e-reverse auction

The wind tariff in India touched lowest level of Rs.2.64 per kWh in the second wind auction conducted through e-reverse auction by the Solar Energy Corporation of India (SECI) on behalf of Ministry of New & Renewable Energy, Government of India on October 4. A reverse auction is a type of auction in which the roles of buyer and seller are reversed. In an ordinary auction (also known as a 'forward auction'), buyers compete to obtain goods or services by offering increasingly higher prices.

According to http://www.epiqtech.com, there are two common criticisms that are directed against reverse auctions. One is that they are not strategic and do not facilitate long term relationships with suppliers. The second criticism is that suppliers do not like them. To address the first criticism, reverse auctions should rarely be used in relationships with strategic suppliers or suppliers where there is a good degree of collaboration or integration of supply chains that takes place in a long-term relationship.

Reverse auctions are designed for purchases that feature little collaboration, shorter term contracts, products with common specifications and little complexity, and purchases where there are savings opportunities. Strategic relationships with suppliers rarely meet these criteria. The second criticism of reverse auctions is that supplier do not like them. This criticism is not leveled directly at reverse auctions but it applies to any sourcing methodology that aims to lower the price that the organization pays for goods or services.

When suppliers need to lower their prices, it reduces their profits…Reverse auctions are very effective at lowering prices when they are used well. To our knowledge, no supplier has ever been forced to participate in a reverse auction event. They all participate voluntarily becuase they are motivated to win the business. A rational supplier would not take the time to participate in an event if the supplier thought it wouldn't be worth it.

Reverse auctions also provide other benefits for suppliers. They provide real time feedback on the competitiveness of a bid. The supplier does not need to wonder if the bid was too high or too low. Reverse auctions also shorten the time it takes for a supplier to win the business. For these reasons, the criticism that suppliers don't like reverse auctions does not hold a lot of weight.