Common Misconceptions Related to Reverse Auctions

Introduction

Modern full-service reverse auctions may help you find reliable suppliers that can satisfy all of your requirements, not just price, at competitive rates. CNBC reports that businesses may save 10% to 20% through reverse auctions. These e-auction events include sellers bidding against one another for your business at increasingly lower prices. There’s no better method to get the most excellent bargain possible.

However, despite reverse auctions being successfully performed for decades, you may still routinely encounter the same complaints. The following are many misconceptions about reverse auctions and why they are false.

Misconceptions Regarding Reverse Auctions

1. A reverse auction places emphasis squarely on the selling price

This is a widespread misunderstanding about a method that is not fundamentally different from the conventional method of sourcing and purchasing. You retain control, similar to the case with any RFP procedure. In the sourcing document, you give each cost and non-cost aspect a relative importance rating. As a reverse auction isn’t only about money, the lowest bidder isn’t usually the winner. Choosing the “best value” provider isn’t synonymous with finding the cheapest option, as every buyer knows. Price and non-price considerations are just as crucial in e-procurement as in any other bidding procedure.

2. The cost of a reverse auction is high

The time and money spent planning and carrying out procurement processes are never free. Many people think that the reverse auction is the most costly method. Quite the opposite is true. Recent studies show that the number of businesses making purchases through e-auction software grows by 5% yearly. These days, you may find reverse auction systems online or in the cloud, which significantly reduces the price of holding the event. Using the auction software in a SaaS model reduces the initial investment. Due to the platforms’ ease of use and simple design, basic training is needed to get employees up and running. In this case, money is saved, and no time is spent on training. These factors result in businesses of all sizes benefitting from reverse auctions.

3. Only large corporations use reverse auctions

The private sector may have been more receptive to e-auction as a means of streamlining the bargaining process than the public. This is especially true of huge firms like the Fortune 500. However, in recent years, SME owners and managers have also seen the benefits of this method.

4. A reverse auction consumes a lot of time

At the first glance, hosting a reverse auction may seem like a lot of work. However, when everything is done in advance, the time it takes to close the sale is much less. When considering the time required, a reverse auction is not too long compared to other online auction techniques. Due to the reduced level of examination, you can also finalise the purchase considerably more quickly in an e-auction. In addition, the finest vendors are filtered out at the outset since your terms and conditions determine which participants are chosen.

5. If you’re looking to buy services, a reverse auction is not the way to go

A successful acquisition of products or services can be negotiated through a reverse auction. It is commonly believed that the nature of services, with their always-changing amounts and requirements, makes them unsuitable for the reverse auction procedure. While generally correct, this does not mean reverse auctions are off the table whenever a service is being thought up. Indeed, a reverse auction may very well be the ideal solution where the service area can be specified. It aids businesses in estimating legitimate quotes from prospective vendors, which helps keep expenses in check.

6. State contract pricing can’t be beaten by a reverse auction

Many state and local government organisations take advantage of the discounted contract rates that are made available to them. They might appear to be quite the bargain at first glance. However, it is well known that the costs agreed upon in contracts aren’t necessarily the best or the lowest available. Prices fall even further in a reverse auction. After all, there is a strong pull among suppliers based on actual vs. “potential” spending. When conducting a reverse auction, the starting price is the state contract price.

7. The emphasis on the cost in reverse auctions is problematic

Assuming the lowest bidder always wins in reverse auctions is the norm. Companies are not obligated to go with the lowest bid. In addition to pricing data, e-auction software also gives practical details on suppliers’ track records, resources, and customer service, as well as whether they can guarantee their products’ quality.

Conclusion

The advantages of using procurement software are numerous. Therefore, one could wonder why they aren’t more prevalent. When used correctly and for the correct type of spending, reverse auctions can save up to 40% on costs. Perhaps the reluctance to implement them comes from the myths that obscure how they might boost productivity, cut costs, and strengthen relationships with vendors.

The first step in utilising a platform that can benefit your business and its suppliers is to recognise and debunk these fallacies about reverse auctions. Procol is an all-in-one e- auction software for all your procurement needs, as it simplifies the reverse auction process. Schedule a demo today.