Yesterday, a guest blogger on Spend Matters posted a step-by-step method for conducting a electronic reverse auction – actually, I would consider it more of an online negotiation – without buying any new software. This individual described how he had suppliers set up chat accounts, had suppliers submit bids via a private chat session with him, and manually used chat and copy-and-paste techniques to provide feedback on supplier rank until the auction ended.

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You can read about it for yourself. But what was described bordered so much on the ridiculous that I had to check the calendar to see if it was April Fools Day knowing that Jason loves to play tricks on that day.

Monitoring six different small chat windows, manually calculating bidder rank in Excel, and having bidders wait for you to tell them which place they were in all as more bids are coming in by the second? Sounds quite labor intensive and ripe for errors to me!

Having said that, I will admit to having been “creative” with reverse auctions for a previous employer when there wasn’t budget to invest in a system (and before free and low-cost systems like WhyAbe and Ketera’s solution were available). Here’s what I did…

I set up a discussion board on a free discussion board service. I then had suppliers set up accounts on the discussion board, making sure that they gave themselves usernames that would not serve to identify them to their competition.

During a predetermined time period, bidders were to submit bids on the discussion board. They could see each other’s bids, so that they would know whether they had to revise their bid to be more competitive.

It worked reasonably well. We ended up paying about 12% less than the previous year’s price where such previous year’s price also happened to be slightly lower than where the bidding started. And the other advantage was that we didn’t have to pay for any software or external services.

There were disadvantages, though. These included:

  • The supplier responses were sorted from most recent to oldest. So, if a bidder submitted a higher price than the low bid, the most recent price appeared on top and seemed to be the lowest bid, which was kind of confusing.
  • The discussion board did not automatically refresh, so the suppliers had to continually hit the refresh button on their browsers to see low bids.
  • The discussion board was free, which meant that it was supported by advertisements. One of the banner ads blinked “Winner” on it during the auction. Of course, it was advertising something unrelated to the auction. How embarrassing!
  • The discussion board did not allow us to limit the time period for bidding. We had to limit it by “the rules.” A bid did come in after the deadline in the rules. We disqualified that bid and accepted the lowest bid that conformed to the time period in the rules. The disqualified bidder wasn’t happy.
  • The discussion board did not display the “official time” prior to bidding. Bidders only knew the time that their bid was submitted after it was posted.

So, though it was successful, I can’t say that this approach to a reverse auction was the classiest representation of me in my purchasing career. With the tools available today, I would never consider doing something like that again, much less the 6-way chat approach described on Spend Matters.

Nonetheless, I think it is fun to think about these types of out-of-the-box approaches in purchasing. You never know when you may come up with an effective and less expensive approach to delivering results for your organization.

To Your Career,
Charles Dominick, SPSM
President & Chief Procurement Officer
Next Level Purchasing, Inc.
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Charles Dominick, SPSM, SPSM2, SPSM3

Charles Dominick, SPSM, SPSM2, SPSM3 is an internationally-recognized business expert, legendary procurement thought leader, award-winning entrepreneur, and provocative blogger. Charles founded the Next Level Purchasing Association in 2000, oversaw its incredible growth, and successfully led the organization to its acquisition by the Certitrek Group in 2016. He continues to blog and provide advisory services for the NLPA on a part-time basis as he incubates his upcoming business innovations. Charles is also the co-author of the wildly popular, groundbreaking book, "The Procurement Game Plan: Winning Strategies & Techniques For Supply Management Professionals."

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