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You should also clarify if the supplier should provide a quote based on your custom design (OEM), or a private label product.
Is it free to submit an RFQ?
Yes, the Alibaba RFQ service is free to use. However, you can pay a small extra sum to either get faster quotations, or more quotation. Or both.
Do all suppliers listed on Alibaba respond to RFQs?
No, it’s up to each supplier if they want to quote through the RFQ service or not. Many suppliers don’t.
As such, you should use the Alibaba RFQ service as a complementary sourcing strategy, rather than your only method to research suppliers and get quotations.
What should I look for once I receive the quotation file?
You need to be sure that the supplier calculated the product price, based on your specifications. Some suppliers provide ‘reference prices’, that are not based on the specifications provided in the RFQ.
Make sure that they reconfirm all specifications, by listing them in the quotation file.
How do I take the next step once I’ve accepted a quote?
It’s still too early to settle for one supplier, and even more to so place an order straight away.
Instead, you should select at least 2 to 3 suppliers that you continue your discussion with, and order samples from.
Keep in mind that a price doesn’t mean anything, unless they can make your product.
Further, you should also do background checks on the suppliers that provided the quotations:
1. Can they comply with the safety standards in your market?
2. Do they have some sort of quality management system?
3. Do they have social compliance certification?
4. What is their registered capital?
Many of these questions can be answered if you visit their Alibaba supplier page.
Now keep in mind that Alibaba only allow verified suppliers to provide quotations using their RFQ service – but it’s up to you that they are suitable for your product.
Can Alibaba guarantee that I get high quality products?
No, that is way too much to ask for.
The Alibaba RFQ service is a great matchmaker, but it’s up to you that the supplier gets everything right on the factory floor.
For example, you must provide clear product specifications, sign a sales contract and follow up with both quality control and lab testing.
This goes beyond what a quotation service can realistically offer.
Unfortunately, many importers make assumption, and then blame Alibaba for ‘providing bad suppliers’.
But they ensure that only qualified suppliers submit a quotation, right?
Some suppliers can make your product the way you want it, others cannot.
Some suppliers can comply with European and American safety standards. Most cannot.
Some suppliers have very low defect rates, others have higher defect rates.
Some suppliers charge more, for less. Other charges less, for more.
And on it goes.
The Alibaba RFQ is not a magic wand that will make the complexities of manufacturing, product development and international trade go away.
It’s a tool to get a few quotations on the go, and a great one too.
How to I know if my Alibaba RFQ was successful?
The quoted price is often the final qualifying factor when selecting a manufacturer. A unit price is based on four factors, as specified below:
a. Product Specifications
A products materials, components, functions and dimensions are, of course, defining the factory price of a product. While this is obvious, what you may not know is that most Chinese manufacturers operate as OEMs. Hence, while many suppliers can indeed provide long lists of ODM, or factory, products – they tend to lack internal quality guidelines.
As such, a quoted price is of no use, unless the supplier lists all specifications. Be on your guard, as they may deliberately leave gaps in the specification – in order to reduce the unit price.
Whenever you do receive a price that is far lower than those quoted by competitors, the price is most likely based on an inferior product. You can only make a fair price comparison, if you do so, specification to specification.
A ‘non-compliant product’ is therefore cheaper than a ‘compliant product’. And, Chinese manufacturers will not quote a price based on a compliant product, unless you communicate that this as a requirement.
The larger the quantity, the lower the price. However, keep in mind that manufacturers, unlike wholesalers, operate on lower margins.
They have little room for price reductions, and volume based price reductions tend to pan out once reaching four to five times the MOQ requirement.
d. Shipping Incoterm
The incoterm defines at which stage the cargo is transferred from the buyer to the supplier. The incoterm is always priced into the unit cost, and has therefore a major impact:
EXW: Buyer must arrange shipping from the factory floor, and export clearance. The manufacturer is only responsible for production and has no role in the shipping.
FOB: The supplier is responsible for shipping to the port of loading, for example Shanghai or Shenzhen, and export clearance. The buyer must arrange forwarding from the port of loading.
CIF: The supplier is responsible for shipping to the port of destination, for example San Francisco or Felixstowe. The buyer must arrange unloading and domestic forwarding.
DAP: The supplier is responsible for shipment all the way to a specific address, for example your warehouse or office.
Obviously, a quoted price based on EXW is far lower than a price based on CIF, or DAP, terms. Before you can say anything about a quoted price, you must consider the incoterm. Specify to your supplier that they must quote according to a set incoterm, in order to avoid distortion of the price data.
‘How do I know I’ve been quoted a market price?’
Assuming that you have specified all relevant technical specifications, compliance requirements, quantity and Incoterms – you will likely receive quite accurate unit prices. However, one data point is not enough to determine the market price. Instead, you must include at least 3 to 4 suppliers in your RFQ process.
Assuming you trade with regulated products (i.e., electronics, children’s products and food contact materials), you shall only include suppliers with a verified product compliance track record. You can read more about that here.
As already mentioned, be prepared to receive at least one or two quotations that are above or below the average. In most cases, a rock bottom price can be explained by one or more of the following reasons:
1. The product is not based on the same product specifications
2. The supplier did not price in your compliance requirements
3. The supplier quoted a price based on a larger quantity, than its competitors
4. The supplier quoted an EXW price
Never make a premature judgement based on a price. It’s very common that Startups and SME’s makes procurement decisions based largely on prices that aren’t real – while disqualifying good manufacturers. You simply get what you pay for.
Product Prices on Alibaba.com
We often get questions from clients on whether they shall trust prices set by suppliers on Alibaba.com. The answer is almost always ‘no’.
As explained in this article, a price is irrelevant if you don’t know what it’s based on. In addition, price ranges set by suppliers on Alibaba tend to be very wide – far wider than the actual pricing span, which is largely based on the order volume.
The problem isn’t Alibaba. It’s just that the suppliers don’t take it very seriously – as they are operating according to OEM principles. Material and component prices can change on a weekly basis. Updating prices for hundreds of ODM products is far too time consuming for the average manufacturer. That said, suppliers listed on Alibaba are, on average not better or worse than other suppliers.
Note: This is not referring to the online wholesale gateway implemented by Alibaba in 2014, which enables small volume orders directly on Alibaba.com.
‘Should we communicate our target price when we ask for a quotation?’
Yes, feel free to communicate your target price, but only after careful consideration. A unit price must either be based on previous research date, for example a quotation of a related product or an outdated quote – or, based on your own margin calculations.
Manufacturers have little room for price reduction, so don’t expect them to become generous simply because you give them an unrealistically low target price.
That’s not a clever tactic. You achieve nothing by setting an artificially low target price, other than disqualifying qualified suppliers. Again, you get what you pay for, and your business is always better off if you focus on increasing profit margins rather than shaving a few cents on the unit price.
RFQs outside of Alibaba.com
Alibaba didn’t invent the RFQ procedure. This guide explains how you can prepare an RFQ when sourcing suppliers on other websites, or at trade shows.
1. Creating an RFQ (Request for Quote) template
The RFQ template is our starting point. The data gathered during the process is only as good as the specifications and information requests listed in the RFQ template. Chinese manufacturers never provide more information than requested, so it’s up to you to do your homework before you even think of contacting suppliers. This is, at least in comparison to the later stages, the easy and fun part. This is what you must include:
a. Technical Specifications
A quoted price is useless if you don’t know according to which specifications it’s based on. Price is based on ‘quality’, and quality is in turn based on technical specifications. As such, the very first step of the RFQ process is to list the product specifications that the suppliers shall quote you for. There are two ways to do this, and depend entirely on the type of product you intend to buy:
OEM: If you intend to buy an OEM (custom designed) product, the bulk of the specifications must, for obvious reasons, be provided by the buyer. Depending on the product, such specifications may include the following:
Print files (.ai format)
That being said, all manufacturers are limited to a certain degree, both by their own capability (i.e. their own capability to reach a certain dimensional tolerance) and their subcontractors (i.e. their subcontractors capability to provide certain components).
Knowing exactly what these limitations are, before the process begins, is virtually impossible, thereby requiring a certain degree of flexibility when compiling a set of product specifications. What we normally do is to leave a few ‘gaps’ open, for the supplier to specify. That is usually not a problem, as long as these specifications are defined and explicitly mentioned.
ODM: Drafting specifications for ODM (private label) products is different, compared to the OEM process. When buying ODM, you buy a product based on a ‘ready made specification’. Thus, the right approach is to provide a ‘guideline specification’ or ‘reference products’ for the supplier to match with one or more ODM products. That being said, Chinese manufacturers consider ODM products as rough product templates, rather than fixed specifications.
As such, you can’t leave anything open, and therefore identify all specifications that the supplier must confirm. In short, ODM buyers need to prepare the following:
Guideline specifications / list fixed quality requirements
List ‘gap’ specifications for the supplier to fill in
Print files (.ai format)
Tooling list (e.g., injection molds)
A mistake I often see is that many purchasing managers start the process before they have even decided whether to go for an OEM or ODM product. Don’t do that. You can’t drive this process forward unless you know what you want to get out of it, and it’s not the manufacturers job to decide for you.
Prices are, as said, entirely based on the specifications. Without them, you will first of all have a hard time even getting quotations from serious suppliers. Second, the price data you receive is never more accurate than your product specification.
b. Applicable Standards & Regulations
Ensuring compliance with overseas (e.g. RoHS, REACH or CPSIA) requires both technical expertise and ‘compliant’ components and materials. Both of which cost money, in addition to compliance testing and certification procedures. Clearly, a compliant product is more expensive to produce than a non-compliant product. For example, a RoHS compliant electronic device can cost up to 10% more than a non-compliant device.
Without communicating the safety standards and regulations to which your product shall be compliant, you will not receive accurate prices from your supplier. Yes, that holds true even if the supplier belongs to the minority of Chinese manufacturers that are able to ensure compliance. If you fail to communicate, in writing, said compliance requirements, they will not quote you accurate numbers.
c. Supplier Information & Order Terms
The purpose of the RFQ process is to obtain actionable price and product information – enough to make a decision on which supplier, or suppliers, to move forward with. However, technical specifications and prices are only part of what you need to make an informed decision. You want to know more about the companies that take part in the process, and the order terms they are willing to offer. This is the information we require suppliers to specify, as part of the RFQ process:
– Registered Capital
– Registered Address
– Contact Person
– Technical Files
– Substance Test Reports
– Declaration of Conformity
– Quality Management System Certificates
– Social Compliance
– Audit Reports
– Production Time
– ODM Sample Availability
– OEM Sample Production Time
– Bank Account
– Payment Methods
– L/C Minimum Order Value (e.g. $50,000)
– T/T Payment Plan (e.g. 30% Deposit / 70% Balance)
And before we move on, what exactly is an RFQ template? It can be a Google Doc or an Excel file, and a list of complementary file attachments. All that matters is that it’s structured and easy to understand, from the suppliers point of view.
As I’ve already mentioned, the quality of the data you get from the suppliers is only as good as the information you send to them. That also extends to the physical product later on, as misunderstandings can result in severe quality and compliance issues further down the (production) line.
2. List suppliers and send RFQs
Next stop is supplier selection. There are no hidden or secret supplier networks. Chinese manufacturers, like any other business, want to be found by potential buyers. And, this is where you find them:
a. Globalsources.com – A veteran in the industry. Stronger than Alibaba.com is many industries, electronics in particular, but weaker in other segments.
b. HKTDC.com – A directory, primarily, listing Hong Kong based companies, many of which are well established in their respective industries. Their Trade Fairs are, however, far superior to their online directory.
c. Trade Fairs: Meeting face to face with suppliers in your own industry is perhaps the most efficient way to make an initial supplier selection.
Regardless of where you decide to make your selection, make sure to pick out at least 8 to 12 different suppliers to which you submit the RFQ. There are various reasons for this:
1. Half of the suppliers will either not respond, or be unable to manufacture your product
2. Many suppliers will not be able to ensure compliance with the standards and regulations in your market.
3. Some suppliers will fail to provide acceptable reference samples.
4. You always need at least one backup supplier in case your first choice becomes difficult. Issues often surface just before the Sales Contract is about to be signed, and you need to stand ready to switch supplier when that happens.
5. Finally, getting prices from many suppliers, based on the same product specification, is the only way to determine a market price for a product, especially when buying OEM.
3. Gathering price information
This is the hard part. Sending a long list of technical specifications, design files, information and document requests is asking quite a lot from any company. At the time of writing, sales reps are still human beings. Gathering documents and making price calculations requires a lot of work. They tend to ignore specifications, provide half of what you initially asked for and sometimes they just stop responding all together.
Dealing with a long list of suppliers, in English, on the other side of the world, isn’t really making things easier either. However, without the data, you have nothing to act on. Below follows a list of things that matter when trying to move things forward:
1. Begin with a Skype or Phone call, and follow up by sending your RFQ file right after. Before you hang up, make sure to set a deadline.
2. Keep sending reminders by email or Skype until they have provided a first draft.
3. The first draft will not come out perfectly. There will be gaps and conflicting information. Ask for revisions until everything has been specified and answered in full.
4. Make sure to store all the information in a main document, for easy comparison.
5. Hire a Chinese speaker, but don’t let he or she get free hands to make decisions. You are still supposed to be the expert.
It’s a long and tedious process, that requires a lot of work, hands on with the suppliers. However, the only way to obtain the data you need to make the right supplier selection, is by applying the procedure explained in this process.
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Co-founder of Asiaimportal (HK) Limited and based in Hong Kong. He has been quoted in and contributed to Bloomberg, SCMP, Alibaba Insights, Globalsources.com, China Chief Executive, Quartz Magazine and more.
Hey there, I’m Fredrik!
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