The procurement process in B2B can be extensive. However, you are nearing the end of the process if you find yourself discussing the price.

You may have found and considered several vendors capable of supplying your needed products. The next step is to understand what prices they are offering and how this fits within your budget. This is where an RFQ comes in. B2B buyers send an RFQ to potential suppliers to find out the likely cost of their products and how this compares with other suppliers.

What is a Request for Quotation (RFQ)?

An RFQ is a request you send to a supplier for a price quote. B2B buyers use this document when they want to know the prices of specific products or services from a vendor.

You can include details about your needs in an RFQ, such as specific features or requirements. The supplier will then respond with a price breakdown for these details.

Using an RFQ helps you see exactly how much each part costs, making it easier to decide what features to buy. This also ensures you know exactly what you are paying for, as price transparency is encouraged.

An RFQ is a useful tool for comparing prices from different suppliers. It helps you find the lowest price possible and identify which suppliers can help you stay within your budget.

What to include in an RFQ?

When you send an RFQ, you should give the supplier the following details:

• Required quality levels

• Description or specification of parts or their number

• Value-added services required

• Quantities or volume of the intended purchase

• Delivery requirements

You can ask one seller to provide a quote or several sellers simultaneously to get more options. This helps you compare different offers and choose the best one for your needs.

Types of RFQ

There are different types of RFQ depending on how you want the procedure to go and the number of suppliers you want to engage with. These include:

Invited Bid

The buyer asks specific vendors to submit a quote in an invited bid. This method speeds up the procurement process because you can quickly request quotes from vendors you already know and trust. The main advantage is that you save time and effort by working with familiar vendors. However, this approach limits your chances of finding cost savings from new vendors who offer better deals.

Open Bid

The buyer can introduce some competition in the RFQ process with an open bid. Specific sellers are invited to submit a quote, allowing each seller's quote to be visible to others. The sellers can alter or update their quotes during the submission timeline and until the deadline. The main advantage of this type of RFQ is that pricing visibility may help drive down prices overall. However, it may also cause the vendors to fix a uniform price.

Sealed Bid

In a sealed bid RFQ, vendors have a set period to submit their quotes. Buyers who use sealed bids can increase transparency and reduce the risk of fraud because vendors cannot see each other's quotes. However, this method loses the competition in an open bid process.

Reverse Auction

Reverse auction RFQs generally work like an auction process but in reverse. Vendors are invited to submit their lowest price quote for the specified products with the intention that the cost will continue to decrease as each vendor submits a new quote. This could be a solution if the initial RFQs you issued are outside your budget. However, other important factors may not receive the consideration they deserve, as the process typically ends once the lowest price is offered.

When Should I Send an RFQ?

RFQs are unsuitable for every procurement situation, even if they help assess and understand the pricing options available to you. They may not be suitable when you are unsure what you want or how much, as these tools are generally used when the required products or services are very specific. An RFQ is typically used by companies when products and services are standardized or off-the-shelf. RFQs can be considered as straight-to-the-point pre-order forms. All the details, including what the buyer wants, from size to style and design, are specified in it. It may also specify how they want the buyer to provide the pricing information.

You should have a list of pre-qualified or potential vendors that can supply the products you need, have an understanding of what you want to buy, be clear on the exact details of your purchase, including quantity, quality, and size, and price should be the essential factor for you at this stage to determine if an RFQ is right for you.

How Should I Send an RFQ?

Although general best practices for sending an RFQ exist, the process is mostly non-technical. There is no need to use a specific template, build a special portal, or use any specialized procedure to send and receive RFQs, as it all depends on the preferences of your business. You only need to draft a document that includes your requirements and send it to sellers through email. However, larger organizations may standardize the procedure to ensure speed and transparency in their procurement process. Preparing your RFQ involves four major stages:

Document preparation

Start by doing all the groundwork. Review your needs and make sure they match your business goals. Then, list the details of the product or service you want.

When you give more details, vendors can provide better responses. Talk to other staff or departments to get all the needed specifications. Finally, decide what type of RFQ you want to send and how many vendors you will send it to, and set a response deadline.

Reviewing Vendor Responses

You can expect responses after sending the RFQs. Keep the vendor pool small enough so that it is manageable for you. Although capacity will vary depending on the resources of your business, eight is typically a good number to start with. Allow enough time for the vendors to work through the RFQ. Responses can be reviewed to identify which vendors offer the best prices that meet your procurement needs by the end of the deadline.

Choosing Your Preferred Quote

Your decision will likely be based on the vendor that offers the best price. However, this may only sometimes be the case. You may select a higher-priced product if it meets all your procurement needs regarding quality and custom solutions. Notify the vendor about your decision and how you intend to proceed. Keep a copy of the RFQ, as it will act as the basis of your contractual relationship in the future.

Closing Out the Process

Close the process by formalizing the arrangement with the vendor. An RFQ can only be enforced once both parties formally agree, as it is not a contract and only a quotation from the vendor. Other vendors who sent in quotations should also be notified about your decision with another vendor.

RFI vs. RFQ vs. RFP

Buyers may utilize several other tools during the procurement process, all categorized as 'RFx.' These include RFIs and RFPs.

RFI (Request for Information)

B2B buyers use an RFI to gather information about products that meet their needs. An RFI is helpful when the buyer is still determining which products would work best or what specifications to consider. It helps the buyer learn about different products, suppliers, and other important factors before moving on to the next stage. An RFI helps buyers understand necessary seller conditions like minimum order quantity (MOQ) requirements.

RFP (Request for Proposal)

An RFP usually comes after the RFI in the procurement process. The buyer sends an RFP to potential suppliers, asking them to submit a proposal for specific goods or services. When the buyer sends an RFP, they already know what they need but still need to decide which supplier to choose. The proposal from the supplier provides essential information that helps the buyer see how the supplier can meet their needs.

RFQ (Request for Quotation)

An RFQ is used at the final stage of the procurement process. The buyer already knows what products they want and which vendors they want. The RFQ helps the buyer determine the prices from different vendors and decide the best. Unlike an RFI and RFP, the main focus of an RFQ is to determine the cost of the products or services.

In conclusion, mastering the Request for Quotation (RFQ) process is essential for efficient and cost-effective B2B procurement. By understanding the nuances of different RFQ types and knowing when and how to use them, you can ensure that you get the best possible value from your suppliers. Whether seeking transparency through a sealed bid or fostering competition with an open bid, the RFQ is a powerful tool to help you make informed purchasing decisions. Remember the importance of thorough preparation and clear communication to maximize the benefits of your RFQ strategy. By following these guidelines, you can navigate the procurement process with confidence and precision, ultimately contributing to the success and profitability of your business.