In this post, you will find everything about reverse auctions. From their meaning to how they work, their modalities and the benefits that the practice brings. Stay tuned so you don't miss any details and check it out!
In the market, a basic premise of the purchasing department of any company is to obtain quotes from several suppliers before making a purchase. For purchases of products and services in Large scale, this process is usually slow and laborious, as it requires long negotiation processes in an attempt to reach a good price. In this context, it is recommended to purchase through Reverse Auction to optimize the negotiation process and achieve great savings.
What is a Reverse Auction?
As the name suggests, the Reverse Auction (Reverse Auction in English) is the opposite of the Traditional Auction, that is, The supplier who bids the lowest price during a pre-established period wins, usually between 20 minutes and 1 hour.
The Reverse Auction event takes place through an online platform, where suppliers access a virtual room to place their bids. The buyer mediates the bids through an online panel, updated in real time.
Most used types of Reverse Auction
English auction
Considered a more competitive event, the English Auction requires suppliers to always place a lower bid than the one previously placed by the competitor. Its main objective is to always seek the lowest possible proposal among the participants. It employs a confidentiality policy where the suppliers involved see each bid made, but they will not know who made each offer, until the lowest possible value is reached.
Dynamic Auction
Considered more comprehensive, the Dynamic Auction aims to capture the best proposal from each of the suppliers. These will reduce the value of the bids based on their own initial quote until they reach their limit, meaning that the decision is not restricted to the price factor, but rather to the other conditions imposed during the supplier selection process.
Why conduct a Reverse Auction?
Among the main advantages of carrying out a Reverse Auction for the process of acquiring a product or service, there is undoubtedly the cost reduction that this tool makes possible, however, other benefits are also of great value and should be taken into consideration as a strategy for greater competitiveness and profitability in the market. Check it out:
Cost reduction
Presenting itself as a decisive factor in contracting the service, the Reverse Auction varies according to the complexity of each negotiation, enabling the purchasing process, in itself, to become more economical for the corporation, which will have a tool that will stimulate the instinct of competition among suppliers.
Lead time and negotiation efficiency
There is a significant difference in negotiation time compared to conventional processes, which take an average of one hour with each supplier to reach a conclusion. Through a Reverse Auction, all participants (buyer and suppliers) will be brought together in a single event, which takes approximately 20 minutes to 1 hour.
Transparency
Negotiations are seen by companies as one of the most critical points in the process. These companies, who are now more attentive and concerned about making acquisitions in a lawful manner, knowing that this task is often overly complex, can count on a tool that will record all bids and all communication made during the event, providing all the necessary information to the buyer, who at the end of the negotiation will receive a descriptive and auditable report of the entire process. This transparency is also essential for the supplier, who will have total security to make new bids.
Geographic location
The fact that the Reverse Auction event is held online allows suppliers to participate regardless of their geographic location, expanding the supply possibilities to other countries. Therefore, it is important that the Reverse Auction platform supports multiple languages (e.g. Portuguese, English and Spanish), in addition to working with currencies such as Real, Dollar and Euro.
The Reverse Auction carried out by Mercado Eletrônico
With the aim of helping companies to purchase products and services on a large scale and economically, the Electronic Market, a leader in business-to-business e-commerce, has developed an online platform for Reverse Auction and has already accumulated more than 8.000 successful auctions since 2006.
How does it work?
Companies interested in holding Reverse Auction events can hire just the platform or the complete service, where Mercado Eletrônico carries out the preparation, management and post-event activities.
Through a user-friendly interface, the Reverse Auction operates with the basic principle of receiving offers and redirecting information to suppliers, who in different strategies are encouraged to make new bids until one of them meets the buyer's expectations.
Preparation
The company contracting the service will provide a comparative map of the quotes made with the suppliers of its preference. The Mercado Eletrônico team will then analyze this map and suggest to the buyer the best type and strategy of Auction to be used.
If the proposal is approved, the Auction will be configured and Mercado Eletrônico will contact the participants to schedule training and ensure that everyone is able to use the tool and place bids assertively.
During the event
Negotiations, on average, last from 20 minutes to 1 hour, subject to extension if a bid is made in the final minutes of the process, and so on, until the lowest possible price is applied.
During the event, different indicators configurable via the platform are used, information about rankings listing the position of each supplier and messages such as: “you are the best price” or “you are not the best price”, are attributed to the process, as well as traffic lights with colors, also indicating the position of each one, all with the objective of stimulating new bids, presenting itself as a key point of the Auction, which obtains excellent results by stimulating the competitive instinct among participants.
Extra Features
In addition to the ranking features, other options are also available so that suppliers can view their positions during the Auction and decide whether to place new bids. Configurable indicators such as the opening of target values, stipulated by the buyer who needs to have a certain cost reduction for the acquisition of a product or service, can also be inserted into the system so that suppliers do not see them, but are aware of their positions through a traffic light view. These indicators will inform whether the supplier managed to reach the target value or not.
It is worth remembering that this service is not open to the market, and only suppliers previously indicated by buyers will participate in the Auctions.
Thousands of Reverse Auctions Completed
The Electronic Market has already carried out more than 8 thousand Reverse Auctions in several countries, with discounts of 33% on average being observed during negotiations, a percentage that, in events in Brazil, has already reached offers of 58%. In the last 10 years alone, savings of R$ 1,8 billion are estimated for Auction customers.
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