1.5 In-Depth RFQ, Quote Leveling & Award Rules
A vague Request for Quote (RFQ) generates vague pricing. If you send a supplier a simple spreadsheet of part numbers without commercial and technical constraints, you are not negotiating; you are asking for a rough estimate. A robust RFQ package creates a binding framework where suppliers compete on total value—price, liability, and risk—rather than just unit cost. The quality of the award decision depends entirely on the fidelity of the input data and the rigor of the comparison logic.
The RFQ Data Standard
The RFQ package must be comprehensive. It is the technical specification of the business transaction. Missing data points here become liabilities later.
Technical Definition (The "What")
- BOM & AVL: Attach the specific revision of the BOM. Explicitly state if "Alternates" are permitted or if the bid is "Build to Print" (AVL strict).
- Evidence Requirements: Mandate Certificate of Conformance (CoC) and Traceability to OCM for all active components.
- Freshness: Specify Date Code restrictions (e.g., "Date Code ≤ 24 months at receipt").
Commercial Definition (The "How Much")
- Volume & Horizon: Provide Estimated Annual Usage (EAU) and the immediate firm demand. Suppliers price differently for a 10k/year contract vs. a 1k spot buy.
- Target Delivery: Define the "On-Dock" date.
- Incoterms: Standardize on FCA [Supplier Port] to strip hidden freight margins from the unit price.
Quote Leveling: Apples-to-Apples
Suppliers will format quotes to hide inefficiencies. "Leveling" is the process of normalizing these disparate inputs into a single "Total Cost of Ownership" (TCO) metric.
Step 1: Normalize the Unit Cost
Strip out currency fluctuations and unit-of-measure errors (as defined in Chapter 1.4).
Step 2: Calculate Stranded Capital (MOQ Penalty)
A lower unit price is a false economy if it forces you to buy years of inventory.
- Formula:
Stranded Cost = (MOQ – Required Qty) × Unit Price - Logic: Add the Stranded Cost to the Total Bid Value.
Step 3: Factor Logistics & Duty
- Local Supplier: Price + 0% Duty + Low Freight.
- Overseas Supplier: Price + Import Duty (e.g., 25% Section 301) + High Freight.
- Action: Apply a "Landed Cost Factor" to all international bids before comparison.
Pro-Tip: If a supplier quotes a lead time 10 weeks longer than the competition, monetize that risk. Calculate the cost of expediting freight (Air vs. Sea) required to meet the schedule and add it to their bid.
Sourcing Decision Logic
Use these rules to determine the award structure based on risk and value.
If Commodity = Class A (High Spend/Critical) AND Volatility is High:
- Then Implement Dual Sourcing.
- Split Rule: Award 70% to Primary (lowest TCO), 30% to Secondary (risk hedge).
- Why: Keeps the secondary channel warm and validated.
If Commodity = Class C (Low Spend/Hardware):
- Then Implement Single Source / Consolidation.
- Constraint: Do not split orders < $1,000. The administrative cost of managing two vendors outweighs the risk.
If Lead Time > Production Need Date:
- Then Award based on Availability, not Price.
- Protocol: Calculate the "Cost of Line Down" vs. the "Premium for Stock." If Line Down Cost > Premium, pay the premium.
The Output: Matrix & Award Memo
Documentation is defense. You must be able to reconstruct the decision logic during an audit or failure investigation.
The Quote Comparison Matrix
A single spreadsheet showing side-by-side leveling:
- Rows: Part Numbers.
- Columns: Suppliers A, B, C.
- Cells: Unit Price | MOQ | Lead Time | Total Landed Cost.
- Winner: Highlighted in Green.
The Award Memo
A brief narrative summary attached to the PO package. It must answer three questions:
- Why them? (e.g., "Supplier B selected due to 12-week lead time advantage, despite 5% price premium.")
- What are the risks? (e.g., "Accepted NCNR terms on Line 4 due to custom silicon.")
- What did we trade off? (e.g., "Consolidated freight to save $2k, delayed receipt by 3 days.")
Final Checklist
Control Point | Requirement | Critical Threshold |
Bid Package | AVL + Alternates Policy included | 100% |
Date Codes | Maximum Age Specified | ≤ 24 Months |
Leveling | Landed Cost Calculation | Incl. Duty/Freight |
MOQ Risk | Stranded Capital Added to Cost | Calculated |
Award Type | Single vs. Dual Source | Defined by Class |
Approval | Award Memo Sign-off | PM / Commodity Mgr |
Constraint | Unapproved Alternates | Forbidden |