This article written by Jim Ericson in 2001 is one of the gems of the www.Line56.com library, examining as it does one of the central (and most timeless) issues in e-business: the reverse auction. Enjoy!
Reverse auctions are an integral part of strategic sourcing. But, what’s little talked about is the fact that participation in reverse auctions has absolutely fateful, and often harmful implications for both buyers and sellers. There’s nothing like a free, open auction to drive efficient pricing of goods, right? It’s true, online reverse auctions between businesses provide a competitive bidding space for suppliers to have a fair crack at buyers, and give manufacturers a chance to lower their cost of goods. What’s little talked about is the fact that participation in reverse auctions has absolutely fateful, and often harmful implications for both buyers and sellers. Click here to find out more!
Cozy on the surface, reverse auctions pull the covers off of longstanding business relationships. Thanks to the Internet, buyers know more about their suppliers than ever before. While some suppliers simply choose not to participate, others reluctantly open their books to customers demanding to know the cost basis of products they are paying for. In the process, some buyers abuse reverse auctions, drive margins down to the point of their suppliers’ survival, and thoughtlessly weaken the stability of their own industries. Others take a more involved stance, but now demand that suppliers are as aware of cost and efficiency as they are. According to the experts, both trends are spreading.