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5 Things that Highlight the Value of Reverse Auctions

Posted by Peter Bonney on Sep 25, 2018 9:00:00 AM

Many companies are leveraging reverse auctions as a way to save money. However, cost savings are just one benefit that reverse auctions can provide.

Reverse auctions have the potential to be a critical aspect of your strategic sourcing process, and knowing their full potential is the first step towards maximizing their impact. Below are the top benefits of reverse auctions for organizations.

1. Cost savings

It may be just one of the benefits reverse auctions can provide, but it’s still an important one! Reducing procurement costs can significantly impact a company’s bottom line. In this article by CIO.com, they note that reverse auctions, when used correctly, can lower the cost of procuring products and services by as much as much as 20 percent.

Pitting sellers against each other on an open platform can increase competition and help drive down bids so that a business gets the best price for a particular event. This can allow companies to enjoy short-term profit increases, and long-term savings and investment.

2. Process efficiency

Reverse auctions can help streamline the procurement process, allowing for ease and speed of transactions. Where traditional, forward auctions typically take weeks to complete, online auctions can be concluded—with favorable results—in under an hour.

Documentation can be centralized, allowing for better organization. Coordination with suppliers is also easier given that communication and scheduling can be managed using a single platform.

3. Access to a large supplier base

Reverse auctions can help your team cast a much wider net to find the right supplier. According to Greg Brandyburry, President of RPDE Inc., “Non-incumbents love the transparent and fair process and market visibility when given. What I have seen through the years [is that] small suppliers can compete very nicely with large suppliers when a fair, transparent, level playing field is established.”

The evidence is more than anecdotal. In 2016, FedBid reported that for the prior fiscal year 88% of contracts awarded through their reverse auction platform went to small businesses. When suppliers are selected on the basis of who can provide the best value, rather than who has the more effective sales force, buyers and suppliers win.

4. Improve buyer-supplier relationships

There’s a long-standing assumption that reverse auctions tend to put a strain on buyer-supplier relationships. However, when done right, it can actually help improve working relationships.

On the premise that you’re conducting the whole bidding process openly and with a focus on transparency, you will be able to fairly assess each bidders capability objectively. This implies that you’re making an effort to level the playing field for all participants, which reflects positively on your organization’s values.

Furthermore, reverse auctions are respectful of your suppliers’ time. The whole auction, from start to finish, will likely be wrapped up in under an hour, meaning your suppliers - and you - can spend less time on the selection process and more time delivering value.

5. Increase market efficiency

It’s very difficult to bring multiple suppliers and a single buyer together in an open and constructive bidding environment. Online reverse auctions can help achieve this.

On an eSourcing platform, suppliers are able to view bids from competing vendors and can assess whether their own bids are up to par. Not only are you able to easily review the bids, but it also fosters healthy competition between participating suppliers.

Since the entire process takes place online, it’s easier for you to extend your supplier reach outside of your geographical limitations. This could ultimately lead to global searches that will provide the best cost-savings for your project.

Adoption of reverse auctions is rising simply because it has demonstrated its efficacy in delivering valuable results for businesses. Cost-savings, while an important and significant factor for choosing reverse auctions, isn’t the only thing that it can offer. As detailed above, the benefits of using this platform can be significant. It’s just a matter of learning and recognizing its inherent value for your organization.

Take advantage of Vendorful’s eSourcing platform and find out how you can get the most value out of it for your business. Get in touch with us today.

Topics: Reverse Auctions