The Science Behind the Reverse Auction: How to Get the Most Out of Your Money

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As businesses struggle to survive and thrive, one option many procurement departments opt for nowadays is e-procurement through reverse auctions. In reverse auctions, the typical relationship between buyer and seller is reversed. Instead of buyers competing to offer higher prices, sellers compete to offer lower costs for goods or services. This makes procurement easier and more efficient and offers significant savings in costs and time. Here are some tips on how to get the most out of a reverse auction.


Understand the Market

Before you initiate a reverse auction, be sure you understand the range of fair market prices for the goods or services being offered to you. Set the starting price low, but not so low that bidders would have to cut the quality of goods or services in order to compete.


Invite Only Qualified Suppliers

Be sure to screen potential suppliers before inviting them to your auction. Reverse auctions potentially offer you an expanded supplier base from which to choose, but be sure that they are suppliers that can actually deliver the contracted goods or services. Give plenty of advance notice to suppliers, so they can research their capabilities and prepare their range of bids. Maintain pre-auction communication with them. If this is their first reverse auction, walk them through the process to be sure they understand how it works.


Consider Factors Other Than Price

Though the main purpose of a reverse auction is to get the buyer the best price possible, other factors need to be taken into consideration as well. If the bids of several companies are within close range of each other, you should factor in the company’s reputation for meeting deadlines and supplying good service. Be aware of the company’s creditworthiness. Consider where the company obtains materials and the quality of those materials. If you have had a past history with the company, factor in the cost of switching over to a new buyer as opposed to retaining an incumbent. Under certain circumstances, the company’s physical proximity to your business might be a factor.


Use State-of-the-Art Technology

State-of-the-art reverse auction technology speeds up the process and makes it easier to consolidate data. It saves on paper documentation and relieves the load of email messages and attachments. Once the auction begins, it can happen in real time. All the data is instantaneously available, and the entire process transpires very quickly.


Financial experts predict that using reverse auctions for e-procurement of needed goods and services will become more and more mainstream in the future. Even now, many major buyers such as General Electric, Quaker Oats and even the United States Government regularly use reverse auctions to meet their procurement needs. Consider capitalizing on this trend to save time and money and increase your company’s efficiency.