A Request For Quotation (RFQ) is a standard business process most often used to invite suppliers to offer to supply specific goods or services on a competitive basis. An RFQ typically asks for the price per item, payment terms, quality requirements and length of contract.
An RFQ is particularly useful where products are standardized and are sourced in large quantities, sometimes repeatedly. However, an RFQ can also be used at the end of a strategic sourcing process to establish the final pricing when working with a reduced number of suppliers.
What to include in an RFQ
To ensure that quotes are accurate and complete, provide as much information as possible and make sure that your terms and conditions are included.
o RFQ number, date issued, closing date for submission
o Name of issuer, address, location, contact details
o Contact person for queries both technical and commercial
o Delivery address and detailed instructions
Specification of the goods or service required to ensure that all bidders have the same information.
o Description or part number, drawings
o Quality requirements
Quality and Quantity required
o Approval of sample required
o Volume or No required monthly/yearly
o Personnel skills and competencies
o Quality requirements and certifications
o Warranties and guarantees
o No of days from date of invoice
o Early payment discounts
o Binding period of the quote
Pricing. Include a template for the supplier to give a pricing breakdown for your ease of analysis:
o Raw material,
o Delivery costs
o Overheads and profit
A draft contract with terms and conditions should be included with the RFQ sent to suppliers. In the absence of a contract suppliers should note that the specifications could be used as legal binding documentation. Buyers should also ask for any value added services that the supplier could include in their pricing.
What happens next?
Suppliers have to submit by a given date to be eligible. Clarification meetings may be held to make sure that the bids are correct and further rounds of quotes may be requested. Sometime an electronic reverse auction can follow this process. Competitive bidding using an RFQ has a beneficial effect on reducing the price as suppliers are aware that others are also bidding.
Free RFQ templates are available on the Internet. However, one size does not fit all and adjustments have to be made depending on the commodity being sourced. One important point: RFQs are not suited to complex sourcing projects for services nor to non-standardized items or commodities in which case a Request for Proposal should be used.