Reverse Auction - An e-Procurement Strategy

Posted By:Infrabazaar

A reverse auction is a process in which sellers bid to sell their goods and services. The bidder at a reverse auction is the seller, which is exactly opposite to a traditional auction where the buyer is the bidder. For example, a company might put up a request to procure raw material to manufacture something. The bidder that offers to supply the said material at the lowest price or best terms usually wins the reverse auction, although other factors might come into play. When conducted on the Internet, the process is called "e-bidding" or "e-procurement." Reverse auctions can be extremely effective if there is sufficient amount of competition.

Reverse Auction – Process

The reverse auction can be done by buyer with his own IT arrangement or he needs to take the readymade services available from the market for such operations. During the bidding process, there is live display of the bids with suppliers with identified code. It is made possible for participating supplier, having their own passwords for giving his bids only. The bidding time is fixed. However, as per the terms laid down in the reverse auction, bidding time can be extended, based on the last bid received, is just 30 seconds before the time of closing. This would enable the other participating bidders chance to think & compete. However clause needs to be addressed accordingly in the terms & conditions of bidding documents. At the end of this process the person who has given the lowest bid gets the order.

Reverse Auction – Advantage

For Buyers - An e-Auction provides procurement professionals with the most competitive prices for their preferred products, pitching the suppliers directly against one another to see who can offer the lowest prices. It also streamlines the procurement process and saves time, as each supplier is not required to submit a full proposal.

For Sellers - Reverse auctions are generally open, enabling smaller or less well known businesses to compete in the e-Auction process. This can also allow suppliers to compete in new sectors. A winning bid can lead to more business, as most buyers will look to source their ‘non-core’ products from their existing supplier.

We can effectively select the type of items for reverse auction where there is potential for cost reduction and time reduction in procurement process.

The last few Reverse Auctions conducted on platform has been a huge success. Competitive bidding has helped buyers save lot of cost on procurement.