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Reverse Auctions

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The Benefits of Electronic Reverse Auctions (e-RAs) in the Procurement Process

The nature of business competition is changing drastically. One of the most profound changes currently transpiring in the world of business is the introduction of electronic commerce. The impact of electronic commerce (ecommerce, or EC) on procurement, shopping, business collaboration, and customer services as well as on delivery of various services is so dramatic that almost every organization is affected. In this paper, I will show how electronic reverse auctions (e-RAs) is very significant in the federal procurement process by saving money, time and maximizes supplier competition. Reverse auctions gained popularity with the emergence of Internet-based online auction tools. Today, reverse auctions are used by federal, state and private agencies to purchase raw materials, supplies and services.

The Reverse Auction Process

In the traditional auctions, also referred to as forward auctions, a seller offers a product that is demanded by several buyers who compete and bid up the price. The highest bidder wins and buys the product. In a reverse auction, it is the buyer who is in control of the process. The buyer is interested in an item offered by a number of sellers who compete and lower their price in order to get the deal. Unlike traditional auctions that occur at physical locations, reverse auctions are accessed online, through web browsers, via private software companies known as “market makers.” The market makers facilitate the auction process and provide support, training and all necessary software to suppliers participating in the bidding process. The reverse auctions process starts with the buyer preparing and posting an electronic request for quote (RFQ) to a web site. Through the use of RFQs, the company electronically communicates its expectations to prospective suppliers.…...

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