The Role of Reverse Auctions in Strategic Sourcing

An Article written by CAPS Research in 2003 concluding that Reverse auction is a very efficient tool to source goods and services that are highly standardized, have sufficient spend volume, and have insignificant switching costs.

In the mid-1990s, a new electronic sourcing tool emerged that has had, and is continuing to have, a profound impact on the way in which firms source goods and services from current and potential external suppliers. This tool, while known by other names (e.g., ‘online negotiation’) is the electronic reverse auction (e-RA). The purpose of this study is to present the initial results of a comprehensive study of e-RAs undertaken by CAPS Research during 2002.

this research has concluded that for a growing number of buying firms, e-RAs have found an appropriate niche in their strategic sourcing toolkit, allowing them to efficiently source goods and services that are highly standardized, have sufficient spend volume, can be replicated by a reasonable number of qualified competitors, and have insignificant switching costs. In contrast, the research indicates that those suppliers of strategic items, where alliance-level supplier relationships are critical, are usually not subjected to e-RA sourcing.

Read the executive summary about “”The Role of Reverse Auctions in Strategic Sourcing””.

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