One of the most common processes within the supply chain department is the Request for Quote process or RFQ as it’s commonly known.
An RFQ (which is different from an RFP) is typically used when the buyer knows what he/she wants and is inviting a supplier base to advise on price and leadtime before selecting where the work will be awarded too.
Despite being one of the most common processes there are still various ways you can carry out the task and most organizations will have their own spin on the process.
Fundamentally it will involve
• Defining the requirement
• Advising potential suppliers of a requirement
• Evaluating the supplier responses
• Awarding the Purchase Order
• Providing feedback to suppliers
RFQ preparation
Usually before the RFQ is sent out the supply chain team will undergo a level of preparation. This usually involves establishing:
• Requirement (usually a part number and or description) together with a quantity
• Price target
• Any specific terms and conditions that need to be applied
• How pricing is to be received (i.e. quantities, batch breaks etc)
• Any qualification requirements i.e Supplier must provide goods in red boxes delivered by yellow trucks
• Required delivery dates
• Which suppliers will be involved in the process (typically this will involve a list of approved suppliers, but may include others).
• The selection criteria that will be used to award the contract
• How long the RFQ will run for
In addition to these steps, and often depending on the level of complexity or criticality the buyer may also conduct:
• Risk review on the part, providing feedback to senior stakeholders
• Pre-qualification assessment on potential suppliers
RFQ Management
Once the preparation phase is complete and the RFQ has been issued to interested parties there is usually a phase where the buyer will liaise with suppliers over questions (sometimes acting as a conduit into the rest of the business if the questions are of a technical nature).
It’s often useful to maintain a list of questions/answers to refer to if there are queries down the line.
Sometimes the buyer may be put under pressure by vendors to provide information around competitor pricing or capability. It’s important to ensure that staff maintain confidentiality and abide my appropriate ethics so as not call the process into question or end up in a position where the result of the RFQ could be called into question.
As part of this phase suppliers will provide their responses. Whether they will provide price and lead time or no-bid.
Contract Award
Once all the bids are received the buyer/supply chain team will then evaluate the proposals against an established selection criteria. It’s vitally important when you have a range of suppliers to be able to compare apples with apples (which is why establishing a pricing format for bids to be received in is so vital).
The buyer’s role often varies at this stage depending on a number of factors (such as value of the contract, complexity/criticality). Usually this will form two routes
1/ The buyer will evaluate supplier responses and make the contract award themselves
2/ The buyer will prepare a report that may be evaluated as part of a wider team with a consensus of that team (or seniors) awarding the contract.
Once the supplier has been selected, the purchase order/contract can be raised.
Once the supplier has been selected the buyer can then inform the winner and those who took part in the competition. It’s usually good business practice to provide feedback to the losing suppliers as to why they lost out.
Summary of the RFQ process
Whilst it’s one of the most common processes it’s one of the most vital presenting a key opportunity for a business to leverage spend and obtain cost down. It’s also one of the key decision points in selecting the right vendor. Many supply-chain issues can be bought back to a poor RFQ and vendor selection process. So, while the process may be simple its worth the time in getting it correct from the outset.