Why the Lowest Price Is Not Enough
In many purchasing departments, comparing quotations comes down to one question: who is cheapest? Three quotes are collected, sorted by unit price, and the order goes to the lowest. It is fast and easy to defend in a meeting. It also ignores the fact that unit price is only part of what you end up paying. A supplier who delivers late, whose goods get rejected at receipt, who wants cash up front, or who adds freight to the invoice can cost more in the end than the one who looked expensive on paper.
Smart RFQ comparison means scoring quotations on several weighted criteria that reflect your priorities, using performance data from your actual history with each supplier rather than impressions. An ERP system makes this practical because it already holds every purchase order, goods receipt, return, invoice and payment.
This article works through a numeric example of apparent price versus total cost, sets out seven common criteria with suggested weights, shows how to calculate a weighted score, and explains how the process runs inside an ERP.
Worked Example: Quoted Price vs. Total Cost
A hypothetical manufacturer needs 10,000 units of a packaging material a year and has two quotes:
| Item | Supplier A | Supplier B |
|---|---|---|
| Unit price | SAR 42 | SAR 48 |
| Annual purchase value | 420,000 | 480,000 |
| Freight | SAR 1.5/unit paid by buyer: 15,000 | Included: 0 |
| Rejection rate at receipt | 8%: 800 units | 1.2%: 120 units |
| Handling rejected units (SAR 5/unit for inspection, return, coordination) | 4,000 | 600 |
| Late deliveries that stopped the filling line (estimated SAR 15,000 each) | 4 incidents: 60,000 | None: 0 |
| Payment terms | Immediate | 60 days |
| Value of credit period (10% annual cost of funds) | 0 | About 7,900 in the buyer's favour |
| Estimated total cost | 499,000 | About 472,700 |
The credit period value is 480,000 × 10% × 60 ÷ 365, roughly SAR 7,890 of financing cost avoided by holding the cash two months longer. The supplier who looked SAR 6 a unit more expensive turns out to be about SAR 26,000 a year cheaper. The figures are illustrative, but the logic applies to any recurring purchase category. Our guide to total cost of ownership covers the concept more broadly.
Seven Criteria for Evaluating Quotations
The weights below are a common starting point. Adjust them for what you are buying: production raw materials deserve more weight on quality and delivery, while standard office supplies may genuinely be a price decision.
| Criterion | Suggested weight | Where the ERP gets the data |
|---|---|---|
| Price competitiveness | 20% | Quotations and purchase price history |
| On-time delivery | 20% | Promised date vs. actual receipt date |
| Supply quality | 20% | Receiving inspection results and returns |
| Payment terms | 15% | Supplier master data and invoices |
| Freight and delivery cost | 10% | Quotation and freight invoices |
| Responsiveness | 10% | RFQ sent date vs. reply date |
| Flexibility and compliance | 5% | Accepted changes and document completeness |
1. Price competitiveness
A common way to turn price into a score is lowest quoted price ÷ supplier's price × 100. The cheapest gets 100 and others score proportionally less. Compare like for like: same unit, specification and delivery terms. If you can recover VAT, compare prices before VAT. Watch the trend as well; a supplier who raised prices three times last year may be less attractive than today's number suggests.
2. On-time delivery
Measured as the share of orders delivered on or before the promised date over the last 12 months, supported by average days late, because one day late and two weeks late are very different. You can only measure it if the required date is on the purchase order and receipts are posted on the day goods actually arrive.
3. Supply quality
The share of quantity rejected at receipt, plus returns for defects found later in production or sale. Add whether required certificates exist and are current, such as conformity certificates through SABER for products under technical regulations, or SFDA requirements for food.
4. Payment terms
Longer credit means more available cash. Early payment discounts are often worth more than they look: "2/10 net 30" (2% off if paid within 10 days, otherwise due in 30) works out to an annualised return of roughly 37%, because you earn 2% for paying just 20 days early. If you have the liquidity, that beats most alternatives.
5. Freight and delivery cost
Is freight included? Does the supplier deliver to every branch or only the central warehouse? What is the minimum order for free delivery? With the distances between Saudi cities, this criterion can reorder the ranking completely.
6. Responsiveness
Time from sending the RFQ to receiving a reply, and average time to resolve complaints and returns. A supplier who answers within a day is far easier to work with on urgent orders.
7. Flexibility and compliance
Willingness to change quantities after the order is placed, to deliver partial quantities, and to supply complete documents such as a correct tax invoice and certificates of origin and conformity.
Calculating the Weighted Score
Final score = sum of (criterion score × weight) ÷ 100. Assume three suppliers for the same item at SAR 42, 48 and 45:
| Criterion (weight) | Supplier A | Supplier B | Supplier C |
|---|---|---|---|
| Price (20%) | 100 | 87.5 | 93.3 |
| Delivery (20%) | 60 | 95 | 80 |
| Quality (20%) | 55 | 92 | 85 |
| Payment terms (15%) | 40 | 90 | 70 |
| Freight (10%) | 50 | 100 | 70 |
| Responsiveness (10%) | 70 | 80 | 90 |
| Flexibility (5%) | 60 | 75 | 90 |
| Weighted score | 64.0 | 90.2 | 82.7 |
For Supplier A: (100 × 20 + 60 × 20 + 55 × 20 + 40 × 15 + 50 × 10 + 70 × 10 + 60 × 5) ÷ 100 = 64.0. Supplier B leads despite the highest price because it is strongest on the criteria that affect operations.
The score does not make the decision for you. You might keep Supplier C as a second source to avoid single-supplier dependence, or negotiate with B using the fact that C is close behind. The real value of weighted scoring is that it makes the reasons for a decision explicit and reviewable.
Weights Should Differ by Category
Using one set of weights for everything the company buys is one of the most common mistakes. Hypothetical examples of how weights might shift:
| Category | Price | Delivery | Quality | Payment | Freight | Response | Flexibility |
|---|---|---|---|---|---|---|---|
| Production raw materials | 15% | 25% | 30% | 10% | 10% | 5% | 5% |
| Goods for resale | 30% | 20% | 15% | 15% | 10% | 5% | 5% |
| Critical spare parts | 10% | 30% | 25% | 5% | 5% | 20% | 5% |
| Office and cleaning supplies | 45% | 15% | 10% | 10% | 15% | 5% | 0% |
For critical spares, one day of equipment downtime can cost more than a year's price difference between suppliers, so delivery and responsiveness carry more weight. For resale goods, purchase price hits margin directly. Set weights per category in advance and have them approved; never adjust them after quotes are opened to suit a particular supplier.
After the Comparison: Negotiation and Split Awards
The comparison table is a negotiating tool, not the end of the process. If Supplier B beats everyone except on price, you can go back with a specific point: its quote is about 14% above the lowest, and you are ready to award if it narrows the gap. That is negotiation grounded in data rather than general haggling.
For high-importance items, splitting the award can beat a single-source award, say 70% to the top-scoring supplier and 30% to the runner-up. It protects you if the main supplier stumbles, keeps the second supplier familiar with your requirements, and maintains competition for the next cycle. The ERP can propose the split and track each supplier against its share.
When a simple RFQ is not enough
For large or long-term purchases, run two stages: a technical evaluation first to exclude non-compliant offers, then a commercial comparison among technically accepted offers only. That stops a cheap offer winning simply because it does not meet the specification. If you sell to government entities, local content also matters: the Government Tenders and Procurement Law gives preference to local content and local SMEs, and a new law replacing it takes effect on 2 January 2027.
A Contracting Example
A hypothetical contractor needs 400 tonnes of rebar for a project in Dammam, in three deliveries over four months aligned with the pour schedule. Three quotes are within about 3% of each other, so price will not decide it. The questions that matter:
- Who can hit all three delivery dates? One late delivery idles the steel fixing and formwork crews, and a day of idle labor and equipment can exceed the whole price gap.
- Who supplies conformity certificates with every shipment? The consultant will not approve material without them, and a rejection means reordering and waiting.
- Who accepts quantity changes if drawings are revised? Design changes are routine in contracting.
- How do payment terms line up with when the owner pays progress claims? A supplier offering 60 days narrows the gap between spending and collecting.
Delivery, flexibility and payment terms rise in weight here, and price falls. An ERP that ties each purchase order to the project and its cost center makes the budget impact of each choice visible.
How RFQ Comparison Runs Inside an ERP
- Purchase requisition: the requesting department raises a request with item, quantity and need date.
- RFQ: sent to approved suppliers for the item or category on a standard form stating specifications and delivery terms.
- Recording quotes: entered in the same units and terms, with price, freight, lead time and payment terms.
- Pulling performance: the system retrieves each supplier's delivery, quality and responsiveness scores from transaction history.
- Comparison sheet: quotes side by side with weighted score and estimated total cost.
- Award and approval: the buyer selects a supplier, documents the reason if it is not the top scorer, and the PO follows its approval route by value.
- Closing the loop: after receipt and inspection, supplier performance updates automatically and feeds the next comparison.
Step seven is what makes the process improve over time. Our article on supplier performance covers the metrics in depth.
Common Mistakes
- Comparing unequal offers: one includes freight and installation, another does not. Standardise the RFQ form so replies are comparable.
- Unrecorded performance data: if receipts are not posted on the day or rejections are not recorded, delivery and quality scores are meaningless.
- Penalising new suppliers: they have no history. Give a neutral provisional score and test with a small order rather than excluding them or scoring them perfectly.
- Duplicate supplier records: the same supplier under two slightly different names splits its history so neither record shows true performance. Clean master data and restrict who can create suppliers.
- No segregation of duties: whoever requests quotes should not be the only person evaluating and approving them, especially on large orders.
Measuring the Results
After six months, compare against your baseline: on-time delivery overall and for your top 20 suppliers, rejection and return rates, stockouts caused by supplier delay, value-weighted average payment terms, RFQ cycle time, and the share of non-top-score awards with a documented reason. Direct purchase cost may even rise slightly as you move to better suppliers, while indirect costs from downtime, inspection, returns and financing fall by more. Judge success on total cost. Our article on procurement KPIs lists further metrics.
A Suggested Rollout Plan
| Stage | Approximate duration | Output |
|---|---|---|
| Supplier base analysis | 2 weeks | Suppliers and categories ranked by spend and criticality |
| Criteria and weights | 2 weeks | Approved weights per category and a scoring method per criterion |
| System setup | 3 weeks | RFQ form, comparison sheet, approval routes |
| Live run and review | 4 weeks | First full evaluation cycle and a weight review |
How Tranquil Helps
Tranquil's purchase management module is linked to inventory and financial accounting in one cloud ERP, so purchase orders, receipts and invoices sit in one place for any supplier evaluation. The Tranquil team can customise screens, reports and multi-level approval workflows to fit your purchasing policy.
Frequently Asked Questions
How many quotations should we request?
Three is common practice for mid-value purchases. Small recurring buys may run on an approved supplier at agreed prices, while large purchases may need more quotes or a formal tender.
Does weighted scoring suit small businesses?
Yes, and it can be simplified to three or four criteria such as price, delivery, quality and payment terms. What matters is that weights are written down and agreed before quotes are opened.
How do we score a supplier with no history?
Use references, certificates and a sample or small trial order, and give a neutral provisional performance score until real data builds up over the first months.
Should we always award the top scorer?
Not necessarily. Diversification, capacity or local content may justify another choice. Document the reason whenever the award departs from the ranking so the decision stays reviewable.
How often should weights be reviewed?
At least annually, or when market conditions or company priorities change. If cash gets tight, payment terms might temporarily carry more weight. Make it a documented decision that applies to future cycles.
How do we get started with Tranquil?
Contact the Tranquil team to discuss your purchasing cycle and receive a quote within 24 hours.