Reverse Auctions Mean Savings for Penn State
Penn State departments needing to purchase equipment or supplies have a cost-saving option: reverse auction bidding, where potential vendors bid for the lowest selling price.
During fiscal years 2017/18 and 2018/19, Penn State Purchasing helped University departments save almost $20 million in negotiated contract purchases. Out of this total, about $1.7 million in savings was achieved through reverse auctions--a cloud-based bidding tool.
In a reverse auction, qualified and pre-selected Penn State suppliers are invited to bid their prices down (versus up in a traditional auction) during a live, real-time virtual event. Reverse auctions are ideal when a department needs a large quantity of standard items.
The University has used reverse auctions to purchase more than 100 Fleet Service vehicles each year, as well as vehicles for Police Services and the Office of Physical Plant, audiovisual equipment, and furniture for residence halls and classrooms.
Before a reverse auction is scheduled, Purchasing staff collaborate with the requesting department to research and assess the items to be purchased. Although the typical threshold for reserve auction bidding purchases is $25,000 or more, depending on the item, Purchasing staff may consider reverse auction bidding for items under the threshold.
A reverse auction ranges from a few minutes to a couple of hours, depending on the nature of the items being auctioned. While auctions for commodity items can be completed in a few minutes, more complex items or multiple lots of items can require more time.
According to Rob DeMayo, director of Transportation Services, reverse auctions provide a unique way for vendors to openly bid against each other in real time, which ultimately reduces the per-unit price of items.
The reverse auction bidding tool has been so successful at Penn State that DeMayo is quick to share its advantages with his peers at other universities. "My colleagues have taken notes and many plan to use this best practice in the future for their own purchases," he says.
Learn more information about the benefits of reverse auctions, or contact Dean McCracken, assistant director of Purchasing, at [email protected] or 814-865-1476.