A customer isn’t happy.
This is never something you want to hear.
A component of your product doesn’t meet the customer’s standards. So naturally, you want to fix the problem as quickly and efficiently as possible. However, going through the process of replacing the offending part, you discover the real culprit: faulty materials you purchased from a third-party supplier.
You keep the customer happy and replace the malfunctioning part as per your warranty.
But what about your costs? This is not your fault. With high quality materials, your part would have functioned properly. Now you’ve had to replace the part, pay shipping, and spend human resources to perform installment labor. What can you do to recover these costs?
The answer is our Supplier Cost Recovery solution.
How Supplier Recovery Works
Supplier Recovery allows your business to recover costs from the supplier if their parts or materials are faulty. Companies usually build this arrangement into their third-party supply contract, aka PSA – Product Support Agreement. This provides a warranty guaranteeing that suppliers will provide reimbursement for cost incurred in replacing the faulty materials.
The SAP Warranty Supplier Recovery Portal utilizes automated processes that walk you through the steps of filing a supplier recovery claim. SAP Professional Services firms like Detering Consulting can also assist you in using the SAP system to its fullest advantage to recoup your cost using supplier recovery, with as little effort as possible.
The Detering Consulting SAP Warranty Supplier Recovery system provides solutions to help you achieve the following goals:
- Offering heightened customer satisfaction
- Integrating all parts of your business
- Providing original equipment manufacturers (OEMs), importers, and distributors a seamless system to process claims and receive full recoveries from suppliers
Difference Between Customer Warranty Management and Supplier Recovery
Customer warranties provided by manufacturers and extended warranties cover a range of complications from damage to theft, depending on the warranty policy and contract terms.
You as a manufacturer provide a customer warranty for your products, which have embedded within them components that are warranted by many other suppliers or manufacturers. You don’t want your customers to have to find those other manufacturers to get warranty service on your piece of equipment. Instead, you want them to bring the equipment to your company-owned service center for service.
What if one of those components prove to be faulty within your equipment? Should you require the customer to maintain agreements with each company that supplies the component parts to ensure the finished product has a full warranty?
The answer is no, of course not. This could include a lot of warranties, depending on the number of third-party businesses supplying the component parts and would present a massive hassle for the customer.
This is where supplier recovery comes into play. You do business with multiple companies that supply component parts. Instead of putting the burden of managing numerous warranties on the customer, you set warranty terms in your supply contract with third-party vendors. This way, if their part is faulty, you receive a reimbursement for certain cost you incurred because of the supplier’s defective part.
Benefits of Using SAP for Supplier Recovery
Receiving a replacement part will make your customer happy, but how can SAP make you happy throughout the supplier recovery process?
One benefit of using the SAP for Supplier Recovery solution is that it provides a complete implementation of the supplier recovery process, so you don’t have to complete different steps in different systems and it is a key technology to increase warranty cost recovery. The program walks you through each step. These steps include
- Creating Supplier Recovery claims
- Validating claims for eligibility
- Determining the correct price to be reimbursed
- Forwarding the claim to the supplier
- Acting as a go-between for responses and negotiations
In addition, the SAP system can determine which supplier is responsible for the defective component part instead of requiring you to search through vendor records for the needed information. It also supplies you with material numbers and other valuable data. This helps you track defective components over time and hold suppliers accountable for the parts and materials they deliver.
When you are ready to submit your supplier recovery claim, the SAP Supplier Recovery solution allows you to transmit it via various channels, including
- Web Service, Electronic data interchange (EDI)
- Regular Mail
- The claim will also be visible in the Supplier Recovery Portal
Claim acknowledgement and processing can be done by EDI, however it is recommended to use the SAP Supplier Recovery Portal for all claim updates. Claim notifications are sent via Email. This is the standard best practice.
All this helps speed up the process of delivering the claim and eliminate user errors caused by receiving staff inputting claim data into their system.
Due to this increased efficiency and effectiveness many suppliers have migrated to SAP, while many others are considering it.
Once you submit the claim notification to the supplier, SAP also processes the supplier’s response which is especially helpful if you have more than one claim in various process status, such as:
- Submitted
- In process
- Return parts in transit
- Return parts received, etc.
Finally, SAP facilitates the appeals process as necessary.
Process of Filing for Supplier Recovery
The SAP automotive warranty supplier recovery portal, based on SAP Fiori/UI5, can expedite the process of filing a supplier recovery claim by walking you through the following six steps:
Note: Desktops, tablets, and smartphones all support these processes.
1. Preparing for a Claim
As you prepare, it helps to gather documentation to prove the validity of your claim. For example, images of the problem, descriptions, and customer anecdotes assist in confirming that the supplier’s product is faulty. In addition, the SAP catalog contains categorized defects to help you. The more details you include in your claim, the more likely the supplier will accept its validity.
Typically, all this supportive data is already available on the customer claim. In case no customer claim exists, the warranty supplier recovery portal can assist with entering the claim manually by the Supplier Recovery specialist. The ECC / S/4Hana traditional UI, aka SAP GUI, works well keying in that information, however the Fiori-based screen is more streamlined and user friendly. And therefore SAP users prefer using the Fiori-based transactions.
Tracking expenses confirms precise losses incurred because of the supplier’s defective part. These expenses include part, labor, and shipping cost, sometimes handling fees may be recoverable also. Labor can be billed at the exact price of removing and replacing the failed part, or you and the supplier can decide a general labor cost in your supply contract that applies to all situations.
2. Starting a Claim
Once you have prepared to file your claim, create an outgoing vendor (OV) document that the system treats differently from a customer claim. Items that come from local vendors might not have material numbers, so the items convert to “External Materials”. This means that the part no. claimed is not known in the SAP system as a material master.
From the Launchpad, choose Manage Claims. You will use this option throughout the claims process. Next, provide information in the following areas:
- Partner and repair details: supplier, object type, object number, damage date, repair date
- Additional details: plant, purchasing organization, distribution channel, division, currency
- Item information: material, quantity
3. Checking and Sending the Claim
When the necessary fields are complete, SAP’s Automatic Claim Validation system checks if:
- Syntax errors are present
- Mandatory fields are complete
- Submission deadline is met
- Faulty parts need to be returned
If the system discovers flaws, you can edit the claim under Manage Claims > Edit.
Before sending the claim, the SAP system validates it for completeness and eligibility for reimbursement. You can adjust any unvalidated section of the document and validate again as needed. You can also cancel a claim.
Supplier recovery specialists, or claim analysts, then send valid claims to the supplier, ideally through a combination of an email notification and making the claim available through the Supplier Portal. Also, EDI can be utilized, which in effect replicates the OEM Supplier Claim as a customer claim in the supplier’s ERP system. In either case, the OEM’s supplier contact partner receives an email notification with a claim PDF statement. If the OEM needs to return faulty parts to the supplier, an SD free-or-charge delivery can be used, optionally, a vendor return PO can be created from the claim automatically.
5. Receiving a Decision from the Supplier
Now that the claim is in the supplier’s hands, you await a response. If the OEM doesn’t yet offer a Supplier Portal, and there is no EDI integration, the response will likely be an email with a collective credit memo. In that case, the email has to be manually processed by our supplier recovery claims specialist.
If the supplier approved the claim, the supplier recovery specialist retains information such as decision codes and the amount approved for reimbursement, only if the amount differs from the claimed amount. The information posts to finance automatically, and the claim closes. In case of a posting errors or required revisions, the supplier recovery specialist who finds the error in the claim can reverse the posting and resolve any issues and repost.
6. Appealing the Decision
If, however, the supplier does not approve the claim, you may submit an appeal. This process repeats the former process. The supplier recovery specialist creates another OV document and goes through the same steps as before.
A supplier might also reply with an unacceptable adjudication. In these circumstances, a supplier recovery specialist can reject the claim and begin again. You can reopen the claim later as needed.
Supplier Recovery Processing Example
Returning to our pilot screws example, the supplier recovery specialist in the company acquires pictures of the snapped screws and states that the screws broke after running the carburetor for five minutes. They then identify the defect category in the SAP failure code catalog to classify the claim.
Next, the supplier recovery specialist finds the purchase order with $2,700 worth of screws. The company must reorder the entire quantity due to the defect. Shipping for this many screws costs $190 let’s say, and each time the issue was fixed by a technician or a service center, this is considered labor cost, the cost will show up on the claim as a flat rate combined with an hourly rate. The supplier recovery specialist reviews each of these costs.
They then create the OV document and fill in the necessary information. The company purchased the items wholesale instead of from a local vendor, making the material numbers available.
Once the pilot screws claim has been completed, the supply recovery specialist uses the Automatic Claim Validation system to scan for errors. Unfortunately, the system finds that the material quantity and currency fields are empty, so the analyst returns to Manage Claims under edit and corrects the information.
In one scenario, the supplier approves the claim, and the company receives a collective credit memo with the amount paid. This document is posted to finance, and the analyst closes the claim. After posting the memo to finance, they find that the $5,810 recorded in the claim document does not coincide with the $4,850 posted to finance, that was approved by the vendor. The supply recovery specialist can reverse the posting, investigate the discrepancy, resolve the issue, and repost.
Supplier Rejects Claim Scenario
In another scenario, the supplier rejects the claim. The company now has the choice to move on from the claim or file an appeal. They choose to appeal. From here, the supply recovery specialist creates a second OV document as a copy of the original OV, augmenting the claim with additional information addressing the rejection reason. And repeats the supplier recovery process.
Supplier Offers Markdown on Claim Scenario
In the third scenario, the supplier offers a reduced reimbursement of only $3,220 on a $5,810 claim. The company finds this an unacceptable amount. The claims analyst enters the reduced amount, adjudication rejection into the system. At this point the analyst has two options, accept the reduced amount or try to recover the full amount.
In this scenario, SAP has tolerance levels, that will accept supplier markdowns up to a fixed amount, or up to a percentage of claim value. Many times vendors will reject smaller cost items, i.e., freight.
Fleet Supplier Recovery Considerations
Companies that own large fleets of equipment, or have large supplies of spare parts, that experience failures, can incur or be exposed to tens of thousands of dollars in repair costs. In general, the average quality of goods is rising, and companies can push their equipment farther than ever before. In 2019, the average mileage on heavy equipment was 80,000 miles, and this number continues to increase.
Because companies are pushing their equipment harder, suppliers require greater proof that preventative maintenance on materials is performed thoroughly and on schedule. To prove the validity of a supplier recovery claim, you must have accurate and up-to-date records of all manufacturer-recommended services. You can also keep these records in SAP’s PM – Plant Maintenance module, possibly in SAP’s DBM or Proaxia's VSS dealer management solutions.
Manufacturers also set performance parameters on their products, and if you push equipment beyond those boundaries, suppliers are unlikely to approve a recovery claim. SAP has important capability in this area, using equipment counters and performance capture. Equipment performance, e.g. operating hours or cycles can be evaluated during the supplier facing warranty check in SAP. Ensuring supplier rules are met before submitting the supplier recovery claim.
Summary
The SAP Warranty Supplier Recovery Solution and Supplier Portal consolidates and expedites supplier recovery claims processing. You can find each step in the process under the Manage Supplier Claims section. Clear labels guide you to the appropriate areas of the app, making the claims process faster and less stressful, and increasing the likelihood of SR claim approvals. By using the SAP Supplier Recovery system, all warranty supplier recovery is following a standardized process. For example, email text modules are congruently standardized, containing complete information. Users don’t have to create emails from scratch any longer.
If you’re interested to integrate all parts of your business, both vertically and horizontally, contact Detering Consulting. Our SAP Warranty Supplier Recovery Solution features will streamline the tasks of your business and free up personnel to do more essential tasks.
SAP Warranty and Contract Demonstration
Want to see a demonstration of this process? Click the link and schedule your demo today.
SAP Warranty and Contracts Demo