purchase department to rate / rank and enter score accordingly.
iii) Flexibility:
Vendor’s flexibility with regard to payment due, delivery adjustments for unforeseen emergency requirement after order placement etc.
For more on Vendor Evaluation, you can take a SAP Online Course on SAPVARSITY. If you are looking forward for SAP Consultation, you can book an appointment. For more SAP stories, do subscribe to SAPRIDER. Thanks for reading.
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