Like consumers, companies want to get the biggest bang for their buck, so instead of heading to the nearest store, a best practice method would be to send out a Request for Quotation (RFQ). An RFQ is a document that the “purchasing” company sends to other companies that sell the services, products or materials they are seeking to purchase. The RFQ process is appropriate for business of all sizes and for projects of all sizes. Larger companies have controls in place to avoid conflicts of interest. But very often, smaller businesses will forego the bidding process and utilize a supplier in the networking group or a friend of a friend. The downside to this, is that you have limited your access to a host of variables that would provide the opportunity to make a “fully informed decision”.
The RFQ contains information and specifications about what the purchasing company wants and invites the supplying companies to create an accurate and competitive quotation. After examining the quotations received, the purchasing company will choose the company they will purchase from. The document makes it obvious that serveral suppliers will be invited to bid and in that way the potential for competitive bids is created.
It is wise to include all of the technical, commercial and service demands as possible in the document. Some of the reasons for this include:
- Makes the chance for accurate quotes higher.
- Demands put up in the RFQ can be used as legally binding later on.
- Tends to weed out suppliers who can not compete
- Provides competive product intelligence that you otherwise may not have seen
One RFQ does not have to mean the end of the bidding process. It is not uncommon that a couple of suppliers are chosen for a second bid (new RFQ on the same products).
An RFQ should at least contain the following:
- Contact persons (for commercial, technical, and service questions)
- Partnumbers and description
- Quantities to be bought (ex. yearly or per order)
- Drawings and other specifications
- Quality demands (such as warranty period requirements)
- Delivery address
- Delivery terms (such as terms)
- Payment terms
- Binding period of the quote
- Other terms (purchase agreement/contract)
- Deadline for quotations
- Level of requested transparency
- Acceptable Terms & Conditions
RFQ’s provide a process for obtaining the knowledge and facts you need to make an informed business decision on spending. Create an RFQ template that encompasses your specific business needs and use an RFQ each time you consider making an acquisition, it will save you time, money and give you greater insight to what suppliers have to offer.