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Benefits of Reverse Auctions for Buyers and Sellers – Part One

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Reverse auction, the process by which an organization purchases its raw materials or supplies, is being adopted by more and more organizations today. A system where the traditional roles of the buyer and seller are reversed, in a reverse auction, the supplier’s bid for a chance to fulfill a buyer’s requirements instead of a buyer bidding for a product or service that the supplier has on offer.

One of the major reasons for its popularity in the B2B procurement arena is the number of benefits it brings to both the buyer and the supplier. In these posts, we’ll see what these are.

Benefits for the sellers:

Availability of qualified buyers: For any raw material supplier, one of the biggest pain points is finding a buyer and a qualified one at that. Suppliers don’t want to waste time pitching their products to a potential customer only to later realize that the buyer cannot afford it or does not need the volume to merit the transaction. In a reverse auction though, the buyer’s every requirement is clearly specified. Suppliers can decide on a set of parameters and screen every buyer using these parameters to evaluate and qualify them before replying to the RFP/RFQ and pitching their products.

All is not lost, always: In a reverse auction, for a supplier, the obvious path to success might seem evident. Watch everyone’s bid price, reduce his in comparison with that, and secure the order. However, many times, it is not just the price alone that’s the differentiator. The buyer will give significance to several other factors with quality of the supplies, contract cycle times, and delivery timelines to name a few. So you can always use better service as a hook to draw in the buyer even if your offering is not the cheapest. Alternatively, you could also add some value to your offer in terms of discounts or quantity or duration to secure an order.

We‘ll look at some more benefits for suppliers in the next post in this series.