A reverse auction is a one-time on-line event in which pre-qualified vendors are invited to bid using provided criteria. Participating vendors can see the best price that has been bid so far, and can see where they rank in the bidding process. This allows for vendors to react by lowering their bids. The traditional reverse auction is best suited to spend categories where price is the only criteria.
Newer versions of the reverse auction, called online Requests for Proposals, allow vendors to compete on both price and non-price factors. This lets buyers seek out the best overall value. The buying organization determines ahead of time which criteria are important, and what their relative weighting will be in the final decision. This weighting can be shared with vendors during the online RFP process. Criteria might include such things as such as production capacity, delivery times, or service levels.
Reverse auctions are useful tools, but it's important to know when factors beyond price will matter, and to consider these factors when making the final choice.
Reverse auctions are useful tools, but it's important to know when factors beyond price will matter, and to consider these factors when making the final choice.
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