E-marketplaces, online auctions and exchanges

Online auctions are computerised versions of traditional auctions where buyers bid against each other. Online auctions are effective because there are typically no restrictions on the number of businesses or individuals that can bid. This allows sellers to get the best price for their products or services. Conversely, the speed, simplicity and variety of auctions mean that shrewd buyers can cut procurement time and cost.

The two main types of auctions are:

• forward auctions - where lots are sold to the highest bidder
• reverse auctions - where suppliers compete on price and the lowest bid for a tender wins

Forward auctions

Using a forward auction can be a cost-effective way of getting new customers, testing new products or establishing pricing points. You can dispose of excess sales costs because of the minimal amount spent on marketing. You can also price your goods according to demand and stock levels.

Forward auctions can also benefit those business purchases. You may be able to source non-critical or specialist equipment at a more competitive rate. You can also reduce procurement time by setting up automated searches and bids.

Reverse auctions

If you supply to larger companies, you may be asked to compete for their business in a reverse auction. This type of auction allow businesses to compete for business globally. Businesses can also make savings by gaining access to customers who are ready to buy, without having to launch a sales campaign. Reverse auctions are a good way to offload stock or build market share - however, they are normally by invitation only.

It is unusual for smaller businesses to make purchases using reverse auctions. However, using a reverse auction can save you time and administrative costs and you may attract a larger pool of suppliers. Reverse auctions can also help you manage complex procurement contracts and reduce your overall costs.

Best practice in auctions

Before entering an online auction, check:

• accreditation - some auctions have qualifying criteria
• fee structures - there may be a registration fee
• how payment is managed - between the parties or through the auction site itself
• supplier reputation - monitor feedback from previous bidders
• the bidding system - how to place or withdraw bids
• what's on offer - if the description is vague, contact the seller for more information
• costs - factor in all the costs including taxes, packing and shipping charges

Spend some time browsing what is on offer and what it costs. Narrow your search down by specifying a category or using advanced search criteria. When bidding, set yourself a maximum price you are willing to pay for an item and stick to it.