Accommodating Qualitative Criteria
Yes, reverse auctions are transparent and fair but surely all they do is strip the price to bare bones. What about quality and value?
Whilst it is true that the primary focus of reverse auctions is price negotiation, this does not mean that quality, or value for money, are ignored
or depreciated. The most common scenario is that the results of the auction are combined with the qualitative ratings after the auction has concluded to produce the final winner. All the reverse auction has done is to ask the question '...and your best price
is?'. The qualitative elements are just as important as they always have been and not diminished in any way by the price negotiation method.
The diagram below shows a simplified process flow that incorporates reverse auction price negotiation without compromising qualitative requirements:
A fully specified tender document can mean that value or qualitative ratings can be applied during the live auction. This can enable a 'first past the post' auction where all price, value and quality factors are calculated instantly and reflected in the positions of the bidders.
The incorporation of qualitative factors act as either absolute weightings (eg $50,000 cost to switch suppliers) on the total contract value or percentage weightings (eg weekly Vs monthly deliveries worth 0.5%) on each bid and can be set at different levels for each supplier.
In fact anything that can be represented numerically can be reflected in the auction including items such as payment terms, lead times, local content, incumbency, returns policies, delivery points, recycling and carbon credits.
Next section: Suppliers and reverse auctions
