As discussed in our article on the purchasing process – purchasing materials or services is a series of activities or steps that take the identification of business need through to finding a supplier, ordering a product and then paying for it.
The quotation phase of the process will vary from company to company. This is often largely to do with the structure and maturity of their supplier base – for example organizations with established relationships with long term fixed contracts may not rely on this process extensively as the need to regularly obtain price and lead time largely becomes redundant – with others where the supplier market is fast moving and competitive with volatile prices and lead times the quotation phase becomes a crucial lever to maximise margins and retain customers.
The request for quote process
Once a need has been identified through a requisition or other means – the need will be passed through to the procurement team for action.
What happens next depends on a number of factors
• Is there a known supplier
• Is a contract price already agreed
• Is there a valid quotation on the system
• If there is a valid quotation does it meet the current requirements (price / lead time etc).
Where there is no supplier known for the product (or in some cases the previous supplier may not supply the product anymore or has gone out of business) a supplier will need to be sourced that can supply the product required.
The sourcing process may take the guise of simple research through to inspecting catalogues or databases – it largely depends on the type of product being sourced, it’s complexity and the state of the market. For example if you were sourcing a television it is commercially available – there are hundreds of options open to the buyer on where to go. If we were trying to procure a piece of equipment for an operating theatre in a hospital our options may be more limited.
Once a supplier has been sourced a request for quotation is raised and sent to the supplier (or verbally communicated).
The buyer might want a range of information which typically comprises of:
• Confirmation that the supplier can supply the part
• The Batch size quantity or economic quantity that will be ordered – for example you may require only one part but the supplier may only sell it in tens.
• The price
• Ancillary charges for items such as documentation and shipping.
• Lead time to delivery – from placement of order how long will it take for the item to arrive.
• Shipping / Logistics method
• Terms and conditions relating to purchase
• Validity of the quotation – how long will the supplier hold the attributes of the quotation for? For example the supplier may choose to hold the quote/price for 90 days.
It’s important that if you going out to multiple suppliers the results can be easily compared – avoid areas which could be subjective and go for attributes that are easily quantifiable and can be related across a number of quotations.