Reverse Auction
Reverse auction
Background
Reverse auction, also known as downward price auction, is a kind of competitive bidding event where more than two suppliers compete for a single buyer’s business. During the bidding period, the price is driven down, as the suppliers compete for the chance to offer their specified product/service at a price which is set by the market environment of the reverse auction. Such auctions are commonly used by organizations and companies as a tactical way to achieve their sourcing objectives (Shalev, M. E. and Asbjornsen, S. (2010)).
1. How should a reverse auction fit into the overall procurement strategy?
1.1 When to use reverse auction
To begin with, it should be known that reverse auctions are not suitable or appropriate for all different types of procurement strategies. In other words, the pitfalls of reverse auctions are numerous but limiting reverse auctions’ uses to some certain circumstances can be worthwhile. Normally, a company’s procurement strategy should depend on the following two dimensions: * The profit impact
The volume they purchased/ percentage of the total purchasing cost/ impact on the product quality/impact on the company’s business growth; * The supply risk
Items or service availability/ supply variance/ inventory risks/competitive market demand/ maker-or-buy opportunities/ opportunities of substitution;
Figure 1. Kraljic’s matrix
Figure 2. characteristics of 4 different types of items
Sameer Kumar and Christine W. Chang in their journal said that Lessons learned from industry have shown that reverse auctions are more appropriate when used to purchase indirect materials that can be classified as commodities(supply risk low, many suppliers and not critical ). In another word, non-critical items and leverage items are more suitable and appropriate for reverse auctions.
2.2 How it fit into the procurement strategy
When a company wants to purchase a commodity or off-the-shelf
Background
Reverse auction, also known as downward price auction, is a kind of competitive bidding event where more than two suppliers compete for a single buyer’s business. During the bidding period, the price is driven down, as the suppliers compete for the chance to offer their specified product/service at a price which is set by the market environment of the reverse auction. Such auctions are commonly used by organizations and companies as a tactical way to achieve their sourcing objectives (Shalev, M. E. and Asbjornsen, S. (2010)).
1. How should a reverse auction fit into the overall procurement strategy?
1.1 When to use reverse auction
To begin with, it should be known that reverse auctions are not suitable or appropriate for all different types of procurement strategies. In other words, the pitfalls of reverse auctions are numerous but limiting reverse auctions’ uses to some certain circumstances can be worthwhile. Normally, a company’s procurement strategy should depend on the following two dimensions: * The profit impact
The volume they purchased/ percentage of the total purchasing cost/ impact on the product quality/impact on the company’s business growth; * The supply risk
Items or service availability/ supply variance/ inventory risks/competitive market demand/ maker-or-buy opportunities/ opportunities of substitution;
Figure 1. Kraljic’s matrix
Figure 2. characteristics of 4 different types of items
Sameer Kumar and Christine W. Chang in their journal said that Lessons learned from industry have shown that reverse auctions are more appropriate when used to purchase indirect materials that can be classified as commodities(supply risk low, many suppliers and not critical ). In another word, non-critical items and leverage items are more suitable and appropriate for reverse auctions.
2.2 How it fit into the procurement strategy
When a company wants to purchase a commodity or off-the-shelf