REVERSE AUCTIONS: EXPERIENCE SHARING

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REVERSE AUCTIONS EXPERIENCE SHARING

• By
• Raj.k. Dikshit
• Addl General Manager
• BHEL, Bhopal

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REVERSE AUCTION ???...

• Over the past several years, there have been
  reforms in the procurement procedures/process .
• It has become essential to look at new methods of
  operation to employ innovative cutting edge
  processes.
• reverse auctioning is One such innovation has
  recently been tried in BHEL-BHOPAL .

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What is Sourcing ?

• Sourcing is the strategic process of selecting a
  supplier and entering into an agreement to
  purchase materials or services at negotiated
  prices .
• "e-Sourcing" leverages Internet technologies to
  make the sourcing process faster and more
  efficient.
• experience has shown e-sourcing can dramatically
  reduce a firm's annual costs of purchasing.

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What is reverse auction

• . A traditional auction NORMALLY INVOLVES A
  SELLER OFFERING AN ITEM FOR SALE WHILE POTENTIAL
  BUYERS COMPETE WITH EACH OTHER FOR PURCHASE. Thus
  price is driven up, until no buyer is willing to
  go up further.
• In a reverse auction, MULTIPLE SELLERS OF A
  PRODUCT VYE FOR THE BUSINESS OF A SINGLE BUYER.
  Therefore the price is driven down.

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How does a reverse auction works

• Prescreening of suppliers is essential to have
  responsible established competitors who offer
  desired quality products .
• an online auction service provider conducts the
  process through a secure website where an
  electronic solicitation is issued with unique
  special requirements.
• Suppliers (vendors) are required to pre register
  with the auction service provider receive
  training in how to participate .

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How does a reverse auction works.

• All bidders must agree to abide by the terms
  conditions of the auction service.
• All participating vendors are notified start time
  closing time of auction.
• Bidders submit their price remotely from their
  offices.
• Bidders names are masked they can see prices
  real time to know status of their bid.

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How does a reverse auction works.

• There is no communication or negotiation with the
  bidders.
• Buyer also watches the bidding process from his
  office.
• Identity of bidders is available only to auction
  service buyer.
• At the conclusion a winner emerges

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Potential benefits from Reverse Auction

• Competition is good not only because it is fair
  way of doing business but also because it saves
  money.
• In reverse auction competition is fierce one
  ,where bidders get not one shot but several shots
  till they are successful or unwilling to go any
  lower to continue in the process.
• As a result buyer reaps the benefit.

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PROCESS ADOPTED

• EOI Floated (both press website) with qualifying
  conditionscommercial termstentative
  specifications proposed dates for prebid
  discussions.
• Scrutinizing responses received
• Pre bid discussions on a fixed date covering
  commercial terms documents submitted by them.

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PROCESS ADOPTEDcont

• Technical discussions with individual on
  specifications.
• Based on discussions final spec drawn to float
  NIT.
• Vendors sounded about loading provision in case
  of deviation from our std commercial terms.

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EXPRESSION OF INTEREST

• To short list interested parties based on
  qualifying criteria.
• To arrive at uniform specification parameters
  acceptable to both us vendors.
• Issue of tender based on above to avoid any non
  compliance.

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ENGLISH REVERSE NO TIES AUCTION

• There is only 1 Bidder at a particular position /
  rank, which means 1 L1, 1 L2 so on.
• The criteria followed here is of Price only. So,
  the Bidder who quotes the lowest Price is
  declared as the winner of the Auction.
• A bidder here can revise his bids, which means he
  can quote a better price than the lowest Bid
  always. Here, the Bidder cannot quote / Bid equal
  to the Leading / Lowest Bid.

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CASE-1 CNC M/C TOOL-T

• AUCTION CONDUCTEDNOV,2005
• DURATION THREE HOURS
• NUMBER OF BIDDERS TWO
• SAVING 11.18 (180/1600)

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CASE-2 CNC M/C TOOL-TM

• AUCTION CONDUCTEDDEC,2005
• DURATION THREE HOURS
• NUMBER OF BIDDERS TWO
• SAVING 11 (137/1300)

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CASE-3 CNC M/C TOOL-CG

• AUCTION CONDUCTEDDEC,2005
• DURATION SIX HOURS
• NUMBER OF BIDDERS THREE
• SAVING 43 (326/752)

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CASE-4 CNC M/C TOOL-VTM

• AUCTION CONDUCTEDDEC,2005
• DURATION THREE HOURS
• NUMBER OF BIDDERS TWO
• NOT A SINGLE BID MADE BY EITHER,THOUGH THEY
  VISITED SEVERAL TIME.
• RESULT AUCTION FAILED.

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SUMMARY OF R.A.CONDUCTED.

• R.AUCTIONS ATTEMPTED 13 NOs.
• R.AUCTIONS SUCCESSFUL10 NOs.
• Value savings in successful61/15.5
• Value savings in failed 45/1.4
• (done with conventional closed bid )

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conclusions

• Process is transparent.
• Only technically financially sound firms qualify
  for the tender.
• Pre bid discussions with vendors on tentative
  specifications ensures that qualified bidders
  meet technical specs in NIT .

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Lessons learned from experience

• Reverse auction works best when
• Items have well defined specifications and
  universally accepted standards.
• Large value items
• Established qualified base of vendors (at least
  three)

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