Reverse auction deals with internet auction and e-purchasing. This is also known by many names like procurement auction, sourcing event, e-sourcing, and e-auction. Generally in an auction, purchaser is allowed to place a bid on an item on the amount that he is willing to pay so that he can buy that item. The person who makes the highest bid usually ends up with the item. In the case of reverse auction, buyer makes an advertisement on the need of an item or service. Sellers then place bids for the amount they expect to be paid in order to perform such a service or provide such an item. The seller who places the lowest bid will win the job or sell the item.
Lot of planning is required when reverse auction takes place on Internet. It begins with the meeting that takes place between the buyer and the seller, who is also known as the market maker. In the meeting, purchaser and seller discuss the requested service. Certain things like the materials that are needed to complete the job, the time frame to complete the job, budget of the job; all these things are discussed at the meeting. If the buyer wants to purchase an item, certain things like age of the item and quality of the item may be discussed beforehand. On average, individuals and companies save from 10 to 40 percent on reverse auction purchases. Reverse auction also saves valuable time of buyers.
As the popularity of online reverse auction has increased, also buying services and supplies online. Currently more than 20 percent of all business purchases at least some of their supplies or service online. Savings, simplicity, and selection of reverse auctions make them the ideal choice for anyone looking to join the internet auction purchasing revolution. Certain benefits on online reverse auction are there is flexibility in pricing decisions. It ensures savings in marketing costs and distributor margins. Benefits of online reverse auction to buyers are it is accessible to a large number of vendors, dynamic bidding process, and a tool for efficient price discovery complementing the direct negotiation process. Applicability of online reverse auctions is for capital goods, direct materials, periodical rate contracts and large volume goods. Reverse auction is a tool available for the procurement in improving its function as well as its effectiveness. It can be defined as specialized auction that allows the organization to procure goods from the sources by featuring decreasing incremental bidding.
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