Be Cautious When You Send RFQ’s
Harry Hough, PhD, founder of the American Purchasing Society
Editor’s note: Dr. Hough is a frequent contributor to this blog.
Assume a product has never been purchased before. It is then easy to send Request for Quotations (RFQ’s) to companies that are found in a trade directory or the telephone book. It is common to do this, but caution must be exercised before assuming competitive quotations are being obtained.
Large and small companies alike have policies that require buyers to obtain three or more bids before placing certain types of orders. Three valid bids may not be enough to really evaluate the marketplace and obtain a relatively low cost. What is worse, the bids received may be rigged without the buyer having any idea that he or she is being duped. Here is an example that was recently reported.
Click to see Bob's online training courses
The buyer sent four RFQ’s to companies listed in an industry directory. The companies had addresses far apart and in different states. The company names were completely different. As it turned out one of the suppliers did not respond. When the buyer called to find out why, he was told that the reason for not responding was that another company on the list was bidding and that both companies were owned by the same people. The salesperson said that sometimes they give two different quotes, one from each company, but the salesperson didn’t want to do so in this case.
Because of a large number of mergers and acquisitions, the chance that companies are related is higher than ever. Buyers can be deceived because related companies can conspire to direct the business to one of them by offering an inflated price from the other. Of course, the same thing can happen if competitors agree to split business, but that is clearly illegal. In either case, the buyer believes a competitive quote is being obtained, when it is not.