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When people hear about e-auctions, they often think of a quick and simple bidding process between suppliers and buyers. In reality, it’s more complex than that. Since companies can choose from several types of auctions, it’s crucial to select the procedure that best suits their business goals. The right choice can significantly increase the success rate of the auction. In this article, we’ll share valuable tips for selecting the most suitable auction type.
The rise of digitalization is having a significant impact on procurement processes as competitive bidding procedures are increasingly moving to the online space. E-auctions offer several advantages; the digital process makes the request-for-proposal procedure fast, transparent, and cost-effective, eliminating the need for months of negotiations.
It’s clear that cost is not the only factor when selecting a supplier, but in the case of auctions, the competition is primarily based on price.
There are several techniques and methods that companies can choose from. Let’s explore some of the most popular types of reverse (procurement) auctions to help you decide which one fits your needs best.
Unlike "traditional" auctions—where buyers compete by offering increasingly higher prices to win the goods or services from the seller—procurement auctions reverse these roles. In a reverse auction, the buyer aims to secure a product or service at the lowest possible price, while sellers compete by offering increasingly lower prices.
In procurement auctions, companies typically use three main types of auctions:
One of the most commonly used methods is the reverse English auction, where suppliers outbid each other by continuously lowering the bid value. The starting price decreases based on the bids submitted by the participants until the final (lowest) price is reached. A supplier can only place a bid if their offer is better than their current highest bid.
During the auction, participants usually see their position relative to other bidders and, depending on the settings, the best price offered.
The auction may be time-limited or continue until no new, better bid is placed during the bidding period.
Although the reverse English auction might seem simple and easy at first glance, if applied incorrectly, it may not yield the desired outcome. This type of auction is particularly suitable when:
We used the reverse English auction for the Gyulahús Kft supported auction, which was conducted using the Fluenta Auction module. Our client achieved an average saving of 12% compared to the initial bid price during the auction.
The Japanese auction starts with the buyer sending the starting price to the suppliers, which they must accept to participate in the auction. During the auction, the bid price decreases at predetermined intervals and by a set amount—hence it’s often called a "ticking" auction. Suppliers must either accept the new price and remain in the auction or reject it and withdraw from the competition.
In this type of auction, suppliers cannot submit arbitrary prices (as in the reverse English auction). They can only accept or reject the suggested price from the system within a limited timeframe.
The Japanese auction essentially operates as an elimination process, continuing until only one supplier remains—or until a tie is reached.
When to Use Japanese Auctions
Unlike reverse English auctions, Japanese auctions are most effective when there’s a single item or service involved. It’s also useful when:
Since the system can be set up so that the actual number of participants remains hidden, the competition remains intact even if only two or even one supplier remains.
The Dutch auction dates back to the 1600s. Despite its long history, it’s relatively rarely used in procurement today.
The auction process is similar to the Japanese auction, but the pressure on participants is more intense since speed is critical.
The buyer sets an unrealistically low opening price, not expecting any response. The price increases at predetermined intervals until one supplier accepts it. Unlike Japanese auctions, participants don’t actively bid—they monitor the price increase and wait until they are ready to accept the price.
The auction stops when the first supplier accepts the offered price. The winning supplier is the one who accepts the price first.
Dutch auctions can be effective even when other auction types would fail to generate competition, such as when:
Dutch auctions are ideal for industries with rapidly changing prices (e.g., hospitality, agriculture, and construction).
Choosing the right auction type requires careful analysis of market conditions and supplier behavior. Here’s what to consider:
Although reverse auctions are becoming more popular in business, many suppliers have never participated in an electronic auction. Proper preparation is key:
Regardless of which auction type you choose, Fluenta’s electronic auction solutions support all formats.
Not sure which auction type suits your business best? Our experts are here to help you select the most suitable auction type and develop an auction strategy tailored to your business needs and goals.
Contact us today and take your procurement to the next level with Fluenta Auction!
