Vendor Evaluation in Dynamics 365 Finance & Operations

Vendor evaluation in Dynamics 365 Finance & Operations is a basic tool for comparing vendor performance. The Vendor evaluation tool provides users with data they need to make informed decisions about which vendor is the best choice for the procurement of goods. For instance, it can be used by the procurement team when entering and submitting purchase orders or by the accounts payable team to evaluate on time delivery and price variances.

A client of ours in the manufacturing and engineering industry asked me about this functionality recently. I explained how it works, what its limitations are, and the alternatives to address those limitations.

Note: Even though most customers, commentators, and consultants still call it Dynamics 365 Finance & Operations or D365FO, Microsoft now technically licenses it as Dynamics 365 Finance and Supply Chain Management.

What Vendor Evaluation Does

Vendor evaluation lets users manually evaluate vendor performance to better inform procurement decisions.

There is flexibility in how the Vendor evaluation functionality can be configured, which allows you to tailor it to exactly suit your business needs. For example, if your business, during the procurement of goods process, values On Time Delivery from Vendors above other factors, you can configure Vendor evaluation to rate that specific criteria. If your business values Quality Control above other factors, you can configure it that way instead. Multiple evaluation criteria can be set up. Not all criteria must be applicable for each Vendor.

With the Vendor evaluation functionality, it is recommended to have firm processes and training procedures in place so that the information being entered and used by the procurement team is as accurate and useful as possible.

How to Use Vendor Evaluation

To use the Vendor evaluation functionality, you must first set up the Vendor evaluation criterion groups, and Vendor evaluation criteria. These criteria are what users will see when they rate, or search for Vendors using this tool. Note that you can change or update the criteria, and new criteria can be added at any time.

Navigate to Procurement and sourcing > Setup > Vendors > Vendor evaluation criterion groups. In the example below, I have created an “On Time Delivery” group:

Screenshot of Vendor evaluation criterion groups window in Finance & Operations, highlighting On Time Delivery group.

Note that this group is intended to contain several specific criteria that can be used and reviewed by procurement users.

Next, create the criteria, and assign it to a group. Navigate to Procurement and sourcing > Setup > Vendors > Vendor evaluation criteria. In this example, I have created two criteria, “Within 1 week” and “Within 2 Days” and assigned them to the On Time Delivery group:

Screenshot of the Vendor evaluation Criteria window highlighting two criteria: "within 1 week" and "within 2 days".

Once you have created the groups and criteria, they need to be assigned to a procurement category and vendor. The reason for this is the assumption that not all vendors or categories of products will require Vendor evaluation. You can certainly assign them to all vendors/categories if your business requires it, but it’s left up to the configuration and needs of the business to decide.

Navigate to Procurement and sourcing > Procurement categories. From here, select the category that will be used, and click into the Vendors FastTab. Add all relevant vendors.

Next, in the Vendor evaluation criterion groups FastTab, add the criterion groups your business plans to use for the vendors and category of products.

In this example, I have added our previously configured On Time Delivery group, which will include the two criteria. I have also added two vendors for the “Oil and Lubricants” procurement category.

Screenshot of Procurement categories: Office Products window highlighting Vendors and Vendor evaluation criterion groups.

From this screen, you can drill into each vendor and assign them a rating. Click on the Evaluation button in the menu above the Vendors FastTab:

- Screenshot of Procurement categories page, highlighting the Evaluation button.

You can now assign this vendor a score using the drop down. A score can be assigned to each criterion that was created within the criterion group. If there are multiple criterion groups, you can toggle between them from here, using the left hand drop down.

Screenshot of Vendor evaluation highlighting average rating and the rating on vendor evaulation criteria.

Once a score is entered, this vendor, for this category, is given an average rating. The procurement team can then use this rating to determine which vendor is the best choice when sourcing goods.

To complete our example, if two vendors regularly supply your business with oil and lubricants, and a user needs to decide which vendor has the best delivery history, this average rating will provide that. That user can then proceed to create a purchase order.

Limitations of Vendor Evaluation

Vendor evaluation does have some limitations you should know about, when used out of the box.

  1. Vendor evaluation scores must be updated manually, they are not tied directly to transactions within the system. For example, if a vendor who had a history of on time deliveries suddenly shifts to late deliveries, their rating would need to be manually updated to reflect that.
  2. The average ratings calculated by the scores entered in the Vendor evaluation tool are not accessible from the Purchase order entry form. They must be viewed from the Evaluation form where scores are entered.
  3. To compare vendors against each other, a user will need to drill into each vendor to see their average rating from the procurement category to compare.

Alternatives to Address Limitations

There are three main options to address those limitations and get an enhanced solution for evaluating your Vendors in F&O.

A. Configure the Functionality

Ask a skilled Dynamics Partner to configure your Vendor evaluation functionality to compare ratings directly by having criteria be 1-1 with criterion groups. This way, the Vendor search functionality, which is available from the Purchase order entry form, can be used.

Although this approach will not show the Average Rating Score, it would provide an easy way to see criteria and rank and make informed decisions while entering Purchase orders. Contact Encore for tailored advice, support, and implementation. We’d love to help.

Screenshot of the vendor search functionality highlighting the vendor evaluation criteria.

B. Vendor Rating App

Use the Vendor Rating App from Encore Business Solutions. That would let you see how a vendor is rated without having to navigate away from the screen you are working in.

It also allows users to easily make updates to the rating as circumstances change. This may be an excellent choice for companies that need a less specific rating criteria approach, but rather need to see how the procurement team feels about each vendor overall.

Screenshot of Encore's Vendor Rating App.

C. Supply Risk Assessment Workspace

Try the new Supply risk assessment workspace from Microsoft. The Supply risk assessment workspace uses real time transactional data in F&O to provide statistical data, presented in a workspace format, on how a vendor performs.

The main criteria evaluated are On Time (how close to the original requested delivery date was the purchase order received) and In Full (How complete was the PO to the original ordered quantity).

Screenshot of the Supply risk assessmnent workspace from Microsoft.

This workspace would be best used by users with strong analytical skills, because the workspace consists of a dynamic embedded Power BI Report. The main downside is that any modifications to this workspace would require someone with Power BI experience. This may be an excellent choice for companies that have a large number of Vendors that need to be evaluated, and users with strong analytical background. Make sure to ask a Partner about it to find out if it could be a good fit for you.

If you have any questions about improving your business processes in Dynamics 365 Finance & Operations, please connect with us.

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