Reverse Auctions


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A Reverse Auctions PowerPoint I put together. We worked as a team to gather most of the information, however I put together the presentation itself.

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Reverse Auctions

  1. 1. Reverse Auctions <ul><li>By: Matthew Boumeester, Tony Buettner, and Jason Mansur </li></ul>
  2. 2. What and When? <ul><li>Reverse Auctions are “downward price” auctions in which suppliers continue to lower their prices until the auction closes. Buyers watch as competitors lower their price in real time. </li></ul><ul><li>The lowest price wins (usually) </li></ul>
  3. 3. Reverse Auction Process <ul><li>Popular Organizations for Reverse Auctions are Oltiby, HedgeHog, and E-Sourcing Solutions. </li></ul><ul><li>These websites are free to sign up for and do almost all the work for the buyer. </li></ul><ul><li> </li></ul>
  4. 4. Reverse Auction Process Continued… <ul><li>Buyers advertise their specifications of the product they need. </li></ul><ul><li>Suppliers submit their specifications or technical proposals, and initial prices. </li></ul><ul><li>Suppliers are pre-screened and approved </li></ul><ul><li>Only supplier’s with password/access can participate </li></ul><ul><li>Suppliers are anonymous to all except the buyer conducting the auction. </li></ul><ul><li>Evaluation criteria can be price or best value </li></ul>
  5. 5. Types of Reverse Auctions Major Types of Reverse Auctions There are several different varieties of auctions, with a key differentiator being the way in which information is revealed around price between the bidders. Reverse Auction Bid Price Time Type Description Effect on Time Visible Price Price is know by the all the participants but the identity of the other bidders is unknown Time constrained (minutes-hours) Ranked Bidder Price is not shown to the bidders. Instead they are only aware of where they are in order relation to the “winner” Time constrained (minutes-hours)
  6. 6. e-Procurement Benefits Indirect Procurement Direct Procurement/ Supply Chain Sourcing Price reduction Visibility of customer demand Unit cost reduction Improved contract compliance Visibility of supply chain capacity Enhanced decision making Shortened cycle times Accuracy of production capacity Improved market intelligence Reduced administrative costs Reduced inventory/operation costs Enhanced inventory management Shortened procurement cycle times
  7. 7. Pros of Reverse Auctions <ul><li>Speed- can take place over a lunch break </li></ul><ul><li>Unification- All eligible suppliers have an equal opportunity </li></ul><ul><li>Open to a large base of supplier </li></ul><ul><li>Pricing Tool- average savings range from 2% to 25% </li></ul><ul><li>It expects and even encourages competitors to focus on each other’s pricing </li></ul><ul><li>Assist in finding new/additional sources </li></ul><ul><li>Larger supplier network </li></ul>
  8. 8. Cons of Reverse Auctions <ul><li>Possibility of destroying the buyer-supplier relationship </li></ul><ul><li>Technology drives rather than enables </li></ul><ul><li>In the heat of the moment decisions-under/over bidding </li></ul><ul><li>Quality uncertainty </li></ul><ul><li>Companies will abuse the power to drive down supplier prices </li></ul><ul><li>“ We are flying in the dark, some cowboy could underbid us and have no real idea of what is involved in the job….” </li></ul>
  9. 9. Examples of Reverse Auctions <ul><li>Paulson Plan- U.S. Treasury to bid on assets held by distressed financial institutions </li></ul><ul><li>Pennsylvania's Department of General Services- purchase $30 million in rock salt, while saving $2.5 million </li></ul>
  10. 10. Examples Continued… <ul><li>Navy- saved $2.375 million for important component parts in ejection seats </li></ul><ul><li>USPS (United States Postal Service)- bids out contracting for their express service mail in this fashion. FedEx, UPS, and other major airlines all have won the auction </li></ul>
  11. 11. Future Trends <ul><li>As the communication via internet continues to grow so will Reverse Auctions </li></ul><ul><li>Many look at Reverse Auctions as the evolution of the supply chain </li></ul><ul><li>“ Any electronic communication that facilitates the exchange of goods, services or other assets between suppliers and buyers will drive e-commerce as we move forward.&quot; –John Edwards, CFO Magazine. </li></ul>
  12. 12. Our Advice <ul><li>Use as a tool in managers tools chest, don’t ever use it solely </li></ul><ul><li>Attempt to build trust and strong relationships, even with using the tool </li></ul><ul><li>Think beyond price and keep quality in mind </li></ul><ul><li>Use when appropriate </li></ul><ul><li>Understand hidden costs </li></ul><ul><li>Remember you gain no advantage by putting suppliers out of business </li></ul>
  13. 13. Bibliography <ul><li>Chafkin, Max. &quot;Reverse Auctions- A supplier's survival guide.&quot; Inc- The Daily Resource for Entrepreneur . May 2007. Mansueto Ventures LLC. <>. </li></ul><ul><li>Conover, Pauk, and Cliff Wilson. &quot;Forward Progress Through Reverse Auctions.&quot; Manage Smarter . 17 Nov. 2008. Nielsen Business Media, Inc. <>. </li></ul><ul><li>McArdle, Megan. &quot;Reverse Auctions.&quot; The Atlantic . 25 Sept. 2008. The Atlantic Monthy Group. <>. </li></ul><ul><li>Pagano, Mark. &quot;What is a reverse auction? Paulson Plan.&quot; VoxEu . 21 Oct. 2008. <>. </li></ul><ul><li>Sawhney, Mohanbir. &quot;Reverse Auctions Cutting Cost.&quot; CIO 01 June 2003. </li></ul><ul><li>&quot;Spotlight on Reverse Auctions.&quot; IAE- Integrated Acquisition Environment . Feb. 2007. Integrated Acquisition. <>. </li></ul><ul><li>&quot;'How it Works&quot;&quot; Oltiby . 2007. Oltiby Inc. <>. </li></ul>
  14. 14. Questions