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What are reverse auctions?

For those unfamiliar with the concept, reverse auctions are auctions where the bidder is the seller and not the buyer. The bid reflects how much the buyer is being asked to pay. Web-based reverse auctions have become extremely popular for purchasing large amount of goods or services at the corporate level. E-procurement is most often used to describe those business to business reverse auctions.

Against popular belief, the lowest bid is not always the winner. It would be if all sellers were offering the same exact items and the buyer could consider all offers absolutely similar. In the real world, most bids will be slightly different and will always have something specific attached to them. The simple fact that the sellers is different and carry his own reputation, will suffice to make a higher bid win against a similar offer made by a less reputable seller.

Dynamic Pricing - Reverse Auctions

Following on from the success of normal auction web sites it is not surprising that attention soon turned to reverse auctions where buyers name their price and invite suppliers to bid for their customer.

The idea is that Companies can upload details about the type of product they want to buy to the website and participating Suppliers then compete to supply the product.

Suppliers can view their ranking and undercut the offer if they want by repeatedly lowering their price. The buying Company need not accept the lowest-priced, or indeed any, bid. This they can mention in their Terms.

The bidding process is not a race to the bottom. The site only tries to encourage price and non-price competition."

Sellers

also reap benefits from reverse bids if they use them effectively. One of the benefits is that it makes buying more open to a wider number of sellers. Technology provides suppliers globally with an equal shot at winning the order. While this is an advantage, buyers must ensure suppliers do not bid too low just to win the bid, and has no further capability to execute the Order successfully. The main interest for sellers is to find new clients faster, eliminating expensive and fruitless marketing effort.

Buyers

who are interested in using reverse bids need to understand a few points if they hope to use them effectively. The buyer needs to think beyond the quoted price which is an important factor in the decision, but other elements too need be considered. Additionally some projects are not designed to work with reverse bids. Goods and Services that can be provided by a limited number of suppliers who have the power to drive prices north is a case in point. Many buyers new to reverse bids fail to specify the products in detail, letting suppliers use inferior quality materials, cut support services if needed or extend time lines just to match a competitive bid, causing the final price to be much higher. It is advisable to treat vendors with respect and secure a trust worthy supplier.

How It Works

A company registers at the site and makes the mentioned payment. On getting the login details, the company posts the product details, specification sheets, drawings, delivery schedule. Then contacts companies that supply the item the buyer wants and ask them to comply with all the aspects of the auction.

Effectively, the bidders are offering tenders to supply an item or a service, which is known as a “request for quotation.” The auction takes place at a specific time and date online, when the bidders offer their quotes. They have the chance to put in several quotes, and see what the competition is offering, which generally means prices go downwards until the auction ends. The bids are anonymous, but published online in real time.

However, and perhaps surprisingly, having the lowest bid doesn’t always guarantee you’ll obtain the contract. At times a higher bid will receive the work, if what they offer meets the supplier’s needs more closely. On occasion the buyer will choose to remain with their established supplier for a number of reasons.

Reverse auctions tend to be most effective where the market is very competitive