A procurement auction is also known as a reverse auction. Unlike a normal auction, the sellers compete to obtain a company’s business. This normally leads to the prices being offered decreasing during the period of the procurement auction.
In a procurement auction, the activities will be targeted towards finding new suppliers and ensuring that any existing suppliers have the opportunity to propose keener prices and better terms. The procurement auction is usually held via e-procurement and has the following activities:
This type of bidding does have some disadvantages:
To counter this there are a number of advantages:
Reverse auctions can be used for procurement of all sizes from the smallest group of services such as that found is web sites such as guru.com and elance.com to the massive procurements that companies such as the first reverse auction held by American West Airlines.