Building Supplier Relationship: RFI/RFP/RFQ/Reverse Auction
by Katalin Brennan
Eyvo has experienced a lot of interest in our RFX module and related functions with questions around its functionality. This is not surprising as the topic is a hot one in the supply chain community. Specifically, there are discussions about the value of building supplier relationships and the factors that companies should consider when selecting a vendor to provide products and services. In that sense, RFI, RFP, RFQ and Reverse Auction represent the steps encouraged by experts for quality supplier relationships.
Some years ago, companies used to solicit price quotes from suppliers first and select the long-term candidates by trial or quality, performance, and other factors. Today, the risk of working with the wrong supplier can expose the buyer to many risks including non-compliance, increased cost of rework, shipping charges and most importantly the lost time and opportunity to work with a worthy vendor who is dedicated to build a long-term business relationship.
We suggest the purpose and usage of the RFX module should be as outlined below.
Request for Information (RFI)
This is the first stage when you gather company specifics. Usually RFI is used for pre-qualifying suppliers and for inviting them to submit RFPs and RFQs. Some examples of information gathered here is organization size, locations, capabilities, line of products/services, and possibly references. The extent of information collection and topic is up to the requesting organization and is down to the specific needs.
Request for Proposal (RFP)
RFP is generally a free form response from the supplier to specific products or services. Again, proposals are not binding and serve as the next step in the supplier evaluation process. Respondents have the freedom to offer any pertinent information that they see fit, and use the RFP both as a vehicle for relaying pricing and additional qualities like service levels and volume discounts.
Request for Quotation (RFQ)
RFQ should be used once RFI and/or RFP has been gathered. While it is not an absolute necessity, the pre-qualification and communication with vendors will ensure that the requesting organization will not fall prey to substandard products and services by the lowest quote. Unlike a reverse auction which automatically awards contract to the lowest bidder, a quotation affords the discretionary selection of the most suitable supplier based on not just price but factors that can affect ongoing production needs which I will discuss next.
Supplier factors beyond price
Here are a few examples that can make a big difference in vendor selection. While this is not an exhaustive list, the type of information that are mentioned should all be taken into consideration.
Vendor Risk – this is generally related to performance and corporate stability
Quality – you can qualify the suppliers based on standards adhered to, internal quality assurance processes, ability to tailor products/services to custom requests
Performance – this could be based on time, communication, and/or responsiveness
Proximity – this can affect on-time delivery, cost, and communication
Market Share – larger suppliers may be able to provide better pricing based on volume production, smaller supplier may be more inclined to serve specific needs
We hope the above clarified some of the questions around vendor requests. So, before you select a supplier, do think about the different facilities that can provide important information beyond price and make your selection accordingly.
Contact us to learn more about our RFX module!