Advantages and Disadvantagesof Asking for Quotation

Giving your supplier an RFQ may seem an advantage for him, but for you, the possibilities are endless. That is why we are going to expound more on the advantages and disadvantages of the RFQ. 

So what are the advantages of having a request for quotation? Here are some of the obvious benefits, which we compiled into a table:

What are the Different Types of Purchasing Requisitions?

Requests for quotations also come in different forms and formats:

   1. Open Bid

An open-bid RFQ means when responses can be seen by all potential vendors. The bids are opened during the submission period, thus giving the vendors the time to see each other’s pricing. From there, the suppliers can alter their submitted bids until the bidding time ends.

   2. Invited Bid

As the name suggests, it is when specific vendors receive the RFQ and are then invited to both open and sealed bids.

   3. Sealed Bid

A sealed bid is when an RFQ is open to all potential suppliers but the responses are opened only once the submission deadline has passed. This is a common RFQ type for most public and government procurement projects.

  4. Reverse Auction

The reverse auction asks suppliers to give their lowest offer instead of the other way around. The cost decreases while the auction continues. The reverse auction is only used when an RFQ is issued, but no vendor can match the price target. For more info about this, you can check out our e-auction article.

What are the StepsInvolved in Creating Purchasing Requisitions?

To create a good request for quotation, some steps should be followed.

Always keep in mind that each process complements each other, so if you want to create your own set of processes, it can be done but make sure that your RFQ process does not confuse you in the end. For more guides on how to create the best RFQ, you can also head to our Negotiation Course For Procurement Professionals for more tutorials on how to build your request for quotation.

So without further ado, here are steps needed to create an RFQ:

1. Preparation and Requirements

Before you can decide to issue an RFQ, you need to decide what is it going to be for and what exactly does your business need. Yes, the preparation phase is the most time-consuming during the whole process, but it is equally important. Remember, while you prepare for your RFQ, the more detail that you can provide, the more accurate and useful the vendor responses will be. 

Apart from the details of the product or service that you’d like to get, you’ll also need to check and decide on the following:

• The type of RFQ to be issued.
• The deadline for the RFQ
• The list of invites who will receive the RFQ

2. Information and Documents to Include in your RFQ

For the RFQ, detail is key. The extra information that you can place in the request for quotation should help you in getting the right responses that you need from your suppliers.

Apart from your RFQ, the following additional documentation are also important:

• Business overview with a description of your company, details of the project, and any other relevant information needed.
• General terms and conditions including terms that can or can’t be negotiated.
• Selection criteria and scoring weights
• Prequalification requirements to ensure that the vendor is qualified to respond.
• Most importantly, the invitation to bid with an introduction and summary.

3. Issuing and Management

Once your RFQ is ready, it’s time to send it to your potential suppliers. Most RFQs don’t need more than 8 potential suppliers but make sure you give some time for your suppliers to respond to you. The suppliers will probably need a few days or weeks to read, prepare, and respond to your RFQ. If you’ve managed to include all important information, then you should receive little to no questions at all.

4. Selection and Scoring

One of the best things about RFQ is that the selection and scoring for your potential suppliers can be done quickly. This is where the preparation that you did before the start of this whole process should shine. With your pricing table or template, you can compare the prices that each potential supplier has given you. If you’re working for a committee or a department, make sure that all relevant information is included in your memo. 

Of course, the vendor with the best prices and terms will be handpicked by your team. If the reply letter from the supplier has other documentation included, make sure to read each of them carefully. Key insights must be included in the executive summary.

Once you’re done with the selection, make sure documentation is clear regarding the process. Include qualified bids, the published criteria, and the winner of the bid.

5. Closing and Contracting

Once the winner is decided, it is only normal for the winning supplier to receive a contract with the terms on what the supplier and your company agreed on. The first thing to do is to notify the winning supplier and make sure to remind them that the response provided is a quote, not a formal agreement. The contract should also be created once your company has extended an offer. Once agreed on by both parties, finalize the details and receive the vendor’s acceptance.

Again, preparation is key. If you’ve managed to prepare for the RFQ process, the contracting process should be simple and easy. Build your contract based on details, payment information, terms and conditions, and the deliverables that were outlined in the first RFQ. 

6. Evaluation and Review

Once the contract is signed, it’s always a good idea to look back at the entire process. Did it proceed without issues? Did the company gain a lot from the procurement process? Was there anything that could’ve been improved?

Never stop asking these questions at the end of every process. This will help you improve on how you build your RFQ, thus making every process easier.