A reverse auction is a tool used in business-to-business procurement. In this process, the role of the buyer and seller is reversed, with the primary objective to compete purchase prices downwards. In an ordinary auction (also known as a forward auction), buyers compete to obtain a product or service. In a reverse auction, sellers compete to obtain business.
A Reverse Auction is an event usually used as the last leg of sourcing and tendering to obtain the best price by encouraging 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.
A Reverse Auction has a number of advantages. It is very time efficient as the awarding decision can be taken in weeks instead of months, as is the case in traditional tendering. They provide an insight to the bidders on how competitive they are and indicate their ranking amongst their peers. It reduces paperwork and increases transparency in the award process; something quite appreciated and required in the public sector. It also helps in breaking cartels. Reverse auctions should not be universally used for all procurement. They should only be carried out for commodities which; are not core strategic to your business, have many suppliers thereby
producing a competitive market, and for which the key awarding decision is price.
Steps in eAuction
1. Define requirements and goods
2. Invite all potential suppliers to an open(RFI)
3. Prequalify potential suppliers
4. Clearly document all requirements
5. Hold a Q & A session
6. Monitor the Auction
7. Follow through and award promptly
