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“What is RFx?”; Have you ever come across this term?
Since you’re here you most likely have. Well, we’re here to help and the answer is actually very simple and straightforward. It is a widespread acronym (perhaps one of the most common terms in procurement) which stands for Request for x, where x is either Information, Proposal, Quote, or Tender.
In a nutshell:
“OK, but if we already have RFI, RFP, RFQ, and RFT, what’s the point of having a placeholder for all of them?”
The RFx process has gained quite a lot of ground recently as organisations are gradually according more and more attention to procurement processes. The problem is that many of them have procurement departments which are sometimes unable to properly differentiate between the processes and use them interchangeably. This is why RFx is often used as a blanket term.
So while all the processes above are often merged into one (RFx) on account of the similarities between them, it is vitally important for any efficient procurement operation to accurately distinguish between the different particularities of RFIs, RFPs, RFQs, and to capitalize on the advantages they each offer.
For the purpose of this article, we’ll take a look at the first three of these processes in turn and identify their proper use in the sourcing cycle.
The RFI is normally the first step in any procurement process of selecting the right supplier. It paves the way for one of the other requests that we’ll cover in this article. Perhaps the main advantage of an RFI is its safety and low impact on all participants.
An initial RFI is particularly useful in selecting an adequate starting pool of suppliers involved in the sourcing project. Naturally, this pool can be further refined using more targeted RFIs, which ask for narrower and more specific information. You don’t want to go into too much detail at this point, however; read on to understand why.
The information one would normally ask for in an RFI normally covers: supplier facilities and general production capabilities, market status and trends, and other similar high-level data.
To take away: The Request for Information RFI is mainly used to present a large database of potential suppliers with a series of (general) requirements and criteria, preparing them for a subsequent Request for Proposal RFP or Request for Quote RFQ.
The second logical step in a simple procurement operation, the RFP comes to ensure that the new refined pool of suppliers (those prequalified in an RFI) are presented with a much more specific set of descriptors for the product or the service being sourced.
If the RFI was used to determine a list of 20 suppliers who can provide a certain product, say an office chair, the RFP allows you to set significantly more precise specifications in your requirements and add new criteria such as customization, detailed production output and facilities, and delivery timelines.
Imagine the following scenario, employing the office chairs mentioned above. Following the RFI rounds, you end up with a list of 20 suppliers for “black leather office chairs, with adjustable backrests”. The RFP will go deeper in detail and you will be asking about production processes, sources for materials, the potential to customize the product, and deadlines for deliveries, so that you might end up with 10 suppliers who meet your exact criteria at the end of an RFP.
“Why not use the RFP from the start?” On the one hand, a very narrow RFI (effectively an RFP) limits your options as a buyer, and that’s not something you really want. It could mean missing out on meeting a new supplier, getting valuable info on the market, or severely limiting your options. On the other, by using an RFI doubled by an RFP you effectively only ask suppliers to invest significant time once they have been vetted as a true potential supplier through the initial RFI. This leads to time-saving across the board and a much more fluid process overall.
To take away: The Request for Proposal (RFP) should follow an RFI and refine the criteria for selecting suppliers down to the most detailed specifications of the product or service.
Request for Quote (RFQ)
“How much is the fish?” asks a successful hit from the late 90s. You might not be Scooter, but in any procurement project, you will reach the point where you have to ask your potential suppliers about the price of their products or services. RFQ is the process to do just that.
Let’s get back to our imaginary office chairs. After the RFP you have 10 suppliers each capable of delivering the much-needed chairs according to spec and timeline. Naturally, the next step is to determine who to buy from. The main purpose of the RFQ is to enable you to collect and compare supplier bids for the product or service you wish to have sourced.
You’d be tempted to think that the lowest bid always wins the contract and that’s that, but that’s not always the case. There are certain situations when you will not be choosing the one with the lowest bid. For example, two suppliers responding to RFQs with reasonably close quotes where the lowest one doesn’t win; that’s simply because you’d actually prefer to do business with the one with whom you have a long-standing relationship. Furthermore, the quotes offered by suppliers can always be higher than the lowest price that supplier is willing to accept. That is why the RFQ can be followed by a reverse auction or sealed bid.
To take away: The Request for Quote (RFQ) is the third step in the procurement process and helps you to determines the price suppliers are willing to accept for a product. This price can usually be driven down through a reverse auction or sealed bid.