19.2 Reverse auctions

19.2.3 Benefits of reverse auctions

Reverse auctions appeal to buyers for many reasons, including:

  • Buyers may realize average price reductions of 15 percent utilizing reverse auctions. Reported price reductions range from five percent to 90 percent.
  • Buyers perceive reverse auctions to be a much faster way to get to the final, best price from a qualified group of suppliers. Price bidding occurs during a time-limited online event. Even though buyers spend more time qualifying suppliers for participation and preparing for the reverse auction, the time savings for price bidding shortens the overall process.
  • The sourcing and supplier selection process becomes more transparent, reducing the influence of personal relationships and sales force efforts.
  • Reverse auction software is inexpensive to install and easy to use. In addition, auction functionality is increasingly included with business software systems, making it available on the desktops of individual buyers.
  • The Internet provides a low-cost, easily accessible way to connect a buyer with multiple qualified suppliers.
  • Spending analysis programs aggregate purchasing volume into quantities that make participation attractive to many suppliers.

Reverse auctions complement strategic procurement strategies and have been shown to effectively leverage volume purchasing and drive real IT savings. Reverse auctions work best when they are used to procure the following IT goods and services:

  • Commercial technology commodity buys with well-defined specifications and universally accepted standards.
  • Bulk technology or telecommunications purchases.
  • Items of definite quantity and definite delivery.
  • Technology and services which have a well-qualified and established base of suppliers.
  • Technology purchases which have big-dollar volume actions for individual customers.
  • Aggregated small buys for multiple users.