What is an RFQ?
A request for quote (RFQ) is a fundamental building block for establishing profitable partnerships between a contract manufacturer or job shop and a product developer. It’s the key to successfully get a product manufactured with the correct specifications, materials, quantities, fit, finish and that passes all testing requirements. In a nutshell it is essential to capturing all the details required between the brand and the contract manufacturer.
How do you create an RFQ?
Creating an RFQ is the first step in selecting a new or existing supplier to produce a high quality part with a reasonable price point at your time of need, says Frank Russo in article published in the e-zine MMS. “An RFQ is your initial communication with potential suppliers to express your expectations for a job. A well-crafted RFQ is essential to the sourcing process and must provide crucial details to contract manufacturers who will determine if they can perform the job. Detailed RFQs allow suppliers to prepare accurate quotes that minimize the potential for cost overruns, delivery delays and products that don’t meet your requirements.” A comprehensive RFQ also allows you to evaluate the value of different suppliers, because sourcing a part is not just about price. And last, but not least, a solid RFQ opens a dialog between you and prospective suppliers to address design and manufacturing issues, as well as material options.
Venture Outsource says that in spite of the frequency in which RFQs take place, errors and omissions do occur, on both sides. In order to avoid certain problems, read the reasons below:
- Too few people are assigned to the RFQ process by the OEM
- Those that are assigned might not collectively, or individually, have access to all of the information needed in order to make timely appropriate unilateral or, group decisions, when necessary to do so, or
- Unilateral decisions are made when a consensus is required, also
- There is not enough depth of experience within the OEM (there are still a tremendous number of companies in industry that are ‘new’ to outsourcing)
Not providing accurate information in some key areas of a business program to be outsourced or, mistakenly omitting some areas of information when presented content to the contract manufacturer will more likely than not result in inaccurate quotes, late surprises or, at best, several re-quote processes that waste valuable time for all involved.
Some of the areas where errors can often occur in a request for quote process include, but are not limited, to:
- Bill of materials (BOM)
Many BOMs that companies may feel are accurate actually contain top-level systems inaccuracies. One way to address this is for OEMs to allow prospective contract manufacturers to examine a built-up, FGI product while checking off items against the BOM, by line-item
- Product, systems test specifications
- Assembly and fabrication specs not to the most recent revisions
- Inaccurate supplier history
- Manufacturing process instructions
- Throughput yields, process takt times (and other manufacturing-specific info is always helpful, but not always clearly communicated)
- Tooling requirements
- Country or, localization customs (export/import – exim) requirements
- Product handling and labeling requirements
Objectives of a RFP or RFQ
- Obtain detailed proposals in order to evaluate each vendors’ response so that the best interests of your company are met on all fronts
- Leverage the competitive nature of the vendor selection process to negotiate the best possible deal
- Insure that the interests of all stakeholders within your company will be met and a consensus reached
- Puts your company in control of the entire vendor selection process and sets the selection rules up front
- Starts building the partnership between you and the vendor right from the start
The RFP or RFQ should contain the following sections. Keep in mind that each document will be different depending upon the type of company and product you are searching for. Tailor each section for your individual needs.
- Submission Details
Deadlines, mailing address of your company, contact person for questions and clarifications
- Introduction and Executive Summary
Write this section last after the entire document is finished. This is used to provide prospective vendors with a brief overview of your company and the requirements for your product or service.
- Business Overview & Background
Give a brief overview of your business, products and market sector that you cater to. This will help your prospective vendors understand what business needs you are trying to fill with the vendor selection process. Also provide important background information that will benefit the vendor when responding.
- Detailed Specifications
This should be the longest section of the document. For an RFP, it will contain the qualitative measures and requirements that will drive the vendor selection decision. For an RFQ this section should provide the quantitative measures that you will be looking for in the vendor’s response. Example criterion includes:
- Product drawings
- Engineering tolerances
- Service levels
- Deliverables & Timelines
- Technical or Business Requirements
- Software functionality
- Hardware requirements
- Assumptions & Constraints
Any assumptions and/or constraints that the prospective vendors need to be made aware of must be listed here. Failure to be forthright and upfront with the vendor will open the door to renegotiation of the agreement at a later date and runs the possibility of straining the relationship you have with your vendor. Possible topics include: travel expenses, upgrade/modification costs, licensing rights, etc.
- Terms and Conditions
Any terms and conditions of the contract must be listed in order for the vendor to make a fair and honest response. These may include: financing options, contract length, renewal options, warrantees, delivery penalties, service levels, etc.
- Selection Criteria
The final section should be an overview of the selection criteria that you will be using to make your decision. Some companies prefer to keep this information totally confidential; while other companies believe this will help prospective vendors focus on what is important to your company.
Finally, compose a cover letter and send two copies of your RFP or RFQ to each of the vendors that you selected from your search process. Make sure that appropriate contact information is included in order to provide assistance to any vendor that needs it.