Surely you have already heard the “Going once, going twice, going three times, sold!” expression in some movie or TV series. But did you know that you can use auction techniques in the corporate environment, in order to streamline the negotiation process and achieve good savings?
In the market, a basic premise for the procurement area of any company is sending RFQs to multiple suppliers, to get the better value for money before closing a deal. This process is often slow and tiresome, as it requires long negotiation processes. In this context, reverse auction is an interesting option.
As its name implies, reverse auction is the opposite of direct or conventional auctions – that is, the supplier who bids at the lowest price wins over a predefined period, which can typically last from 20 minutes to 1 hour. It occurs at an on-line platform, where suppliers access a virtual room to make bids. The buyer follows the bids by viewing an on-line panel updated in real time.
Reverse auctions are recommended for high value procurement processes, with a significant number of suppliers. The more competition between participants, the better the result.
Among the advantages of choosing this option, savings are undoubtedly the key one, but there are other positive factors that should be considered too, such as reverse auction use strategy. See below each one of them:
Operating cost reduction
In addition to decreasing the cost of negotiated products or services, reverse auction negotiation is cheaper for the corporation. The time spent by buyers on a complex negotiation turns to mere minutes with a reverse auction tool.
Lead time and negotiation efficiency
Negotiation time differences are large, as conventional processes take days to end. In a reverse auction, all participants (both buyers and suppliers) meet at a single moment. The average time spent in each session ranges from 20 minutes to 1 hour. And it’s important to remember that more time for a buyer will render him/her more strategic for the corporation.
As recurring concerns in procurement, transparency and lawfulness of procedures have never been so fashionable. As this is a complex task, with reverse auction you can rely on a tool that will record all bids, as well as all communication made during the event.
The system provides the required information to the buyer, who will receive a descriptive and auditable report of the whole process at the end of the negotiation. This transparency is also vital for the supplier, who will have full security to make new bids.
Considering that reverse auctions take place via the Internet, suppliers can participate regardless of their geographic locations. This expands supply possibilities, including to other countries. Therefore, it’s important that the platform supports multiple languages and operates with different currencies.
* Written by Alexandre Moreno, Service Director at Mercadoe
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