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Purchasing Cycle: Pricing Information

Once the decision to buy has been made the next step is to prepare the documents to request bids from suppliers. Prospective suppliers can be identified through several sources such as supplier salespeople, catalogs, trade magazines, trade directories, and the Internet.

Request for Information (RFI)

This method is used by buyers seeking to compile a list of suppliers or to prequalify suppliers. The RFI asks for such information as supplier financial viability, product lines, production capacities, purchasing management and collaborative technologies, and delivery capabilities.

An RFQ is normally used when the detail product or service specification or the statement of work (SOW) has been finalized. The goal is to obtain price, delivery, and other specific terms from prequalified suppliers. The results of RFQs are reviewed by the buying committee and a supplier is selected. At this point the process moves to final pricing, negotiation, and contracting.

Request for Proposal (RFP)

An RFP is generally used when the detailed product or service specification or the statement of work (SOW) has not been finalized. Among the questions asked are supplier qualifications and financial viability; response guidelines such as confidentiality, proposal preparation, terms of negotiation, proposal evaluation, and notification of award; and SOW steps such as technical specifications, pricing and billing proposal, supplier quality program, and implementation plan.

Posted Offer to Buy

Normally used for government contracting, in this method the bid is posted in a public biding document or through the Internet. The goal is to ensure the bid is open to the general public.

Reverse Auctions

The reverse auction is an event whereby prospective or qualified suppliers have the opportunity to bid and rebid on a project with the objective of outbidding the competition and securing the contract. The contract can be awarded to multiple suppliers on a percentage basis, with the lowest bidder receiving the highest percent.

Prospective suppliers will respond to an RFP or RFQ with a bid proposal to offer a competitive bid. Tactical purchasing will use a bid evaluation process to conduct a price analysis.

Procurement will conduct a more thorough analysis through negotiating and understanding total cost of ownership and value analysis.

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