Online Auctions

What are online auctions?

There are two main types:

• Forward auctions - items are sold to the bidder with the highest bid.
• Reverse auctions - suppliers compete on price and the lowest bid wins the business.

In brief:

• Online auctions can be open to everyone.
• Specialist auctions are often restricted to qualifying participants and often conducted using the auction holder's extranet.
• The most successful auctions involve many active bidders who trade a relatively straightforward commodity.
• Typically an auction event is live for a matter of hours - during this period bidders are usually allowed to withdraw bids.
• Experienced bidders often place bids at multiple sites, with many using tracking software, like Auction Manager in Internet Explorer 5, to monitor bid status in real time.

Forward auctions (also known as English auctions)

During a forward auction, the seller puts items up for sale. Bidders compete by posting bids - these drive the price up. Sellers can choose not to sell below a given level by fixing a reserve price.

Well-known sites, like QXL.com and eBay.com, use forward auctions. Although they are best known for selling collectibles, the same techniques apply when selling business-to-business.

Each site has its own rules on issues like:

• Accreditation - whether your business has to have a certain accreditation, such as ISO9000, to participate.
• Fee structures - there may be a registration fee.
• Whether payment is between the parties or through the auction site.
• Whether live bids can be withdrawn during the auction period.

The Dutch auction is a variant commonly used for perishable items like fish or flowers. Here, the aim is to minimise the time it takes to sell an item. The seller quotes descending prices until a bidder appears. The first one to bid buys the item.

Reverse auctions

In a reverse auction, suppliers compete for a contract. The buyer sends out a tender document to favoured suppliers who compete for the business. They drive the price down during the auction event, which lasts only a few hours.

Reverse auctions have the most impact on electronic supply chains. They are:

• Integrated into the procurement strategies of many large companies.
• Likely to become more important in future, particularly in supply chains with few, large customers.
• Seen as offering huge cost savings for large companies.
• Increasingly suited to complex items like annual contracts - which take account of bidders' service levels and quality standards as well as price.