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Retailers and grocery industries, where there’s more price pressure, are already heavy reverse auction users.
“They can’t afford to be relationship oriented,” Wilson says.
The auctions are transparent, held on an online platform where bidders can see others bids —driving prices lower.
“It’s a good way to get a handle on pricing ranges,” says Craig Agranoff, a Boca Raton, Florida-based business consultant. “You can go back to suppliers and say: ‘Why aren’t you charging this.’ It levels the playing field.”
Margin-pressed suppliers aren’t as enthusiastic, though.
“The process does scare away bidders,” he adds. “Some companies can only go so low.”
Moving Beyond Fortune 500
Reverse auctions were invented in the 1990s by a former General Electric employee who wanted to streamline the buying process. Fortune 500 companies like United Technologies, Royal Dutch Shell and Exxon Mobil quickly picked up the concept. Now most big companies are using the concept, say experts.
Lately, more mid-sized companies have signed on, says Agranoff.
“They’ve noticed it’s much harder to compete internationally,” he says. Smaller companies, though, lack the scale to run these auctions unless they band together.
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