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Reverse Auctions as a Strategic Sourcing Tool

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In a world technically advanced today E- markets acts as a strategic platform for markets through electronic mediums. One of the key tools of E-procurement is inverter auction. Unlike traditional sales auction, sale of inverter involves a number of competing vendors to lower prices for products or services.

Strategic acidification companies use specialized tools like reverse auction as strategic sourcing initiatives to reduce costs on an ongoing basis. Reverse auctions is the opposite of regular auction process in which sellers compete with each other and the price further reduced after each call cycle for tenders.

With the use of today’s technology, reverse auction process should not be in the place where all people are present, but selling virtual sessions also help reverse auction in maintaining the anonymity until the price of the lowest bid is reached and suppliers are identified.

These can be applicable for engineering products such as automotive components and services such as the selection of the logistics provider for companies. Companies engaged in reverse auctions as a strategic sourcing initiatives tool are mainly technology companies that know the field of procurement systems. A team of these companies takes care of the back-end operations that merges domain expertise with a background in reverse auctions personalized, while the other team that acts as a front-end team takes care to identify suppliers , evaluating supplier capacity and double its marketing initiatives to strategic sourcing.

So, before choosing a product or service and applying for a sales cycle typical auction, these companies have to undergo a series of procurement cycle for the identification and selection of suppliers for all the other parameters except that the cost (which is basically supported by reverse auction process).

Factors such as the possibility of savings, product specifications, the size of the purchase, the nature of the relationship with the supplier, the distribution channel involved etc. play an essential role in the design of reverse auctions for a particular product or service. Based on these criteria, companies must apply reverse auctions very effective for large segments of their total purchases.

On the other hand, the disadvantages of reverse auctions is that they may or may not be strategic and they do not support a long period of time, therefore they do not facilitate relations long term with suppliers, which is against the principles of strategic sourcing. Also, since the base is focused on profitability, other very important criteria, including the ability to produce goods or provide a service may be subject. Also, there are plenty of opportunities for cartelization to occur, which will spoil the essence of strategic sourcing.

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