How Many Suppliers is Enough For an Auction? It's Not That Simple …

Alan Buxton recently penned a short post examining how many suppliers is enough to drive optimal competition in a reverse auction environment. One chart that Alan includes suggests that the more suppliers that participate, the greater the savings potential. However, after suppliers, you begin to hit the point of diminishing return. As Alan notes, this finding suggests "that 4 bidders is a good number for a reverse English auction ... [but you can] do better than the model by ensuring that when you select potential suppliers that you are selecting suppliers who have a lower price rather than selecting suppliers at random from the marketplace."

Good thoughts, but I'd say there is no simple equation for the number of suppliers to drive savings in a reverse auction. It depends on a number of factors including the auction format used (e.g., rank bidding), category complexity / number of lots, supply market capacity, and perhaps most important, the amount of marketing you've done to the supply base prior to the event. I can't emphasize this last point enough. If you have three qualified suppliers that you've been able to get sufficiently jazzed about an event, you might get far greater savings -- accounting for similar formats, categories, market conditions, etc. -- than if you got a dozen to show up on bid day.

- Jason Busch

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