Written by Marijn Overvest | Reviewed by Sjoerd Goedhart
Fact Checked by Ruud Emonds | Our editorial policy
Request For Quotation (RFQ) — 6 Tricks for Better Deals
What is a request for quotation?
- A request for quotation (RFQ) is a document used to solicit pricing and service details from potential suppliers.
- The request for quotation gathers quotes from suppliers, starting the procurement process by asking for prospect prices.
- Reaching out to various suppliers is crucial for maximizing the effect of an RFQ.
What is The Meaning of RFQ?
An RFQ or Request for Quotation is simply a document used to solicit pricing and service details from potential suppliers. The more detailed explanation would be the company asking its trusted vendor for an estimate of the costs for the completion of a service or project.
It’s pretty much the same as asking for a quote when you need someone to work for you on a specific project. Once a company asks for one, the quote will provide detailed information regarding the type of service or product that is needed.
For services rendered, the question is always about when the task or service will be completed. In the case of products, the quality of the product and how fast it can be delivered to the company will be checked at all times.
What are the Steps Involved in Creating an RFQ?
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:
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 the 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 phase 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.
6 Tips For Your RFQ Process
Here are some tips that you should know before and after sending your RFP:
1. Clearly define your specifications
Giving a comprehensive overview of the RFQ specifications is crucial. Being thorough and clear about the guidelines from the beginning saves time by avoiding miscommunication or potential complaints later on.
2. Make your internal stakeholders involved
Internal stakeholders bring different viewpoints and requirements. Their involvement ensures that everything important in the procurement process, like quality, specifications, budget, and delivery, is taken care of. This teamwork makes the RFQ more comprehensive and increases the chances of getting good bids from suppliers.
Moreover, they are essential in figuring out what the organization really needs. Involving them from the start helps create an RFQ that fits the company’s goals and operations.
3. Make a shortlist of the most suitable suppliers
Having a shortlist of suppliers helps you focus on evaluating fewer vendors closely, saving time and effort compared to dealing with a large group. Moreover, it ensures you invite capable suppliers who can meet your needs, increasing the chances of getting relevant and competitive bids.
4. Review and edit your RFQ
By taking the time to review your RFQ, you can identify and correct any errors or inconsistencies that might have been overlooked during the initial drafting phase. Additionally, editing the RFQ allows you to refine the language and make the instructions more straightforward, making it easier for suppliers to understand your requirements.
5. Follow-up non-selected suppliers
Maintaining communication with non-selected suppliers is an investment for future Request for Proposals (RFPs). By discussing the decision process with them, they can identify areas for potential improvement.
Taking the time to engage with them can increase the likelihood of their interest in responding to future RFPs, as it shows respect for their efforts and encourages a positive supplier relationship. Moreover, keeping the lines of communication open fosters a more collaborative and transparent procurement process, benefiting both parties in the long run.
6. Be proactive
To be proactive, gather all relevant information early in the sourcing project and provide anticipated details to suppliers beforehand. This preparation ensures you are well-equipped for negotiations and can address sensitive issues in advance, giving you more power in dealing with suppliers.
RFQ in Procurement
RFQ is a formal process used when companies want to order products or services for their projects. As we told you earlier, it is used to solicit some things you want to procure, which is necessary for the company to operate well.
In the case of a procurement process, the procurement manager always asks the supplier or vendor for a quote for either a material that they want to buy or for a service that needs rendering. An RFQ is a key document in inviting and screening potential suppliers.
You must take note that an RFQ is not binding as it is not an offer to purchase products or services. Thus, it is not considered a formal contract or agreement. A contract will only be created once the company sends an offer and the supplier accepts it.
How Does RFQ Work?
An RFQ is typically the first step in submitting a request for a proposal. They might be similar but RFQs are generally comprehensive when asking for a price quote.
Businesses commonly use RFQs for generic products in which the quantity is known. In addition to the pricing, RFQs may include details like factors in the company’s bid selection, submission deadline, and payment terms.
As the RFQ format is uniform within a company, the soliciting company can easily compare the quotes. Furthermore, the RFQ process consists of four stages which are the following: preparation, processing, awarding, and closing phase.
Advantages and Disadvantages of 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 RFQ?
Requests for quotations also come in different forms and formats:
- 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.
- Invited Bid – As the name suggests, it is when specific vendors receive the RFQ and are then invited to both open and sealed bids.
- 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 projeckts.
- 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 Details Included in an RFQ Template?
Many procurement software offers a free RFQ template within their system nowadays. However, we know that not all have integrated procurement software in their company, especially the ones that are just starting yet.
To help you in making a template, here are some common details that you will need:
1. Quote Information
On the top-left corner, just like every document, is where you put your company details and also to whom you will send your quote.
On the top-right corner, you can put the date and under it is the quotation number for your records and the place where you will write the customer ID. You can also put a deadline or a valid date for the quote.
2. Notes
This is a space used for any additional comments or special instructions to the suppliers. Underneath this is a row of information that includes the salesperson’s contact number, P.O. number, Ship date, FOB point, and terms.
3. Description, Quantities, and Prices
Beneath the row of information that we talked about in the notes, detailed information on the goods such as the description, quantity, price, and any tax is included in the document.
Additionally, a subtotal, tax rate, sales tax, and other fees are included. The total amount will then be calculated at the bottom of the document.
Conclusion
The Request for Quotation (RFQ) serves as the gateway for procurement managers to initiate the crucial procurement process.
In essence, this comprehensive guide equips readers with the knowledge and tools needed to master the intricacies of the RFQ, ensuring that, by the article’s conclusion, they possess the expertise to create effective RFQs and leverage them for optimal results in the dynamic field of procurement.
Furthermore, I have created a free-to-download, editable request for information (RFI) template. It’s a set that includes a PowerPoint file and a Word file.
You can use and tailor them to your needs when asking for information about the materials you want to buy for your procurement process. I even included a video explaining how to use the templates.
Frequentlyasked questions
What does RFQ stand for?
RFQ stands for Request for Quotation, a document used to solicit pricing and service details from potential suppliers. It helps procurement teams gather competitive bids for specific goods or services.
What is the request for a quotation?
A request for a quotation means asking potential suppliers for information about their products and/or services. A quote usually includes the price and details regarding the product or service.
How to do Request for Quotation?
Building your RFQ needs time, patience, and a lot of preparation. You also need to be able to negotiate and be good at sourcing for potential vendors.
About the author
My name is Marijn Overvest, I’m the founder of Procurement Tactics. I have a deep passion for procurement, and I’ve upskilled over 200 procurement teams from all over the world. When I’m not working, I love running and cycling.