Part 1
The RFQ or Request for Quotation is also referred to as a Request for Qualifications. Both procurement forms are used by Buyers when they approach Vendors for goods or services in the Quotation instance and in the Qualifications scenario they are looking for specifics to determine whether you as the Supplier might qualify to complete a requirement the Buyer has identified.
The RFQ for Qualifications might be to determine whether you are able to complete special artwork for a public environment like say a public library for example. In this instance, the Buyer might offer the Supplier a small stipend like $500-1000 to create some form of facsimile of what they would provide as artwork for this public space. From the samples of artwork provided by potential bidders the Buyer would then consider an award.
In general, when talking RFQ’s most vendors would assume you are looking for a price quotation for either goods or services. A RFQ is a great way to get the current pulse or cost in the marketplace for the item(s) you seek. By issuing a RFQ, the vendor understands they have a shot at winning your purchase order or supply contract so they are often motivated to provide the best terms in an effort to gain your business. Not a guarantee however it is an assumption…read on.
It is understood that prices quoted by vendors are always closely related to the cost of production. So, the vendor calculates the price by adding in all their costs and then including a margin to account for their profit. At least you would think this is how it is decided however many argue that a vendor might also consider many other factors like the state of the market, their present financials, supplier’s goals, capital equipment replacement and even the stage in the product life cycle.
A company looking to gain market share may enter the market very aggressively looking to push a competitor out so initially you might receive favourable costs which might even be below cost. Alternatively, a vendor with no competition might look to exploit clients by charging above market prices. Pricing can and will vary however we still maintain the value of issuing a RFQ – Request for Quotation in the event you are looking at a 1 year or multi-year supplier contract. The basis of your RFQ, term, volume, specifications is a strong statement and should make your vendors take note. Your purchase is not a one-time buy it is a quotation which will be turned into a longer term contract therefore worthy of their attention and best price.
Stay tuned for Part 2 – RFQ Tips