A request for quotation (RFQ) is just one of many helpful RFX documents that helps businesses exchange information. It’s a key part of any well-rounded procurement toolkit. Indeed, the RFQ is an excellent tool for efficient and cost-effective sourcing — when used properly. In the right situation, RFQs are advantageous. They offer quicker results than their more common counterpart, the RFP.
Admittedly, RFX documents and procurement terminology can be confusing. Consequently, this post will explore the request for quotation in depth. To begin, we’ll define what exactly an RFQ is, when to use it and the RFQ process. Next, we’ll walk through how to write an RFQ as well as the elements to include and the best RFQ format. Finally, we’ll conclude by sharing a helpful RFQ template and a few request for quote examples.
Table of Contents
- RFQ definition
- RFQ basics
- 4 types of RFQs
- An overview of the RFQ process
- Sample RFQs: Template and examples
What is an RFQ?
An RFQ, or Request for Quotation, is a formal document issued by buyers seeking detailed proposals from potential vendors. This process involves specifying the buyer’s requirements for a particular product or service and requesting vendors to submit their pricing structures and payment terms.
The primary purpose of an RFQ is to standardize the procurement process, allowing buyers to compare and evaluate vendor offerings on a consistent basis. By streamlining comparisons, RFQs facilitate informed decision-making, ensuring buyers can identify the best value propositions among competing suppliers.
An article in Modern Machine Shop discusses the importance of creating thorough and thoughtful RFQs, saying:
“A well-crafted RFQ is essential to the sourcing process and must provide crucial details to contract manufacturers who will determine if they can perform the job. Detailed RFQs allow suppliers to prepare accurate quotes that minimize the potential for cost overruns, delivery delays and products that don’t meet your requirements.”
*Note: RFQ may also stand for request for qualifications.
RFQ vs RFP: What’s the difference?
The difference between an RFQ and an RFP comes down to what each document hopes to accomplish. Request for quotes are used to find the lowest price possible and cost is your highest priority. On the other hand, a request for proposal (RFP) asks complex questions to select the best vendor based on a number of factors with different RFP scoring weights.
Accordingly, questions in an RFQ focus almost exclusively on cost. Common questions in a request for quotation include cost per unit, bulk discounts, pricing packages, service fees and terms. In addition, they often have pricing tables to help facilitate easy comparisons between vendors.
By contrast, RFP questions often explore more nuanced considerations like experience, customer service, competitive differentiators and so on. While RFPs often address price, typically, it is one small consideration among many various evaluation criteria.
When should you use an RFQ?
While extremely helpful, an RFQ isn’t a good fit for every procurement situation. Because the primary consideration in an RFQ is cost, it is most often used for direct spend. For example, you may use an RFQ to purchase specific products, such as hardware, office supplies or materials. In addition, you may also use them for indirect spend. However, when using a quote request form to source complex goods and services, it’s important to know all the details of what you want.
Think of an RFQ as a no-frills pre-order form — it clearly defines what product or service specifications needed. From style to size to design, use your request for quote to account for every available variable.
The RFQ also outlines how each vendor should provide their pricing information. Indeed, RFQ forms require a pricing table. This is a detailed view of the vendor’s bid including itemized costs for each product or service. The level of detail allows you to make accurate vendor comparisons.
Should you use an RFQ?
Is an RFQ for you?
- Do you have a list of prequalified vendors that can supply the specific product or service you need?
- Is price the most important factor?
- Are you buying something that is ready out-of-the-box and needs no specialization?
- Do you know exactly what you want to buy and how many of each item?
- Will you be able to manage the item yourself without support from the vendor?
If you answered yes to all of these questions, then an RFQ is a good choice for you.
4 Types of RFQs
The Request for Quotation (RFQ) process is a pivotal component in procurement, allowing businesses to secure competitive offers from suppliers for goods or services. Understanding the nuances of the four main types of RFQs can empower proposal managers to select the approach that best aligns with their organization’s objectives and procurement strategies. Here’s an expanded look into each type:
An open bid process is characterized by its transparency, where all responses from qualified vendors are visible to each other. This approach is designed to foster a competitive environment by allowing vendors to adjust their bids in real time based on the pricing submitted by their competitors, up until the bid closing date.
- Pro: The visibility of pricing can lead to heightened competition among vendors, potentially resulting in lower costs for the buyer.
- Con: However, this openness may also lead to collusion among vendors, where they agree on pricing levels, undermining the competitive advantage this process aims to achieve.
Sealed bids maintain the confidentiality of vendor responses until all submissions are received and the submission period concludes. This method is particularly prevalent in public sector and government procurement, where ensuring a fair and unbiased selection process is paramount.
- Pro: It can minimize the risk of undue influence and fraud, promoting fairness and transparency in the vendor selection process.
- Con: The lack of visibility into competitors’ pricing may lead vendors to submit bids that are not as aggressively priced, potentially resulting in higher costs.
Invited bids restrict the pool of potential vendors to those specifically invited by the buyer. This method can be used in conjunction with either open or sealed bid processes and is often utilized when the buyer wishes to engage with known and trusted vendors.
- Pro: Leveraging existing relationships can streamline the procurement process, making it faster and potentially more reliable.
- Con: Limiting the pool of bidders can reduce competition, possibly leading to higher costs as new or unknown vendors that might offer better pricing or innovative solutions are excluded.
In a reverse auction, vendors are encouraged to submit their lowest bids in a dynamic, competitive environment, often facilitated by online platforms. Prices typically decrease as the auction progresses, with the contract being awarded to the lowest bidder.
- Pro: This process can be highly efficient and cost-effective, providing immediate visibility into the lowest market prices.
- Con: Awarding contracts based solely on price can overlook other critical factors such as quality, service, and long-term value, potentially compromising the overall project outcome.
An overview of the RFQ process
The RFQ process begins long before the actual request is issued, starting with a comprehensive preparation phase. This initial step involves defining the precise needs of the business with as much detail as possible. The success of this phase hinges on thorough collaboration with internal stakeholders to ensure all requirements are accurately identified and articulated. The depth and clarity of the information provided at this stage are crucial, as they directly influence the relevance and accuracy of the proposals received from vendors. Taking the necessary time to meticulously prepare and align internal expectations sets the foundation for a more effective and efficient procurement process.
For proposal managers navigating the complexities of procurement, understanding these RFQ types and the importance of the preparation phase is critical. Selecting the right approach based on the specific context and needs of the project can significantly impact the success of the procurement process, influencing not only cost savings but also the quality and reliability of the goods or services acquired.
In addition to the details of the product or service you’d like to buy, you’ll need to decide:
- What type of RFQ will be issued?
- Who will be invited to respond to the RFQ?
- When will the deadline be?
- How will you compare pricing?
Documents and information to include with your RFQ
Detail is at the heart of every effective request for quote. The extra information will help expedite vendor responses as well as the contracting process.
Along with your RFQ, it’s important to include some additional documentation:
- Invitation to bid with introduction and summary
- Your RFQ timeline including Q&A and submission deadline
- Business overview with a description of your company, details on the project and any other relevant background information
- Pre-qualification or minimum requirements to ensure the vendor is eligible to respond
- General terms and conditions, including whether or not terms are negotiable
- Pricing template or table, broken down by item and cost element
- Selection and evaluation criteria as well as your RFQ scoring guidelines
Now, it’s time to send the RFQ to your vendors. For most RFQs, it’s best to select no more than eight vendors. By limiting the number of respondents, you can ensure that you arrive at a speedy conclusion to your quotation request while still encouraging healthy competition. Often you’ll send vendors an invitation email for a request for quotation. Alternatively, some organizations still prefer to send a request for quotation letter.
Regardless of your delivery method, be sure to allow enough time for the supplier to work through the RFQ with their team — at least a couple of weeks. Hopefully, you’ve provided enough information that follow-up questions will be minimal. But, when questions do arise, share the answers with all participants. A centralized RFX management system makes this quick and easy.
Throughout the process, it’s crucial that you maintain a level playing field. Share all the same information and ask all of the participants the same questions. As you receive responses, it’s good practice to confirm their receipt with the vendor. Unless you have an open bid, keep information about other vendors’ offers strictly confidential.
The biggest benefit of the RFQ is that scoring and selection should be fast and straightforward. The preparation you put in at the beginning will now pay off. With your pricing template or table, you can easily compare vendors side by side.
If working with a selection committee or additional stakeholders, compose a summary with the key information. The memo should include an overview of how many bids you received, the number of bids that were qualified and why others were disqualified.
Your final selection will likely be the vendor that offered the best price and terms. However, be sure to read any accompanying documentation provided. Key insights may be included in the cover letter or executive summary.
Once you’ve made your choice, keep clear documentation of the process, the qualified bids, the published criteria and the winner. This data offers transparency and can be used in the future when issuing new RFQs.
Send an award letter to your selected vendor. Remember, the response provided by the vendor is a quote, not a formal agreement. Negotiate with your vendor to finalize the details. Then, assuming all goes well, you will receive the vendor’s acceptance.
Because of your excellent preparation, the contracting process should be simple. Create your contract with the details, terms and conditions, payment information and deliverables that were outlined in the initial RFQ documentation. After the contract is executed, notify the other vendors of your selection using a proposal rejection letter.
Remember that it is beneficial to maintain cordial relationships, even with unselected suppliers. Provide any answers, information or context you can to the vendors that didn’t win the bid. Update vendor profiles with any new information so that next time you’re ready to engage them, you have all the right info.
After the contract is signed, it’s a good idea to set a reminder to check back in. While the deal is still fresh in your mind, make notes and set your first vendor evaluation meeting. Ongoing vendor experience management is a key part of developing effective, long-term relationships.
General vendor evaluation questions:
- Is the vendor fulfilling their side of the agreement?
- Are you getting the value that you were hoping for and had planned on?
- Can the relationship be improved?
- Has the vendor received and acted on feedback?
- Are other vendors offering more competitive pricing now?
- Has the market changed?
What to include in your RFQ
The request for quotation documents vary widely from one industry to the next and can be customized to fit your business’s needs.
- Project name
- Goals and background
- Buyer point of contact information
- Bidder instructions
- RFQ timeline
- Product or parts description
- Technical requirements
- Delivery requirements
- Pricing table/form
- Prequalification questionnaire
- RFQ type (open or closed)
- Scoring criteria
- Selection process timeline
Terms and conditions
- Legal and security requirements
- Terms and conditions
- Standard contract
Sample RFQs: Template and examples
Every request for quote is different. An RFQ that works well for supplies procurement, won’t be well suited to an IT support services quote. RFQ templates can be used as a guide, but customize them to fit your needs.
Download this free RFQ template (.docx) and customize it to meet your needs.
Government RFQ example
RFQs are often used in public procurement. The U.S. General Services Administration used an RFQ when they needed to establish government-wide janitorial services. As you might expect, this request for quotation example is very detailed and offers very specific information about scope, guidelines and requirements. The document also provides a clear process for evaluation so suppliers know what to expect.
Nonprofit RFQ example
RTI International is a nonprofit institute based in North Carolina. The organization provides global research and technical services to government and commercial clients. In 2017 they prepared a request for quotation when they needed to acquire new tablets and tablet covers. This RFQ form is a great example of the detail-oriented nature of the process.
Utility company RFQ example
BrightRidge, a public power company, created a request for quotation to purchase a very specific piece of equipment. This request for quotation example details all the specifications for the transformers and offers helpful information and instructions to guide vendors.
Remember that issuing RFX documents doesn’t have to be a manual process. RFP software empowers RFP automation and allows issuers to create RFX templates, collaborate with vendors, automatically score proposals and more. Technology is transforming the procurement process and empowering better vendor selection.