Purchasing Auctions Blog

Why don’t more companies in UK utilize more reverse auctions then? The answer is probably straightforward. Reverse auction software can be expensive and difficult to use. That was our experience as a consultancy so we built our own software which is fully hosted and inexpensive to use. When companies have no budget they often build in the cost of the auction as part of the auction which is then paid for by the winning supplier in a very open and transparent way.

Reverse auctions can be run in a number of ways. For more complex requirements we usually recommend a “rank only” auction whereas for simpler auctions such as stationery we usually recommend “open bid” events. We have found that the number of line items does not negatively impact price reductions. More complex models can also be used and “whole life” auctions are often recommended for vehicles when they are bid.

Why is it that so many large companies are using reverse auctions to help drive their costs down?  Why is it that leading bodies such as the Aberdeen Group are saying use reverse auctions for all areas of spend above $25,000?

The simple answer is that auctions allow you to drive value. Companies that run auctions believe that auctions can make a 20% difference over standard paper bids. This has been backed up by our experience. When we are asked to auction a product after it has already been competitively bid we have achieved similar savings. Much higher savings have also been achieved but that’s not always the case.

Buying decisions should not be made on price alone. Decisions should be made on total “value” criteria and not just price. We find that in only around 30% of cases do our customers award their contracts to the lowest bidder, thus highlighting the importance of alternative criteria such as delivery, quality and terms and conditions.  Reverse Auctions do, however, still achieve really significant savings of up to 72% over a wide number of categories and services.

Tags: Expense Base, Reverse Auctions