The 20% solution?: a case study on the efficacy of reverse auctions

In the late 1990’s, online B2B auctions were proliferating and were being adopted in a wide variety of circumstances. The reverse auction tool has evolved to take advantage of internet technology, and online auctions have been identified by many large organisations as a tool to achieve procurement savings. As companies adopt this technology, it is important for them to understand the implications of this type of procurement. This paper adopts a case study approach to identify the issues for both buyers and sellers using this type of B2B application. It describes the conduct of a reverse auction, from the preliminary steps all the way to the final awarding of the contract. The case study is viewed through the eyes of a supplier, undertaking a reverse auction for the first time. The main outcomes show that the auction vendor and buyer were major winners - with the supplier expending considerable time and effort to participate in the auction, only to realise that the auction places cost above all other factors in awarding the contract. The importance of cost over service delivery, customer support and buyersupplier relationship was the “bitter pill” the supplier had to swallow.