Securing Reverse Auction process

I was involved in launching reverse auction process at one organization. The initial results from reverse auction were very encouraging. However as we progressed further we realize there are certain pitfalls which have potential to derail the entire process.

Advantages of reverse auctions

1. Reverse auctions are amazingly quick and you save time researching market.
2. The buyer puts forth his requirements thus avoiding wastage of time and resources from either side.
3. The buyer can easily compare products and decide on the perfect fit.
4. Buyer gets the best price for the product.

Disadvantages of reverse auctions

1. While everybody is looking for a bang for their buck, Reverse Bidding might not be the right method for all kinds of variants of services.
2. As Forward Bidding requires a lot of potential buyers, Reverse Bidding needs even more number of sellers to maintain the integrity of the competitive process.
3. In a motive to get hold of the lowest bid, the buyer might go for the cheapest in the house with less regard for the quality and compatibility of the product or service. In such cases, the buyer ends up buying a substandard offering which might not be having all the features as per his minimal requirements.

To quicken the process, we had appointed an external agency specializing in reverse auction. This agency has provided us the platform.

The advantage of using a platform is you get an access to a ready list of vendors who are already on the platform. You don’t have to go to market and request vendors to register with you.

Disadvantage is you become lazy and use this list and ask your existing vendors to come on the platform. You loose out on the gaining first hand market knowledge which you may have gained if you have explored the market.

Learning from the process

1.  You need to define the product specifically. A tip we got is to go for 10-25% higher quality standard than what is required.
2. Scientific testing of goods. We need to route the product to a laboratory instead of relying on visual experience. It also means that you need to be ready to do random laboratory testing of the product to ensure quality.
3. You can have substantial cost savings even from your existing vendors where you believed that you have negotiated hard and left no room for further cost reduction.
4. Know your goods and stock. When we were ready to order the item, we realized that we have large stock of the product and we are not in a position to place order with the vendor. One should always ascertain the stock in hand, stock lying at your vendor, open purchase order before you go for reverse auction.
5. Provision to enforce order placed. Some vendor with whom we placed the order, refused to supply the product. One should always include condition that you have a right to sue them in case they don’t supply the product once purchase order have been placed. If possible, demand a deposit as a condition to participate in the auction process.
6. Know thy vendors and vendor capability. Some of the vendor who had supplied the initial purchase orders, refused to take order for bigger quantities. The reason given that they wanted to recover the marginal cost, utilize the spare capacity hence they quoted the rock bottom prices. We should specifically ask for production capacity, committed capacity, spare capacity during technical evaluation.

 Call for action:

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(Disclaimer: The views expressed constitute the opinion of the author and the author alone; they do not represent the views and opinions of the author ’s employers, supervisors, nor do they represent the view of organizations, businesses or institutions the author is, or has been a part of.)