Have you ever shopped around for prices online, looking for the best deal? That’s exactly what businesses do when they use a request for quote, or RFQ.
Companies send a formal document soliciting price quotations to potential vendors and compare options based on the responses. After the review process, the vendor with the most economical and purpose-oriented bid gets the contract.
So, what does an RFQ contain? How is it different from a request for proposal (RFP)? Which types of services do companies use it for? Read to find out!
Article Roadmap
- What Is an RFQ?
- Importance
- RFI vs. RFQ vs. RFP
- Types of RFQ
- The RFQ Process
- RFQ Examples
- Responding to an RFQ
- FAQs
- Conclusion
What Is an RFQ?
An RFQ is a formal proposal that entities like corporations, government institutions and NGOs send to vendors to request a price quote for specific products and services. It contains information like the project’s overview, budget, goals, timeline, selection criteria and contact details, filled out by the buyer. Companies use it during the procurement process to evaluate various suppliers in the market and decide which option best suits their requirements.
Create simple RFQs for any product or service type. Source
When Should You Use an RFQ?
Ready to create an effective RFQ? Here are some boxes to check before going ahead:
- You have a list of vendors.
- You know what products or services you need.
- You need these products or services in bulk.
- You know the type, exact quantities and other characteristics of the items you need.
- You’re looking for the best price for your requirements.
Importance
An effective procurement process results in a company getting services that are both appropriate and affordable. By collecting information about various vendors and how capable they are of meeting your requirements, you can find a contract that doesn’t burn a hole in your pocket and fulfills your needs in the best possible way.
By using an RFQ, you can:
- Reach out to and assess suppliers at all levels.
- Gather bids in a structured way for easy comparison.
- Communicate with vendors through a single channel.
- Get the best price without compromising on quality.
- Rule out unsolicited offers by focusing on specific vendors.
To create an effective RFQ, you need a clear sense of your project requirements and the target vendors. If you have trouble with this part, don’t worry — you can send a request for information (RFI) first to learn about the capabilities of potential vendors and use that information in drawing up your RFQ.
Speaking of RFI, let’s learn more about RFx in general (RFI, RFP and RFQ) and which is most suitable based on what stage of the procurement process you’re in.
RFI vs. RFQ vs. RFP
An RFI is for companies with limited knowledge of the marketplace who need more insight into how vendors could meet their needs for a product or service. The vendors respond by assessing the companies’ challenges and developing a framework of how various products and services would tackle them.
If you’re aware of your objectives and what you need to achieve them, you can instead send out an RFQ describing your project details and requirements, asking vendors for a quotation. An RFQ focuses mainly on getting the lowest price from qualified suppliers.
Similar to an RFI, an RFP, or request for proposal, is used to collect information about vendors, their services and how they plan to deliver them. Companies use this to get information about a product or service concerning their quality, terms of the agreement, risks involved and how the vendors plan to execute the project.
Types
Different bids are used based on how you want to administer and manage the RFQ process. Here’s an overview of some of the most common types.
Open Bid
All vendors are invited to submit their price quotes in an open bid. They can see each other’s responses to a request and modify their quotations until the submission deadline. While open bids encourage competitive pricing, vendors might be more likely to submit higher quotes.
Sealed Bid
A sealed bid, also known as a blind auction, allows all qualified vendors to submit their quotations without access to each other’s responses. Each bid is enclosed in an electronic “lock box,” accessible only by vendors through a login process on an online portal. Once all bidders have replied, the solicitor opens the bids for further review.
Sealed bids can significantly speed up the selection process. But since there’s no direct competition among vendors, you could risk paying a higher price than you would in an open bid.
![Sealed Bid Example](https://www.selecthub.com/wp-content/uploads/2022/11/Sealed-Bid.jpg)
Example of a sealed bid. Source
Invited Bid
An invited bid works best if you already have a list of qualified vendors or vendors you’ve worked with before that you’d like to invite back for another project. It can be either sealed or open, but only specific vendors are invited to bid.
Invited bids reduce the time it takes to evaluate a large number of bidders, but may not get you the best price options due to limited competition.
Reverse Auction
All vendors are asked to offer their lowest price for a product or service. The contract goes to the one who gives the best bargain. Reverse auctions are known to reduce purchase costs due to strong vendor competition, but, by the same token, vendors might offer cheaper or lower-quality products.
How to Create an RFQ
When creating an RFQ, be sure to clearly communicate your needs and expectations for vendors so that you get the best responses. Automating the process using procurement software like Oracle and Zycus may help you make sure you cover all your bases.
![Vendor Selection Process](https://www.selecthub.com/wp-content/uploads/2022/11/RFQ-Process.jpg)
Ensure a transparent and effective vendor selection process. Source
Here are the general steps to follow to make your RFQ process a success:
1. Preparation Phase
Start by getting a complete idea of your needs and desired project outcomes, listing vendors you want to work with and preparing the RFQ.
- Create a plan: You must clearly understand your requirements and the products or services you need to fulfill them. Discuss with other stakeholders the type of RFQ you want to issue, budget, terms and mode of payment, and risks involved in the procurement process.
- Shortlist vendors: Do detailed market research to identify the most qualified vendors with expertise in their industry, and include those most capable of fulfilling your requirements at an affordable price.
- Decide the selection criteria: Keep vendors informed of how you’ll assess their quotations and which parameters will determine your selection. This ensures they offer the most appropriate response. Some components of a standard selection criterion include:
- Price
- Quality
- Cost of Ownership
- Functionality
- Risk Assessment
- Prepare the RFQ: RFQs are written in specific formats based on each organization’s unique needs. For example, an RFQ for a school looking to buy furniture differs from an RFQ for a government healthcare institution in need of medical supplies. An RFQ template typically covers:
- An overview of your company and requirements.
- Details about your project and how the product or service would help you meet your goals.
- A prequalification questionnaire for vendors to share more about their organization and its capabilities, including business structure, customer references and industry experience.
- A pricing template based on the nature of your requirements in terms of deliverables, quantities, quality standards, item descriptions and technical specifications.
- The legal terms and conditions of the bid.
- An RFQ tender fee to ensure that vendors are committed to the bidding process, adjusted in the final payment to the chosen vendor and returned to unselected ones.
- General terms and conditions about contract length, duties and taxes, supplier code of conduct and transaction currency.
- Details about the selection criteria, deadline and submission method, and contact information of a representative who can centrally manage all communication processes.
- A non-disclosure agreement (NDA) to keep project-related information confidential.
In an Amazon report, 63% of B2B buyers said that improving sustainability in their purchasing practices is a top goal, and optimizing their procurement process is instrumental in that. Listing your specific requirements, along with any associated regulatory or industry-specific guidelines, gives vendors a clear sense of your expectations.
2. Processing Phase
Next, you’ll want to make contact with vendors and begin the process of evaluating bids.
- Send out requests: You must provide clear instructions for completing and submitting the RFQ and give adequate time to bidders to prepare their responses. This means clearly laying out essential information like terms and conditions, submission method, contact information and scoring criteria.
- Collect and review responses: Once you’ve received all the bids, it’s time to evaluate them and choose a supplier that best meets your needs. When evaluating submissions, be sure to consider not only price but also quality, delivery time, payment terms and other factors key to an effective partnership.
3. Awarding Phase
When all bids are in, compare the vendors based on your selection criteria and select the one that is most appropriate for your needs — generally the one that offers the lowest price for the required goods and services.
Once you’ve chosen a supplier, you can enter into negotiations to finalize the terms of the purchase. At this step, discuss with the vendor the final pricing, quantity and quality adjustments, delivery schedules, payment structure and other details related to the contract.
4. Closing Phase
After you’ve finalized a vendor, you can inform other participants that the bidding has closed, expressing gratitude for their contribution to the process. Doing this helps build a cordial relationship with vendors, who may be interested in participating in future bids.
Examples
Here are some use cases for RFQs:
- A cosmetic company wants to purchase lab equipment like burners, freezers, coolers and stirrers to test chemical substances for use in its products. It researches different manufacturers online, shortlists ten vendors that meet its requirements and sends an RFQ to each requesting a price quotation.
- A printing house has purchased black ink from three vendors before, but they need one of them to supply colored ink. They circulate an invited bid requesting a cost estimate, and select the vendor that offers the lowest price. In case all of them offer costs higher than the budget, the buyer plans to start a reverse bid to solicit the lowest price from each vendor.
Some other examples of when organizations might issue an RFQ include:
- A photography company looking to buy studio equipment.
- The government roadway ministry looking for raw material supplies to build a highway.
- Businesses in need of an LMS for training employees.
- A private firm planning to purchase electrical wires for its offices.
- The airport authority of a state in need of COVID supplies.
Responding to an RFQ
It takes as much effort to respond to an RFQ as it does to send one out. Here are a few things vendors should keep in mind when responding to an RFQ.
- Attention to detail: Make sure the answers address the question and the technicalities around it. Address the buyer’s request in detail so they have a deeper insight into how you’ll meet their needs. That said, don’t elaborate on things beyond what’s necessary — keep your proposal precise.
- Do more with less: One document can’t encompass everything you have to offer. If there’s more information to convey than the RFQ allows, it’s a good idea to mention details as much as you can when answering related questions. Flexibility is important for buyers, so showing you can cater to their unique needs might help your response stand out.
- Prove your point: Provide evidence to support why you’re a good fit. Include customer testimonials, case studies, certifications and awards, and other information to demonstrate your expertise.
FAQs
Is RFQ a procurement method?
Yes.
Why use an RFQ?
An RFQ helps you choose a vendor with the most cost-effective products and services for your requirements.
How are RFQ and RFP different?
An RFQ is issued when you know your needs and the products and services required to meet them. An RFP is for soliciting more information on how vendors plan to address your challenges.
Is an Invitation for Bid (IFB) and RFQ the same?
Yes.
Is an RFQ a quote?
Yes.
Who prepares an RFQ?
The company appoints a committee, an executive, or an RFQ manager to prepare an RFQ.
Conclusion
RFQs ensure that you receive accurate and complete quotes from vendors who are given an equal opportunity to bid on your business. They allow you to compare quotes side-by-side, protecting you from getting locked into a higher price and helping you find suitable suppliers in almost any industry.
Which type of RFQ do you plan to issue? What services are you looking for? Let us know in the comments below!
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