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How does a reverse auction work?
ASuppliers post prices and the manufacturer accepts one
BThe manufacturer raises its offer until a supplier agrees
CBuyers bid against each other for a scarce material
DThe manufacturer posts specifications and suppliers bid
Answer & Solution
Correct answer: D. The manufacturer posts specifications and suppliers bid
1. In an ordinary auction, buyers compete and the price is driven up.
2. A reverse auction turns that around, which is where the name comes from.
3. The manufacturer posts its specifications for the materials it requires.
4. Potential suppliers then bid against each other to win the job.
5. Because the sellers are competing, the price is driven down, which is how such auctions slash procurement costs.
6. Option C keeps buyers competing, which is the ordinary auction rather than the reverse one.
_Source: OpenStax Introduction to Business (CC BY 4.0), Ch 10 "Achieving World-Class Operations Management", section E-Procurement, Electronic Data Interchange, and Blockchain_
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