AJ Auction Pro

Overview

Online reverse auctions are fixed-duration bidding events hosted by a single buyer, in which multiple suppliers compete for business. In a reverse auction, the buyer places an enquiry and multiple sellers quote their most competitive price against the enquiry. The buyer opts for the most competitive quote based on the best terms offered.

Bidders (suppliers) are pre-qualified and when the auction begins, they bid what they will charge to supply a commodity. This bidding is online over the Internet and hence the physical location of the supplier is not a constraint. This process of buying helps the buyer leverage the power of the Internet, whereby he has greater control over the purchases, increased liquidity, and a competitive price determined by the market forces. It also enables reduced procurement cycle times

Online Reverse auctions help to identify the best sources and prices globally. Proponents claim reverse auctions can lower the cost of procuring products and services by as much as 20 percent, making them the e-business application of choice for companies faced with declining sales and margins. Those choices may be based on past experience with one or more products, familiarity with or recognition of some brand names, and a perception of values that are attached to those brands.

Challenges:

A reverse auction is one in which the buyer rather than the seller is in control of the auction process. The identity of the buyer remains hidden from the sellers until the transaction is completed. The buyer knows which companies are competing for his business. In that context a company with a strong brand may still have a small advantage, particularly if the brand is associated with values such as reliability or customer service. So a product should never be dissociated from its brand so as not to become a commodity and reveal the pricing premium that it associates with its brand. Participation in an anonymous reverse auction places the brand at its lowest common product denominator.

Benefits of Online Reverse Auction to Buyers

• Helps achieve significant reductions in procurement costs on account of Dynamic Bidding.

Every dollar saved in procurement can result in a dollar of profit. It translates immediately into operating income. On-line sourcing can reduce the sales related cost of suppliers, allowing them to be more competitive, while increasing their margins. Also allows for suppliers to get new business they might not otherwise know about. By leveraging Internet solutions, buyers can eliminate implementation costs, time and maintenance of solutions they historically were required to buy or build.

• Access to a large number of vendors.

Online Reverse auctions enable registered buyers to post requirements online for bids, where a large number of vendors can submit decreasing bids, with the sale going to the bidder that meets or exceeds the buyer’s best value requirements, usually based on aggressive pricing. This online procurement tool provides dynamic, real-time competition among vendors, resulting in significant cost savings, auditable transaction data, and improved process efficiency.

• Dynamic bidding process.

Price competition is greater and more explicit in open-bid auctions. The fast-paced, dynamic bidding, along with the need to respond quickly to competitors’ bids yields tense negotiation and pressure on suppliers to cut prices vigorously. This increases the supplier’s bargaining costs, making the process so disagreeable to suppliers that they will accept renegotiation rather than persist with current pricing levels. For the supplier, this can force additional price concessions from the supplier, becoming a form of opportunistic rent seeking on the part of the buyer.

• A tool for efficient price discovery complementing the direct negotiation process.
  • Ensures Savings in marketing costs / distributor margins.
  • Access hitherto inaccessible sellers.
  • Facilitates flexibility in pricing decision.

The direct negotiation process leads to more efficient price discovery as multiple buyers and sellers meet in a dynamically updating market.

Benefits of Online Reverse Auctions to Vendors

The potential benefit is significant because large publicly owned business that suffer from low top line growth can significantly increase their profitability simply through a reduction in the cost of goods sold. The financial benefit of online reverse Auction is simply too attractive.