1	REVERSE AUCTIONS WHAT THEY ARE, HOW AND WHEN TO USE THEM
2	WHAT IS A REVERSE AUCTION? Just what is sounds like, except the bidder is the seller rather than the buyer. In a reverse auction multiple sellers bid for the opportunity to supply an item to the buyer. In a reverse auction the bidding activity drives the price down to the market value. It is an advent of the internet & is typically a Web-based activity.
3	WHAT IS A REVERSE AUCTION? It is typically thought of as a B2B tool used in industrial procurement, though it’s use has spread to other sectors such as the public and educational procurement. It is considered a means for spend management. It typically involves a “market maker” who helps to conduct the auction on behalf of the buyer. Remains a controversial mechanism for procurement and spend management on both the buyer and seller sides.
4	How does the Reverse Auction Work? The buyer identifies the item(s) to be auctioned. These are typically items that can be well defined and have a low risk for problems if the supplier is changed or a new, lesser known supplier is selected. Depending upon the preference of the buyer, the “market maker” may assists in any of the following aspects: finding new suppliers, training new and incumbent suppliers in the process, organizing the auction, managing the event, and providing the results back to the buyer. On the designated day and time, sellers log onto the auction site and can provide multiple quotes over a 30-90 minute (or pre-determined) period.
5	How does the Reverse Auction Work? Dynamic bidding is done on a real-time basis via the Internet. This can result in rapid downward pricing. The buyer then obtains the results of the auction and can award contracts to the low bidder or they can award to a supplier who bid higher based on quality, lead time, capacity, or other capabilities. Buyers should be aware that reverse auctions have a limited utility and are not a means for replacing traditional bidding practices or supplier negotiation.
6	Benefits of a Reverse Auction The buyer can establish rules for the auction such as Visibility parameters (what the sellers can see), Bidding parameters (starting price, reserve price, minimum decrement), Size parameters (number of bidders, size of buy, number of line items) Price Reduction: the reverse auction is a tool that can reduce costs by as much as 20% when used properly Identification of new sources in the market Reverse Auction events can be either binding or non-binding on the Buyer, depending upon the preference of the Buyer.
7	Down-Side of Reverse Auctions If specifications and bid requirements are not exact, or clear, variations in quality and other factors may occur which could lead to a negative outcome Results of a reverse auction need to be closely compared to that of a traditional bid or negotiated bid situation. Can be problematic for supplier relations. Particularly in situations where a “partnership” arrangement exists for the items in question. Has been described as a technologically based form of zero-sum power-based (win-lose) bargaining and as a means for “bid shopping.”
8	Appropriate Uses Well defined, commodity purchases that are non-proprietary in nature Commodities where there are a number of suppliers to create competition When the auction process has been well thought out & is well designed for maximum benefit Bulk purchases
9	Better off not to use a Reverse Auction if….. The items or services to be obtained are not well defined, are proprietary, require R & D involvement, or may be subject to change If the items or service has a high “switching” cost. If the action of a reverse auction would have a negative impact on existing supplier relations such that it could jeopardize other product lines or services. If there are extra services that attach to the purchase such as post-purchase warranties, installation, etc.
10	Resources for Reverse Auctions There are a number of services/suppliers available who provide a platform for reverse auctions or can act as a “market maker.” Some are free & some must be contracted with. Most can be found with a simple Web-search. http://www.ism.ws/tools/guides/guide32.cfm has a number of articles available on the subject of Reverse Auctions.
11	"Questions & Answers" Questions & Answers