Large projects requiring many products with the same specifications or complex projects with many specifications often use a RFQ (Request for Quote) process to acquire these goods or products. A RFQ is a professional approach to ensuring that all suppliers are quoting on the same products, specifications, and services.
In the document, the buyer provides all of the information needed by vendors to provide a detailed quotation covering products and services with a well-defined process outlined in terms of due dates, details, pricing, and evaluation process to follow.
This post provides much more detail about what a RFQ is, how to use them, and suggestions about issues to be watchful about when using the RFQ process.
What Is a Request For Quote (RFQ)?
A request for quote is a document that buyers may use to describe a project of some kind with all of the requirements provided to vendors for them to respond with a proposal covering services, products, and pricing for each stage of the project. The RFQ specifies the responses needed to enable the buyer to compare proposals from other vendors. If the buyer knows exactly what quality and quantity of products and services are needed, they can use a RFQ.
A relatively simple example could request a quotation for five hundred computers with specific specifications to be delivered to various addresses by a specified date, configured with specified software and warranty support for a specified period.
Vendors can easily respond to this RFQ, listing the computers, the specs for them, a list of software installed and tested, with pricing including shipping, taxes, and warranty support. Buyers can compare prices and services to make a decision regarding which vendor to use.
A Request for Proposal (RFP) is sometimes confused with a request for quote. An RFP provides details about a project; however, the buyer is looking for proposals on how best to deliver the project, especially when there are multiple solutions available. A request for quote (RFQ) is for products and services that are well understood and known.
What is a Request for Quote Template or Form?
A Request for Quote Template can be used over and over again and is flexible in that it can be reused for many different projects once it is customized to meet the needs of the project. All of the standard wording is already in place, and the author only needs to add the quantities desired, along with the services needed. Corporate addresses, standard requirements such as warranty specification requirements can already be part of the template.
The request for quote template also helps to keep the costs down as well for both the buyer and the supplier quoting on RFQ’s.
Request For Quote Templates & Forms
When to Use a Request for Quote (RFQ)?
Once you have decided on the type of product you need, the services, and the specifications, preparing the RFQ is the next step. You may already expect what the costs for the project will be. This information helps to develop a budget which, can be confirmed once you receive the responses from suppliers to your RFQ.
Suppliers can respond to the RFQ, and if you have provided directions on how you want the response to look, the job of comparing them will be that much easier. Some companies make their decisions based on cost per unit alone, while others take into account services, support, warranty, ease of use, and so on.
There are projects which involve new products that are not well understood. You may not be aware of which vendors are interested in responding or if they have a product in development that may fit your needs. A Request of Information can be issued asking for information about products, when they may be available, and what specifications they are planning to offer. This information can be used to solidify your plans about products you may be interested in, the services provided, and how they will provide solutions to your project.
An RFP can then be issued to request solutions to help solve and deliver your planned project. Once all of the details have been worked out and you know exactly what is needed, a request for quote (RFQ) is issued to vendors who can respond and provide products to meet your needs.
Who Should Use the RFQ Template?
Companies of all sizes use RFQ templates to procure products and services. The size of the project is also a factor to be considered. Large projects may involve very complex RFQ’s, while simpler projects can be complex or straightforward, especially if the products are well understood and available.
The following positions within an organization may use RFQ’s from time to time:
- Project managers
- Assistant project managers
- Purchasing managers
- Procurement managers
Once the RFQ responses are in and assessed, the results can be summarized and a decision recommendation prepared along with a negotiated contract for whoever is authorized to sign contracts.
What is the Request for Quote Process?
It should be emphasized that managers who do an excellent job preparing the RFQ will receive excellent responses from suppliers and save both parties significant amounts of time. Experienced purchasing managers, procurement managers, project managers all appreciate how a good quality RFQ can impact the responses and the information provided by suppliers.
There are five major steps in the RFQ process. These steps are:
Preparation – of the RFQ is the most important part of the entire process, and typically half of the total time is spent on this portion of the process. As you develop the RFQ, a more accurate picture of the timeline can be developed, which helps your colleagues understand when they can expect to see results. In many cases, the suppliers are already pre-qualified by the RFI and RFP processes. There may be only three to eight bidders.
This part of the process involves the preparation of the documents that will be sent to the bidders. The following information is usually included in the documents:
- Description of your company, projects, and other important information
- Description of the purpose of the RFQ
- General terms and conditions required of the bidders
- Description of the goods or services required
- Pricing template including cost breakdowns if needed
- Specific qualification questions that bidders must meet
- Response weighting and criteria will be used to assess the responses.
Once all of the information has been assembled and approved by the RFQ team managing the process, the documents can be sent to the potential bid participants.
Management – one of the most important aspects of the entire process is ensuring that all participants have access to the same information at the same time. Treating one potential bidder differently can lead to the entire process being derailed.
Leaking information is considered unethical. If there is concern about information leakage, use a sealed bid approach, which only allows bids to be opened after the deadline passes. There may be situations where none of the bidders reached your price targets. Your options at this point are to accept the best bid, conduct a second round which is much like a reverse auction. Project managers may provide additional information to all bidders about their price targets, so they have a better idea of what is needed.
All members of the management and project team should be made aware of the process and the importance of conducting an ethical RFQ process.
Awarding – Now that you have received the proposals, it is time to evaluate the bids and which one you and your team will be prepared to recommend as the winner of the bid to upper management. If you have done an excellent job of preparing the RFQ and provided a pricing template, comparing the bids will be somewhat easier.
RFQ responses are seldom evaluated by one person. Instead, a team of people will evaluate portions of the response and provide their recommendations. There may be a technology team evaluating the technical response. Another assesses the warranty proposal, while another assess operations and supply. When they are combined, a winner is selected that meets the overall requirements. A scoring and weighting system is often used since some items, while important, do not carry the same weight as others.
Finally, a memo or presentation to senior management summarizes the bids, the scoring system, who was involved in the evaluation, and the recommendation is prepared for approval by management.
Closing – once the decision has been made, the winning vendor is contacted, and negotiations can begin to confirm all details and discuss items that may need to change to ensure that the proposal fully meets everyone’s needs. Once you have an agreement and a contract agreement prepared and signed by both parties, the process can be considered complete.
Formally advising the other bidders is only completed once the winning bidder has signed a contract. Even though a bidder has won the RFQ process, until the final contract is agreed to and signed off, most companies will keep all of their options close to the chest in case they need to begin negotiations with one of the other suppliers.
Evaluation – is the last step in the process. Once the products/services have been delivered, many companies take time to evaluate the entire RFQ process, including the selection of the supplier and the services or products they provide. This information is used to help future RFQ processes improve their overall process and results.
How to write a RFQ?
Writing a RFQ can take a great deal of preparation, even if you are working from a template unless it is one used previously by your company. The requirements should be clear and supported by all internal stakeholders who can take some time to obtain. Often the project manager will prepare a draft, circulate it among the stakeholders, and request comments which can be discussed and included depending on their merit. It may take several iterations and meetings before a final version of the RFQ is ready.
As a minimum, a RFQ should include the following headings and information:
- Buyer information
- Definition of the services or products required, including detailed specifications
- Delivery requirements
- Payment schedule and terms
- Method of evaluation – scoring criteria, selection process
- Timeline and review process
- Contract terms and conditions, disclosures
- Legal and security requirements
- Financial security and strength in the industry
- Submission deadlines and requirements
Develop a list of suppliers from known suppliers in your industry and those who are considered new entrants. Some managers may conduct a preselection process to narrow down the number to reduce the overhead of assigning too many respondents to the RFQ.
Types of RFQs
There are several types of RFQ’s each with advantages and disadvantages. Depending on your situation, one or more may be applicable, providing a better solution for your procurement strategy.
- Open RFQ – bids are visible to all qualified responders allowing vendors to see each other’s pricing. Pricing can be altered up until the official deadline. While this approach may induce more competitive pricing, it can also lead to price-fixing in the industry since everyone knows what the other is bidding.
- Reverse Auction RFQ – asks the vendors to provide their lowest bid, and as the auction proceeds, vendors may lower their bid further to win. Once the bidding has stopped, the lowest bid is declared the winner. This approach works well for known products where the price is the primary factor; however, if other criteria are important, they lose out in the reverse auction process.
- Sealed Bid RFQ – bid responses are sealed and only opened after the bid deadline has been passed in a private, secure setting. The bidders do not see or learn any details of their competitor’s bids. While this approach reduces the potential for fraud, places all vendors on the same footing, vendors may not offer their best pricing.
- Invited Bid – is where specific vendors receive the RFQ and are invited to bid. This approach can be used with open and sealed RFQ responses. This approach can lead to faster responses, especially if the vendors are known and trusted; however, the level of competition between vendors could be limited.
What to watch out for?
The Invited Bid process can limit new companies from participating in the process, reducing the competition and even leading to higher prices.
RFQ responses are not binding and are not considered a contract. They are the basis for preparing the contract and negotiating all of the final details of the contract. A contract is not final until both parties have signed off on the contract.
Avoid making the losing bidders aware they have lost the bid until the contract is signed. Winning bids can fall into disfavor during final negotiations on a variety of sticking points.
Ensure that all of your stakeholders are on board with the RFQ and their requirements are properly reflected in the RFQ. Otherwise, bidders will not respond to their needs, and the stakeholders may not approve your recommendation once the assessment stage is completed.
If the information concerning your needs is not well defined, a Request for Information or a Request for Proposal may help to crystalize your needs and help finalize the RFQ.
Ensure that the evaluation process is well understood before issuing the RFQ. A scoring and weighting system should be applied to each requirement to help both the vendors and the evaluation team assess the responses fair and equitable manner.
A RFQ is a document that describes a buyer’s requirements asking vendors to reply with a description of their products/services, pricing, and payment terms. The document includes responses to any additional requirements expressed in the RFQ, such as warranty support, delivery, etc. This process and documents are professional processes used by many companies to purchase goods and services at competitive prices.
There are four types of RFQ’s – Open bid, Sealed Bid, Invitee Bid, and Reverse Auction.
The process has 5 parts to it, with the preparation portion taking the majority of the time. The 5 parts are Preparation, issuing and management, scoring, and selection, closing and contract negotiation, and post-contract review/evaluation.
Using a RFQ template can save time and ensure that all of the key components are included, including information and background about your company.
Be professional at all times with the bid process and documents. Close bidding on the due date and open all bids in a secure place where information cannot be shared.
Involve your stakeholders in the RFQ preparation process, evaluation, and decision recommendation process to maximize support and buy-in from the organization for the vendor chosen.