Reverse Auction Services & Solutions
Getting to know the reverse auction
A reverse auction is defined as an auction where the traditional roles of both the seller and buyer have reversed hence the name. In this type of auction, it is the sellers who are bidding and the buyer who is sitting in the driver’s seat. In a regular auction, you will find the highest bidder as the winner, but in a reverse auction, it is the bidder with the lowest price that usually wins the business.
Reverse auctions can deliver large cost savings, reduce the cycle times, improve supplier negotiation, and allow a procurement function to focus resources on high value activities. However, in order to realize these benefits, a reverse auction must be setup and conducted with precision. This means using the right system, inviting the right suppliers, structuring the event optimally, and properly executing the event.
There are several factors that go into the decision on whether to use reverse auctions. These factors include: the specifications of the products, the structure of the supply base, the market pricing structure, projected lead times, contract status, the costs of switching suppliers, the distribution complexity, the savings opportunity, the size of the purchase, and the strategic nature of the supplier relationships.
Achieving success with reverse auctions
It’s easy to conclude that effectively executing a quality reverse auction can be a daunting task. In addition to the complexity of a reverse auction project, there are many types of reverse auctions available to buyers, so it takes some degree of familiarity, experience and expertise to determine which type will be the best for a business opportunity.
Since effective reverse auction execution requires specialized knowledge, expertise, and familiarity with the process, many companies turn to an outside provider to provide these services. When organizations use an outsourced provider to provide some or all of the auction services, this process is often referred to them as "full service" reverse auctions. When the organization decides to use software and to conduct the reverse auction events themselves, this process is often referred to as "self service."
Full service reverse auctions can be an important tool for an organization. An experienced provider can add a lot of value to the process and can help the organization avoid some pitfalls that may arise. Full service reverse auction provides the procurement personnel the expertise and technology that the organization lacks. It can also help them build best practices and to reduce liability. Full service reverse auctions are a tool that should be used strategically for larger purchases when it is cost effective.
Benefits of Automation
Some of the other benefits of using eSourcing tools for managing reverse auctions:
Using an eSourcing solution for reverse auctions typically reduce the price negotiations timing to less than an hour. This increase in efficiency not only benefits the buyer, but also the participating bidders, making the eSourcing solution an exceptional idea for everyone—not just the buying team. It increases market efficiency and integrity as a whole.
Savings are typically greater that traditional negotiations when using an eSourcing tool. On average, we've achieved upwards of 19% in cost savings for our client programs us reverse auctions. This method results in reductions in procurement costs, allowing buying organizations to achieve increased ROI.
eSourcing solutions offer full market transparency, meaning that all the participating bidders have the same information in real time and can act on as they see fit. The bidder has the ability to modify their bid proposal in a live environment resulting in immediate market feedback.