Whether to conduct a reverse auction for the purchase of goods or services was determined during the Consider Auctions topic of the Perform Solicitation-Related Activities task of USPS Supplying Practices Process Step 2: Evaluate Sources. If determined appropriate, a reverse auction is conducted between a buying organization and a group of suppliers who compete against each other to supply goods or services. Such goods and services must have clearly defined specifications for design, quantity, quality, delivery, and related terms and conditions.
Reverse auctions rely on competition driving prices down, which means a greater likelihood of success when purchasing less complex or specialized goods or services. Simple commodity items or services, which can be clearly defined and often have a wide range of potential suppliers, will be best suited to the auction process. Although, in some circumstances, there may be only a few eligible suppliers, their market share tends to be great enough to make an auction a viable purchasing option.
In a reverse auction, participating suppliers bid against each other, via specialized Internet software, by submitting successively lower prices during a scheduled time period. Typically, the lowest bid wins in a reverse auction; however, some full-service auction providers can support very complex auctions to better align the auction with an organization’s business practices. Bidders are able to introduce new or improved values to their bids in a visible and competitive environment. The procedure and duration of the event will be defined before the reverse auction commences, and a starting value that suppliers will bid against until the competition closes will be determined in advance. When used, the auction will be a key stage of the purchasing process.
The five steps involved in conducting a reverse auction are illustrated in Figure 2.12.
Figure 2.12
Reverse Auction Process
