How to Win a Reverse Auction

How to Win a Reverse Auction

Many companies and corporations turn to reverse auctions instead of forward auctions (which is another name for a typical auction, such as you’d see in real life or on a traditional bidding site). A reverse auction has its own unique set of features to master, and many of those working in procurement or purchasing wonder how to win a reverse auction with regularity. 

Read on to learn more about the reverse auction model, and how you can make it work for your department. 

 

How to Win a Reverse Auction: How Does a Reverse Auction Work?

 

Many companies and corporations turn to reverse auctions instead of forward auctions (which is another name for a standard auction, such as you will see in real life or on a traditional bidding site). A reverse auction has its own unique set of features to master, and many of those working in procurement or purchasing wonder how to win a reverse auction with regularity. 

 

Read on to learn more about the reverse auction model, and how you can make it work for your department. 

 

How to Win a Reverse Auction: How Does a Reverse Auction Work?

 

To understand best how a reverse auction works, it’s a good idea to take a look at a forward auction vs. a reverse auction. In a forward (regular) auction, sellers have an item they wish to sell, and potential buyers bid on the item. Whoever has the highest bid wins, and a forward auction can be very competitive, particularly in the final closing minutes. 

 

The textbook reverse auction definition from Investopedia states that it is “…a type of auction in which sellers bid for the prices at which they are willing to sell their goods and services.” In a reverse auction, it’s often the lowest bid that wins. In a reverse auction concerning procurement, suppliers and vendors price their goods and compete against each other. You (the purchaser) make the final decision.

 

Unlike forward auctions, reverse auctions can often have multiple time extensions. Another difference between the two types is you usually have a business relationship with your suppliers, unlike regular auctions, where you rarely know sellers.

 

How to win a reverse auction in procurement as the purchaser is somewhat complex. While you want the lowest price, you also want to ensure you receive quality goods and services—so there is quite a bit to consider.

 

How to Win a Reverse Auction: The Reverse Auction Process Flow

 

The reverse auction process is a simple one. A reverse auction likely won’t be held unless there are at least two suppliers or vendors that are qualified for your desired good or service. Otherwise, you would simply draw up an RFP and skip the auction process altogether, hoping that the supplier would come in with a low price on the RFP.

Image of hands shaking for an article about how to win a reverse auction.

The flow chart has you (the purchaser) in the middle, with your suppliers surrounding you. A good reverse auction will have at least six to seven suppliers in competition to make bidding competitive. Do as much research on your suppliers as possible. It’s very likely you already have working relationships with some of them in the auction, but it’s time for some thorough research if you don’t. Certainly, the suppliers will research you in order to learn how to bid properly. 

 

Remember that a winning bid in a reverse auction is not binding. The only thing that is binding is a signed contract. So, if you’re not happy with the reverse auction outcome, you can essentially scrap the winning bid. It will have been a waste of time and manpower, but it’s much better to cut those losses than accept an expensive bid or potentially accept subpar goods or service from a supplier with a low bid.  

 

How to win a reverse auction involves much more than just accepting the low bid. Another part of reverse auctions includes the willingness to go spend the extra time to allow suppliers to enter many bids. If you think that suppliers will go lower with extra time, then you should allow the auction to continue or better yet ensure that the auction extension interval is large enough that it’s worth your time. You may find it frustrating and time-consuming, but it may work out best in the end. 

 

How to Win a Reverse Auction: What Are the Benefits?

 

Once you’ve figured out how to win a reverse auction, you can reap the benefits. Some benefits of reverse auctions in procurement include:

  • Higher Savings
  • The ability to have more suppliers easily participate
  • Ability to meet deadlines
  • Transparency to buyers & suppliers
  • Ability to have small businesses enter the fray
  • Competitive pricing
  • Expedited procurement process

Depending on the nature of your business, you may find more benefits along the way.

If you need more information on how to win a reverse auction, or want more tips on E-procurement, contact EC Sourcing Group today by calling us at 973-936-9672 to see how we can help.