Auctions

Online Reverse Auction

an online reverse auction is a type of auction system in which the role of the buyer and the seller are reverse, with the aim or objective to reduce purchase prices of the item or thing auctioned online. that is, in an online reverse auction, the buyer instead of the seller, through a market maker set the minimum or maximum bidding amount he or she can afford to pay for an item or contract, then request quote from different companies and suppliers of such items or services, who throw their acceptable bids on the buyer's site. the buyer then choose the company, seller, auctioneer or supplier of his or her choice depending on the buyer's demand. online reverse auction is more beneficial to buyers and is used often in business-to-business procurement.

the market maker on behalf of the buyer set all the necessary tools and information in preparation for the online reverse auction to be conducted. such tools and information include: organizing the auction, managing the auction event, finding suppliers, training new suppliers and providing the necessary auction data to the buyer in order to facilitate decision making. all these was to ensure that buyer got the best value. however, best lowest prices, better quality, delivery performance as well as technical capabilities could be obtained from suppliers who do not engage in the bidding process, as online reverse auction reflect the narrow market created by the buyer.

online reverse auction became popular in late 1990s as a result of the emergence of the internet-based online auction tools. Glem Meakem, an executive of McKinsey Consultant and General Electrical Company, formed the concept of a FreeMarket, which is the pioneer of online reverse auction in late 1994, and succeeded in founding it 5 years later, when he presented FreeMarket Inc., an internet auction company he built for $50 million on the banks of Pittsburgh's Rusty Monongahela River. as recorded in one of CNN money magazines of 2000.

FreeMarket built teams of "market makers" and "commodity managers" to manage the process of running this online tender process and set up market operations to manage online reverse auction (over the internet) on a global basis.

online reverse auction is a good concept in the sense that considerable percentage of prices can be saved by buyers. however, buyers should not assume that reverse auction will, in all case, deliver savings - either on a unit price or total cost price. online reverse auction savings can range from negative to positive savings. that is, it can cost the buyer, the buyer may not have any saving at all, and the buyer can save quite a good percentage of the unit or total cost price.

Article Published: Saturday 17th November 2007