Supply chain managers are under pressure to increase efficiencies, enable growth, and lower costs. Luckily, the Internet has driven a number of changes to the field of procurement, and created new ways for supply chain executives to innovate their sourcing strategies.
An example of this would be reverse auctions, says Tim Norris, MD of Purchasing Auctions SA, who will be presenting on 'Reverse auctions - best practice in global procurement', at the ITWeb Business Intelligence & Analytics Summit, to be held on 14 and 15 March, at The Forum in Bryanston.
Reverse auctions have proven to be an effective way of optimising the procurement process and opening it to new businesses, he says. "A reverse auction, also called procurement auction, e-auction, sourcing event, e-sourcing, is a tool used in business-to-business procurement, in which the role of the buyer and seller is reversed, with the primary objective to compete purchase prices downwards."
According to Norris, in an ordinary or 'forward' auction, buyers compete to obtain a product or service. In a reverse auction, sellers compete to obtain business. "Reverse auctions are an extremely effective way of optimising procurement and opening the process up to new businesses."
Driving competition
Speaking of the benefits of reverse auctions, Norris says a reverse auction is usually used as the last leg of the sourcing and tendering process, to obtain the best price by driving competition among bidders. It is hosted by a sole buyer and sees two or more suppliers competing for business. It gets its name 'reverse' because the price can only be driven down."
There are a number of advantages to reverse auctions, he continues. "They save time, as the awarding decision takes a matter of weeks instead of the months it can take with traditional tendering. Moreover, they offer an insight to the bidders on how competitive they are and give them a good idea of their ranking amongs their peers."
Reduce auctions also decrease the amount of paperwork and increase transparency in the award process, something that is much needed in the public sector, for example. "It also helps in breaking cartels."
Norris adds: "Reverse auctions should not be universally used for all procurement. They should only be utilised out for commodities which have a multitude of suppliers, thereby producing a competitive market and for which the key awarding decision is price."
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