Subscribe Via RSSGet a Price Quotation: How Hard Could that be?
It would seem straightforward enough to get a price quotation from a supplier. Right! You describe what you want, you provide volume information and desired terms. The supplier then gives you their pricing and delivery terms. There’s really nothing to it.
Think again. In reality, like many aspects of doing business, things can get out of hand very quickly. Follow these tips to reduce the unexpected to the minimum.
What is a Request for Quotation (RFQ)
A request for quotation (RFQ) is a standard business process whose purpose is to invite suppliers into a bidding process to bid on specific products or services.
An typical RFQ includes negotiation on price per item, payment terms, item specifications, item quality, delivery schedules, packaging options and contract length as part of the bidding process. This is to ensure all suppliers are bidding on the same item or service.
Generally, the more detailed the specifications, the more accurate the quotes will be. Also, the RFQ could become part of the final contract. It is not unusual for suppliers to require clarification on technical aspects of a proposal prior to quoting.
All potential suppliers must return the bidding by a set date and time to be considered for an award.
RFQs are best suited to standardised products and services as this makes each suppliers’ quote comparable.
RFQ should not be confused with either an RFP, RFT or RFI.
- A request for proposal (RFP) is used for services or complex products where quality, service or the engineered final product will be different from each supplier that is responding.
- A request for tenders (RFT) is a formal, structured invitation to suppliers to bid to supply products or services.
- A request for information (RFI) is a process whose purpose is to collect written information about the capabilities of suppliers.
Objectives of a RFQ
An RFQ allows different suppliers to provide a quotation on a specific proposal, from which the most suitable (not necessarily the cheapest) will be selected. Typical RFQ objectives are:
- Obtain detailed quotations in order to evaluate each suppliers’ response.
- Leverage the competitive nature of the supplier selection process to negotiate the best possible deal.
- Keep control of the entire supplier selection process and set the selection rules up-front.
- Start building a partnership with potential suppliers. Removing any possible clashes of opinion at this stage will save many problems later on.
Specification of the Request for Quotation (RFQ)
Your RFQ should contain sections similar to the following, keeping in mind, your RFQ will depended upon the type of supplier and product or service you are searching for.
Submission, Questions and Clarifications Details
- Deadlines and pertinent dates.
- Name and mailing address of your company (you would be surprised at how often this is forgotten).
- Contact person for questions and clarifications. Include relevant telephone and email details.
- Submission methods, i.e., mail only, electronic submissions (email). If electronic, what document standards should be used, i.e. Microsoft Word 2003-97 format. Should files be encrypted to protect confidential information?
Confidentiality Statement
Insert your company’s Confidentiality Statement here, i.e.:
- This document, and any attachments thereto, regardless of form or medium, is intended only for use by the addressee(s) and may contain legally privileged and/or confidential, copyrighted, trademarked, patented or otherwise restricted information viewable by the intended recipient only.
Your Business – Overview and Background
Giving a very brief overview of your business, products and market sector will help your prospective supplier understand your business needs. Provide any pertinent background information which will help the supplier when providing their quotation.
Summary Specifications
The aim of this section is to quickly enable the supplier to decide if they are capable of providing a quote to the requirements for your product or service. It should be provided if your detailed specification is complex.
It should contain a brief summary specification outline to enable the supplier to decide if a detailed specification quote is worth pursuing. For example, if your specification requires six layer PCBs and the supplier can only manufacture four layer PCBs then it’s probably not worth them quoting (unless you have a really, really big order and it’s worth them retooling).
Detailed Specifications
Being the most technical section of the document, this is probably the hardest to produce. This section should provide supplier with specific quantitative measures. Example criterion includes:
- Product drawings
- Engineering tolerances
- Technical requirements
- Software requirements
- Hardware requirements
- Testing and control requirements
- Business requirements
- Payment terms
- Cost of any certification (for export)
- Service levels
- Milestones
- Delivery schedules
- Packaging options
- Presumptions and assumptions
- Upgrade/modification costs
- Constraints (licensing rights, etc.)
Generally, the more detailed the specifications, the more accurate the quotes will be. Failure to be forthright and upfront with the supplier at this stage will open the door to renegotiation of the agreement at a later date and runs the possibility of straining the relationship you have with your supplier.
Terms and Conditions
This section should include, financing options, contract length, renewal options, warrantees, delivery penalties, service levels, etc.
RFQ Distribution to Selected Vendors
Finally, compose a cover letter and mail two copies of your RFQ to each of the suppliers you selected from your search process.
Most, suppliers are quite happy to accept RFQs and other documentation by email these days. In such cases it’s worth checking to see which format they prefer (Microsoft Word/Excel, PDF, etc.) and to which email address the documents should be sent.
You may wish to give a brief overview of the selection criteria you will use to make your decision to prospective suppliers in your covering letter. Personally, I prefer to keep this information confidential, others believe this will help suppliers focus on the important issues.
