Advantages and Disadvantages of Online Reverse Auction

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Q1
Beam and Segev (1997) defined an electronic auction as a special case of electronic negotiation and an electronic reverse auction (e-RA)-synonymously named online reverse auction - is a frequently used type of electronic auction in B2B commerce. Among different procurement methods an electronic reverse auction emerged in the mid 1990s started to play an important role. Initially it was adapted by automotive and aerospace procurement managers for commodity parts. Nowadays it is applied and extensively used by many companies both of public and private sectors, non-profit organizations. Annual spend sourced by e-RAs could be normally estimated at 10-15% for an average company and at half of annual spend for aggressive players. As Moorhouse noted (2008) analysts have noted that among Fortune 500 companies, almost all private sector firms of this size employ reverse auctioning today to some extent. Fast acceptance and growing popularity of eRAs is generally explained by Internet development and based on it software systems. Smart and Harrison (2003) pointed that the Internet, and new e-Procurement applications, allow companies to trade with an almost infinite number of suppliers online at very low cost. Sustainability of this technique is confirmed by many years of efficient implementation and economic value it adds. For buyers there were some valuable advantages of this method such as automating of many issues of sourcing process for incumbent suppliers, reducing costs by attracting contender vendors, shortening time spent on purchasing and making company’s needs more open on the market. This technique also increases transparency of the process providing equal participant’s treatment due to ‘compromising free’ approach and making s...

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...or alternative auction scenarios, have real possibility to establish bottom line price.
For a buyer it is significant to pre-calculate the switching costs in case incumbent supplier loses the auction.

Conclusion
Reverse auctions proved their efficiency during e-business boom have all the chances to again establish themselves as a very useful tool for achieving competitive advantage both for buyers and suppliers. In essence e-RA being a simple mechanism and saving millions of dollars is a real working tool to obtain financial and intangible benefits.
For one thing this technique allows new supplier to come to the market making the competition more transparent and exiting. For another it still requires adequate perception, discipline and contribution.
It seems that reverse auctions have all the opportunities to go further making the process easier, faster and cheaper.

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