Electronic reverse auctions: Promises, risks and conditions for success

Because reverse auctions hold high promises, it has become a popular tool in the past several years. One estimate is that as much as US$50 billion worth of goods may be purchased with reverse auctions in 2001. However, risks exist with reverse auctions. To better understand purchasers' motivation for using reverse auctions, what they perceive as the risks and the conditions required for successful use, interviews were conducted with 41 purchasing professionals who had used reverse auctions. The interviews revealed three primary motivations, three perceived risks and four conditions for success. The conditions required for success are: (1) the product or service specifications must be clear and comprehensive, (2) the purchase must be large enough to provide an incentive for the supplier to participate in the auction, (3) the appropriate supply market conditions must exist, and (4) the appropriate infrastructure must exist within the buying organization.