Confused about how to utilize online Request For Quote (RFQ) marketplaces for custom manufacturing? Here are a few tips to help you out and some answers to the most common concerns:

Online Request For Quote (RFQ) marketplaces can be exceptionally effective in helping job shops grow their business and thrive in a competitive environment. But some businesses are wary of these online venues because they’re relatively new and complex. Indeed, while some shops have benefited tremendously from these channels, others have not realized their value.

To make sure that your job shop falls into the first category, you have to understand the advantages and drawbacks of RFQ marketplaces, weigh them against each other, and figure out if these online models serve your particular needs. You can start the evaluation process by looking at how these channels are currently used:

• Buyers are employing online RFQ marketplaces to develop or expand their supplier bases, adapt their capacity and to reduce costs.
• Suppliers of parts or services are relying on these models to reach a broader market, acquire new customers to sustain current capacity, make headway in a new process or technology, and to undercut costs to vie for new work.
• The various marketplaces are set up differently. While some require suppliers to pay a subscription fee in order to participate, some impose post-award charges on suppliers or buyers. Others use reverse-auction models—in which price is the main differentiator—while some bigger corporations have developed their own online channels to facilitate their sourcing initiatives.

The key to leveraging these online venues is adapting them to your business’s capabilities and objectives. By doing so, many businesses have been able to use these marketplaces to gain traction in a tough manufacturing market. Here’s what you can expect from these channels and how you can address some common concerns:

Will I win jobs once I participate in an online RFQ marketplace?

Not necessarily. Some suppliers and shops do get jobs shortly after joining an online venue while others do not. A key strength of RFQ models is helping manufacturing businesses establish relationships with buyers, which can extend beyond the contract award. Through these online venues, suppliers can reach prospects with precisely detailed manufacturing needs at the time when they are most interested. These new channels allow businesses to communicate their shop’s unique value proposition to prospects, and in so doing, to greatly increase their chances of securing jobs.

Are suppliers making unrealistically low bids on online RFQ channels?

Yes, some suppliers and shops do submit bids that are lower than what it would cost them to do the job. But this behavior is not unique to online channels. Moreover, just as some shops quote too low, some buyers use price as the sole deciding factor. Fortunately, price will become less pivotal as the economy improves. In general, suppliers undercut quotes more often for simple, loose-tolerance jobs, where competition is intense and loyalty is less significant. It’s a different matter for work with more sophisticated geometries and more precise tolerances. When awarding this type of work, buyers are more likely to value skill, reliability and long-term strategic partnerships. And online RFQ marketplaces are particularly adept at fostering these relationships.

Do buyers in online RFQ venues only choose the lowest quotes or shop around with no intention of committing?

Some buyers do pay attention to price alone or enter these systems solely for research purposes. According to two prominent online channels, about 50% of RFQs have been awarded to suppliers who did not submit the lowest quote. As this number suggests, many online buyers seek more than low price, valuing supplier quality, reliability and professionalism. Suppliers must realize that online RFQ venues have essentially changed the rules of when and how to convey these important qualities to buyers. Instead of the traditional system of buyers finding and qualifying suppliers before turning in RFQs, online buyers first submit RFQs and wait for suppliers to come to them before they start the qualification process. Thus, suppliers must promote themselves later in the process—after an RFQ has been posted. This means that suppliers must evaluate if their business is ready to develop relationships in these later stages.

Are online RFQ systems right for everyone?

No. These channels work for businesses that consider the opportunity to form relationships with a wider scope of prospects as the main return on investment. For suppliers to make the most of their participation, they must be ready to promote their services to potential customers at the exact moment when buyers’ interests reach their height—when the RFQ has been posted. Businesses that think that these online venues will constantly send jobs to their machines or assure that a buyer will choose their bid are overlooking the biggest advantages of these marketplaces and are setting themselves up for disappointment. They must remember that these online venues provide invaluable assistance in identifying the most promising customers and in forging long-term relationships.

Why not use the money for conventional sales and marketing efforts instead?

It’s advisable to pursue both online channels and traditional methods because many buyers are sourcing through multiple channels to find suitable suppliers. A blended strategy will likely generate the most opportunities, especially since a growing number of prospects are expanding their sourcing research to incorporate online venues. At the very least, suppliers can become familiar with some basic practices and techniques of online RFQ systems to gain an edge—or keep abreast of the competition—as buyers make the transition to online marketplaces.

Is it time-consuming to use these systems?

Just as it takes considerable effort to manage traditional sales channels, it requires time and resources to successfully work online RFQ marketplaces. Instead of overtaxing resources to manage both conventional and online channels, suppliers can try slowly transitioning their sales and marketing efforts to cultivate online channel skills. Indeed, if shops invest the time to develop these strengths and to adequately work the channel, they can realize tremendous benefits. Ultimately, these online venues are best used to market a shop’s best process or product and to locate a wider scope of prospects, who are interested in that particular process or product.

Source: 2003 Guide to Metalworking on the Internet: RFQ&A
A.J. Sweatt
MMS Online
http://www.mmsonline.com/articles/moi0302.html