Reverse auctions have been around for more than two decades, and have become one of the most widely used e-sourcing methods for procurement professionals globally. For good reason.
In traditional auctions, buyers compete with each other to secure the winning bid against a product or service. In reverse auctions, the clue is very much in the title – suppliers vie for a buyer’s business, with gradually decreasing bids against a supplier’s request for goods or services.
Reverse auctions put downward pressure on market prices and this downward pressure can result in real-terms cost savings of 18-40%.
How reverse auctions result in cost savings for buyers
An often overlooked cost-saving benefit of the reverse auction process for the buyer is a reduction in time and resource expenditure. In reverse auctions, the onus is on the supplier to undertake the majority of the legwork. The bulk of the work involved for buyers in reverse auctions is loaded at the front of the process, where all expectations and parameters are decided and stipulated before the auction process. Suppliers can then determine a deadline and sit back and wait for suppliers to respond, then make the decision at the end of the process.
The end result for the procurement professional is not just downward pressure on rates, but saving time and resources.
When compared to more traditional sourcing processes, buyers would historically invite potential suppliers to send a proposal, they would need to wait for responses. It would then be necessary to extract all relevant information from all proposals and compare all responses, which may be sent in disparate formats, in order to come to a decision.
Reverse auction technology means that a business can run this whole procedure online, often within an hour, enabling faster and more efficient decision-making and cutting man-hours and resources significantly.
Reduced resources, reduced costs
Reducing costs is as important as generating revenue in terms of positively impacting your business’ bottom line. All businesses are under pressure to streamline their processes, increase efficiency and reduce costs.
However large or small your business is, reverse auctions can positively impact on your bottom line. Suppliers are pitted against each other, quickly exposing which suppliers are willing to move to the lowest prices, and enhancing market competitiveness. Transactions take place quickly, efficiently and usually in larger volumes, benefiting all parties.
Interact with a wider range of suppliers
Another reason reverse auctions drive down costs is that they open up the market to allow for smaller businesses to compete against larger organizations on a level playing field. The benefit to the buyer is that smaller businesses have the autonomy and agility to respond to the market in ways that larger corporations can struggle with. Smaller organizations are often more hungry for the business and are willing to forge lasting relationships.
Reverse auctions provide a great opportunity for smaller and lesser-known businesses to get involved and compete for something they may have otherwise never have had the opportunity to. Depending on the situation, the process can help to create new, long-lasting connection between the business and the supplier.
When a market is more diverse, it is ultimately more competitive, and the more players in the game the more chance that you, as a buyer, will be walking away with the fairest price and the best deal.
Reduce your bid collection cost and streamline processes with reverse auction software
The right, fully customizable, secure reverse auction platform that works for all parties can drive efficiency and cost-reductions. To ensure supplier engagement, it is imperative that your reverse auction software is intuitive and easy-to-use for both sides of the transaction.
ProcurePort can help
Our state-of-the-art reverse auction software solutions can help your business to achieve maximum impact on your bottom line by implementing a reverse auction process that can help your suppliers to access your bids, and drive efficiency and cost-reductions.
To discover how ProcurePort can work with your business to add to your bottom line, contact our expert team for advice.