Executing Supplier Management

Supplier classification and segmentation is a continuous process in which customers assess and classify their suppliers at regular intervals and allocate these suppliers to segments of different importance. Customers can then focus especially on those suppliers that are strategically important and critical to their business.

Classification and Segmentation provides transparency and insights into a company's supplier portfolio and purchasing categories.

A logical grouping of similar expenditure items such as expenses for direct materials for a production process, helps to organize spend and responsibilities.

Benefits of classification and segmentation:

• Provide transparency for a company's supplier portfolio by leveraging classification attributes and flexible search options.

• Reduce risk with respect to a company's supply base by identifying low performing suppliers.

• Analyze spend and supplier performance based on operational data by using real-time reporting across purchasing categories.

With SAP S/4HANA, customers can classify their suppliers using various criteria, such as spend, strategic importance, supply risk, compliance, and social responsibility. This facilitates supplier segmentation and creating a best supplier portfolio.

It is possible to access the classification screen from the supplier details, which can be accessed from the supplier list. To enter the data, a user must choose Create New Scorecard. The provided functionality is comparable to the sustainability data which can be maintained in SAP ERP.

Classification and Segmentation has the following features in SAP S/4HANA:

• Segmentation and classification of suppliers and review evaluation results based on purchasing categories

  Note

  Classification criteria could be, for example, strategic importance (ABC classification) and/or type of supplier relationship (like preferred supplier). A scorecard for each supplier enables a company to monitor the supplier's corporate social responsibility compliance.

• Define internal activities to track supplier performance

• Integration with Dun & Bradstreet data to review latest reports

• View and analyze recent supplier evaluations with print and export capabilities

• Upload attachments

With Operational Supplier Evaluation, suppliers can be continuously analyzed.

It allows a company to evaluate and monitor the performance of suppliers using automated, and real-time calculation based on business documents in operational procurement (hard facts) and manual questionnaires (soft facts). An example of a hard fact is on-time delivery performance.

Supplier Evaluation has the following features in SAP S/4HANA:

• Supplier soft-fact evaluations based on questionnaires

• Definition of appraisers, like employees or purchasers

• Questions and questionnaires are completely configurable, with individual scoring and overall weighting

• Define target and minimum score for an evaluation

• See all evaluation responses in a list with flexible search and filter criteria

Customers can evaluate suppliers as a basis for defining a certain business relationship (like a preferred supplier) and for optimizing a company's supply base. Based on the feedback that a purchaser gathers through questionnaires, the purchaser obtains a scorecard for each supplier evaluated. The scorecard helps to assess a supplier's strengths and shortcomings and to initiate measures for improvement. Evaluation scorecards also enable a purchaser to compare suppliers more easily.

• Evaluation questionnaire:

  Users can create questionnaires that can be sent out to internal stakeholders within the company to collect information about suppliers. These questionnaires can contain different types of questions. If required, a questionnaire can be translated into further languages.

• Supplier evaluation template:

  Evaluation templates can be used to repeatedly generate evaluation requests that share the same properties. As an example, requests generated from the same template use the same questionnaires. In the evaluation process, evaluation templates are set up for peer groups of suppliers within particular purchasing categories. These templates include questionnaires that enable a company to identify the strengths and shortcomings of its suppliers.

• Supplier evaluation request:

  The purchaser responsible for a purchasing category starts the evaluation process by sending out an evaluation request to a set of defined appraisers.

• Supplier evaluation response:

  An evaluation response includes the answers given by an appraiser. If the questionnaires have been scored, the scores are shown in a score overview.

• Evaluation scorecard:

  Evaluation scorecards show the overall result of a supplier evaluation for one supplier, aggregating the evaluation results from all appraisers. If a company evaluates a supplier in yearly intervals, the company will get an evaluation scorecard for this supplier reflecting the scores for an entire year within a peer group.

A company can decide which kind of supplier evaluation it wants to use. If a company wants to use the supplier evaluation by purchasing category functionality, they have to activate this functionality in Customizing using the menu path: SAP Customizing Implementation Guide → Materials Management → Purchasing → Supplier Evaluation → Supplier Evaluation by Purchasing Category → Switch to Supplier evaluation By Purchasing Category.

One important characteristic (and advantage) of this supplier evaluation by purchasing category functionality, is that the scores are calculated on client level and that from there, a drill-down to purchasing organization is available. Apart from purchasing organization, it is also possible to show a drill-down:

• By purchasing group

• By purchasing organization

• By purchasing category

• By material group

• By plant

• By document

For the hard facts used during an evaluation, the weighting of the different criteria needs to be defined and scores need to be assigned in Customizing or in the corresponding app Supplier Evaluation Weighting and Scoring. Defining the scores in Customizing is done using the menu path: SAP Customizing Implementation Guide → Materials Management → Purchasing → Supplier Evaluation → Supplier Evaluation by Purchasing Category → Determine Criterion Score.

In purchasing analytics, the following are examples of SAP Fiori apps/KPIs that are available in the area of supplier evaluation:

1. Overall Supplier Evaluation:

   This app determines the score of a supplier in an organization based on the operational scores (hard facts) and questionnaire scores (soft facts). The score is calculated for the period previous year to date. It combines scores from the weighted hard facts (price, time, and quantity), and the soft facts available from questionnaire results.

2. Operational Supplier Evaluation (Version 2):

   This app determines the score of a supplier in an organization based on the weighted average of the quantity variance, price variance, and time variance. The score is calculated for the period previous year to date. The overall score is calculated from the variance available from the different criteria, and then the weighting is applied. It is possible to adjust the scores with the app Adjust Operational Supplier Evaluation Score.

3. Supplier Evaluation by Quantity (Version 2):

   With the Supplier Evaluation by Quantity app, it is possible to determine the quantity variance, which is based on the variance between the ordered quantity and the delivered quantity of items. Both the over and the under delivered quantities are considered as variances. The score is determined for the period previous year to date.

4. Supplier Evaluation by Time (Version 2):

   This app can be used to determine the score of a given supplier in an organization based on the difference in time between the ordered date of items and delivered date of items. The score is calculated for the period previous year to date. Both the late and early deliveries of items are considered as a variance. It is also possible to see the time variance by delivery date.

5. Supplier Evaluation by Price (Version 2):

   With the Supplier Evaluation by Price app, it is possible to determine the score of a given supplier in an organization based on the variance in the price of ordered items and invoiced items. The score is calculated for the period previous year to date and is based on the difference in the purchase order amount and invoice amount. Both the excess price and the lower price are considered as variances. This is completely different when compared to the LIS-based supplier evaluation, where the price score is based on the info record prices.

6. Supplier Evaluation by Quality (Version 2):

   With the Supplier Evaluation by Quality app, it is possible to determine the overall quality score of a supplier based on inspection results. Each inspection lot is recorded, and the purchase order and purchase order item are used to track the supplier. The score is determined for the period previous year to date.

7. Supplier Evaluation by Quality (for Quality Notification) (Version 2):

   With this app, it is possible to evaluate suppliers on the basis of quality complaints received. The suppliers with the least amount of complaint notifications received can be identified and thus the suppliers with higher quality evaluation scores. This helps a company to determine the suppliers with the best performance and reliability. This app can also help a company to decide which supplier to select if the purchasing conditions such as quality and price of a material, and delivery time are the same.