What is a reverse auction?
- A reverse auction is a type of auction in which sellers bid for the prices at which they are willing to sell their goods and services.
How reverse auctions work
- Reverse auctions are typically run on an e-sourcing platform that automates the process.
- Reverse auctions are managed by a sourcing team trained in e-auction best practices and ethics.
- The Sourcing team sets & communicates the e-auction rules to suppliers, which the suppliers must accept before participating in the live event.
- Before a live reverse auction, suppliers are trained on how to use the bidding platform.
- Suppliers can typically see their position after submitting the first bid, and the buyer decides what should be shown to suppliers during the reverse auction.
- The reverse auction has a pre-determined duration communicated upfront to all bidders, but each time a bid is placed within the last two minutes of the reverse auction, it will automatically extend by two minutes.
- The reverse auction will continue until no further bids are placed in the final two minutes of the auction.
Electronic auction decision matrix (Key consideration before conducting an auction)
- Spend – is the value of the contract sufficient to stimulate suppliers and competition in the form of bidding?
- Market – is the supply market competitive and with surplus capacity?
- Suppliers – are there several capable & competent suppliers in the market able to compete in the electronic auction?
- Specifications/Scope of Work – specifications/Scope of work should be precise & clear for suppliers to know what they are bidding for.
Pre-bidding evaluation & qualification, buyer’s understanding of the market, bidding strategy & rules are pre-requisite for successful electronic bidding. In pre-bidding evaluation & qualification, the buying company should ensure the qualified suppliers bid
- Have organisational capacity & competence.
- Have the financial capacity to deliver.
- Comply with specifications and Scope of Work.
- Complies with ethical business practices ethos and value.
Benefits of Reverse electronic auction
Agility - Reduce negotiation cycle time by 50% compared to traditional methods. Electronic bidding negotiations involving multiple suppliers can be concluded in hours.
True Market prices - create competitive open & real-time dynamics to achieve actual market prices to counter the tendency of suppliers to overstate costs.
Cost reduction improvement - Electronic bidding achieves an average of 15% compared to traditional negotiation methods.
Process transparency - eAuctions improve process transparency
Electronic bidding is an effective tool to stimulate supplier competition and reduce costs.
Electronic bidding assists in establishing actual market costs, countering the tendency of some suppliers to overstate their costs or the extent of inflation in the prices.