What is an RFQ and how is it different from an RFP?

Having an effective and easy-to-use RFQ process is the first step in juggling and managing an effective process. acquisition process. The RFQ is one of the easiest procurement workflows to navigate, but that doesn't mean you can just sleepwalk through the process.

Getting the simple things done well is often indicative of how effectively your overall workflows are executed, and to best manage the relatively simple RFQ, first understanding the meaning of the RFQ is vitally important.

What is a Request for Quote (RFQ)?

A request for quote, usually abbreviated as Request for quotationIt's perfect when you know exactly you need and want to run a market discovery process to request cost quotes from potential suppliers. Typically, when you have a recurring physical product requirement, such as specific supplies or raw materials, you will submit a request for quote to the business to solicit bids.

Once you issue a RFQ to specific suppliers (RFQ in procurement is typically not a market-wide open invitation), you wait for responses and choose based on lowest price, fastest delivery, or other clear objective criteria. . When you run an RFQ within your procurement workflowYou're basically asking suppliers for the best price for a fixed, unchanging product that is ordered frequently enough to warrant an ongoing contract.

Please note that the quote request is No It is generally appropriate when you are unsure of the type or scope of product needed or when trying to discover prices for services; a Request for Proposal (RFP) is usually best in both cases. We'll cover the difference between RFQ and RFP in a moment.

Request for Quote (RFQ) Information Requirements

An RFQ is issued to a predetermined set of suppliers (usually already within your procurement ecosystem) and you will only receive the exact number of offers you request from that group of suppliers. But, since you're not casting a wide net, you'll need to be very explicit in defining what you need and all the other parameters – specificity is the best way to ensure that your suppliers understand your unique needs and ultimately offer the best possible price. in a competitive group.

If you use automation software within your procurement workflow, you likely have a pre-established set of templates useful for RFQ management. Otherwise, here's what you'll typically include in your quote request:

Quote request cover letter and executive summary (EXSUM)

Your company's internal standard operating procedures (SOPs) will determine how to open your RFQ, as well as other documents within the procurement process. Still, the cover letter and EXSUM will typically be a branded document addressed to the supplier that summarizes your procurement requirements and objectives in a simple, digestible format to prepare suppliers for the rest of the document.

RFQ type and quantity of goods and frequency

This is the meat of your quote request and can be very simple or quite complex, depending on your industry and specific needs. Here are some examples:

Cleaning supplies: As an office manager, you may need to keep the bathrooms and janitorial closet stocked. In this case, a quote request could simply include toilet paper, 10 boxes each, to be delivered on the first day of every third month starting in January 2024.

Metal machining: By contrast, if you are a machine shop foreman ordering raw materials, your RFQ type and quantity could be very complex and include detailed specifications, alloy types, and multiple ordering frequencies along with an ad hoc replenishment provision. depending on how reliably you can forecast your own job requirements over time. In cases like these, you may even have to specify transportation requirements, such as padding material, or safety requirements, if you are requesting hazardous materials such as welding gas.

Quote Request Administrative Information

This informs suppliers of contractual details, including:

• Payment terms (i.e. net-30).
• Contract duration and renewal criteria.
• Other contractual terms.
• Unique or special requirements that you expect suppliers to provide as part of their quote submission.
• A company point of contact (POC), usually a contact officer, for contractual questions and services for the chosen supplier.

RFQ vs. RFP

I mentioned that an RFQ is a simple, set document that clearly states your known needs and asks suppliers to offer their best price. What if your requirements are complex?

For example:

1. You are creating a master price list for many materials that are part of an overall project that your company has never done before.
2. You need a special post-delivery service, i.e. you are purchasing new office printers and need an on-call service provider to help you fix problems as they arise and an ongoing contract for toner delivered within 24 hours of delivery. need.
3. You're exploring a primarily service-based contract, whether as simple as weekly gardening or as complex as hiring a consultant to develop automation for your company's workflow.

In these cases (usually service-based contracts, materials for a large project with confusing requirements, or more complex goods-based contracts), you will need to develop a Request for proposal (RFP) instead of an RFQ.

An RFP asks potential suppliers to effectively “propose” a solution to their problem. For example, you could request proposals for a next-generation machine project or consulting assistance to optimize operations. In these cases, the RFP describes the “general” need and the suppliers tell you how they would solve the problem or provide you with materials along with an approximate quote. These differ from the RFQ in that they are less prescriptive on your part and more of a two-way collaborative engagement with suppliers.

When to use quote requests in companies?

Although RFQs are not required for all purchases, they are used more frequently in certain scenarios:

1. Prequalified suppliers: When a pre-qualified list of reliable suppliers already exists, a request for quote can be used efficiently. These are suppliers who have met certain standards and are known for their reliability.
2. Specific and standardized needs: RFQs are suitable when the requirement is for specific products or services and there is little room for innovation or customization. For example, when large quantities of standardized products are obtained, such as raw materials for furniture construction or standardized components such as screws for manufacturing.
3. Wholesale orders in progress: RFQs are suitable for situations where a continuous, bulk supply of a product is needed. This is often the case in manufacturing, where a constant flow of materials or components is required to keep operations running smoothly.
4. Lack of complementary services: When the purchase is only for the product itself, without the need for additional services or long-term maintenance contracts, an RFQ simplifies the acquisition process.

The Quote Request Process: How does a Quote Request work?

Since the RFQ process is fairly simple, it will typically follow a similar series of steps regardless of your industry or company's internal SOP:

1. Get your documents in order: This includes packaging the aforementioned details and scope information together and working with your employees or management to refine the details and ensure your RFQ is as clear as possible to facilitate optimized provider operations.
2. Create a supplier purchasing list: Remember, the quote request process is not open to the public or to as many vendor requests as you wish to submit. Instead, you will prepare the list of suppliers to distribute the RFQ. Be sure to do your due diligence on the best providers available, even if you have a favorite or two in mind.
3. Submit quote request for request: depending on your company procurement strategyThis could be as painful as sending an email to broad distribution or as easy as posting to a “job board” designed to streamline acquisitions.
4. Receive and respond: You will then wait for suppliers to submit their best offer, then work to narrow down a short list, interview suppliers further if necessary, select a winner, notify everyone else that the bidding is closed, and begin supplier incorporation for the winner.

The RFQ process is not difficult in general, although its procurement platform Choice (or lack thereof) certainly drives overall usability.

Other documents in the acquisition process

We cover RFQ and RFP, but remember that there are many other documents that you will often encounter as part of routine procurement procedures. Keeping them clear isn't always easy unless you have a solid SOP that includes centralized procurement processes.

Two of the most common additional procurement documents include:

1. Information request: The RFI is a “help me” request to vendors to help narrow down requirements before developing a full RFQ or RFP. The RFI is useful when you are embarking on a new project and want to make sure everything is in order before spending time developing a package of documents.
2. Tender request: in acquisitions, a tender request asks suppliers to submit bids for a large project; It is basically like a request for quote, but is used for larger or more expansive projects and typically includes contracts based on services as well as raw materials and physical products.

Conclusion

Effective material and product flow management begins with a well-developed RFQ process. The RFQ eliminates the need for repetitive or extensive back-and-forth sourcing requests, but a proper RFQ needs to be submitted from the beginning to streamline the process with minimal headaches.

Ultimately, an effective RFQ can represent how effective your overall procurement process is. If you do the simple things well, you can usually also handle more complex tasks like RFPs and RFTs. On the other hand, if you have difficulty completing a quote request and adding offers, you may have more problems later in your overall procurement ecosystem.