Supplier Selection and Sourcing: RFQ, Quotes, and Evaluation

Why supplier selection needs structure and fairness

Supplier selection is the process of choosing the best source for a requirement using consistent rules. A structured approach protects the business (cost, continuity, compliance) and protects suppliers (equal information, equal deadlines, transparent evaluation). It also makes decisions auditable: you can show what was requested, what was offered, how offers were compared, and why the winner was selected.

Two practical principles guide fair sourcing:

• Same request to all bidders: identical specifications, quantities, delivery locations, and commercial terms.
• Same evaluation method: predefined criteria and scoring, applied consistently.

Sourcing methods and when to use them

1) Existing preferred suppliers (approved/vendor list)

Use when the item/service is recurring, quality is critical, or the organization has negotiated terms (pricing, service levels, warranties). This reduces cycle time and risk. Still validate that the supplier can meet the specific need (capacity, lead time, latest revision/spec).

2) Catalogs and framework agreements

Use for standardized items (MRO supplies, IT accessories, standard components) where pricing and terms are pre-set. The buyer’s work shifts from negotiating to ensuring the correct item, quantity, and delivery details are selected.

3) Spot buys

Use for one-time, low-value, or urgent needs that do not justify a full competitive event. Control risk by using minimum requirements (e.g., basic specs, delivery date, warranty) and documenting the rationale for limited competition.

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4) Competitive RFQ (Request for Quotation)

Use when requirements are clear and comparable across suppliers (exact specs, defined quantities). The output is a quote with price and terms. RFQs are ideal for parts, materials, and well-defined services.

5) Competitive RFP (Request for Proposal)

Use when the solution may vary by supplier (implementation approach, staffing model, technology, service design). The output is a proposal that includes methodology and value-add, not just price. Evaluation typically weights technical and commercial factors.

Step-by-step: running a practical RFQ

Step 1: Define the requirement so quotes are comparable

• Specification: drawings/revision, standards, materials, performance requirements, acceptance criteria, required certifications.
• Quantity and schedule: total quantity, split deliveries, forecast, minimum order quantities allowed or not.
• Delivery details: ship-to address, receiving hours, packaging/labeling, Incoterms (if international), required lead time.
• Service expectations: warranty, response time, spare parts, training, installation (if applicable).

Step 2: Choose the sourcing route and bidders

Select suppliers that can realistically meet the requirement. A common practice is 3–5 bidders for competitive RFQs. Avoid “courtesy bids” (inviting suppliers who cannot win) because it wastes supplier time and can be viewed as unfair.

Step 3: Issue the RFQ with clear instructions

Include a single point of contact, deadline, format for responses, and rules (e.g., questions due by a certain date; all clarifications shared with all bidders).

Step 4: Manage Q&A and changes

If a specification changes, issue a formal revision to all bidders and confirm they quoted the same revision. Keep a log of questions and answers.

Step 5: Receive, log, and validate quotes

Check completeness before comparing: correct spec/revision, correct quantity, valid dates, delivery promise, and any exceptions clearly stated.

Step 6: Evaluate using predefined criteria

Use a bid comparison sheet and a scoring model that includes total cost and risk factors, not only unit price.

Step 7: Clarify, negotiate (if allowed), and award

Clarify ambiguities in writing. If negotiation is part of the process, apply it consistently (e.g., best-and-final offer round for all short-listed suppliers). Document the award decision and communicate outcomes professionally.

RFQ checklist (copy/paste template)

RFQ CHECKLIST

1) Administrative
- RFQ number, issue date, due date/time, time zone
- Buyer contact, submission method (email/portal)
- Validity period required for quote (e.g., 30/60/90 days)
- Confidentiality / NDA requirements

2) Technical requirements
- Item/service description
- Specification / drawing number and revision
- Standards to comply with (ISO, ASTM, IEC, etc.)
- Required certifications (e.g., ISO 9001), test reports, CoC/CoA
- Inspection/acceptance criteria

3) Quantities and schedule
- Total quantity
- Delivery schedule (dates or lead time)
- Split shipments allowed? (yes/no)
- Minimum order quantity constraints (state if not acceptable)

4) Delivery and logistics
- Ship-to address, receiving constraints
- Incoterms (if applicable) and required freight mode
- Packaging/labeling requirements
- Duties/taxes responsibility (if international)

5) Commercial terms
- Payment terms requested (e.g., Net 30)
- Warranty requirements
- Returns/defects handling
- Price structure (unit price, tier pricing, tooling/NRE)

6) Evaluation criteria (tell suppliers what matters)
- Price and total cost elements
- Lead time and delivery reliability
- Quality/certifications
- Service/support capability
- Risk factors (capacity, financial stability, single-source risk)

7) Response format (make comparison easy)
- Quote must include: unit price, total price, lead time, Incoterms, freight, validity, exceptions
- Separate line items for: freight, duties, tooling/NRE, optional services

What a supplier quote should contain

A quote is the supplier’s commercial offer. To be usable, it must be specific and complete. A strong quote typically includes:

• Supplier details: legal entity name, address, contact, tax/VAT ID (if applicable).
• Reference to the RFQ: RFQ number, item numbers, spec/drawing revision quoted.
• Pricing: unit price, extended price, currency, price breaks, any minimum order quantity, tooling/NRE as separate lines.
• Delivery: promised lead time, shipment schedule, ship-from location.
• Logistics terms: Incoterms (e.g., FCA, DDP), freight included or excluded, packaging included or extra.
• Payment terms: Net days, early payment discounts, required deposits (if any).
• Validity: quote expiration date and assumptions (e.g., raw material index, exchange rate).
• Quality and compliance: certifications, inspection/test documentation, warranty terms.
• Exceptions/deviations: any non-compliance with RFQ requirements stated clearly (e.g., longer lead time, different material grade).

Evaluation tools buyers use

1) Bid comparison sheet (apples-to-apples)

A bid comparison sheet standardizes key fields so differences are visible. It should separate:

• Commercial: unit price, freight, duties, payment terms, validity.
• Delivery: lead time, delivery schedule, Incoterms.
• Quality: certifications, defect history (if known), warranty.
• Exceptions: deviations from spec or terms.

2) Total cost of ownership (TCO)

TCO looks beyond unit price to the full cost to acquire and use the item. Typical elements:

• Purchase price: unit price × quantity.
• Freight and handling: inbound shipping, special packaging, receiving effort.
• Duties/taxes: import duties, customs brokerage (if applicable).
• Quality costs: inspection effort, expected scrap/rework, returns.
• Service costs: installation, training, spare parts, warranty coverage differences.
• Working capital: payment terms can affect cash flow (often handled as a scoring factor rather than a direct cost, depending on company practice).

3) Supplier risk factors (what can go wrong)

Risk evaluation reduces the chance of late deliveries, quality failures, or supply interruption. Common risk factors include:

• Capacity and scalability: can they meet volume now and later?
• Lead time reliability: not just promised lead time, but on-time delivery performance.
• Quality system maturity: certifications (e.g., ISO 9001), process controls, traceability.
• Financial and continuity risk: signs of instability, single-site vulnerability, disaster recovery.
• Geopolitical/logistics exposure: border delays, long transit lanes, customs complexity.
• Single-source dependency: proprietary tooling, limited alternates, IP constraints.

Worked example: compare three quotes using defined criteria (not price alone)

Scenario: Buy 1,000 precision machined brackets (Part MB-447, Rev C). Required: ISO 9001 certified supplier, delivery within 4 weeks, warranty 12 months, ship to Chicago. Evaluation criteria communicated in the RFQ:

• Total cost (TCO): 60%
• Delivery (lead time + reliability): 25%
• Quality & compliance: 15%

Quotes received (summary)

Step 1: Calculate TCO for each supplier

Assume no duties and no tooling/NRE. Quantity = 1,000 units.

Observation: Supplier B has the lowest unit price but the highest TCO due to freight.

Step 2: Score each supplier against the predefined criteria

Use a 1–5 scale (5 = best). Convert to weighted points: Weighted score = (Score/5) × Weight. Weights sum to 100.

Decision and rationale

Select Supplier C because it achieves the lowest TCO (tied with A) while meeting the 4-week requirement and providing stronger delivery reliability evidence. Supplier A is a close second but has weaker proof of on-time performance. Supplier B is not selected despite the lowest unit price because its total cost is higher and its lead time misses the requirement.

How to document the award (what to keep on file)

• RFQ version issued (spec revision, quantities, terms) and bidder list.
• All quotes received, including validity and exceptions.
• Bid comparison sheet and TCO calculations.
• Scoring sheet with weights and notes supporting each score.
• Any clarifications/negotiation emails and final offer confirmation.