Request for Quotation: RFQ Meaning, Free Template, Examples. RFP and RFQ Difference.
If you’re looking for guidelines to prepare for your next RFQ, look no further. In this guide, you’ll learn how to write a perfect RFQ and go through the whole RFQ process with minimal effort. Here, you’ll find essential definitions surrounding the quotation process, differences between different types of requests, an RFQ pricing template, and examples of RFQ documents in different RFQ formats.
What Is a Request for Quote (RFQ)?
A request for quote (RFQ) is a process in which the company invites outside vendors and different suppliers to bid on specific products or services. Generally speaking, it is the request for the price of the items you know you want.
RFQ meaning and idea
If you still wonder, what are RFQs, they are, basically, a written and detailed request for quote and other details. Such a quotation request typically implies more than just a cost of items and might require detailed information about the project and its requirements. Therefore, it’s important to provide full product or project specifications whenever a quotation is requested.
Providing as much relevant information as possible allows you to create a much more precise quote in contrast to other vendors. The other reason for making price quotes specific lies behind the legal binding as quotes can be used for legal purposes. This is why request for quote template can be useful here.
When Is a Request for Quotation Used?
Request for quotation is normally used in the following circumstances:
- When you have a commodity-style procurement;
- You know exactly what quantity of the product you want, as well as any other specific requirements for procurement;
- Your primary evaluation factor is price, which can become a deal-breaker when choosing a supplier.
The Difference Between RFQs, RFIs, and RFPs
If you are involved in the B2B market, you’re likely accustomed to sending and receiving RFPs, RFIs, and RFQs while working with clients interested in your products and services. But still, you can wonder, what is an RFQ, and what is the precise difference between RFP vs RFQ.
While there are common features, understanding the differences behind those acronyms will vastly improve your experience when searching for a vendor or replying to a prospective buyer’s request.
Generally speaking about RFQ vs RFP difference, RFQ is used to inquire about the price of the specific product or service need of your business. RFP, on the other hand, can be used to invite suppliers to create new solutions for your company and throw some ideas about the accompanying costs of the projects. RFP is used by a broader range of people, especially project managers and engineers who use this process to find innovative solutions.
Here is a comprehensive overview of the features for each type of document and some guidance on when to use it:
RFI stands for “request for information”. The RFI is typically employed by companies that don’t have a clear idea of the marketplace they’re entering and want to gain an understanding of the range of options in their chosen space.
RFI is more of a document that explores all available options, so it would make perfect sense to ask open-ended questions, ones that allow the vendor to talk about its full range of services or relevant products. Typically, an RFI would describe the overall business challenges you are currently facing, and give the vendor all the cards to come up with their responses to those challenges. Oftentimes, the vendor will describe its position on the market (like its specialty or preferred field for example), how it licenses its product, and what kind of costs it anticipates.
An RFP is what typically follows an RFI. It is a “Request for Proposal” that requires multiple vendors to provide options for a solution to a customer’s ongoing challenges or business needs.
An RFP should be a fair bit more specific and detailed on what a company is looking for. It should outline the goals for the project and state specific requirements for the work that’s being requested. RFP works well if you’re looking to make a complex purchase.
Request for proposal needs to be thorough and precise, as it may be the deciding factor for successful execution of a particular project. It must be specific about what you want from your existing or potential suppliers, but at the same time not too focused on creating various requirements as it can limit the bidders’ creativity and innovation.
How Requests for a Quote Work
An RFQ is typically the first step (or the second if followed by an RFI) in submitting a request for a proposal. The main difference between the RFQ and RFP is that the former asks for a comprehensive price quote, whereas the latter deals with other important details relating to the deal. Moreover, while the RFQ is best suited for generic products, the RFP is typically used for niche projects where quantities (and other specifications) are not always written in stone.
As will be discussed later in the article, a typical RFQ process consists of the four main steps: preparation, processing, awarding, and closing. Companies usually award the contract to the vendor that satisfies the minimum qualifying criteria or presents the lowest bid.
A request for a quote can be presented in different forms. There are typically four main ways to present an RFQ, outlined below.
An open bid is an RFQ where responses to a quotation are visible to all participants. Supplies can update their submitted bids until the deadline. While the pricing visibility may encourage competition between suppliers, it can also backfire and lead to higher pricing.
While in a sealed bid, an RFQ is open to all qualified bidders, the buyer opens the responses only when all bids are submitted. Sealed bids are typically regarded as more transparent and fraud-free. However, vendors might not be as motivated to provide their best pricing.
In an invited bid, which can be either sealed or open, only invited participants are welcome to bid. In such an arrangement, buyers deal with only trusted vendors, which can significantly reduce the time it takes to process and select the best bidder. However, invited bids are less competitive and may not always result in the best pricing.
In a reverse auction scenario, vendors are asked to supply their lowest offers. A reverse auction can be the second step in an RFQ selection when no vendors meet the desired price target.
The RFQ Process
Unlike the RFP, which allows the vendor to have some flexibility on suggesting various solutions to the company’s listed challenges, an RFQ doesn’t leave space for creativity it demands the vendor to provide its quote on developing the exact type of software using predetermined specifications. Below are a few steps that constitute the RFQ process:
Bid preparation period: choosing the type of RFQ
The crucial part of creating an RFQ is preparation. It starts with recreating the process from start to finish, that is from the invitation or sending to the closing of a deal.
There are three types of RFQs: standard, catalog, and bid. The differences between them lie in the type and number of products to order. Using a catalog RFQ, you can purchase high-volume items and make orders on a regular basis. With a standard RFQ, you can place a quote on a fixed quantity of a specific product that you don’t purchase very often. As far as a bid RFQ goes, you can use it to order large and expensive machinery or equipment that has never been requested before.
During this stage, consider the number of potential participants in the bid: the best one would be around 3-8.
Collection of the relevant documentation
After you have decided on the type of RFQ, the next significant step is the collection and preparation of the required supporting documents. These include invitation and description of the bid, terms and conditions, the pricing template, qualification requirements, along with the questionnaire and awarding criteria. The collection of necessary materials is a significant step in the preparation phase that should take up around 50% of your total RFQ time.
- In your request, describe your company and project and include as much detail as deemed fit to ensure a supplier understands your business objectives. Write concisely and layout your document clearly.
- Attach the terms and conditions to give the legal framework for the bid.
- Describe what terms are accepted, which are non-negotiable, and which won’t be permitted, thereby reducing the deal’s processing speed.
- Include a pricing template that will give some definitive guidelines for the participants to follow in submitting a bid. The pricing template will also help you compare the offers and break down prices based on the category of the product and their specific cost drivers.
- Outline any further requirements and include a questionnaire that will help you determine the optimal supplier.
- Prepare the non-disclosure agreement (NDA) to ensure the safety of the key information related to the project.
Decide on the selection criteria
Be transparent in delineating your selection criteria so that participants understand your requirements and decision markers. Below are a few suggestions for determining your selection criteria:
- Quality of the services or products;
- Best price for the quality offered by the supplier;
- Cost of ownership over the period;
- Risks and returns associated with the products and suppliers.
Management of the RFQ
After preparations, it’s time to move on to the management part. Treating all participants equally and delivering updates on your project to the entire group of your suppliers is of utmost importance. If one of your suppliers asks a question that directly concerns the success of your project, make sure to answer and share it with the other participants. This might be the perfect opportunity to negotiate prices further if it turns out the participants have new price targets in mind.
Consider the awarding process to be the second most important step after the preparations. Based on the data that you have gathered over time, decide on the optimal supplier. In the awarding process, invite as many different people from your company as you can to arrive at the decision. Make sure you keep a memo of how many total bids you received, how many you chose, who voted what, and the reasons for choosing the winning bets. It helps you to polish the process of completing the RFQs in the future.
The final step in the RFQ process is closing. After you have selected your winner, conduct the last meeting where you close the deal and sign the binding contract. By taking care of the general terms and conditions in the preparation process, it should not take much time and effort. If you have not prepared beforehand, you might find yourself in a long negotiation process along with the possible change in price not in your favor. It’s important to keep all participants in the loop and give or receive feedback about the completed RFQ.
E-Tendering event: request for quotation RFQ or UNDP
UNDP is the United Nation’s development agency that plays a critical role in helping countries achieve sustainable development goals, reduce inequality, and battle poverty. In April 2021, UNDP issued an RFQ for thousands of different lab supplies, such as face shields, coverings, and waste containers, to be delivered to Juba, South Sudan, UNDP warehouse within 14 days of contract signature. The document is a great example of providing concise and clear instructions to the bidder about the submission process, as well as the terms and conditions of the prospective deal. It is clearly structured and laid out in two sections with three appendices.
Request for proposal for the City Of Maple Valley Washington
The Municipal Research and Services Center (MRSC) is a nonprofit organization that helps local governments across Washington State, the USA better serve their communities by helping them with legal guidance and policy consulting. The MRSC provides a small database of local government RFPs, RFQs, invitations to bid, and other bidding documents that you may peruse to explore variations in RFQs and related procedures. As an example, consider The City of Maple Valley RFP, issued August 2020, for Diversity, Equity & Inclusion Consultant. The document spanning 17 pages has four sections with two appended forms and provides comprehensive information for the bidder to reply with a proposal, including eligibility, project overview, preliminary schedules, standard terms and conditions, and so on.
Request for quotation from international renewable energy agency (Irena)
The International Renewable Energy Agency (IRENA) is an intergovernmental organization that supports countries in their transition to sustainable energy and serves as a platform for international cooperation and a repository of helpful documentation, policy, and educational resources. In May 2021, the IRENA issued an RFQ looking for quotes from consulting service providers to complete the development and implementation of certain activities, such as stakeholder consultation and the development of a guidebook with actionable guidelines. The document provides comprehensive information about the project, clear deadlines, terms and conditions for the assignment, and evaluation criteria.
An RFQ document or RFQ format might differ depending on the size of your request, your industry, specific corporate requirements, and so on. However, a typical RFQ usually comprises the standard instructions and outlines pricing requirements. Below is a simple RFQ template that you can use to create a more sophisticated document that will suit your particular business needs and immediate agenda
RFQ Advantages and Disadvantages
Despite RFQ’s great advantages, there are certain disadvantages to the process. While the request for quotation reduces the processing times of attracting suppliers, it can also potentially undermine competition. Since the quotation system works by invitation, it significantly limits the number of participating companies. However, it also allows for a deeper examination. Since the number of quotations corresponds to the number of suppliers that were invited to bidding, there are more opportunities to thoroughly analyze the bidders in the shortest time possible. With that said, since the competition pool is relatively small, there’s also more leeway for suppliers to abuse the bidding system and conspire to affect the prices or conditions of the deal.
Tips for Writing a Request for Quote
As mentioned above, an RFQ involves inviting suppliers to submit a quote for a product or service based on a specific brief. Let’s look at the five main steps that make up the RFQ process and what to include in the RFQ brief.
Prepare the RFQ document
The RFQ document should address the following questions:
- Payment terms
- Required quantities
- Estimated hours of labor
- Project length
- Contractual terms and conditions
- Quotation submission requirements
- Evaluation criteria
- Awarding and closing process
The more information on your requirements you provide, the better price quotes you’ll receive, so it’s important to invest a good deal of time in preparing the RFQ brief. Use a document management tool to track all iterations to the document, feedback, and inputs from all concerned parties.
Create a supplier list and send out the RFQ
The next step will be outlining the list of several vendors whom you’ve already dealt with and who can be trusted with fulfilling your request. After gathering all contact information, send out the RFQ document and publish it online for other interested parties to participate in the bidding process. Make sure you’ve included all the necessary requirements related to quote submission and due dates. Creating an FAQ ahead of time will most probably save you lots of time dealing with repeated questions. Ensure you have sufficient administrative recourses and procedures in place to support the smooth bidding and review processes.
Receive answers and analyze the responses
Make sure you can track and review all submissions in a timely fashion. Even though this step might sound easy, in fact, it might be one of the most time-consuming and mission-critical processes. Notify all the vendors on receipt and review.
Choose the best vendor for the project
After reviewing all submissions carefully, your review committee must finally choose an ideal vendor that meets the evaluation criteria or provides the lowest bid. Once you’ve chosen the successful vendor and thanked all the participants, it’s time to sign the final contract.
A request for quotation is one of the most influential tools for buyers to inquire into suppliers’ products and services and request additional information about those products and services, as well as prices and conditions of the deal. It is vital for mid-large companies to figure out how to run the RFQ process efficiently. It is essential to find the right supplier for your business as this connection can be advantageous for years ahead. Nurturing this relationship is vital for both sides.