How to Compare Vendor Quotations Fairly

When three vendors send quotes, it's tempting to pick the lowest unit price and move on. The trouble is that quotes rarely arrive in the same shape. One includes freight and another doesn't. One wants 100% advance, another gives you 60 days. One can deliver next week, another in five weeks. Unless you bring them to the same basis, you're comparing different things.

This guide covers what to adjust for, then walks through a worked example where the vendor with the lowest price turns out to be the most expensive.

Start with the same request

Most comparison problems start before the quotes arrive. If you ask three vendors for 'a price for 1,000 bearing housings', you'll get three quotes built on different assumptions. Send one written request with the same drawing or specification, quantity, delivery location, required date and the terms you want quoted. An RFQ does this formally, and our RFQ template lists the fields. For smaller buys, a clear quotation request email does the job.

What to adjust for

Freight and packing

An ex-works price means you arrange and pay for transport. A 'FOR destination' price includes delivery to your site. Add freight, packing, loading and insurance to ex-works quotes so every line shows the cost of the goods at your gate. The landed cost calculator helps when duties or several charges are involved.

GST

Compare prices before GST, as long as you can claim the full input tax credit from every vendor. The common mistake is comparing one vendor's GST-inclusive price with another's GST-exclusive price. The other catch is an unregistered vendor, or an item where credit is blocked. There the tax is a real cost, so compare the full amount you'll pay.

Payment terms

Money has a cost. Paying in advance ties up cash, and paying 60 days after delivery gives you free credit. Put a number on it using your cost of funds, for example your working capital interest rate. The simple formula is: amount × annual rate × days ÷ 365.

Delivery time

If one vendor delivers in a week and another in five, ask what the wait costs you. Sometimes nothing. Sometimes it means holding more stock, or missing a customer's schedule. You may not be able to price it exactly, but write it next to the number so the decision is made with it in view.

The small print

• Quote validity: a price valid for 7 days is worth less if your approval takes three weeks.
• Minimum order quantity: a lower price that forces you to buy double your need isn't cheaper.
• Price basis: fixed, or linked to raw material prices on the dispatch date.
• Warranty, testing certificates and who pays for rejected material.
• Tooling or development charges quoted separately.

A worked example

A pump maker in Pune needs 1,000 cast iron bearing housings. GST is 18% and fully claimable from all three vendors, so we compare prices before GST. The company's cost of funds is 12% a year. Three quotes come in:

On unit price alone, Vendor C wins. Now bring each quote to the cost at the Pune gate:

• Vendor A: ₹4,20,000 + ₹18,000 freight = ₹4,38,000
• Vendor B: ₹4,45,000, with freight included = ₹4,45,000
• Vendor C: ₹4,05,000 + ₹5,000 packing + ₹30,000 freight = ₹4,40,000

Next, payment terms. Take paying on the day of delivery as the baseline. Vendor C wants payment with the order, about 35 days before the goods arrive, so that's a cost. Vendors A and B give credit, which is a saving. To keep it simple, we use the pre-GST value:

• Vendor A: ₹4,38,000 × 12% × 30 ÷ 365 = about ₹4,320 saved
• Vendor B: ₹4,45,000 × 12% × 60 ÷ 365 = about ₹8,778 saved
• Vendor C: ₹4,40,000 × 12% × 35 ÷ 365 = about ₹5,063 extra

Vendor C, the cheapest on paper, is now the most expensive and the slowest. Vendor A is cheapest by ₹2,542 over Vendor B. Whether that's worth two extra weeks of waiting is a judgement call. If the housings are needed for an order that ships in ten days, Vendor B is the right choice. If there's stock to cover three weeks, Vendor A is. Either way, you're now deciding on the real numbers.

Put it in a comparative statement

Most companies in India record this comparison in a comparative statement, a single sheet with vendors in columns and every cost and term in rows, signed off by the buyer and an approver. It shows auditors, and anyone who asks later, why the order went where it did. Our comparative statement of quotations template has the rows already laid out.

Don't forget the vendor itself

Price is only part of the decision. A vendor with a history of late deliveries or high rejections will cost more than any quote shows. If you have one, bring in their supplier scorecard. If you're buying from a vendor for the first time, the lowest price should come with sample approval and a smaller first order.

When several vendors meet the specification and the value is large, a reverse auction can do the comparison for you. Set freight, payment terms and delivery in the auction rules, and every bid comes in on the same basis. Procupy runs RFQs and auctions on fixed terms like this, so the ranking you see is already like for like.