Online reverse auction

Online reverse auction on the Internet can make corporate purchasing managers look like geniuses. By logging on to a favorite auction site, they can buy 100,000 widgets for thousands of dollars less than budget. But its not just the big boys in Corporate America who profit from the B2B online marketplaces. Small to medium-size businesses can get into the act, too.

In a regular online auction, a seller puts a product online and solicits bids from buyers. In a Online reverse auction, an individual or company posts its need online and solicits bids from suppliers. The process requires a detailed explanation of the product or service requested, as well as a set date and time. Often the site hosting the auction will notify registered suppliers.

These auctions allow any company, no matter what size, to compete for business. For suppliers, it opens the opportunity to go after business with companies that otherwise wouldn't have considered them because they were unknown or too small. Low-volume buyers, on the other hand, can use online auctions to widen their search for competitively priced or hard-to-find items.

Its a win-win situation, says Sheldon Malchicoff, founder of BidVantage, an Online reverse auction site based in Camarillo, California. A significant number of the 1,300 suppliers registered with BidVantage are small to medium-size operations, Mr. Malchicoff says. The B2B site recently added new technology to make it practical for even the smallest companies to participate. BidVantage (www.bidvantage.com) limits its business to companies buying and selling computer parts.

Reverse Auction

A reverse auction (also called procurement auction, e-auction, sourcing event, e-sourcing or eRA) is tool used in industrial business-to-business procurement. It is a type of auction in which the role of the buyer and seller are reversed, with the primary objective to drive purchase prices downward. In an ordinary auction, buyers compete for the right to obtain a good. In a reverse auction, sellers compete for the right to obtain money (by providing a good or service)

Benefits of Online Reverse Auction

Benefits of Online Auctions Vendors

* An excellent avenue for test pricing of new products.

* Useful in clearing excess inventory & used machinery in a cost effective manner.

* Enables savings on distributor margins.

Benefits of Online Auctions to Buyers

* Save Money: Competitive bidding drives down purchasing costs for capital equipment, materials and services.

* Save Time: Stop waiting weeks or months for suppliers to submit bids. HedgeHog's auction services streamline the purchasing process by compressing the bidding cycle to hours, allowing your organization to move forward immediately with its procurement goals.

* Expand Your Supplier Pool: HedgeHog reverse auctions can help you expand your access to high-quality local, national and global suppliers.

* Get Started Quickly: With HedgeHog's Web-based auctions there's no special hardware or software to install, so setup is fast and easy. And because the auction software is easy to use, minimal training is required for your organization to start realizing immediate cost- and time-saving benefits.

* Eliminate Security Risks: HedgeHog utilizes the latest security measures to protect your confidential information.

* Rely On Our Expertise: HedgeHog procurement specialists are always available by phone, fax or e-mail to provide technical support and answer any questions about HedgeHog's services.

* Enhances reach leading to cost effective procurement.

* An avenue to locate critical requirements that are otherwise not easily available.

Benefits of Online Reverse Auctions to Vendors

* Ensures Savings in marketing costs / distributor margins.

* Allows vendors to access hitherto inaccessible buyers.

* Facilitates flexibility in pricing decision.

Benefits of Online Reverse Auction to Buyers

* Helps achieve significant reductions in procurement costs on account of Dynamic Bidding.

* Access to a large number of vendors.

* Dynamic bidding process.

* A tool for efficient price discovery complementing the direct negotiation process.

Supplier Benefits

* Uncover New Business Opportunities: Once you register as a HedgeHog supplier, you will be eligible to participate in future auctions. Register now as a supplier to gain access to new sales opportunities.

* Level the Playing Field: Reverse auctions allow you to see what other bidders are offering, so you have a clearer understanding of what the market price is and can compete more effectively for the business.

* Bid Quickly and Easily: HedgeHogs simple, Web-based interface makes it easy for you to bid interactively. And, if you cant access the Internet during an auction, a HedgeHog procurement specialist can serve as a proxy to submit your bids.

* Eliminate Security Risks: While suppliers can see what their competitors are offering, company names are cloaked to protect confidentiality. As added assurance, HedgeHog utilizes the latest security measures to protect your confidential information.

* Rely On Our Expertise: HedgeHog procurement specialists are always available by phone, fax or e-mail to provide technical support and to answer any questions about HedgeHogs services.

Disadvantage of Reverse Auctions

Two of the most outspoken critics of reverse auctions are David Stec and M.L. (Bob) Emiliani from the Center for Lean Business Management at Rensselaer Polytechnic Institute. In a paper published last year, they argue that Online reverse auction rarely deliver savings that are as great as advertised by auction service providers. In addition, they contend that savings from reverse auctions are difficult to measure and that they do not teach buyers and sellers how to solve problems jointly. They conclude that reverse auctions are toxic for buyer-supplier relationships.

Price is only one element of the buyers value equation.Stec and Emiliani observe that in the case of GE, the company actually netted only half of the savings initially generated through bidding. Their conclusion: 50 percent of the savings from using reverse auctions disappear because of factors such as errors in supplier data, postauction negotiation, and changes in specifications or quantities. In addition, Stec and Emiliani report that GE does not account for extra expenses resulting from problems such as poor quality, late deliveries and supplier nonperformance. When these losses are added up, net savings from Online reverse auction look far less appealing than buyers expect.

Even more dangerous is the deterioration of buyer and supplier relationships when reverse auctions are used to beat up suppliers on price. Fundamentally, reverse auctions are zero-sum gamesthe buyer's savings is the sellers loss of revenue. In a separate study of the aerospace industry, Stec and Emiliani found that suppliers that are forced to bid in reverse auctions look for opportunities to retaliate. More than 70 percent of suppliers in the study said they would charge higher prices to their customers as a direct result of their participation in reverse auctionsif they had a chance to do so in the future. Considering that 43 percent of the suppliers reported recapturing 20 percent of the orders they lost to new suppliers in reverse auctions because the new suppliers did not deliver, these suppliers have ample opportunity to retaliate.

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