When to use reverse auction

Listing down the pre-requisiteds of a successful reverse auction,
- Proposed Spend:when proposed spend is large enough to attract supplier communities interest. More the value, chances of getting more suppliers.
-Adequate competition:The product/commodity should have adequate suppliers in the same geography. Reverse auctions can be successfully executed between two suppliers, wherein the participating suppliers are dependent on same client for their survival.
-Clear Specification:The purchase specs should be clearly defined without any ambiguity which will allow to release the cushion price at the fag end of competition.
-Availability: The product should be available with out any market distortion.

Benefits of Reverse Auction

For Buyers:

-Easy to use web-based tool to streamline the competitive bidding process
-Reduces time and effort related to RFP/RFQ creation and distribution
-Speeds up competitive bidding & contract award process
-Promotes fierce competition for client’s business
-Average events savings is 10-20%
-Great use of technology

Standard Specification of an auction engine

1. Dynamic Pricing Engine Reverse Auctions
Reverse auction is an alternative to sealed commercial bids in a tendering system. However the complete tendering process involves various steps that lead to reverse auction as a mode of bidding online. TMS includes a Dynamic Pricing Engine to encompass a complete tendering / pre-qualification - reverse auction process in a unified and consistent structure.
1.1. Capabilities of Dynamic Pricing Engine
1.1.1. Forward or reverse auctions
Both are supported. Forward auctions are used in case of sale (of scrap etc) and reverse auctions are used for sourcing material. Architecturally, reverse and forward auctions are same except that in forward auction prices are ranked highest first and in reverse auction ranking is lowest first. So all features of reverse auctions are available for forward auction (sale) as well.
1.1.2. Type of Auction / Reverse Auction
Associated with each auction is an auction method. The method of auction determines what the auction initiator sees and what the auction respondent sees during bidding round as well as method of ranking and so on. The buyer can decide on the type of auction as forward, reverse, multi-lot, standard, English, multi-parameter, etc. The features that can be ‘seen’ by the buyer and the bidder are dependent on the Auction rules chosen.
1.1.3. Auction / Reverse Auction Business Rules
An entire set of business rules governing an auction or reverse auction can be chosen. The method of auction determines the various rules that should be applied to an auction - for example, anonymous, masked, rank, landed price, base price, exit price bidding, etc.
Refresh Rate
This is the rate at which the respondent browser refreshes the data visible. This can be set during auction initiation. The refresh rate is predefined in the application, which can be changed as per the requirement by the administrator. However, bidders and buyers can manually refresh the screen by clicking on the refresh option provided.
Tick size
This is the minimum amount by which the respondent has to increase or decrease the governing price parameter of the bidding round. This needs to be provided at the time of auction creation
Bidding Sequence
Whether respondents can bid at random, all respondents must put their starting bids in before real time random bidding takes place. Whether each respondent is allowed only a limited number of tick changes is determined by the bidding sequence selected. Whether bidding can be random but the price has to be less than in the case of reverse auction, the opening price defined and should follow the bid decrement rule. Whether equal number of (sealed) bidding rounds for all respondents (dynamic sealed bids). In case of a forward auction, the bidder can start bidding from a price higher than the opening price.
Closing criteria
Whether auction / reverse auction closes with pre-determined number of rounds or after a pre-set “no change” time or explicitly on initiator closing the bidding round. The auction can be concluded whether manually or on reaching a preset end time. However the buyer has the option of extending the auction manually at any point of during the auction.
Anonymity
This determines whether respondent identities are revealed to other respondents as well as the initiator during real time bidding. The buyer has the option to configure the system to either reveal or not to disclose the identity of the bidder during the auction.
Currency
Determines whether bids will use a single or multiple currencies. In case of multiple currencies conversion is carried out on exchange rates specified. Multiple currency option is available - however the bid prices quoted by the bidder can be converted into the required currency by using the loading factor option available in the application.
Business rules categories available in the Software
The business rules can be classified in three broad categories –
· Price Parameters
. Auction Strategy Parameters
· Time Parameters

The following table provides detailed information of various business rules available –

1.Historic Price
This is the price at which the same item is procured previously either through auction or otherwise
This price is used by the application for the purpose of calculating savings only
2.Opening Price
The price at which the auction starts
This can be higher or lower than the historic price but must be higher than the reserve price in reverse auction and vise versa in forward auction
3.Reserve Price
This price must be less than the opening price in reverse auction and vice versa in forward auction.This price has no relevance to any parameters and only used for calculation of savings
If the reserve price is not met during the auction, the auction creator has a choice to cancel the auction or re-initiate the auction.
4.Bid Factor
The minimum value by which the bid price has to be reduced (in case of reverse auction) from the opening price or the current bid price which ever is the lowest.

Auction parameters (Auction strategy)
Sl no
Feature
Details
1 Price
The price bid by each of the bidder is shown to all the participants
The bidding is always with reference to the current lowest bid in the auction
2 Rank
The price bid by the bidders is not displayed to all the participants
All the ranks can be displayed to all the bidders or
Only their individual ranks can be displayed to the bidders or
Up to a maximum of 10 ranks can be displayed to all the bidders
3 Decimal
The auction can be configured for decimal either price or rank
The number of decimals that can be configured is either 2 or 4
The bid prices if in decimals will not be rounded off in this case
4 Non decimal
This option can be used in high value auctions
The bid prices will be rounded of to the nearest absolute value
This option should not be chosen for the landed price auction or an auction where the loading factors are used.
5 Landed price
This option can be used when the buyer, in case of reverse auction, need to know the price at which the bidder is quoting and the price when the item reaches the location of his desire. The buyer has the option to specify the taxes, surcharges and any other additional factors that would get added in the transit.
The position of the bidder is based on the landed price and not on the base price (actual price quoted by the bidder) in this case
6 Base price
This option will decide the position (either for price or rank format) of the bidder based the price he quotes and not on the landed price
7 Anonymous
The login name of the bidder is masked and a alias name provided to the bidder is displayed in the auction hall to all the bidders
8 Masked
Neither the alias name nor the login name of the bidder is displayed in the auction hall. Each bidder will be able to see his alias name against his bid which will help him in identifying his bids and thereby identifying his position
This option can be useful in auctions having less number of suppliers
9 Bid factor enforced
Choosing this option will restrict the bidders to reduce the bid prices in multiples of bid decrement only. Otherwise, the bidders are compelled to reduce the bid price by minimum of one bid decrement or more than one bid decrement but need not be in terms of multiples of bid decrement
10 Exit price enabled
This option enables the bidder to bid a price that is not in compliance to the bid decrement rule
These bids as the name suggests will be the last bid prices of the bidder and the bidder wont be able to bid again in that auction after he has placed the exit bid
The exit bid price has to be less than the opening price (in case there are no bids placed by that supplier) or less than the previous price of the bidder who is trying to place the exit bid
The exit price can also be higher than the opening price provided the ‘allow exit bid higher than Opening price’ option is chosen while setting up the auction
11 Show number of ranks
This is applicable to rank auctions
The number of ranks to be displayed in the auction hall can be configured using this option.
Maximum of 10 ranks can be displayed
Minimum of one rank can be displayed (bidders own rank is displayed in this case)
12 Show Opening price
This option enables to either show or hide the opening price to the bidders in the auction hall
The buyer will see the opening price though this option is chosen
13 Show L1 Price
This option is applicable for rank auctions both multilot and single item auctions
For all the items in the multilot, the bidders can see the ongoing L1 price so that they can measure their positions with reference to the L1 price
This option is configurable and multilot rank auctions can also be conducted without this option
14 Modified rank
This option is applicable to rank auctions only
The budgetary prices quoted by the bidders can be set as their initial bids
The bidders will be compelled to start the bidding from the initial quotes they had provided
This option is useful in case of auctions where the bidders are not of same standards with reference to price i.e., the budgetary quotes of the bidders vary a lot.
15 Bidders (inviting participants)
The bidders can be chosen from the database of registered users
The bidders can be short listed at multiple stages based on the response from the bidders in the pre-event stage.

Auction timing parameters
Sl no
Feature
Details
1 Start
The auction start time can be set in 24 hour clock
2 End
The auction can be configured to end at a preset time
3 Preview
This option allows the auctioneer/ buyer to set up an auction anytime much before the auction but will be visible to the supplier only from the time that is set as a preview time
4 Extension time
The auction can be extended either manually or automatically.
The automatic extension can be configured based on the bids in the last minutes of the auction
Infinite extension can be set by configuring the auction for huge number of extensions like 1000
5 Serial lot dependency
The auctions within a project (auctions planned for one buyer in one project) can be set to start after preset gap of time from the end time of previous auction. For example the start time of lot 2 will be after 30 minutes of the completion of Lot 1.


1.2. Auction and Reverse Auction Formats
1.2.1. Standard English Reverse Auction Price and Rank Format
For a particular procurement requirement of a buyer, at least two or more suppliers would compete and decrease the prices with the set business rules. This particular format of the auction can be conducted in terms of price or a ranked format
In price format, prices are seen while in rank format only bid rank but not the price is visible.
1.2.2. Index Bidding or Discount Bidding
For a particular buyer’s requirement a market competition is created between various pre-qualified suppliers. Instead of placing a total price bid the suppliers would bid a discount percentage or price discount from an opening base line price. This caters to the decimal discounts or non-decimal discounts
Index bidding is a variant of discount auction, where in the bidding can move or upward but between a Lower Specification Limit and an Upper specification limit that has been pre defined.
1.2.3. Transformational/Multi-Variable Bidding
Many negotiations are not just price-only negotiations. When multiple parameters of evaluation like commercial parameters, technical parameters, quality and service parameters are to be evaluated and a decision needs to be taken then this format would help the buyers to arrive at a simple evaluation in a real time and create the competition in the market amongst the participants. The weighting given to each parameter is pre-determined and rank is automatically calculated.
1.2.4. Dutch Auction Format
This format is typically used for reverse auctions for perishable goods. The objective of this auction is to sell the quantity at the earliest possible time. The participant can negotiate only for quantity and not for the price in this auction. The seller will decide the price. The price drops after a preset period of time and this continues till the entire quantity is sold out. The quantity up for bid will be distributed to multiple participants till the entire quantity is sold
1.2.5. Japanese Auction Format
This Format is typically used for forward auctions. The objective of this auction is to identify the bidder who can quote the highest price. The participants cannot negotiate either on the quantity or on the price. The seller will decide both. The winner will buy the entire quantity.
1.2.6. Multi lot Auction Format
This is applicable to cases where there are multiple items to be procured and all items belong to same category. The supplier community can be same for all the items or different for each item. The bidders if, are participating in more than one item, then all the items will be displayed in one screen, which will avoid confusion for the bidders. Currently the software can support multilot rank auction up to 10 items in one screen. The alias name of all the participants should be same in multilot rank auction
Note: -
The system through its componentized architecture, easy work flow and intuitive design also provides ease to modify and customize programs so as to provide alternative formats for specific business scenarios.
1.3. Auction Initiation
The auction initiator “opens” the real time bidding process within the time constraints specified in the auction schedule. The bidding process is governed by the set of business rules chosen for the auction.
There is a knowledge repository and an advanced workflow based auction creation process. The system provides a lot of system generated prompts and has very friendly user interface through intuitive GUI design to facilitate easy auction posting mechanism.
There is host of formats made available in the system to provide a head start to the entire process of posting an auction. The market maker can choose a previously done auction and copy the template to create a new auction. There is a facility to modify/delete parameters from the source auction after copying.
1.4. Auction User interface – dashboard
There is a user dashboard feature to provide one single screen shot view to comprehensive auctions related information. The GUI is intuitive and provides a host of information depending on the user’s access rights into the auctioning information.
The user also has provisions to customize the information availability for himself based on the following –
Category management
The categories can be added, modified and deleted
The category amenability study can be done find out suitable items for conducting the auctions
Account Management
The buyer accounts can be added, modified and deleted
The buyer to category amenability can be carried out
Knowledge Management
· Post information to KM section
· Post auctions, category amenability studies etc to the KM section
· Search and retrieve

There is also provision to provide a host of information through the following features -
Auction Hall View and Bidding form for bidders
Auction hall View for buyer
Graphical Representation of in progress Auctions
Automatic Refreshing of the screen
Real Time saving analysis
Conversion of Bid History reports to excel or txt formats
Auto scaling graph
Message Tickers
Reverse clock timer
1.5. Closing
Closing takes place automatically or at the instance of the initiator as per business rules governing the auction.