Understanding the RFQ Process: A Step-by-Step Guide for Procurement Professionals

You may found and considered several vendors at this point who are capable of supplying the products you need. The next step will be to understand what prices they are offering and how this works within your budget. Here, an RFQ comes in. An RFQ is send by B2B buyers to potential suppliers in a bid to ascertain the likely cost of their products and how this compares with other suppliers.

An RFQ is a request that is send to the supplier for quote or quotation. This document is typically used by B2B buyers when they decide to engage with a vendor on the pricing of specific products or services which they are interested in.

The details of specific requirements or features of the product the prospective buyers are interested in can be mentioned in an RFQ. Usually, the supplier respond with a breakdown of the price with respect to these requirements.

The buyer can understand precisely how each component is priced and gives flexibility when it is required to decide on what features to purchase. You will also know exactly what you are paying for as price transparency is encouraged in this.

RFQ is a handy tool using which you will be able to compare the prices of various suppliers to find the lowest price possible. You can easily find those suppliers who will help you stay within your budget and where the pricing may be a risk for you.

Description or specification of parts or their number, quantities or volume of the intended purchase, required quality levels, delivery requirements and value-added services required are some of the details that you should provide a supplier within an RFQ.

You can ask a single seller to provide a quote, or take quotes from several sellers at once to expand the scope of your inquiry.

There are different types of RFQ depending on how you want the whole procedure to go and the number of suppliers you want to engage with. These include:

The buyer invites specific vendors to submit a quote which will be then considered In this RFQ. The main advantage of invited bid RFQ is that you can speed up your procurement process as you can quickly request a quotation from vendors you already know and trust. However, the opportunity to discover cost savings that may be offered by new vendors are limited by this.

Some competition in the RFQ process can be introduced by the buyer with an open bid. Specific sellers are invited by the buyer to submit a quote, allowing the quote of each seller to be visible to others. The quotes can be altered or updated by the seller during the submission timeline and up until the deadline. The pricing visibility may help drive down prices overall which is the main advantage if this type of RFQ. However, this may go wrong and cause the vendors to fix a uniform price.

A submission period is set for vendors to tender a quote in this RFQ. Sealed bid RFQ can benefit those buyers who want to introduce transparency into their selection process and reduce the risk of fraud as the quotes will not be visible to any of the other vendors. However, the competition that is found in an open bid is lost in this process.

Reverse auction RFQ generally works like an auction process but in the reverse direction. Vendors are invited by the buyers to submit their lowest price quote for the specified products with the intention that the cost will continue to decrease as each vendor submits a new quote. This could be a solution if the initial RFQs you issued is not within your budget. However, other important factors may not receive the consideration they deserve as the process will typically end once the lowest price is offered.

RFQs are not suitable for every procurement situation even if they help assessing and understanding the pricing options available to you. They may not be suitable when you are not exactly sure what you want or how much as these tools are generally used when the required products or services are very specific. An RFQ is used customarily by the soliciting company when they knows the exact number or type of product or services it desires. An RFQ is typically used by companies when products and services are standardized, or off-the-shelf. RFQs can be considered as straight-to-the-point pre-order forms. All the details including, what the buyer exactly wants, from size to style and design are specified in it. It may also specify how they want the buyer to provide the pricing information.

You should have a list of pre-qualified or potential vendors that can supply the products you need, should know precisely what you want to buy, clear on the exact details of my purchase, including quantity, quality, and size as well as price should be the essential factor for you at this stage, to determine if an RFQ is right for you.

Although, general best practices for sending an RFQ are there, the process is mostly non-technical. There is no need to use a specific template, build a special portal or any specialized procedure to send and receive RFQs as it all depends on the preferences of your business. All you need is to just draft a document including your requirements and send to sellers through email. However, the procedure can be standardized by larger organizations to ensure speed and transparency in their procurement process. Preparing your RFQ involves four major stages. These include:

Prepare your document: 

All the groundwork need to be done in the first stage that is to provide a detailed set of requirements. You should review your procurement needs and ensure that they are aligned with your business needs before starting. You should specify the details of the product or service you want to procure once this is clear.

The responses of vendor will be more relevant when you provide more details. All the required specifications can be identified by interfacing with other members of your staff or departments within your business. The type of RFQ you intend to issue, the number of vendors you want to send the RFQ and your response deadline need to be decided finally.

You can expect responses after sending the RFQs. You should keep vendor pool small enough, so that it is manageable for you. Although, capacity will vary depending on the resources of your business, eight is typically a good number to start with. Enough of time should be allowed for the vendor to work through the RFQ. Responses can be reviewed to identify which vendors offers the best prices that meet your procurement needs by the end of the deadline.

Your decision will likely be based on the vendor that offers the best price. However, this may not be always the case. A higher-priced product may also be selected by you if it meets all of your procurement needs in terms of quality and custom solutions. The vendor should be notified about your decision and how you intend to proceed. Make sure to keep a copy of the RFQ as it will act as the basis of your contractual relationship going forward.

The process can be closed by formalizing the arrangement with the vendor. An RFQ cannot be enforced until it is formally agreed by both parties as  is not a contract and is only a quotation from the vendor. Other vendors who sent in quotations should also be notified about your decision to go with another vendor.

Buyers may utilize several other tools during the procurement process , all of which are categorized as 'RFx.' These include RFIs and RFPs.

RFI or 'Request for Information, is used by B2B buyers to gather information about products that may meet their procurement needs. RFI is more suitable when the buyer is unsure about the products that would meet their needs or what specifications they should be considering as it helps a buyer build a good understanding of the products, suppliers, and other factors before moving on to the next stage in the procurement process. Buyers will be able to understand important seller conditions such as minimum order quantity (MOQ) requirements and more with RFI.

RFP or 'Request for Proposal' is generally the next stage of the procurement process after the RFI. This procurement solicitation is send to potential suppliers for inviting them to submit a proposal to provide certain goods and services. The buyer already has a good idea of what they need with an RFP. But they still need to decide which suppliers to go for. Compelling information is provided by the proposal submitted by the supplier, that will help the buyer to determine how the supplier can help meet their procurement needs.

RFQ is essential at the last stage of the procurement process as compared to an RFI and RFP. The buyer already has a good idea of the products they want to procure and the vendors they intend to work with as opposed to both an RFI and RFP. The only thing that an RFQ helps the buyer determine is the prices of the various vendors and which is most favorable.

However, there are specific purpose of each document within the procurement process. You will likely use one or more of them when you procure products that meet your business needs.