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Fundamentals of Quotations

This blog is divided in two parts. First part explains in domain industry whether it is automotive industry, manufacturing industry or IT industry – how the quotation fits in the picture of particular industrial processes. Second part explains what we do in SAP to accommodate requirements of industries to SAP.

Let us see first part. In a particular industry purchase department is one of the important departments. Purchase department or in other words procurement department take care of external purchases from vendors. It caters myriad ranging from procurement of raw material which is the heart of making of components in the industry to machines to the furniture, etc.

The procurement process starts from the requirement. The requirements are in the form of indent. In an indent the department writes what material it requires, quantity and time when it is required. The procurement department searches its store if the material is available it issues straightway to it thereby closing the requirement. Now the question arises what in case the material is not available in the store or on the whole not available in the company. The same thus is bought from vendors.

Here come quotations. Before purchasing a purchaser asks for the price for the material, searches if the technical specifications are correct and the quality of the material is best. The question arises – how he searches for the material. There are myriad options available. These are internet, yellow pages, catalogues available, inquiring the regular vendors of the company. In any of the options purchaser asks for detailed technical specification, the maker of the material and most important the price.

In every request he fixes the deadlines of the submission of the quotation. Remember indent. Indent had timeline defined by the department that it needed it within these numbers of days. Now he has got supposing 10 quotations. Next step is the selection of best five (for e.g.) quotations. The selection is based on the technical requirement of the concerned department, the quality vendor is supplying, and its past records of deliveries, and again most importantly the price. The selected vendors are called for the technical and commercial negotiations. Now the selection is reduced to 3 (for e.g.). Now again the comparisons are taken and the best one is given go-ahead for supplying the material and purchase order is raised for it.

A detailed description about various processes is given below:-

General Explanation:The process of finding a source of supply, in Purchasing, at the time of development of New Material & Alternate New Vendor, involves creation of Request for Quotation followed by Quotation Maintenance activity. A price approval will be a manual process, which will be based on the quotations.

Request for Quotation :A request for quotation (RFQ) is an invitation extended to a vendor by a purchasing organization (purchase department) to submit a quotation (bid) for the supply of materials under certain terms and condition. Request for quotation will be created with reference to the Purchase Requisition. An RFQ contains general information such as the vendor’s address total quantities and delivery dates for the materials and the quotation submission date. The information will be copied from the requisition.  In case the RFQ is created without any reference then all these will be entered manually.

RFQ can be raised on following two kinds of vendors. One is that for which the vendor master record exist in the system and the vendor is registered with the organization. These types of vendors have the vendor code maintained in SAP. The other one, which is a new vendor and the RFQ, is being raised for the first time. The vendor may not respond to our inquiry, or after receipt of quotation from vendor we may not process the quotation. In this case the vendor master record is not at all necessary. For creating RFQ for such a vendor a dummy vendor (One Time Vendor) will be created in the system and during creation of RFQ’s the same vendor code will be entered wherever required. But the Name, Address and other details will be entered in the RFQ’s directly. Since the system assigns a separate number to each RFQ hence this number will be used for analysis of quotation instead of using the vendor code of dummy vendor. Once this vendor will qualify the company’s norms and there is need to register the vendor as our approved vendor then the vendor master record will be created (if need be).

Quotation Capturing :A quotation is legal binding on the vendor for a certain period. The quotation is the vendor’s response to a request for quotation issued by a purchasing organization containing the details of material, which will be supplied by vendor under certain terms and condition of pricing and payment. The delivery details will also be a part of quotation offered by the vendor.

Quotation Comparison:Based on the various quotation received and maintained in the system a report will be generated from the system for showing the details of the pricing elements, payment terms and delivery terms.

There will be two scenarios for which Quotation Comparison for price Approval will be done. Firstly when a new material needs to be developed & secondly an alternate Vendor needs to be developed for an existing item.

Explanation of Function and events (in Domain):

When a New Material needs to be developed the Planning Deptt. will release a Purchase Requisition on the development agency. When new source needs to be developed for an existing material then the Material’s Dept. will send a memo to the development agency. The development agency based on these Purchase Requisitions shall create RFQ’s for different vendors. The quantities, date required would be copied from the respective purchase requisitions. In later case based on the memo received from Materials department, development agency will create the Request for quotation manually. The standard document type ‘AN’ will be used for creation of Request for Quotation. 

Buyer of the development-purchasing organization of Process plant will create the request for quotation. After receipt of Request for quotation, vendor will respond by sending the quotation with the mentioned item, quantity, and validity period of the quotation. The quotation will also consist of commercial data like Pricing Details, Tax Details, any other special discount, surcharge or tax which is not covered standard pricing. Payment terms will also be mentioned in the quotation. If it is available in vendor master then it will copy in the respective document.

On receipt of the detailed Quotation from the vendors, the Buyer of the development-purchasing organization will maintain the quotation against the respective RFQ’s. While maintaining quotations following parameters will be maintained

1.  Quotation Validity period in terms of From Date To Date

2.  Pricing element will be maintained in the pricing screen with validity period.

     a.  Base Price

     b.  Discounts

     c.  Surcharges

3.  The tax code will have to be selected in the item details in the TAX CODE field. If a purchase order or scheduling agreement created with reference to this RFQ, then this TAX CODE facilitates the determination of Tax Amount (which will consist of excise and sales tax) when invoice is entered in the system.

4.  Other Taxes like Entry Tax will be enter through pricing condition and the value of which is maintained manually in the system.    

Once the quotation maintenance has been done then a price comparison sheet will be printed from SAP with possible elements of the pricing with current validity period, final Price Approval. The price approval will be a manual process based on which further action will be taken for raising the contract / scheduling agreement for trial order or not. During price approval also if further negotiations have been taking place then the same will be updated to the previously entered quotation by entering the new validity period against the new price amendments or the same validity period.

Master Data considerations:

1)  A Master data of the material for which RFQ and quotation is created shall be created in the system considering the views of basic data, Purchasing, Accounting, storage location.

2)  Excise department should create the excise chapter ID and material code combination data and CENVAT Determination data.

3)  Finance department will centrally create vendor Master.

4)  The buyer of the development agency will create the one time vendor.

System configuration considerations:

–   Creation of Number Range

–   Assign Number Range to Document Type ‘AN / other user defined document types

  • – External Number Range may be assigned if the client wants so.

–   Item category (for Subcontracting it should be L)

–   Creation of Payment Terms

–   Configuration of Pricing Procedure

–   Tax Code Configuration in Coordination with finance.

–   Configuring the Incoterms.


Transaction Code                        Description

ME41                    Create Request for quotation

ME42                    Change Request for quotation

ME43                    Display Request for Quotation

ME47                    Maintaining Quotation

ME48                    Display Quotation

ME49                    Standard SAP Price Comparison List

ME4S                    Displaying list of RFQ’s against a collective no.

Process Flow diagram for creation of RFQ/ Quotation:-



Flow diagram for inside RFQ:-


Flow Logic thorugh SAP Screens:

Path in SAP menu: logistics ->materials management -> RFQ/quotation -> Request for quotation.


ME41 header screen. Note the collective number. The same is used while comparing the quotation.


ME41 Item level screen.




ME47 screen. Here the prices are maintained.




The above transaction is used for all created quotations. In business sense each vendor is sending its own quoted price. Here in above example the vendor had quoted price, freight charges and discounts.



As in the screen shot the quotation is to be maintained for all RFQs. The comparison is based on effective price or inclusive of discounts or inclusive if delivery cost (here freight). As shown in the screen shot below we give collective number as


On the basis of collective number the quotations are compared. System will compare basis on price only. You can choose even the rejected vendors despite the price being high based on his quality and faster delivery. For those who are selected the purchase orders are issued and those rejected are issued rejection letter.

Let us see the screen shots of customisation.


Here you can customise number ranges; document types; release procedure for quotation; screen layout and tolerance limits.

On the basis of collective number the quotations are compared. System will compare basis on price only. You can choose even the rejected vendors despite the price being high based on his quality and faster delivery. For those who are selected the purchase orders are issued and those rejected are issued rejection letter.

Let us see the screen shots of customisation.


Here you can customise number ranges; document types; release procedure for quotation; screen layout and tolerance limits.


Screen shot for overview of number ranges


Screen shot for document types


Allowed item categories for RFQ


Screen shot for release strategy of RFQ. I am not going into detail for release strategy as it is beyond the scope of the document.


I hope at the end you will appreciate the usefulness of RFQs in domain industry and its mapping in the system.

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