Request for Quote
A request for quotation (RFQ) is a process in which the company invites outside vendors and suppliers to bid on specific products or services. Generally speaking, it is the request for the price of the items you know you want. However, it should always involve more than just the cost per item. With the request for quotation, it is possible to provide thorough information about the project and its requirements. It is the top priority to make specifications as detailed as possible to receive accurate quotes. This gives the ability to create a much more precise quote, compared to other suppliers. The other reason for making quotes specific lies behind the legal binding as quotes can be used for that. The RFQ is an operation that is necessary for execution by a supply manager on a regular basis. There are multiple methods of doing it. Whichever one you choose, it is a robust method to reduce costs.
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.
There is a definite difference between the request for quotation, request for information and request for proposal. All three have a number of common features. However, each one has clear distinctions, and understanding those differences will vastly improve your experience when searching for a vendor. Generally speaking, 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 that will use this process to find innovative solutions.
Here is a comprehensive overview of the features for each type document and some guidance on when to use it:
RFI stands for “request for information”. The RFI is essentially a document used by companies that don’t have a very clear idea of the marketplace they’re looking to enter and want to gain an understanding on the range of options in their chosen space.
RFI is more of an exploration/looking at options kind of document, so it would make the most 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 response with all those challenges in mind. 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 you can anticipate.
An RFP is what typically follows an RFI. It is a “Request for Proposal” and it requires vendors to provide options for a solution to a customer’s ongoing challenges or business needs.;
An RFP should be quite 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 is also beneficial if you are requesting 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 suppliers, but at the same time not too focused on creating various requirements as it can limit the bidders’ creativity and innovation.
RFQ is short for “request for quotation”. It is an even more detailed version of the previous types of documents that really breaks down and defines the exact specifications of what’s required.
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 creativity, but rather it demands that the vendor provides its quote on developing the exact type of software using predetermined specifications.
The crucial part of creating an RFQ is preparation. It incorporates gathering of all the essential documents and recreating the process from an invitation to a closing of the deal. Always keep in mind the “big picture” of how you want your quote to be. There are three types of RFQs that you can select from standard, catalog, and bid. The differences between them, lie in the number of products that you order for a single time and the type of the product. Using catalog RFQ, you can purchase high-volume items and make orders that are supplied to you on a regular basis. With the standard, you can place a quote on a fixed quantity of a specific product that you don’t purchase very often. As far as bid RFQ goes, you can use it to order a large and expensive machinery or equipment that has never been requested before. Also, while executing the preparation process, consider the number of potential participants in the bid: the best one would be around 3-8.
After you have decided on the type of RFQ, the next significant step in the preparation is gathering the crucial documents. These include invitation and description of the bid, terms and conditions, the pricing template, qualification requirements along with the questionnaire, and awarding criteria. In the request, describe the company of yours, the project you are pursuing and all the other information that is necessary for the supplier to know what is your business about.
Remember this; it should be clear, concise and laid out. After that, attach the terms and conditions to give the legal framework for the bid. Describe what terms are accepted and on which you will not be working to reduce the processing speed of the deal negotiation and close the RFQ.
Pricing template gives guidelines to all of the participants to follow in submitting a bid. That is the document which will help you compare the offers to select the right one for you. Have a specific price breakdown based on the category of the product as well as deliver specific cost drivers.
Don’t forget that your pricing template needs to be exact and not confusing to the clients. As for requirements and questionnaire, if you didn’t satisfy this step during the RFI process, it will be the high time for you to do so. Qualify your suppliers that you think are suitable for this project. Precede the qualification criteria with the non-disclosure agreement (NDA) to ensure the safety of the information related to the project. After all of the processes, you would want to decide on the selection criteria. Be transparent for the participants to understand you. Select the plans and the weights that you will base your selections on. Consider the following criteria while choosing the right supplier:
• Quality of the services or products;
• Price for quality offered by the supplier;
• Cost of ownership over the period;
• Risks and returns associated with the products and suppliers;
• Gathering documents is a significant step in the preparation process. The entire process itself should take up around 50% of your total RFQ time.
After you have completed the preparation step, consider as you have completed the half of your request for quotation. It is time to move on to the management part. In that process, the most important is treating all your participants equally. Deliver all the updates on your project to the entire group of your suppliers. If someone of your suppliers asks a question about the project, make sure you answer it and share with the other group. Respect the common ethics of the process. At that time, you can always undergo a second round of price negotiation in case participants have the new price target in mind.
The second to last step that you will be completing is awarding. Consider it to be the second most important step in the request for quotation process after the preparation one. In this process, you will appreciate the thorough preparation that you have done. Based on the data that you have gathered over time, decide on the supplier that you will choose. Awarding criteria comes in handy with this process. In the awarding process, try to invite as many different people from your company as you can, to make 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 why you chose the winning bets. It helps you to smooth and enhance the process of completing the RFQs in the future.
The final step in the RFQ process is closing. After you have selected your winner, it is helpful to conduct the last meeting where you close the deal and sign the contract. By taking care of the general terms and conditions in the preparation process, it should not take you much time and effort at all. If you have not, a long negotiation will be ahead of you, along with the possible change in price not in your favor. Also, get used to giving feedback to all of the participants of the bidding, not only the awarded ones. It is a good business practice, and it ensures that you will be able to keep connections in cases some valuable bids will be offered to you in the future. You would want to keep all of the options close to you, as in case of focusing only on the awarded participant, the winner will feel confident in negotiating the price on his terms, and you will not be able to come back to your other options. Keep your options close to you until signing the contract. Make sure to give thanks to all the participants of the auction. And don’t necessarily rush to publish the winning bid, keep it ethical.
Despite RFQ’s great applications and advantages, there are some of the disadvantages that come with its usage. While the request for quotation reduces the processing times of attracting suppliers, it is a system that undermines competition between the suppliers. This quote works only with an invitation which limits the number of companies that are participated in the bidding. It is excellent when used to qualify the strong competitors and allows to examine the proposals deeply. However, request for quotation is not as specific as RFP. The main difference between them is that RFP is used for more complex purchases. Another significant advantage of RFQ is that the time is substantially decreased by the absence of the solicitation documents, the submission of them is significantly reduced. Besides that, the number of quotations is reduced to the number of suppliers that were invited to bidding, which gives you the opportunity to thoroughly analyze all of the bidders, reducing the selection process. This also gives you an idea about the quality of the products, goods, and services, which provides you with an opportunity to select the best for the specific price. However, with such trustful relationship, it can be hurtful to your company as the suppliers may abuse your limited choices and try to negotiate the price under their conditions. Beware of suppliers abusing this by breaking down the requirements of the contracts into smaller pieces and manipulating them.
The process of requesting for proposal is one of the most influential tools for the buyer to inquire additional information about the price on the supplier market. It is vital for mid-large companies to figure out how to run the RFQ process efficiently. Consider the request for quotation is like a bonding between a husband and wife. 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. The strategy is important, and you always have to remember that while conducting the request for quotation.