We have a blog post we just published that summarizes the value of a particular type of auction: reverse auction. We list 5 benefits including:
- Lower purchasing costs through increased competition
- Potential for better savings than an existing 'target' amount
- Time savings thanks to reduced negotiation phase
- Improved ability to meet deadlines thanks to a specific auction date
- Increased transparency for suppliers as they all have the same data at the same time
The above reasons are just as valid now as a year ago and will remain so in 2021. This has, in part, led reverse auctions to become synonymous with electronic and purchase auctions in general. However, they are not the only option. Let's discuss reverse auctions and four alternatives.
1- Types of Auctions
a- Reverse auctions
As I said earlier, reverse auctions are the most popular type of Online Auction. In this auction design, buyers request goods or services. Suppliers then make offers reflecting the amount they are willing to be paid to provide the goods or services.
Such auctions/auctions can be structured in several ways:
- Positional bidding: a type of descending-price auction in which the supplier can determine the position of his/her mattress relative to other bids, but not the value of other bids.
- Leading bidder: all suppliers can see the quantity of the lowest bid, but cannot see the leading bidder's ID or the position of their bid unless it is the lowest.
- Decreasing hour: This auction runs for a predetermined time and can be a positional bidding or leading bid auction.
Dutch style reverse auction
In a Dutch reverse auction, the bid is opened at a low price that increases at fixed intervals. When the price gets high enough to lure a seller, they make a bid and win the auction on that bid. Dutch Reverse auctions are suitable for purchasing multiple items as each item can be auctioned separately. Suppliers can bid for as many or as few items as they wish to supply.
Japanese reverse auction
The Dutch reverse auction starts at the lowest price point, while the Japanese reverse auction starts at the first entry point. Potential sellers should accept or leave this entry point. The price then continues to fall at predetermined intervals until only one participant remains.
Best Value Reverse Auction
Under this auction structure, suppliers offer the best proposed solution, which is weighted, evaluated on price and non-price factors. The result is not determined by the lowest price. Therefore, Best Value reverse auctions are best suited for sourcing targets where price is secondary to other factors.
So far, all the auctions we've listed maximize value for buyers. But as procurement professionals, we also need to be aware of the auction structures that support suppliers. One such structure is the Forward Auctions, which encourages suppliers to create their own markets. Bidders compete in real time until the auction is complete. The item is awarded to the highest bidder. Purchasing officers tasked with procuring influence to maximize social benefit prefer Forward auctions.
When are auctions available?
As Yusuf Şimşekçaktı pointed out, there are no rules regarding when the auction will be used. However, if one or more of the following features apply, it may be worthwhile to auction off using traditional bidding processes. These features are:
- Goods or services requirements can be clearly stated;
- Standardized, commercial off-the-shelf solutions (goods) are available or possible;
- Price is the primary or sole basis of competition;
- There is a competitive market with enough suppliers willing to participate and able to provide the required good or service
- There is an opportunity to save.
Make sure you choose the right auction types
Eker Gallery Online Auction and Antique House can help you successfully realize the most suitable auction type for your needs. Contact us today and benefit from our extensive knowledge and experience.