Reverse auction

In an article upon online auctions we briefly mentioned the reverse auction. Now we have a look at this concept in more details. So, the reverse auction is an online auction in real time, based on falling prices, which on one hand is involved procuring entity, and on the other hand it’s a group of pre-selected suppliers. The bidding process is dynamic, suppliers compete for the contract, offering their own versions and competing with each other on-line, using specialized software. Suppliers to provide information on the status of their bids in real time, and, as a rule, the contract with the supplier receives the lowest bid price (or with the lowest total cost).

When reverse auctions are to be used 

Reverse auctions are not the only method of sourcing goods and services. Therefore, experienced procurement executives assess the feasibility of this method by comparing it with other methods of sourcing, in particular RFP / RFQ, open bidding, direct negotiation with suppliers or cash purchases in the markets. To reverse auction was a success, you should consider at least the following conditions:
1. Presence of clear specifications of goods and services, including technological, logistical and commercial requirements.
2. Presence of a competitive market and a sufficient number of qualified suppliers who are ready to take part in the auction. Most companies believe that the need for the auction, at least three vendors while the participation of more than six vendors can lead to unnecessary costs and complexities.
3. Understanding market conditions, to imagine what prices can be expected from the reverse auction.
4. Buyer’s and seller’s awareness of technology.
5. Having clear rules of the auction, in particular the conditions under which the auction is extended, and the criteria for determining the winner.
6. Willingness of the buyer to change supplier if necessary.
7. Buyer confidence that the current price is quite high and therefore the potential savings justify conducting a reverse auction.
 The conduct and the basic elements of the reverse auction

Managing the process is carried out on a reverse auction in three stages: preparation, the auction itself and follow-up. During the preparation of the procuring party shall identify and certify the right suppliers to formulate requirements for quality, quantity, terms of delivery and service, as well as the terms of the contract , to the training of all participants (members of his own team and vendor representatives ) to work with the technology that will be used in during the auction , the auction to test the technology , to inform participants how auction will be held and what are the criteria that determine the winner.
 

Reverse auction technology allow the buyer a choice of alternative approaches to conducting the auction and its terms. For example, the demonstration of prices could be in the form of a display ranking order, in the form of interest and shares. This technology also allows you to rank them with the application for correction of non-price factors, for example, take into account the differences in transport costs or quality. Success or failure is largely determined by the auction stage of its planning and preparation.

Bidders must request in advance of the meeting rules and strictly follow them. Suppliers need to understand how long the auction will be held and what are the rules under which the period before the scheduled closing time can be increased, often referred to as «closing strategy." There are three main types of strategies closure, which can be used in conducting auctions: hard, soft or unlimited. Tight closing strategy is made, a time period , which can not extend , at the time, as a soft strategy allows you to do this if new applications have appeared in the last two or three minutes of the auction. Unlimited strategies allow closing indefinitely extend the time of the auction, if at the end of the allotted time in the last two or three minutes, the participants are active. When choosing a strategy closing is important to understand the behavior of suppliers.
Most of the software for reverse auctions allows suppliers and buyers to communicate with each other during the auction. Communication can be both visible and invisible to other providers involved in the auction. For technical assistance during the auction participants should be able to call for service.

At the stage of fulfillment of the conditions of auction and follow the procuring entity shall announce the results of all participating providers in the auction. If you want to ensure that suppliers do not have achieved success in this case, do not lose the incentive to participate in the future or reverse auctions have become potential suppliers in determining the winner must fully adhere to the previously announced criteria. Otherwise, you will not be able to maintain the reputation of the organizer, to meet its obligations. Moreover, some providers may have questions or by the process of determining the winner, or by maintaining appropriate relationships with the procuring party.
Before the final contract will be signed, in some situations may require additional negotiations or clarification of conditions. However, these activities must be ended quickly, and before the supplier there are any doubts as to the obligations of the parties.
Organizer of the reverse auction also needs to communicate with those who are interested in the event in your organization. For instance, the accounting department is to be notified if there was a change seller or pricing policies. In addition, new information obtained as a result of the auction, shall be documented in order to allow its use for better future of reverse auctions.

Запись опубликована в рубрике Best practices in Procurement, Informational technology in Procurement, Vendor selection. Добавьте в закладки постоянную ссылку.

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