What are the major purposes of forward auctions and how are they conducted

 Reverse Auction 

• A reverse auction is a type of auction in which the traditional roles of buyer and seller are reversed. 
• Thus, there is one buyer and many potential sellers. In an ordinary auction (also known as a ‘forward auction’), buyers compete to obtain goods or services by offering increasingly higher prices. 
• In contrast, in a reverse auction, the sellers compete to obtain business from the buyer and prices will typically decrease as the sellers underbid each other.
• A reverse auction is similar to a unique bid auction because the basic principle remains the same; however, a unique bid auction follows the traditional auction format more closely as each bid is kept confidential and one clear winner is defined after the auction finishes.
• For business auctions, the term refers to a specific type of auction process (also called procurement auction, e-auction, sourcing event, e-sourcing or eRA, eRFP, e-RFO, e-procurement, B2B Auction). 
• Open procurement processes, which are a form of reverse auction, have been commonly used in government procurement and in the private sector in many countries for many decades.

Auction

• An auction is usually a process of buying and selling goods or services by offering them up for bid, taking bids, and then selling the item to the highest bidder or buying the item from the lowest bidder. 
• The branch of economic theory dealing with auction types and participants’ behavior in auctions is called auction theory.
• The open ascending price auction is arguably the most common form of auction in use throughout history.
• Participants bid openly against one another, with each subsequent bid required to be higher than the previous bid.
• An auctioneer may announce prices, bidders may call out their bids themselves or have a proxy call out a bid on their behalf, or bids may be submitted electronically with the highest current bid publicly displayed.
• Auctions were and are applied for trade in diverse contexts. 
• These contexts are antiques, paintings, rare collectibles, expensive wines, commodities, livestock, radio spectrum, used cars, even emission trading and many more.

  Just last year, we published a blog outlining the value of a particular auction type: the reverse auction. It listed 5 benefits, which included:

  1. Lower purchasing costs through increased competition
  2. The potential to gain better savings than a present ‘target’ amount
  3. Time savings through a reduced negotiation phase
  4. Increased ability to meet deadlines thanks to a set auction date
  5. Increased transparency for suppliers as they all have the same data at the same time

  The reasons above are as valid now as they were a year ago, and will remain so in 2021. This has led in part to reverse auctions becoming synonymous with eAuctions and procurement auctions in general. However, they are not the only option. Let’s discuss reverse auctions and four alternatives.

  Auction Types

  Reverse auctions

  As I’ve said, reverse auctions are the most popular type of eAuction. Under this auction design, buyers make requests for goods or services. The suppliers then place bids that reflect the amount they’re willing to be paid for providing the goods or services.

  These types of auctions can be structured in several ways:

  • Positional bidding: a type of descending price auction in which the supplier can the position of their bed in relation to other bids but not the value of the other bids.
  • Leading price bidding: all suppliers can see the amount of the lowest bid but not the identity of the leading bidder, nor the positon of their bid unless it is the lowest.
  • Descending clock: this auction runs for a predetermined time and can be either a positional bidding or leading price bidding auction.

  Dutch reverse

  In a Dutch reverse auction, bidding opens with a low price that increases in set values at fixed intervals. When the price rises enough to entice a seller, they place a bid and win the auction at that bid. Dutch Reverse auctions suit the procurement of multiple items, as each item can be auctioned separately. Suppliers can bid on as many or as few items as they wish to supply.

  Japanese reverse

  While the Dutch reverse auction starts at the lowest price point, the Japanese reverse auction starts at an initial entry point. Potential vendors must accept this entry point or drop out. The price then keeps dropping at predefined intervals until only one participant remains.

  Best Value reverse

  Under this auction structure, the suppliers provide the best value proposed solution, which is evaluated on weighted, price and non-price factors. The outcome is not determined at the lowest price. Therefore, Best Value reverse auctions are best suited for procurement objectives, where the price is secondary to other factors.

  Forward auction

  So far, all the auctions we have listed maximise the value for buyers. But as procurement professionals, we also need to be aware of auction structures that favour suppliers. One such structure is the Forward Auction, which encourages the suppliers to create their own marketplace. Bidders compete in real-time until the auction is complete. The item is awarded to the highest bidder. Procurement officers tasked with impact procurement to maximise social good prefer Forward auctions..

  When are auctions appropriate?

  As Buying for Victoria points out, there are no rules governing when to use procurement auction. However, if one or many of the following characteristics apply, it might be beneficial to go the auction route over using traditional tender processes. These characteristics are:

  1. the goods or services requirements can be clearly specified;
  2. standardised, commercial-off-the-shelf solutions (commodities) are available or possible;
  3. price is the primary or sole basis of competition;
  4. there is a competitive market with enough suppliers able to provide the good or service required who are willing to take part; and,
  5. there is an opportunity for savings.

  Make sure you’re choosing the right auction types

  Comprara can help you successfully conduct the most appropriate auction type for your needs. Get in touch with us today, take advantage of our extensive knowledge and experience, and let’s get the bids rolling in.

  What are the major purposes of forward auctions?

  In an ordinary auction (also known as a 'forward auction'), buyers compete to obtain goods or services by offering increasingly higher prices. In contrast, in a reverse auction, the sellers compete to obtain business from the buyer and prices will typically decrease as the sellers underbid each other.

  What are the types of forward auction?

  There are actually four types of forward auctions:.

  English auction..

  Dutch auction..

  Japanese auction..

  Yankee auction..

  How are forward auction and reverse auctions different?

  When many potential sellers bid for the prices at which they are willing to sell their goods and services to a buyer, this is known as a reverse auction or buyer-determined reverse auction. In a forward auction, a seller puts up an item, buyers compete to obtain goods or services by offering increasingly higher prices.

  How is auction done?

  The bidders lift up their bidder card to announce their bid price so the auctioneer can identify who is making the bid. The process ends when there are no more bids, and the buyer making the highest bid gets the item. The highest bidder takes ownership of the item immediately after paying their bid price.