How to compare vendor quotes: L1, L2, L3 and the real lowest cost

L1, L2 and L3 are the lowest, second-lowest and third-lowest quotes for the same requirement. The labels come from Indian public tendering, where bids are opened, ranked by evaluated price, and the contract normally goes to L1. Anyone who has to compare vendor quotes in an Indian plant uses them daily.

In a government tender, ranking happens only after technical evaluation. Bids that fail the specification, eligibility or documents are rejected first, and L1 is the lowest price among those left. Some tenders also let L2 and L3 match the L1 price for a share of the quantity, which keeps more than one supplier active.

Private plants borrowed the labels for their quote comparison sheets but often skipped the technical step. A sheet that ranks an unbranded bearing against a genuine one, or an ex-works price against a delivered one, produces an L1 that isn't comparable with the rest. The rest of this guide is about making the comparison fair before you rank.

The lowest quoted price is often not the lowest cost, because quotes differ on far more than price. Before ranking, check each quote against the indent on these points:

• Brand and part number. Did the vendor quote the brand you specified, an approved equivalent, or nothing at all? 'Equivalent' without a make and part number is not a quote you can compare.
• Specification. Check every attribute that matters: a bearing's suffixes (2RS, ZZ, C3), a motor's frame size, efficiency class and mounting, a cable's cores, size and insulation.
• Quantity and pack size. A price per box of 100 against a price per piece, or a minimum order quantity above your need, changes the real cost.
• Lead time. Days to ready and dispatch mode. A cheaper quote that arrives a week later can cost more if a line is waiting.
• GST rate and HSN code. The same item should carry the same HSN code and rate from every vendor. A different rate usually means one vendor has classified it wrongly, which becomes a credit note or a dispute later.
• Freight and packing. Ex-works, ex-godown or delivered to your store? Add any freight, packing, loading or insurance the vendor bills separately.
• Payment terms. Full advance against 30 or 45 days' credit is a real cost: it ties up your cash and weakens your hand if the goods are wrong.
• Authorised-distributor status. An authorised distributor buys through the brand's own channel, which matters for genuine parts, warranty claims and traceability. Counterfeits are a known problem in bearings, cutting tools and electrical parts.

Landed cost is what an item costs by the time it's in your store: the unit price plus freight, packing, insurance and any other charges to get it there, less any discount. It's the number to rank quotes on.

Treat GST carefully. If your plant claims full input tax credit on the purchase, GST is not a cost: compare quotes on taxable value, and treat GST as a cash-flow item, since you pay it to the vendor and set it off against the tax on your own sales. If credit is blocked or restricted for the item, GST becomes part of the landed cost. Before accepting any quote's GST, check the vendor will issue a valid invoice; our GST tax invoice checklist covers what to look for.

Then add what the price doesn't show. Advance payment has a financing cost. A longer lead time has a downtime cost if a machine is waiting, or a stock-holding cost if you have to buy earlier to cover it. A brand you haven't used before may need a trial or an engineering sign-off before it can go on a critical machine.

Here is an illustrative comparison for an indent of 20 deep-groove ball bearings, 6208-2RS C3, for a conveyor drive. The numbers are invented to show the method; they are not market prices.

On the quote sheet, Vendor A is L1, ₹20 a unit below Vendor C and ₹35 below Vendor B. On landed cost the gap shrinks to ₹5 a unit, or ₹100 on the whole order. For that ₹100, Vendor A wants payment a month earlier, won't name the brand, can't confirm the internal clearance the application needs, and takes six days longer than Vendor B.

Vendor A drops out on specification before price matters. B and C have the same landed cost. B is the choice if the conveyor is running without a spare on the shelf; C is fine for restocking if its brand is on your approved list. Either way, the decision takes a minute once the quotes are on one sheet in the same terms.

A target price is the price you expect to pay for an item, set before you see the quotes. It turns a comparison of whatever came in into a test of whether any of it is reasonable.

Base it on what you already know:

• Your last purchase price, adjusted for the time since and for the quantity.
• The best price from the last few comparisons for the same item.
• Network or market benchmarks for standard, catalogued items.
• For fabricated or made-to-drawing parts, a should-cost built from material weight, machining time and a fair margin.

When every quote comes in well above target, don't simply pick L1. Ask why: the specification may be unusual, the quantity too small, the lead time too short, or you may be asking the wrong vendors. When a quote comes in far below target, check the brand and the specification before celebrating.

Splitting an indent means awarding different lines, or parts of one line, to different vendors. It's worth doing when no single vendor wins every line, and worth avoiding when the saving is smaller than the cost of an extra PO, invoice and delivery.

Split by line

A maintenance indent for bearings, V-belts and a contactor often gets its best price on each item from a different specialist. Award each line to its best quote, as long as each order clears the vendor's minimum and the freight doesn't eat the saving.

Split a quantity

For large or recurring quantities of a critical item, giving most of the order to L1 and the rest to L2 keeps a second source active and tested. If L1 has a quality problem or a stock-out, L2 already knows your part and your plant.

Don't split

Keep the order together when parts must match, such as V-belts that run as a matched set or a set of bearings for one gearbox, and when the order is small enough that an extra invoice costs more than the price gap.

GODOWN is one procurement partner for every category, on a platform customised to your plant's workflow. You get competitive quotes for each indent, choose the one that suits you, and raise one PO, with delivery tracked to your gate and a GST tax invoice. See Buy Now & PO.