Which eAuction Type Is Best Fit For You?

Procurement Auction Background

An auction is a process of negotiation for trading goods and services, gaining real market pricing information and is a method for determining the value of a commodity that has an undetermined or variable price.

Our Curtis Fitch procurement software provides organisations with a powerful set of tools to manage their sourcing projects in an eauction format helping them maximise profits in global negotiations and benchmark their marketplace.

Types of eAuction Events

There are two main types of auction, reverse and forward.

Forward Auctions

In a Forward Auction, bidders compete to win by increasing the price of the product or service they are negotiating.

Reverse eAuctions

In a Reverse Auction bidders compete to win by decreasing the price of the product or service they are negotiating.

Auction Form Types

There are many factors which can be used to influence the basic auction form and consideration for each of the following points should be made when constructing procurement negotiations.

Pre-Auction Bid Collection
Pre-Auction Supplier Engagement
Information given to suppliers pre-auction, and on their bidding screens during the auction e.g. ranking, lead price, Award Basis – e.g. single supply, multiple supply, partial volume.
Time Limits and Extension Times (e.g. 15 or 30 minute Auction)
Minimum or Maximum Limits on Bid Prices (Bid Decrement amounts)
Messaging during the eAuction to encourage participation
Line Item Structure – e.g. single line items, basketed line items, break down of price using formulas.
Post-Auction Supplier Engagement
Reserve Price and/ or suggested price – a reserve can be set to ensure item is not awarded if the reserve is not beaten

Auction Types

There are a number of types of auction; the main types are listed as follows:

Reverse Sealed Bid First Price

Commonly used in tendering, particularly for government contracts.

Bidders submit bids to the auctioneer without knowledge of the amount bid by other participants. The lowest bidder is declared the winner and pays the price they submitted.

Bidders cannot see the bids of other participants and so they cannot adjust their own bids accordingly. This type of auction is distinct from the English auction, in that bidders can only submit one bid each.

Reverse Open English

Bidders submit bids to the auctioneer with some knowledge of the amount bid by other participants. Bidders are able to submit multiple bids – bidding lower and lower to compete with other bidders during a set time frame. The lowest bidder is declared the winner, and pays
the lowest price they have submitted.

In participants type their bid amount into a box, to try to beat the best price.
Typically, opening bids are collected prior to the Auction. In this case, each bidder starts in the auction at their pre-auction bid price.
The auction has a set start time and duration – extensions may be allowed.
Bidders have some knowledge of the amount bid by other participants – for example, they will know if they are in first place.
English Auctions rely on active competition among bidders – Bidders compete by bidding decreasing prices which must decrease the bidder’s individual current bid by a predefined decrement. (e.g. a minimum of .£1.00 below the bidders current price)
When extension is allowed – the auction ends when no participant is willing to outbid the current standing bid. Then, the participant who placed the current bid is the winner and pays the amount bid.
While the highest bidder pays the amount bid, an English auction is termed second-price since the winning bidder need only outbid the next highest bidder by the minimum decrement. Thus the winner, effectively, pays an amount equal to (slightly lower than) the second lowest bid.
If no competing bidder challenges the standing bid within a given time frame, the standing bid becomes the winner, and the item is sold to the lowest bidder at a price equal to his or her bid.

Reverse Take Lead English

Bidders submit bids to the auctioneer with some knowledge of the amount bid by other participants.

Bidders are able to submit multiple bids – bidding lower and lower to compete with other bidders during a set time frame. Each bid must take the lead over the current lead bid by a set amount.

The lowest bidder is declared the winner, and pays the lowest price they
have submitted.

Identical to Reverse English Open Auction except that bidders are forced to bid a set amount, forcing them to take the lead on that item.
The participants click a button with a set bid amount – causing
them to take the lead in the auction on that item by a set amount.
Typically, opening bids are collected prior to the Auction. In this case, each bidder starts in the auction at their pre-auction bid price
The auction has a set start time and duration – extensions may be allowed.
Bidders have full knowledge of the amount required to take the lead on each item.
When extension is allowed – the auction ends when no participant is willing to outbid the current standing bid. Then, the participant who placed the current bid is the winner and pays the amount bid.
While the highest bidder pays the amount bid, an English auction is termed second-price since the winning bidder need only outbid the next highest bidder by the minimum decrement. Thus the winner, effectively, pays an amount equal to (slightly lower than) the second lowest bid.
If no competing bidder challenges the standing bid within a given time frame, the standing bid becomes the winner, and the item is sold to the lowest bidder at a price equal to his or her bid.

Reverse Dutch eAuctions

Bidders submit bids to the auctioneer with no knowledge of the amount bid by other participants.

Bidding starts at a price so low no seller will accept, and which is increased until some participant is willing to accept the auctioneer’s price, or a predetermined reserve price (the buyer’s minimum acceptable price) is reached.

The winning participant pays the last
announced price.

Bidding starts low and increases by set amounts at set periods of time until the first supplier bids or a reserve is met.
Often used in an Anglo-Dutch combination, e.g. ‘Golden Ticket’ – suppliers take part in first round English Auction, and those that qualify are taken through into the second round Dutch – normally for total award.
Can be useful when collusion is perceived as it encourages a supplier to break ranks.
Named after the Dutch tulip auctions, this form of auction is one where the auctioneer starts with a high asking price, which is then lowered until a bidder accepts the auctioneer’s price. This is a quick way of auctioning goods, since a sale only requires one bid.
In the business world, a Dutch auction is a method for pricing shares (often in an initial public offering) whereby the price of the shares offered is lowered until there are enough bids to sell all shares. All the shares are then sold at that price. The U.S. Treasury uses the Dutch auction method to sell Treasury securities, and many U.S. companies use the method for share buybacks.

Reverse Japanese