The 5 Stages of an Online B2B Reverse Auction
SELECTS SUPPLIERS AND INVITES TO PARTICIPATE
This process can be managed exclusively by the buyer based on current industry knowledge, or through a supplier identification service provided by the Auction Service. The number of extended invitations varies by product and market.
RECEIVE INVITATIONS AND DETERMINE DESIRE TO BID
Suppliers complete a quick analysis to determine whether or not the probability-weighted potential benefits from participating outweigh the associated time and resource commitments needed to properly manage the remaining 4 stages.
REVIEWS APPLICATIONS AND SAMPLES
Determinations are made on suppliers’ quality, fitness for use, and ability to provide the required levels of service and support. Buyers may choose to eliminate vendors at this point to reduce noise, or keep all vendors through the Live Event to potentially promote more aggressive downward bidding.
SETS GOALS AND PREPARES TOOLS FOR LIVE AUCTION
Goals are established for the Live Event, along with bidding strategies and tactics. Price Floors are set, and relevant bid-management spreadsheets are developed.
WATCHES THE LIVE AUCTION IN REAL TIME
Most Auction Service Providers or Software Systems allow the buyer to watch all bids as they happen in real time, typically lasting around 20 minutes per lot plus time extensions for late-entry bids. After time expires the Buyer reviews the results and “Closes” the auction.
COMPETES IN ONLINE LIVE AUCTION EVENT
Opening bids are typically made automatically for each supplier based on price points they submitted in the application paperwork. Display information is limited, frequently only showing their current bid and their current rank (i.e. $100,000, 3rd Place). From there, suppliers bid downwards in an attempt to win the auction by having the lowest submitted bid when time expires.
CONDUCTS POST-AUCTION NEGOTIATIONS
The negotiations are rarely finished at this point, particularly if the Incumbent supplier did not finish with the lowest bid. The field of potential suppliers is typically narrowed to 2 or 3. In some cases all remaining suppliers are given the one last chance to match or beat the leading bid from the Live Event.
FINALIZE PROPOSALS AND PRICING
Strategies are formed based on the suppliers’ respective positions in the process, with alternate proposals submitted as applicable.
SELECTS A WINNER OR NEGATES AUCTION
Reverse Auctions normally end in the development of a supply partnership, but it is not uncommon for the buyer to throw out the auction results completely if a desirable outcome was not presented or identified.
REVIEWS AND SIGNS FINAL AGREEMENT!
For one supplier, it’s time to celebrate (depending on the final price point).
For all of the rest, there’s always next year!