Apply Reverse Auction for procurements and reduce costs significantly

Procurement methods are the procedures / tools used by the business entity to purchase goods, services and logistics. These methods can be categorised as competitive and non competitive. There’s a preference for using competitive methods of procurement given that they tend to promote transparency, economy and efficiency, and limit favoritism.

Reverse Auctions is one of the most preferred procedure and is in huge demand in recent times. While this approach of online bidding was quite complicated few years ago, now due to the technological developments in reverse auction software and apps, online reverse auctions have become as easy as a snap. Few years ago it was used by large corporate, governments for their bulk procurements; however the trend is completely changing. Now,  due to availability of easy to use software  and digitisation of procurement processes in the businesses,  reverse auction strategy is being used for smaller value procurements also. “ Some of our customers have started using reverse auctions for logistics, where average cost of each service is less than one lac and have been able to reduce costs upto 30% in first 3 months” says Anant jain Co-founder Jointobid.com.  It has allowed businesses in considerable cost cutting and vendors to reap significant profits by gaining volume growth. An online access to vendors for e-auction at national level also helped many organisations to reduce middle level corruption. In a reverse auction, the buyer creates a listing of the company’s specific project needs. For example, if the company needs to purchase construction material from a supplier, then the company would detail the exact specifications and quantity of the material they required. The buyer then posts this listing of requirements reverse auction software and invites potential vendors from all over country in online reverse auction site, to give quotes. Essentially, the vendors are competing in live environment, with each other and these live auctioneers go for repeated auction sniping, resulting to much lower quotes than normal online or offline quotes. At the end of the reverse auction, the buyer can choose a winner based on several important factors including cost, delivery time, vendor’s reputation, quality and specification of the product etc.

Online reverse auctions and their popularity have had a tremendous impact on both manufacturers and on suppliers. Manufacturers have been able to streamline the vendor selection process and have made it easier on themselves to select the right set of suppliers for each requirement. These auctions have also played a critical role in the increase of off-shoring. Electronic reverse auctions have also forced suppliers to find new ways of staying competitive. Since price is not the only factor, vendors have been forced to bring more added value to their goods and services, such as extra warranties, training, or other options. Pre-qualified suppliers get continuous opportunities from same set of buyers and get bulk business.

A new trend which is emerging now is reverse auction using some specific online bidding sites for smaller value procurements. USP of these new bidding sites is its new age technology and digitisation of the whole procurement process from RFQ creation till delivery and customer feedback at a very low cost. This will continue to have momentum when robotics and block chain technologies will be used for identification of right set suppliers.

The author of this blog is Amita jain director & Co-founder at www.jointobid.com and can be reached at amitajain@jointobid.com

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