Forward Thinking about Reverse Auctions

Online reverse auctions look like a silver bullet that cuts costs quickly using e-business tools. Reverse auctions are fixed-duration bidding events hosted by a single buyer, in which multiple suppliers compete for business. Proponents claim reverse auctions can lower the cost of procuring products and services as much as 20%, making them the e-business application of choice for companies faced with declining sales and margins. However, the raw savings overstate the value of this vaunted online procurement technique. Like any tool, reverse auctions, when properly used, can provide value. But when they are overused or misused, the savings they promise can be illusory, and they can inflict real damage on supplier relationships.