How to Compare Request for Quotations in SAP S/4HANA

After the quotations have been entered for the RFQs sent to suppliers, then the purchasing department reviews them and decides on the supplier for the material or service that won the bid.

One element of the quotation process is reviewing the bids on a price comparison basis. This comparison is the most basic analysis and may not necessarily be the deciding factor. Each purchasing department will have to develop a procedure for selecting suppliers based on RFQs/quotation responses.

Price Comparison Factor in Quotations

Price comparisons can be performed in SAP S/4HANA using Transaction ME49 or by following the navigation path Logistics > Materials Management > Purchasing > RFQ/Quotation > Quotation > Price Comparison.

Price comparisons can be performed between several quotations, and these quotations can be selected using a number of selection criteria, such as Purchasing Organization, Supplier, Material, or Collective RFQ number. The collective number is the most useful field when sending a number of RFQs to different suppliers and can be used to easily make comparisons. The other criteria in Transaction ME49 include the following comparison value criteria:

• Reference Quotation: This criterion is the quotation against which all others are compared. If no Reference Quotation is entered, then the quotations are compared against each other.
• Mean Value Quotation: If this indicator is set, then the comparisons are made against the average price of the quotations. All the quotations are averaged, and the average quote is ranked at 100%. The quotes then reflect a percentage that shows whether the price is above or below the average. Thus, a lower-than-average quote will show a percentage below 100%; a higher-than-average quote will show a percentage greater than 100%.
• Minimum Value Quotation: If this indicator is set, then the comparisons are made against the lowest price quotation. As a result, the first rank, or the best price quote, is a 100% rank. All other more expensive quotes will show a percentage that is calculated from the lowest bid, that is, 124%, 136%, and so on.
• Percentage Basis: This allows a purchasing user to specify which value will be used as the 100% basis. The user can choose the mean price, the maximum price, or the minimum price, which alters how the rank percentage is shown in the quotations.

In addition to the value comparison criteria, the following price comparison criteria indicators can be set:

• Include Discounts: If this indicator is set, the quotation comparison will include any price discounts that the supplier has applied. If the indicator isn’t set, then the discounts won’t be used in the comparison.
• Include Delivery Costs: If the indicator is set, then the delivery costs will be included in the price on the quotation and therefore used in the quotation comparison. Delivery costs can include the freight costs, duties levied, or other procurement costs such as packing, insurance, and handling.
• Determine Effective Price: This indicator is set if cash discounts and delivery costs should be included in the price comparison.

After the selection criteria have been entered, the price comparison is obtained. The figure below shows a price comparison for collective RFQ number 123456, featuring the quotations from two suppliers, or bidders, for a quantity (Qty) of Material 63. The price comparison has the Mean Value Quotation indicator set. In other words, the average price has been set as 100%, and bids will be a lower percentage or a higher percentage. If a supplier doesn’t submit the quotation, then all details in the price comparison are empty.

Other Qualitative Factors in Quotations

The price comparison report provides a clear indication to the purchasing department about which bidder is offering your company the best price for a material. However, the best price may only be one of several factors that the purchasing department wants to take into account. Many purchasing organizations believe that choosing suppliers based only on the lowest bid dollar amount results in purchasing lower-quality goods. Successful bids are more often awarded on a comparative evaluation of price, quality, performance capability, and other qualitative factors that will prove the most advantageous to your company.

Other qualitative factors may be identified by a purchasing department, including the following:

• Previous relationship with client: If the bidder has a successful relationship with the company, this relationship history may be taken into account in any final decision on the winner of the bid.
• Compliance with the Equal Employment Opportunity Act (US): Many companies insist that suppliers be in compliance with the Equal Employment Opportunity Act (EEOA). For example, the EEOA can be violated if a company discriminates by a number of factors, including age, disability, national origin, race, or religion.
• Strategic alliances: Your company may have a number of strategic alliances with suppliers or trading partners, which may influence the decision to award a bid.
• Minority-owned and women-owned businesses (US): Some companies may prefer minority-owned or women-owned businesses for certain contracts or POs. If the RFQ falls into an area where your company has indicated a preference for this type of supplier, then this factor may have more weight in the award decision than the price.
• Warranty and return policies: The warranty period of an item or the return policy offered by the bidder can be quite important to the purchaser. For example, if the RFQ is for laptops, the purchaser may be more inclined to accept a bidder with a higher price per unit if the warranty is for two years, than to select a bidder offering only a six-month warranty. The same is true for return policies. The easier the return procedure, the more attractive a bid from a supplier becomes.
• Creative pricing: Often, a bidder may not offer the best price in response to an RFQ but may offer a creative pricing schedule. Purchasing departments are often looking for ways to reduce cost outlays and may welcome suppliers who can offer ways of purchasing material with delayed payments or payments based on performance.
• Technical evaluation: While a supplier may submit a quotation with a competitive price, the offered product must still meet the technical criteria and specifications laid out by the purchaser. In the next section, we’ll look at the process of rejecting quotations that haven’t been selected and communicating the purchasing decision to these suppliers.

Editor’s note: This post has been adapted from a section of the book Materials Management with SAP S/4HANA: Business Processes and Configuration by Jawad Akhtar and Martin Murray.