When used for sourcing the right category, reverse auctions can be incredibly beneficial for any business. They’re a great way to drive cost savings while providing a more transparent and efficient sourcing process. However, organizations often make one or more key mistakes in the reverse auction process leading to disappointing results. What can be avoided to produce the best reverse auction outcomes?
What is a reverse auction?
First, it’s best to define what exactly a reverse auction is. In a reverse auction, the buyer initiates the auction process as opposed to the seller (the opposite of what is seen during a forward auction, e.g. eBay). The end goal of the auction is to purchase the goods or services at the lowest price possible, considering all other qualifying factors are also met.
When run properly, reverse auctions can be used to generate the most in cost savings. But several simple mistakes can prevent your organization from achieving a reverse auctions full potential, or even cause it to fail entirely.
Inviting unknown suppliers
Occasionally an organization will invite unknown suppliers or suppliers who have not been pre-qualified for the e-Auction event simply to increase the number of bidders. This creates a situation where a supplier can aggressively over bid to win the event, but once the event is over the winning supplier will often fail to deliver. Vetting suppliers before including them in any auction event is the best way to create accountability for both parties.
Unclear bidding requirements
Not being clear about the bidding requirements for a reverse auction is one of the biggest reasons for a failed auction event. Instead of providing vague terms for the event, be very precise in defining the requirements of the items/services you’re planning to procure.
Providing as much documentation as necessary to clearly define your requirements is a great place to start. This ensures that all participating suppliers have the right information they need to produce accurate bids. In situations where you are procuring items that are specially engineered or materials that are an integral part of your manufacturing process, it can be useful to request a sample from each participating supplier prior to the event. This allows you to adjust item requirements if needed to procure a product best suited to your needs.
Creating reverse auction events for items with low spend value
Suppliers tend to avoid bidding aggressively when the value of spend for the overall bid is low. Instead, a spend value of 50K or greater is a good benchmark to keep in mind for producing more successful reverse auctions. A good way to increase the spend value is to aggregate the annual spend on a specific product or service (even if you are procuring the product/service on a monthly or quarterly basis) and including the annual spend as part of the reverse auction.
Conducting reverse auctions on short notice
Proper communication and training are essential components of successful reverse auctions. Suppliers often need time to review the bid information to train and prepare for the sourcing event. Providing suppliers with ample time ensures that suppliers will be clear on the requirements as well as comfortable with accessing the online reverse auction platform used to host the event.
Using an ineffective reverse auction platform
One of the most important criteria for successful reverse auctions is selecting effective and easy to use online cloud-hosted reverse auction software. Software that’s easy to use for suppliers and has the appropriate feature set to properly create bidding events is a sure way to set up a reverse auction for success.
ProcurePort can help your organization unlock its true cost savings potential through our reverse auction and e-sourcing platform. On Demand and delivered via the cloud as a SAAS solution, our state-of-the-art e-Sourcing Software can be used for conducting a reverse auction for any category of spend. Contact us for a free consultation to see how we can help you generate cost savings through reverse auctions.