Request for Quotation (RFQ)
Request for Quotation: This article explains the Request for Quotation in a practical way. After reading this you will understand the basics of this powerful project management tool. In this article you will also find a Request for Quotation template template to get started right away.
What is a Request for Quotation?
A Request for Quotation (RFQ) is a formal business process in which a company or other entity makes a request for a quote from a supplier. Often the Request for Quotation concerns the purchase of specific products or services. The RFQ is also known as Call for Bids (CFB) or Invitation for Bid (IFB).
A Request for Quotation is often more than a simple email with the question: what does it cost? Additional information is often requested, such as:
- Terms of payment
- Quality requirements per product
- Contract conditions
- Other relevant questions
It is important that the answer to the Request for Quotation is as clear as possible. That is why different specifications of the requested products or services are listed. This is to reduce the chance that supplier and customer are talking about different products. The more accurate the details and specifications, the more accurate the quote and the more comparable it is to the quote from another supplier.
Because it is so important that different quotes from different suppliers are compared in the search for the best option, an RFQ is often requested in a certain format.
The rise and spread of the Internet has changed this business process for many companies, including those that work for the government. Many suppliers offer the option for customers to sign up for an online service that allows them to request all the information they need. In some cases, the entire process takes place online. Sometimes it is done on paper, for example for legal reasons.
After receiving multiple RFQs, buyers start comparing the quotes. They all try to get the best price for the best products. Sometimes they negotiate or participate in an auction. In that case, it is also referred to as a Request for Bid (RFB).
Difference Request for Quotation, Request for Information and Request for Proposal
Someone requesting a quote is probably comparing multiple quotes to find the best deal. Managers who often send a Request for Proposal or Request for Information are mainly concerned with gathering relevant information from a supplier.
The focus in an RFQ is therefore mainly on costs and prices. For example, common questions in an RFQ include:
- What does product X cost per unit?
- Is it possible to get bulk discounts?
- What price packages are available?
- Is it possible to enter into a purchase contract for a longer period of time?
- What other terms of service apply to these products or services?
Suppliers often have price tables available that they send the party making a Request for Quotation in a standardized way. This is practical for both the supplier and the customer as it makes price comparisons easier.
A Request for Proposal or Request for Information more often involve nuanced considerations compared to an RFQ. For example:
- Supplier experience
- Security of supply
- Customer service
- Differentiating factors
Should I use a Request for Quotation?
Although the RFQ is a useful tool, it is not necessarily useful in every purchasing situation. The main consideration of the method is cost. Therefore, the RFQ is usually used in situations involving simple or well-known products.
Examples include hardware, office supplies or other standard materials. When it comes to complex goods and products, it is important to know all the details. A Request for Proposal is then the better option.
What parts does a Request for Quotation consist of?
Exactly which parts are used in a Request for Quotation depends on the situation.
In many cases a simple request with a few details is sufficient, but it also happens that a lot of detailed information is requested.
In general, a distinction can be made between the following types of information:
- Project name
- Goals and description
- Contact details applicant
- Instructions for bidders
- Detailed specifications
- Technical requirements
- Delivery requirements
- Pricing tables
- Selection criteria
- Quotation type
- Scoring criteria
- Timeline selection process
- Additional terms
Legal and security requirements
- Legal Terms
- Standard contract
Request for Quotation template
To write a Request for Quotation, you can use this ready-to-use template / worksheet in a .DOC format.
Different types of RFQ
A distinction is made between four different types of a Request for Quotation. Each has its own advantages and disadvantages. The four types of RFQs are briefly explained below.
An open bid is when all responses to the quotation are visible to suppliers. The buyer therefore opens a request and has several suppliers come up with an offer. These suppliers can see each other’s bids and can change and update their submitted bids until the deadline has passed.
The advantage of this is that the price visibility can lead to more competitive prices, which is good for the buyer.
A disadvantage is that this price visibility can also backfire and lead to price agreements between suppliers, even though this is not allowed in many markets.
A sealed bid occurs when an RFQ is open to multiple qualified bidders. The difference with an open bid is that the buyer only opens the offers after the end of the deadline. Sealed bids are common in public tenders and government spending.
The advantage of a sealed bid and the reduced price visibility is that price agreements are avoided. It reduces the risk of fraud and provides transparency in supplier selection.
A disadvantage is that sellers are not quick to offer their best prices, because they believe they can make more profit with a higher price quotation.
An invited bid is when only a predetermined number of suppliers is given the opportunity to request a quote. An invited bid can be an open or a sealed bid process.
An advantage of this method is that it is often used by well-known suppliers and therefore speeds up the contracting process.
A disadvantage is that competition is less and the buyer could miss out on cost savings.
Reverse auctions occur when buyers ask sellers to make their lowest bid. The costs decrease as the auction progresses. Buyers can accept the offer at any time, with the risk that they could have made more profit from a lower bid.
An advantage of this method is that it is fast method, competitive and can take place entirely on the internet.
A disadvantage is that a contract is awarded on the basis of the lowest price. Other important factors may not be taken into account. So it mainly works with standard products and products and services from well-known suppliers.
Core elements Request for Quotation
The use of an RFQ can be summarized in the following core elements:
- RFQs are business processes where a company requests a quote from a particular supplier for a task or project
- An RFQ is often requested together with or after a Request for Proposal
- RFQs typically do not generate unsolicited bids and quotes because the supplier or contractor is specifically approached
Now It’s Your Turn
What do you think? Do you recognize the explanation about the Request for Quotation? Do you often send out RFQs in your work environment? Or do you receive RFQs from customers? What tips can you share about using RFQs? What similarities do you see with tools such as the Request for Information and the Request for Proposal? Do you have any other tips on comments?
Share your experience and knowledge in the comments box below.
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- O’Connor, N. G., & Bellamy, M. (2021). Organizing an efficient Request for Quotation.
- Leung, K. H., Luk, C. C., Choy, K. L., Lam, H. Y., & Lee, C. K. (2019). A B2B flexible pricing decision support system for managing the request for quotation process under e-commerce business environment. International Journal of Production Research, 57(20), 6528-6551.
- Unit, Q. P. E. (2016). Request for Quotation. Power, 1, 01.
- Elgh, F. (2012). Decision support in the quotation process of engineered-to-order products. Advanced Engineering Informatics, 26(1), 66-79.
How to cite this article:
Janse, B. (2022). Request for Quotation (RFQ). Retrieved [insert date] from Toolshero: https://www.toolshero.com/project-management/request-for-quotation/
Published on: 09/12/2022 | Last update: 09/12/2022
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