A comprehensive guide into what an RFQ is and how it works. Discover the benefits of RFQs, why they work, and how to integrate them into your business flow.

As a business owner, it is very unlikely that you pick the first vendor or contractor that comes across your desk when you need a provider for a project. Instead, you’d want to compare prices and services from various sellers to ensure you get the best value for your money.

But how do you compile the best offers? This is where Requests for Quotation (RFQs) come into play.

In this article, we dive into all the crucial details about RFQs, including what they are, how they work, their benefits, and the best way to leverage them for your business.

What is an RFQ?

A Request for Quotation (or RFQ) is a formal document that a company or organization may issue when they’re seeking price estimates for products or services they need. In other words, the RFQ requests suppliers to submit their pricing structures for fulfilling a specific need.

The Request for Quotation allows businesses to get competitive bids from sellers, improving their chances of getting top quality at the best prices. Many people also call this process the Invitation for Bid (IFB).

Based on the responses you get from your RFQ, you can then compare various offers and pick the vendor that best aligns with your objectives.

Generally, RFQs help business stakeholders make more informed decisions.

RFQ vs RFP: What’s the difference?

The Request for Proposal (RFP) is another formal document that organizations may publish when looking for potential collaborators. As a result, it’s all too easy to confuse it with the RFQ.

We’ll clear it up now. 

While the RFQ generally focuses on the cost and pricing, the RFP requests more complex details such as the vendor’s experience level, approach to providing solutions, and other technical information.

In other words, if you already know what you want and only want to find how much it costs, you may only need to send out an RFQ. However, if you have more specific questions about how vendors expertise and processes, you may need an RFP too.

RFQ vs RFI: What’s the difference?

Yet another formal publication that’s similar to the RFQ is the RFI (or Request for Information).

The RFI is usually the first step in vendor selection and allows businesses to get a general sense of what’s available in the market. With an RFI, organizations can gain insight into the capabilities of sellers, and their specific products or services. 

An RFI may be necessary if a company is looking for specific information to determine if they’ll go forward with a project or contract. Based on the responses they get, they may now move on to the RFQ or RFP. 

RFIs are typically brief and do not require much detail from vendors.

How Does an RFQ Work?

An RFQ is typically the first step before the RFP comes into the picture. By issuing a Request for Quotation, businesses can have a comprehensive price breakdown of how much it will take to achieve their project objectives.

However, you should note that RFQs are typically not public announcements. Instead, the organization sends RFQs to only providers it knows or trusts, eliminating the need for lengthy procurement documentation. This way, they receive only the number of bids they request, saving time.

A typical RFQ process happens in four stages:

• Preparation phase: This is where the company sends out RFQs to the various companies it thinks can meet its objectives
• Processing phase: The company receives price quotes and evaluates them based on their budget and other criteria
• Awarding phase: Here, the company awards the contracts to the vendor with the lowest bid that meets their qualifying criteria
• Closing phase: Contract fulfillment begins 

Another point to note is that an RFQ is not a binding contract.

Since a given company will typically send RFQs to several suppliers, the document is not bound until the bid selection happens. Instead, the RFQ only helps to make it easier to compare price quotes and decide the ideal seller based on budget and several other factors. 

However, while an RFQ can help reduce the time needed to choose a product or service provider, it may also reduce competition since companies only request quotes from vendors they know.

That said, let us examine some more upsides to leveraging RFQs.

What are the Benefits of RFQs?

An RFQ offers several key benefits for businesses looking to procure goods or services. Here are five top perks:

• Reduces overpricing: Since suppliers know they are not the only vendor responding to an RFQ, it encourages them to put their best prices forward to improve their chances of winning the contract. This reduces steep pricing and helps ensure that you don’t overpay for the products or services you need.
• Promotes informed decision-making: The responses you get from your RFQs provide you with the valuable information you need to compare the various prices and deliverability terms of various suppliers. This helps you make an informed decision on which vendor to choose.
• Helps you get the best value for your money: Since your Request for Quotation will typically contain the exact specifications for the products or services you want, the responses will help you choose the supplier that offers you the best value. In other words, you get the most you can at the least possible price.
• Streamlined procurement process: The structured method of RFQs provides a standard operational flow from issuing the RFT to contract fulfillment. This helps to make the process more seamless as businesses can quickly evaluate responses, make decisions, and achieve their project goals.
• Improves your company image: Issuing RFQs can also help improve your organization’s public image as it shows you don’t have a prejudice. By taking out the guessing games, suppliers can take responsibility for improving their chances of winning the contract based on prices and other details in their responses to the RFQ.

Overall, an RFQ is a powerful tool for helping organizations get the best value for their money while minimizing risks in the procurement process.

What are the Different Types of RFQs?

Businesses can leverage four types of Requests for Quotation based on their specific needs or project type. In the following paragraphs, we examine each type and share some insight into which one may be ideal.

Open bids

Open bid RFQs are the most transparent type of Request for Quotation. In this case, each vendor that receives an RFQ can see the responses of the other vendors—their competition. 

This approach is designed to increase the competitiveness of suppliers and allows each responder to adjust their bid in real-time based on the competition’s prices up until the bid closing day.

Pros

• Ensures more competitive bids among buyers
• Results in lower prices for buyers

Cons

• The open nature of the bids may mean that the vendors involved may band up to agree on a specific price

Sealed bids

Unlike open bids, a sealed bid system ensures that the details of vendor responses stay private until all submissions have been received and the bid closes. This method is common in government contracts and projects in the public sector, where it is crucial to ensure the selection process remains fair and unbiased.

Pros

• Reduces the risk of competitor influence
• Promotes fairness in vendor selection

Cons

• Vendors may submit higher bids as there is less competition
• Buyers may pay more

Invited bids

The invited bid system is arguably the most commonly used system of RFQs. In this case, the soliciting company restricts the list of potential vendors to only the specific providers they want. The bid process may either be open or sealed.

Most businesses use invited bids when they only want to deal with known, trusted businesses.

Pros

• Makes the procurement process much faster and streamlined
• May improve the outcome of vendor selection

Cons

• Reduces competition among vendors
• May lead to higher costs
• Buyers may miss out on better offers

Reverse auctions

As the name implies, a reverse auction RFQ system works like an auction but with prices progressively decreasing. Vendors typically submit their lowest bids in a competitive environment hosted on an online platform. 

As the auction progresses, vendors typically lower their price bids, until nobody goes any lower. The contract is then awarded to the lowest bidder.

Pros

• Provides insight into lowest market prices
• Offers an efficient and quick RFQ process

Cons

• Since pricing is the primary focus, buyers may overlook other key factors, such as quality, which may affect project outcome

When Should Companies Use an RFQ?

Yes, RFQs can help organizations streamline their procurement process. However, it may not be the ideal system to leverage in your specific situation.

So, here’s the million-dollar question—when should you use an RFQ?

The primary reason you should issue a Request for Quotation is if you’re only interested in how much it will take to achieve your project objectives. But there are more instances where an RFQ may be ideal too.

Here’s a quick checklist to help you decide:

• Is price or cost breakdown the pressing information you need?
• Do you know exactly what you want and how to achieve it?
• Do you have a list of qualified vendors that provide the specific products or services you need?
• Can you manage the products yourself after the vendor delivers?
• Is pricing your primary evaluation factor for choosing the vendor you’ll partner with?

If you answered “Yes” to all the above questions, then a Request for Quotation is likely the document you need to prepare. Now, let’s walk you through the information that should be in your RFQ.

What to Include in an RFQ?

Depending on your industry and project requirements, the exact content of your RFQ will vary from the next person. Nevertheless, some crucial elements should always be present in any Request for Quotation.

Here are the essential elements to include in your RFQ.

Invitation to bid with introduction and summary

The first detail your RFQ needs is a brief summary of all the key information that will be in the document that potential vendors need to respond to. Some of these details include:

• Product specifications and quantity
• Project delivery timeline—one-off or periodic
• An invitation for vendors to send in their bids
• Bid submission deadline

Business overview

Next, you want to give potential vendors an overview of your company and the requirements for your project. This provides responders with insight into your needs as a buyer and helps them clarify if your project is one they can handle.

Pre-qualification requirements

Another crucial piece of information you need to include in your RFQ is your criteria for evaluating and selecting your eventual supplier. While this may seem counterproductive, it helps you eliminate subpar responses, meaning you don’t have to spend time sifting through redundant bids.

Additionally, potential suppliers can see upfront whether or not they are in the race to win the contract.

Here are some questions you can ask:

• Can you share a list of your business certifications and licenses?
• Can you share previous QA reports your company has gotten?
• Do you have past client testimonials or references you can share?
• Can you deliver on this project while staying within the timeline stipulated in this RFQ?

Project specifications

In this section, you’ll provide potential vendors with detailed information about the project, including the features and specifications of the products or services you need.  You should also include details like delivery timeline and conditions.

Here are some details to include:

• Product specs—size, quality, quantity, etc.
• Delivery dates
• Project terms and conditions—warranty, contract length, renewal options (if relevant).

Pricing table

A pricing table is a design element with built-in formulas that calculate total cost when variables such as unit prices and product quantity are entered.

Depending on how complex your project is, it may be a good idea to include a price table to guide suppliers and how they should respond. This can also help make your pricing review process more seamless and you’ll have created a standard template for responses.

Here are some details that should be in your pricing table template:

• Price per unit
• Product weight per unit
• Shipping cost per unit 
• Total number of units

Timeline

It is also crucial that you clearly state your project timeline to ensure the vendor you eventually choose is clear on your expectations. This can help prevent friction, frustration, and potentially costlier procurement cycles. Generally, the average timeline most businesses include in their RFQ is around eight weeks.

Now, let us explore the stages of the RFQ process.

What are the Three Stages of the RFQ Process?

Understanding the crucial elements to include in your RFQ is key to ensuring the success of the entire process. However, this preparation stage is only one of three. Keep reading as we share insight into the three stages of the RFQ process:

1. Preparation stage

The preparation stage refers to all the activities involved in creating a comprehensive RFQ that properly communicates your needs and objectives with potential vendors.

The first thing you’ll need to do is gather all the relevant information about your organization that you’ll include in your Request for Quotation.

Guru can help here.  

With Guru’s AI-powered wiki, you can pull information from any source within your company’s database and ecosystem—from internet pages to the third-party apps that you use—ensuring seamless information sourcing. 

In addition, you can also leverage Guru’s private ChatGPT model with semantic capabilities to provide relevant information included in your RFQ based on the prompts you feed it. This means you can significantly cut down the time needed to create your Request for Quotation while ensuring the information is accurate and relevant. 

After compiling detailed info about your organization, you can then go on to:

• Identify and include your specific project requirements. Ensure you keep relevant stakeholders in the loop to ensure you have an accurate representation of your business needs.
• Create your list of potential vendors. This is also a good place to decide if you want to send your RFQ to a smaller group of vendors you already know or if you’d like to try a bigger pool of options.
• Draw up the RFQ. Finally, you can create your Request for Quotation, either from scratch or based on a template.

2. Management stage

The management stage involves all activities from when the RFQ is sent to prospective vendors to when responses are received and reviewed. 

Companies typically send RFQs to three to eight vendors to ensure a competitive yet optimized bidding process. Having fewer than three prospective vendors may mean less competition, meaning potentially higher pricing. On the other hand, receiving more than ten responses can be too time-consuming.

That said, here’s what a typical management stage looks like:

• Send out your RFQs. Make sure you give your prospective vendors time to work on their responses while also giving them a deadline for their bid submissions.
• Respond to follow-up queries. Sometimes, you may get follow-up questions from suppliers. Ensure you respond to them promptly.
• Review the responses. This is where you evaluate the bids you receive based on your predetermined selection criteria. Common criteria include pricing and product quality. You must make objective selections here.
• Keep all bidders updated on developments in your RFQ process. You should acknowledge received bids and inform bidders when you make a decision—whether or not they win. As a rule of thumb, you should keep each vendor’s bid confidential except if you’re running an open bid system.

3. Closing stage

The closing stage of the Request for Quotation process typically involves selecting a vendor that meets your minimum requirements. Here’s what that looks like:

• Create a summary of all bids received.  First, create a summary of the bids received for your vendor selection committee. Make sure to include the total number of responses, qualified bidders, and the pricing details attached to each bid. Also, ensure you communicate the reason for disqualification to vendors that don’t meet your selection criteria.
• Select your ideal vendor. Based on your evaluation criteria, you can then choose a vendor that meets your target price and project specs. Ensure you create a memo that outlines your selection process for record-keeping and training purposes.
• Award the contract. Finally, reach out to the winning supplier informing them of their success, and get their written acceptance. Don’t forget to inform all the bidders of your final decision and thank them for their applications.

Top 5 RFQ Examples to Inspire You

Here are some real-world examples to inspire you when you’re next wondering if an RFQ is the way to go.

Government services RFQ

The U.S. General Services Administration wanted to initiate janitorial services across various governmental offices and buildings. But first, they need to know how much it would cost. So, they issued an RFQ. 

In their Request for Quotation, they included clear specifications on their project scope and requirements alongside upfront information on their evaluation criteria.

Utility company RFQ 

In this example, a public power company called BrightRidge wanted to purchase a specialized transformer and wanted pricing information from various vendors. 

In their Request for Quotation, they included the exact specifications of the transformer they wanted and additional information to guide vendor responses.

Non-profit RFQ

This example focuses on RTI International, a non-profit organization operating out of North Carolina, and how they published an RFQ when they needed to fulfill an IT-related procurement. 

RTI wanted to acquire new tablets and tablet covers. So, they included the exact specs of the tablets and accompanying covers, including the quantity they wanted and the delivery timeline.

Intergovernmental RFQ

The International Renewable Energy Agency (IRENA) is an intergovernmental organization that helps countries to transition to sustainable energy. They wanted to create a guidebook of actionable guidelines and needed consultation services. 

So, they released a Request for Quotation containing detailed information regarding their project goals, terms and conditions, and evaluation criteria.

Electric vehicle RFQ

In this example, the City of Los Angeles issued an RFQ seeking suppliers for the installation of electric vehicle (EV) charging stations throughout the city. The Request for Quotation contained detailed specifications for the equipment and installation services needed to expand the city's EV infrastructure. It also outlined the number of charging stations required and delivery timelines.

Over To You!

RFQs remain one of the most effective ways for businesses to get accurate pricing estimates when they need to buy products or services from a third-party provider. Issuing a Request for Quotation helps ensure you get competitive bids from suppliers, reducing the chances of overpaying for your procurement.

However, the success of your RFQ process largely depends on the quality of your Request for Quotation document.

Guru can help you streamline the process of RFQ creation, ensuring you include accurate and up-to-date information about your organization without stress. With Guru, you can find the answers you need without cycling through applications or deep diving into your company’s information repository. 

Try Guru today and enjoy personalized and instant answers in your workflow every time.

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