Written by Marijn Overvest | Reviewed by Sjoerd Goedhart | Fact Checked by Ruud Emonds | Our editorial policy
E-Auction — Everything That You Should Know
Key takeaways
- E-auction is where suppliers compete electronically to offer the best prices or terms for goods or services.
- The common types of reverse e-auctions in terms of culture are English, Dutch, and Japanese.
- Before an e-auction, you should receive request-for-proposal responses as the base for an auction.
Do you want to get favorable results in a tender where multiple parties are battling each other to win? Studies prove that the best tender results come when procurement managers choose, after several face-to-face negotiation rounds, to let the e-auction be the final ‘negotiation step.’ Strategy options are endless depending on the situation: e.g. English, Dutch, Japanese. This article helps you to understand the concept of e-auctions, which types to apply, and how to use them to your advantage to close better deals!
I have created a free-to-download editable e-auction template. It’s a PowerPoint file that can help you with your e-auction process. I even created a video where I’ll explain how you can use this template.
What is E-auction?
E-auction is the process of conducting an auction to sell assets, natural resources or other goods through online competitive bidding. All types of products and services are possible to buy via an auction, but most suitable if multiple suppliers can deliver the product or service and if the auction is about a generic product/service with low volatility. Remember: an E-auction is a way of working, not just an IT tool.
How does the E-procurement work?
- Ask & receive and Request for Quotations (RFQ) responses.
- Determine your ‘lot & type strategy’
- Train participants of the auction
- Sit back & relax: conduct and monitor the E-auction
- Evaluation of bids
In the e-procurement process, organizations begin by soliciting and collecting Request for Quotations (RFQ) responses, creating a foundation for the subsequent auction. Procurement managers then strategically determine their ‘lot & type strategy,’ categorizing and defining the items or services to be auctioned. Following this, participants are trained for the upcoming e-auction, ensuring a clear understanding of the process. The actual auction is conducted with the managers overseeing and evaluating bids. This streamlined approach simplifies the procurement cycle, from RFQs to the efficient evaluation of competitive bids, providing a transparent and effective means of securing optimal deals.
What are the advantages of an E-auction?
E-Auction gives a number of advantages when used. These advantages are:
- Online tool to facilitate and speed up the negotiation process
- A simple but effective way to save costs
- Alternative of face to face, over the phone discussions
- Transparency over the process and outcome
- Different auction types
- Awarding based on price only or other aspects
- First-time auctions can lead to market shakeups
- Let the market do the talking
- You can auction anything!
- Computers get better results!
What are the most important types of E-auction?
There are many types of E-auction out there but a only a few are crucial to get what you want in the most convenient method possible. Here are the most important types of E-Procurement:
1. English reverse E-auction
- Classic bidding system
- Suppliers bid against each other
- The lowest bidder (within a set time) wins
When to use the English reverse E-auction?
- Bids suppliers are close to each other
- Competition is high
This auction type is recommended when supplier bids are close to each other. Reservation prices and factored bids can be set in order to advantage or disadvantage certain or all participants.
2. Dutch reverse E-auction
- No active bidding
- Price increases in steps from starting price (± 20% below lowest bid)
- The bidder who first accepts the prize wins
When to use the Dutch reverse E-auction?
- When bids suppliers have a huge difference
- Extra pressure on current supplier because there is no counter offer or second chance
- In this auction type, there is no active bidding, rather all suppliers see the same value increase over time.
- The start price is very low -15% to -30%. At each time interval, the price will increase by a fixed amount X until the first bidder willing to take the business presses the button (sudden death).
- There is a fixed time for the auction, no extension possible.
- Reserve prices and factored bids can be set in order to advantage or disadvantage certain or all participants.
3. Japanese reverse E-auction
- Price goes down in steps from high
- Supplier approves every step until its limit is reached
- Whoever leaves the auction, last wins
When to use the Japanese reverse E-auction?
- Huge difference between bids supplier
- No competitive information can be seen between suppliers
Key success factors for any E-auction
To make sure any E-Auction is successful as possible, a few key factors should be implemented such as:
- Test and make sure the competition level is good enough
- Preparation is key: suppliers approved on for example quality, transport, etc.
- RFI & RFQ information is unambiguous and remains unchanged during the setup process
- Inform all parties well on time to reserve slots for live auction and training
- Slightest doubt? Be flexible and postpone
- Get supplier confirmation on start prices/value lots
- There should be no doubt that supplier wins in the auction, wins the business
Conclusion
In conclusion, e-auctions emerge as a powerful tool in e-procurement, offering advantages such as cost savings, transparency, and diverse auction types. Whether employing the English reverse, Dutch reverse, or Japanese reverse e-auction, procurement managers benefit from strategic options.
E-auctions streamline negotiations, provide an alternative to face-to-face discussions, and ensure transparency in the process and outcomes. The key takeaway is the adaptability of e-auctions, offering a versatile approach to procurement with the potential to revolutionize market dynamics and yield optimal results.
Frequentlyasked questions
What is E-auction?
E-auction is an online competitive bidding process for selling assets, goods, or services. It’s suitable when multiple suppliers can deliver the product or service, especially for generic items with low volatility. It’s crucial to note that E-auction is more than just an IT tool; it represents a way of working.
How does E-procurement work?
E-procurement involves soliciting Request for Quotations (RFQ) responses, determining a ‘lot & type strategy,’ training participants, conducting and monitoring the E-auction, and finally evaluating bids. This streamlined process simplifies procurement, from collecting RFQs to efficiently evaluating competitive bids, offering transparency and effectiveness in securing optimal deals.
What are the advantages of an E-auction?
E-auctions provide an online tool to facilitate negotiations, offer a simple and cost-effective alternative to face-to-face discussions, ensure transparency in the process and outcomes, and support various auction types. They encourage market competition, lead to cost savings, and allow for innovative procurement strategies, making them a versatile and efficient procurement tool.
About the author
My name is Marijn Overvest, I’m the founder of Procurement Tactics. I have a deep passion for procurement, and I’ve upskilled over 200 procurement teams from all over the world. When I’m not working, I love running and cycling.
