Online Auctions have become a widely used instrument that simultaneously increases the competitive pressure on the suppliers offering and significantly reduces the processing costs for purchasing negotiations. In addition to more effective pricing and more efficient process outlay, auctions also have the advantage of significantly improving internal transparency of procurement decisions. Unlike with separate supplier negotiations, the auction result clearly documents why an individual supplier received an order. Thus, the audit security in purchasing increases and the awarding of orders as a pure friendship service or against other considerations is made much more difficult.
Online Auctions are used to Purchase?
Contrary to many statements, not only simple and standardized parts such as C-parts are procured with the help of online auctions, but also highly complex volumes such as entire factory buildings or complete production lines. Accordingly, the order volume for individual purchasing auctions ranges from INR 10,000 to hundreds of millions. Overall, the use of auctions is most widespread in the area of indirect goods. Almost all of the surveyed companies use auctions for the procurement of office equipment, IT hardware or services. This can be explained by the fact that the necessary competition between suppliers is generally high for indirect goods and that suppliers do not play a strategically important role for the company. Most widespread is the use of online auctions in sectors offering standardized products, such as the automotive, chemical and pharmaceuticals, consumer goods and large service providers such as retailers, banks and insurance companies.
What types of auctions are used?
The most common online auctions are where bidders see the prices of their competitors, but usually they do not see the names of the suppliers and only see placeholders. Similarly, similar rank auctions are used in which not the individual prices are displayed, but only the respective rank of the individual bidder and optionally the best price are displayed. In all such auctions, suppliers can improve their bid until no more favorable bid is made. As a thumb rule, such auctions last only 30 to 120 minutes. The situation is different with Dutch auctions. It starts an auction watch at a very low price and then rises slowly and evenly, until the first supplier agrees to accept the order for that price. Since suppliers do not know how many competitors are participating, such auctions are often used when there are very few qualified bidders overall.
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