The premise of reverse auctions is simple—buyers who want suppliers for a specific product or service ask suppliers to submit bids online. To win the bid, suppliers must then compete with the lowest cost, over a defined period of time.
This new process has naturally attracted the attention of procurement teams. And those teams have definitely experienced savings: according to a recent GAO report, in 2016 the Federal Government saved over $100 million on roughly $1.5 billion of purchases made via reverse auction, or almost 7% on average. . Auctions are a definitive way to reduce sourcing costs, in addition to increasing efficiencies and creating value. In short, reverse auctions—when used correctly—have the potential to revolutionize the procurement process. How? Check out the top 4 ways below.
1. Significantly cuts sourcing time
Traditional sourcing methods can typically take weeks, if not months, to complete. However, strategic automated sourcing platforms are great for getting fast and positive results.
By using a reverse auction platform, months of negotiations and back and forth communication can be reduced to days. A centralized communication platform allows you to easily communicate what you want and need from your potential bidders seamlessly–no need to reach out and communicate your requirements to bidders individually.
Additionally, with standard templates available and by having all the relevant documents in a single platform, procurement teams can focus more on value-added work instead of the tedium of setting up bids manually or tracking down paperwork.
2. Opens more business opportunity
Reverse auctions have proven to be a very effective way for businesses to expand their reach.
For buyers, reverse auctions allow them to access a wider supplier base. You’re no longer limited to your personal network; which means you gain a bigger talent pool.
For suppliers, it also opens up opportunities for them to participate in a bid that they would not have been aware of, if the company used traditional sourcing methods.
3. Levels the playing field for suppliers
Reverse auctions offer a transparent playing field for suppliers. Critical information about the project is available for all vendors participating in the bid on a central message board. This not only ensures easy access to directions and details, but it also means that the same information is given to all the bidders. Suppliers can also see how their bids compare to others.
4. Improves working relationships
Reverse auction platforms conveniently facilitate the price negotiations for a particular project. This is critical in maintaining a healthy working relationship with potential suppliers. Without it, you’ll basically be playing the middle man between all your suppliers. You will have the task of communicating to them directly about what others are willing to offer, ultimately pitting your suppliers against one another. It also establishes an adversarial undercurrent early into your working relationship.
Using an automated sourcing platform goes a long way towards easing the mistrust that is common in traditional sourcing practices.
Streamlining your business’ procurement process through reverse auctions is advantageous. It’s known for cutting down costs and its benefits can potentially revolutionize the entire procurement process.
To find out how Vendorful can help streamline your company’s procurement process, get in touch with us today.