The 5 Main Types of Purchasing Processes for Effective Procurement

Dec 12, 2022 | Basic 101: Introduction to procurement

Stawan photo


Dec 12, 20224 min read

Procurement terms RFX, RFP, RFI, Auctions and RFQ represent different processes for purchasing goods and services. RFX is for solicitating proposals, RFP for specific proposals, RfI for gathering information, and RFQ for getting quotes. Auctions allow suppliers to bid against each other for the best price. These processes aid in finding the best supplier for a company's needs.

RFX, RFP, RFI, Auctions and RFQ are terms used in procurement, which refers to the end-to-end process of purchasing goods or services. Each term represents a different type of document or process used in procurement to enable buyers and sellers to interact effectively. 

RFX stands for "request for proposal, quotation, or expression of interest." This is an umbrella term to denote a collection of documents or processes used to solicit bids or proposals from suppliers for a specific product or service. An RfX typically includes detailed information about the product or service being sought, the requirements for the supplier, and the evaluation criteria that will be used to select the winning bid. 

RFI stands for "request for information." RFI stands for Request for Information. Companies use RFIs to gather information on what steps to take next in a contract negotiation. Usually, RFIs are either the first or the last stage in the RFQ or RFP process. 

RFQ stands for "request for quotation." It is a document that companies use to gather information about goods from potential vendors. The RFQ will detail the specifications and quantities of solicited goods. 

The company will send the RFQ to specific companies they are interested in working with. In response, potential vendors will send quotes and price estimates to the company who put the RFQ out. From these responses, the company can choose which vendor can provide the best products at the best prices. Usually, a company uses an RFQ if they need to make a large-scale purchase

For example, imagine that an office is in the market to purchase a large quantity of paper for an upcoming conference. They need to purchase 2,500 reams and are trying to find the best price for their project. The office will send an RFQ to various paper suppliers in their area to find the best quote for the amount they need. 

RFP stands for "request for proposal." These documents are more complicated than RFQs since they ask for more than just a price. 

Since the document is a request for services, not products, the information contained in the RFP is more detailed than information in an RFQ. The RFP will detail the goals and nature of the project that the company needs completed. In addition, it will detail the number of pages and illustrations that the proposal should contain, what laws the project is subject to, and what qualifications the contractors should have. The company may request the proposal contain other information as well, depending on the project. 

In return, the potential contractor will submit a proposal detailing: 

  • What the contractor needs for project completion 
  • The estimated costs of labor 
  • The estimated costs of management and other fees 
  • The total project cost 

The company will use this proposal to decide whether to engage that contractor. Companies who lack the expertise to detail the scope of the project they want to complete use RFPs to solicit assistance from more knowledgeable contractors. 

For example, imagine that a corporation is looking to open a new store location in a different state. They need to find a contractor to renovate their property to match the design of their other locations. They will send an RFP to various contractors in the area detailing the nature and goals of the project, the different building codes that the contractor will have to adhere to, the company’s style guide, and the licensing requirements the company is seeking. Contractors will return proposals to this company and the company will select the best proposal for hire.  

Auctions are also a process used in procurement, where suppliers bid against each other to sell their goods or services to a buyer at the highest price. Auctions can be divided into two main types: 

  • English auction, also known as an open ascending price auction, is the most common type of auction. In this type of auction, the buyer announces a starting price, and suppliers bid on the item by raising the price until only one supplier is left. 
  • Dutch auction, also known as an open descending price auction, is a less common type of auction. In this type of auction, the buyer announces a starting price that is higher than the item's value, and the price is gradually lowered until a supplier is willing to accept the price. 

In procurement, companies use these documents to request information from potential suppliers, to find the best supplier for their products or services, or to get a quote for a particular item. The company will evaluate the responses and select the best supplier for their needs. Some examples of these buyer-seller interactions include: 

A hospital looking to purchase new medical equipment might use an RFP to solicit proposals from suppliers. The RFP would include detailed information about the equipment being sought, the hospital's requirements for the equipment, and the evaluation criteria that will be used to select the winning proposal. 

A construction company looking for a new software to manage their project management, might use an RFI to gather information from suppliers about different project management software options. The RFI would include questions about the software's capabilities, pricing, and support options. 

A school district looking to purchase new school buses might use an RFQ to solicit quotations from suppliers. The RFQ would include detailed information about the buses being sought, the school district's requirements for the buses, and the evaluation criteria that will be used to select the winning quotation. 

Auctions can be used in procurement to find the best supplier for a specific product or service by allowing suppliers to compete with transparency. For example, a government agency may use an auction to purchase many vehicles. The agency would announce the auction and invite suppliers to submit bids. The agency would then evaluate the bids and select the supplier that offered the best price and terms. 

Another example of Auctions would be a company that is looking to sell a piece of equipment, they might use an auction process to get the best price for the equipment. The company would invite suppliers to submit bids for the equipment, and then select the highest bidder. 

In summary, each term represents a different type of document or process used in procurement, RFX - to solicit bids or proposals, RFP - to solicit proposals specifically, RFI - to gather information and RFQ - to solicit quotations. It's important to note that these documents are not mutually exclusive, and a procurement process may use a combination of these documents depending on the procurement's needs and goals. 

Using FactWise, buyers create accurate RfX in under a minute, leverage holistic supplier analytics and AI tools to negotiate with suppliers, achieve supplier diversity, and customize the application to follow their internal approval processes. Suppliers respond to RfX, discover new buyers, present their company profile and item catalogues, and auto-generate invoices against POs. A full, integrated suite of procurement products offered at a fraction of the cost of its competitors, FactWise is dedicated to generating win-win solutions for buyers and suppliers globally.   

About the Author

Stawan is the founder and CEO of FactWise. Before founding FactWise, Stawan was the NA TMT-Procurement Leader at McKinsey. Passionate about procurement, Stawan has 15 years’ experience in enabling clients of all sizes to achieve business impact via procurement.


Show all

No comments to show

Suggested Articles



Privacy Policy

Terms & Conditions

©Copyright 2024. FactWise. All Rights Reserved.