Reverse Auction
Get ahead with Prediction forecasting on steroids!

“What is the best deal you can offer me?” that is the heart of negations. Reverse auctions are the newest tool to get to the “best deal”. In the case of normal auctions, the vendor puts up a good, and potentials buyers offer up prices until the highest bidder emerges. In the case of a reverse auction, a procurer puts out a call for services. It is then up to the vendors to offer the best deal at the lowest price. Due to their nature, reverse auctions happen exclusively online using electronic negotiations platforms where vendors can offer up detailed contracts for consideration.

Why reverse auctions?

Reverse auctions are a product of the internet. The online environment, powered by business to business technologies have enabled multiple sellers to connect with the buyer on a real-time basis. As a result, it becomes possible for large corporations and government organizations to hold reverse auctions as a competitive procurement tool for raw materials, supplies and services.

A reverse auction should be used as the last leg of sourcing and tendering to obtain the best price by encouraging competition. In other words, by the time reverse auctions happen, the procurement needs must be clear. So you still have to go out to tender, you still have to evaluate the qualitative criteria and produce a shortlist. It is only after a shortlist of vendors is created can you hold a reverse auction with the goal of awarding the contract to the vendor who offers the best deal.

But there is a dark side

Every silver lining has a dark cloud associated with it. Reverse auctions are not without their detractors. Critics argue that reverse auctions are a form of procurement thuggery. They see reverse auctions as a stick which is used to beat suppliers into submission and possibly bankruptcy. However, while early days of reverse auctions did result in notoriety and horror stories, like all tools, we have learnt to use reverse auctions better.

Most procurement professionals care about a lot more than just savings. Procurement does take into account value for money, quality, supplier relationship and contract success. Reverse auctions are a tool to reduce costs, but responsible procurement professionals know that it is a tool that is best used to forge lasting relationships and not butcher willy-nilly.