Procurements costs are a substantial chunk of the total supply chain costs and best in class organizations always strive to drive deflation in their procurement costs keeping transparency and quality intact. Reverse auctions have proven to be quite an effective tool over the years, in this endeavor and have allowed the organizations to rule the prices to a larger extent in addition of making sure that the vendors agree to the terms and conditions first and then quote their prices.
The process of reverse auction starts with doing some homework by the buyer organization to set the terms and conditions, pre-qualification criteria, specifications of the items/services to buy etc. and then an auction event is set up in the platform that they have deployed for this. The pre-qualified vendors (other vendors can also be invited) gets communication from the buyer or by the reverse auction service provider on buyer's behalf and they are notified about the event time, duration and other modalities. when the event starts, the vendors log in using their user id/password combinations and start bidding on the items/services. Since they can start bidding in the event only below the start price stated by the buyer, the buyer can control the prices to an extent. Also, since the process is transparent with vendors able to see the lowest bid value (but not the name of vendor who quoted it), they try to outpace each other and quote their best prices.This ensures that you get the best price for your buy and that too from the pick of vendors that you selected to be part of the process.
There are multiple solutions available in the market these days as reverse auction has already been proven as an effective tool to reduce costs, improve efficiency and transparency and brings host of other benefits to the organizations. The key features that you should look for, while evaluating the solutions are:
- Vendor name encryption: To maintain transparency of the whole process, it is imperative to have a feature which allows you to control, who in the organization can see the actual names of the vendors who are bidding in the event. This will make sure that if a buying executive within the organization has some friends in a vendor organization, the quotes are not leaked to them during the event and we have a fair play. On the other side, some senior executives like the chairman or CEO would like to see the actual vendor names instead of encrypted names. So a feature to control this ability is a must have in a reverse auction solution
- Different pricing models: Depending upon parameters like available time with existing teams, volume of auctions in a year, intricacies of business, specifications of items/services, ease of operations in reverse auction platform etc. you might want to try out multiple pricing options and the more popular ones are: Pricing per event - this is more popular if you want the service provider to create complete events for you), unlimited events for a lump sum fees - this is useful if you have the self service option and your team creates and manages the whole event on the service provider's platform, %age of spend in year - popularity of this model is going down these days, share of the saving you achieve by using reverse auction processes - this model is offered to those organizations only which measure the procurement costs as a general practice and have historical data to prove what is the as-is state: choose the best pricing model
- Refresh time of bids: Refresh time is the time taken by the platform to refresh the data entered by different bidders to show the buyer the latest data. This varies from 5 seconds to 30 seconds normally but it is important to weigh your requirements in details before you try to select the service provider
- Self Service and Assisted Events: The option to have self service events as well as assisted events is an important one as it allows you to move from self service to assisted event if there is some attrition in your team or the workload is huge in a specific period. An assisted event is the one for which the vendor communication, bid form design, managing the event etc. will be managed by the service provider and you just have to watch the event going on
- Spend analytics and Reporting features: Managing events is one activity that will help you save costs but to further drive deflation and to know which vendors are getting most orders - what is my spend per vendor etc., you will need some spend analytics capabilities in the solution. Look for these capabilities and match with your requirements
The above are some important features that are required to be looked at while your evaluation process is on. But please note that the above list is nowhere near the exhaustive list and you should first write down the requirements in details, map them to the capabilities of the solution and then take a decision.