Reverse auctions are almost ubiquitous and are being used daily to drive purchasing costs down in a variety of categories of products and services. And, the results are stunning. That is why its use has become a standard in many North American procurement organizations.
Recently I was attending a meeting of senior procurement executives during which the discussion topic focused on “myths of Reverse Auctions”. The presenter postulated that the belief “reverse auctions damaged supplier relationships,” was a myth. Members of this august group, including the procurement leaders of some of the largest and most influential North American companies, generally agreed. Rationale given included auctions were merely a device to discover “market price”, auctions are not just about getting the lowest price, in fact auction algorithms have been created to factor in other variables such as service and quality in addition to cost. And, incumbents typically win 70% of the auctions anyway.
As the lone dissenter on this question, I wondered whether the facts would support the point of view that relationships were not hurt with auctions. After all, every one in the group agreed that they did not want their company to be subject to auction by a customer.
