You received quotes from three suppliers. The lowest price is obvious. Is the decision made?
Usually no. Because that supplier delivers in thirty days, requires advance payment, and the minimum order quantity might be high.
In this article, we explained which items to take into account when comparing supplier quotes and the total cost approach.
Table of contents
Total cost approach
Unit price is only part of the total cost you will pay. The correct comparison is made over the total cost.
Total cost is the sum of product cost, shipping, customs, packaging, quality loss, and financing cost.
For example, an offer that is two percent cheaper but whose shipping is your responsibility might actually be more expensive.
Payment terms are also a cost. An offer with sixty-day terms adds financing value on top of the cash price; this must be taken into account in the comparison.
Items beyond price
Delivery time. A longer duration requires more safety stock; this means capital tied up. Critical stock level we discussed this relationship in the article.
Minimum order quantity.A high minimum leads to holding more stock than you need.
Quality consistency.A material bought cheaply but with a high defect rate hides the true cost.
Delivery reliability.A supplier who fails to deliver on the promised date carries the risk of halting production.
Communication and support.Being reachable when a problem arises is a hard-to-measure but valuable criterion.
Comparison table
It is difficult to make a decision without placing proposals side by side. Even a simple table provides clarity.
In the table, rows should be criteria and columns should be suppliers. A measurable value is written in each cell.
Items need to be converted to the same unit. Offers coming in different packaging sizes must be reduced to cost per unit; unit definitions see the article.
If quotes are logged in the system, comparison becomes automated; quote comparison and selection we covered the process in the article.
Weighting the criteria
Not every criterion has the same importance. Weighting makes the decision's priorities explicit.
For critical raw materials, delivery reliability may outweigh price. For consumables, price becomes the determining factor.
It is important to determine weights in advance. Determining weights after quotes arrive turns into adjusting criteria based on the desired outcome.
Weighting also integrates with the supplier evaluation system; supplier evaluation criteria see the article.
Single supplier risk
Routing the entire volume to the highest bidder seems tempting; however, it creates dependency.
For an item tied to a single supplier, you have no alternative when that supplier raises prices or fails to deliver.
Keeping a second supplier active on critical items, even with a small volume, acts as an insurance policy.
This risk must be managed alongside supply chain visibility; supply chain visibility you can check out the article.
Recording the decision
Once the selection is made, the rationale needs to be logged. Months later, the question "why did we choose this supplier" will be asked.
The record is also an internal control tool. When the cheapest bid is not chosen, having the rationale in writing ensures transparency.
Rejected bids must also be archived. They serve as a reference for negotiations in the next procurement.
Bid and selection records are kept in the procurement module; the ordering process continues in the purchase module.
Preparing the request for quotation correctly
Receiving comparable bids starts with preparing the request correctly. Bids coming in different formats require hours of formatting.
Technical specifications must be clear in the request text. An ambiguous definition leads suppliers to offer different products, making comparison meaningless.
Quantity and delivery conditions must also be stated. Bids received for the same product in different quantities cannot be compared in terms of unit price.
You should also determine the response format. Telling which information is requested in what order allows you to directly transfer incoming bids into a table.
It is also necessary to give a response deadline; a request without a deadline does not take priority on the supplier's side. We detailed this structure in the RFQ process article.
Preserving the long-term relationship
Collecting bids on every purchase lowers the price but weakens the relationship. A supplier constantly forced into competition will not prioritize you in a crisis.
The way to establish balance is to adjust the frequency of collecting quotes according to the item category. Long-term agreements for strategic items, periodic competition for standard items.
Giving feedback to losing suppliers also preserves the relationship. A supplier who knows why they didn't win will submit a better bid in the next round.
Granting the incumbent supplier the right of matching is a common practice; however, using this constantly alienates other suppliers from the process.
Keeping a record of long-term performance makes it easier to establish this balance; supplier evaluation you can check out the article.
Setting up the comparison correctly
Comparing supplier prices is a task that requires more care than it seems. Looking solely at the unit price is misleading.
For the comparison to be meaningful, all bids must be reduced to the same conditions.
Payment term is the first correction item; a cash price cannot be directly compared to a sixty-day term price.
Shipping and delivery terms are the second item; the cost varies significantly depending on the delivery location.
Minimum order quantity must also be taken into account; a cheap but high-quantity bid ties up capital.
The picture that emerges when these adjustments are made shows the true cost.
Points to consider
Price is not the sole criterion for supplier selection. Delivery reliability is often more decisive.
The cost of a delayed shipment on production or sales easily exceeds the difference in unit price.
Quality consistency must also be monitored; a supplier with a high return and scrap rate is expensive even if they look cheap.
Dependency on a single supplier is a separate risk; alternative sources should be maintained for critical items.
Storing price history makes it possible to see periodic trends and strengthens the bargaining position.
When these data come together, supplier selection shifts from intuition to a measurable decision.
Frequently asked questions
How many suppliers should I get quotes from?
Three is a common practice. More than that increases process costs and fatigues suppliers.
Should quotes be collected for every purchase?
No. For routine and low-value purchases, agreed prices are sufficient; set a threshold.
Should I also include the current supplier in the process?
Yes. Competition ensures current pricing stays up to date.
How are foreign currency offers compared?
All offers need to be converted to the same currency. In addition, which party bears the exchange rate risk and the uncertainty of the exchange rate on the payment date must be taken into account.
Should comparison results be stored?
Yes. They are used both as a justification for the decision and as a reference for the next purchase; rejected offers should also be kept.
How is a request for quotation standardized?
With the RFQ structure; what is an RFQ check the article.
Supplier comparison is more about understanding cost than just reading the price. When done with the right criteria, you both pay less and experience fewer problems.
To start, pick the three highest-spending categories. A small improvement in these categories is bigger than the savings from dozens of items in the long tail.
Ask three suppliers for quotes in the same format for each item and compare them based on total cost. Record the result and the rationale.
Repeat the same study six months later. In the second round, the process will have settled and your historical data will strengthen your hand in negotiations.
By talking to the EQLEM team you can set up your quotation collection and comparison process.