Mysterious RFx - what’s the difference between RFI, RFP, and RFQ?
I had been working in procurement for a couple of years when I finally realised that request for quotation (RFQ) and request for proposal (RFP) are not the same thing. I actually thought that it was simply a matter of different terms being used in different countries - like truck in American and lorry in British English. I’ve come a long way since then to a clear understanding of the difference between these two terms. In this article I want to make sure you never get these RFx terms mixed up again.
Before we get started, the acronym RFx is used for talking about requests in general, where x can be either I (information), Q (quotation), or P (proposal).
- RFQ is used when the buyer knows exactly what they need, and is only asking for the price quotation.
- RFP is used when the buyer has a problem but does not know how to solve it. Then they ask suppliers to come up with different solutions (i.e., proposals) and maybe identify the accompanying cost estimation.
- RFI is used in supplier market research and to initiate the supplier selection process. The supplier selection process is wrapped up by performing a product qualification and site visit.
Before getting started with RFx
After you’ve done your supplier market research and found some companies who could be your potential suppliers, put together your supplier requirements and a self-evaluation questionnaire. Get in touch with them and ask detailed questions from each company.
In many companies the buyer-supplier relationship begins with a supplier self-evaluation. As a time-saving technique, buyers encourage potential suppliers to register themselves by filling out a self-evaluation questionnaire on the buyer’s company’s homepage. However, if you do not have a supplier self-service environment, it’s best to run an RFI.
Running an RFI
An RFI is much more efficient than sending out open-ended email to multiple suppliers, especially if you use a SaaS solution specifically designed for the process. An e-sourcing solution lets you set up a standardised questionnaire. You’re also able to send the same RFI to several companies, saving you precious time. In turn, the companies can provide information about themselves and the products they provide.
Whether you run the RFI on a SaaS solution or do it via the good old email, you need to benchmark potential suppliers against qualification requirements. The requirements should describe the expected qualification levels for the areas most important to you. Since you are looking for a partner who’d be a part of your supply chain, your requirements should reflect on how your company does business on a daily basis.
Based on your supplier qualification requirements, put together a questionnaire that can be divided into your preferred focus areas. Add detailed questions to each block. It may be helpful to phrase questions in a way that they can be answered with “yes”, “no”, or “partially”. This way it’s easier to analyse the answers later on. At this point, you can also request evidence for specific questions, such as certificates or other documentation.
RFQ or RFP?
The RFQ process is one of the most common operations carried out by every purchasing or supply manager on a daily basis. However, even as the most common operation, it can still be run in many different ways. Whichever way you do it, the RFQ is the most powerful method to get quick cost savings.
On the other hand, RFPs can and should be used by a wider range of business roles. Besides category managers, project managers and engineers can also use this process when looking for new and innovative solutions.
It’s important to understand that setting up an RFx and choosing the right processes can be a powerful strategic tool. For further reading, there are many practical strategic sourcing methods listed in A.T. Kearney’s “Purchasing Chessboard®”. Comparison with chessboard is very valid, since whether you’re responsible for category or project procurement, you need to have a strategy in place to play with your suppliers. Not all sourcing managers are familiar with all “Purchasing Chessboard©” methods but most of CPO-s know how powerful bidding and creating competition between your suppliers can be.
Running RFx more efficiently with e-sourcing systems
All types of requests can be run in an e-sourcing system, saving your time that can be spent on other stages of strategic sourcing. Instead of sending an unstructured email, it’s much more efficient to run an RFx in a SaaS application. This type of software lets the supplier do part of your job, e.g. entering basic identifying information into the system.
As the buyer, you upload the supporting documents (we’ll talk more about them in our next article) and create a pricing template. A pricing template makes it much easier to compare bids and award a winner. To increase efficiency, you can actually combine these two steps and run the RFI and RFQ together as subsequent events. While not recommended for all situations, this can be very useful for companies operating on a project-based business model.
Additionally, e-procurement solutions as ProcurementFlow.com can help you build trust with suppliers by showing that your RFx is being run in a formal, professional manner and that you’re taking steps to mitigate the risk of quote leakage and fraud.
To be continued...
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