In the past decade, most midsize and large organisations have focused on automating their processes. With the internet explosion and growing need for unlocking the full potential of the ecosystem, businesses have jumped onto the advanced sourcing bandwagon to streamline their sourcing activities. While companies were previously reluctant to work with unfamiliar suppliers, the growth of e-marketplaces and procurement softwares catapulted the number and brought over thousands of buyers and vendors onto the same platform.
This transition to e-auctions helped businesses with some of their biggest problems related to operational efficiency, process transparency, time proficiency, and cost savings by trimming 10 to 15 percent off their procurement budgets. While there are many myths associated with e-auctions such as Indian companies and suppliers are technologically challenged, e-auctions are suitable only for selective categories, and doing business with new suppliers can jeopardise a stable supply chain. The success of e-auctions in the last few years has put all these doubts to bed and delivered benefits way beyond just cost savings.
What are eAuctions in procurement?
eAuctions are real-time online negotiations between a buyer and supplier amid intense competition and bidding process. This involves a structured process which removes time-taking one-on-one conversations between the two parties and offers transparency of the entire process. Unlike traditional negotiations which used to take weeks and companies connected with selected vendors, e-auctions can be conducted in less than an hour with more than 50 suppliers participating simultaneously while improving their bids by up to 23 times. For an effective e-auction to take place, organisations need to consider these three criteria mentioned-below:
Competitive Supply Base
Exhaustive Specifications Related to the Products/Services
Appropriate Budget
Once an organisation finalises these three requisites, the next step is to identify an auction strategy that suits your requirements. These auction strategies drive negotiations in different directions on the basis of price and non-price variables such as rank, negotiation closing time, and bidding process, among others. To choose the right e-auction strategy, organisations need to focus on these factors:
Expected number of qualified bidders participating in the auction
Projected bidding approach to be utilised by suppliers to understand how aggressive they might bid
Consistency of standardised specificationsÂ
Based on these factors, organisations can select an e-auction strategy that suits their negotiation goals while ensuring a streamlined, efficient sourcing process. Here are some of the e-auction strategies extensively implemented by companies globally:
Reverse Auctions
Step/Factored Auctions
Forward Auctions
What are Reverse eAuctions?
Reverse auctions are the type of eAuctions wherein the auction is initiated by the buyer and suppliers compete amongst themselves to reach the lowest possible bid and win the eAuction. In normal auction strategies, buyers compete by quoting the highest possible price for a product/service to be procured from the supplier. However, in reverse auctions, there is only one buyer and multiple potential suppliers who try to underbid each other.
In recent years, reverse auctions have been a popular choice of buyers to procure goods/services. This allows them to craft their procurement process in-house while saving money through buying goods at the lowest possible price. While reverse auctions are just one part of the process, they can help extensively in cost optimisation and maintaining healthy supplier relationships.
Benefits of Reverse Auctions
Reverse auctions help companies to identify qualified suppliers by allowing them to participate together rather than waiting for a specific job opening.
Reverse auctions help improve transparency between procurement teams and suppliers by getting competitive prices and high quality.
Reverse auctions offer real-time visibility into supplier operations and help create long-lasting relationships.
Reverse auctions help in reducing supplier attrition by forging healthy competition which leads to loyalty and commitment to service.
Reverse auctions can also help in increasing a company’s purchasing power by reducing the need to negotiate discounts and still get low prices.
Tips to Maximise Outcome From Your Reverse Auctions
Before initiating a reverse auction, buyers must ensure that all available contracts for the desired goods/services are expiring.
Conducting a RFP or RFQ process can be fruitful to understand the current market price.
The suppliers bidding in the reverse auction must be trained to use/bid the procurement software to minimise issues during the event.
Once you receive the lowest bid in the event, do not delay to award the contract to the supplier and lose credibility for future business association.
Contact all the participating suppliers after the event to understand why they lost their bid. This helps in building future relationships with suppliers.
Conclusion
Reverse auctions are a must-have feature for today’s procurement softwares. They help in reducing the prices without the need to negotiate discounts while maintaining the quality of the product/services. Present day e-procurement technologies also include features like pairing like-minded suppliers and buyers based on individual specifications of goods/services or contacting individual suppliers for requesting to bid in the live event.
To conduct reverse auctions, Procol, India’s leading procurement software, is one of the best e-procurement solutions that gives buyers complete transparency and ownership of the event. Companies can also manage their contracts, supplier database, procurement spend, and much more, on Procol’s centralised dashboard and maintain a complete audit trail for every purchase made. Visit Procol here or speak directly with their team.
