Online Auctions

Deciding to use an online auction

Forward auctions can be an effective way for suppliers to offload excess stock or capacity. Bidders in forward auctions can source goods cheaply.

Reverse auctions are held by customers who are putting work out to contract. Suppliers in reverse auctions bid to compete for the business.

Forward auctions

For the auction holder:

• What types of goods are you selling? Standard commodities are better suited to forward auctions.
• Is this a major sales channel or an addition to existing outlets?
• What are your order fulfilment costs? Are there economies of scale? Would the cost of sales be higher if this channel was less successful?
• What is the net cost of sales? What fees are payable to the auction manager?
• How would you save time? Will online auctions be quicker than traditional selling methods?
• Are there savings in marketing or sales support? You can virtually eliminate advertising costs.
• Are there any credit risk implications? What payment methods would you accept?

For bidders:

• Can you guarantee the quality of the items?
• If you have long-term supplier relationships, would you lose favoured customer status by buying at auction?
• Are the items strategic to your business? Is price the critical feature or are other factors like quality and supplier continuity more important?
• Can the items be acquired in a standardised form? You may need items to meet product specifications.
• Are the items readily available? What are the delivery terms?

Reverse auctions

For the auction holder:

Decide whether to incorporate reverse auctions into your procurement strategy.

• Are you buying the right things? Auctions are better suited to more straightforward goods and services.
• Are these items critical to your business? If so, a private offer may be the better option.
• Are there lots of qualified suppliers? If not, sealed bids may deliver a better result.
• What are the competitive conditions? How will you award the contract?
• How would you save time? How long does is currently take you to award contracts?
• What fees are payable to the auction manager?
• Will transferring from your existing supplier incur a cost?
• Consider existing suppliers - asking them to compete in an auction may have a negative, long-term effect. Does this matter?
• Before holding a reverse auction make sure that you are comfortable awarding business based on the auction results - potentially to a supplier you know nothing about.

For suppliers :

If you are invited to bid for a contract, take each case on its own merits. Consider:

• Could this be a significant new sales channel?
• Will it help you gain market share and economies of scale?
• Is this an important customer? If so, your company may need to get involved if it wants to continue working with that customer. The technique is popular with major customers who often have large budgets.
• What discount would you have to offer to compete on price? How might this affect revenue?
• There may be big savings in marketing and sales support. You can obtain business without extensive sales campaigns.
• Will you need to pay fees to the auction manager?