Procurement Glossary & Terminologies

Glossary / Letter F / Forward auctions

Forward auctions

What is Forward auctions ?

Forward auctions are essentially eAuctions in which the bid value steadily rises after reaching the lowest price. In such auctions, a single provider provides the goods or services, and buyers compete with one another by placing greater bids. A winning bid is the one with the highest price.

Types

There are four different kinds of forward auctions:

1. English Auction The English auction is similar to the one above in that an item starts at a low price and increases from there. You’ll encounter this kind of auction the most frequently. This is what people mean when they say ""auction"" in regular discourse.

2. Dutch Auction The Dutch auction operates somewhat differently. A Dutch auction starts with a very high starting bid. From there, it declines until a price suitable for purchase is reached. This style of an auction is less common. This is frequently employed for perishable goods like fresh produce and flowers, but businesses also use it for IPO bids, and some nations utilize it to market assets.

3. Japanese Auction In a Japanese auction, the price keeps rising in predetermined and predictable steps until only one bidder remains. When the price is too high for you, you raise your hand to drop out rather than bid. The final bidder wins the auction.

4. Yankee Auction Like a Dutch auction, a Yankee auction features several items instead of just one. For instance, rather than purchasing a single product, procurement teams bid for the whole lot of items.

Benefits of Forward Auction

  1. Helps in cost reduction and realising savings
  2. Every bidder, regardless of size, is eligible to compete in the auction
  3. The auction system is transparent and organised

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