How to Master Reverse Bidding: A Guide for Buyers
For years, negotiations were performed by email or phone with a RFP (request for proposal) or an RFQ (request for quotation), which was a time-consuming and stressful process. The endless back-and-forth could take days, sometimes weeks or months to source the needed service or materials. However, the “analog” way of negotiations is long gone, thanks to reverse bidding and eAuction software.
Suppliers bid against each other as competitors in a reverse auction to win the buyer’s contract—the exact opposite of a standard auction.
Both buyers and suppliers benefit from eAuctions, as buyers have a more comprehensive choice for choosing suppliers, which levels the playing field for the vendors. Read on to learn more about what the reverse bidding process looks like, the bidding itself, and how to master the reverse bidding process.
Mastering Reverse Bidding: The Reverse Auction Process
So, what is reverse bidding?
Picture this scenario: Using your best-in-class, cloud-based e-Auction software, you announce that you are running an eAuction. This gives you a qualified list of vendors. What happens next?
- Configure the reverse auction. You’ve decided to run a Dutch auction and you determine the reverse auction start time, end time, maximum bid, minimum bid decrement, and overtime rules.
- Conduct the reverse auction. Before the real auction, you decide to set up a mock auction, so everyone knows what to expect, including your team and participating bidders. Because your eSourcing solution has best-in-class reverse bidding software, you set up your eAuction with big-screen TVs in your conference room and watch the bids flow in, with real-time notifications and updates about each bid.
- Award the contract.You’ve found a bidder you like and because your eSourcing software is best-in-class, you already have all of the vendor information you need because its predetermined qualified bidders through an automated vendor vetting process—so then it notifies the winner, generates the contract, and sends it directly to them for their eSignature.
That’s the ideal Reverse Bidding Process. It’s simple—pending you have the right software!
Do Your Research
Of course, each reverse bidding auction will be different depending on the goods or services needed. Also, the process differs depending on what type of auction you use, such as a Japanese or English reverse auction.
Study the marketplace thoroughly and your place in it (is it a buyer’s or seller’s market?) A seller’s market may not offer you enough suppliers to make an auction worth it, and a buyer’s market may give you a large pool of suppliers from which to choose.
Mastering Reverse Bidding: Vendor Vetting Process
Vendor selection is one of the most important pieces when running a reverse bidding auction.
Make sure you establish criteria in advance. Identify specific requirements for your auction—not all suppliers can fulfill those needs.
Be very specific about the reverse auction terms so there is no confusion with the winning bid or during the contract award process. Instill the 10 Cs as you set parameters for the vendor vetting process in order to rule out any unqualified bids in advance:
- Capacity. Ensure the supplier can accommodate the scope and quantity to fulfill your orders.
- Competency. Make sure the vendor’s level of proficiency and skill is sufficient for your needs.
- Cash. Your supplier should be financially stable.
- Cost. Does the product quality align with the price you are paying?
- Commitment. Ensure the supplier has a history of high quality and service and that they have the commitment for fulfillment. Seek out reviews and testimonials from their other clients.
- Control. Is their supply chain well-managed and risk-averse?
- Culture. Is your supplier socially accountable to customers, stakeholders, and the world at large?
- Communication. Are they transparent and forthright in all their communications?
- Clean. Do they support environmentally friendly practices?
- Consistency. Do they perform up to your standards every time?
With the best eSourcing software, you’ll see significant time savings here by automating this process. Vendors will only have to supply the required info once, and automatic alerts are generated for any previously given information that needs updating.
Mastering Reverse Bidding: More Tips
In reverse auctions, there are a few more things to keep in mind to help master reverse bidding:
- Inform everyone when the auction has ended
- Notify the non-winners immediately following the close of the auction
- Remember, you can still negotiate with the leading contenders
Also, it’s imperative to remember that eSourcing and eAuction software are negotiation tools to help you meet your procurement goals.The best software will have little to no learning curve and will provide a much easier experience for you and your team (and your suppliers)!
Mastering Reverse Bidding: What Are the Benefits of a Reverse Auction?
There are many benefits of reverse auctions, not only for buyers but also suppliers. The nature of the reverse bid can make things more competitive, but it also levels the playing field for suppliers who may not normally get a chance to bid. Some other benefits of reverse auctions and bidding include:
- Efficiency. The reverse nature of bidding saves time because of reduced negotiation time and also reduced cost through the potential to procure better savings due to increased competition.
- Increased ability to meet procurement deadlines. e-Auction software lets you set an auction date, which allows you to meet deadlines more efficiently.
- Improved relationships with suppliers. Because of the transparency and collaboration for those who participate, you can build trust with your current and new suppliers.
- Access to more suppliers. While having more buyers in the mix levels the playing field for suppliers, it also gives buyers more access (and more choices) in their vendor choices.
- Increased efficiency overall. Streamlined sourcing using a reverse auction and reverse auction software positively affects procurement and the entire supply chain.
To master bidding and the reverse auction, it’s important to note that reverse auctions aren’t the correct choice for all types of sourcing. If there are only two or three major sellers, then a reverse auction won’t make sense. You should also take caution if you have a group of parts to aggregate and are searching for a volume discount— the seller(s) may not have the right equipment to produce the part. This is in part why research and setting the proper vendor parameters is so important before the process begins, and having the proper eSourcing and eAuction software in place is a must.
To learn more about intuitive, easy-to-use reverse bidding software with the features you need, speak to a Simfoni representative today about conducting a demo.