Every business scans the marketplace for the best vendor so they can make an informed purchase.
Whether you are looking for a reliable product vendor or a service provider, knowing how to write an effective request for quote is critical.
A well-written and comprehensive request for quotation (or RFQ) can help companies get competitive quotes that will help fulfill their business and project needs.
In this blog, we will explain what an RFQ is, with example templates to help you achieve your procurement goals.
In a procurement process, companies evaluate vendor bids and choose the vendor that is the best fit for the project. An RFQ is a key document used to invite and screen vendors.
A request for a quote is a formal process that companies use when they want to order products or services for their projects. It is a business document that invites vendors to provide their best prices and payment terms.
A typical RFQ contains:
It is important to note that a request for quote is not a firm offer to purchase. Therefore, it is not considered a formal contract or agreement. The final contract is created once the buyer sends an offer and the vendor or supplier accepts it.
To complete project deliverables, teams work with external organizations to obtain raw materials, complementary products, spare parts, or necessary services. They negotiate with external organizations and complete the requisite documentation.
A request for quotation is not exclusively used in the project management domain. Many private and government organizations use it as a part of their procurement process.
An RFQ in project management is a written document inviting potential vendors to supply essential products or services for project completion.
Some companies also consider an RFQ as a request for qualification to:
Many businesses also use a term called RFP — request for proposal.
Organizations in the business-to-business (B2B) domain generally use a request for information (RFI), a request for quote (RFQ), and a request for proposal (RFP).
All these documents help buyers gain more information from their prospective vendors. Each one of them helps you accomplish different goals.
A request for quote is used to get pricing and payment information for vendor products and services. It contains company requirements based on which vendors send in their bids.
An RFQ isn’t required for every procurement order. There are certain situations in which a request for a quote is used:
A request for quotation can be formulated in different ways, as outlined below:
An open bid is a request for quote format in which the buyer publicly opens the bid during submission time.
The pricing and payment terms of suppliers are available for everyone to view. Open bids encourage a competitive process but may prompt vendors to fix higher prices.
In a sealed bid process, all qualified bidders send their bids. These bids are opened after receiving all responses.
Sealed bids are considered a more transparent bidding format compared to open bids. Government or public sector contracts commonly use sealed bids in their procurement process.
An invited bid is a request for quote where selected vendors are invited to send in their bids. Invited bids are cost-effective as only trusted or pre-vetted suppliers are chosen to participate.
However, while the supplier selection process seems easier to navigate, buyers may miss out on cost savings due to the limited competition.
A reverse auction is a request for quotation method in which vendors give their best (lowest) offers for the buyer’s consideration.
Many companies conduct reverse auctions when they fail to find vendors. Reverse auctions can be a good option if cost is the primary criterion for awarding a contract. Conducting reverse auctions online can give quick results besides being competitive for companies.
Writing the exact project requirements is crucial for creating a successful RFQ. The clearer the business needs are, the easier it will be to choose the perfect vendor for the project. Let’s find out more about how an RFQ process works:
Gather all information before you start writing the request for quotation. Though this step sounds time-consuming, it is also the most critical one, so don’t rush it.
In this step, the request for a quote is sent to the vendors. Companies set a deadline to receive all the bids. Three to eight vendor bids is considered to be a cost-effective and competitive bidding process.
Having less than three bidders would mean that the process isn’t competitive, and there is scope for the buyer to get better pricing. Receiving more than ten bids can make the process time-consuming and complicated.
Bidding is straightforward when the RFQ process is comprehensive. Long hours spent by procurement team members on perfecting the RFQ document pay off at this stage.
Decision-making can be made easier by sending out RFQs in a templated format and comparing vendor responses.
While RFQs vary for different industries and business needs, there are certain elements that should always be included in a request for quotation.
Write a brief outline summarizing all the key elements present in the request for quotation, such as:
Complete the summary by extending an invitation to vendors to send in their bid responses.
Give a complete overview of the company and its project requirements in the RFQ document. This gives vendors a thorough knowledge of buyers’ specific project needs, meaning they are more likely to place bids.
For example, an electronics manufacturer may send out an RFQ to source microprocessor chips, an essential component in many electrical appliances such as microwaves, computers, toasters, video game consoles, and dishwashers.
The RFQ should mention the products that they will be manufacturing.
Not every vendor will qualify for the bid. Organizations have criteria for selecting and screening prospective suppliers. Consider using some of these questions to gain more information about prospective vendors:
Use this section to give detailed information about the project and the products and services requested. Include details about:
Consider including a non-disclosure agreement (NDA) to keep key information about the company and the specific project confidential.
In government and public sector RFQs, tender fees may be applicable. Tender fees are cash deposits vendors pay to buyers to demonstrate their faith in the bid. The tender fee is also called an earnest money deposit (EMD).
Buyers hold the deposits in escrow during the bid process, and the money is returned to the vendors who are not selected. After signing the binding contract with the buyer, the winning bidder’s deposit is adjusted in the final payment schedule.
Including a pricing table or template in the RFQ can be helpful for managing bid responses after they come in.
A pricing table is a formula-driven section that calculates total cost when the product quantity, size, and other units of measure are entered. Here’s an example of what a pricing template would contain:
Pricing tables collect, present, and analyze comparable information across different vendors, making it easier to review vendor pricing information.
While timelines vary across projects, an average request for quote timeline ranges from six to ten weeks. Avoid frustrated vendors and costly procurement cycles by clearly mentioning timelines in the RFQ.
A successful RFQ can lead to faster production cycles, delighted customers, and satisfied stakeholders. Use some of these tips to shorten your RFQ timeline:
RFQs need to be reviewed carefully to minimize business risks by finding the right vendor. Establishing well-defined evaluation criteria ensures that the RFQ process is fair and unbiased, leaving no scope for subjectivity.
A request for quote for an IT hardware company is very different from the one sent out by an oil engineering firm. Whether you’re creating your first RFQ or the tenth one, here is a simple RFQ template that can help.
An RFQ is designed to provide pricing and payment information to a buyer. You can make your request for quotation stand out by including other important details, such as:
RFQs are a key part of your project management toolkit. Writing an effective RFQ will help your team get the perfect products or services at competitive prices from reliable vendors. Empower your staff to streamline workflows, find the best vendors, and delight your customers with a versatile professional services platform like Wrike.
Stop spending hours creating requests for quotations. Use Wrike’s customizable request forms to create RFQs and send them to external vendors. Tailor the forms to user responses to ensure no important details are missed. Store everything related to the RFQ process in a unified location so that information is easily accessible.
Get a free Wrike trial to plan, organize, and implement a successful RFQ process.
Yuvika is a freelance writer who specializes in recruitment and resume writing.
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