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Kausalya Nandakumar

Kausalya Nandakumar is the Chief Executive Officer of SmartShift.

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Reverse Bidding - Distinguishable Value Proposition

Although, the usage of reverse bidding has been very successful in the context of governmental or PSU contracts nationwide, the approach still has many factors that need to be considered during implementation.

Photo Credit : johnsellsgreenville.com,

The vast majority of us would be uneasy if we are compelled to don another avatar especially in India’s highly traditional business environs. However, if one were to be told that changing roles would lead to better deals especially in case of reverse bidding – it will definitely attract more willing participants.

Within reverse bidding /reverse auctions, the role of buyer and seller are interchanged or reversed. Unlike traditional bidding procedure wherein buyers compete to gain goods or services by offering increasingly higher prices, in reverse bidding scenario, the sellers compete to receive business from the buyer and prices will typically decrease as sellers underbid each other.

Optimum Scenario:

The reverse bidding procedure is generally more conducive to a purchase wherein the specifications are simple and there are not a lot of differences between supplier offerings. There should be a large number of suppliers and they should all have excess capacity since they would then be more incentivized to bid lower in order to fill their capacity. Price of the commodity under question should not be fluctuating. And finally, there should be sufficient lead time available for conducting the auction successfully.

Width Of Reverse Bidding Usage: Traditional Industries & New-age Approaches

Few examples of reverse bidding usage in traditional sectors include the aviation ministry’s UDAN (Ude Desh ka Aam Nagarik) programme for providing air connectivity to the hinterland. In another instance, the National Highways Authority of India has successfully awarded highway development projects by reverse bidding. Bidding for projects at aggressive tariffs in reverse auctions led to India’s solar energy tariffs plummeting from Rs.15 to about Rs3.30 per unit in February 2017.

Today, reverse bidding has also reached the masses through new-fangled technology enabled companies. For instance, ecommerce or travel websites where an individual can bid for a hotel room. Here, the customer suggests the price she/he is prepared to pay. This information is passed on to sellers on the platform, who then compete and make a counter-offer which is negotiable and ultimately leads to final deal beneficial to both parties.

There also exists inter and intra-city vehicle aggregators who cater to the on-demand requirements of transporting cargo or even people. The new reverse bidding led approach has led to vehicles operating additional trips a day with a huge increase in revenue.

Few taxi aggregators have used reverse bidding for cases wherein vehicles travel out of town and cannot return on the same day since there is no guarantee of getting a customer on the return trip.

Conclusion:

Although, the usage of reverse bidding has been very successful in the context of governmental or PSU contracts nationwide, the approach still has many factors that need to be considered during implementation. Few factors that need to be taken into consideration includes nature of product, of market, and of buyer-supplier. However, notwithstanding the few shortcomings - it still remains an opportune approach if integrated properly with relevant technological platforms.

Benefits To Sellers:

• Availability of qualified buyers: Buyer’s every requirement is clearly specified. Suppliers can evaluate the buyers on the basis of pre-set parameters and qualify them before replying to the RFP/RFQ and pitching their products.

• All's not lost, always: The seller can watch everyone’s bid price, reduce his in comparison with that, and secure the order.

• Not constrained by location: With reverse auctions conducted using online procurement software, sellers can break free of locational constraints and reach markets they never before could.

Benefits To Buyers:

• Suppliers do the heavy-lifting: The supplier does most of the work. All the buyer needs to do is to list the requirements of the organization and publish this list where it is accessible to suppliers.

• Savings on time, labour, and money: The path to efficiency becomes easier. As noted in the previous point, it is the supplier who does most of the work. The buyer can save on save on time and money & manpower utilized.

• Technology as an equalizer: Just as it is for the sellers, reverse auctions can also help buyers by opening up new horizons for them. Buyers can have access to sellers who may be far away but may be offering better quality at lower prices

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house


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