"What's the best deal you can offer me?" This is the heart of the negotiations. Reverse auctions are a tried and tested tool for getting the "best deal".
Here is a brief introduction to "what is a reverse auction":
In regular auctions, the seller puts out an item and potential buyers bid prices until the highest bidder emerges. In the case of a retroactive auction, a supplier makes a service call. It's then up to the sellers to offer the best deal at the lowest price. By their nature, reverse auctions take place online only, using electronic negotiation platforms where sellers can submit detailed contracts for consideration. Reverse auctions are a product of the internet. Powered by business-to-business technologies, the online auction environment enables multiple sellers to connect with buyers in real time.
5 compelling benefits of reverse auctions
Because you get better, faster results. It remains competitive and provides a level playing field for all suppliers to bid in real time with transparency and fairness at the heart of the event. Corporations and government entities may hold reverse auctions or auctions as a competitive purchasing tool for raw materials, supplies, and services.
The benefits of reverse auctions include, but are not limited to:
- Lower purchasing costs through increased competition;
- Potential for better savings than an existing “target” amount;
- Time Savings through a reduced negotiation phase;
- Ability to meet deadlines thanks to having a specific auction date;
- Reverse auctions can also increase transparency as suppliers have the same information at the same time.
A reverse auction should be used as the last leg of sourcing and bidding to get the best price by promoting competition. In other words, when reverse auctions occur, their purchasing needs should be clear.
Therefore, you should still go out to tender and still evaluate the qualitative criteria and create a shortlist. Only after a short list of vendors has been created can you hold a reverse auction to award the contract to the best bidder.
But there is a dark side
Every silver lining has a dark cloud associated with it. Critics argue that reverse auctions are a form of supply robbery. They view reverse auctions as a stick used to subdue and possibly bankrupt suppliers.
However, although the early days of reverse auctions, like all vehicles, resulted in stories of notoriety and horror, we learned to use reverse auctions better. Most purchasing professionals care about much more than savings. Procurement considers value for money, quality, supplier relationship and contract success. Reverse auctions are a tool to cut costs, but responsible sourcing professionals know it's a tool best used to build lasting relationships, not necessarily butchery.
5 practice guides
In the article titled “Implementing reverse e-procurements: A learning process,” Daesik Hur outlined five aspects that organizations must take to successfully implement e-Auctions:
- Build e-auction capabilities;
- Organize for knowledge management;
- Establish a holistic sourcing process;
- Focus on total cost of ownership;
- Experiment with e-tender designs.
Eker Gallery Online Auction House and Antique House can assist your organization in all five tasks. We can help you build online auction competencies by leaving the knowledge within your organization.