Today’s post is from Ron Southard, CEO at SafeSourcing Inc. This post also includes input from the many talented teammates I work with every day and my Whitepaper by the same title.
In parts one, two, three items 1-4 and four items 5-8 we have discussed that the world of procurement is continually changing, and this includes the world of eProcurement when it comes to the request for information, a proposal, or a quote and why this process when used properly even with newer tools is still the most effective results delivering procurement process available.
The Request for Quote (RFQ)
A Request for Quote is typically used to solicit price and price related details such as freight, that meet minimum quality specifications for a specific quantity of specific goods and/or services. “RFQs are usually not advertised publicly, and are used commonly for (1) standard, off-the-shelf items, (2) items built to known specifications, (3) items required in small quantities, or (4) items whose purchase price falls below sealed-bidding threshold. Suppliers respond to an RFQ with firm quotations, and generally the lowest-priced quotation is awarded the contract.” 4
Though the above historically represented the industry standard as to what an RFQ was, it is important to expand on each of the points and understand the pieces from a historical and practical standpoint. With online eProcurement tools suppliers have an indication of where they stand and an opportunity to adjust their pricing should they choose. In standard practice this is done by phone calls or e-mails and one at time. As such it is very time consuming and does show some savings, but not nearly the rate of success online tools have historically provided.
Standard, Off-the-Shelf Items. This is a standard misconception of procurement departments everywhere. The fact is that virtually any product or service can be taken through the eRFX process. Strategic Sourcing solutions providers with extensive global supplier databases can invite a number of new suppliers to participate in the bidding process on whatever items or service may be required. Many will have some level of experience in successfully participating in eRFX events in a variety of functional areas within the organization such as HR, Marketing, Construction, and IT to name a few.
Items Built to Known Specifications. While this is a valid concern, it is also the biggest reason why projects are never taken out to bid; not having specifications or having the time to assemble them. Working with 3rd party procurement solution providers companies are more able to cover all their needs, taking into consideration all of the moving parts that affect these items. Such as freight, fuel surcharges, additional fees, and hourly rates. Results can be achieved that are comprehensive enough to allow strong decisions once the project has been completed.
Items Required in Small Quantities. Another misconception about RFQs are the quantities of items that can be sourced and duration of time for which those quantities are needed. There should be no limits at all, including number of items to have the suppliers bid on. With that established, however, there are always unique strategies to every RFQ so that the host company can end up with the most complete set of information while allowing suppliers to focus on those areas that need the most attention. This is part of the service that needs time to be considered as sourcing projects are strategized and developed.
Items Whose Purchase Price Falls Below Sealed-Bidding Thresholds. The recommended approach for pricing within the RFQ should be analyzed based on the historical spend, also taking into account any price indexes that can affect future pricing increases. Using historical spends and any additional information available, a max quote is often established that the suppliers must meet prior to participation. Setting a price decrement is also strongly recommended, and often plays a key role in the strategy as to how you would like to have the suppliers act, giving them the flexibility to make price adjustments they are comfortable with while driving savings as part of the process.
Understanding the differences between historical RFQ strategies and changes that are resulting in stronger results is the beginning of assembling the right strategy for your project. Strategies that have proven successful in the past generally have similar features in common and drive the two most important aspects of every project, valuable results, and supplier participation.
Check Back tomorrow for our final post of this series the RFQ Details, Missing Pieces and Communication.
If you’d like to learn more and can’t wait for the series conclusion, please contact a SafeSourcing Customer Services associate, they’d be thrilled to hear from you.