The first reason is that if you try to do a post-reverse auction qualification, to the bidders, that gives them the impression that price really doesn’t matter. So why should they bid lower in the reverse auction if they believe their quality alone will win them the business? Well, the Buyer's job is to pre-qualify bidders so they know that they are competing against like-quality vendors and price will absolutely matter during the reverse auction. A simple way to do this is to create a survey with qualifying questions. Examples of these types of questions are how long the company has been in business, how many employees they have and if they have a proper level of insurance. This will automatically give the vendors the impression that you are doing your homework and are only going to invite other companies that can meet these standards to your reverse auction.
The second reason why you should have qualified vendors is to guarantee that you are willing to accept the winning vendor’s lowest bid. The buyer should always feel comfortable with the vendor’s quality, customer service and delivery standards. If you are willing to accept the lowest bid as the winner bid, and the vendor’s know this, you will get lower prices because the vendors know they will get the business if they are the lowest bidder in the reverse auction. If you do not pre-qualify the vendors and just run a reverse auction, the vendors are less likely to bid lower because they do not know what type of competition they are up against. The vendors may think that they are bidding against low quality, low price firms and are unwilling to have these low-ballers drive the price down on their higher quality items.
In conclusion, openly pre-qualifying vendors before a reverse auction adds credibility to your dedication to awarding the business to a reputable vendor. If the vendors know you are honestly awarding the business in a fair and honest manner, they are more likely to bid lower to win your business because you have done your homework.
Doug Luthringer is a Client Development Manager at http://www.eDynaQuote.com with over two years of strategy, implementation and training experience in online reverse auctions and nearly six years with online forward auctions such as eBay. Doug has also been invited to be a guest speaker to talk about how to properly use reverse auctions to small and medium size business, as well as university students.