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The use of reverse auctions in business – frequently asked questions
Internet auctions are a commonly used business tool to reduce purchasing costs. This article lists the most frequently used questions and answers
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In business the use of online ‘e-sourcing’ tools such as e-tenders and e-auctions is becoming commonly used to help buyers achieve rapid cost reduction. In this scenario suppliers are invited to bid for the buyer’s contracts either by submitting their tender online and/or participating in a reverse auction.
Cost savings can be considerable – on average 14% and lead times for sourcing projects reduced by up to 70%.
Below are the most frequently asked questions about e-sourcing from business users:
What is e-Sourcing?
e-Sourcing is the use of internet technology used by purchasing professionals to find suppliers and negotiate prices for a wide range of goods and services. This typically includes activities such as supply market analysis, e- tendering, price negotiations (e-auctions) and contract management.
What are the benefits of using e-Sourcing versus standard purchasing techniques?
Traditionally buyers send out tenders listing the purchasing requirements and invite suppliers to submit prices. This normal takes weeks for all the proposals to arrive before they can be analysed. Each supplier submits one bid and does not have the opportunity to adjust his or her pricing in response to other bids.
With the use of eauctions suppliers are invited to bid on-line on a specific day and time. With this process, suppliers compete against each other in real time to win the buyer’s business, The bidding process takes hours, instead of weeks or months.
What is an on-line reverse auction (e-auction)?
Reverse auctions are an ideal way for buyers to reduce the costs of goods and services, streamline the procurement process and increase profitability.
The process starts by sending out an Invitation to Tender to qualified suppliers which outlines your purchasing requirements/specifications. Suppliers that can meet the requirement bid against each other during the online e-auction. At the end of the auction the buyer makes the contract award, typically taking account of the final bids and other non-price factors such as quality and service.
What is a fully-managed service?
A fully managed service incorporates a spend analysis of your company expenditure, suitable selection of e-auction categories, strategic category objectives, supplier research, developing lotting strategies, drafting the Invitation to Tender, management of suppliers, hosting the software, training the suppliers (inc helpdesk), managing the e-auction and post event review.
What are the typical savings?
Typical savings for Direct commodities range from 8-23% and Indirects from 9-45%
Can I manage the e-Sourcing activity by myself?
Yes, for those organisations that have their own in-house programme, we offer licensed software only or ad hoc support for specific projects.
How do suppliers benefit?
Suppliers benefit in the following ways:-
A more fair, more competitive bidding environment
Ability to benchmark prices across their industry
Shorter sales cycles
Wider access to potential business opportunities
Do Suppliers have to pay anything?
No costs are levied to the suppliers for using our services
What types of organisation can benefit from e-sourcing?
Organisations across all industries are benefiting by using e-Sourcing to reduce the costs of goods and services, in order to stay ahead of their competitors.
Do I have to accept the lowest bidder?
No, other elements such as quality/service criteria are generally taken into consideration outside of the e-auction.
Will my company need to integrate any technology into our existing IT infrastructure?
No, as long as you have access to the internet you are able to use our software. There is no need to download any type of software.