The Procurement Glossary » Reverse Auction

Reverse Auction

Sourcing & RFx

Definition

A live, competitive sourcing event in which pre-qualified suppliers bid the price down in real time to win the buyer's business.

Explanation

Unlike a normal auction where prices rise, a reverse auction drives them down: suppliers see their rank (not competitors' identities) and undercut each other within a set window. It works best for well-specified, commoditised goods where suppliers are interchangeable on everything but price.

Example

Six approved suppliers compete in a 30-minute reverse auction for a year's supply of A4 paper; the winning price lands 12% below the incumbent's.

Related terms

• Request for Quotation (RFQ) — A sourcing document that asks multiple suppliers to price the same clearly-specified requirement so their bids are directly comparable.
• e-Sourcing — The use of software to run sourcing events — building RFx, distributing them to suppliers, and collecting and comparing responses online.
• Bid — A supplier's formal priced response to a sourcing request, stating what it will supply, at what price and on what terms.
• Sourcing — The upstream procurement activity of finding, evaluating and selecting the suppliers a business will buy from.

Frequently Asked Questions

What is Reverse Auction?

A live, competitive sourcing event in which pre-qualified suppliers bid the price down in real time to win the buyer's business. Unlike a normal auction where prices rise, a reverse auction drives them down: suppliers see their rank (not competitors' identities) and undercut each other within a set window. It works best for well-specified, commoditised goods where suppliers are interchangeable on everything but price.

Can you give an example of Reverse Auction?

Six approved suppliers compete in a 30-minute reverse auction for a year's supply of A4 paper; the winning price lands 12% below the incumbent's.

Back to the procurement glossary | Procurement concepts | Contact us