One of the most common processes within almost any purchasing and supply chain is the RFQ. With the Request for Quotation, you know exactly what you need and now want suppliers to tell you how much it’ll cost. But by requesting quotes from a number of suppliers, you’re essentially asking them to compete for your business, providing the opportunity to find cost savings not otherwise available to you — that is, of course, if you choose the right vendor. Remember that an unsuccessful RFQ process may not be the only reason you are suffering from fluctuating rates.
To ensure you get the best price and lead time, you’ll want to run your RFQ in whatever way makes sense to your business, but it’ll often include the following steps:
Preparation of the RFQ
Of the entire RFQ process, preparation is probably the most important. In fact, devote at least 50 percent of your time preparing for bids. Decide what type of RFQ you’d like to run. Will it be open or invite-only? Will the bidding remain sealed until the submission deadline? What about a reverse auction, where the roles of buyer and seller will be reversed?
From there, you’ll turn your attention to preparing all the documentation you’ll need to send to the RFQ bid participants. While the documents will vary, they often include the following:
- Invitation. The invitation is your opportunity to lay out the purpose of the RFQ. You’ll also want to provide information about your company, project, and any other necessary details.
- Pricing template. Without a pricing template, no two bids will ever look alike, making it difficult to compare offers. How you want to see bids is entirely up to you, but one option is to request prices be divided into cost elements.
- Prequalification. If you’ve yet to qualify participants, you can do so during the RFQ process by including prequalification requirements and questionnaires. As with pricing, prerequisites will vary by company.
- Selection criteria. In an effort to keep the process transparent, you should also describe the awarding criteria and weights of the selection process. Your criteria may include: initial price, functionality of services, total cost of ownership, cost drivers, associate risks, etc.
Managing the RFQ Process
Managing the RFQ process is a lot like managing a business. You want to do it ethically, which means treating everyone as equals — no playing favorites. If you share info with one party, you’ll want to distribute that same info to all other parties. And never leak price or supplier-specific information to other participants.
Awarding an RFQ Winner
Now’s the time to decide who will get your business. If you’ve done your due diligence on the front end (i.e. GTC, pricing template, etc.), the decision should be rather easy. But don’t do it alone. Open the decision up to internal stakeholders, and ask them to weigh in based on predetermined criteria.
Once you’ve arrived at a final decision, write up a memo. Detail the number of bids, qualified RFQ participants, and votes for each participant, along with any reasons for disqualifications, specifics on awarding criteria and weights, and the final decision. This memo will be something an internal auditor will request to see.
Closing the RFQ process should entail more than just announcing the winner, negotiating the terms, and signing the contract. Wait until the ink is dry to announce the winning bid publically. Doing anything otherwise takes the power out of your hands and could change the conditions of your negotiations.
Only when the contract is signed should you thank bidders for participating in the RFQ process and that it’s now closed. You can then provide feedback to the participants and choose whether to announce the winning company or not.
Any time you sign a contract with a vendor, understand that you’re essentially entering into a long-term relationship. Both parties must feel that it’s mutually beneficial. Don’t let it be a one-sided relationship. Otherwise, you could end up going through the RFQ process again and again.
If you have experienced frustrating RFQ processes in the past, or are about to start your first one, give us a call and we would be happy to help you set it up. If you need any of the necessary RFQ documentation, InterlogUSA has a number of templates available, including: