RFx events are essential for a successful procurement process. RFIs, RFQs, RFTs, and RFPs have grown in popularity in procurement and purchasing, especially in larger buying organizations. However, many procurement specialists use these terms interchangeably to refer to the same thing. This is why today we’re discussing RFP vs RFQ, to clear up any misunderstandings and point out the correct term to use for each situation.
RFP and RFQ meaning
RFP (Request for Proposal)
Sometimes based on a prior RFI, a Request for Proposal is a business needs-based request for specific solutions to a sourcing problem. In fact, a company will rarely go from an RFI to an RFQ.
An RFP is a procurement solicitation sent to potential suppliers with whom a creative relationship or partnership is considered.
A Request for Proposal should be very specific in terms of what a company’s needs are. This can be done by outlining the project’s business goals and identifying specific requirements that are necessary for the work being requested.
The key to a successful RFP is that there is sufficient detail to give suppliers the context they need to propose a valid solution, while still allowing enough leeway for suppliers to apply creativity and best practices to fulfill your business needs.
Usually, the Request for Proposal leaves the precise structure and format of the response to the discretion of the suppliers. Even more, how suppliers choose to build their proposals may set apart one trained supplier from another.
Later contract negotiations, however, tend to take more time and be more wide-reaching in their impact on the buyer’s business.
Effective RFPs typically reflect the negotiation strategy, as well as short and long-term business goals. They also provide detailed insights into which suppliers can win the contract.
Should any problems arise in the RFP response, they will be defined along with whatever root cause assessment is available.
RFQ (Request for Quotation)
Short for “Request for Quotation”, the RFQ is an even more detailed document that contains, in exact detail, a list of all relevant parameters of the intended purchase.
Unlike RFPs, which allow suppliers to suggest creative solutions, a company deploying an RFQ is looking for suppliers to implement a solution using predetermined specifications.
Usually, the Requests for Quotation contain tables that list each requirement and then asks suppliers to assess their ability to meet each requirement. The supplier will specify whether it can meet the requirement out of the box, whether it will require some configuration, or whether it will require leveraging a third-party supplier.
RFQs are best suited to products and services that are as standardized and as commoditized as possible so quotes can be compared before contract negotiations begin.
Price per item or per unit of service is the bottom line with RFQs. Other aspects of the contract negotiation deal impact the analysis process as determined by the buyer.
Supplier decisions are usually made by the procurement department. This comes after comparing and analyzing the RFQ responses for negotiation benchmarking advantage.
Once you have your bidders identified, you should begin writing your RFP. Here’s an example of a Request for Proposal outline:
Statement of need
Budget for the project
Company City, State, and ZIP
Project Name (the name should be clear and to the point)
This section should be a short introduction to your organization, team, and the project you need suppliers’ help with.
Overall Project Goals
This section should highlight your organization’s ultimate goal and the end results. Suppliers should answer in their bid how they’ll make the project goals feasible.
Scope Of Work
Here you need to detail how you’ll work with the supplier to ensure the completion of the project.
Requested Information And Proposal Format
This section addresses how the requested information and proposal format should be submitted. In this section, suppliers should meet and/or exceed the needs of the projects when they return their bids.
Here the supplier will detail any additional services that may be required.
Ownership And Intellectual Property
Suppliers may be willing to give you what they create for you (project deliverables), but may not be willing to give what they created and used for the creation of your project (software, for example) such as software.
This section highlights your organization’s responsibilities to ensure the supplier receives all documents, schedules, and other relevant information to stay on track.
Estimated Project Duration
Here you should outline the timeline from the RFP response submission date to the final decision date. Make sure you allow time for changes and alterations to the project and RFP.
Suppliers should know how to submit their bid and what the requirements are.
Suppliers should know how the winner will be selected. So make sure you include your contact information for bids and questions.
Any other documents or services you require from your suppliers.
RFP vs RFQ: Which one should you choose?
It all comes down to what you’re trying to accomplish. RFPs and RFQs have very distinct purposes. So your first step is to clearly establish what you’re trying to achieve.
Do you know what questions to ask a supplier?
Are your questions very specific or more general?
Do you already have a preferred supplier list (a shortlist)?
Do you need to bid out the work through a formal process?
Are you working with repeat or first-time suppliers?
Do you know what you’re looking for, or would you like suppliers to make suggestions?