Reverse auctions have been enabled in recent years with the advent of the internet and web enabled procurement applications. Reverse Auctions are auctions in which the buyer posts requirements online and invites suppliers to compete for their business. This has the effect of driving down the price. These types of procurement events are typically driven by price with the lowest price winning the bid.
There are a number of pros and cons associated with reverse auctions. I’ve listed several of them below.
1. Increases competition for your business.
2. Enlarges the supplier pool which in turn drives down price.
3. All suppliers have an equal opportunity to compete.
4. Reduces the procurement cycle time.
5. Opens up selling opportunities to vendors that wouldn’t necessarily be available through normal channels.
6. Provides smaller companies the same opportunities as larger companies to compete for your business.
1. Reverse auctions tend to emphasize lowest cost but in turn may unwittingly sacrifice quality and delivery times.
2. If a product is only supplied by a small number of vendors reverse auctions may provide no cost advantages.
3. Reverse auctions are not ideal for strategic materials and may jeopardize important vendor relationships.
4. Aggressive bidding on the part of vendors can result in a win where the vendor is unable to provide the product or service at a profit to themselves.
Oracle provides the PeopleSoft Strategic Sourcing module to enable your organization to conduct reverse auctions. Oracle has designed and built the PeopleSoft Strategic Sourcing module to leverage the capabilities of the internet. This includes event-specific forums and general question forums that can be used to communicate with buyers or sellers. Event collaboration enables event creators to get input from stakeholders and consensus on goals. Also, instant messaging allows communication between bidders and event owners.
Additional functionality includes:
- Suppliers can register online.
- Award constraints enforce business policies, i.e. sourcing a % of business to minority owned firms.
- Bid factor functionality enables you to evaluate bids on such factors as price, lead time, quality, etc.
- The optimization tool can recommend an ideal award based on lowest price, lowest total cost, or highest score.
- Strategic Sourcing Project Plans allow you to manage and track the progress of the sourcing event.
- Strategic sourcing notifications alert bidders and internal users of the progress of an event.
- Requisitions and PO’s created in ePro, sPro, and Purchasing can be used to create sourcing events.
- Awarded events from Strategic Sourcing can be used to create contracts in Supplier Contract Management and Purchasing.
- Sell side events can be created to sell depreciated assets thereby increasing revenue.
PeopleSoft Strategic Sourcing is a tool that will allow your organization to cut costs and improve the bottom line. If you have ever used the PeopleSoft Strategic Sourcing module I would like to hear about your experience with it. For more information about the PeopleSoft Strategic Sourcing module do not hesitate to contact me. I would be more than happy to go into greater detail as to how your organization can utilize this Oracle feature!
Have a happy holiday!