What Is a Soft Auction & Why Might it Be Better for You?
If you’re using procurement software, you’re most likely running some RFP management software, or in more general terms, eRFx. The “x” allows you to use the technology to have the request be for something beyond a proposal—you can request a quotation, information, or tender, among other things.
How Does a Soft Auction Work: Soft Auction Basics
Soft auctions are used in many different functions, even beyond the world of purchasing and procurement. You’ll see soft auctions used in car auctions, art auctions, real estate, and other types of online auctions.
A soft auction may also be referred to as:
- a soft close
- a dynamic close
- a dynamic auction
The benefit of a soft auction is that you might be doing it now and just don’t know it. So what is a Soft Auction anyway? It’s a competitive second or third round bid when the bidders receive reverse auction-like feedback during the process. This feedback can be on the bid screen, like in a reverse auction, or delivered on a report or by email at your discretion.
If you’re wondering, ‘how does a soft auction work?,’ think about any experiences you may have with traditional online auctions or second-round bids you do today. Perhaps, you reduce the number of participating suppliers and provide some information to help encourage them to reduce their prices as the process unfolds.
Of course, you want to get your lowest bid in before the buzzer if you truly want to win the business. Sometimes it works, but sometimes you lose the auction. This is what is known as a “dynamic” or “hard” auction.
In a soft auction, the auctioneer (or the software) decides when the bidding ends. There is no bidding war at the end nor a countdown clock. When the parties are done bidding against each other or the time ends, the auction is over, and the lowest bids are in the best position to win.
If you’re wondering, ‘how does a soft auction work in procurement?,’ it is slightly different. In procurement soft auctions, there are secondary bid rounds, and the eRFx includes survey questions for the suppliers.
There may be multiple bid rounds until the bid is “won,” each with feedback to the suppliers as they bid. This is known as a multiple round bid process.
How Does a Soft Auction Work as Compared to a Reverse Auction?
A reverse auction is also another eRFx tool. With a reverse auction, the suppliers place the bids at which they are willing to sell their goods or services, and you (the buyer) essentially take the offer that works the best for your project.
Typically, the lowest amount (bid) wins the auction. This is different from a regular auction, in which a seller puts up an item for sale and buyers bid on the item. This is slightly different than a straightforward, soft auction close, and there may be several reasons why it might be better than a reverse auction for you when it’s performed in a dynamic fashion.
If you’re still wondering, ‘how does a soft auction work and how can it benefit me?,’ a soft, reverse auction can level the playing field as you progress through multiple rounds. You benefit from the suppliers bidding on their products, so this works out much better for your budget.
Also, reverse soft auctions are also better for your suppliers, too as it expands their playing field and typically provides them with more time to do their bidding. Always remember that it’s wise to choose eRFx options that benefit both sides, as mutual benefits make for better-continued partnerships.
If you want to hear more about, how does a soft auction work?, or have more questions about eRFX software, contact us at EC Sourcing Group today by calling 973-936-9672.