Reverse Auctions: Principles to Live By

I was scanning the current issue of Purchasing magazine, and found a great article on the subject of reverse auctions, detailing Royal Dutch Shell’s experiences.

This reminded me of the excellent "Top 10" Commandments that were first published by Purchasing magazine in 2003—and are still relevant today. Here is that list of reverse auction guidelines, reprinted with permission from Paul Teague, editor of Purchasing: 

1. Mean it if you do it. Significant supplier resources are devoted to preparation for reverse auctions. Intend to award business at the end of the process.
2. No reconnaissance by auction. Don’t use the auction process as an attempt to gather market intelligence. It’s an insult to your most important partners.
3. No outside quotes. All deals must be done according to the stated rules and conditions.
4. Keep out the shills. Only invite participants if you absolutely are willing to do business with them.
5. State all terms and conditions up front.
6. Make sure that all participants receive the same information and clarifications in a timely manner.
7. Award business quickly and inform participants of auction results. The actual award, of course, is confidential, but let participants know the process is completed.
8. Don’t change the structure of lots after the bidding is completed. You made the rules, and you have to live by them. Bids are made based on the lots as structured. Changing the rules is a breach of trust.
9. Set realistic price expectations. If those aren’t achieved, let the bidders know in a timely manner.
10. Hold suppliers accountable for what they said they would do.