The complexities inherent in online Request For Quote (RFQ) marketplaces, coupled with the relative immaturity of these emerging models, have resulted in mixed expectations about their value and whether they are right for manufacturing businesses in general—or yours, specifically.

One prominent quality of online Request For Quote (RFQ) marketplaces—and of the Internet taken as a whole—is that they can be used for various business applications, all at once. And these new channels are working very well for some businesses, but not so well for others.

When assessing the potential of these marketplaces for your business, begin by looking at the ways they’re being used:

• Buyers are using online RFQ market-places to find alternative sources to expand their stables of prospective suppliers, to flex their capacity and to lower costs.

• Suppliers of parts or services use these models to market the business to a broader market, find new customers to support existing capacity, gain ground around a new process or technology, and undercut costs to get at new work.
• There are differences in the various marketplaces—some charge suppliers a subscription fee to participate, some levy post-award charges on suppliers or buyers, some follow “reverse-auction” models (which promote price as the primary differentiating factor), and some larger corporations have created their own online models to support their sourcing efforts.

More manufacturing companies and associations are acting upon the acceptance of online RFQ marketplaces by forging partnerships with the models shown here.

But two points are certain. First, online RFQ models aren’t going away. Second, there are many businesses that are using these models to help them survive and thrive in today’s hyper-competitive manufacturing market by tailoring their use to the company’s specific capabilities and goals.

The key to successful adaptation of these models comes from understanding their pros and cons, weighing the benefits against the drawbacks, and making a decision of whether to participate or not based on the needs of your own business.

The following questions and answers are presented to help make some sense of how RFQ marketplaces have evolved in 2003, and to help you decide if and how these models can help your business.

Q: “Will I get jobs once I join an Online RFQ Marketplace?”

A: Some companies do, and some don’t. But there are manufacturing businesses using RFQ models successfully to form relationships with buyers beyond the specific contract award. Online RFQ marketplaces—particularly those that allow collaboration with buyers outside the confines of the marketplace—can be used to promote your business to prospects with precisely expressed manufacturing needs, at the time when their interests are highest. According to a Buyer’s Survey conducted by prominent online RFQ marketplace FirstIndex, 85 percent of buyers said they had heard from suppliers outside the scope of specific RFQs “whom (they) would likely consider for future projects.” Conveying your shop’s unique value proposition (for example, offering to produce one-offs for evaluation, suggesting alternative processes and materials, submitting design modifications that would reduce production costs, and so on) capitalizes on the unique opportunities offered by this new channel and can significantly improve your odds of success in online RFQ marketplaces.

Q: “Are suppliers using Online RFQ Marketplaces to submit unrealistically low quotes?”

A: Yes, there are suppliers and shops that quote jobs for less than it costs them to do the work, but they aren’t unique to online marketplaces. (See sidebar, “Is Online Quoting Ruining The Job Shop Market?”) The U.S. manufacturing market is evolving to the point where overall business skills—knowing the relative costs of running machinery and tooling, the specific margins relevant to operations and processes, and lean manufacturing concepts—are coming to mean as much as competent machining skills themselves. Just as there are suppliers undercutting quotes, there are buyers that will only consider price as the determining factor to award work. (See the next question.)

Usually, “low-bid” behaviors by suppliers are more common around simple, loose-tolerance jobs. The competition for this work is crowded and fierce, and loyalty and long-term strategic relationships are often less important to the players in these circles. But for the work with more complex geometries and tighter tolerances, the field is less populated. Here, buyers are more apt to recognize and seek the qualities of competence, dependability and strategic partnerships, and it is for developing these relationships that online RFQ marketplaces can add the greatest value.

Q: “Do buyers in online RFQ marketplaces only select the lowest quotes, or ‘test the waters’ with no intent of releasing a contract?”

A: Like the make-up of suppliers in online systems, some buyers do (and always will) select the lowest quotes, or use these systems for less than honorable reasons. But according to activity numbers from both MFG.com and FirstIndex, the ratio of lowest bids awarded is actually right around 50-50 (50 percent of RFQs awarded through these systems have gone to suppliers that were not the lowest bid). Consequently, online buyers are motivated as much by factors such as supplier quality, dependability, and professionalism as they are price. But numbers alone don’t properly define what these marketplaces may offer your business.

Traditionally, buyers used to seek out and qualify suppliers before they submitted an RFQ. Now, thanks to the Internet and RFQ models, buyers submit RFQs, suppliers come to buyers, and then buyers begin the qualification process. That means that success for suppliers is no longer realized as much from efforts earlier in this process, but rather in how well they market themselves to online buyers after an RFQ has been put up for bid. In many ways, buyers’ habits have not really changed over time; price is—and always has been—an issue. What’s changed is when and how you approach online buyers. To adequately judge whether online participation is right for your business, you should consider how prepared your business is to work on establishing relationships in those later stages, identifying preferred buyers and penetrating new markets.

As you evaluate these models, ask yourself this question: “What was the first job I did for my current, best customer, and what did it take to develop that relationship?” Odds are it was simple, it wasn’t critical, and the relationship grew over time. Understand that online models can help you meet prospective “best” customers, accelerate the steps toward long-term relationships, and actually help you to recognize the well-intentioned buyers.

Q: Are Online RFQ Marketplaces for everyone?”

A: Not at all. These models are for businesses that see the opportunities to forge relationships with a broader range of potential customers as the primary return on this investment, and the actual award of a job “on-the-spot” as a possibility. For suppliers to realize the maximum return for their participation, they must also be prepared to act upon the opportunities to market their services to potential customers at the precise moment when the buyer’s motivations are at their peak—when the RFQ has been released and the buyer has identified him or herself. Businesses that expect these models to funnel steady streams of work to their machines, or guarantee they’ll be selected by a buyer, are ignoring the real strengths of these marketplaces and are likely to be disappointed.

Q: Are there alternative options to learn about Online RFQ Marketplaces besides subscribing?”

A: There are. One approach that might offer you a beneficial glimpse into the behaviors and techniques of these models is to “become a buyer.” Most of the online RFQ marketplaces allow postings of RFQs to their models for free. Select a part or service that you would like to outsource for your own company and submit it as an RFQ to a marketplace. Watch for the behaviors of suppliers, and what distinguishes the good from the marginal. Study the impact of suppliers’ Web sites, drawings, how they convey experiences and competence, and the overall quality of their quotes. Also, pay attention to those suppliers that follow up with you and how they present themselves away from the quote.

Call the customer service personnel at an RFQ marketplace. Of course, the feedback you get will be filtered through the individual marketplace’s perspective. But performing due diligence in this fashion and challenging them to identify and define where the value is in their model is necessary to determine its relevance to your business. Ask for participant references. Ask about what areas of manufacturing are most active. Challenging them to define their value can shed valuable light on this subject and help you with your marketplace decision.

Understand, too, that the motivations for suppliers to share their experiences may not be all that strong. First, determining the value of participation in an online RFQ model is different for each business. And what works (or doesn’t work) for one business may not apply to another. Remember, too, that some businesses that are experiencing successes through these online channels may be less than anxious to let everyone else know about them.

Use your existing customers as resources. Ask about their experiences using RFQ models to find out how their use of these channels is affecting their sourcing processes. The possibility of you being the first person they’ve heard from about online RFQ marketplaces is not very likely, and intelligence directly from the buyer’s perspective may be extremely valuable.

The 2003 business landscape of U.S. metalworking and machining businesses demands that change be embraced and encouraged within the enterprise. For the manufacturing company that seeks to redefine itself at higher process and service levels, the Internet-and online RFQ marketplaces-can be helpful in repositioning and accruing that higher level of work.

Q: “Why not save my money and use it for traditional sales and marketing techniques?”

A: Do both. Many buyers continue to source using a blend of traditional methods and online channels to locate acceptable suppliers. But determining which sales or marketing channels are best to use needn’t be an “either/or” exercise. A blended approach may offer your business the richest options—particularly today, as more and more prospects transition their sourcing research to include online channels (such as online RFQ marketplaces, your Web site, and so on). At the least, a working familiarity with the fundamental behaviors and techniques of online RFQ marketplaces will give you an advantage—or keep you close to the competition—during this time of transition.

Q: “Isn’t the effort to manage and pursue prospects through these systems awfully time-consuming?”

A: It may be, in fact, that the effort to manage activity through an online RFQ marketplace isn’t feasible for your business. But before you determine the value of these models based on time or resources, you should consider where those resources would best serve your organization.

Successfully maintaining traditional sales channels takes work. Adding resources to adequately work the online channels while maintaining current activity to support your traditional channels may overburden your resources and make both less effective. Instead, look at transitioning your sales and marketing efforts to build your online channel strengths gradually.

Ultimately, the answer to the online RFQ marketplace question is to determine the processes that you’re good at, and to use these online models to find a broader collection of buyers that value that precise process or product. For this purpose, these channels may bring dramatic efficiency improvements to the sales and marketing efforts of your shop, if you’re willing to spend the time up front for research, and take the time to work the channel.