As the digital revolution transformed the sourcing industry, the e was added to the acronym (eRFx) to indicate that the business was being conducted electronically, or online in a web-based platform.
Digital is the standard today, so RFx and eRFx are used interchangeably.
RFx/eRFx software helps procurement professionals execute more e-sourcing events faster and increase supplier participation through a shared tender platform. Users can design, distribute, collect and analyze RFIs, RFPs and RFQs to increase savings and efficiencies throughout the source-to-contract process.
A buyer may choose an RFI, RFP, RFQ or some combination of all three depending on their specific category or complexity of purchase. A typical three-stage eRFx process will include:
It is not uncommon to start with 50 or more suppliers in an RFI and narrow the pool of potential suppliers to six or fewer in the final RFQ. Below are more detailed definitions of RFx types and formats.
A Request for Information (RFI) is the most explorative RFx format as it aims to investigate what suppliers are able to offer.
The RFI is a request for qualitative information gathered through a questionnaire. This format is commonly used to collect information about products, services, or suppliers. It typically precedes the other RFx processes and is used to help a buyer shortlist potential suppliers to evaluate. An RFI can be used in conjunction with any of the other RFx formats. The RFI is typically the first step in the sourcing process and used when you are looking for new sources of supply and want to see what’s out there.
The primary focus of the RFQ is to assess the competitiveness of qualified suppliers.
After a shortlist of qualified suppliers is determined using the RFI, an RFQ is issued to a subset of suppliers for a quote on the products or services and is typically used to make an award decision. The RFQ is a request for quantitative information gathered through a bid list. The format is often used when the buying company is already familiar with the supplier's capabilities and are only interested in their competitiveness in relation to price. The price can be both binding and non-binding and will be defined by the buying company in the RFQ's specifications.
The RFP is a request for both qualitative and quantitative information, giving the buying company a possibility to learn more about both the suppliers' capabilities and their competitiveness with respect to prices.
The intent of the RFP is to collect information on a third-party provider’s products, services and capabilities in the form of a pricing proposal. An RFP should include the guidelines, instructions, and forms necessary for the applicant to submit a proposal. The end goal of this document is to invite suppliers to make a bid.
A Request for Tender (RFT) is a formal request asking for offers from potential suppliers to clearly define goods or services or work. These often include highly technical requirements and with prescriptive solutions.
An RFP typically includes open-ended, free-text questions, whereas an RFI has closed-ended questions. RFPs can be used for creative projects or service agreements in which the capabilities of the suppliers are harder to compare. An RFP can also be a request for pricing where the prices are binding offers that lead to a contract.
The RFP is typically used when the buyer has a good understanding of the supplier market and capabilities of each supplier. In those cases, there is no need for an RFI, but the buyer still has a few questions that need clarification in relation to the specific product or service.
The definition of RFP, RFT, and RFQ varies between countries and even companies. The RFQ and RFT are nearly always requests for prices, but the binding nature of the incoming bids vary. Some perceive the bids as non-binding as the buying company is simply investigating the possibility of sourcing a product or service. Others view the prices as direct offers which can lead to a supplier contract.
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By issuing an RFx, a buyer is requesting qualitative and quantitative information from suppliers. eRFx software is used in the supplier pre-qualification process, and it can be used to conduct category analyses. Using eRFx software does not require transitioning to a completely new sourcing process. It is simply a more efficient way to find and select qualified suppliers.
For example, issuing an RFx to all suppliers simultaneously allows you to evaluate all suppliers at once while working in the same environment and timeframe. This is much more efficient than having multiple meetings with each supplier to review the company’s capabilities, products, services, pricing, etc.
Quick Answers
When to Use an RFx
When to Use an RFI
Launch an RFI to get an understanding of products or services or to collect general market data. The RFI is most commonly the first step in an RFx strategy to evaluate suppliers’ capabilities and narrow the pool of qualified candidates. It is also a useful tool to involve new suppliers on a new project, assess the market for better suppliers, create a shortlist of suppliers for your portfolio, or to inform the next phase of your RFx strategy.
When to Use an RFP
The Request for Proposal (RFP) can reduce cycles times if the RFI is not needed because the pool of suppliers are already deemed qualified. Running an RFI can be time consuming, and the RFP can generate the information required from suppliers through a comprehensive questionnaire. The participation rate of the RFP is also typically higher as they are perceived as being more serious than the RFI. Of course, if the pool of suppliers is unknown, the RFI is likely needed to narrow the list based on qualified responses.
When to Run an RFQ
The RFQ is typically the final step in the RFx process. It is distributed to final candidates who have been vetted and deemed qualified through the RFI or RFP process. If the pool of suppliers is already deemed qualified, the RFI and/or RFP can be skipped and save cycle time.
Quick Answers
When to Run an RFx
Objectives to an RFx
There are many reasons for initiating an RFx during the sourcing process but most are related to finding new suppliers, gathering information from current suppliers, or conducting internal analysis.
Other objectives to the RFx could also include the following:
Sourcing New Suppliers
Gathering Updates on Current Suppliers
Internal Information Gathering
Enablers are factors a buying organization can fully control or influence during an RFx process. The importance of each enabler will vary depending on the request type and extent of the request. Enablers are:
It is important to know which enablers can best influence the outcome of the eRFx. The first three enablers must be handled every time an RFx is initiated regardless of the type. The last three enablers are relevant when initiating a request type containing a questionnaire. Supplier selection criteria are used to create and evaluate the questionnaire and can be divided into qualification criteria and sourcing criteria.
RFx Strategy
1. Planning the RFx
Planning is critical to securing the best outcome for an eRFx. If you fail to plan, you plan to fail. The buyer should always make a timeline for the eRFx process with important milestones marked to give structure to the process. It is also recommended to share the timeline with suppliers so they know the timeframe for the inquiry. If the buyer knows upfront that the eRFx will be followed by an e-auction, it should also be added to the timeline.
2. Communication
It is important to have clear communications with all suppliers throughout the RFx process, but running the process through a digital tool should not exclude the personal contact between the buyer company and the supplier. Suppliers should be able to ask questions and comment throughout the process, keeping the relations intact.
Introduction to RFx
Write a clear introduction including the purpose of the request, the reason for the inquiry, and the potential benefits suppliers can expect by responding. If new suppliers are invited to the RFx, it is a good idea to include a short presentation of your company's background, company structure, corporate and sourcing philosophy.
Evaluation & Award
If suppliers don’t know how they are evaluated, it can cause confusion, potential misunderstandings, and a negative experience overall. Clearly communicate expectations to suppliers to ensure a positive outcome. It is also important to acknowledge the diversity of the suppliers (e.g. incumbent suppliers versus new suppliers).
Feedback Post Deadline
After finalizing the RFx, it is important to provide feedback to all participating suppliers. Be sure the RFx is concluded for both shortlisted suppliers as well as deselected suppliers. By closing the eRFx properly towards all suppliers, you increase the likelihood of suppliers feeling satisfied with the RFx process and wanting to participate in future.
3. Involve Stakeholders
It is important that all relevant departments are involved in the preparation of an RFx to ensure the information collected from suppliers is extensive enough to base a decision.
Stakeholders could include:
The various stakeholders must agree on the content of the RFx to ensure that suppliers are properly informed about the terms, conditions and specifications. Stakeholders should ensure that all relevant information is requested from the suppliers in the RFx's questionnaire and bid list.
4. Supplier Selection Criteria
The supplier selection criteria are used to select the best suppliers. These criteria are defined by all the relevant stakeholders. Defining the supplier selection criteria helps establish the advantages and disadvantages of each supplier in terms of their ability to meet the buyer's needs. This is critical when initiating RFx’s containing a questionnaire.
Predetermined Supplier Selection Criteria
Only relevant information should be requested based on the supplier selection criteria in the questionnaire. This will reduce the risk of information overload by the deadline. The use of predetermined sourcing criteria will also lead to a more objective process as the evaluation is not based on the buyer's gut feeling, but on the entire company's needs.
The supplier selection criteria can be divided into two groups:
Qualification Criteria
Qualification criteria reflect the basic qualities and capabilities that a supplier must possess for the buyer to consider them a potential supplier. These criteria are often done through a pre-selection process where the buyer is investigating the market. The qualification criteria can be used as filters in database searches, topics in screening phone calls, and as questions in a pre-vetting RFI.
The qualification criteria will ensure that only suppliers who meet the company's basic requirements are invited to participate in the main RFI. A supplier who fails to meet any of the qualification criteria will be eliminated from the sourcing process.
The qualification criteria can again be grouped into two main categories:
Sourcing Criteria
The buying company's more advanced supplier requirements will reveal the potential supplier's relative capabilities. These criteria are often used in later stages of the pre-selection process and early stages selection of qualified suppliers where suppliers are shortlisted through an RFI.
RFx Strategy
5. Sourcing Criteria
Sourcing criteria are benchmarks that suppliers must fulfill to some degree. You can assess their specific capabilities in the actual eRFx when you have established which of the suppliers meet your qualification criteria, As result, the focus of the eRFx is on assessing the relative capabilities of each supplier to meet your specific needs.
Defining Sourcing Criteria
Number of Sourcing Criteria
The sourcing criteria will need to be transformed into questions. If a single sourcing criterion identified, it still has to be transformed into an actual question that the suppliers can answer in the eRFx. Buyers typically identify 6-12 sourcing criteria.
Importance of Sourcing Criteria
After having identified the sourcing criteria, the relative importance of each individual criteria must be determined in cooperation with the stakeholders. The advantages and disadvantages of agreeing on the importance before issuing the eRFx include:
6. Outcomes of the RFx Process
The outcome of a request depends on the request type and the associated questions and/or product lines. However, the outcome of an RFI and RFQ or RFx can be grouped in three types.
Qualified Suppliers
The main purpose of the request is to identify the group of suppliers who are both able to supply the product or service in a satisfactory way, as well as supply it at an attractive price. The main outcome of an RFx will be a list of qualified suppliers with whom the buyer can continue negotiations.
The number of qualified suppliers will have an impact on the buyer's options during a negotiation. This will determine the buying company's buying power compared to the suppliers' selling power. If a large number of suppliers are qualified, and they have submitted competitive prices, the buyer might decide to continue negotiations using an e-auction. Improved competition will drive down product cost. L
If only a few suppliers are qualified, and the submitted prices are widespread, the buyer might decide to continue negotiations face-to-face in order to find out if an attractive agreement can be made with the most competitive suppliers.
Start Price
Another major outcome of the eRFx process is knowledge about each of the qualified supplier's price level. After the RFx, the buyer must determine how to proceed in negotiations with the qualified suppliers. It is important for the buyer to know the price in which each supplier enters into negotiations in order to plan the negotiations in the most beneficial way. The RFQ bids will help the buyer determine whether it is most beneficial to proceed with an e-auction or if it is better to conclude the negotiations face-to-face.
Close Price Structure
If the suppliers' RFQ bids are close, consider continuing negotiations in an e-auction as the direct competition between suppliers will drive down costs.In some cases, suppliers submit RFQ bids that are 0 - 10% away from their bottom price level, and in other cases suppliers submit prices that are the absolute best offer.
Scattered Price Structure
If the suppliers' RFQ bids are far apart, consider face-to-face negotiations using traditional negotiation tactics in order to convince suppliers to reduce their prices. If the buyer does not feel confident about getting improved prices in a face-to-face negotiation, it might be worth considering to continue negotiations using one of the alternative e-auction formats where the dynamics are driven by the e-auction and not supplier bidding.
Parameters in the RFP
When the buyer starts further negotiations with the qualified suppliers, it is important that these negotiations are conducted on the Total Cost of Ownership. To ensure that the suppliers are evaluated on total cost, the buyer needs to know the exact terms and conditions for each suppliers bid.
Additional factors could include:
By including all parameters in the further negotiation, the buyer ensures comparability and transparency in the decision making process.
Example:
If the RFI revealed that one of the qualified suppliers can only accept 30 days payment terms compared to the requested 60 days, the buyer has to decide whether 30 days is acceptable. If acceptable, the buyer must consider how this will influence the supplier's total cost.
Writing a Request for Proposal (RFP) or a Request for Information (RFI) is an art form. A well written RFP can save you from having to finalize many events using face-to-face negotiations.
At Scanmarket, we conduct thousands of RFPs annually and speak with suppliers daily across industries and geographies. Our subject matter experts have more than 20 years of experience in this domain, so we have put together a list of best practices and tips for how to write an excellent RFx:
If you, the buyer, is not able to formulate the purpose and objectives of an RFP in a concise manner, you may not provide sufficient in order to make a decision.
The most common purpose of an RFP is “To find a supplier of product X for a given time period." However, objectives can differ greatly depending category strategy, market conditions, etc. When defining objectives, we always recommend using the SMART model to define objectives:
S: Specific
M: Measurable
A: Accepted
R: Realistic (but ambitious)
T: Time-bound
Quick Answers
How to...
Use RFI, RFP, RFQ & eRFx in the Strategic Sourcing Process
eRFx software is primarily used in the supplier pre-qualification process, but it can also be used to conduct category analysis. Using eRFx software does not require transitioning to a completely new sourcing process, instead it’s a more efficient and strategic way to find and select qualified suppliers.
Gather Information with an RFI
To get an understanding of services or products, or collect general market data, you can launch an RFI. This is most commonly the first step in an RFx strategy to evaluate suppliers’ capabilities.
Create a Supplier Shortlist and Follow Up with an RFP or RFQ
Once you have collected enough information to make an initial evaluation of suppliers, then you move on to the next phase of your strategy. An RFI is often follow by an RFP or RFQ. Which one you use depends on the scope of your project.
Quick Answers
When and What ...
When to Initiate an RFx
The primary reason that buyers initiate an eRFx is to find new potential suppliers, gather information from current suppliers and conduct internal analysis of suppliers. However, eRFx can also be initiated as part of the strategic sourcing process to conduct category analysis, pre-select potential suppliers, and to select qualified suppliers, among other reasons.
What Can be Sourced Through RFIs, RFPs, and RFQs?
In contrast to eAuctions, everything can be sourced through a Request for Information, Proposal, or Quotation. There are no risks related to running an RFx. Running your requests for information, proposal, or quotation via an online tool simplifies and structures the process, while saving your team time and resources.
Why RFI?
RFIs Used both Internally and Externally
The RFI is the most explorative eRFx type, as the aim is to investigate what exactly the individual suppliers are able to offer.
The Purpose of an External RFI
The most common purpose of an external RFI is to shortlist a group of new or existing suppliers based on their capabilities while keeping supplier evaluation costs to a minimum. This investigation can be carried out as part of several steps in the sourcing process.
A pre-vetting RFI could be initiated (in the sourcing process step “Pre-select Potential Suppliers") to investigate whether the suppliers comply with the buying companies basic requirements - the qualification criteria.
The pre-vetting RFI could be followed by a more in-depth RFI (in the step "Select Qualified Suppliers"), exploring how suppliers perform in relation to the buying company's more specific requirements - the sourcing criteria.
Besides the traditional uses of an external RFI there are some alternative uses, such as:
Internal Usage of an RFI
An internal RFI is most commonly used in the sourcing process step "Conduct Category Analysis" to collect stakeholder information prior to the initiation of an external RFI. For example, if the buying company wants to consolidate their car leasing to a maximum of two suppliers, the purpose of the internal RFI will be to gather information about each divisions' spend, their current suppliers, the cars available for leasing etc.
Besides the traditional uses of an internal RFI, some alternative uses include:
Advantages of an Online eRFI
One of the benefits of using an online RFI is that the buyer has 100% control of the information interchange. The buyer is able to design the questionnaire in such a way, that the suppliers are only able to input the information requested and not addition unrelated information. The inflow of information is controlled via question type and functionality selections.
Another advantage of utilizing an online RFI is the possibility to follow up on each supplier. Traditionally, the buyer has no possibility of knowing whether or not each supplier will deliver the requested information before the deadline. In the online eRFx the buyer can follow the progress of each supplier in the system, and thereby be proactive in ensuring that the requested information is uploaded according to the deadline.
Why RFQ?
RFQ - Inviting Shortlisted Suppliers to Quote
The RFQ is most often the second step in the sourcing process. The primary focus of the RFQ is to assess the competitiveness of the qualified suppliers.
Following the RFI, the buyer should have a group of shortlisted suppliers. At the same time, the RFI also clarified all internal requirements and the suppliers' specific capabilities, leaving only the assessment of the competitiveness of the suppliers. This is done via the RFQ by inviting the shortlisted suppliers to quote on specific products and/or services. Before the suppliers can submit their quotes, the buying company must formulate the final product/service specifications, the terms & conditions, and make an estimate of the needed quantity etc. This information must be available to suppliers, so all incoming bids are calculated on the same basis and directly comparable.
Submission & Evaluation
In an RFQ, the supplier submits their best bid per product. The submitted bids are sealed with no transparency between the participating suppliers. The suppliers cannot see their position in the bidding hierarchy, and therefore submit their bids based on their own knowledge of the market and cost calculations.
The evaluation of the incoming quotes is based on the RFQ template type chosen by the buyer. In the Scanmarket RFx system, there are three different bid list evaluation types to chose from:
Types of RFQ
Suppliers are invited to bid on a "multiple lined RFQ", which allows for listing any number of products within the same RFQ. Suppliers compete on the order total, but submit a bid per line. The bid list will be evaluated with the purpose of finding the overall best supplier for all products. Suppliers must bid on all products, and the winner is the supplier with the lowest TOTAL cost.
Suppliers bid on a "multiple lined RQF", which allows for listing of any number of products within the same RFQ. Suppliers compete per line, and are evaluated on a line basis, as the buyer is looking for the best supplier per product, not the overall best supplier.
Suppliers can bid on one or more products and the winner is the supplier with the lowest cost per line, meaning there can be one or more winners.
Suppliers are invited to bid on a number of products, split into lots. The suppliers submit bids for all products included in a lot, but do not need to submit bids for all lots.
The suppliers will be evaluated on the lot sums. The buyer is looking for the best supplier per lot, and not the individual products or all the lots. The winner is the supplier with the lowest TOTAL cost per lot and there is one winner per lot.
Advantages of Utilizing an Online RFQ
In a traditional RFQ, the buyer will receive several separate Excel files with the individual supplier quotes. The buyer might even receive some of the bids in emails. Resultantly, the buyer's first task will be to gather all bids in one Excel file making a comparison possible. This can be a large task due to the unstructured receipt of the prices. The actual evaluation is also time consuming as the buyer must make all calculations manually.
In an online RFQ, the incoming quotes are directly compared in the bid list giving the buyer an immediate overview of the result.
Another advantage of utilizing an online RFQ is that it is possible to transfer all the information from the RFQ directly to an eAuction. After evaluating the RFQ, the buyer can shortlist the suppliers in the system and invite them to participate in an eAuction. When transferring from a RFQ to an eAuction, all information (Introduction text, specifications, terms & conditions, supplier details, bids) are transferred in one click, making it very easy for the buyer to continue negotiations in an eAuction. The buyer avoids the manual transfer from the traditional Excel to the system, which can be time-consuming. Another advantage is the suppliers are already familiar with the eSourcing system, making it easier for them to manoeuvre in the system.
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