Enterprise

Reverse Auction: a novel approach to e-procurement

CIOL Bureau

24 Oct 2001 00:00 IST

Updated On 24 Oct 2001 04:20 IST

New Update

Although a very customer-centric technology, Reverse Auction seems to have caught on with businesses worldwide because of their many advantages. Also called Blind Bidding, the potential vendors compete for the buyers business by offering competitive pricing and additional benefits. The focus is generally on the lowest price, but sometimes other measurable criteria also matter.

The auction process consists of two processes,

First, the buyers post how much they are willing to pay for an item or service and the sellers respond with a bid. This is a model used by consumer-oriented sites like Priceline.com and some business-to-business offering.

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Buyers then identify what they specifically are interested to purchase (without any price indication). This could be specification of documents, etc. Usually anonymity, with geocoding of some kind is used. Quotes and estimates are returned by interested vendors and rated by using price and other criteria.

Although the process is quite beneficial, as you will see later, some "must-dos" are noteworthy, prior to implementation of the reverse auction process.

You need to understand not only how an auction will fit into the overall business process, but also whether it is the best choice for that particular negotiation.

Bidding in a reverse auction needs a lot of prior groundwork to be done. Make estimates as to how low you can bid, keeping the interests of the company in mind.

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Ensure that your employees are educated about this process of bidding, as it will definitely be a novel experience.

It is always better to get into blind bidding and reverse auctioning after having spent time in observing auctions of a similar kind.

A few concerns that need to be addressed are:

Quality - Quality needs to be independently confirmed and this needs to be a part of a final deal that may follow the path of traditional checking, meetings and further engagements. In fact, quality assumes larger importance if you are buying services and non-commoditized products.

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Choice - The number of variables that the auction site allows you to include in the selection process can make a big difference. Cost is not everything. Vendor risk factor, warranty, feature set of goods or services, feedback of other buyers are all equally important. Moreover, they are the deciding factors for the purchase.

Deliverability - In business, as any manager would vouch for, relationships are pivotal. Since procurement involves impersonalization of the product, relationships need to be developed almost after the deal is finished instead of before or during the deal.

Duration - While savings for the initial purchase can range from 10-50 per cent, subsequent iterations will not see such dramatic drops. The reason being, the initial buy is moving the price significantly from the artificial market price to a sustainable market price.

It is time for the advantages, after all the concerns and precautions have been voiced. Reverse auctioning has several advantages that make it a very attractive process.

The process cuts through the conventional route of buying goods and services.

The process reduces the research time significantly by establishing the uniformity of response by vendors.

The process time is also drastically reduced from months to a few days.

Reverse auctioning helps companies reach a wide audience and hence again save on time and money.

The process is fair, open and honest.

The process enables the buyer to see a much larger of suppliers they might want to work with rather than having to contend with only the local ones as they do otherwise.

At the end of the day, it is always good for a market to find what is a fair price; hence reverse auctioning becomes a great tool to achieve your purpose.