How to Overcome the 3 Major Pitfalls in Responding to Supplier RFQs
“We need to respond to the RFQ how soon!?”
That may be the panicked question you first ask when receiving a request for a quote (RFQ), followed by thoughts of working through a large bill of materials with complex parts you’ve never seen before and a bulk of components you’ve quoted numerous times.
“I hope I don’t forget to add in the purchased components or inspection cost this time,” you think to yourself while your co-worker asks, “I know we’ve quoted this part before. Do you remember which quote package we’ve seen it in?”
This is just another day in the life of a cost engineer.
So how can you move from “how soon” to “I’ll have a complete RFQ first thing tomorrow”? First, we must understand the major pitfalls when responding to an RFQ.
3 MAJOR PITFALLS WHEN RESPONDING TO SUPPLIER RFQs
1. TAKING TOO LONG TO QUOTE
One of the biggest hurdles when responding to an RFQ is the turn-around time. Timeliness to quote is critical in winning new business and establishing strong customer relationships. You can spend weeks preparing an RFQ response but if your competition responds first or you don’t meet your customer’s urgency, then the time spent was time lost in winning other business. If your organization is chronically behind on responding to RFQs, then they may start to see a decline in profitability.
2. INCONSISTENT METHODOLOGY FOR COSTING
Inconsistency in costing methodology can have a number of downfalls for an organization. For example: if one person quotes in one way and makes certain assumptions, and someone else approaches quoting in a completely different way, then they both can quote the same part at vastly different prices. Even worse, if your customer’s notice the inconsistency, then you lose credibility and may start to see more scrutiny in the quotes provided.
Another effect that inconsistency can have in an organization is creating unprofitable quotes. Because there is no standardization, it becomes difficult to improve upon or evolve quoting methodologies to become more accurate or representative of internal manufacturing costs.
Additionally, if there is no standard way of quoting a part that is shared within an organization, most of the tribal knowledge built over years of experience may get lost over time. As key members of the cost estimating team leave, the expertise they have leaves with them. In the same way, as junior members are brought on board, there are gaps in knowledge that must be built.
3. HUMAN ERROR
Although its effects are sometimes uncovered too late, human error can have a large impact on overall profitability.
Some examples of human error:
- Typing $4.50 for overhead rate instead of $45.00
- Forgetting to add in purchased component costs
- Copy/paste the wrong cell into the final quote document
In all of these examples, the mistake is one easily made but the consequences are tremendous.
HOW TO GET IT RIGHT THE FIRST TIME IN QUOTING
When it comes to quoting, we find that best in class suppliers embrace automation in their RFQ process. This allows them to generate quotes based on specific product configuration requirements, leverage product CAD data, have real time visibility to cost, and provide that real time visibility to cost to their customers (OEMs).
Having the right automated solution can help resolve the major pitfalls when responding to RFQs.
So let’s say you have an automated solution now, and you’re able to quickly respond to RFQs with a consistent, profitable quote. How is this ability impacting how your business is run? There are two main shifts we start to see in organizations, as they embrace automation in their quoting process.
1. Making the shift from tactical to strategic
As your team becomes more efficient in the quoting process, they will have more time to spend on making more strategic decisions to increase profitability. Some of these activities can include:
- Evaluating supplier capability
- Optimizing order quantity
- Comparing different regional manufacturing costs
- Making strategic sourcing decisions (bid package)
- Conducting spend analysis to find cost outliers for negotiation
- Evaluating more effective manufacturing routings
- Improving internal manufacturing process/methodology
- Continuing to improve and update quoting methodology
2. Becoming your customers ‘go to’
By providing quick, consistent, and transparent responses to RFQs, you’ll earn more of your customers respect and business. You’ll become a trusted supplier when your customers have an emergency, because they know they will get a quick response that they can trust. Additionally, you’ll be able to extend the level of customer satisfaction by providing quick feedback to design changes.
So if you find yourself panicking each time a request for quote crosses your desk, it may be time to rethink your quoting process.