Table of contents:
What is a Dutch auction?
Many wonder about what is a Dutch Auction and how it differs from other forms of auction. Put simply, as a type of RFx (request for x), a reverse Dutch Auction contains a list of products or services that a business wants to procure. The price of the product or service rises after a fixed amount of time until the reserved price is reached. Before this happens, if a supplier has placed a bid to the displayed price, the bidding ends and that particular vendor wins the auction.
With a reverse Dutch Auction, the buyer specifies the starting price, the price change value, the time interval between changes, and the reserved price. Suppliers will only be able to see the current price and a countdown timer. As the price goes up at regular intervals, eventually, one of the vendors will be able to meet the displayed price. Due to the nature of the auction, suppliers are motivated to claim the best price they can offer since they are aware that a competitor may potentially claim the deal before they do.
What is Dutch auction Software?
Even though reverse auctions are just one piece of your procurement process, they're still quite important since they help you save a lot of time and money over the course of your supplier relationship. Reverse dutch auction software is a good option to consider as it allows you and your suppliers to interact in a more efficient way.
Businesses will save time and money by automating the reverse dutch auction procedure, which is why reverse auction software integration should be a top priority. A dutch reverse auction platform will include real-time allocations of the quantity being sold, as well as many other useful features.
When to use Dutch auction software?
In general, Reverse Dutch Auctions work best with a small number of suppliers. This is because the number of transactions that occur in a Reverse Dutch Auction is only limited by the number of suppliers. In addition, Reverse dutch auctions are best used when the range of values for certain goods or services has been well defined and known ahead of time before you plan to conduct an auction.
Similarly, Reverse Dutch Auctions work best when the price of the product or service is not too volatile. If you are conducting an auction for a product where prices can vary greatly, there may be better options available to manage the procurement process more effectively
Reverse dutch auctions work best when suppliers have well-defined processes and behaviors that follow standard operating procedures (SOPs). In addition, if your supplier base has been stable over time it might make sense to use a reverse dutch auction to determine who gets access to new business opportunities.
In contrast, Reverse Dutch Auctions do not work very well in situations where suppliers behave strategically across a large number of negotiations simultaneously, suspecting collusion among several buyers. Similarly, they also don’t work very well when the value of a product or service that needs to be procured is highly-priced and inelastic.
In summary, Reverse dutch auctions can help generate significant savings when conducted properly and should only be used by organizations with small numbers of suppliers who have well-defined SOPs and processes.
How to implement a Dutch auction process?
The first step towards implementing this process is to analyze your current situation. The purpose of this initial phase is to accurately determine where you stand, how your current supplier base is performing, and what necessary steps need to be taken in order to improve efficiency, build stronger vendor relationships, and streamline processes. The next viable phase is to decide on a pilot project that will be able to satisfy all of your goals established in the previous step. Lastly, you will have to choose a procurement manager and/or team capable of seeing the project to fruition.
Once all of that is set up, it's time to put together the reverse dutch auction. To do that, you will need to do the following:
1. The Starting Price - The first step is to establish the starting price for the products or services to be acquired. This price should almost always be lower than the buyer is expecting to pay by the end of the auction. At this point in the auction process, the starting price will be shared with all bidders.
2. Supplier Participation - At this point, suppliers will decide whether or not they will want to participate at the price specified by the buyer. If nobody bids or not enough suppliers bid to fulfill the required number of products, the buyer will call out a higher price.
3. Repeating the Process - Bidders will again decide whether they want to bid and how much they want to bid on. If there is still not enough supply met for the specified volume of products or services, the buyer will progressively increase the price until enough bids have been placed.
4. Closing the Auction - Once enough bids have been placed and the requirements for the products or services have been achieved, the auction is complete. The bidders will be paid at the price established in the last round of the auction, which will be the highest price.
Main benefits of Dutch auction
As a technique widely used in the supplier onboarding process, Reverse Dutch Auctions have proven their efficiency many times over. They help provide advantages to both the buyer and the suppliers that bid in the auction. The main benefits of reverse dutch auctions when it comes to procurement include:
1. More Competitive Rates
Reverse Dutch Auctions also help you get more competitive rates for products and services by making it easier for businesses to understand their options in terms of price, features, etc. with regards to specific suppliers. This is especially true when dealing with highly technical products that have high levels of differentiation between different providers or a product where there isn’t much information available about what each supplier offers.
2. Improved Rate Negotiation
Reverse Dutch e-Auctions are also beneficial in improved negotiations when it comes to rates since this type of auction allows businesses to determine the maximum amount they are willing to pay for a service or product before initiating contract negotiations with suppliers. This gives them more power during these types of discussions and will allow them to get better prices on their purchases overall.
3. Get the Best Price and Best Quality
Businesses can also benefit from Dutch Auctions since it is actually quite easy for them to prove that they got the most competitive prices while at the same time getting exactly what was requested in terms of features. This means there isn’t any risk involved when using reverse dutch auctions. This results in better overall benefits for businesses as well as suppliers who will be able to sell their products or services more quickly and easily due to less competition on one another.
Other benefits of Dutch auction
1. Better supplier relationships
Using reverse dutch e-auction software can improve the business relationship with suppliers because both parties have an idea about what each other is willing to pay in advance. This offers transparency throughout all phases of the procurement cycle – from sales, through contracting and payment up until the delivery time frame.
2. Reduced Time
Reverse dutch auctions can also reduce the overall procurement process by reducing the amount of time spent on this phase. This is especially true for businesses that use reverse dutch e-auctions software to negotiate rates and contracts with their suppliers, as they will be able to automate a number of steps in the Bid solicitation and negotiation process which results in reduced costs and increased efficiency at all stages of their purchasing cycle.
3. Improved Visibility Into Supplier Sourcing
Additionally, using dutch e-auction software helps improve your business’s ability to increase transparency throughout its entire supply chain by allowing them access to better information about what each supplier offers as well as where each product or service came from. This makes it easier for businesses to avoid any negative press about issues with their supplier sourcing as well as identify potential problems before they become public.
How can Prokuria help and why is it different?
Prokuria's cloud-based reverse dutch auction tool will provide buyers between 5 to 10% in savings. It will also provide you with the following services:
Dynamic allocations - The platform also provides real-time allocation of the auctioned quantity based on preset algorithms.
Multi-Factor Auction (MFA) - Run auctions based on multiple parameters, not just price alone.
Message Center - Easy-to-use and real-time messaging during events, which eliminates the hassle of never-ending email chains.
Supplier Engagement Monitor - You can track supplier engagements and reply status in real-time.
Audit Logs - All background document changes will be captured so that you'll always be in control.
Customization - You will have access to multiple settings to choose from in terms of showing or hiding ranks and best bids, the bids at item level or total price, and more.
Fast and Easy for Suppliers - Prokuria offers a private and secure webpage where suppliers can reply promptly without having to set up their own account.
No credit card is required, and you can start issuing Dutch auctions in minutes with our free trial! If you're ready to learn more about Prokuria's Dutch auction solution, you may also schedule a free demo with us and we'll show you everything there is to know about it.