Some professional buyers are still wondering why they should take advantage of reverse auction technology. It is true that some items are not good to reverse auction, but some are very good opportunities for reverse auction. This article will give a brief look into the top five buyer rewards for using reverse auctions and how the buyer and their company can be more successful.
First and foremost, reverse auctions are used to get the best available market price at the time of the bid. In many instances, a reverse auction will result in a lower price paid than traditional sealed bids or negotiations. While savings are sometimes difficult to accurately measure, and while some costs are “hidden” (supplier change costs, set up charges, etc), companies employing this technology in properly conducted reverse auctions are experiencing often 10% or more real cost savings. Whether you use the last actual price paid or bid price reduction, you can accurately track, report and post the results to all interested parties within minutes after the event is complete.
This leads us into the next buyer reward which is process improvement. It is true that it may take more time to put together a reverse auction bid, but this preparation brings about a disciplined, thorough, and fair bid process and ultimately better supplier selection decisions. Reverse auctions require special care be taken to write accurate specifications and evaluate the true historical spend information which enable you to better forecast your demand to potential vendors. This process discipline will improve your productivity for future competitive bids because you will have quick access to the information in the future. Reverse auctions reduce the negotiation time from weeks to minutes. The cycle time is shortened which, in turn, will reduce costs and improve efficiency for both buyer and seller. In addition, you will be able to easily duplicate the bid package if you would like to run similar reverse auction events in the future.
Another reward for buyers is bid transparency. Reverse auctions can be used as a transparent reporting tool for all bids accepted. This works especially well in the public sector where every penny is tracked and monitored. Online bidding systems can usually save all data for quick report generation at the click of a mouse. If needed, the live event can be viewed in real time by any interested parties from any internet connection or on a viewing screen in a conference room. Most reverse auction systems are web-based, allowing interested parties to log into the system and watch the event live from their desktops.
The next buyer reward is increased organizational competitiveness. When you reduce costs and improve productivity, you make your company more competitive and therefore more able to attract and retain customers who seek price reductions. Streamlining your procurement process through online competitive bidding methods, such as reverse auctions and eRFX, will benefit your organization and your career. When you can show measurable results and easily report those results to management, both you and the organization will benefit.
The last buyer reward for using reverse auctions that we will talk about today is extending your reach to new potential suppliers. When you use online reverse auctions, you can post the bid opportunity on your website which will attract more suppliers to compete for your business. You still must pre-qualify the suppliers, but the increased number of suppliers will increase the competition for your purchase, driving down bid prices. You can easily include more bidders via the streamlined e-procurement process. If you wish to open up your purchase to more can be difficult to identify new suppliers to create a competitive environment for a reverse auction. By posting your events online in a public format, more suppliers will be able to find you.
Finally, you should treat reverse auctions as one tool in your procurement toolbox. Most organizations that currently do competitive bidding will be able to see the value of the reverse auction process and to recognize how it fits into their organization. And those organizations are saving time and money by doing them right. So don’t miss the opportunity to connect and contract quickly with your suppliers by using reverse auctions.
Doug Luthringer is a Client Development Manager at eDynaQuote (http://www.eDynaQuote.com) with over two years of strategy, implementation and training experience in online reverse auctions and over six years with online forward auctions such as eBay. Doug has also been invited to be a guest speaker to talk about how to properly use reverse auctions to small and medium size business, as well as university students.