The procurement sector can be challenging, confusing, and bewildering given the rapid and unrelenting pace of industry progress in today’s global market. Utilizing the types of reverse auction teams understand and excel in is crucial in market success these days.
Introducing Reverse Auctions
Reverse auctions are one of the most curious phenomena of the procurement sector. In a traditional auction, buyers place bids on items and the highest bidder wins. Reverse auctions are the exact opposite of the traditional model. In a reverse auction, everything is flipped, the sellers make bids stating the amount that they are willing to sell their product or service for. In these scenarios, there is typically one buyer and multiple sellers. The seller who listed the lowest price will win the auction.
Most reverse auctions involve the sale of raw materials or accounting services etc. It is a competitive procurement strategy used by robust corporations and governments. Buying materials or services through a reverse auction is a clever way to procure resources in volume and source suppliers.
Types of Reverse Auction
Now we’ll cover the different types of reverse auction frameworks and discuss the benefits of each.
Let’s start off with the classic reverse auction scenario. In a classic reverse auction, the buyer will declare a starting price and a spending cap from which suppliers will determine their bids.
The English reverse auction is another framework in which one supplier places the first bid after which every additional supplier must place a bid that is lower than the first. The process continues until one of them remains unbeaten for a sufficient amount of time.
There are also Dutch and Japanese reverse auctions which have a completely different set of rules. It is important to understand how the framework of each of the types of reverse auction scenarios will affect your business. Examine how it will affect your organization both at the procurement level and other areas of the business more generally.
The Advantages of Reverse Auction Procurement
Procuring via a reverse auction has a number of key advantages to it. Firstly, the potential cost savings are enormous. As a buyer, you’ll get a better idea of what the true market pricing is. You can save even more money by using reverse auction software to automate the process and save on goods and services on every purchase. The savings are huge and very attractive. You can save up to 40% on goods and services as a buyer in a reverse auction.
Some less progressive sellers who fail to look at the big picture, they think that because these auctions are designed to sell at lower prices that they’re losing out. However, clever procurement teams readily grasp the fact that by participating in reverse auctions, sellers can move overhead quickly and hasten the process of secure contracts. Sellers also have the advantage of learning from buyer feedback on their proposals.
It also benefits suppliers by allowing them to compete in real-time. With the combined benefits for both buyers and suppliers, it’s easy to see why reverse auctions are so important in the procurement sector.
Are Reverse Auctions Right for You and Your Procurement Team?
As a procurement team, you’re under a lot of pressure to get the best deals from the right suppliers. Reverse auctions are perfectly suited for situations involving short-term contracts with little long-term strategic interaction. Short-term transactions like construction projects on healthcare facilities, equipment, and raw materials procurement, can all be handled most effectively through reverse auctions.
One thing that buyers should do to improve their chances of getting the best deal and benefiting from a reverse auction is to vet the suppliers by extending an RFI, or, request for information. Conversely, it’s imperative that suppliers take the appropriate steps to attract the right buyers to the reverse auction.
Why You Need Managed Reverse Auction Services
If you want to get the best deals and truly benefit from reverse auctions, you’ll need to facilitate a managed service like ProcurePort. These managed services make it easy for large and small businesses to experience every advantage that reverse auctions have to offer.
Make the most out of the different types of reverse auction options and how to utilize them, with ProcurePort. For those of you working on procurement teams, we understand the challenges you face every day, and we’re here to make it easier for you.