After making the decision to purchase, the next step is to gather the necessary documents to request bids from potential suppliers. There are various sources to identify these suppliers, including salespeople, catalogs, trade magazines, trade directories, and the internet.
Request for Information (RFI)
Buyers often use this method to gather information about potential suppliers or to assess their qualifications. The Request for Information (RFI) typically requests details such as the supplier’s financial stability, product offerings, production capacities, purchasing management techniques, collaborative technologies, and delivery capabilities.
RFI – An inquiry to a potential supplier about that supplier’s product or service for potential use in the business. The inquiry can provide certain business requirements or be of a more general exploratory nature.
When the product or service specifications are finalized, an RFQ is typically utilized. The aim is to obtain specific terms such as price and delivery from prequalified suppliers. Following this, the buying committee reviews the RFQ results and chooses a supplier. The next step involves negotiation, final pricing and contracting.
RFQ – A document used to solicit vendor responses when a product has been selected and price quotations are needed from several vendors.
Request for Proposal (RFP)
When there is no finalized product or service specification or statement of work (SOW), an RFP is typically used. This involves asking questions about supplier qualifications and financial viability, response guidelines (including confidentiality, proposal preparation, terms of negotiation, proposal evaluation, and award notification), and SOW steps (such as technical specifications, pricing and billing proposals, supplier quality programs, and implementation plans).
RFP – A document used to solicit vendor responses when the functional requirements and features are known but no specific product is in mind.
Posted Offer to Buy
This method, typically utilized for government contracts, involves posting the bid in a public bidding document or on the internet. The objective is to ensure that the bid is accessible to the general public.
Reverse Auction – An internet auction in which suppliers attempt to underbid their competitors. Company identities are known only by the buyer.
When companies seek out new suppliers, they often ask for an RFP or RFQ and receive a bid proposal in response. Tactical purchasing teams will then evaluate the bids and conduct a price analysis to determine the most competitive option.
Tactical Purchasing – The examination of a seller’s price proposal or bid by comparison with price benchmarks, without examination and evaluation of all the separate elements of the cost and profit making up the price in the bid.
The procurement team will undertake a comprehensive analysis by negotiating and gaining a better understanding of the total cost of ownership and value analysis.