Effective reverse auction systems have become an increasingly popular negotiation strategy for organizations, to procure the goods and services they need at an affordable cost. These auctions reward the supplier that is willing to sell the requested item at the lowest cost, as long as those items meet a specific threshold of quality.

This type of procurement works especially well in sectors with lots of competition where suppliers will compete against one another for work. Not only does the organization running the auction get the goods and services it needs, but a reverse auction puts the onus on the seller to meet the set specifications.

Effective reverse auctions, though, do not feature a room full of bidders holding up paddles. Instead, they are done online in controlled environments. Companies will want to use reverse auction software, typically available as part of a larger procurement software package, not only to conduct the event but also to notify potential suppliers of its existence. Check out some of the key features of a typical reverse auction system.

Let’s look at some of the top features businesses will want in a reverse auction system.

Alerting suppliers

Reverse auction systems work best when there are multiple competitors bidding on the work. That level of competition drives the price down and is, in a nutshell, the optimal reason for holding an effective reverse auction. Inviting anywhere from 3 to 12 suppliers can result in healthy competition to drive down purchasing costs. Organizations about to host a reverse auction should to be able to alert pre-qualified suppliers of the bidding process.

Reverse auctions are conducted among pre-qualified suppliers, typically those already in the company’s supplier pool. If a company wants to engage new suppliers in the reverse auction process, they will want those suppliers to complete a request for information in order to properly pre-qualify them. Even having one supplier that does not fit the pre-qualification standards can harm the auction results. Unknown suppliers may not understand the quality and delivery requirements. They could use lowball pricing which in turn can alienate existing suppliers. Businesses will want to ensure they have a strong pool of suppliers ready to bid before holding the auction. If not, they may want to think of postponing the auction while more suppliers are found.

Ability to create a reference page

Suppliers will want to know what exactly they are bidding on to supply. Before marketing the auction, businesses need to be able to create a reference page that has all the pertinent information about the auction. That includes things like quantity and delivery date, any product specifications including drawings, or lowest acceptable quality standards. Suppliers will want to use this page to see if they can meet these expectations along with doing their own internal research. They will want to price out what the order would cost them as a company and see what price point they would be willing to go to in order to still make an acceptable profit.

This reference page will also include information about the auction, including time, date, and any necessary login or registration information they need to complete.

Pre-registration functionality

Effective reverse auction systems need to be able to allow interested parties to pre-register for the auction. The pre-registration process should be easy—after all companies will want as many different suppliers to take part as possible to hopefully drive the price further down. Suppliers should be able to receive a pre-registration confirmation, as well as have a place to enter their company information, including pertinent contact details.

Ability to hold a test auction

A test auction is just as it sounds—suppliers and the customer run a mock auction to test out the functionality of the auction software and get a feel for the overall bidding process. The mock auction ensures that all invited parties can successfully access the online auction software and place bids. The test auction is generally setup so that it is similar to the live auction, except that the specifications and other information is for sample purpose only. This allows the participating suppliers to get a feel for the auction layout and prepare their bidding strategy during the live auction.

Conducting the e-auction

Of course, the most important part of any reverse auction software product is the ability to conduct the auction itself. The system should have a clear and concise way for suppliers to submit bids, receive information as the auction goes on, and provide an impartial way for suppliers to compete against one another.

Effective reverse auction systems can provide a valuable way for organizations to get the best price on a good or service. With multiple suppliers bidding against each other in real time, there is an opportunity for the suppliers to put their best foot forward and for the buyer to get a competitive price that helps their bottom line. Reverse auctions, though, only work if the software used provides an equal, fair, and professional environment for all involved.

You may also be interested in: 10 Procurement Process Improvements That Will Have a Powerful Impact

Harnessing Technology to Create Greater Value from Strategic Sourcing