Make Sure You Are Using The Right type of Auction for Your Procurement Process
If properly managed, an auction can be a very powerful sourcing technique. When carried out correctly, an auction can contribute to increasing the value and transparency of the sourcing cycle, whether used as a component of the cycle or merely as a stand-alone cost-reduction activity.
Types Of Auctions:
Forward Auction: Forward auction is essentially E-auctions in which the bid value steadily rises after reaching the lowest price. In such auctions, a single provider provides the goods or services, and buyers compete with one another by placing greater bids. The winning bid is the highest one.
Most of the listed E-auctions maximize value for buyers. However, as specialists in the field of procurement, we also need to be cautious of auction systems that favor suppliers. The Forward Auction is one such arrangement that encourages providers to establish their marketplace.
Bidders compete in real-time until the auction is complete. The highest bidder receives the item. Forward auctions are preferred by procurement officers tasked with impact procurement to maximize social good.
The most common kind of E-auction is the reverse auction. The purchasers submit requests for goods or services in this auction concept. The suppliers then submit bids representing the price they are prepared to accept in exchange for supplying the goods or services.
There are various methods to structure these kinds of auctions:
● Positional bidding is a descending price auction where the supplier can only control where their bid falls concerning other bids, not its actual worth.
● Leading price bidding allows for the lowest bid to be seen by all providers, but the identity of the leading bidder and the position of their bid are not visible until it is the lowest.
● Descending clock: This auction lasts for a set amount of time and can use positional or leading price bidding.
In a Dutch reverse auction, the opening bid is modest and grows by predetermined amounts at predetermined intervals. A seller places a bid and wins the auction at that bid when the price rises sufficiently to tempt them. Dutch reverse auctions are useful for buying many products since they allow for individual auctions for each item. Suppliers can submit bids for as many or as few items as they choose.
The Japanese reverse auction begins at an initial entry point, in contrast to the Dutch reverse auction, which begins at the lowest price point. This entrance point is the only option available to potential merchants. The price then decreases gradually over a set period until just one participant is left.
Best Value Reverse:
The best value proposed solution is offered by the suppliers in an auction structure, and it is evaluated based on a weighted combination of price and non-price elements. The outcome is not chosen based on the cost. Since the price is secondary to other considerations in procurement goals, Best Value reverse auctions are the most appropriate.
Advanced buying analytics are made possible by E-auction platform solutions, and procurement companies can define unique bidding criteria, guaranteeing that everyone has an equal opportunity to win contracts.