The B2B procurement process can be extensive. But if you find yourself at the point where you’re discussing price, that’s a good sign – it means you’re nearing the end of the process.
Up to this point, you must have found and considered several vendors who may be capable of supplying the products you need. After being satisfied that they have what you want, the next step will usually be to understand what their prices are and how this works within your budget. This is where an RFQ comes in.
B2B buyers will usually send an RFQ to potential supply partners in a bid to ascertain the likely cost of their products and how this compares with other suppliers.
In this guide, we’ll walk you through everything you need to know about RFQs, including what they are, when they are necessary, and how to send one. In addition, we’ll explain the meaning and uses of RFIs and RFPs – both terms which are similar to RFQs and which are often a source of some confusion.
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An RFQ is a request for quote or a request for quotation. It is a document that B2B buyers typically use when they intend to engage with a vendor on the pricing of specific products or services which they are interested in.
With an RFQ, prospective buyers can detail the specific requirements or features of the product they are interested in. The supplier would usually respond with a breakdown of the price in relation to each of these requirements.
This helps the buyer understand precisely how each component is priced and gives flexibility when the time comes to decide on what features to purchase. It also encourages price transparency, so you know exactly what you’re paying for.
Apart from this, RFQs are a pretty handy tool when you want to compare the prices of various suppliers to find the lowest price possible. This way, you can quickly see what suppliers will help you stay within your budget and where the pricing may risk stretching your finances too thin.
Here’s how an RFQ works in practice. Assume a pharmaceutical company, First Chemicals Ltd, intends to source base chemicals for some of its generic medications. After going on to Alibaba.com’s international marketplace, the company creates a shortlist of five vendors with chemicals that meet their specifications. They then send a document to each supplier detailing the specific chemicals they are interested in, their preferred features, and any customized chemical solutions they are considering.
Some of the details you should expect to provide a supplier within an RFQ include the following:
You should note that there is no requirement as to the number of vendors you may send an RFQ to. You can ask a single seller to provide a quote, or you may expand the scope of your inquiry by taking quotes from several sellers at once.
An RFQ may be presented in different ways, depending on the number of suppliers you want to engage with and how you want the whole procedure to go. There are also various pros and cons that you should keep in mind when considering each type.
Although they are a valuable tool for assessing and understanding the pricing options available to you, RFQs are not suitable for every procurement situation. For instance, buyers use RFQs when the required products or services are very specific. This means they may not be a good fit when you’re not exactly sure what you want or how much.
As Investopedia explains, “when the soliciting company knows the exact number or type of product or services it desires, it customarily uses an RFQ. Typically, companies use an RFQ when products and services are standardized, or off-the-shelf.”1 You can think of RFQs as straight-to-the-point pre-order forms. They specify, in exacting detail, exactly what the buyer wants, from style to size and design, and may also specify how they want the buyer to provide the pricing information.
As you’ll see later in this guide, there are other tools you may employ in circumstances where you do not have this level of clarity about your intended purchase. To determine if an RFQ is right for you, ask the following questions:
If your answer to all of these questions is yes, you may consider proceeding with an RFQ. Now that this is settled, let us explain the RFQ process and the stages you should expect to pass through.
The first thing you should know is that, while there are general best practices for sending an RFQ, the process is mostly non-technical. You don’t need to use any specialized procedure, a specific template, or build out a special portal to send and receive RFQs. It all depends on the preferences of your business.
Just drafting a document that includes your requirements and sending to sellers via email can be all you need. Although, larger organizations may want to standardize their procedure to ensure speed and transparency in their procurement process.
That said, there are four major stages you would need to go through as you prepare your RFQ. These are as follows:
Before starting, you should review your procurement needs and ensure they align with your business needs. Once this is clear, you should get to work on specifying the details of the product or service you want to purchase.
Remember, the more detail you provide; the more relevant the vendor’s responses will be. It’s a good idea to interface with other members of your staff or departments within your business to identify all the required specifications. Finally, decide on what type of RFQ you intend to issue, the number of vendors you want to send the RFQ to, and your response deadline.
While capacity will vary depending on your business’ resources, eight is typically a good number to start with. You should also allow enough time for the vendor and their team to work through the RFQ.
By the end of the deadline, you can then review responses to identify what vendors present the best prices that meet your procurement needs.
You should notify the vendor you have chosen of your decision and how you intend to proceed. Be certain to keep a copy of the RFQ as it will form the basis of your contractual relationship going forward.
Now you know everything about how an RFQ works, what you can use it for, and when it is necessary. But RFQs are not the only tool available to B2B buyers during the procurement process. There are several other tools buyers may utilize, all of which are categorized as “RFx.” These include RFIs and RFPs.
RFI means “Request for Information,” and B2B buyers use it to gather information about products that may meet their procurement needs. As a rule, an RFI comes into play when the buyer is unsure what products meet their needs or what specifications they should be considering.
As a result, an RFI helps a buyer build a good understanding of the products, suppliers, and other factors they should know before moving on to the next stage in the procurement process. An RFI can also help buyers understand important seller conditions such as minimum order quantity (MOQ) requirements and more.
RFP means “Request for Proposal” and usually represents the next stage of the procurement process after the RFI. It is a procurement solicitation sent to potential suppliers and inviting them to submit a proposal to supply certain goods and services. With an RFP, the buyer already has a good idea of what they want, but they still want to decide which suppliers to go for. The proposal submitted by the supplier will present compelling information that will help the buyer determine how the supplier can help meet their procurement needs.
Compared to an RFI and RFP, it will be clear that an RFQ comes essentially at the last stage of the procurement process. As opposed to both an RFI and RFP, the buyer already has a good idea of the products they want to purchase and the vendors they intend to work with. All that the RFQ helps them determine is the prices of the various vendors and which is most favorable.
Overall, each document serves its specific purpose within the procurement process. You will likely use one or more of them as you source for the products that meet your business needs.
RFQs help B2B buyers identify what sellers best meet their procurement price point so that they can work within their budget. This is why it is such an essential tool during the procurement process.
Alibaba.com houses the world’s largest international marketplace for B2B buyers and sellers. With the Alibaba.com RFQ page, you can find, connect with, and request competitive prices from vendors all over the world.
Visit our RFQ webpage today or contact us now to start buying from international sellers on Alibaba.com.