A reverse auction tool is considered a staple of e-procurement. Unlike a typical auction, the sellers are bidding to obtain a company’s business. The bidding for business generally leads to the prices offered to drop during the period of the procurement auction. A reverse auction targets new suppliers, and sets out to ensure any previous suppliers have the chance to propose more attractive prices, complemented with better deal terms. Reverse auctions include the following steps:
- A buyer contracts with a market maker – typically a website/page that operates in this niche. Some larger enterprises provide their site.
- A request for proposal (RFP) is issued and displayed on the reverse auction site. The RFP will detail which products and/or services are sought after. RFPs last for a predetermined amount of time.
- Prospective suppliers visit the worksite and provide quotes to carry a product or service orders.
- A combination of limited time and the dynamic bidding set-up ensures that prices quickly drop.
- Once the reverse auction is over, the buyer will then award the contract to the supplier who had the most enticing bid offer. Often buyers do not instantly choose the lowest-priced bid; instead, they look at overall packages in regards to terms, quality, and pricing.
Holding these reverse auctions via e-procurement is crucial to the success of the auction.
Reverse Auction Tools Have A Certified Success Rate
There are a few factors that lead to corporations opting to carry out reverse auctions during the e-procurement process. Reverse auction tools create competitive pricing, which provides an immense amount of value when implemented correctly.
Short-term contracts are perfect for implementing a reverse auction as they do not get any benefits from strategic relationships. Suppliers are easily replaceable in these kinds of contracts, with little to no impact on the business.
Any industry which primarily uses short-term transactions benefits from a reverse auction. Product specs are the tell-all sign whether an auction will work or not for your company. Terms are negotiable based on quality, location, benefits, and a magnitude of other factors depending on the industry. A reverse auction performs best when you are sourcing similar quality supplies because the seller can place a competitive bid that outdoes the competition and provides excellent value to the buyer.
Buyers and sellers must have a robust pre-bid phase to reap the benefits. Pre-bidding allows each seller to qualify a bid for the specific project while troubleshooting technical problems that occur during the proposal stage. This clears out the majority of bugs and small-scale problems before the more important processes start.
As an example, say a 90-day support window was mandatory with a mobile phone. Pre-bid would be collected for the service. Then, pre-bid automation from e-procurement software catches a 30-day bid submitted on accident. If you had no pre-bid process, those bids would have undercut even the most competitive, enticing support service bids, creating fulfillment challenges.
This critical phase of e-procurement also lets suppliers obtain the necessary specifications associated with the project. This means that suppliers will already be aware of the time frame needed to complete an order before they land the contract. Overall, pre-bidding gives both parties clarification on intricate details and promotes only the most competitive bids.
Reverse Auction Tools are not “The Same.”
You need to have a reverse auction service software that you can trust. Do not even consider solutions that don’t boast the following features:
- Staff can watch real-time bids from an internet browser and a viewer account
- Multi-tiered structuring options for each bidding auction
- Areas for the supplier to offer information that may influence the “fine print” of a bid
- Various sourcing functions (to improve bid performance)
- Plug-In integration with other software platforms
- Ability to assess your spend category and determine the suitability
- Alter the bid strategy according to the category being sourced
- Big data (post-bid analysis and reporting) so you can assess your processes and consistently improve
Reverse auction tools are a must-have feature for e-procurement technology solutions. They cut prices by creating the perfect situation to ensure your company is getting the lowest possible price.
Robust reverse auction tools need to have the ability to pair suppliers and buyers that compliment each other based on the individual specifications of each company. Remember, reverse auction tools aim to find the right match. It’s not just a crazy price-cutting, bidding war.
With our On Demand auction software, ProcurePort can help your organization generate cost savings through our digital procurement and e-sourcing technology. Contact us for a consultation to see how we can help you generate cost savings through reverse auctions.