Nearly every time we engage a new client, their first question is, “What should we purchase with a reverse auction?” In order to answer this question, we must first analyze the organization’s unique spending history and upcoming purchases. To achieve a successful reverse auction, we must answer the following questions:

1. What exactly do you want?
2. When exactly do you need it?
3. Exactly how many do you want?
4. Where exactly do you need it?
5. Who exactly do you intend to invite to bid?

An accurate answer to the first question is probably the most difficult to obtain, but also the most important. If you can’t give your vendors a precise description of the product or service you want, then you are not likely to be able to purchase that item/service successfully using a reverse auction. This is especially true for services. However, if you are able to clearly outline all the details associated with the specifications for that service, you can use the reverse auction to accept bids on that service. Precise descriptions are so important because prospective vendors may bid differently if they are unsure of any of the details. When vendors are interpreting specifications differently, their bids are irrelevant because they are not bidding apples to apples

Vendors will also need to know the expected delivery or project start date in order to submit accurate bids. For example, if a vendor has scheduled a price increase, the timing of your order determines whether or not they can still sell to you at a reduced rate. In addition, some vendors may need additional lead time to be able to meet your delivery requirements, and that also impacts how low they are able to bid. If your delivery date is vague or even non-existent, it can cause confusion among the vendors and possibly distort the accuracy of the bids.

Another crucial detail for a successful online reverse auction is an accurate reporting of the quantity that you need. In the ideal situation, you know the exact quantity you will need. In another acceptable and more common scenario, you are able to give your prospective vendors a forecasted amount, preferably supported by historical data. Your forecast could depend on an expected or contingent demand such as a grant award, budget decision or future customer orders. If you can provide a supported prediction of quantity needed, you will enable the bidders to take that into account when estimating how low they can bid based on volume. If your quantity is a guess without supporting data, then once again the bids may be inaccurate because the vendors will base their bids on different estimates of the quantities you will need.

Location for delivery is also important. If vendors do not have a single location identified for delivery of the product or service, they will each be left to make assumptions that may or may not be valid. Different shipping charges associated with different distances, which again fall into a proper lead time estimate, all impact the uniformity of the bids. Not only is the geographic location of where you wish to take delivery important, but the circumstances at the delivery site also impact the bids. There may be additional costs associated with delivering to a loading dock, an underground elevator or inside a manufacturing plant.

The final detail that can impact the success of a reverse auction is the identity of invited vendors. In order to assure an apples-to-apples comparison, your invited vendors to your reverse auction must be of equal quality. As we all know, not all vendors are created equal. Although they may distribute the exact same products, their levels of customer service, delivery and quality standards may vary widely. We suggest that the buyer establish defined levels of pre-qualification before inviting vendors to bid in a reverse auction. If extensive pre-qualification standards are established, vendors who receive invitations to participate can be assured that all of their competitors have been held to the same high standards. This will also reassure anyone in your organization who might be skeptical of the reverse auction process that you will only buy from pre-approved qualified vendors.

Always keep in mind that most vendors will have to report to their bosses to get the approval for a bid amount that they are authorized to place. If any of the important details are left up to the vendor to decide, you run the risk of causing problems before, during, and after the reverse auction takes place. Any confusion in the specification will cause problems in the process which can lead to higher costs and wasted time for you, your organization and your vendors.

In closing, reverse auctions are projects, not just events. They should be treated as such to ensure all of the details are accurately addressed, answered and communicated in a consistent manner to the vendors and internal customers.