“Going once, going twice, sold – to the gentleman in the grey cap!”Okay, not quite. Procurement auctions are quite different; although the main concept is still the same. A group of competitors all bid against one another in an online auction until one is selected as the overall winner. However, in procurement, auctions are handled a little bit differently.
By definition, and how it is with just about everything, there are many types of online auctions. The most popular type is the English auction.
An English auction is the standard auction, where the highest bidder wins the auction. It’s also an auction where you might hear the auctioneer yell aloud the first line of this article. However, in a virtual or online English auction, that may well not be the case.
English auctions are actually quite rare to find in procurement, as you’ll soon see why.
E-auctions have become the norm in procurement departments. It simply makes more sense for procurement professionals to conduct business with one another remotely. This means handling incoming bids, conducting auctions, awarding contracts as they’re won, and much more.
There are plenty of benefits of e-auctions. From streamlining procurement communication channels, and activities, time savings to increasing the operational efficiency of the entire supply chain, hosting real-time e-auctions is widely recognized as an industry best practice.
Reverse auctions and procurement
While English auctions are the most common form for auctions to take in general, within the context of procurement, reverse auctions are actually much more common.
Now, this isn’t to be confused with that of a Dutch auction. Although the two e-auction types are traditionally slightly similar, there are some important and distinct differences. A Dutch auction is one in which the selling-price starts high, and is systematically lowered by the auctioneer until a buyer accepts.
In a reverse auction, the role of the buyer and seller are totally reversed. This is why it’s advantageous for companies and procurement teams. Instead of multiple buyers bidding on a single item and driving the price up, multiple manufacturers or service providers are bidding on the work for your company, and therefore systematically driving the cost of the goods and services lower and lower. In other words, this is known as one variation of e-auction bidding. In a reverse auction, typically the lowest bid wins the business.
This is ideal for your company and the procurement team as it allows your team to find the best possible rates on contracts for goods and services needed.
There are many types of e-auctions that can be set up, but in procurement, the most effective by far is the reverse auction. The reverse auction format for collecting supplier pricing is best designed for your company to optimize cost-reduction strategy throughout the procurement department and the comprehensive organization as a whole.
Integrating E-auctions with procurement software
Another industry-wide recognized best practice in procurement is the adoption of procurement software. Procurement software is becoming more and more advanced each year. The addition of spend analytics in the procurement process further enhances the effectiveness of a procurement tool.
However, one of its many functionalities is the ability to host and run reverse auctions automatically. Allowing for unique bidding approaches, bidding strategies with pre-defined price factors allows for an apple to apple comparison of bids. Beyond this, the software is capable of optimizing and improving your short-listing processes, and connecting the entire procurement lifecycle from beginning to end.
With such an easy integration process, and an advantageous auction-design, it makes sense that procurement professionals would rely on reverse auctions and procurement software in order to optimize their cost-reduction strategies, and boost operational efficiency overall.