A Request for Quotation or quote is the process of requesting a vendor to quote the price for a product or service that you are looking to purchase.
The buyer provides the specification of what they want to purchase, and the supplier responds with a price quote for the product or service.
The buyer then compares the quotes from different vendors and then picks the vendor that provides the best value for the company.
A buyer might request one or multiple quotes depending upon the purchase amount.
Some companies have a set purchasing process that defines how to run an RFQ process.
Sometimes companies have a mandatory three-bid and a buying process. This process mandates that you have at least three bids to compare before making a purchasing decision.
Here is a generic overview of the Request for Quotation (RFQ) process followed by most companies.
In this step, a buyer gathers the requirement for purchase. For example, the IT department wants to issue an RFQ for the new laptops. The IT manager might research to develop the specifications of the model and warranty requirements.
The IT manager then reaches out to stakeholders for feedback on the specifications.
In large companies, the purchasing team gathers the requirements.
Once you have the specifications or requirements defined, the next step is to assess the supplier base.
Suppose you decided you purchase a Dell laptop for your company.
You can purchase the laptop directly from Dell, or you can purchase the laptop from different retailers.
You could also go to large VAR (Value added resellers) to assess if you get the best value there.
By the end of this step, you should have a list of the vendors you will invite for the RFQ process.
This step includes formally requesting the quote from the vendor.
You could do this through a purchasing system or send an email with attached specifications.
Whatever process you use, the RFQ document should have the following:
In this step, you analyze the vendors and select the best value for your company.
Sometimes, the process is as simple as picking up the cheapest vendor, but that is not always the case.
You must consider other factors like delivery lead times, post-purchase support, etc.
It is best to have a selection criteria checklist so that it is easy for you to make the selection.
After the vendor is selected, the buyer makes the purchase based on the defined purchasing process.
The RFQ process is either managed by the procurement team or the operations.
It depends upon the size of the company.
Large companies have dedicated procurement teams to run the RFQ process.
Since small companies don’t have a purchasing team, the purchasing, including the RFQ process, is managed by everyone in the company.
More than who runs the RFQ process, it is critical to have a purchasing process so that anyone in the company call follows the RFQ steps.
Companies who have an RFQ process see the following benefits:
With an RFQ process, companies get the best value through a competitive bidding process.
By implementing an RFQ process, you avoid the email back and forth at the time of approval. The employee attaches the vendor quotes with the approval request to justify their decision.
Since different stakeholders review the RFQ process, finance has complete visibility into Spend timing, leading to better cash flow planning.