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How to use RFQ? A detailed guide with examples

The B2B procurement process can be extensive. But if you find yourself at the point where you’re discussing price, that’s a good sign – it means you’re nearing the end of the process.

Up to this point, you must have found and considered several vendors who may be capable of supplying the products you need. After being satisfied that they have what you want, the next step will usually be to understand what their prices are and how this works within your budget. This is where an RFQ comes in.

B2B buyers will usually send an RFQ to potential supply partners in a bid to ascertain the likely cost of their products and how this compares with other suppliers.

In this guide, we’ll walk you through everything you need to know about RFQs, including what they are, when they are necessary, and how to send one. In addition, we’ll explain the meaning and uses of RFIs and RFPs – both terms which are similar to RFQs and which are often a source of some confusion.

What is a Request for Quotation (RFQ)?

An RFQ is a request for quote or a request for quotation. It is a document that B2B buyers typically use when they intend to engage with a vendor on the pricing of specific products or services which they are interested in.

With an RFQ, prospective buyers can detail the specific requirements or features of the product they are interested in. The supplier would usually respond with a breakdown of the price in relation to each of these requirements.

This helps the buyer understand precisely how each component is priced and gives flexibility when the time comes to decide on what features to purchase. It also encourages price transparency, so you know exactly what you’re paying for.

Apart from this, RFQs are a pretty handy tool when you want to compare the prices of various suppliers to find the lowest price possible. This way, you can quickly see what suppliers will help you stay within your budget and where the pricing may risk stretching your finances too thin.

Here’s how an RFQ works in practice. Assume a pharmaceutical company, First Chemicals Ltd, intends to source base chemicals for some of its generic medications. After going on to Alibaba.com’s international marketplace, the company creates a shortlist of five vendors with chemicals that meet their specifications. They then send a document to each supplier detailing the specific chemicals they are interested in, their preferred features, and any customized chemical solutions they are considering.

Some of the details you should expect to provide a supplier within an RFQ include the following:

  • Description or specification of parts or their number
  • Quantities or volume of the intended purchase
  • Required quality levels
  • Delivery requirements
  • Value-added services required

You should note that there is no requirement as to the number of vendors you may send an RFQ to. You can ask a single seller to provide a quote, or you may expand the scope of your inquiry by taking quotes from several sellers at once.

Types of RFQ

An RFQ may be presented in different ways, depending on the number of suppliers you want to engage with and how you want the whole procedure to go. There are also various pros and cons that you should keep in mind when considering each type.

  • Invited bid: This is an RFQ in the general sense in which it is used. Here, the buyer invites specific vendors to submit a quote which they would then consider. One advantage of this type is you can quickly request a quotation from vendors you already know and trust, thereby speeding up your procurement process. However, this limits the opportunity to discover cost savings that may be offered by new vendors.
  • Open bid: A buyer can introduce some competition in the RFQ process with an open bid. Here, the buyer invites specific sellers to submit a quote, allowing each seller’s quote to be visible to others. Sellers will alter or update their quotes during the submission timeline and up until the deadline. The obvious advantage here is the pricing visibility may help drive down prices overall. On the other hand, this may backfire and cause the vendors to fix a uniform price.
  • Sealed bid: Here, a submission period is stipulated for vendors to tender a quote. But the quotes will not be visible to any of the other vendors. This type of RFQ may benefit buyers who want to introduce transparency into their selection process and reduce the risk of fraud. However, the process loses the competition that an open bid would have encouraged.
  • Reverse auction: This RFQ works essentially like an auction process but in the reverse direction. The buyer invites vendors to submit their lowest price quote for the specified products with the aim that the cost will continue to decrease as each vendor submits a new quote. This could be a handy solution if the initial RFQs you issued did not return a price within your budget. Although, you should keep in mind that the process will typically end once the lowest price is offered, meaning other vital factors may not receive the consideration they deserve.

When should I send an RFQ?

Although they are a valuable tool for assessing and understanding the pricing options available to you, RFQs are not suitable for every procurement situation. For instance, buyers use RFQs when the required products or services are very specific. This means they may not be a good fit when you’re not exactly sure what you want or how much.

As Investopedia explains, “when the soliciting company knows the exact number or type of product or services it desires, it customarily uses an RFQ. Typically, companies use an RFQ when products and services are standardized, or off-the-shelf.”1 You can think of RFQs as straight-to-the-point pre-order forms. They specify, in exacting detail, exactly what the buyer wants, from style to size and design, and may also specify how they want the buyer to provide the pricing information.

As you’ll see later in this guide, there are other tools you may employ in circumstances where you do not have this level of clarity about your intended purchase. To determine if an RFQ is right for you, ask the following questions:

  • Do I have a list of pre-qualified or potential vendors that can supply the products I need?
  • Do I know precisely what I want to buy?
  • Am I deciding on the exact details of my purchase, including quantity, quality, and size?
  • Is price the essential factor for me at this stage?

If your answer to all of these questions is yes, you may consider proceeding with an RFQ. Now that this is settled, let us explain the RFQ process and the stages you should expect to pass through.

How should I send an RFQ?

The first thing you should know is that, while there are general best practices for sending an RFQ, the process is mostly non-technical. You don’t need to use any specialized procedure, a specific template, or build out a special portal to send and receive RFQs. It all depends on the preferences of your business.

Just drafting a document that includes your requirements and sending to sellers via email can be all you need. Although, larger organizations may want to standardize their procedure to ensure speed and transparency in their procurement process.

That said, there are four major stages you would need to go through as you prepare your RFQ. These are as follows:

  • Prepare your document: Since the RFQ is a document, the first stage will involve doing all the groundwork that lets you provide a detailed set of requirements.

    Before starting, you should review your procurement needs and ensure they align with your business needs. Once this is clear, you should get to work on specifying the details of the product or service you want to purchase.

    Remember, the more detail you provide; the more relevant the vendor’s responses will be. It’s a good idea to interface with other members of your staff or departments within your business to identify all the required specifications. Finally, decide on what type of RFQ you intend to issue, the number of vendors you want to send the RFQ to, and your response deadline.

  • Review vendor responses: After sending the RFQs, you can begin to expect responses. As a rule, it makes sense to make your vendor pool small enough, so it’s manageable for you.

    While capacity will vary depending on your business’ resources, eight is typically a good number to start with. You should also allow enough time for the vendor and their team to work through the RFQ.

    By the end of the deadline, you can then review responses to identify what vendors present the best prices that meet your procurement needs.

  • Choose your preferred quote: Your decision will likely be the vendor that presents the best price. But this may not always be the case. You may decide to select a higher-priced product if it also meets all of your procurement needs in terms of quality and custom solutions.

    You should notify the vendor you have chosen of your decision and how you intend to proceed. Be certain to keep a copy of the RFQ as it will form the basis of your contractual relationship going forward.

  • Close out the process: Lastly, close out the process by formalizing the arrangement with the vendor. Remember, an RFQ only leads to a quotation from the vendor. It is not a contract and cannot be enforced until it is formally agreed upon by both parties. Also, notify other vendors who sent in quotations of your decision to go with another vendor.

RFI vs. RFQ vs. RFP

Now you know everything about how an RFQ works, what you can use it for, and when it is necessary. But RFQs are not the only tool available to B2B buyers during the procurement process. There are several other tools buyers may utilize, all of which are categorized as “RFx.” These include RFIs and RFPs.

RFI means “Request for Information,” and B2B buyers use it to gather information about products that may meet their procurement needs. As a rule, an RFI comes into play when the buyer is unsure what products meet their needs or what specifications they should be considering.

As a result, an RFI helps a buyer build a good understanding of the products, suppliers, and other factors they should know before moving on to the next stage in the procurement process. An RFI can also help buyers understand important seller conditions such as minimum order quantity (MOQ) requirements and more.

RFP means “Request for Proposal” and usually represents the next stage of the procurement process after the RFI. It is a procurement solicitation sent to potential suppliers and inviting them to submit a proposal to supply certain goods and services. With an RFP, the buyer already has a good idea of what they want, but they still want to decide which suppliers to go for. The proposal submitted by the supplier will present compelling information that will help the buyer determine how the supplier can help meet their procurement needs.

Compared to an RFI and RFP, it will be clear that an RFQ comes essentially at the last stage of the procurement process. As opposed to both an RFI and RFP, the buyer already has a good idea of the products they want to purchase and the vendors they intend to work with. All that the RFQ helps them determine is the prices of the various vendors and which is most favorable.

Overall, each document serves its specific purpose within the procurement process. You will likely use one or more of them as you source for the products that meet your business needs.