Understanding RFQ and Quotation in Procurement
In professional procurement and supply chain management, the terms RFQ and quotation are often used in the same conversation, but they represent two different stages of the purchasing process. Essentially, they are two sides of the same transaction: one is a request, and the other is the answer.
Definition and Scope
What is an RFQ?
An RFQ (Request for Quotation) is a document issued by a buyer to one or more potential suppliers. It is used when the buyer knows exactly what product or service they need and is looking for the best price and delivery terms to fulfill that requirement [1, 2].
The primary purpose of an RFQ is to settle who will supply the goods and at what price, as the technical specifications of the item are already settled [2]. Because the requirements are clearly defined, the selection process is typically based on price and basic qualifications [1].
What is a Quotation?
A quotation (or quote) is the seller’s formal response to an RFQ [2]. It is a priced offer that outlines the specific products, quantities, unit prices, delivery terms, and a validity period [2]. Once a buyer accepts a quotation—usually by issuing a purchase order—it becomes the legal basis for the order [2].
Key Differences at a Glance
The fundamental difference between an RFQ and a quotation lies in who creates the document and its intent within the procurement workflow.
| Feature | RFQ (Request for Quotation) | Quotation (Quote) |
|---|---|---|
| Who writes it? | The Buyer | The Seller |
| Purpose | To solicit pricing for specified goods | To provide pricing and terms for those goods |
| Content | Specifications, quantities, and requirements | Unit prices, delivery dates, and validity period |
| Outcome | A list of competing quotes to compare | A binding offer that can lead to a purchase order |
The Procurement Workflow: From RFI to Purchase Order
An RFQ is rarely the first step in a complex sourcing process. Depending on the level of certainty the buyer has regarding the solution, the process typically follows this progression:
1. Request for Information (RFI)
Used in the early stages for market research. The buyer asks, “Tell us what you can do,” to understand available solutions and shortlist suppliers before a formal solicitation begins [1, 2].
2. Request for Proposal (RFP)
Used when the buyer has a need but not a specific product in mind. The buyer asks, “How would you meet this need?” Evaluation is based on the supplier’s approach, technical capability, and experience, as well as price [1, 2].
3. Request for Quotation (RFQ)
Used when the buyer knows exactly what they need. The buyer asks, “How much will this specific item cost?” [1].
4. Quotation
The seller provides the specific pricing and terms in response to the RFQ [2].
Practical Application in Distribution and Wholesale
In industries like wholesale distribution, RFQs may not always be formal documents. They often arrive as emails with attachments, Excel “take-offs” using the customer’s own columns, or PDF schedules written in shorthand [2].
For distributors, the speed and accuracy of the quotation are critical. Because contractors often send the same RFQ to multiple merchants simultaneously, the supplier who provides a quick and precise quotation is significantly more likely to win the order [2].
Common Mistakes in the RFQ Process
- Confusing RFQs with RFPs: Using an RFQ when you actually need a solution (RFP) can lead to receiving low prices for products that don’t actually solve the problem.
- Vague Specifications: If an RFQ lacks precise quantities or technical requirements, the resulting quotations will be inconsistent, making a “price-to-price” comparison impossible.
- Ignoring Validity Periods: Buyers often forget to check the validity period on a quotation. If the quote expires before the purchase order is issued, the seller may change the price based on current market costs.
FAQ
Can a quotation be negotiated?
Yes. Once a seller provides a quotation, the buyer may negotiate the terms, prices, or delivery schedules before accepting the quote and issuing a purchase order.
When should I use an RFP instead of an RFQ?
Use an RFP when you have a problem that needs a solution but you aren't sure of the exact specifications or the best way to achieve the result. Use an RFQ when you have a precise list of items and only need to find the best price.