What are reverse auctions?
For those unfamiliar with the concept, reverse auctions are auctions where the bidder is the seller and not the buyer. The bid reflects how much the buyer is being asked to pay. Web-based reverse auctions have become extremely popular for purchasing large amount of goods or services at the corporate level. E-procurement is most often used to describe those business to business revere auctions. Before the internet age, they were also called Request For Proposal (RFP) or Request For Quote (RFQ).
Against popular belief, the lowest bid is not always the winner. It would be if all sellers where offering the same exact items and the buyer could consider all offer absolutely similar. In the real world, most bids will be slightly different and will always have something specific attached to them. The simple fact that the seller is different and carry its own reputation, will suffice to make a higher bid wins against a similar offer made by a less reputable seller.
Buyers
Buyers benefits involve cutting costs and time expenditures. With reverse auctions, buyers create a project description and post it online. Invitations are then sent out to potential vendors who place a bid and describe their qualifications and the details of what their bid includes. Because all of the bids are lined up beside each other in a chart formation, comparing them is simpler for the buyer. Additionally, buyers can eliminate certain bids based on criteria such as price or deadlines, which makes the final selecting even easier. Most reverse auction software also allows buyers to communicate with bidders so that they can refine their bids or offer clarifications. All of these features combined allow the buyer to pick a quality vendor who can fulfill the needs at a good price and in less time.
On the other hand, you can understand that building an auction can be time consumming, as the result of an auction will only be as good as the quality of the initial specifications. It is then hard to justify taking the time to make a reverse auction for small amounts unless they are highly comparable. So far reverse auction are only used by professional but there is a lot of potential saving for consummer when they plan to buy expensive goods or services such buying an expensive piece of electronics or repainting their house.
Sellers
also reap benefits from reverse auctions if they use them effectively. One of the benefits is that it makes projects more open to a wider number of sellers. Technology provides vendors from all around with the globe with equal access to the invitation and an equal shot at winning the work. While this is a benefit, particularly to offshore and/or small vendors, it can also be a drawback and has resulted in many sellers bidding too low on projects just to try to win the auction. The competition may seem negative, but it does provide an incentive for sellers to add value to their fees by providing a variety of other services, which will benefit buyers who are willing to look beyond price alone. The main interest for sellers is to find new clients faster and only pitch to qualified buyer thus eliminating expensive and fruitless marketing effort.Buyers who are interested in using reverse auctions need to understand a few main points if they hope to use them effectively. As mentioned before, the buyer needs to think beyond simply the quoted price. Price may be an important factor in the decision but other elements, such as added services, must also be taken into consideration. Additionally, some projects are just not designed to work with reverse auctions. Goods and services that can only be provided by a limited number of suppliers will not be effective with reverse auctions since the vendor, not the buyer, will have all of the power in the situation and can actually drive the price up instead of down. Many buyers new to reverse auctions have failed to read the proverbial fine print involved in the bids. Some bidders will cut out normal services, use less quality materials, or extend deadline just to make it possible for them to place a more competitive initial bid even though the final bill may end up being much higher. Buyers need to be aware of this and also need to realize that treating with vendors with respect now can secure them a trustworthy supplier in the future.
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