Reverse Auction is a tool available for the procurement in improving its function as well as its effectiveness. It can be defined as specialized auction that allows the organization to procure goods from the sources by featuring decreasing incremental bidding.

In other words it is exactly opposite to the common auction that we see against which the goods are sold. It is a process, reverse to the common auction (forward auction) and as such it is called as reverse auction.

In the reverse auction, the buyer lists down the items that he wishes to buy. He also decides the exact specifications for these items along with his requirements & terms & conditions, & the same is called as RFQs. These details Arun S Banavali, are given to the sellers who understand the buyers requirement, agrees tor his terms and conditions including the Dy. Gen. Manager íåñ Ltd. specifications. Once this process is over, the bidding for these items on the agreed terms and conditions, start and the lowest bidder here wins the order.

In the process of reverse auction the common terminology used are RFQ i.e. Request For Quotation, the Reserve price i.e. price per unit that a buyer would like to buy or is ready to buy and Decremented value which is nothing but minimum price differential between one bid to the other, are the common factors or definitions used.

There are Open and Closed reverse auctions. Means if the auction is limited to restricted approved supplier, means closed reverse auction and if it is open to any of the seller it will be an, open reverse auction.

In this reverse auction ,for the Purchase Manager ,the common questions that come in the mind are:

1. How is this reverse auction different from common auction?
2. Can this be used a cost reduction tool.
3. Is it time saving process?
4. What are the security concerns?
5. What are their weaknesses?
6. Is it a complete solution?
7. Is it effective?
8. What are its other benefits?
9. What are the precautions that we need to take?
10. Can this be applied for all purchases?

Various stages like preliminary preparation, conducting auction, past auction activities and monitoring the purchase orders are common main features of this reverse auction.

When we conduct reverse auction suppliers/bidders need to be given a code name. As this reverse auction is new, the bidders need to be explained how the complete process and their role to be played. The bidders also need to be encouraged. We need to be in constant touch with these bidders to get the feedback as what is in their mind (what is cooking behind the seen) during this reverse auction process.

The reverse auction can be done by buyer with his own IT arrangement or he needs to take the readymade services available from the market for such operations. During the bidding process, there is live display of the bids with suppliers with identified code. It is made possible for participating supplier, having their own passwords for giving his bids only. The bidding time is fixed. However, as per the terms laid down in the reverse auction, bidding time can be extended, based on the last bid received, is just 30 seconds before the time of closing. This would enable the other participating bidders chance to think & compete. However clause need to be addressed accordingly in the terms & conditions of bidding documents. At the end of this process the person who has given the lowest bid gets the order.

On closing of the bid process, the lowest bid price is registered. The successful bidder signs the price which he has bid, last as winning bid & gives to the buyer and buyer need to place the order on the same supplier. As it is live process, it is very transparent and can be very competitive. So the reverse auction is a cost cutting tool. It cuts down the order process time i.e. Internal Lead time.

In addition to the cost cutting, there are other advantages which are seen in the reverse auction. Few of these are :

1. It is transparent process
2. It saves time as it is very fast as the auction is live
3. It gives additional vendor base as in the case of open reverse auction.
4. It is best suited for the standard off shelf items.
5. With its continuous compettiive bidding process, the possibility of getting beter price is always there.

However reverse auction also has certain weakness or disadvantages. These need to be studied completely before going for reverse auction. Reverse auction can not work where there is cartel ling of suppliers.Reverse auction can not work where there is single source as such there is no competition.In the reverse auction process we may loose a good relation that is earned with the suppliers over the years of working with them. Reverse auction is not suitable for tailor made special items. This means reverse auction is not fit for all the items.

However, we can effectively select the type of items for reverse auction wherein there is a potential for cost reduction, time reduction in the process and take necessary precautions in making the correct & complete RFQ. In the whole process .correct documentation is must to achieve the advantages of the reverse auction.

In India there are many leading companies like Reliance Industries, Marico, Maruti Udyog Ltd, and Telco who have conducted many reverse auctions and obtained lot of success in terms of various factors like cost, time, additional source etc.