Reverse Auctioning: Saving Money and Increasing Transparency

 

Reverse Auctioning: Saving Money and Increasing Transparency

Wednesday, October 19th, 2011 - 11:21
Wednesday, October 19, 2011 - 11:52
Reverse auctions—auctions where an organization posts a buying requirement and interested suppliers drive prices down as they bid against one another to win the auction—are a simple idea whose time has come.

Reverse Auctioning: Saving Money and Increasing Transparency by Professor David C.Wyld, is the latest report from the IBM Center. It is Professor Wyld’s second on the subject of reverse auctions. In 2000, the IBM Center published The Auction Model: How the Public Sector Can Leverage the Power of e-Commerce Through Dynamic Pricing, the first major academic study of reverse auctions.

Professor Wyld, in his latest report, describes the increasing use of reverse auctions by government at all levels across the world. For te unfamiliar, reverse auctions are auctions that enable sell­ers to “bid down” prices for their goods and services. The use of reverse auctions has substantially increased since Wyld’s initial report in 2000, albeit at a slower pace than anticipated in the earlier study. This new report contains original research on the potential of reverse auctions as a government cost-saving tool that also saves time and increases transparency.

Specifically, Professor Wyld presents the following in this report:

  • A case study of how the U.S.Department of State has used reverse auctions to save money and increase competition
  • A numerical analysis of (a) the scope of government pro­curements appropriate for reverse auctions and (b) the estimated potential savings to be derived by government in increased use of reverse auctions

Potential Savings from Reverse Auctioning

Wyld estimates that the federal government could save $8.9 billion by increasing the use of reverse auctions. Wyld’s research estimates that the Department of Defense alone could save nearly $6.1 billion by increasing its use of reverse auctions. In addition to cost savings, the Wyld case study of the Department of State demonstrates that reverse auctions substantially increased competition among suppliers and saved departmental contract staff substantial time.

Recommendations

While there is clear evidence of the value of reverse auctions, their use in government has still been somewhat limited. For this to change, Wyld recommends that departmental chief acquisition officers be assigned responsibility for taking the lead and making procurement savings and efficiencies a strategy priority for their organizations, with reverse auctions a central focus of that effort. Wyld recommends intensive staff training and change management initiatives as government implements new and innovative approaches to procurement. He also outlines a total of 14 recommendations for putting the power power of reverse auctioning to work for government organizations, their acquisition staff, and most important, for the American public.

We trust that this report will provide useful and helpful informa­tion to government managers at all levels as they move toward the increased use of reverse auctions.