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Do Your Suppliers Measure
Up? How to Find Out
Using Vendor Evaluation
(VE) Functionality Within
SAP ERP
Isaac Mazliach
S.D.M. Consulting
© 2009 Wellesley Information Services. All rights reserved.
What We’ll Cover …
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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
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Overview
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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
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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
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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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What We’ll Cover …
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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
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Automatic Subcriteria
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Main Criterion Quality
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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.)
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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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What We’ll Cover …
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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
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Automatic Subcriteria
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Main Criterion Delivery
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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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What We’ll Cover …
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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
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Automatic Subcriteria
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Main Criterion Price
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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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What We’ll Cover …
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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
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Scoring Levels in Vendor Evaluation
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Manual and Semi-Automatic Criteria
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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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What We’ll Cover …
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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
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Buyer’s Negotiation Sheet
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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.)
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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).
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Buyer’s Negotiation Sheet: Use
Buyer’s Negotiation Sheet: Customizing
What We’ll Cover …
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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
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Prerequisites for Vendor Evaluation
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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
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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.)
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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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What We’ll Cover …
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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
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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
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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
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Goods Receipt — Quality Inspection Score Calculation
(cont.)
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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.)
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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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What We’ll Cover …
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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
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General
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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.)
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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
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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
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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
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You can use this business process to
evaluate suppliers using questionnairebased 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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What We’ll Cover …
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•
•
•
•
•
•
•
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
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Resources
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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.)
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http://help.sap.com
 MM Vendor Evaluation
 http://help.sap.com/saphelp_erp60_sp/helpdata/en/8d/b985
b0414511d188fc0000e8322f96/frameset.htm
 SAP Supplier Relationship Management
 http://help.sap.com/saphelp_srm2007/helpdata/en/74/344c4
30fab4d0bbc30996d56cc293a/frameset.htm
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7 Key Points to Take Home
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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
isaac@sdm-c.com
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controlled by SAP.
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