When NOT to Use a Reverse Auction

Took a week off, so you're getting a double-dose of the Procurex blog this week.

Despite the fact that Procurex has run over a thousand reverse auctions, they have also conducted several purchasing projects without using the reverse auction. Why? It simply is not the right strategy in some cases. There are definitely instances where reverse auctions are inappropriate. These factors should be weighed carefully when implementing strategic sourcing:

• Where item specifications or auction conditions are dynamic and cannot be specified with a high degree of certainty.

• Where vendor qualifications are critical, lengthy, or uncommon (e.g. a defense, security, or medical application).

• Where price is not the primary concern or the other conditions of sale cannot easily be translated into an auction specification.

• In cases where the use of auctions may erode long-term vendor relationships that are vital to supply or buyer outcomes. In these situations traditional methods may be more appropriate. On the other hand, the systematic approach of strategic sourcing should still be considered, even though a reverse auction is not the appropriate tool. Strategic sourcing may be used with other tools (or even traditional methods) to produce improved results. A consultant may be able to suggest alternatives, so that more can be done with less, even in these circumstances.