Despite the well-documented successes, less than 15% of small and medium-sized enterprises (SMEs) are currently using reverse auction technology as part of their strategic sourcing strategy. A further 4.6% are considering using the technology, but have yet to take the leap.
Our research suggests that organizations who use ProcurePort’s reverse auction software can achieve cost savings of between 18 and 40% on addressable spend.
Reverse auction technology isn’t just about achieving savings
Contrary to popular opinion, reverse auctions are not merely there to put downward pressure on prices and to back suppliers into a corner. Reverse auctions can provide the opportunity for suppliers to innovate and respond creatively to bid opportunities and can result in added value for buyers. eAuctions can open up opportunities to achieve major concessions from suppliers on value points without resorting to aggressive negotiation tactics. It permits businesses to achieve first-rate deals by creating an open, transparent environment.
For many procurement teams, it is easy to envisage the reverse auction process working for procuring goods and components, but within the private sector, it is often an overlooked strategic purchasing tool for indirect spend and the procurement of services.
Can reverse auction be used for all spend categories?
Reverse auctions have their time and place, and it is not a suitable purchasing model for all spend categories in all scenarios. There are, however, many services that lend themselves well to the reverse auction process.
During an eAuction, suppliers compete in real time to provide the goods or service that the buyer has stipulated at the beginning of the tender process.
Generally, the auction starts out with all bidders at the same price level, which gradually decreases as suppliers concede on their terms to offer better and better deals in order to win the business. Depending on your purchasing objectives, this can be based on price or on different value points like lead times, quality and service levels.
Why opt for reverse auction?
When a reverse auction runs smoothly it can achieve highly competitive deals, which can benefit both supplier and buyer, through the buyer achieving high-quality services or goods at the lowest possible prices with the highest possible quality. Suppliers benefit from reduced lead times and increased efficiency, which comes as a result of transparency within the bidding process.
Clear visibility of the selection criteria and pricing levels enables suppliers to know where to pitch their offers, and when to pull out of the process if the deal isn’t going to work for them. There are also multiple opportunities to revise bids and respond to problems or barriers armed with knowledge, rather than taking shots in the dark at achieving the status of selected supplier.
There is also a butterfly effect of encouraging digitalization within supplier organizations, as well as the opportunity for smaller organizations to compete openly on a level playing field with larger, more established corporations.
Reverse auctions are not without their drawbacks
There can be some challenges in effectively using reverse auctions and protecting the buyer/supplier relationship. That is why it is critical to ensure your supplier of reverse auction technology is able to provide your business with a high level of support.
The effort involved in strategic purchasing through reverse auction technology is largely loaded at the front end of the deal, and the most important aspect for the buyer is ensuring they set their selection criteria correctly and explain the process fully to all suppliers to ensure fairness. Suppliers must be kept informed and educated about why and how the process will take place, and given all technical support required to access the bidding platform.
An experienced, open and supportive provider of reverse auction software can make or break the success of your reverse auction process, both in terms of enabling you to optimize the process but also in terms of helping you ensure your suppliers are adequately supported.
Are you ready to take that leap?
At ProcurePort, we are confident we are the supplier that can coach you and your suppliers successfully through your first reverse auction. Call us to find out how we can help.