How to use quotations in your business

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THE THING ABOUT QUOTATIONS

Quotations are typically used when price is the only variable. In procurement and supply parties don’t just get into contracts. There are some inquiries that take place before deals are struck and learning how to use quotations make the process easy.

With quotations, the buyer describes what they wish to buy and the supplier offers the price at which they are willing to supply it for.

Remember since price is the major thing in a quotation, other terms and condition will be missing and that means you have to discuss them before a contract is concluded.

Often this is how you end up with the BATTLE OF FORMS. Something that you can check out HERE

WHEN IS IT ADVISABLE TO USE QUOTATIONS?

Knowing how to use quotations starts with knowing when to even use quotations in a business and in most cases, quotations make sense in the following situations;  

  1. When undertaking low value, low risk purchases
  2. Where the specifications and delivery terms are fixed
  3. Where suppliers have been pre-qualified
  4. Where a framework or dynamic purchasing system has locked down the contract terms and price is the only variable

UNDERSTANDING REQUEST FOR QUOTATION (RFQ)

As pointed out earlier, most agreements start with inquiries. As a buyer you can send any of these to a supplier, request for quotation (RFQ), Request for Information (RFI) or even Request for Proposal (RFP).

Of course, suppliers may also choose to send the buyer unsolicited proposals or even quotations for standard items or for what they think the buyer may be in need of.

A typical RFQ form will require the following;

  • The contact information of the purchaser
  • A reference number to use in reply and date by which to reply
  • The quantity and description of goods or services required
  • The required place and date of delivery
  • The buyer’s standard terms and conditions of purchase
  • Terms of payment

The supplier will then be invited to submit a proposal and quotation for the contract. Quotations may be evaluated in different ways

  • On a comparative or competitive bidding basis – in which case the best value wins
  • As a basis for negotiating with a preferred supplier, in which case the supplier is asked to present a quotation as the basis for negotiation to refine contract terms
  • As a way of testing the market to see what the current market price is

 

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