Online reverse auctions: Common myths versus evolving reality

Abstract

Business-to-Business (B2B) online reverse auctions have become a popular way to source products and services. However, due to their relative newness and conflicting reports, several myths and misconceptions about them still exist. This article investigates the truth behind five of the most common myths associated with reverse auctions and, based on insights obtained from 30 case study companies, provides prescriptive evidence and direction for supply managers regarding how not to fall victim to these myths. As such, we present and offer useful guidance to achieve the following realities: First, while a lower price is one objective in reverse auctions, it is often not the most important, and can easily be complemented with non-price attributes. Second, commodity items are usually easier candidates for reverse auctions, but non-commodity items can also be bid successfully. Third, reverse auctions can frequently hurt buyer–supplier relationships; however, there are many ways to prevent this from happening. Fourth, while first-time bidding events generally result in higher savings, continued cost advantages are possible. And finally, fifth, even though there is a decline in reverse auction usage, they are here for the long-run.