When you’re purchasing most consumer products, you can do a quick online search to find which retailer offers the item at the best price.
Typically, the same cannot be said when procuring B2B goods or services.
There’s more nuance involved in business purchases based on contract negotiations, potential volume discounts, and other factors. So, pricing details aren’t always straightforward and readily available online.
In general, companies that are interested in procuring goods or services will submit a request for quote to gather this information.
So, what is request for quote, and what is its purpose in the procurement process?
We’ll dive deeper into this question and more throughout this guide, helping you explore how an RFQ can help streamline purchasing decisions.
What is a request for quote (RFQ)?
Request for quote (RFQ) is a common process where a company’s procurement team contacts potential suppliers and vendors, asking them to submit a pricing estimate or bid for certain goods or services.
The company will then use the various quotes they receive to help them determine which business they’d like to contract.
RFQ can also refer to the specific document the company creates to facilitate this process, which it sends to vendors and suppliers. This process may also be called an invitation for bid (IFB).
Though requesting a quote from a vendor is a pretty straightforward concept, the process can look different for each business depending on their specific requirements and procurement practices.
Here are the basic steps typically included in an RFQ process:
- Preparing the RFQ document with clear requirements and guidelines
- Issuing the RFQ to select vendors and suppliers
- Reviewing the submissions
- Awarding the contract to the lowest bidder
- Negotiating and signing the contract
Request for quote vs request for proposal
A request for quote sounds similar to another common procurement practice–request for proposal (RFP).
Though these two terms might seem nearly identical, there are some key differences worth noting. In general, a request for a proposal is a bit more involved than a request for quote.
With an RFP, the procurement team requests pricing information, but they’re also providing vendors and suppliers with more information about the scope and duration of the engagement, their requirements, and other criteria or considerations, like required licenses or experience.
The prospective partners respond to an RFP with a proposal rather than just a quote, like with an RFQ.
Thus, an RFQ is generally used for more straightforward purchasing decisions where there aren’t a ton of variables at play–like when purchasing office supplies or other standardized products.
It provides the team with pricing data to compare shop between two or more vendors, helping them make the most cost-effective purchase.
On the other hand, an RFP is useful for more complex procurement scenarios, like when a company is shopping around for professional services like outsourced accounting or marketing services.
The submitted proposals help companies find the provider with the right experience and services for their needs while still considering pricing as a factor.
What’s in a request for quote?
An RFQ is generally facilitated by a formal document that includes the company’s requirements and outlines the specific information they’re requesting.
A well-structured RFQ document helps streamline the process and ensure you get the pricing information you need from prospective suppliers without the need for back-and-forth communications.
When you’re preparing this document for use in your procurement department, here is a general idea of what to include:
Background
An RFQ should include a brief statement on the background or context of the request.
This can be a quick sentence or two at the top of the document. It might provide an outline of the document and the submission deadline for quotes.
For instance, you might include a “Special Instructions” or “Background” section at the top of the document where you can share this information.
Pricing request
The main section of an RFQ is the pricing request, typically formatted as a table where vendors can easily enter pricing information for the items, specifications, and quantities they need.
It’s important to provide exact details so the vendor can easily determine if they can meet your requirements and offer pricing information tailored to your needs.
Plus, if you’re requesting quotes for more than one item, this allows you to review an itemized quotation and pricing breakdown.
Standardizing this section for all vendors makes it easier to objectively compare quotes as they come in.
Terms and conditions
At the bottom of the document, you may include a terms and conditions section outlining any additional requirements you have for the vendor regarding delivery, late fees, invoicing, and other details.
This is where you can estimate how frequently you’ll need the specified goods delivered, where the goods will be delivered, quality standards, packaging needs, and more.
Sample RFQ
The following is a basic example of what an RFQ issued by XYZ Company might look like:
The benefits of using RFQs in procurement
RFQs play an important role in the procurement process, enabling companies to make more informed purchasing decisions and vendor selections.
Here’s a more detailed breakdown of the top benefits that RFQs provide and why it’s a good idea for companies to use them:
Secures favorable pricing
Maybe the most obvious benefit of the RFQ process is that it helps companies determine which vendors offer their desired goods and services at the lowest prices.
Without engaging in the RFQ process, procurement teams may be unaware of the vendors offering favorable pricing and end up overpaying for equivalent goods elsewhere.
It’s normal for businesses to turn to their regular suppliers or approved vendor list because of a long-standing relationship or familiarity with a certain team.
However, issuing RFQs could help a company find new suppliers to work with that provide goods at better rates.
Fosters competition
Similarly, RFQs can foster competition among vendors, leading to better fairness and pricing in the markets.
When companies are aware they are bidding against competitors, it encourages them to submit their best pricing to win the procurement contract. Otherwise, they risk losing the opportunity.
The goal of RFQs isn’t to undercut vendors and get them to lowball their products or services. However, it does reduce the likelihood of companies overcharging, which is more likely in low-competition environments.
Ensures transparency
Internally, this process helps companies standardize and simplify the vendor selection process.
When prepared properly, the RFQ document provides a structured way for procurement teams to request pricing information and easily compare suppliers’ quotes against one another.
In other words, it helps remove subjectivity in the process and make sure these decisions are based on the best pricing.
Thus, submitted RFQs work as documentation and provide a clear audit trail that businesses can review to ensure fairness in the vendor selection process.
4 Tips for managing RFQs effectively
Issuing RFQs can be a relatively straightforward process, though each company will need to establish its own procedures and documents to help them secure the best goods and services at the lowest prices.
The following are some of the best practices to effectively manage the RFQ process:
- Use RFQs in the appropriate scenarios
As we outlined above, there are certain procurement scenarios where an RFQ is more useful than an RFP, and vice versa.
RFQs are best when you already know what you want to purchase but want to ensure you’re getting the best price for the goods.
An RFQ might not be as beneficial when you are trying to contract services that require a bit more strategy or creative solutions, in which case an RFP would be more useful.
If so, you might receive the quote but still have questions about the provider’s timeline, deliverables, and expertise.
Thus, to ensure the best use of your procurement resources, make sure you issue RFQs appropriately and when it makes the most sense for your purchasing decisions.
- Maintain open communication with vendors
In your RFQ documentation and individual conversations with prospective vendors, always maintain clear and open communication.
Set specific guidelines and expectations like submission deadlines, product specifications, and other details to eliminate confusion. If needed, respond promptly to any vendor questions that arise.
This will make the process much more efficient and ensure you get accurate quotes from vendors.
- Negotiate fair contracts
Once you’ve chosen a vendor from your submitted RFQs, contract negotiations should be pretty simple.
You can transfer the submitted pricing, quantities, and terms and conditions from the RFQ to the contract, as these are already agreed upon by the vendor.
You may need to negotiate certain terms like a delivery schedule, quality standards, and review processes.
However, you should be fair during negotiations and accept that the vendor supplied the best possible price in the RFQ. In general, it’s not recommended to try to further negotiate the price, which could set your relationship off on a sour note,
Managing vendors after the RFQ process
After signing the contract, you’re ready to do business with your new vendor.
Completing the RFQ process is only the beginning of your relationship, and you’ll need to hold up your end of the deal with on-time payments according to the contract terms.
Managing vendor payments manually is possible but tedious. Plus, as you grow your business and bring on more suppliers, it can become increasingly difficult to ensure you’re meeting payment due dates without letting internal approvals and invoice verification processes go by the wayside.
Instead, using an automated accounts payable system like BILL can help you put vendor payments on autopilot. It’s easy to capture invoice data digitally, then the system routes the appropriate invoice approvals, validations, and payment schedule so your team doesn’t have to.
BILL keeps your vendors happy with on-time, accurate payments, and your accounts payable team will appreciate their time being freed up for more engaging tasks.
Streamline vendor management today with BILL’s automated AP platform.
