Leveraging the Raw Power of RFQ Process

Way back before there was software for generating requests for quotes (RFQs), there were blank ledger forms. These multiple row and columnar pages in a paper binding could be used for almost anything from inventory records to purchasing logs. Filling them out was very time consuming, but it was the only option for early buyers.

Now, with distributors offering online products and services, life has gotten unbelievably easier for procurement professionals. Companies like Avnet and Digi-Key have turnkey Internet-based solutions that allow an entire bill of materials (BOM) to be uploaded for immediate price and availability quotations. Ordering becomes a simple followup operation: selecting the items in the BOM that reflect the best buying options, negotiating if required, providing a purchase order number, stipulating a shipping method, and waiting for the order to arrive.

This offers a thousand times savings in time and effort over manual paper ledgers. Best-practices involve having the Internet access, part management system, and incoming screening of filled orders to assure accuracy and part authenticity before the inventory control people take over the physical part management.

In the absence of the ability to upload entire BOMs for distributor RFQs, spreadsheets are commonly submitted discretely to each supplier, which reviews and enters the relevant data for pricing, minimum buy quantity, and availability. The completed spreadsheet is emailed back to whoever made the RFQ. Most companies have their item master and BOMs on company ERP/MRP systems, which allow the data to be exported to Excel or CSV. With a few macros and tweaks here and there, the spreadsheet RFQ can be prepared in short order. I just completed an 87-item RFQ that took less than an hour from start to finish.

Managing the RFQ data from several suppliers selling the same products can be as easy as amending the spreadsheet to allow for side-by-side comparison on cost and availability. Purchasing history should be referenced to make sure the prices are in line with what was paid on previous orders. Many MRP systems have preset fields that will show at least three cost options: last PO cost, standard cost, and average cost. The last purchase may have had expedited costs or other unusual factors added, so the last cost could be misleading. Average cost takes several purchases into account and reflects something closer to reality, but if you want a solid comparison, use standard cost, and be sure to amend this field at least twice a year to keep up with market fluctuations.

Many purchasing modules have preset percentages for allowable cost deviations — a reasonable cost variance from one purchase to another. Accounting will set the percentage and can catch excessive deviations in a purchase price variation report. You can set the MRP display options to show in real-time any variance exceeding the preset value before placing the order.

Always archive these spreadsheets, so you can quickly retrieve budgetary costs for the same assembly build at a higher volume. Always include quote quantities higher than whatever you plan to buy for that RFQ. That way, you can also decide quickly if the next volume price break may be worth considering for this order. You can always use the next column pricing as a negotiating tool to see if the distributor is willing to give you the higher-volume discount without increasing your buy quantity.

I placed an RFQ today for bare PCB boards. I know I am building 40 boards for sure, but I asked for pricing on 50, 100, 200, 250, and 500. I may end up buying more boards than I need right now. If the price breaks are really aggressive at higher quantities, I can afford to keep some unstuffed boards in inventory. I only have to pay for setup fees and SMT solder screens one time, and the lead time effectively disappears on subsequent build requirements, because I already have the bare boards in inventory.

It comes down to two major considerations: cash flow and your confidence in the finality of the board design. You do not want to throw away a bunch of bare boards because engineering has made a change that renders your boards unusable.

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