Reverse AuctionReverse Auction

DefinitionDefinition

• A reverse auction is a type of auction in which the roles of buyers and sellers are reversed. In an ordinary auction (also known as a forward auction), buyers compete to obtain a good or service, and the price typically increases over time.

• In a reverse auction, sellers compete to obtain business, and prices typically decrease over time.

HistoryHistory

• The use of reverse auctions increased in the late 1990s.

• This development was directly linked to the emergence of Internet-based online auction tools

• FreeMarkets has been the pioneer of online reverse auctions.

History

• The dot-com boom era has been a major advantage for this company.

• General Motors and SAP started soon using this new marketplace.

• In the past few years, the development of smart phones have been responsible for the development of mobile reverse auctions, that are B2C (business to consumers) auctions instead of B2B.

• Travel is the most successful reverse auction item.

• Buyers first name their price. Then they invite suppliers to bid for their customers.• The company website selects generic categories.

Then it finds several suppliers who agree to negotiate with the company to sell their products to the website’s customers (the buyers). They bid against each other to offer the lowest price.

• The company charges sellers a certain amount to be listed on the website.

ProfileProfile

• Luxurylink.com offers the world’s best luxury hotels and resorts at auction.

• The hotels are:- 4 and 5 stars ones- Inns- Destination Clubs- All-inclusive hotels- Resorts of different collections: Six Senses,

Mandarin Oriental

Case study: Luxurylink.comCase study: Luxurylink.com

• Wikipedia, Issus and Opportunities• Supply Chain Management Review

Sites giving advice on reverse auctionSites giving advice on reverse auction

Key adviceKey advice

• Buyers should not assume that reverse auctions will deliver savings

• Set realistic price expectations• Be careful that no unit price-focused

purchasing metrics are used, such as purchase order variance or material price variance.

• A hotel has to be aware of the other suppliers

• Be aware of the rules of the website

How can a hotel best participate?How can a hotel best participate?