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Have you considered the power of reverse auctions for your business endeavors? Modern businesses and organizations have many, many more options on the table when sourcing products and services today, but few truly explore the length and breadth of possibility before settling on potentially substandard solutions. In this article, we’ll be discussing reverse auctions—what they entail, how they benefit you as a buyer, and five viable categories for reverse auction that you may never have considered.
A Quick Overview
If you’re unfamiliar with the process, it’s easy to get a grasp of what a reverse auction’s all about. It’s a process that’s largely developed with the internet and e-purchasing—you may have seen a reverse auction called a ‘procurement auction’ or ‘sourcing event’. Regardless of the mechanisms or the name, a reverse auction is a process in which a buyer advertises the need for an item or service and sellers bid lower and lower to provide that item or service. The lowest bid wins, assuming no unusual circumstances. This can be a powerful tool for acquiring what your business needs at the fairest possible price.
Items classed as commodities make for excellent reverse auctions, thanks to the built-in standardization of specifications and delivery and historically competitive pricing—there’s plenty of room in these categories for the buyer and seller to profit even with a competitive bidding process. The most interesting commodities for a reverse auction, however, are the ones you’re not thinking of.
- PCs and parts can be a great place to find savings through reverse auction. For most businesses, you’re going to be looking at identical systems throughout the organization, and there’s plenty of profit margin to find deals in.
- If you’re in a region with multiple viable providers of energy, a reverse auction can secure you deals above and beyond anything you might expect—the more energy you consume, the better more competitive the bidding.
Manufacturing Parts. Like PCs, there’s often quite a large margin on common manufacturing parts. Optimizing your price on new machinery and replacement parts works as well here as there.
Interesting reverse auctions aren’t limited to commodities, however. While there’s a bit more work to be done on the front-end of a non-commodity reverse auction, getting all of the bidding sellers on the same page, there’s still plenty of opportunity to go around in a well-managed non-commodity auction. You’ll get the most from a reverse auction involving high-volume and wide profit margins.
Software Implementation. Figuring out the right price to play for a large scale ERP implementation, or the integration of old and new systems, or any other major software implementation can be problematic. Set up a reverse auction, however, and the opacity of pricing will evaporate quickly as companies bid down to fair market prices.
Major Service Contracts. IT service, waste collection, building maintenance—contracted services on a national or international scale make for excellent reverse auctions. At a smaller scale you’re unlikely to see big gains, but once you cross a certain threshold firms will scramble to compete for your business—and you’ll reap the profits. There’s really no limit to what services you can put out for bids at this scale.
These five things you can reverse auction should give you insight into the myriad options available to you. Anywhere there’s room for competitive pricing, you can use a reverse auction to secure the best possible buy price for your organization. You just need a big enough spend to get seller’s attention—if you’re not going big enough, they’re not going to care enough to play the reverse auction game.