Today’s post is from our archives at SafeSourcing Inc.
This past week we have covered a lot of ground in defining the different methods of gathering internal and external details needed to help make important procurement decisions. Today we will wrap the discussion up by tying those processes into the final piece of the puzzle of gathering competitive pricing.
The Request For Quote, RFQ, process is usually one of, if not the last process, that occurs before a company begins contract negotiations with a vendor. It can take many forms from online bid submission, to blind paper bids to more recent technology eRFQ process referred to as a “Reverse Auction”. The goal of this phase no matter how the information is collected is the same; procure the most competitive prices on a specific spend so that a contract can be negotiated and finalized.
Many times the RFP process will double as an RFQ where the details about a company and their capability to deliver the items or services you need are combined with a collection of specific pricing information as it relates to the project. When this occurs vendors are encouraged to submit their best pricing but that pricing alone will not determine the award of business and will not be their best price!
Even if the RFQ portion is included in the RFP, many companies will take a handful of vendors or a “short list” and allow them the opportunity to be more competitive in their pricing ( which is why, when you ask for best and final it never is), especially when vendors are so similar in what they are offering in every other way. This gives vendors the opportunity to differentiate themselves in the process in a way they may not be able to do in the way of experience or in the goods they are bidding on alone.
RFQs can often be run with no additional information gathering at all. For instance if you have purchased 100,000 plastic bags for the past 25 years, you know the breakdown goes to these 4 locations and you have all the specifications defined, it is appropriate and even beneficial for savings to go straight into an RFQ. This event allows companies to stand out in an area they have control over in order to get your business. In this case, going straight to an RFQ makes perfect sense and in order to begin realizing those prices as quickly as possible it should be the move every company proceeds with.
The other nice thing about RFQs is that they can provide a small channel to gather information from the vendors that would help clarify any other value they might be able to offer. This is useful for situations where price is the most important criteria but you want to provide the possibility that vendors may be able to give you additional services or terms that would allow them to distinguish themselves in ways they may not be able to do in price alone.
At the end of an RFQ you will have details about the suppliers and their capabilities either from historical spends or through an RFI/RFP process and you will have all of their pricing needed to make a decision as to who the best supplier for your company will be, taking you to the “endpoint” of the process which is contract negotiation and finalization.
During this 5 part post, we have covered several different processes in procuring products or services, but it all boils down to this: you have a beginning point which is the need for something and you have the end point which is the signed contract defining how that need will be fulfilled. In between is the place where the type of information you have and the type of information you need must be evaluated so that the journey from beginning to end is as smooth and organized for your company as possible.
We hope you have enjoyed this week’s series and look forward to and appreciate your comments.