Reverse Auction – Why it is important and how you can organize it digitally

Teradix

Published on
March 20, 2022
Reverse Auction - Why it is important and how you can organize it digitally

The goal of most companies is to reduce costs by streamlining procurement processes. Electronic applications enable companies to achieve significant cost savings by streamlining procurement processes.

The rise of electronic reverse auctions is one of the most popular types of procurement. Organizations that use them can save 10-30% of their costs.

What is a reverse auction?

A reverse auction is an event used by companies in procurement, purchasing, and buying strategy to find competitive prices for goods and services. It is similar to a traditional auction. Both methods allow companies to purchase items at below-market prices – but with reverse auctions, the price decreases over time.

Reverse auctions are essential for businesses looking to make immediate savings.

For example, suppose you are responsible for managing your company’s financial performance through procurement and purchasing strategies. In that case, a reverse auction can help reduce costs and improve cash flow immediately.

When procuring goods and services – especially those that require a short lead time – a reverse auction is always worth considering.

Advantages of a reverse auction

A reverse auction is a procurement strategy that allows you to use competition between suppliers to get your goods at a lower price. Instead of asking suppliers to bid on their prices and terms, you put your requirements on the market and let suppliers bid against each other for your business. The result is usually lower prices without sacrificing quality.

Procurement managers often look at reverse auctions as tools to fill an unmet need in procurement, allowing them to avoid overbidding and buy more efficiently.

However, a significant benefit of using an online platform to manage your reverse auction is that it provides faster access, more efficient decision-making, and better insight into supplier performance.

Cost savings

When used correctly and for the appropriate spend category, reverse auctions can result in significant cost savings of up to 30%. With a reverse auction, all of your suppliers can bid against each other in real-time, so you’ll be able to select the best possible deal.

A procurement organization can also use the software and automation it offers to reduce purchasing staffing, which leads to cost savings. It is because a buyer or procurement specialist no longer has to check suppliers’ offers manually. Instead, the software takes care of this process automatically.

Increased competition among suppliers

Suppliers typically bid low prices to win auctions and secure contracts.

When you run electronic reverse auctions, suppliers compete with each other to offer lower prices for your products. This competition drives prices down and ultimately results in lower costs for you.

This type of auction is especially beneficial for businesses that need thousands of unique or customized products. If a single supplier could produce exactly what you need, they would have little incentive to lower their price. However, when several companies bid for similar orders, suppliers have a greater incentive to outbid each other and offer lower prices.

Time-saving

The reverse auction concept is more than just a price-cutting mechanism. Buyers view reverse auctions as a time-saving tool that allows them to focus on value-added tasks instead of processing bids. The reverse auction means that procurement time is shorter overall due to the compressed nature of the negotiations conducted through the simultaneous evaluations of the suppliers participating in the reverse auctions.

Increased transparency

With a reverse auction, businesses have access to more information about vendors. Reverse auctions allow you to receive price quotes from multiple companies and compare them side by side—giving you greater control over your spending and helping you find better deals on products and services. They also increase transparency in business dealings: Vendors know that they’re competing for your business, so they’ll be less likely to try any funny business when it comes time to negotiate prices or terms of service.

Compliance

Online reverse auction software saves both time and money and enables users to comply with

regulations. It captures all the necessary transaction information from any supplier and reduces the potential for controversy during the selection process. In addition, all data is immediately available.

Streamline and Automate your Sourcing & Procurement Process!

How to organize a reverse auction?

To organize a reverse auction, you need to gather all the suppliers of goods and services willing to participate in the tender.

The best way to run a reverse auction is to use an online tendering system that allows suppliers to fill in and submit their bids online.

A virtual reverse auction is usually conducted as follows:

  • Suppliers are invited to participate in tender (conduct pre-bidding when needed),
  • They supply their offers during an online event, which include price and other conditions of contract execution,
  • Once the reverse auction is complete you, have all information needed to award the contract

Simply put, running a reverse auction is not complicated. With the help of the right reverse auction software, you can enjoy the convenience of doing so without the hassle.

Reverse auction held by Teradix

To empower businesses to become more efficient using a data-driven approach, Teradix has developed an online Reverse Auction platform and has conducted thousands of reverse auctions over the past three years

Flexible and powerful auction setting

All reverse auction types are supported. With our intuitive user interface, scheduling a reverse auction is done with ease – you can easily select auction preferences and supplier feedback methods and invite your suppliers to the live event.

Our reverse auctions are entirely customizable to fit your needs!

The real-time bid tracking chart

You can monitor competition between suppliers in real-time with a live chart showing bid summaries and savings achieved.

Detailed reporting and documentation

After the auction, you can easily export a full, detailed auction schedule with timestamped for all actions from the scheduling to completion. This way, you have full documentation of everything that happened during your reverse auction.

Conclusion

Reverse auctions are highly effective. A reverse auction is one of many business tools you can use to ensure your business has competitive pricing and profitability. If you do not already have reverse auctions, you should include them in your procurement strategies. This way, you can significantly save on your strategic and trailing spending.

To learn more about the reverse auction process, or if you’d like to schedule a demo, contact us. We’d like you to envision procurement in a different way.

Streamline and Automate your Sourcing & Procurement Process!

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