The advantages of mastering the RFQ are widespread.
Time is money. When it comes to mastering the Request for Quotation (RFQ) process, the sentiment rings true and strong. Understanding the RFQ meaning and optimizing its use within your procurement process brings numerous advantages, some that might even be surprising.
A strong RFQ process supports you to:
- Save time and money with reduced administrative work.
- Select top vendors at fair value.
- Improve vendor relationships by supporting vendors to respond quickly and efficiently.
- Secure better pricing, quality work and on-time execution.
- Increase transparency by providing clear and concise information to vendors.
- Prevent misunderstandings or disputes with a clear, structured format.
To realize more benefits, let’s begin with the basics.
Defining the RFQ Meaning and Relevance
RFQ is the formal process procurement professionals use to call for vendor or supplier bid submission along with other pertinent information. On the vendor side, it’s an opportunity to access work on a specific project and gain knowledge about the project requirements. Because it’s not a public announcement, the RFQ is a secure way to receive bids from preferred vendors.
Many useful details are included in the RFQ, including pricing, payment terms and a list of materials and equipment either required or provided. In addition to any other applicable factors influencing vendor selection, the company issues a submission deadline. For maximum time efficiency, ideally their procurement team uses a consistent RFQ format for easy comparison.
ProTip: The RFQ itself is a major time saver. Templating it saves even more time. Because both boost time and process efficiency, they also add up to cost savings. Using a digitized software solution to store and analyze vendor data can help you to create comprehensive templates that maximize information transfer and efficiency.
RFQ, RFI and RFP: What’s the Difference?
In defining the RFQ meaning, it’s helpful to differentiate it from the Request for Information (RFI) and Request for Proposal (RFP), as well as where each factors into the procurement process. While all three are procurement documents used to request information from vendors or suppliers, each serves a different purpose and asks for varying levels of detail.
RFI Meaning. The RFI is used to collect vendor or supplier information to inform future decisions around purchasing services or products. It tends to:
- Be used earlier than the RFQ.
- Act as a first touchpoint in relationship building.
- Inform future decisions.
- Ask for more generalized information–company history, experience, pricing, service/products offered.
- Be useful in developing the RFQ and/or RFP.
RFQ Meaning. To recap, the RFQ requests a vendor or supplier quote for a specific service or product. It tends to:
- Be more in-depth than the RFI.
- Define the service or product required.
- Outline other specs or requirements.
- Support procurement to choose the best option based on vendor response including price, but also other value-add considerations.
- Either be sent alone, or prior to the RFP.
- Be more price-focused than the RFP.
- End with a PO.
RFP Meaning. The RFP requests actionable information on how the vendor or supplier plans to problem solve and deliver on the job. It tends to:
- Be more comprehensive and formal than the RFQ.
- Be used when procurement clearly understands their needs and seeks detailed vendor or supplier proposals to meet them.
- Invite vendor or supplier responses that include proposals with creative solutions, detailed plans, pricing and other relevant information.
- Be more commonly used for services than goods purchase.
- Include determining factors beyond price–technical specifications, experience, resource availability, legal obligations and more.
- End with a contract.
Getting on the Same Page: 6 Reasons to Master the RFQ Process
Creating and executing an excellent RFQ process has widespread influence across your business. But it also positively impacts vendor and supplier relationships by creating a foundation of mutual understanding. These six advantages top the list.
- Cost Savings
With a growing reliance on an external workforce in heavy industry, achieving cost savings in this category covers a major portion of your total cost reduction strategy. The RFQ supports procurement teams to capture cost savings through systematized quote collection and comparison. Knowing what top vendor or supplier pricing looks like adds confidence and fairness to pricing negotiations.
The RFQ can also set the groundwork for open discussions around further cost savings opportunities where your organization may be able to offer the vendor other incentives in return for avoiding a cost increase. Creativity goes a long way in maintaining win-win vendor partnerships.
2. Vendor Relationship Management (VRM)
Taking the time to perfect your RFQ process sets a clear and early understanding with your vendors and suppliers with well-defined expectations, timelines and other project requirements.
It’s also an opportunity for procurement to identify which vendors are the best fit for the project while in turn, supporting vendors to determine the company is an ideal business partner. Over time, as vendors continue to better understand your business needs, long-term partnerships develop, leaving you with an expert source you can depend on.
ProTip: Use your RFQ responses to create a list of preferred vendors and suppliers with the most potential to be long-term, high-value strategic partners. Note value alignment, experience and ethical integrity as well as potential associated risk, including the impact a potential disruption might have on your business should the vendor not deliver on time.
3. Risk Management
Believe it or not, a strong RFQ process fortifies risk management and mitigation. Clearly outlined expectations set prior to vendor or supplier response increases their understanding of how things run on your worksite. At the same time, it decreases the chances of poor performance, execution or delivery delays and legal disputes down the road.
Use your RFQ to select the most ethical vendor in the following ways:
- Establish well-defined responsibilities, inform contractual agreements and avoid disputes early by outlining them in your RFQ.
- Identify the top qualified vendor or supplier respondents that meet your most commonly required goods and services.
- Choose the most competitive offer by considering lower costs but also a vendor with the credentials and performance history indicating they’re most likely to minimize risk.
4. Process Efficiency
Implementing the RFQ into your procurement strategy is an excellent way to standardize your procurement practices and processes. Additionally, because your RFQ indicates a response timeline, you can more quickly make informed decisions, achieve a faster turnaround time in executing contracts and initiate the project on time. Creating consistency also reduces the error margin and encourages more open communication with your vendors and suppliers throughout the project. Their feedback is valuable for further process optimization.
5. Transparency & Trust
Your RFQ and any supporting documents create a record of truth ready for review and audit by any interested stakeholder as needed, particularly around evaluation and selection criteria used to partner with vendors. This ensures you hold transparent proof your organization values a fair and ethical workplace culture and that builds trust within vendor relationships. Entered into a centralized digital platform, all this information is available at your fingertips anytime it’s needed.
6. Data-Driven Decision Making
RFQ responses hold valuable vendor or supplier details that become useful data for decision making. Pricing, service or product specifications, execution or delivery timelines and other metrics can all be collected, stored and analyzed to inform future decisions and improve procurement success.
ProTip: RFQ-generated data entered into PayShepherd can be used at any time to collaborate with your purchasing stakeholders and prioritize project needs. Armed with internal priorities and vendor performance data, you can then maintain a continuously updated shortlist of exceptional vendors, track results and access everything all in one central repository.
RFQ Best Practices
To achieve max value when implementing the RFQ into your procurement process, it’s easier to understand how it works by breaking its effects down into two categories:
Tactical. In collecting, verifying and evaluating vendor performance, using the RFQ opens up potential to achieve cost savings and boost process efficiency.
Strategic. The more vendor-related information you have to manage using the RFQ, the better you can collaborate with internal stakeholders to create more innovative solutions for the future.
Keep these RFQ best practice tips in mind to achieve both tactical and strategic results:
Increase the vendor’s comprehension around your project and onsite expectations in your RFQ. This way, they’re better equipped to submit a realistic offer they can deliver on.
Reinforce vendor understanding of all the skills and resources you require from them to complete a quality job on time.
Compare vendor or supplier quotes against current market pricing to ensure fair pricing.
Confirm your choice of the ideal vendor by asking for proof of appropriate historical performance management and technical expertise data based on previous experience.
Write a well-structured RFQ that provides and requests all the pertinent and detailed information in a systematized document that’s quick and easy to send out and to compare responses.
Set the tone for excellent communication in your RFQ by inviting vendors to share their thoughts and questions.
The days of paper-heavy administrative work throughout the procurement process, including executing the RFQ, are fast disappearing as automated technologies and digitized document management platforms take on repetitive manual jobs. With detailed, accurate, centralized and verified vendor or supplier information at your fingertips, everything from sourcing to payment processing is infinitely more efficient.
Digital software is replacing manual paper-based and time-consuming information collection, storage and analysis for cross-departmental access to any item required at any time, including:
- Vendor quotes.
- Contract rates, terms and conditions.
- Worksite location(s).
- Vendor locale.
- Category coverage.
- Worker trade certification.
- Performance ratings.
- Risk score.
Embracing the digital transformation puts paper RFQ forms–and WOs, POs, invoices and more–in the past. It also slashes manual-associated errors, bottlenecks and other inefficiencies, paving the way for management excellence and profitability for your industrial worksite.
Ready to Elevate Your Procurement Game?
PayShepherd was built with a boots-on-the-ground understanding and experience around efficiency improvement opportunities within procurement processes. We’ve seen how much time and money inefficiencies cost companies while also jeopardizing relationships. Our growing number of client-partnerships, along with their procurement teams, are achieving unimaginable results.
Why wait? Reach out today and let’s talk about how we can help.