Reverse auctions: a way to gain valuable information

In the article ‘Reverse auctions become more strategic for buyers’, published in December 8, 2005 by James Carbone,, you will learn that Reverse Auctions are sometimes providing more value than savings: market intelligence.

About five years ago, many electronics companies began using reverse auctions as a way to get a better price for parts from suppliers. Buyers said they often received 20% or more price reductions by buying parts through reverse auctions. However, the reverse auction model is evolving and many companies are using reverse auctions as a way to gain valuable information, not just to purchase low-cost parts.

Best practice companies are using reverse auctions to collect price information and drive down prices, but are also tying auctions to an overall e-sourcing strategy. They are awarding business through e-auctions, but only after doing a total cost of ownership (TCO) analysis which factors in supplier quality, delivery performance, availability, technical support and other criteria.

“At the end of the day, you want to weight each of those items and make a TCO decision that is based, not just on price, but all those criteria”” says Ken Leinweber, worldwide operations e-sourcing program manager for Sun Microsystems in Santa Clara, Calif. Sun does numerous reverse auctions per year, buying displays, application specific integrated circuits, memory ICs, disk drives, power supplies and other production materials. Sun spends about $1 billion per year in reverse auctions, says Leinweber.

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