A Tried and True 10 Step Process for Conducting a Reverse Auction
Let’s look at a process for holding a Reverse Auction that has been proven to be successful.
Identify the spend category
The first step in holding a reverse auction is to ensure that the procurement is suitable for this type of strategy. Reverse auctions work best for a good or service that several companies provide. Specialty procurements, unique requests and customization may make it difficult to hold this type of procurement.
Ensure there are at least two suppliers
This is the bare minimum, and five to seven suppliers are optimal. While it is always good to have a higher number, reverse auctions must be held with pre-approved suppliers. Businesses want to ensure there is healthy competition, but only among trusted suppliers that can be counted on to deliver on their contracts.
Ensure those submitting have done business before
New suppliers can be invited in a reverse auction but it is best if they participate in a request for information stage (RFI) beforehand to ensure they can meet quality and delivery requirements. Otherwise, stick with trusted suppliers. A reverse auction is most likely not the place to test a new vendor, so have new suppliers start on small orders and work them. Reverse auctions that likely call for large orders should mainly be reserved for trusted partners.
Pick the right Reverse Auction software
Reverse auction software has many benefits, but only if you pick the right one. Look for ease of use and a track record of success. Auctions fail sometimes because the supplier interface is too complicated, making it difficult for suppliers to enter bids, send and receive information, and generally be a part of the auction process. The right software should make all of this easy.
Clearly define specifications
This one is incredibly important. If the buyer does not specify what they need, how they need it and when they need it, the suppliers will not be able to provide an accurate bid or deliver the product or service requested. To avoid frustration later on, companies need to create incredibly detailed lists of specifications that detail every aspect of the purchase. That way the suppliers will know exactly what they are bidding on and there will be no surprises later on.
This is another key step as suppliers need to know how to place a bid. Suppliers should have access to ensure they can log into the system, place a bid and understand the process. Any questions should be handled before the reverse auction starts. This helps keep a good relationship with suppliers but also ensures that all companies that want to bid on the procurement are capable, increasing competition.
Hold a mock auction
Using e-auction software, set up an auction that is similar to the live one and have suppliers place a mock bid. Not only will suppliers get an opportunity to practice with the software and iron out any potential issues, but the buyer could confirm the suppliers that are most interested in participating.
Give suppliers some time
Make sure there is time between when specifications are released and when the auction is held. Suppliers will want to prepare their best offer and to make sure they can deliver on what is being requested. This will also give the buyer time to get some feedback from suppliers that may weigh in with questions or concerns in anticipation of the real auction.
Conduct the live auction
Pick a date and time that will be convenient for the most people possible. Ensure that there is phone or live chat support available so any suppliers with issues can get help immediately. If everything goes according to plan, the buyer will have a number of quality offers to pick from derived from suppliers competing against one another in real time.
Take time at the end of the e-auction to let suppliers know they are appreciated for submitting a bid. Also let suppliers know the timeline for awarding the contract and possibly any information about future contracts or other ways to engage with the company.
Reverse auctions have shown to be a powerful way to engage suppliers but also allow businesses to get the best price on goods and services. With the right procurement software, it is easy to run a reverse auction. The software handles the hard parts of the process while businesses can focus more on dictating what exactly they want to buy.
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