An Auction serves as a replacement for the conventional price negotiations in the procurement process. An auction can create significantly more price pressure than conventional negotiations, as bidders are forced to respond directly to bids from their competitors.
There are two basic types of Auctions; first one is Sales Auctions also called Forward Auctions and Purchasing Auctions also referred as Reverse Auctions. Forward Auctions work logically the same way as the corresponding Reverse Auctions only the difference lies in the bid price. In Forward Auctions one needs to continuously increase the bid price to win the auction, whereas in Reverse Auction one needs to continuously decrease the bid price to win it.
The main reason why conventional auctions are rarely used in the procurement process is because it takes a lot of effort to bring the bidders to the auction site. If the auction takes place online on web, the restrictions are eliminated so that optimal prices can be achieved on web platforms through e-auctions.
The most important requirement for an auction is that the supplier’s offers have been made comparable and the price is the only remaining criterion. In contrast to the Forward Auction, where all participants bid on a normally existing good, the suppliers involved in a Reverse Auction are vendors offering a particular good or services. It must therefore be ensured that the goods or services of the suppliers are comparable. If this is not the case, the auction can fail miserably. The comparability of the auctioned service is usually ensured by a prior call for tenders or RFQs (Requisition for Quotes).
There are different types of Forward Auctions and Reverse Auctions with their own result profiles. The selection of the appropriate auction form can be decisive for the success.
- Single & Multiple Reverse Auctions: The Single & Multiple Reverse auctions are best known auction forms. Suppliers make bids for a predefined order or list of items as per the name suggest, which they continue to improve. The supplier who has specified the last and therefore the lowest bid will be awarded the contract.
- Single & Multiple Forward Auctions: The Single & Multiple Forward auctions are also well recognized auction forms. Suppliers who are generally buyers make bids for a predefined order or list of items as per the name suggest, which they continue to get better. The supplier who has specified the highest bid will be awarded the contract.
- Dutch Auction: At the Dutch Auction, the approach to the price is not from above but from below. The buyer specifies a starting price for which he is willing to place the order. This price will be gradually increased. The first supplier willing to accept the above price will be awarded the contract. The special advantage of this auction form is that the final price is the willingness of the auction winner to pay, i.e. the price he is just ready to accept, not the willingness to pay of the second best, as with the other auction forms.
The e-auction tool which performs all the above mentioned auctions ensures dynamic business negotiations, which optimize the purchase or sell values in a short time and without physical constraints. These tools can bring savings of additional 5-20% on an average from your current purchase price.
Negotiate the best offers simply from one place using unique solutions offered by Esupplier.in and automate your entire procurement process.