Electronic auctions are still a new way to find suppliers and cut costs for many companies. More often than not, being attached to traditional solutions results in our company missing out on the positive changes brought about by the use of e-auctions. This usually stems from a lack of systematized knowledge on the manner of selection of offers. The cycle opened by this article shall present in detail the types of electronic auctions, the principles of their selection depending on the situation, and tips and tricks for even better results.

An electronic auction differs from other forms of offer selection with the fact that suppliers compete with each other via the internet in real time. This method adds a new dimension to the entire process. It is the time pressure that forces the bidder to make quick decisions. Its favorable for the buyer, since the bidder is unable to use his soft skills during the placement of an offer. Only hard facts matter in an electronic auction.

Rising and falling price auction

Depending on the type of the proceeding, we can set up an auction in which the bidders name rising or falling prices. The general rule of a rising price auction is “at what minimum price are you willing to sell the goods”. Of course, the buyer is interested in the lowest possible price, that is why in this type of auctions the starting limit should always be set below the best initial offer, placed by the participants in the proceeding.

A falling price e-auction involves the bidders naming falling amounts, for which they are willing to sell goods or a service. This type of proceeding applies in particular when the differences between the initial offers made by suppliers are small. However, you should always remember that the starting price at which the participants will start bidding should be a little lower than the best initial offer made by the supplier.

Multiple criteria in an auction

There is one criterion taken into account the most often when selecting the supplier – price. However, the specification of electronic auctions allows to set up several evaluation criteria for selection of the winner of the proceedings of a special kind (e.g. purchase of transport or construction services). Additional criteria that may help in selecting the winner may include e.g. delivery date and bidder experience. Such auctions are called multi-criteria auctions, in opposition to single-criterion ones, where only the price counts. Individual criteria can be assigned with appropriate importance, to be summed up after the auction by the system in which we carry it out.

Electronic auctions, especially those pertaining to a large number of items, allow to select more than one winner. You may allow the supplier to only make bids for selected items or for the entirety of the contract. Such a solution allows to engage a larger number of bidders who may not have the entire assortment, but may offer attractive prices for individual items.

If the competition among suppliers is high, we can also hold multi-stage electronic auctions. The point of such a proceeding is to escalate competition among suppliers in order to bring the price down even further. This may be a so-called “survival auction”, where the weakest participant drops out and the others are invited to another auction. Such cycle is repeated until a bidder wins the final auction.
In the next article we shall present the process of the procurement proceeding, which leads to the selection of an electronic auction, and we will talk about selecting the right type of auction.