When preparing to make a purchase or sign on a new contractor, every company that wants to buy items or solutions will use the words request for quote (RFQ) and request for proposal (RFP). But do you understand the distinction between the two? Let's find out more about it down below.
To offer you a quick overview, a request for quotation (RFQ) is one of many useful RFx documents. It is an essential component of a very well procurement toolset. When utilized correctly, the RFQ is a fantastic instrument for efficient and cost-effective sourcing. RFQs can be useful in the correct circumstances. They produce outcomes faster than their more common equivalent, the RFP.
Let's discuss this in detail below.
What do we mean by a Request for Quote (or RFQ)?
An RFQ, also known as an invitation for bid (IFB), is a document that describes a buyer's needs and requests pricing and payment terms from vendors.
It is also a standard business process that an organization will employ when looking to purchase a specific product or service. Typically, a corporation will generate and issue an RFQ, and vendors will respond with price bids. The company then selects the lowest proposal and enters into a contract with the favored vendor. In the procurement process, a corporation would use any of these forms to obtain quotes from possible suppliers.
The request for quotation standardizes vendor pricing. Furthermore, it makes it much easy for a consumer to compare their options critically.
Difference Between an RFQ and an RFP?
The goal of each document is what distinguishes an RFQ from an RFP. You're probably looking for the best deal when you use an RFQ. A request for proposal (RFP), on the other hand, asks sophisticated questions to select the best vendor based on a variety of parameters.
As a result, queries in an RFQ are virtually entirely concerned with cost. Cost per unit, bulk discounts, pricing packages, and service conditions are all common queries in a request for quotation. Furthermore, they frequently include pricing tables to make it easier to compare vendors.
RFP questions, on the other hand, frequently delve into more complex issues like experience, customer service, competitive differentiators, and so on. While price is frequently addressed in RFPs, it is usually only one of many different evaluation criteria.
When should an RFQ be used?
How do you determine when to utilize a request for a quote when there are so many abbreviations used during the procurement process? If any of the following apply to you, use the RFQ process:
- You've compiled a list of qualified vendors or suppliers who you know can provide the product you require.
- You know exactly what you want to acquire and aren't looking for novel answers to problems.
- You intend to select a vendor based on the greatest price.
- You intend to purchase a product that is generally ordered in quantity, such as equipment parts.
- You intend to purchase a product that does not require any customization, which would increase expenditures.
- A service plan or support contract is not required.
Types of RFQs.
RFQs help you save money by managing the bidding process. Here are some examples of RFQs(request for quotation) and how they work.
1. Open Bid.
All possible vendors are welcome to respond to the RFQ. Bids may be opened during the process to show price quotes to other vendors bidding on the project. While this might assist drive down pricing, it can also lead to price-fixing or vendor collusion.
2. Sealed Bid.
When an RFQ is open to all qualified bidders, it is considered a sealed bid. However, at the end of the submission period, the buyer only opens responses after accepting all entries. In public and government procurement projects, sealed bids are typical. It may assist lower the risk of fraud and improve openness in vendor selection.
3. Invited Bid.
Certain vendors, usually those with whom you've previously dealt, are invited to bid on the product. This procedure can be used with either open or sealed bids.
4. Reverse auction.
A reverse auction requires vendors to submit their lowest bid, and the cost drops as the auction progresses. If an RFQ is sent but no vendor reaches the price target, the reverse auction may proceed to a second step. It is a quick, competitive, internet-based process in which the lowest offer wins.
The RFQ process.
The RFQ procedure is rather simple. You know what you want to buy and need an easy way to inform potential vendors what you want, what you expect from their bids, and when you want to evaluate the responses and choose a supplier.
Some of these following procedures can be automated using software such as TranZact.
You must first determine what your company's demands are before submitting a request for a quotation. The preparation process takes the most time, so don't rush through it. While you're planning, keep in mind that the more information you can supply, the more accurate and relevant your vendor responses will be. Make sure to work with your internal stakeholders to understand all of the requirements.
In addition to the specifics of the product or service you wish to purchase, you must decide:
- What kind of request for quotation will be issued?
- Who will be invited to reply to the request for quotation?
- When is the deadline?
- How are you going to compare prices?
After this, you will decide what to be included in your RFQ document.
- Specific parts or products, with detailed descriptions
- Delivery requirements
- Product quantity
- Payment terms
- Selection criteria
- RFQ timeline and review process
- Terms and conditions
- Submission requirements
Send the RFQ to the suppliers (either those you've already chosen or those you've identified through public channels), and make sure to give them enough time to respond with a sensible quote. Prepare to answer questions about the RFQ and communicate your answers with all vendors throughout this step. Tracking the queries as you respond to them may be useful for future projects or pricing.
It is critical to treat everyone equally throughout this time to maintain a transparent and fair bidding process. Don't provide some vendors more information than others, and follow any confidentiality rules outlined in the RFQ as you receive bids.
Keep track of the responses as they come in and thank them for their time. Make sure to keep the selection committee updated on your progress so that they know how much time to set aside to analyze the proposals. Depending on your process (and the size of the contract), you may choose to open all bids after the deadline, or to open bids as they arrive. Put protections in place to ensure that, if you open bids as they come in, the confidentiality of each vendor's response is protected.
3. Selection of the Supplier.
Once the bid deadline has passed, the reviewer or review committee can now compare the entries using the selection criteria. If you utilized a template or form to collect price quotations, comparing the bids should be simple. The lowest price with the best terms will be the winner. You can seal the agreement by creating a contract or purchase order based on the RFQ response.
In an internal memo, document the winner, the process, the number of bids, and the criteria. This data will be useful to the internal auditor and will provide direction for future projects.
Because many of the contract elements, such as terms and conditions, payment, and other deliverables, were part of the RFQ process, the contract should be reasonably simple to finalize and sign. Packaging, changes in pricing levels, or delivery schedules may still be up to discussion.
Once the contract is signed, notify the other vendors of the winner and thank them for their participation. You may want to include these companies in your product cycle in the future. If you treat them ethically at this level, they will be prepared to put in the time to bid on future projects.
For a reason, the purchasing process is called a process. As a buyer, your actions, language, and requests provide significant signals to sellers that indicate your willingness to buy. And sending a request for a quotation to the buyer is the next step in it. Since you all have gone through this article, you may understand that the RFQ is a critical process in the procurement operation and to manage it manually is a tedious and risky task. So the best thing to do is to automate the whole process and TranZact is one such tool that can help you do it perfectly.
It is a zero-effort digital transformation tool and platform for SMEs to digitize business processes right, from customer inquiry to dispatch. This software helps businesses in all their invoicing needs and their document processing and verifying needs.