What is a request for quote (RFQ)?
A request for quote (RFQ), sometimes also known as an invitation for bid (IFB), is a document that asks suppliers to provide price quotes for the chance to fulfill a task or project. Some companies send RFQs as standalone requests, or as part of the request for proposal (RFP) process.
Because RFQs can be used at different points in the sourcing process, they can be a little confusing. Nevertheless, these documents are important: they capture a supplier’s costs, payment terms, and product specs or details. Here’s what an RFQ includes, the difference between an RFQ vs RFP, and how to use one at your organization.
RFQ vs RFP
A request for proposal (RFP) is a document that announces a project, describes what it entails, and solicits bids from qualified contractors to complete the project. An RFP is a communication document that tells prospective suppliers what you want to purchase and your expectations for delivery, customizations, or service and maintenance.
In comparison, RFQs often complete the sourcing process by asking suppliers to provide pricing for the items they’ve proposed in the RFP. However, RFQs can also be used as the first step in an RFP process if price is a critical first differentiator.
When should you issue an RFQ? It depends on the organization, sector conventions, and the need that is being filled. RFQs can also be used as a sourcing tool when you know which vendor you want to work with, but you want more specifics around price. An RFQ can also be used sort of like salary negotiation when you’re renewing contracts with current suppliers.
Essentially, RFQs are all about price and cost. They are the procurement process for soliciting quotes for a specific item, task, or project. Use an RFQ when your team knows precisely what your organization is looking for and you’ve already gone through extensive vetting over other criteria.
How does an RFQ work?
First, decide whether you will allow any vendor to submit a response to your request for quote (RFQ), or if this document will be issued to a select group of vendors. There are pros and cons to each: while issuing an RFQ to a broader group of vendors may net more competitive pricing, it also means more vetting work for your procurement team. Issuing to a select group can make the process more efficient.
Once you have your target group of vendors, the RFQ process has four steps.
- Prepare the RFQ: the RFQ should include a list of products with any required specifications or features, the quantity or duration of the contract, date of delivery, and payment terms.
- Process the responses: review each company’s pricing and determine which company can provide all the products/services you need.
- Award the contract to the supplier that meets the qualifying criteria and presents the best bid.
- Close the RFQ and review the success of the whole process.
To provide the procurement team with the information they need to make an informed decision, the RFQ must be specific about the full requirements of the project. It must provide an understanding of the supplier’s capabilities, costs, price and payment terms.
A well-executed RFQ will help you judge whether or not a vendor can provide what your organization needs at the price you want to pay. It lets you evaluate all solutions that meet your organization’s sourcing requirements based on the cost to your organization.
Why should you use an RFQ?
An RFQ forms an essential part of the procurement process. When used with an RFP, it helps finalize the sourcing process and ensure the supplier-buyer relationship starts on the right foot.
There are also occasions where using an RFQ by itself can have benefits. Use the RFQ process when:
- You’ve narrowed down a list of qualified vendors
- You know the specific product or service that you want to buy
- You will choose a vendor based primarily on price
- You will be buying a product in bulk
- You plan to buy a product that does not require customization
- You don’t need a service and maintenance plan or support included in the agreement
RFQs focus on getting the best possible price for your procurement needs. As such, they are ideally used in situations where there is a specific procurement need that doesn’t require lots of additional customization. MRO inventor may be a good candidate for the RFQ process.
How to get started with RFQs
Ideally, the RFQ process will make life easier for the procurement team. It lets you evaluate all solutions that meet your organization’s sourcing requirements based on the cost to your organization. The trick is to manage the RFQ process without adding additional work for the team: which is where digital procurement tools can help.
A request management tool empowers the procurement team to view supplier bids and responses side-by-side to easily compare and award a project. Fairmarkit can reduce the manual effort of sourcing by leveraging innovative procurement technology. By integrating into ERP and P2P systems, Fairmarkit adds a layer of automation to the digital transformation technology you already have. Issuing RFQs at any stage of the procurement process is easy.
To learn more about requests for quote, check out our blog, The Source.