Understanding RFQ Meaning in Procurement
Procurement teams are often under pressure to improve processes – bringing down prices, increasing speed to market or simply identifying suppliers that better align with the company values.
This means reaching out to various suppliers to attain more information about their offerings and how they could support specific projects.
RFQs prove popular in this process – allowing procurement professionals to seamlessly access a range of quotes for the products and services they need, to compare and identify optimal suppliers. But what is an RFQ?
In this guide, DeepStream explains what an RFQ is and why it’s important, as well as looking at the four types of RFQ and how best to use them.
What is an RFQ?
RFQ stands for ‘Request for Quotation’ – a procurement document used by client companies to request pricing information from potential suppliers or vendors for specific services or products.
It is a formal invitation to vendors to submit quotes or bids based on the provided requirements and specifications. These typically include quality, quantity, delivery timelines and legal terms and conditions.
The primary purpose of an RFQ is for procurement teams to obtain competitive offers for a product or service they need by opening up the floor to bids from multiple suppliers.
The Importance of RFQs in Procurement
RFQs play a crucial role in the procurement process, offering many benefits for businesses compared with simply working with the first available vendor. These include:
· Gathering competitive pricing information.
· Facilitating cost comparisons.
· Aiding in supplier selection.
· Ensuring transparency and fairness during the procurement process.
· Providing standardised requirements and evaluation criteria.
· Assessing the feasibility and suitability of suppliers.
· Evaluating supplier capabilities and ability to meet requirements.
· Helping to make informed decisions and mitigate procurement risks.
· Achieving better value for money.
· Contributing to successful project outcomes.
When Do You Use an RFQ?
RFQs are typically used in specific procurement situations where organisations need to gather information from potential suppliers.
This information is then used to identify the most optimal vendor based on key criteria such as cost, timeliness and efficiency and more.
Here, we take a look at some of the circumstances in which an RFQ may be preferred to working with existing suppliers or approaching a single vendor:
Procuring Standard Products
RFQs are suitable when organisations require off-the-shelf, well-defined products with clear specifications. They enable organisations to compare prices and select the most cost-effective supplier.
Limited Scope Projects
For smaller-scale projects with defined requirements, an RFQ helps organisations quickly obtain quotes and make timely procurement decisions without an extensive bidding process.
Price-Focused Evaluations
When the primary decision is price, an RFQ can be useful in obtaining competitive quotes from suppliers. It allows organisations to evaluate suppliers based on pricing without extensive technical or qualitative evaluations.
Establishing a Supplier Shortlist
RFQs are used as a pre-qualification step to shortlist potential suppliers with the necessary qualifications and capabilities. This helps streamline the subsequent bidding process by including only qualified suppliers.
Supplier Relationship Building
RFQs can be used to initiate communication and establish relationships with potential suppliers, especially when organisations are exploring new markets or seeking alternative vendors.
In general, RFQs are used by organisations when seeking pricing information, streamlining the procurement process or when there is a need to shortlist qualified suppliers.
What are the 4 Types of RFQ?
There are four main types of RFQs – these include:
Open Bid
Open bids are publicly announced and allow interested suppliers to submit their quotes for consideration.
Sealed/Closed Bid
Sealed/closed bids see suppliers submit their quotes confidentially, and bids are opened simultaneously at a specified time for evaluation.
Invitation-Only Bid
Invitation-only bids are RFQs that are specifically sent to a prequalified list of suppliers based on specific criteria, limiting bid participation to a named shortlist of vendors.
Reverse Auction
A reverse auction is a procurement method in which suppliers compete to offer the lowest price for a specific product or service, with bids decreasing over time.
The RFQ Process
While the exact specifications of each RFQ will depend on the procurement team and their requirements, a typical RFQ process includes the following stages:
1. Identify the specifications of what is required from suppliers and create an RFQ.
2. Distribute the RFQ to potential suppliers.
3. Suppliers then submit their quotations before the specified deadline.
4. The client company evaluates quotes based on set criteria.
5. The client company then selects suppliers and negotiates terms if necessary.
6. They then award the contract to the chosen suppliers.
7. The decision is communicated to all participating suppliers.
8. Frequent evaluations are conducted over set periods during the project to measure supplier performance.
If the RFQ involves a reverse bid, the above process differs slightly. Instead of negotiating terms with each chosen supplier, vendors will compete to offer the client company the best price.
What Does an RFQ Look Like?
While RFQs will differ in the exact information they contain, below is an example of a basic RFQ layout for a supermarket looking for produce suppliers:
[Supermarket Logo]
Request for Quotation (RFQ)
Project Name/Reference: [For example: ‘Fresh Produce Supply’]
Date: [Insert Date]
Introduction: A brief overview of the project and its context.
Scope of Work: A detailed description of the goods or services required. Specifications, quantities and any specific requirements.
Delivery Schedule: Timeline for delivery or completion of the project.
Pricing Information: Clear instructions on how to provide pricing details. Breakdown of pricing components (e.g., unit price, taxes, shipping).
Evaluation Criteria: Criteria or factors, based on which quotations will be evaluated. Weightage or scoring system, if applicable.
Terms and Conditions: Relevant terms and conditions governing the procurement process. Payment terms, warranties, intellectual property rights, etc.
Submission Instructions: Deadline for submission of quotations. Contact person and information for clarifications or questions. The preferred format for quotation submission (e.g., email, online portal).
Appendices: Any additional documents or specifications that need to be attached.
Please submit your quotation by [Insert Deadline] to:
[Company Name]
[Address]
[Contact Details]
Deepstream RFx Software
RFQs, RFPs and other procurement documents can become tough to manage and distribute if they’re stored in hard copy or on a decentralised network of local computers.
Deepstream’s RFx software makes the procurement process effortless, providing a centralised online platform to store essential RFx documents –improving procurement transparency and efficiency.
For more information on the RFQ opportunities available with our RFx software, browse our RFQ Software Guide.
Frequently Asked Questions (FAQs)
Q: What is the difference between RFQ and RFP in procurement?
A: RFPs and RFQs are both used in the procurement process but for slightly different requirements.
RFQs primarily focus on price, seeking quotes for specific products or services. They emphasise cost comparisons and availability. In contrast, RFPs are more comprehensive, soliciting detailed proposals from vendors and considering factors beyond price, such as expertise, experience, and approach in procurement processes.
Q: What is RFQ in sourcing?
A: In sourcing, RFQ stands for ‘Request for Quotation’. It’s a procurement process in which organisations request quotes or pricing information from potential suppliers or vendors for specific products or services. RFQs are used to gather pricing details, delivery timelines, and other relevant information to facilitate price comparisons. The focus of RFQs is primarily on obtaining competitive pricing and availability for the required goods or services.
Q: What does RFQ stand for in construction?
A: In construction, an RFQ is a document issued by project owners or contractors to gather information from potential bidders on their qualifications, experience, capabilities and financial history. RFQs are utilised to shortlist qualified contractors for further evaluation in the construction bidding process.
Q: What are the three parts of RFQ?
A: An RFQ(Request for Quotation) typically comprises an introduction and project overview, technical specifications and requirements and instructions for submission. This includes the process, deadline, format and additional documentation needed for vendors to submit their quotations.