Electronic Reverse Auction & Sourcing

Advice when you are thinking about running a Reverse Auction

Be clear in what you want and what you want to achieve

Auctions are most successful when they have been accompanied by clearly defined specifications and where there is a vibrant market.

You may feel good about getting the lowest price, ultimately it is the greatest value that matters. Price is only one element of the buyer's value equation. Other variables that buyers need to consider include quality, reliability and value-added services.

To account for these variables, buyers should move away from price-only auctions to multi attribute auctions that allow suppliers and buyers to trade off nonprice variables against price. eRA enables buyers to decide which criteria they feel is also important to the contract and build this into the specification.

Use where appropriate

Reverse auctions are appropriate for transactional sourcing situations typically for commodity products available from multiple suppliers.

Reverse auctions are generally not appropriate for strategic sourcing of differentiated parts and components, where suppliers have specialised capabilities and few suppliers can meet quality and reliability standards.

Be sensible!

Squeezing suppliers because you are in a buyer's market can be dangerous. If the economy turns around and demand exceeds supply, suppliers will be tempted to retaliate against buyers that they feel have taken advantage of them by charging higher prices or by refusing to do business with them.

It is easy to pressure suppliers on price, however if your suppliers don't make money, ultimately they wont be around to help you in the future.

eRA not only lets you set a starting point for an auction it also let you set a minimum price, this way you know the bids placed will be realistic.