Resources · Sourcing
How to compare supplier quotations that aren’t comparable
Put every offer on the same footing first: the same quantity, the same Incoterm, the same currency, and landed cost in your warehouse. Only then does the lowest number mean the lowest cost. Before that, it only means the lowest number.
Why the cheapest quote is often not
Three suppliers answer your request for quotation. One quotes ex-works in euros, one quotes delivered to the port in dollars, one quotes free-on-board with a minimum order bigger than you need. The spreadsheet puts the three unit prices in a column and highlights the smallest. That column compares currencies, delivery points and order sizes, not prices.
Four things to fix before you compare anything
1. The quantity
Prices change with volume and every supplier breaks at a different point. Fix the quantity you actually want, ask for the price at that quantity (and one step above and below), and compare at that. If a supplier’s minimum order is higher than your need, the extra stock is part of their price.
2. The Incoterm
The Incoterm says where the supplier’s job ends and yours starts. Very roughly, ex-works leaves almost everything to you; free-on-board means the supplier delivers to the vessel; cost-and-freight and cost-insurance-and-freight include the main carriage to your destination port; delivered terms go further. The same part at the same factory gate will carry a different price under each. Also check that the term suits the mode of transport. The free-on-board and cost-and-freight families are meant for sea freight, not air or road, and containerised cargo is often better served by terms such as free-carrier.
3. The currency and the rate
Convert everything to one currency at one rate on one date, then note how sensitive the ranking is to it. If a 2% move in the exchange rate changes who wins, the decision is not as clear as the table suggests.
4. The specification
Same material, same revision, same tolerance, same packing. If the offers are for different revisions of the drawing, you are comparing different parts.
A worked example
You need 5,000 units. Rates and duties are illustrative; the point is the shape of the result.
| Supplier A | Supplier B | Supplier C | |
|---|---|---|---|
| Quote | EUR 9.00, ex-works | USD 9.60, CIF port | USD 8.80, FOB, MOQ 6,000 |
| Quoted, USD per unit (EUR 1 = USD 1.10) | 9.90 | 9.60 | 8.80 |
| Goods, USD | 49,500 | 48,000 | 52,800 (6,000 units) |
| Freight and insurance, USD | 3,800 | in the price | 5,500 |
| Duty, USD | 0 (trade agreement) | 2,880 (6% of 48,000) | 3,498 (6% of 58,300) |
| Clearance, USD | 700 | 700 | 700 |
| Total landed, USD | 54,000 | 51,580 | 62,498 |
| Per unit needed (5,000) | 10.80 | 10.32 | 12.50 |
By unit price the order is C, then B, then A. Landed, it is B, then A, then C. Supplier C looked cheapest and is the most expensive per unit you need, because the 1,000 extra units are paid for up front and sit in stock. If you will use them within a few months, Supplier C’s effective figure drops to about 10.42 (62,498 divided by 6,000), and the right question becomes whether holding that stock is worth the difference. That is a real decision, but it is a different one from “who is cheapest.”
A ranking that survives a change of assumptions is a decision. One that flips when you move the exchange rate by two percent is a conversation you need to have with the supplier.
What the price does not show
- Payment terms. Thirty days against payment in advance is a financing cost worth putting a number on.
- Lead time and its reliability. A shorter, steadier lead time means less stock to hold; see safety stock.
- Track record. The offer is a promise. The supplier’s history of keeping them is data; see measuring delivery.
- Splitting the award. The best answer is sometimes two suppliers, partly for price and partly so you are not dependent on one.
In the software
This is the comparison Procurement Control Tower is built around: each quotation with its own currency, rate, duty and freight, ranked by landed cost, with the award recorded afterwards. The Run the numbers page lets you change any figure and watch the ranking move, and the worked example follows one such decision from the stock signal to the delivery.