How do you compare quotations from three suppliers?
Send the same request to all three suppliers, with the same specification, quantity and delivery date. Put the replies side by side on one sheet. Compare the landed rate, delivery time, payment terms and quality history. Rank them, choose one, and write the reason for the choice.
An owner often says, "I always take the lowest rate." It sounds careful. But the lowest rate on the quotation can turn out to be the most costly purchase. The supplier delivers late. The freight is extra. The test certificate is not included. Some pieces are rejected.
A comparison sheet shows the whole price.
Step 1: Ask the same question to everyone
Use one request for quotation. Write the item, specification, drawing number, quantity, required date, delivery place and the documents needed, such as a test certificate. Give all suppliers the same last date to reply.
If each supplier quotes for something different, one with delivery and one without, one with certificate and one without, the numbers cannot be compared. The "cheapest" quote may not be cheapest at all.
Step 2: Put the quotes side by side
On one sheet, for each item and each supplier, write:
| Line | Supplier A | Supplier B | Supplier C |
|---|---|---|---|
| Quoted rate | |||
| Discount % | |||
| Freight per unit | |||
| Landed rate (rate after discount + freight, without tax) | |||
| Delivery days | |||
| Payment terms | |||
| Quality history | |||
| Order value at landed rate | |||
| Rank (L1, L2, L3) |
L1 is the supplier with the lowest landed order value. L2 is the next, and L3 the last.
Example only: Supplier A quotes Rs. 100 a kg, but freight is Rs. 4 a kg. Supplier B quotes Rs. 102 a kg and delivers free. The landed rate is Rs. 104 for A and Rs. 102 for B. B is the cheaper supplier, although A looked cheaper at first.
Step 3: Look at what the rate hides
The rate is only one line. Ask about the others.
- Delivery. A cheap rate with a delay of ten days may stop a machine. What does that cost?
- Payment terms. Thirty days of credit is worth more than an immediate payment discount, if cash is tight.
- Quality history. If the supplier's last lots had rejections, the true cost is higher. Check your records.
- Documents. Is the test certificate included? Is the tax invoice correct?
- Minimum order quantity. Can you use that much?
Use the records you already have. The quality history comes from the inspection results on your GRNs, and the delivery history from the GRN dates against promised dates.
Step 4: Record the decision
Write the chosen supplier and the reason. If it is L1, this is simple. If it is not L1, the reason is required: "Supplier B has had no rejection in the last six lots" or "Supplier B delivers in three days."
A written reason protects the buyer. If the choice is questioned later, the paper answers for him.
Then the right people sign. Purchase prepares, the user department or Quality checks, and the purchase head or owner approves as per the approval matrix. The purchase order should quote the comparison sheet number.
Step 5: Use the first comparison for the next
After the first comparison for a repeat item, make a rate contract with the chosen supplier. It fixes the rate, delivery time and order limits for a period. Each order is a PO quoting the contract. You do not repeat the whole exercise for every small order.
Keep a record of rates over time. If the rate rises, you can see whether it is a market rise or a supplier's increase. It also helps sales: a rise of Re. 1 a kg in your main material changes the cost of each finished part, and sales must know before the next quotation.
Common mistakes
- Taking quotes by phone and not writing them down.
- Comparing quotes for different specifications.
- Ignoring freight, tax terms or payment terms.
- Always choosing the same supplier without checking others.
- Choosing a supplier by relationship and writing no reason.
How to start in your plant
- Use the comparison for every new item and every purchase above a limit you set.
- Print the sheet with the rows above.
- Ask Purchase to fill it the same day the quotes arrive.
- Ask for the approval before the PO is raised.
- Review one month later: how many times was L1 not chosen, and why?
Key points
- Send the same request to three suppliers and compare on one sheet.
- Compare landed rate, delivery, payment terms and quality history.
- Rank the suppliers, and always write the reason for the choice.
- The lowest quoted rate is not always the lowest cost.
- Use a rate contract for repeat items after the first comparison.
