Your Guide to Reverse Auctions in 2022
A reverse auction can be a very important tool, and if performed correctly, can affect the supply chain in a positive way. So, what is a reverse auction? A reverse auction is just what it sounds like; it is the opposite of a regular auction. Instead of a seller putting up something for sale and bidders bidding on it, in this case, the buyer puts out a request, and different suppliers bid against each other to win the contract.
A reverse auction benefits suppliers as well as buyers, making these types of auctions a very important part of the supply chain. However, even valuable tools can be improved upon—read on to learn how to improve your reverse auction strategy in 2022.
Choosing the Right Auction Software
Much of your success with eAuctions will depend on the type of software you’re using. Auctions will always be cloud-based—in other words, this software exists only on the internet and not on someone’s personal PC or cloud. Not all online auction portals are the same, so take time to research which may be a good fit for you and your suppliers. Everyone on your team, as well as your suppliers, should understand the software, and it should be intuitive. If the software is slowing you down instead of speeding it up, it’s time to look for something with more robust features.
Pick the Right Category/Service and the Right Time
Reverse auction bidding is a valuable tool for many industries, but for some, it isn’t a good fit. Some of the best industries suited for an eAuction include:
- Overhead and support
- Professional services
- Direct material (vehicles, aluminum castings, wine, tiles and flooring, and many more)
- Facilities management
- Information technology and communications
It’s a good idea to see if your category is a good fit for a reverse auction. It’s also wise if you choose the right time. If it’s a buyer’s or heavily competitive market, putting out the call for an eAuction may not garner much attention. Also, it’s imperative that it’s the right time for your market if you’re sourcing globally.
Set Expectations and Be Specific
Transparent communication is a must in a reverse auction, but that doesn’t mean some suppliers won’t try to twist your arm—they might. Always be upfront about your expectations. Your potential buyers need to know your specific criteria. Transparency is highly important in eAuctions so that nothing gets misconstrued along the way.
Benefits for Suppliers
There are many benefits for buyers when it comes to reverse auctions, but it wouldn’t be odd if suppliers were wary of being part of an eAuction, as they think it might not benefit them. Sometimes, you might have to sell the benefits to certain suppliers. One of the top benefits for buyers is that it allows smaller businesses to jump into the fray, when otherwise they could not. Perhaps the smaller business has more benefits to offer the buyer along with their bid. The buyer won’t always select the lowest bid but the lowest unique bid. This gives new and smaller suppliers a chance to get their foot into the door.
Perform a Mock Auction (Pre-bid)
Not every supplier is familiar with reverse auctions and may even ask you, “what is reverse bidding?” This is why it’s a good idea to perform a mock auction before the real event occurs. This allows suppliers to become more familiar with the process, and there are no surprises. If you’re still acclimating to using eAuction software, a mock auction can benefit you and your team as well.
Allow Last-minute Extensions
As you’re shopping for software, keep in mind that it should have auto-extension features.
Setting a hard end time to the auction can leave money on the table and be unfair to some suppliers. Also, you may have last-minute snipers in the crowd. Allowing last-minute extensions makes the auction fair to all sellers while getting rid of the snipers.
Award the Contract
When it comes to awarding the contract in a reverse auction, there are a few things to keep in mind:
- Communicate with all suppliers about your final decision
- You don’t have to award the business to the lowest bidder
- You can choose to decline all bids, but you should explain that decision also
Communication and transparency are key to having successful eAuctions for both buyer and supplier.
To learn more about reverse auctions, or to schedule a software demo, contact EC Sourcing, a Simfoni Company through our web form located here. We want you to reimagine the way you think about procurement.