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Using Agreement Metrics

This topic discusses:

Metric Measurements

Supplier Contract Management uses procurement history from PeopleSoft Purchasing to gather transactional agreement compliance information. This enables you to use summaries of purchasing, invoicing, and receiving transactions to measure a supplier's performance and compliance to a contract agreement. The procurement history also provides you with information about procurement trends and can assist you in managing supplier relationships.

To enable the comparison of a supplier's performance against the performance defined in a contract agreement, the system uses underlying metrics as the basis for evaluating whether the agreement is being met. After running the metric process for procurement history, the system calculates agreement compliance for the contracts included in the run. When you define an agreement, you also establish a numeric negotiated result and performance tolerance value. The metric ID determines the meaning of these values. For example, if the Metric ID value is On-time Receipt Performance, the negotiated result amount represents the target percentage for on-time receipts, and the tolerance percentage can represent an acceptable, but not the preferred level of performance below that targeted negotiated percentage. Any percentage below the allowed tolerance is considered unacceptable.

In addition, you can set up alert notifications to inform buyers when an agreement reaches a warning or unacceptable tolerance level. You notify interested parties, such as contract managers and buyers, when a supplier's performance needs to be examined or when the supplier's performance is unacceptable. You set up the notification process for warnings using the Process Notification page. To access the page, select select Supplier Contracts, then select Monitor and Update, then select Setup Agreements, then select Workflow Notifications.

You use Supplier Contract Management pages to view summarized performance details and measurements about agreements and to view the acceptable, warning, or unacceptable performance levels for the agreement. You view the actual performance metric percentage using the Performance Details page. The system provides additional performance data along with charted summarizations of the data. Charted data by period includes:

  • Acceptable percentages.

  • Warning percentages.

  • Unacceptable percentages.

  • Variance percentages, such as over and under and early and late percentages.

You set up agreements to use metric measurements when you define agreement codes. When you select Metric as a result type, you also select the type of measurement (metric ID) that you want to use along with tolerance percentages. You can measure performance based on these metric measurements:

  • On-time performance by receipt.

  • On-time performance by quantity.

  • Quantity performance.

  • Purchase order and receipt quantity performance.

  • Quality performance.

An example of using a metric agreement might be when a contract includes an agreement that specifies that the supplier should deliver 95 percent of its shipments on time by aggregate receipt quantity. So by tracking the supplier's performance over time and the supplier fails to meet the 95 percent target over the life of the contract, the contract manager might not want to renew the supplier's contract. The metric provides the information needed to make the decision.

In addition, suppose the contract manager wants to track the supplier's performance on a regular basis. The manager can set up an agreement with a deliverable for on-time performance and track the performance on a daily, weekly, or monthly basis. The system periodically checks the on-time performance metric for the contract and issues an email and worklist alert to the manager or verification step owner if the performance falls below the agreed upon 95 percent threshold. The manager can then contact the supplier or take appropriate action. By evaluating the receiving transactional data and then notifying the interested party if the supplier is not compliant, it becomes easier for contract managers to manage performance on an exception basis. Contract managers can use any of the performance-based metric measurements on this basis.

Metric Measurement Types

You use the Contract Agreement Definition page to define agreement codes for use with metrics. Using the page, you select to measure the performance against a contract agreement using a metric-based result type. When you select this type, the Metric ID field is made available and you can select the type of metric you want to use to measure performance against negotiated terms of a contract at the header level.

Note: You cannot set up line-level agreements for use with metrics.

On-Time Quantity Performance Measurement

This measurement measures the percentage and actual number of shipments that are on time, early, and late for all items within a period as captured within purchasing at receipt time. The system displays the percentage on-time metric, supplier name, and target percentages by period. To calculate the performance, the system:

  1. Retrieves the actual on-time quantity percentage from the procurement history.

  2. Calculates the on-time warning-performance percentage by subtracting the tolerance-performance percentage from the negotiated on-time percentage.

    For example, if the negotiated on-time percentage is 90 percent and the performance-tolerance percentage is five percent, then the on-time warning performance percentage is 85 percent. Other calculations include:

    • If the actual on-time quantity percentage is greater than or equal to the on-time warning performance percentage and less than or equal to the negotiated on-time percentage, then the warning-performance notification condition is met for the contract agreement.

    • If the actual on-time quantity percentage is less than the on-time warning performance percentage, then the unacceptable-performance condition is met for the contract agreement.

    • If the warning-performance notification condition is met for the contract agreement and the Warning Performance check box is selected for the verification step with System as the verification method, then the system issues a warning notification.

    • If the unacceptable-performance notification condition is met for the contract agreement and the Unacceptable Performance check box is selected for the verification step with System as the verification method, then the system issues an unacceptable notification.

On-Time Receipt Performance Measurement

This measurement measures the actual ship on-time percentage based on actual receipt versus quantity as captured within purchasing at receipt time. To calculate the performance, the system:

  1. Retrieves the actual ship on-time percentage from the contract procurement history.

    The percentage is based on the number of receipts related to the contract.

  2. Calculates the on-time warning performance percentage by subtracting the tolerance-performance percentage from the negotiated percentage.

    Other calculations include:

    • If the actual ship on-time percentage is greater than or equal to the on-time warning performance percentage and less than or equal to the negotiated on-time percentage, then the warning-performance notification condition is met for the contract agreement.

    • If the actual ship on-time percentage is less than the on-time warning performance percentage, then the unacceptable-performance condition is met for the contract agreement.

    • If the warning-performance notification condition is met for the contract agreement and the Warning Performance check box is selected for the verification step with System as the verification method, then the system issues a warning notification.

    • If the unacceptable-performance notification condition is met for the contract agreement and the Unacceptable Performance check box is selected for the verification step with System as the verification method, then the system issues an unacceptable notification.

PO/Receipt Quantity Performance Measurement

This measurement measures the percentage and actual number of purchase order receipts within the period and tracks the percentage of total ordered versus total received quantities for the contract over time. The measurement includes a purchase order-versus-receipt quantity performance chart that displays the percentage open receipt quantity metric, supplier name, and target percentage by period. To calculate the performance, the system:

  1. Retrieves the actual-quantity open percentage from the procurement history.

  2. Calculates the quantity-open warning performance percentage by subtracting the tolerance-performance percentage from the negotiated percentage.

    For example, if the negotiated-received percentage is 95 percent and the performance-tolerance percentage is five percent, then the quantity open on-time warning performance percentage is 90 percent. Other calculations include:

    • If the actual-quantity open percentage is greater than or equal to the quantity-open warning performance percentage and is less than or equal to the negotiated-correct percentage, then the warning-performance condition is met for the contract agreement.

    • If the actual-quantity open percentage is less than the quantity-open warning performance percentage, then the unacceptable-performance condition is met for the contract agreement.

    • If the warning-performance notification condition is met for the contract agreement and the Warning Performance check box is selected for the verification step with System as the verification method, then the system issues a warning notification.

    • If the unacceptable-performance notification condition is met for the contract agreement and the Unacceptable Performance check box is selected for the verification step with System as the verification method, then the system issues an unacceptable notification.

Quantity Performance Measurement

This measurement measures the percentage and actual number of supplier shipments with correct quantities, over-shipment quantities, and under-shipment quantities by period. The system displays the supplier name, percentage correct, percentage under, percentage over, and target percentage. To calculate the measurement, the system:

  1. Retrieves the actual-correct shipment percentage from the contract procurement history.

  2. Calculates the correct-shipment warning performance percentage by subtracting the tolerance-performance percentage from the negotiated percentage.

    For example, if the negotiated correct percentage is 92 percent and the performance-tolerance percentage is three percent, then the correct-shipment warning performance percentage is 89 percent.

    Other calculations include:

    • If the actual-correct shipment percentage is greater than or equal to the correct-shipment warning performance percentage and is less than or equal to the negotiated correct percentage, then the warning-performance notification condition is met for the contract agreement.

    • If the actual-correct shipment percentage is less than the correct-shipment warning performance tolerance percentage, then the unacceptable-performance condition is met for this contract agreement.

    • If the warning-performance notification condition is met for the contract agreement and the Warning Performance check box is selected for the verification step with System as the verification method, then the system issues a warning notification.

    • If the unacceptable-performance notification condition is met for the contract agreement and the Unacceptable Performance check box is selected for the verification step with System as the verification method, then the system issues an unacceptable notification.

Quality Performance Measurement

This measurement measures the percentage and actual number of supplier shipments that are rejected for quality reasons by period. The quality reason is determined by the reason code entered at receipt time. The system displays the percentage net received metric, supplier name, and target percentage along with the rejected and returned percentages. To calculate the measurement, the system:

  1. Retrieves the actual-quantity accepted percentage from the contract procurement history.

  2. Calculates the quantity-accepted warning performance percentage by subtracting the tolerance-performance percentage from the negotiated percentage.

    For example if the negotiated net-received percentage is 90 percent and the performance-tolerance percentage is five percent, then the quantity-accepted warning performance percentage is 85 percent.

    • If the actual-accepted open percentage is greater than or equal to the quantity-accepted warning performance percentage and less than or equal to the negotiated accepted percentage, then the warning-performance notification condition is met for the contract agreement.

    • If the actual-quantity accepted percentage is less than the quantity-accepted warning performance percentage, then the unacceptable-performance condition is met for this contract agreement.

    • If the warning-performance notification condition is met for the contract agreement and the Warning Performance check box is selected for the verification step with System as the verification method, then the system issues a warning notification.

    • If the unacceptable-performance notification condition is met for the contract agreement and the Unacceptable Performance check box is selected for the verification step with System as the verification method, then the system issues an unacceptable notification.

Steps for Implementing Metric Measurements with Agreements

The Supplier Contract Management metric-based agreements use procurement reporting entities to capture procurement history for each contract. When a contract contains a metric-based agreement, a reporting entry is automatically created for you that is specific for the contract. To have the system automatically generate the reporting entity, you must first:

  1. Add an automatic numbering entry for the Contract Reporting Entity ID number type.

    This auto numbering setup is required so that the system can automatically create the reporting entity for the contract when you create new contracts that contain metric-related agreements.

    To add the entry:

    1. Select: select Set Up Financials/Supply Chain, then select Common Definitions, then select Codes and Auto Numbering, then select Auto Numbering.

    2. Select Rept. ID from the list of values.

      The Auto Numbering page appears.

    3. Select REPORT_ENTITY in the Field Name field.

      The system also populates the Max Length field with 5 as well as other required information. You can add or update start sequences and descriptions for the auto-numbering details.

  2. Select:select Set Up Financials/Supply Chain, then select Product Related, then select Procurement Options, then select Purchasing, then select Supplier Performance Setup.

    The Supplier Performance Setup page appears.

  3. Select an existing reporting entity in the Reporting Entity ID field.

    The system references the reporting entity to obtain the default setID and calendar information for each new reporting entity that it creates automatically when you add new contracts that contain metric-related agreements.

When the system processes the contract ID, it runs the Procurement History Update process (FS_PRCRUPD). The process includes necessary purchase order receipt information for the contract you specify because the system maintains a link between each contract and the hidden reporting entity for the contract. You use the Update Procurement Info page in the Supplier Contract Management Monitor and Update Agreements component to run the process. Next, you can use the Review Supplier Performance page to review the performance for a supplier based on one of the metric measurements.

Note: The Update Procurement Info page in Supplier Contract Management must be used to capture procurement history specific to contracts instead of the version of this component that resides in the PeopleSoft Purchasing Analyze Procurement component.

Image: Applying metric measurements for performance process flow

This diagram illustrates an example of the process for creating agreements and applying metric measurements for performance against the agreement:

Applying metric measurements for performance process flow

To create and use agreement compliance metrics, use these steps:

  1. Create an agreement code that uses one of the metric measurements and attach the code to a contract.

    This includes:

    1. Defining the verification method as System.

    2. Setting up warning and unacceptable performance notifications and details for individual users.

      Use the Notification Assignments link on the Contract Agreement Definition page to access the Agreement Notification page.

      See Process Notifications Page.

  2. Set up auto numbering and reporting entities reference on the Supplier Performance Setup page.

  3. Run the Procurement History Update process.

    This step updates procurement activity for the period and contract that you specify. Make sure that you run the process from within Update Procurement Info component in Supplier Contract Management.

    See Updating Contract Procurement History.

  4. Run the Workflow Notification (CS_NOTIFY_WF) process as needed to generate email and worklist notifications.

    The system notifies interested parties defined in notifications when an supplier has an unacceptable performance or a warning performance against a contract agreement. Ensure that the Warning & Unacceptable Performance check box is selected on the Process Notifications page.

  5. Access the Review Agreement Statuses Page to review the Cumulative Performance value.

    This value provides an overview of the most up-to-date metric cumulative-performance percentages against this contract. The value is based on the current run of the Procurement History Update process for this contract.

  6. Click the Cumulative Performance value to review supplier performance information.

    This link accesses the View Supplier Shipment Performance page. You use the page to compare actual performance against target performance. You can also navigate to item details and review receipt information.

The Review Agreement Statuses page provides the supplier's Cumulative Performance value and a link to the View Supplier Shipment Performance page.

Image: Update Agreement Statuses page

This example illustrates the fields and controls on the Update Agreement Statuses page.

Update Agreement Statuses page

Use this page to view the level of acceptance or noncompliance to the agreement. Click the Cumulative Performance link value to review more specific details about the supplier's performance. When you access the View Supplier Shipment Performance page, you can review percentages, time periods, and actual shipment quantity and quality, such as the number of items received and the number rejected.

Image: View Supplier Shipment Performance page (1 of 2)

This example illustrates the fields and controls on the View Supplier Shipment Performance page (1 of 2). You can find definitions for the fields and controls later on this page.

View Supplier Shipment Performance page (1 of 2)

The View Supplier Shipment Performance page displays results of the most up-to-date cumulative performance percentage of metrics against this contract for the current Update Procurement Info run for this contract. For example, suppose you are tracking quality performance and, using the Contract Entry component, have established that an acceptable level of returns is five percent. Then, if 98 percent of the purchase order receipts for this contract have been received without being rejected for quality reasons, after updating procurement history, the View Status Agreements page displays the cumulative performance value of 98% Acceptable.

Through the Cumulative Performance link value, you can also access additional details of the underlying performance down to the individual receipt level for purchase orders linked to the contract. When you click the Period / Year link, the Performance Details grid box appears:

Image: View Supplier Shipment Performance page (2 of 2)

This example illustrates the fields and controls on the View Supplier Shipment Performance page (2 of 2). You can find definitions for the fields and controls later on this page.

View Supplier Shipment Performance page (2 of 2)

The Performance Detail grid box provides additional tabs that contain shipping and buyer information. Click the Item ID link to view receipt details for the item.