The RFQ: A request for quotation how-to guide with template
The RFQ: A request for quotation how-to guide with template
A request for quotation (RFQ) is just one of many helpful RFx documents. It’s a key part of any well-rounded procurement toolkit. Indeed, the RFQ is an excellent tool for efficient and cost-effective sourcing — when used properly. In the right situation, RFQs are advantageous. They offer quicker results than their more common counterpart, the RFP.
Admittedly, RFx documents and procurement terminology can be confusing. Consequently, this post will explore the request for quotation in depth. To begin, we’ll define what exactly an RFQ is and when to use it. Next, we’ll walk through how to write an RFQ as well as the elements to include. Finally, we’ll conclude by sharing a helpful RFQ template and a few examples.
A request for quotation or quote (RFQ) is a document that details a buyer’s requirements and asks vendors to respond with pricing and payment terms.
The request for quotation standardizes vendor pricing. In addition, it much easier for a buyer to compare their options objectively.
An article in Modern Machine Shop discusses the importance of creating thorough and thoughtful RFQs, saying:
“A well-crafted RFQ is essential to the sourcing process and must provide crucial details to contract manufacturers who will determine if they can perform the job. Detailed RFQs allow suppliers to prepare accurate quotes that minimize the potential for cost overruns, delivery delays and products that don’t meet your requirements.”
*Note: RFQ may also stand for request for qualifications. Check out this blog to explore the other RFQ.
RFQ vs RFP: What’s the difference?
The difference between an RFQ and an RFP is what each document hopes to accomplish. When using an RFQ, you’re likely looking for the lowest price. On the other hand, a request for proposal (RFP) asks complex questions to select the best vendor based on a number of factors.
Accordingly, questions in an RFQ focus almost exclusively on cost. Common questions in a request for quotation include cost per unit, bulk discounts, pricing packages and service terms. In addition, they often have pricing tables to help facilitate easy comparisons between vendors.
By contrast, RFP questions often explore more nuanced considerations like experience, customer service, competitive differentiators and so on. While RFPs often address price, typically, it is one small consideration among many various evaluation criteria.
While extremely helpful, an RFQ isn’t a good fit for every procurement situation. Because the primary consideration in an RFQ is cost, it is most often used for indirect purchasing. For example, you may use an RFQ to purchase specific products, such as hardware, office supplies or materials. In addition, you may also use them for indirect procurement. However, when used to source complex goods and services, it’s important to know all the details of what you want.
Think of an RFQ as a no-frills pre-order form — it clearly defines what product or service specifications needed. From style to size to design, use your request for quote to account for every available variable.
The RFQ also outlines how each vendor should provide their pricing information. Indeed, RFQs require a detailed view of the vendor’s bid including itemized costs for each product or service. The level of detail allows you to make accurate vendor comparisons.
Should you use an RFQ?
Is an RFQ for you?
Do you have a list of prequalified vendors that can supply the specific product or service you need?
Is price the most important factor?
Are you buying something that is ready out-of-the-box and needs no specialization?
Do you know exactly what you want to buy and how many of each item?
Will you be able to manage the item yourself without support from the vendor?
If you answered yes to all of these questions, then an RFQ is a good choice for you.
4 Types of RFQs
A request for quotation may be presented in a few different ways. Each type of RFQ has pros and cons.
An open bid is when responses are visible to all qualified vendors. The buyer opens bids during the submission period allowing vendors to see one another’s pricing. Suppliers can alter and update submitted bids until the bid deadline.
Pro: Pricing visibility may encourage more competitive pricing, driving costs down Con: Open pricing can backfire and lead to price-fixing among vendors
A sealed bid is when an RFQ is open to all qualified bidders. However, the buyer only opens responses after accepting all submissions at the conclusion of the submission period. Sealed bids are common in public and government procurement projects.
Pro: May help reduce the risk of fraud and provide vendor selection transparency Con: Vendors may not be as motivated to provide their very best pricing
An invited bid is when only specific vendors receive the RFQ. They work with both open and sealed bids.
Pro: Issuing the RFQ to previously used and trusted vendors can speed the selection and contracting process Con: Competition is more limited and the buyer may miss out on cost savings offered by new vendors that are unknown to them
A reverse auction asks vendors to supply their lowest offer and the cost decreases as the auction goes on. The reverse auction may use a secondary step if an RFQ is issued, but no vendor meets the price target.
Pro: It is a fast, competitive, internet-based process and the lowest offer automatically wins
Con: The contract is awarded automatically based on the lowest price, so other important factors may not be considered
An overview of the RFQ process
1. Preparation and requirements
Before issuing a request for quotation, you must decide exactly what your business needs. The preparation phase is the most time consuming, but don’t rush it. While you prepare, remember that the more detail you can provide, the more accurate and useful your vendor responses will be. Be sure to collaborate with your internal stakeholders to explore all the necessary requirements.
In addition to the details of the product or service you’d like to buy, you’ll need to decide:
What type of RFQ will be issued?
Who will be invited to respond to the RFQ?
When will the deadline be?
How will you compare pricing?
Documents and information to include with your RFQ
Detail is at the heart of every effective request for quote. The extra information will help expedite vendor responses as well as the contracting process.
Along with your RFQ, it’s important to include some additional documentation:
Now, it’s time to send the RFQ to your vendors. For most RFQs, it’s best to select no more than eight vendors. By limiting the number of respondents, you can ensure that you arrive at a speedy conclusion to your request for quotation while still encouraging healthy competition.
Be sure to allow enough time for the supplier to work through the RFQ with their team, at least a couple of weeks. Hopefully, you’ve provided enough information that follow-up questions will be minimal. But, when questions do arise, share the answers with all participants. A centralized RFx management system makes this quick and easy.
Throughout the process, it’s crucial that you maintain a level playing field. Share all the same information and ask all of the participants the same questions. As you receive responses, it’s good practice to confirm their receipt with the vendor. Unless you have an open bid, keep information about other vendors’ offers strictly confidential.
3. Scoring and selection
The biggest benefit of the RFQ is that scoring and selection should be fast and straightforward. The preparation you put in at the beginning will now pay off. With your pricing template or table, you can easily compare vendors side by side.
If working with a selection committee or additional stakeholders, compose a summary with the key information. The memo should include an overview of how many bids you received, the number of bids that were qualified and why others were disqualified.
Your final selection will likely be the vendor that offered the best price and terms. However, be sure to read any accompanying documentation provided. Key insights may be included in the cover letter or executive summary.
Once you’ve made your choice, keep clear documentation of the process, the qualified bids, the published criteria and the winner. This data offers transparency and can be used in the future when issuing new RFQs.
4. Closing and contracting
Send an award letter to your selected vendor. Remember, the response provided by the vendor is a quote, not a formal agreement. Negotiate with your vendor to finalize the details. Then, assuming all goes well, you will receive the vendor’s acceptance.
Because of your excellent preparation, the contracting process should be simple. Create your contract with the details, terms and conditions, payment information and deliverables that were outlined in the initial RFQ documentation. After the contract is executed, notify the other vendors of your selection using a proposal rejection letter.
Remember that it is beneficial to maintain cordial relationships, even with unselected suppliers. Provide any answers, information or context you can to the vendors that didn’t win the bid. Update vendor profiles with any new information so that next time you’re ready to engage them, you have all the right info.
5. Review and evaluation
After the contract is signed, it’s a good idea to set a reminder to check back in. While the deal is still fresh in your mind, make notes and set your first vendor evaluation meeting. Ongoing vendor experience management is a key part of developing effective, long-term relationships.
General vendor evaluation questions:
Is the vendor fulfilling their side of the agreement?
Are you getting the value that you were hoping for and had planned on?
Can the relationship be improved?
Has the vendor received and acted on feedback?
Are other vendors offering more competitive pricing now?
Has the market changed?
What to include in your RFQ
The request for quotation documents vary widely from one industry to the next and can be customized to fit your business’s needs.
Goals and background
Buyer point of contact information
Product or parts description
RFQ type (open or closed)
Selection process timeline
Terms and conditions
Legal and security requirements
Terms and conditions
Sample RFQs: Template and examples
Every request for quote is different. An RFQ that works well for supplies procurement, won’t be well suited to an IT support services quote. RFQ templates can be used as a guide, but customize them to fit your needs.
RFQs are often used in public procurement. The U.S. General Services Administration used an RFQ when they needed to establish government-wide janitorial services. As you might expect, the RFQ is very detailed and offers very specific information about scope, guidelines and requirements. The document also provides a clear process for evaluation so suppliers know what to expect.
RTI International is a nonprofit institute based in North Carolina. The organization provides global research and technical services to government and commercial clients. In 2017 they prepared a request for quotation when they needed to acquire new tablets and tablet covers. This document is a great example of the detail-oriented nature of the RFQ.
BrightRidge, a public power company, created a request for quotation to purchase a very specific piece of equipment. The document details all the specifications for the transformers and offers helpful information and instructions to guide vendors.
Remember that issuing RFx documents doesn’t have to be a manual process. RFP software empowers RFP automation and allows issuers to create RFx templates, collaborate with vendors, automatically score proposals and more. Technology is transforming the procurement process and empowering better vendor selection.