Understanding Agreement Metrics

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 the performance of the supplier and their compliance to a contract agreement. The procurement history also provides information about procurement trends and can assist you when managing supplier relationships.

To compare the actual performance of a supplier with the performance defined in a contract agreement, the system uses underlying metrics as the basis for evaluating whether the agreement has been met. After running the metric process for procurement history, the system calculates agreement compliance for contracts included in the run. When you define an agreement, you also establish a 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 level of performance. Any percentage below the allowed tolerance is considered unacceptable.

In addition, you can set up notifications to alert buyers when an agreement reaches a warning, or unacceptable, tolerance level. Interested parties are notified, such as contract managers and buyers, when the performance of a supplier needs to be examined, or when the performance is unacceptable. You set up the notification process for warnings using the Agreement Notification Page.

Supplier Contract Management pages can be used to view summarized performance details and measurements for agreements, and to view the acceptable, warning, or unacceptable performance levels for those agreements. You can view the actual performance metric percentage using the View Supplier Shipment Performance 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.

Agreements are set up to use metric measurements when you define agreement codes on the Contract Agreement Definition Page. 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. Therefore, by tracking the performance of a supplier over time, if the supplier fails to meet the 95 percent target over the life of the contract, the contract manager may not want to renew the supplier's contract. The metric provides the information needed to make this decision.

Another example might be when the contract manager wants to track the performance of a supplier 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 e-mail 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 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.

Use the Contract Agreement Definition Page to define agreement codes with metrics. 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 becomes available on the Update Agreement Statuses Page and you can select the type of metric to which you want to measure performance against negotiated terms of a contract at the header level.

The example below describes how on-time quality performance measurement is calculated. All other metrics use the same concept.

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 that is specific for the contract. To have the system automatically generate the reporting entity, you must:

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. Access the Auto Numbering Page.

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

   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. Access the Supplier Performance Setup Page.

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). This process includes 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. Use the Update Procurement Info Page to run the process. Next, you can use the View Supplier Shipment Performance Page to review the performance for a supplier based on one of the metric measurements.

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

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

Use this page to view the level of acceptance or noncompliance to the agreement.