Professional Buyer's Use of Reverse Auctions
First and foremost, reverse auctions are used to get the best
available market price at the time of the bid. In many
instances, a reverse auction will result in a lower price paid
than traditional sealed bids or negotiations. While savings are
sometimes difficult to accurately measure, and while some costs
are "hidden" (supplier change costs, set up charges, etc),
companies employing this technology in properly conducted
reverse auctions are experiencing often 10% or more real cost
savings. Whether you use the last actual price paid or bid price
reduction, you can accurately track, report and post the results
to all interested parties within minutes after the event is
complete.
This leads us into the next buyer reward which is process
improvement. It is true that it may take more time to put
together a reverse auction bid, but this preparation brings
about a disciplined, thorough, and fair bid process and
ultimately better supplier selection decisions. Reverse auctions
require special care be taken to write accurate specifications
and evaluate the true historical spend information which enable
you to better forecast your demand to potential vendors. This
process discipline will improve your productivity for future
competitive bids because you will have quick access to the
information in the future. Reverse auctions reduce the
negotiation time from weeks to minutes. The cycle time is
shortened which, in turn, will reduce costs and improve
efficiency for both buyer and seller. In addition, you will be
able to easily duplicate the bid package if you would like to
run similar reverse auction events in the future.
Another reward for buyers is bid transparency. Reverse auctions
can be used as a transparent reporting tool for all bids
accepted. This works especially well in the public sector where
every penny is tracked and monitored. Online bidding systems can
usually save all data for quick report generation at the click
of a mouse. If needed, the live event can be viewed in real time
by any interested parties from any internet connection or on a
viewing screen in a conference room. Most reverse auction
systems are web-based, allowing interested parties to log into
the system and watch the event live from their desktops.
The next buyer reward is increased organizational
competitiveness. When you reduce costs and improve productivity,
you make your company more competitive and therefore more able
to attract and retain customers who seek price reductions.
Streamlining your procurement process through online competitive
bidding methods, such as reverse auctions and eRFX, will benefit
your organization and your career. When you can show measurable
results and easily report those results to management, both you
and the organization will benefit.
The last buyer reward for using reverse auctions that we will
talk about today is extending your reach to new potential
suppliers. When you use online reverse auctions, you can post
the bid opportunity on your website which will attract more
suppliers to compete for your business. You still must
pre-qualify the suppliers, but the increased number of suppliers
will increase the competition for your purchase, driving down
bid prices. You can easily include more bidders via the
streamlined e-procurement process. If you wish to open up your
purchase to more can be difficult to identify new suppliers to
create a competitive environment for a reverse auction. By
posting your events online in a public format, more suppliers
will be able to find you.
Finally, you should treat reverse auctions as one tool in your
procurement toolbox. Most organizations that currently do
competitive bidding will be able to see the value of the reverse
auction process and to recognize how it fits into their
organization. And those organizations are saving time and money
by doing them right. So don't miss the opportunity to connect
and contract quickly with your suppliers by using reverse
auctions.
About the author:
Doug Luthringer is a Client Development Manager at eDynaQuote
(http://www.eDynaQuote.com) with over two years of strategy,
implementation and training experience in online reverse
auctions and over six years with online forward auctions such as
eBay. Doug has also been invited to be a guest speaker to talk
about how to properly use reverse auctions to small and medium
size business, as well as university students.