RFQ vs. RFP: What are the key differences?
Having an effective, easy-to-use RFQ process is the first step in juggling and managing an effective procurement process. The RFQ is one of the easiest procurement workflows to navigate, but that doesn’t mean you can simply sleepwalk your way through the process.
Doing the simple things well is usually indicative of how effective your overall workflows run – and to best manage the relatively simple RFQ, first understanding the RFQ meaning is vitally important.
What is a Request for Quote (RFQ)?
An RFQ, or request for quote, is a document through which a business solicits pricing information from another company for a specific product or service. Generally, when you have a recurring physical product requirement, like supplies or specific raw materials, you’ll submit an RFQ in business to solicit bids.
Once you issue an RFQ to specific vendors (RFQ in procurement is not usually an open invitation market-wide), you wait for responses and choose based on the lowest price, fastest delivery, or other clear objective criteria. When you execute an RFQ within your procurement workflow, you’re essentially asking vendors for the best price on a fixed, unchanging product that’s ordered on a frequent enough basis to warrant an ongoing contract.
Note that the RFQ is not usually appropriate when you’re either unsure of the type or scope of product needed or trying to discover pricing for services – a Request for Proposal (RFP) is usually better in both instances. We’ll cover the difference between RFQ and RFP in a moment.
Request for Quote (RFQ) Information Requirements
An RFQ is issued to a set, predetermined series of vendors (usually already within your procurement ecosystem) and you’ll only get back the exact number of bids you request from that supplier pool. But, since you’re not casting a wide net, you’ll need to be very explicit in defining what you need and all other parameters – specificity is the best way to ensure your vendors understand your unique needs and ultimately offer the best possible price in a competitive pool.
If you’re using automation software within your procurement workflow, you likely have a preset series of templates useful for RFQ management. If not, here’s what you’ll typically include within your RFQ:
RFQ Cover Letter and Executive Summary (EXSUM)
Your company’s internal standard operating procedures (SOP) will drive how you open your RFQ, as well as other documents within the procurement process. Still, the cover letter and EXSUM will generally be a branded, vendor-facing document that sums up your requirement and procurement goal in a simple, digestible format to prepare suppliers for the remainder of the document.
RFQ Type and Quantity of Goods and Frequency
This is the meat and potatoes of your RFQ and can be very simple or quite complex, depending on your industry and specific needs. Here are some examples:
Janitorial supplies: As an office manager, you might be charged with keeping the bathrooms and cleaning closet stocked. In this case, an RFQ might simply include toilet paper, 10 cases each, to be delivered on the first day of every third month beginning in January 2024.
Machining metals: By contrast, if you’re a machine shop foreman ordering raw material, your RFQ type and quantity could be very complex and include minute specifications, alloy types, and multiple order frequencies alongside an ad-hoc resupply provision depending on how reliably you can forecast your own job requirements over time. In cases like these, you may even have to specify transport requirements like padding material or safety requirements if you’re ordering hazardous materials like welding gas.
RFQ Administrative Information
This tells vendors the contractual specifics, including:
- Payment terms (i.e., net-30).
- How long is the contract active, and renewal criteria.
- Other contractual terms.
- Unique or special requirements you expect vendors to supply as part of their quote submission.
- A company point of contact (POC), usually a contacting officer, for questions and contract servicing for the chosen supplier.
RFQ vs. RFP
I mentioned that an RFQ is a straightforward, set document that plainly lays out your known needs and asks vendors to offer their best price. What if your requirements are complex?
- You’re building a master price listing for many materials that are part of an overall project your company has never done before.
- You need special post-delivery service, i.e., you’re buying new office printers and need an on-call service provider to help troubleshoot issues as they arise and an ongoing contract for toner delivered within 24 hours of a need.
- You’re exploring a primarily service-based contract, whether as simple as weekly landscaping or as complex as hiring a consultant to build your company’s workflow automation.
In these cases – usually service-based contracts, materials for a large project with hazy requirements, or more complex goods-based contracts – you’ll need to develop a Request for Proposal (RFP) instead of an RFQ.
An RFP asks potential vendors to effectively “pitch” a solution to your problem. For example, you might solicit proposals for a next-gen machine project or consulting assistance to streamline operations. In these cases, the RFP describes the “big picture” need, and vendors tell you how they’d solve the problem or provide you with materials alongside a rough quote estimate. These differ from the RFQ in that they’re less prescriptive from your end and more of a collaborative back-and-forth engagement with suppliers.
When to Use RFQs in Business?
Although RFQs are not needed for every purchase, they are most commonly used in certain scenarios:
- Pre-Qualified Suppliers: When a pre-qualified list of trusted suppliers already exists, an RFQ can efficiently be used. These are suppliers who have met certain standards and are known for their reliability.
- Specific, Standardized Needs: RFQs are apt when the requirement is for specific products or services, and there is little room for innovation or customization. For instance, when sourcing bulk quantities of standardized products like raw materials for constructing furniture or standardized components like screws for manufacturing.
- Ongoing Bulk Orders: RFQs are well-suited for situations where a continuous, bulk supply of a product is needed. This is often the case in manufacturing, where a steady stream of materials or components is required to keep operations running smoothly.
- Lack of Add-On Services: When the purchase is solely for the product itself, without any need for additional services or long-term maintenance contracts, an RFQ simplifies the procurement process.
The RFQ Process – How Does an RFQ Work?
Since the RFQ process is fairly straightforward, you’ll typically follow a similar series of steps no matter your industry or company-internal SOP:
- Get your documents in order: this includes packaging the aforementioned details and scope information together and working with your employees or management to refine details and ensure your RFQ is as clear as possible to facilitate streamlined supplier operations.
- Create a vendor shopping list: remember, the RFQ process isn’t open to the public or to as many vendor applications as want to submit. Instead, you’ll prepare the vendor list to distribute the RFQ. Make sure you do sufficient due diligence on the best suppliers available, even if you have a favorite pick or two in mind.
- Send the RFQ for solicitation: depending on your company’s procurement strategy, this could be as painful as emailing to a wide distro or as easy as posting on a “job board” designed to streamline procurement.
- Receive and respond: next, you’ll wait for vendors to submit their best bid, then you’ll work to narrow down a shortlist, interview suppliers further if necessary, select a winner, notify all others that solicitation is closed, and begin supplier onboarding for the winner.
The RFQ process isn’t difficult overall, although your procurement platform of choice (or lack thereof) certainly drives ease of use overall.
Other Documents in the Procurement Process
We covered RFQ and RFP, but remember there are a slew of other documents you’ll often encounter as part of routine procurement proceedings. Keeping them straight isn’t always easy, unless you have a robust SOP that includes centralized procurement processes.
Two of the most common additional procurement documents include:
- Request for Information: The RFI is a “help me out” request to vendors to help narrow down requirements before developing a full-fledged RFQ or RFP. The RFI is useful when you’re embarking on a new project and want to make sure all your ducks are in a row before spending time developing a document package.
- Request for Tender: in procurement, a tender request or e-tender asks vendors to submit bids for a big project – it’s basically like an RFQ but used for larger or more expansive projects and usually includes service-based contracts as well as raw materials and physical products.
Effectively managing material and product flow starts with a well-developed RFQ process. The RFQ negates the need for extensive back-and-forth or repetitive sourcing requests, but packaging a proper RFQ from the outset is necessary to streamline the process with minimal headaches.
Ultimately, an effective RFQ can represent how effective your overall procurement process is. If you do the simple things well, then you can usually handle more complex tasks like RFPs and RFTs as well. On the other hand, if you struggle to complete an RFQ and aggregate bids, you might have further downstream trouble in your overall procurement ecosystem.