The new RFQ: the reverse auction

Heard over a couple cubes: "Oh crap, an invite to a reverse auction!" Yes, the only thing worse than getting an official RFQ is getting invited to a reverse auction.

Unfamiliar with the reverse auction? It is an online auction where you bid the price you are willing to sell your product at. These auctions are powerful because they limit control of the sale to the buyer with price as the sole factor. That means the company buying has: decided your product is a commodity, cut out the end users, and will be unsympathetic to pleas of anything unrelated to price.

Here is an article from the other side of the table at Purchasing.com poorly titled as: Not just a cost-reduction tool:

"And while price will always be an issue, more buyers today use reverse auctions to determine best value. That is, they factor into the reverse auction equation the quality and delivery performance of suppliers. They will evaluate potential suppliers before including them in reverse auctions.

'If they pass our quality audits, and, if they pass our financial audits, then we may allow them to participate in reverse auctions,' says DeHart. And while existing suppliers sometimes balk at being part of a reverse auction, they often 'come out looking good,' he says."

In other words, if you meet their minimum performance standards, you are included in the auction. I don't see how that really adds any value to the reverse-auction model. But when someone else bids 25% less than you did, you want to call and ask to make sure the offer is 'apples to apples', but they don't care--its a commodity.