Reverse Auctions when used for sourcing the right category can generate significant cost savings. The savings can range anywhere from 8% to 32% depending on the category and overall value.
What is a Reverse Auction? An online sourcing event where suppliers compete among themselves by continuously lowering the price they wish to charge for their goods or services. The benefit of a Reverse Auction to the buyer is two fold:
- Buyer gets theĀ best negotiated price for goods or services in a very short period of time
- Buyer isĀ able to purchase goods or servicesĀ at the best available, and true market priceHow to Run a Successful Reverse Auction
There are two key requirements forĀ running a successful e-auction
- A cloud hosted, easy to use Reverse Auction Software
- Selecting the appropriate product or service to source using a Reverse Auction. You can see a typical list here
The 5 Steps to a successful Reverse Auction
- Select a product or service with a significant spend amount and invite at least 2-3 suppliers to participate in the e-Auction
- Ensure that all invited suppliers are qualified to do business with your organization and provide detailed specifications of the product/service you are planning to procure via the online e-auction software
- Conduct a mock training reverse auction (setup exactly as the live version) so that the invited suppliersĀ are comfortable with the entire process and place a few mock bids in the online reverse auction software. This ensures a smooth bidding process during the live event. Answer any questions posed by the suppliers prior to the live event.
- Conduct the live Reverse Auction and watch the suppliers compete in real time for your business.
- Award business. Be sure to communicate with all suppliers and notify them of your award decision and process.
HINT: Majority of the reverse auctions conducted in various categories of products and services are conducted using the “Rank Only” bid strategy. During this type Ā of reverse auction, the bidding suppliersĀ can only see their rank when they place a bid. Participants cannot see the current low bid nor can they tell how many people are bidding. All the participants see once they place their bid is their “Bid Rank” (eg: Rank 2). Participants can then adjust their bid downward to improve their ranking.
One of the major benefits of using the “Rank Only” bid strategy is; it protects the confidentiality of the lead participants bid. This allows the suppliers to be more aggressive with their pricing as they feel secure that their pricing will stay confidential.