Auction is a kind of buying and selling where a single seller sells to a set of buyers. The buyer who quotes the highest price wins and buys the item. A reverse auction is the process of procurement by a single entity, in which it releases a requirement to a set of sellers. The seller that meets all the criteria with the lowest price wins the reverse auction and gets to sell to the buyer entity. The process of quoting a price to sell a particular goods or service in reverse auction is known as reverse bidding.
Across the globe, many governments prefer reverse auctions as the primary method for material and services procurement. In India, government authorities use reverse auctions on both GeM and non GeM portals to procure. On GeM, both government and non-government buyers can create a reverse auction.
How Reverse Auction Works on GeM?
The registered buyers on GeM create a detailed reverse auction (bid). It contains all the details required by the seller to perform the reverse bidding. Details like the product, its specifications, quantity, duration of the bidding and the last date of the submission.
The registered sellers on GeM then submit their reverse bid, in the specified duration. The sellers compete with each other on price in the given time. Sellers keep lowering their prices and the ranking of L1 keeps changing accordingly.
When the bid ends, the top ranking, lowest bidder (L1) wins the reverse bidding and gets to sell to the buyer. It is a straightforward process and GeM brings much needed transparency to it.
What Are the Different Kinds of Reverse Bidding?
Reverse auctions can be categorized into the 3 categories:
1. Open reverse auction: In this kind of auction, the reverse bidding is open to all the sellers registered in GeM.
2. Limited reverse auction: In this kind of reverse auction, reverse bidding is only open to a limited set of sellers who qualify to provide goods and services to the entity.
3. Multi-round reverse auction: This kind of reverse auction includes multiple stages to qualify and meet the criteria specified in the required.
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How to Create a Reverse Auction on GeM?
1. Log in to your buyer ID on GeM portal
2. Click on “Marketplace” from the menu
3. Select “Product or service”
4. Type your product in the search bar and select it from the dropdown menu
5. On the left menu panel, click on “Administrative”
6. Select bid/ra (You could select PAC bid if you need specifications and brands)
7. Then, click on select “consignees”
8. Now, all the products near the location of the consignee will be visible
9. Choose specifications/ parameters from the left panel
10. Select a product matching your specification/ nearest match
11. Click “Add to cart”
12. Proceed to next
13. Before creating a bid, you need to select who can participate in this opportunity:
- Select “Allow any value” if you want to keep the participation open for everyone.
- Select “Choose the selected product’s value as the eligible value” if you want only those sellers who sell products with the same specifications as mentioned by you.
- Select “Manually choose the values for golden parameters” if you want to manually set the eligibility criteria of the reverse bidding participation.
14. Now click on any seller/reseller and proceed. They all have matched with the specifications you have entered.
14. Once it is moved to the cart, click on checkout.
15. Click on the button “bid”
16. The specification page will open to confirm the specifications
17. Additional specifications could also be added here (those which are not already mentioned)
18. Continue and select the consignee and quantity
19. Enter the delivery days, and the number of days in which you need the delivery. (Min 50 days)
20. Proceed and enter bid details like duration of the reverse bidding, validity of offer price, seller rejection redressal time etc.
21. Enter the estimated value of the bid, then select its visibility as public or private.
22. Select eligibility such as turnover, experience, CNC etc.
23. Choose the document needed from sellers
24. If your order value is above ₹5 lakhs, EMD can be demanded.
25. Select any additional terms and conditions for the reverse auction.
26. Verify using an OTP, review the tender PDF before publishing, and then publish.
Advantages of Reverse Auctions
1. Time savings: It saves time as the buyer doesn’t have to collect responses to RFPs from various sellers.
2. Cost Saving: The process of reverse bidding allows buyers to save significant costs in procurement. Every cycle gets the buyer a better price.
3. Market Intelligence: The buyer gets to map the sellers across regions, prices, competition, specifications, margins, strengths and weaknesses.
4. Fairness: Especially online reverse auctions go one step further to be transparent and fair to the buyers and sellers.
Disadvantages of Reverse Auctions for Buyers
- Low quality bids: There is always a risk of sub quality material due to L1 criteria in the reverse bidding process.
- Risk of low participation: The sellers might not participate due to opportunity costs at their side or restricted eligibility criteria.
Disadvantages of Reverse Auctions for Sellers
- Restricts premium products: Most reverse biddings are evaluated on L1 criteria in which premium products can’t compete.
- Digital divide: Many sellers couldn’t participate due to a lack of digital literacy.
Myths in Reverse Auctions
- Reverse auction cost-saving is not sustainable: It is a common misconception that materials and services procured via reverse bidding don’t last long. There is an immediate cost savings but becomes more expensive over a longer period of time.
- Reverse bidding is basically bid shopping: As reverse bidding is transparent and publicly available, it is not bid shopping which is unethical.
- Reverse bidding favours large enterprises: Evidently, it is not true, most sellers on GeM are MSE. Due to the online process, it has also become accessible to businesses of all sizes and increasingly the government is procuring from businesses of all sizes.
Some Factors that Might Affect Reverse Auction
1. The selection of public portals: It is very important to understand the nature and availability of the sellers of particular goods and services on the platform. For example, if you are looking to buy data centre services.
2. Reverse auctions are not a good option for procurement that requires customized premium products and services. Many premium goods and services providers are not active on these portals due to the prevalence of L1.
3. Not a good fit for sellers of new innovative products and services. Governments across the world use innovative tools and technology for urban management. Since these goods and services are not yet commonly utilized, they may not be requested by the buyer at first.
Is Reverse Auction for You?
Whether you are a seller or a buyer, reverse auction and reverse bidding can give you significant control over the process, promotes transparency and is a relatively easy way to earn significant revenue. It is important to consider the pros and cons of the reverse auction before creating a reverse bid on GeM. If it matches your product line and price points, it gives flexibility to both buyers and sellers to explore different paths of selling and buying than the traditional one. If you’d like personalized notifications of relevant GeM and non-GeM opportunities on a regular basis, consider subscribing to Bidassist.