An e-Procurement auction is just an auction right? The answer is maybe, depending on your strategy.

August 14th, 2008

The vast majority of e-procurement events are in the form of a reverse auction. That does not necessarily mean that reverse auctions are the only auction format that retail e-procurement strategists should consider. There are additional auction formats available when trying to drive to the best event strategy. In fact at times, using different auction types may have a positive impact on price compression when used strategically.

The traditional reverse and forward auction format used by most companies today is called an English auction. This type of auction allows the buyers and sellers to specify a reserve price below which the item will not be sold. In a forward English auction buyers bid the highest price they are willing to pay for an item and bidding activity stops when the auction duration is complete. In retail, this type of auction may be used for overstock items to help reduce shrink and may be attended by a variety of buyers such as dollar stores or companies like overstock.com. Generally the item or lot is sold to the highest bidder at their bid price. On the opposite end of the spectrum, but using the same tool set is a reverse English auction. In this case suppliers bid the lowest price they are willing to sell an item or lot for and bidding activity stops when the auction duration is complete. The item is bought from the lowest bidder at their bid price unless auction rules dictate that award of business will go to multiple suppliers or not be awarded at all based on other criteria such as quality.

Other types of auctions include the following. Understanding their functionality may help drive additional savings. Ask your provider if they can run these types of events and how to use them to your benefit.

1. Fixed Price Auction
2. Japanese Auction
3. Brazilian Auction
4. Vickrey Auction
5. Dutch Auction
6. Yankee Auction

I look forward to your comments

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