Reverse Auctions Are Not Strategic. It Isn’t Always Strategic! Part III

This isn’t to say that they aren’t important, that they’re not one of the best methods at your disposal to quickly identify current market prices, to obtain products or services at market prices in a competitive market, and to increase transparency in your strategic sourcing efforts but, on their own, reverse auctions are not strategic.

A reverse auction is simply an electronic way of enabling a simple bidding opportunity that could just as easily be conducted in the real world (if your supplier representatives were willing to travel to the auction location to place their bids). Do you think strategic when you think of this type of public auction? No. And simply electrifying something does not make it strategic.

An online reverse auction (has the potential to) open up the auction to more potential suppliers, drive greater market transparency (if more suppliers choose to participate), and streamline your product or service acquisition, but nothing about this is strategic. It’s simply good tactics.

This isn’t to say that a reverse auction can’t be the end result of a true strategic sourcing effort. For example, if you are sourcing custom manufacturing services for a new, relatively unique, product that you are preparing to unleash on the marketplace and you have went through a supplier pre-qualification round to select a small group of suppliers you would be willing to jointly develop with (who have all received the confidential specs under NDA), you could decide to simply hold a reverse auction to streamline what could otherwise be a time-consuming multi-round RFX, but note that this is just the tactical implementation of a sourcing strategy for a strategic category. The reverse auction itself is not strategic!

And it’s definitely not strategic if you’re sourcing $1,800 worth of office supplies or store shelf inventory!

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