A Reverse Auction is an event usually used as the last leg of sourcing and tendering to obtain the best price byencouraging competition among bidders on price. It is hosted by a single buyer and features two or more suppliers competing for business. It is called reverse because during the auction, the price can only come down.
In a reverse auction, the buyer places a need for an item or service. Several sellers offer their items for bidding, and compete for the price they expect to be paid in order to perform such a service or provide such an item. Generally, the seller who places the lowest bid will win the job or sell the item.
This "real time" bidding feature makes the bidding more competitive, as sellers attempt to outbid each other in order to win a job or to sell an item. The buyer usually has the option to accept any bid or reject all. At the end of the day, the objective of this type of auction is to lower purchase prices for the buyer.
Route to success as a supplier in reverse auctions includes:
Advantages of Reverse Auction:-
- Thorough preparation - it's essential to know your costs, your suppliers, your requirements, and your market to the greatest extent possible - minute details can make the difference between winning and losing business. Our advice would be to calculate your initial prices and the lowest price you would go to secure the business then create a series of bids in between the two figures to submit during the auction.
- Have a strong, competent bidder to front your effort during the auction. Your lead should be completely familiar with the auction technology in use and most importantly be clear when to bid and when to close.
- Time efficient as the awarding decision time reduced from weeks and months of sourcing of the traditional tendering method
- Provides insight to bidders on the competitiveness of their rates and comparative ranking amongst peers
- Increases transparency in the process by reducing paperwork
- Helps breaks cartels and monopolies of a select few suppliers and increases the options for the buyers
- Price-competitiveness is the key factor for determining the final outcome