The Reverse Auction Conundrum: Despite Benefits, Why Does Adoption Lag?

My British colleague across the pond, Peter Smith, recently penned a succint post highlighting an interview he had with a fellow UK procurement executive that suggests some of the reasons reverse auction usage is not more prevalent. Incidentally, I'm looking forward to seeing Peter next week at a launch party for this new book on buying professional services next week in London. But since I've yet to get my hands on a complete copy of his text, I'll save my commentary and review for another series of posts later in the summer and get back to the subject at hand: reasons for reverse auction adoption slippage.

In his post, Peter shares a bit of commentary from colleague Jonathan Rollason, a former public and private sector executive with a CPO-laden resume who now runs a small "e-auction" consultancy. According to Jonathan, one of the main reasons procurement organizations shy away from reverse auctions is because they "sometimes lack the confidence to run them." Moreover, he "believes procurement people are often scared of running auctions because they might expose how badly they are currently buying!"

I personally think the reasons for a lack of reverse auction adoption are much more complicated than a lack of confidence or fear on the part of buying organizations. For one, I think many supply markets are "reverse auctioned out," and that there are actually more creative negotiation strategies that can help save more on a total cost basis than simply pulling out the hammer. I also believe that in both the US and UK we need to increase the training and knowledge transfer from providers to practitioners when it comes to learning when to use the correct formats. For example, when is a multi-round eRFX-based sealed bid a more effective format than a traditional "live" auction format with bidder feedback that shows rank only? Or when should a company consider using optimization versus a multivariate or transformational bidding approach?

When reverse auction usage sputters, I say blame the messenger as much as the means. We need to learn to use all the capabilities we have available rather than tossing the entire concept in the spend rubbish bin for good.

Jason Busch

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