As e-procurement moves into the mainstream business world and begins to deliver many of the conveniences and cost-saving measures it promised in the late 90's, some companies still continue to avoid implementing this type of system. These companies don't want e-procurement to be so entangled with their supply chain relationships. They make a good point because many e-procurement programs currently available neglect the importance of fostering these relationships.
E-procurement in its basic incarnation simply combines supplier products into a single catalog with price information so that buyers can easily see those offerings and costs via the Internet, place their order, and wait for delivery. In these areas, e-procurement usually delivers up to and beyond a business's expectations. However, some e-procurement solutions do not help businesses negotiate with suppliers or forge the lasting relationships that are especially critical for bottleneck goods that are in short supply and are also a necessity to business operations.
For that reason, a different approach to this type of procurement often works best. Instead of putting the supplier in charge of setting prices and establishing a catalog of products, companies need to put themselves in the driver seat, and they can do this by implementing reverse auctions as their procurement strategy of choice.
With reverse auctions, the buyer provides information about his or her needs then invites a number of suppliers to bid for the opportunity to fulfill those needs. Because the suppliers are competing against one another for the project, they understand that it's in their best interest to provide an affordable and comprehensive bid. Because buyers get to select from a number of suppliers, they have a better opportunity of comparing critical elements, such as price, delivery time, quality, and business reputation before making a final decision.
Reverse auctions do provide a number of benefits for businesses. One of those benefits is that it reverse auctions with spend management. Obviously, buyers are limited in what they can afford to pay for the goods and services. They must balance their needs with their budget while still obtaining quality goods. Reverse auctions allow them to do this. First, the competition typically keeps costs lower than they normally would be through the normal RFP or RFQ processes. Plus, the buyer has the ability to “talk down” bidders if necessary to get their prices within budget limitations. Also, the buyer is more easily able to compare the prices, then look at the other important factors. For example, if the budget was $1,000, the buyer could immediately ignore all of the bids over that amount, then examine all of those within his budget range more thoroughly.
Another benefit of reverse auctions is that they can set the stage for sourcing. With sourcing, the buyer wants to form long-term, beneficial relationships with a handful of suppliers. As the buyer chooses individuals through the reverse auctions and becomes satisfied (or dissatisfied) with the quality of their work, the timeliness of their delivery, etc., then he can begin establishing a selection of suppliers with whom he would wish to continue working whether through the reverse auctions or through negotiated service contracts. Either way, the buyer can secure a reasonable price from a supplier he knows is trustworthy and reliable.
Besides helping with sourcing and spend management, reverse auctions can also cut-down the time required to find a supplier in the first place. The supplier is no longer required to create a lengthy, detailed proposal to submit as part of the RFP process nor does the buyer have to go through all of those lengthy, detailed proposals in order to make a decision. Responding to an invitation takes considerably less time and comparing the bids is much simpler so the buyer's task of choosing a supplier no longer has to take weeks of contemplation. Instead, decisions are made in a timely and affordable fashion which benefits the buyer, supplier, and customer.