Have you ever shopped around for prices online, looking for the best deal? That’s exactly what businesses do when they use a request for quote, or RFQ.

Companies send a formal document soliciting price quotations to potential vendors and compare options based on the responses. After the review process, the vendor with the most economical and purpose-oriented bid gets the contract.

So, what does an RFQ contain? How is it different from a request for proposal (RFP)? Which types of services do companies use it for? Read to find out!

Article Roadmap

• What Is an RFQ?
  • When Should You Use an RFQ?
• Importance
• RFI vs. RFQ vs. RFP
• How Do You Send an RFQ?
• What To Include In an RFQ?
• Types of RFQ
• How To Create an RFQ
• RFQ Examples
• RFQ Response Best Practices
• FAQs
• Conclusion

Key Takeaways

• Companies send RFQs to vendors or suppliers by companies when they need a price quote for products or services with fixed requirements.
• Send an RFQ when you know what products or services you need and have a list of vendors to compare.
• An effective RFQ includes sets clear requirements including project details, item names and quantities, implementation timelines, and selection criteria.
• When creating an RFQ, clearly communicate your needs and expectations for vendors to ensure you get the best responses.
• When responding to an RFQ, vendors should aim to address all parts of the request in detail.

What Is an RFQ?

An RFQ, also known as Call for Bids (CfD) or Invitation for Bid (IfB), is a formal proposal that private or public entities send to vendors requesting a price quote for specific products and services. It’s used during the procurement process to evaluate various suppliers in the market and decide which option best suits their specific business requirements.

Buyers, generally enterprises, send RFQs to vendors or contractors when they have standardized requirements for specific products or services and use them frequently. It includes information like the project’s overview, budget, goals, timeline, selection criteria and contact details.

Vendors are expected to respond with information such as pricing, product specifications, delivery timelines, payment terms and other details related to the goods or services they’re offering.

When Should You Use an RFQ?

Ready to create an effective RFQ? Here are some boxes to check before going ahead:

• You have a list of vendors.
• You have the exact list of what products or services you need.
• You need these products or services in large quantities.
• You know the type, exact quantities and other characteristics of the items you need.
• You’re looking for the exact and best price for your requirements.
• The deciding factor in your choice of vendor is pricing.

Importance

Having a solid procurement process is crucial to your business’s success — but it’s also often tricky. Most companies struggle with this. In fact, according to Forrester Research, 83% of B2B buyers feel dissatisfied with the vendors they partner with in one or more areas of the purchasing process.

Having an effective procurement process means your company gets services that are both appropriate for your needs and affordable. An RFQ can be a critical tool to help you get there.

By collecting information about various vendors and how capable they are of meeting your requirements, you can find a contract that doesn’t burn a hole in your pocket and fulfills your needs in the best possible way.

By using an RFQ, you can:

• Reach out to and assess suppliers at all levels.
• Gather bids in a structured way for easy comparison.
• Communicate with vendors through a single channel.
• Get the best price without compromising on quality.
• Rule out unsolicited offers by focusing on specific vendors.

To create an effective RFQ, you need a clear sense of your project requirements and the target vendors. If you have trouble with this part, don’t worry — you can send a request for information (RFI) first to learn about the capabilities of potential vendors and use that information in drawing up your RFQ.

Speaking of RFI, let’s learn more about RFx in general (RFI, RFP and RFQ) and which is most suitable based on what stage of your procurement process.

RFI vs. RFQ vs. RFP

The key distinctions between an RFP, RFI and RFQ lie in their objectives within the procurement process.

An RFI is focused on gathering general details about a vendor’s capabilities and experience. It helps in the early stages of vendor selection by providing a broader understanding of their offerings and expertise.

On the other hand, an RFP is used when a buyer seeks comprehensive solutions from potential vendors, including detailed plans and cost breakdowns. It’s employed when the buyer needs in-depth proposals to evaluate and compare various approaches.

Finally, an RFQ is used when the buyer has specific, well-defined requirements and wants to seek price quotes from vendors for particular products or services.

To put it in context, imagine you’re planning a big event, like a conference.

To make sure your event goes off without a hitch, you want to enlist the help of an event planning company. To find the best fit, you need to assess different companies’ capabilities and experience. Using an RFI at this stage enables you to gather general information to help you shortlist potential vendors based on their qualifications.

Once you have your shortlist, you can send an RFP asking these companies to provide detailed plans, including venue suggestions, catering options and detailed cost breakdowns so you can compare what they have to offer.

And when you’ve narrowed down the best proposals, you can send an RFQ requesting price quotes from these vendors to make the most economical decision.

In summary, an RFI gathers general information, an RFP seeks comprehensive plans and an RFQ focuses on specific price quotes.

How Do You Send an RFQ?

You can send an RFQ to suppliers using various methods. These include:

1) Email
You can attach the RFQ document to an email and send it directly to the shortlisted suppliers.

2) Procurement Software
In the digital age, procurement software an excellent medium for buyers and vendors to collaborate in real time and carry out the RFQ process effectively.

Tools like Oracle and Zycus streamline the RFQ process by digitizing key processes, like communicating with suppliers and managing documents, on a user-friendly platform.

3) EDI software
EDI facilitates the electronic exchange of procurement-related documents. Suppliers can receive and respond to RFQs directly through their EDI platforms.

What To Include in an RFQ

Including details about your company and the project in the RFQ helps vendors understand your requirements better, and allows them to offer competitive price quotes.

You can use an RFQ template to create an organized and complete proposal. Here’s what it typically covers.

• Details about your project, including its background, scope and objectives, and any specific challenges or unique requirements that may impact the quoting process.
• A breakdown of your budget to guide suppliers in allocating costs. Transparency about your financial constraints helps suppliers submit realistic and competitive quotes.
• The quantity of products or services required. Detailed specifications, such as size, features, quality standards and technical details for each item, can be summarized in a pricing template.
• The expected delivery date or project timeline, and any specific delivery instructions or location details.
• A prequalification questionnaire for vendors to share more about their organization and its capabilities, including their business structure, customer references and industry experience.

• The legal terms and conditions of the bid, including any regulatory requirements that suppliers need to comply with.
• An RFQ tender fee to ensure that vendors are committed to the bidding process, adjusted in the final payment to the chosen vendor and returned to unselected ones.
• General terms and conditions about contract length and renewal, duties and taxes, supplier code of conduct and transaction currency.
• Details about the selection criteria, deadline and submission method, including the weight assigned to different factors, such as price, quality and experience.
• Contact information for representatives who can centrally manage all communication processes. You can offer multiple points of contact and specify preferred modes of communication.
• A non-disclosure agreement (NDA) to keep project-related information confidential.

Types

Different bids are used based on how you want to administer and manage the RFQ process. Here’s an overview of some of the most common types.

Open Bid

All vendors are invited to submit their price quotes in an open bid. They can see each other’s responses to a request and modify their quotations until the submission deadline. While open bids encourage competitive pricing, vendors might be more likely to submit higher quotes.

Sealed Bid

A sealed bid, also known as a blind auction, allows all qualified vendors to submit their quotations without access to each other’s responses. Each bid is enclosed in a sealed envelope or an electronic “lock box,” accessible only by vendors through a login process on an online portal. Once all bidders have replied, the solicitor opens the bids for further review.

Sealed bids can significantly speed up the selection process. But since there’s no direct competition among vendors, you could risk paying a higher price than you would in an open bid.

Invited Bid

An invited bid works best if you already have a list of qualified vendors or vendors you’ve worked with before that you’d like to invite back for another project. It can be either sealed or open, but only specific vendors are invited to bid.

Invited bids reduce the time it takes to evaluate a large number of bidders, but may not get you the best price options due to limited competition.

Reverse Auction

All vendors are asked to offer their lowest price for a product or service. The contract goes to the one who gives the best bargain. Reverse auctions are known to reduce purchase costs due to strong vendor competition, but, by the same token, vendors might offer cheaper or lower-quality products.

How To Create an RFQ

When creating an RFQ, be sure to clearly communicate your needs and expectations for vendors so that you get the best responses.

Here are the general steps to follow to make your RFQ process a success:

1. Preparation Phase

Start by getting a complete idea of your needs and desired project outcomes, listing vendors you want to work with and preparing the RFQ.

• Define your requirements: Hold internal discussions covering technical specifications, performance expectations and any other pertinent details about the products or services you need. Decide the type of RFQ you want to issue, as well as your budget and the terms and mode of payment, and evaluate risks involved in the procurement process.
• Shortlist vendors: Do detailed market research to identify the most qualified vendors with expertise in their industry, and include those most capable of fulfilling your requirements at an affordable price.
• Decide the selection criteria: Keep vendors informed of how you’ll assess their quotations and which parameters will determine your selection. This ensures they offer the most appropriate response. Some components of a standard selection criterion include:
  • Price
  • Quality
  • Cost of Ownership
  • Functionality
  • Risk Assessment
• Prepare the RFQ: RFQs are written in specific formats based on a business’s unique needs. Draft the document with precision, outline the terms and conditions, and specify the evaluation criteria. Conduct an internal review to ensure the RFQ adheres to regulatory standards and, once it’s thoroughly vetted, you can distribute it to suppliers.

2. Processing Phase

Next, you’ll want to make contact with vendors and begin the process of evaluating bids.

• Send out requests: You must provide clear instructions for completing and submitting the RFQ and give adequate time to bidders to prepare their responses. This means clearly laying out essential information like terms and conditions, submission method, contact information and scoring criteria.
• Address queries: Make sure you address any queries and requests for clarification on part of the vendors. They may seek technical clarifications or require additional details about the project, so be available and prepared to help them.
• Collect and review responses: Once you’ve received all the bids, it’s time to evaluate them and choose a supplier that best meets your needs. When evaluating submissions, be sure to consider not only price but also quality, delivery time, payment terms and other factors key to an effective partnership.

3. Awarding Phase

When all bids are in, compare the vendors based on your selection criteria and select the one that is most appropriate for your needs — generally the one that offers the lowest price for the required goods and services.

Once you’ve chosen a supplier, you can enter into negotiations to finalize the terms of the purchase. At this step, discuss with the vendor the final pricing, quantity and quality adjustments, delivery schedules, payment structure and other details related to the contract.

4. Closing Phase

After you’ve finalized a vendor, you can inform other participants that the bidding has closed, expressing gratitude for their contribution to the process. Doing this helps build a cordial relationship with vendors, who may be interested in participating in future bids.

You can monitor the supplier’s performance and address any issues that may arise during the contract. Post-award evaluations help gather feedback on the procurement process and ensure that the RFQ cycle serves as a model for future projects.

Examples

Here are some use cases for RFQs:

• A cosmetic company wants to purchase lab equipment like burners, freezers, coolers and stirrers to test chemical substances for use in its products. It researches different manufacturers online, shortlists ten vendors that meet its requirements and sends an RFQ to each requesting a price quotation.
• A printing house has purchased black ink from three vendors before, but they need one of them to supply colored ink. They circulate an invited bid requesting a cost estimate, and select the vendor that offers the lowest price. In case all of them offer costs higher than the budget, the buyer plans to start a reverse bid to solicit the lowest price from each vendor.
• A state government issues an RFQ for a construction project to build a public gymnasium. Interested vendors need to submit their bids in sealed envelopes to the designated procurement office by a specified date and time to be kept confidential. When the bids are opened, the names of the bidders and bid amounts are revealed by the buyer.

Some other examples of when organizations might issue an RFQ include:

• A photography company looking to buy studio equipment.
• The government roadway ministry looking for raw material supplies to build a highway.
• Businesses in need of an LMS for training employees.
• A private firm planning to purchase electrical wires for its offices.
• The airport authority of a state in need of COVID supplies.

RFQ Response Best Practices

It takes as much effort to respond to an RFQ as it does to send one out. Here are a few things vendors should keep in mind when responding to an RFQ.

Pay attention to detail:
Make sure the answers address the question and the technicalities around it. Address the buyer’s request in detail so they have a deeper insight into how you’ll meet their needs.

For example, provide accurate and current pricing details for the products and services specified in the RFQ, break down costs using a pricing template, and be transparent about any additional fees.

That said, don’t elaborate on things beyond what’s necessary — keep your proposal precise.

Present professionally
Begin with a well-structured response that follows the outlined format in the RFQ. Use clear and concise language, present information logically and organize answers such that they’re easy to understand.

You can use visual aids such as graphs and charts to enhance the clarity of your responses, and should thoroughly check your submission for grammatical and factual errors.

Do more with less:
One document can’t encompass everything you have to offer. If there’s more information to convey than the RFQ allows, it’s a good idea to mention details as much as you can when answering related questions.

Flexibility is important for buyers, so showing you can cater to their unique needs might help your response stand out.

Prove your point:
Provide evidence to support why you’re a good fit. Include customer testimonials, case studies, certifications and awards, and other information to demonstrate your expertise.

Don’t miss a date
Adhere to the submission deadlines outlined in the RFQ to avoid disqualification for late responses. In case you need an extension, reach out to the buyer well before the closing date.

Follow up
After submission, you may follow up with the buyer to express your continued interest in the contract and readiness to answer any questions they may have.

FAQs

Is RFQ a procurement method?

Yes.

Why use an RFQ?

An RFQ helps you choose a vendor with the most cost-effective products and services for your requirements.

What’s the difference between an RFQ and an RFP?

An RFQ is issued when you know your needs and the products and services required to meet them. An RFP is for soliciting more information on how vendors plan to address your challenges.

Is an Invitation for Bid (IFB) and RFQ the same?

Yes.

Is an RFQ a quote?

Yes.

Who prepares an RFQ?

The company appoints a committee, an executive, or an RFQ manager to prepare an RFQ.

Conclusion

RFQs ensure that you receive accurate and complete quotes from vendors who are given an equal opportunity to bid on your business. They allow you to compare quotes side-by-side, protecting you from getting locked into a higher price and helping you find suitable suppliers in almost any industry.

Which type of RFQ do you plan to issue? What services are you looking for? Let us know in the comments below!