I received quotations, how do I compare them?
Quotes are part of the purchasing process of all companies. As you probably know, first you receive a demand from one of the company’s departments. Then, you must contact the suppliers.
The quotations are used so that the contractor can understand under which conditions the supplier will work, such as the price charged for the product or service, deadlines, technical specifications of delivery, payment methods and more.
It is through quotations that the purchasing department chooses the supplier. Although it seems like a very simple process, the quotes have some peculiarities that can make all the difference in the final price of the product or service.
It is very important to learn how to compare quotations, know which information is relevant and how you can put suppliers in competition. The stage of quotations is one of the first steps in the purchasing process, and one of the most important to the success of the purchase!
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Another supplier, another quotation
Each supplier presents its quotations in their own format. This means that your company’s purchasing department will receive hundreds of different quotations for the same product or service, which will not always contain the same information or be under the same conditions.
Some suppliers, for example, include the freight cost in the quotation; others will allow the customer to search the products directly from the factory or the distributor. Some offer low prices, but they determine minimum amounts to guarantee this value; others will always work at the same price, but offer other advantageous conditions.
Because of these distinctions, it is crucial to know what to check to compare quotes. We have outlined some points that you cannot fail to check in a quote, and which criteria you should use to choose between suppliers:
Always check the technical specifications of the quote. This includes all information about the product, such as weight, color, size, and other data. It is important that the quotation specifies the conditions under which the product will arrive on delivery, if assembled or dismantled, and whether the supplier provides equipment for assembly, for example.
Unit and packing
Speaking of conditions, it’s fundamental to check the unit and packing specifications. Some products are purchased in large quantities, such as small spare parts, tools, screws, nails. Others are bought only in case of need or in small quantities, like engines. The quotation must specify in which unit the product will be purchased (for example, by pounds or kilos, hundreds or thousands), as well as the packaging in which it will be delivered.
Packaging is really important because it has a direct influence on price! Some inputs are transported in pallet boxes, others in plastic bags with bubble wrap or pieces of foam for protection, and this makes all the difference in the final price.
The transport should also be evaluated. Air freight is faster, but more expensive, while transportation by highways or railways may be cheaper (despite the greater risks of accidents and longer lead time). Transport by ships involves port tariffs, in addition to the time of loading and unloading, demanding a thorough analysis of the price and estimated deadline.
This leads us to the next point.
The delivery time is perhaps the most fundamental information of the quote – after the final price, of course. The delivery time must be in line with what the company specifies in the purchase order, and the supplier must undertake to meet this deadline, except in extreme circumstances such as accidents or strikes, for example.
Each supplier receives payment in the way that best suits them. Some offer the option of installments with a deposit, while others do not request one payment, others offer discounts for cash payment, and so on. The payment conditions must be very well discriminated in the quotation, since it is a prime factor for the choice of supplier!
Validity of the proposal
All quotes have an expiration date. Watch out for this! Make sure that the quote that was sent to you is valid for enough time to make the purchase under those conditions, since the pricing and supplier selection process can be a little time-consuming.
Place and conditions of delivery
The quotes from the suppliers usually indicate the place of delivery or pick up of the product. It can be in the company itself, in the factory, in the distributor’s warehouse, in the port, in the airport, in the carrier, at the border. Identify the location and what is embedded in the price by the acronym CIF (cost, insurance and freight) for insurance and freight costs included, and FOB (free on board) for merchandise that will be withdrawn by the buyer. Make sure these delivery terms meet the needs of your business before evaluating the final price!
If two quotes for the same product or service present different information, the best thing to do is to break the quotation down, point by point. Take each category that we mentioned above and put together a table. Then, divide each quote into those points, fill in the individual price of each item, and enter the specifics as they appear.
For example: if a supplier offers free shipping and a fee to assemble the equipment, and another supplier considers freight and assembly a single fee, you must enter this information separately in the table, but add the values from the first supplier, to make a correct comparison with the second.
By doing so, you will be able to compare quotes that seem to be completely different!
So, do you feel ready to compare quotations without missing the relevant points? Don’t forget to unravel every quotation, especially if there is different information to compare. It takes more time than only looking and comparing final prices, but your analysis becomes much more assertive, and so does your supplier choice.
Do you have any different ways to analyze and compare quotations? Let us know! Leave it below at the comments!