How do reverse auctions benefit suppliers

Asks Hugh
A. In a traditional auction environment the seller auctions inventory to the highest bidder, the same is true for an electronic auction. In a reverse auction, which have been popularised by the Internet, the buyers post a request for quotes (RFQ) stating their needs and services and sellers (or suppliers) bid to meet these needs, and the lowest bidder wins.

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Although reverse auctions may seem at first glance to be a customer-centred technology they do have benefits for the seller or supplier in that they enable them to reach a wider audience, save a lot of time and money.

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Reverse auctions can reduce the bidding time for contracts down from months to days, enabling the supplier to start work sooner and fulfil a greater number of contracts. It also keeps the whole bidding process open. For example, suppliers can learn to tailor their bids to the bidding process, which was
not possible with sealed bids for contracts. Under the old system of sealed bids, to obtain a contract a company would have to submit a bid and wait a certain amount of time, then the buyer would open all the bids at once and then choose the lowest bid, or the one that it found met its requirements best. If you lost the contract you would have no idea why, or no indication of how far out your price was.

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A reverse auction keeps the industry posted of the prices while the bidding process is in progress, and,just like a traditional auction, you can choose to keep on bidding (down) or withdraw completely.

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If a supplier has done his or her research he will know exactly how low he can go and still make money.

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Q. Do reverse auctions offer any other benefits
A. To a certain extent, they level the playing field as small companies can use reverse auctions to learn about the negotiation process and how to be competitive on the buying end. It is also considered to be fair, open and honest.

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Q. What types of companies or organisations do reverse auctions benefit most
A. They are beneficial to educational institutions, governmental organisations and large private sector suppliers who are ordering in large quantities.

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Q. Can you give any examples of reverse auction companies, with an indication of what services they offer
A. Yahoo recently signed a deal with http://e.Wanted.com. Within this deal, e.Wanted.com offers reverse auctions to users of Yahoo's auction site http://auctions.yahoo.com one of the largest Internet-based auction sites.

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Within this deal, e.Wanted offers buyers a selection of products (it is integrated in Yahoo's auction pages selling antiques, art, computers, electronics and cameras, entertainment, sport and memorabilia) utilising its BuyNow technology to locate and purchase the item in a fixed price inventory or by initiating a reverse auction and choosing from competitive bids that come from multiple sellers.

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Another example is online auction service provider http://www.Freemarkets.com. It has recently launched its QuickSource technology, which helps companies draft requests for quotes and run reverse auctions. Its customers can upload a list of suppliers, and the goods they sell, write a detailed request for quote and set up a reverse auction. QuickSource can handlereverse and sealed-bid auctions in multiple currencies, and bidding can take place for any amount of time.

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Q. What actually happens in a reverse auction
A. Carried out completely online, one side of the computer screen shows a list of pre-qualified bidding companies, with their developing bid prices. On the other side, a graph shows bids plotted against time - starting high on the left, dropping to the right. Bidders get to see the same screen, except that names of their competitors are masked. The lowest bidder wins. It is considered an open and easy to follow process that avoids corruption and allows companies from anywhere in the world to bid for business.

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Q. Has the concept of the reverse auction been adopted by any other industries
A. A good site for a cheap holiday is http://www.travelbids.com it is an online discount travel auction that allows travellers to save lots of money by getting bids from many travel agents. It is good for air travel, resorts or cruises - for any date, any class of service and any room category. The agent bidding the highest discount wins the auction.

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Q. Can you recommend any other reverse auction sites
A. Popular sites include: http://www.LiquidPrice.com, http://www.myGeek.com,
http://www.Respond.com,

http://www.netgenshopper.com, and
http://www.bidbusiness.co.uk

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By Karen Anderson