“What is the best deal you can offer me?” that is the heart of negotiations. Reverse auctions are a tried and tested tool to get to the “best deal”.
A brief intro on “what is a reverse auction”:
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. 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
5 compelling benefits of reverse actions
Because you get a better result, quicker. It remains competitive and gives all suppliers a level-playing field to bid in real-time with transparency and fairness at the core of the activity. Corporations and government organizations can hold reverse auctions as a competitive procurement tool for raw materials, supplies and services.
The benefits of reverse auctions include but are not limited to:
- Lower purchase costs through increased competition;
- The potential to gain better savings then a present “target” amount;
- Time Savings through a reduced negotiation phase;
- Increased ability to meet deadlines thanks to having a set auction date; and
- Reverse auctions can also increase transparency for suppliers as they all have the same information at the same time.
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 must go out to tender and you still must 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 consider 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.
5 implementation guidelines
In the paper: “Implementing reverse e-auctions: A learning process”, Daesik Hur outlined five considerations organisations should take to implement e-Auctions successfully:
- Build e-auction competencies;
- Organise for knowledge management;
- Create a holistic sourcing process;
- Focus on the total cost of ownership; and
- Experiment with e-auction designs.
Comprara can help your organisation with all five tasks. We can help you build e-auction competencies leaving the knowledge inside your organisation. Our consultants can help you implement processes that enable you to reap all the benefits of reverse e-Auctions, while avoiding the negatives associated with trying to negotiate the best deal possible. Our team of managed thousands of reverse auctions across a plethora of categories – and yes you can auction services (including audit, advisory, legal and recruiting services). Should you be interested in revisiting reverse auctions for your organisation in a serious way contact us at Comprara and we can show you how.