During a reverse auction, a customer allows suppliers only a short window of time to bid down the price on their products or services. The practice was pioneered by automotive and aerospace buyers, which used reverse auctions to procure commodity parts. Today, many large companies use them to buy everything from paper clips to their employee health care plans. Reverse auctions are loved by corporate purchasing managers, loathed by suppliers, and rarely discussed publicly by anyone involved.

Typically, a buyer announces an auction months in advance. After a qualifying process that may include interviews, presentations, and a preliminary bid, a group of suppliers–usually between three and 12–is selected to participate. At a set date and time (often between 6 and 8 in the morning to accommodate Asian bidders), companies log on to a secure Web-based program and bid against one another anonymously. Most auctions are limited to an hour or two, but they can drag on as long as the bids roll in.

Posted: 04|25|07 at 8:37 am. Filed under: UK News.