A reverse auction (also called procurement auction, e-auction, sourcing event, e-sourcing or eRA) is a 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 a reverse auction, sellers compete to obtain business.
Reverse auction is a tool used by many purchasing and supply management organizations for spend management, as part of strategic sourcing and overall supply management activities.
In a reverse auction, a buyer contracts with a market maker to help make the necessary preparations to conduct the reverse auction. This includes: finding new suppliers, training new and incumbent suppliers, organizing the auction, managing the auction event, and providing auction data to buyers to facilitate decision making.
The market maker, on behalf of the buyer, issues a request for quotation (RFQ) to purchase a particular item or group of items (called a "lot"). At the designated day and time, several suppliers, typically 5-20, log on to the auction site and will input several quotes over a 30-90 minute period. These quotes reflect the prices at which they are willing to supply the requested good or service.
Quoting performed in real-time via the Internet results in dynamic bidding. This helps achieve rapid downward price pressure that is not normally attainable using traditional static 3-quote paper-based bidding processes.
The prices that buyers obtain in the reverse auction reflect the narrow market which it created at the moment in time when the auction is held. Thus, it is possible that better value - i.e. lower prices, as well as better quality, delivery performance, technical capabilities, etc. - could be obtained from suppliers not engaged in the bidding or by other means such as collaborative cost management and joint process improvement.
The buyer may award contracts to the supplier who bid the lowest price. Or, a buyer could award contracts to suppliers who bid higher prices depending upon the buyer's specific needs with regards to quality, lead-time, capacity, or other value-adding capabilities. However, buyers frequently award contracts to incumbent (i.e. current) suppliers, even if prices are higher than the lowest bids, because the switching costs to move work to a new supplier are higher than the potential savings that can be realized.
Reverse Auction Factory comes as a new product to complete our Auction Components Suite.
The main difference in comparison to the Auction Factory is that with the Reverse version, end-users can post their requests in order to obtain the best price for needed services or desired products. This means that they can choose the lowest price or what they consider would be the best deal for them.
The component can be used to organize auction in different fields of interest. Here just a couple of examples:
Freelancing (developers, programmers, designers.)
Constructions (materials, architects, interior design, pools, etc.)
Technicians (utilities, locksmiths, plumbers, electricians, etc.)
many other branches.
Joomla 2.5.x or J! 1.7.x/1.6.x
CRON (a general CRON Tutorial is available in our documentation section and also a more particular one regarding How To Set up the CRON Job for Auction Factory).
GD Library installed and enabled.