Reverse auctions: Analysis and review

As organisations extend the reach of their information systems into the supply chain e-procurement has become a driving force for achieving substantial cost savings. One mechanism that facilitates e-procurement is the reverse online auction. Reverse online auctions are delivered by intermediaries and promise to deliver savings up to 20% for the buying organisations. The rhetoric of B2B collaboration has "win-win" scenarios for all who participate in online auctions. Is this true? This paper will analyse a previously reported reverse auction (Stein & Hawking 2002a, Stein & Hawking 2002b) from the viewpoint of the four main players and question the value proposition of the reverse online auction as a tool in B2B e-commerce. The main outcomes show that the auction vendor and buyer were major winners with the both the winning and losing supplier expending considerable time and effort to participate in the auction only to realise that the reverse auction places cost above all other factors in awarding the contract. The importance of cost over service delivery, customer support and buyer-supplier relationship is the basis for a discussion of the viability of the auction model as well as a review of the process one year after the first reverse auction.