A Reverse auction strategy to reduce procurement costs

Gaurav Baheti
Jun 17, 2022·4 min


An e-auction occurs when the bidding and transaction between a buyer and seller happens on an online marketplace. A reverse auction is similar to that of a conventional one, wherein, the sellers are bidding while the buyer is in the driver’s seat. In a traditional auction, the highest bidder is the winner; however, the bidder with the competitive price is generally the winner in a reverse auction.

Let us explore the four different types of the reverse auctions in procurement

1. Ranked reverse options

In Ranked reverse auction, numerous bidders can bid at similar price points. The current lowest bid price is known only to the person who has submitted the bid. However, one downside of ranked auctions is that participants in the second or third position may believe they have little chance of winning the offer.

As a result, you should emphasize that while the price is crucial, a contract will not be automatically granted to the lowest bidder. One advantage of ranked auctions is that suppliers prefer them to other auction types since they are not a “race to the bottom” in terms of pricing. Suppliers who are confident in the overall strength of their products will submit competitive bids and anticipate the cost to be one aspect in determining total value.

2. Japanese reverse options

The buyer chooses the initial offer before entering the Japanese reverse auction. Then, the bidders who want to participate accept the invitation, and the bidding begins.

Bidders are prompted to reject or accept the price as it steadily decreases at predetermined intervals. A reverse Japanese auction is perfect when the buyer wants to minimize the information accessible to potential bids.

Furthermore, even if there is just one member on the provider side, a buyer can operate it. It’s worth noting, however, that this is the least preferred eSourcing strategy among providers because it provides very little feedback. It’s also one of the most challenging auction forms for businesses to set up and execute since it’s harder to set up and requires greater attention to detail.

3. Dutch reverse auctions

The buyer submits a list describing the commodity, quantity, and price they are willing to pay in this form of reverse auction. Now, it is up to the suppliers to offer to sell the entire or a portion of the needed amount at that or a similar price.

Buyers will not offer any things if they do not desire them. Many suppliers sometimes cover a single buyer’s demands at various pricing points. Although a Dutch auction provides flexibility and lower prices, it can also add to the supply chain’s complexity.

This complication can, in some situations, negate any sourcing-related cost reductions. It’s a helpful tool for a buyer, but it should be carefully studied before usage.

4. English reverse auctions

As the name implies, each provider knows the winning bid in the English Reverse Auction. The bidding begins at the previously established maximum point and then steadily decreases. Only if a supplier’s stats outperform the current best pricing will they make a bid. When the buyer is comfortable assigning a value to their project, the procedure works well, allowing them to resolve talks swiftly.

Remember that reverse auction software like this is meant for commodities where pricing is typically the most critical differential. The idea that purchasers are obligated to give contracts to the lowest bidder is a prevalent misunderstanding. Even with commodity items, factors other than price can determine how these occurrences turn out.

Governments and major companies mainly use this auction to acquire services, commodities, or raw materials. A reverse auction is when the government specifies the specifications, and the bidders come up with a cost structure that they will need to complete the task. The seller with the lowest bid usually wins the contract in a reverse e-auction. Of course, such auctions have always existed, but the internet has recently boosted its popularity. When numerous sellers present their products or services for competitive bidding, a reverse e-auction is perfect. The focus is frequently on the lowest prices, regardless of the sub-par quality.


Vendor management is a sophisticated field used by businesses for procurement of goods. Businesses must use strategic vendor management solutions and adopt newer techniques like reverse auction to ensure a seamless working relationship with vendors and reduced costs.

Procol is an advanced e-procurement software that is flexible, user-friendly, cost-effective and enterprise-grade secure. It can be deployed in under seven days to optimize your procurement solution management. Schedule a demo today.

Get a Free Demo

We'd love to hear from you. Please fill out this form to schedule a demo with us. You can also give a call on +91 76666 82222

Reverse AuctionE-auction