Reverse Auctions
...and your best price is?
Simplistically, the question '...and your best price is?' represents the primary function of reverse auctions. It is a tactical price negotiation tool - with benefits.
Sometimes called an e-Auction or a Buyers Auction, reverse auctions enable prospective suppliers to compete live, through the Internet. During reverse auctions, which typically last less than an hour, prices decline as suppliers continuously improve their offers in an effort to reach the leading position.
Reverse auctions in no way diminish the importance or role of a contracts' qualitative criteria (see 'Quality' section on left hand menu). Nor do they change your processes. You still have to go out to tender, you still have to evaluate the qualitative criteria and produce a shortlist. The shortlist of prequalified suppliers then becomes the list of invited bidders to the reverse auction.
Procurement thuggery
The suggestion that reverse auctions are not just a rude and callous way to beat suppliers into submission and possible bankruptcy is often met with a healthy dose of scepticism. This is not an uncommon point of view and some early reverse auctions received justifiable notoriety through their indiscriminate use. As a result a lot has been learned over the past 10 years and today the reality of professionally managed reverse auctions is very different.
Certainly cost reduction is the glistening prize that attracts initial attention. With touted savings averaging between 10% and 20% better than that achievable by mere mortals alone, and individual auctions achieving 30, 40 and 50%, who cares about anything else? Fortunately, most procurement professionals care about a lot more including value for money, quality, supplier relationships and contract success. Reverse auctions coexist very comfortably in this environment.
Over the past 5 years, the use of reverse auctions in North America and Europe has sky rocketed in both the private and public sectors to the extent that it is now widely accepted as a standard procurement tool. In Australia and New Zealand, usage has tended to be limited to multinational subsidiaries and the resources sector with limited or sporadic use in all other sectors. However, signs of life in Australia and New Zealand are beginning to emerge.