Reverse auctions are an essential part of a complete e-Sourcing solution in the digital age. Turning the tables on the conventional auction process, reverse auctions empower you to be the auction host, while the suppliers you invite get to bid for your business. Rather than driving bids up, a reverse auction drives bids down, greatly reducing both the time and expense of procurement. Here we walk you through the entire process, which begins with deciding when reverse auctions are right for you, and ends with awarding a contract to the bidder of your choice.
The Benefits of Reverse Auctions
Reverse auctions come with a number of outstanding benefits. Cost savings and time savings are two of the greatest stand-outs.
Maximum cost savings
A reverse auction can lead suppliers to bid well below their standard or discounted prices, saving you up to 40% in cost per supply unit. As you take advantage of the cost savings of reverse auctions again and again, you’ll find that they can lower your overall procurement costs dramatically.
Maximum time savings
With the clock ticking in a live reverse auction, suppliers can no longer use the negotiating tactic of waiting for you to cave in on their pricing or their terms. Reverse auctions also eliminate the time wasted calling numerous suppliers for new or revised quotes.
Although online reverse auctions are best known for saving you time and money, there are other undeniable benefits as well. For example, reverse auctions can help you expand your supplier base by helping you attract new suppliers. They can also help you find the true market pricing for the goods and services your suppliers are bidding on.
The Reverse Auction Process
To give you a sense of the road ahead, let’s take a good look at how to conduct a reverse auction, including all the key steps in the reverse auction process, while helping you avoid common mistakes along the way.
Deciding when a reverse auction is best for you
The first step toward cost and time savings is deciding when reverse auctions are the best solution for you. Generally speaking, reverse auctions are at their best with indirect spend categories, such as PCs for your offices, office supplies, etc. However, in many cases, reverse auctions can also serve as the perfect solution for direct spend categories, such as raw materials, as long as the category doesn’t correspond to a strategic, single-sourced good or service.
Purchasing reverse auction software
Once you’ve decided that a reverse auction is the best solution for your spend category, it’s time to choose a best-in-class reverse auction platform. Remember that reverse auctions are all about saving you time and money, so make sure the reverse auction solution you buy is affordable and easy to implement. For maximum ease-of-use, choose a cloud-based, SaaS solution that is easy to use for both you and your suppliers. Also look for essential features such as real-time messaging, sophisticated bidding and a built-in capacity to cover a wide range of spend categories.
Choosing your supplier base
When choosing the suppliers that you want to compete in your reverse auction, keep a close eye on quantity and quality. Starting with a minimum of roughly 3 to 5 suppliers, aim for a large supplier base if at all possible to increase competition. However, to ensure high quality, don’t forget to vet and pre-qualify all your suppliers. It’s not worth skipping the vetting process just to secure more bidders. If you do, you could find that the bidder that wins is a low-quality supplier that fails to deliver, sending you right back to the beginning.
Writing your supply specifications
Before inviting your chosen bidders, it’s important to write detailed, clear supply specifications for them that lay out all your requirements. This way suppliers will know exactly what they’re bidding on. It will also ensure that you’re comparing apples to apples.
Sending invitations and requirements
When the time comes to send your invitations, be sure to give your bidders plenty of time to review your requirements, learn the new platform, and prepare their offers before the live auction.
Training your bidders
In order to prepare your bidders for a live auction, it’s important to train each of them in advance with a mock auction that mimics the precise process of the live auction. This will give each bidder the opportunity to place mock bids and ask you any questions they have about the process.
Conducting the live auction
Once you begin your live auction, your best-in-class cloud solution will do most of the work for you. This will free you up to focus on watching the bids appear in real-time while communicating with your bidders through open or private chats. If you prefer to have a professional team on hand, reverse auction specialists can help conduct the live auction for you.
Awarding a winner
Once all the bids are in, it’s time to choose a winning bidder. At this point, you don’t have to accept the lowest bid if you don’t want to. If another is better in terms of quality or terms, you can take it. After all, several important costs of doing business with a supplier aren’t reflected in the bid and vary from supplier to supplier, such as shipping costs, taxes, and other fees.
Reverse Auctions: A Sourcing Solution for the Digital Age
No e-Sourcing solution in the digital age is complete without reverse auction software. Turning the tables on the conventional auction process, a reverse auction makes you the host. The prices go down, rather than up, as suppliers compete for your business with ever-lower bids. As a result, your procurement costs go down accordingly. However, to do a reverse auction right it’s important to go through all the steps and best practices above to maximize all the benefits that boost your bottom line.
Wondering how to conduct a reverse auction to take advantage of the cost savings that reverse auctions can bring to your organization? ProcurePort’s reverse auction and e-sourcing technology make it easy to implement and carry out this strategic sourcing solution. Our On-Demand auction software is delivered via the cloud as a SAAS solution. This state-of-the-art e-Sourcing Software can be used for conducting reverse auctions for any category of spend. Contact us for a consultation to see how we can help you generate cost savings through reverse auctions.