CORPORATE IT

Vendor Evaluation
SBUs: G&L, IP, LC

By Vijay Kumar Das

 CORPORATE IT
Purpose, Integration, Scope
Purpose:
The Process of Vendor Evaluation or Supplier Evaluation is a term used in Business and
refers to the process of evaluating and approving potential Vendors or Suppliers by
Quantitative Assessment. The purpose of Vendor / Supplier Evaluation is to ensure a
portfolio of best in class Vendors / Suppliers is available for use.

This Evaluation is also a process applied to current suppliers in order to measure and
monitor their performance for the purposes of reducing costs, mitigating risk, driving
continuous improvement to optimize your Procurement processes in the case of both
Materials and Services.

Integration:
• MM: Purchasing (Price, Delivery Date, Quantity).
• QM: Incoming Inspections.
• MM: Inventory Management (Goods Receipt / Service Receipt).

Scope:
• Procurement of Materials.
• Procurement of Services.
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Elements
Level:
• Purchase Organization.
• Vendor.

Scoring Criteria (Main Criteria / Characteristics):

• Price
• Quality
• Delivery
• General Service / Support
• Service
• Invoice

Scoring Methods:
• Fully Automatic (scoring method 2 to 9, A and B)
• Semi Automatic (scoring method 1, C and D)
• Manual (scoring method '_')

Overall Scoring:
• All Main Criteria -> Sub Criteria -> Weighting Scores -> Weighting Key + Weighting
Factors.
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Components & Levels

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Sub-Criteria
Main Criteria Sub-Criteria Scoring Scoring Method Type
Method Key
Price Level 4
Price Fully Automatic
Price History / Behavior 5
GR Inspection 7
Quality Rejection / Complaint Level 8 Fully Automatic
Quality Audit 9
Quantity Reliability 2
On-Time Delivery 3
Delivery Fully Automatic
Compliance with Shipping Inst. 6
Adhering to Confirmation Date B
Innovation -
General Service /
Reliability - Manual
Support
Customer Service -
Quality of Service C
External Service Semi Automatic
Service Timeliness D
Price Variance E
Invoice Fully Automatic
Quantity Variance F 5
By Vijay Kumar Das
 CORPORATE IT
Scoring & Calculation
Scoring Range:
• 1 to 100 points.

Weighting Key:
• 01: Equal Weighting.
• 02: Unequal Weighting.

Weighting Factors:
Weightage of Each Factor / Characteristics / Criteria / Sub Criteria for each Weighting
Keys.

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Main Criterion Price (Auto)
• 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 / Behavior

– 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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By Vijay Kumar Das
 CORPORATE IT
Main Criterion Quality (Auto)
• Goods Receipt (GR) Lots / Inspection
– 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.

• Rejection / 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.

• 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 Delivery (Auto)
• Quantity Reliability
– This subcriterion is used to assess the extent to which a vendor
delivers the quantities specified in Purchase Orders.

• On-Time Delivery Performance

– This subcriterion is used to assess the extent to which a vendor
delivers ordered goods punctually.

• 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 / Confirmation Date

– This subcriterion 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 Invoice (Auto by Custom.)

• Price Variance
– With this subcriterion you evaluate how exactly the price to be
invoiced agrees with the price actually invoiced.

• Quantity Variance
– With this subcriterion you evaluate how exactly the quantity to be
invoiced agrees with the quantity actually invoiced.

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By Vijay Kumar Das
 CORPORATE IT
Main Criterion (Semi Auto & Manual)
General Support / Service & Ext. Service
• General Support / Service
– Semi Automatic : In Info Record.
– Manual : During Evaluation.

• External Service
– Semi Automatic : During Service Acceptance.
– Manual : During Evaluation.

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By Vijay Kumar Das
 CORPORATE IT
Process: Auto, Semi Auto & Manual

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Price Level (Main Criterion "Price")

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By Vijay Kumar Das
 CORPORATE IT
Price History (Main Criterion "Price")

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By Vijay Kumar Das
 CORPORATE IT
Goods Receipt Inspection & Quality Audit
(Main Criterion "Quality")

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Rejection / Complaint Level (Main Criterion "Quality")

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Quantity Reliability & On-Time Delivery
(Main Criterion “Delivery")

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Compl. with Shipping Instruction & Conf. Date
(Main Criterion “Delivery")

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Imp Factors
• Weighting Key

• Main Criteria
• Sub Criteria
• Method
(Auto, Semi Auto or Manual)

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Imp Factors (Cont.)
• Weighting of each Sub
Criteria

• Weighting of each Main

Criteria

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Imp Factors (Cont.)
• Variance Percentage & respective Score for
• Quantity Reliability (2)
• On-Time Delivery (3)
• Price Level (4)
• Price History / Behaviour (5)
• Adhering to Confirmation Date (B)

Here the scores are defined

regarding the percentage
calculated during an
evaluation.
The relation between scores
and percentage are always
“up to”. This means that in
the example below vendor
get a score of 100 if the
percentage is 0 and get a
score of 95 if the percentage
is between 0.1 and 2.0

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By Vijay Kumar Das
 CORPORATE IT
Other Factors
• Applicability Period:
Period in calendar days within which data is to be taken into consideration for vendor
evaluation purposes.

Example: If you enter the value 150 here, the system will take into account data from the
past 150 days for vendor evaluation purposes. Data that is more than 150 days old will not be
included in the evaluation process.

The applicability period is taken into consideration when the scores for the following criteria
are computed:
•GR lots
•Complaints level
•Semi-automatic criteria

The applicability period is not taken into consideration for the following criteria:
•Price level
•Price history

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By Vijay Kumar Das
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Other Factors (Cont.)
• Business Volume:
During the vendor evaluation process for quality, the system checks whether the costs
associated with the faulty delivery exceed the maximum percentage of business volume
defined in the Customizing system.

Notice that this value here is a percent value, i.e. if you want 10% you should insert
10,0000 and not 0,1.

• Standardizing Value For Delivery Time Variance:

Value in days that specifies how many days variance from the planned delivery date are
to count as a 100% variance.

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Other Factors (Cont.)
• Single / Sole Source
Determines how the price of a single or sole source of a material influences the scores for the
subcriteria "Price level" and "Price history". It is only taken into account if the vendor is the only
source for this material and no market price has been maintained for the material.

There are two situations in which a vendor is the only source of a material:

Single Sourcing:
This describes a situation in which your company has decided to procure exclusively from a
certain source (e.g. for quality reasons), despite the fact that other sources exist.

Solé Sourcing:
In this situation, there are no other sources capable of supplying the relevant material.
The sole source situation is disadvantageous to you.
In order that the system does not calculate a score for the price level and price history, you do
not set the indicator.

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By Vijay Kumar Das
 CORPORATE IT
Other Factors (Cont.)
• Minimum Delivery Quantity
Indicates the percentage of the order quantity that counts as the minimum quantity to be
delivered.
If the minimum delivery quantity is not reached, the system does not determine a score for
the goods receipt.

• Minimum Delivery Percentage And Standardizing Value For

Delivery Time Variance
When this indicator is set this information will be taken from the relevant fields in the material
master record

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By Vijay Kumar Das
 CORPORATE IT
Other Factors (Cont.)
• Average of all Lots
Specifies the basis on which the score for the subcriterion quality audit is determined.
• If you set the indicator, the system calculates the average from the quality audits of all
plants that took place within the relevant period defined under "applicability period".
• If you do not set the indicator, the system applies only the most recent audit for evaluation
purposes - irrespective of when it took place (i.e. the score for the most recent audit is
simultaneously the score for the subcriterion).

• Smoothing Factors
A value enabling the user to determine the extent to which a current (new) value used in a
calculation influences the result.
• The smoothing factor can have a value between 0 und 1.
• A high smoothing factor causes the result to be changed significantly, whereas a low one
makes little difference.
• Applicable for subcriteria: "on-time delivery", "adherence to confirmation date", "quality of
service provision", "timeliness of service provision“, "quantity variance“, "shipping
instructions".

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By Vijay Kumar Das
 CORPORATE IT
Smoothing of Individual Scores
If you have defined a smoothing factor
of 0.1, the individual score for a new
goods receipt counts as a tenth of the
score for the subcriterion. The
previous score counts as nine tenths
of the new score for the subcriterion.

The formula is as follows:

Previous score x (1 - 0.1) + New score
x 0.1

For example, the previous score was

80 points, the new individual score is
20. The formula is then:
80 x 0.9 + 20 x 0.1 = 74

The new score for the subcriterion

based on this material is 74 points.
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By Vijay Kumar Das
 CORPORATE IT

Thank You!

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By Vijay Kumar Das