Japanese Reverse Auction
A Japanese reverse auction is a type of RFx in which the price of the item decreases automatically after a fixed time interval. The value by which the price change occurs is defined by the buyer user in different steps. The buyer user can define multiple steps with different decremental values for the price change.
In this auction, if the suppliers wants to continue in the auction process, they must submit the bid at each price change step. If a supplier does not bid for the item, the supplier is withdrawn from the auction of that item. The supplier can however, bid for another item. The auction remains open until no supplier is remaining to bid or the price falls to the minimum possible value.
The RFx contains a list of items that buyers want to procure. Bidding for each item takes place individually. Only one item can be bid at a time.
Process
- Start price - the price at which the auction begins.
- Step - the step number on which the price of the item decreases after the fixed interval
- Value - the amount or percentage by which the price decreases.
The auction begins at the start price and after a fixed time interval the price of the item decreases by the value that is defined for the step. All suppliers, who can provide the item at the current price and want to remain in the auction, must submit bids.
The suppliers must submit the bids in the “Interval between Price change”. The item price keeps decreasing by the value that is set for the step until no supplier is remaining to bid in the auction or the item price becomes zero.
Buyer users can now extend the Japanese auctions even after all the suppliers have withdrawn from the bidding process by configuring the japanese.auction.extension.in.steps= property in the Configuration Management section of the Utilities menu. If the property is configured, the auction is extended by that many steps for each item.
Hence, the next item is not opened for bidding or the auction is not closed. The status is of the event is Extended in the Monitoring tab. The default value of the property is 0. An integer value must be configured to extend the auction by that many steps for each item in the auction.
Reopening of auction
Buyer users can reopen the auction.
Items that have not closed automatically are available for bidding. If any item is closed in between, the auction for that item begins from where it was stopped. The ‘Current Unit Price’ reflects the price that was in effect when the auction closed. Suppliers who have been eliminated from the line item cannot bid for the item. They can only participate for the items that are pending.
Auction flow
The following table displays configuration settings for a Japanese Reverse Auction.| # | Item | Start price | Step | Price change | Price change time | Price change |
|---|---|---|---|---|---|---|
| 1 | Processor | $30 | 1 | $5 | 2 mins | 25, 20 |
| 3 | $3 | 17, 14, 11, 8 | ||||
| 7 | $1 | 7... | ||||
| 2 | Hard disk | $40 | 1 | $5 | 2 mins | 35, 30 |
| 3 | $3 | 27, 24, 21, | ||||
| 6 | $1 | 20... |
In the Configuration settings for Japanese reverse auction table, for the processor item , the Step column defines steps on which the price will change. On Step 1, the price change will be $5, The next step mentioned is 3. So, in step 1 and 2 of the auction, the price will fall by $ 5 and in step 3 of the auction the price will fall by $ 3 till step 7. On step 7 of the auction, the price will fall by $ 1 and from there on continue to drop by $1 till no supplier is remaining or the price becomes zero.
The auction can be awarded to the last supplier remaining in the auction.
- At the scheduled time of bidding, the first item in the auction - Processor - is opened for bidding at $ 30.
- After two minutes of the beginning of the auction, the price of the processor drops by $ 5 which is the price change for Step 1. Hence, the price of the processor now becomes $ 25.
- All suppliers, to whom the current price is acceptable show their willingness by clicking Submit Bids. Suppliers who do not click Submit Bids are eliminated from the auction.
- After a lapse of two minutes, in step 2 of the auction, the price of the processor further drops by $ 5 as the price change of $5 is from step 1 to step 3. Hence, the price of the processor now becomes $ 20. Suppliers, to whom the current price is acceptable show their willingness by clicking Submit Bids.
- After a lapse of two minutes, in step 3 of the auction, the price of the processor drops by $ 3 as mentioned in the Japanese Reverse Auction table against step 3. This price continues to drop by $ 3 till the next step that is mentioned, here, step 7. So till step 7, the price drops by $ 3 and then on step 7 the price drops by $ 1.
- On each step of the auction, all suppliers, to whom the current price is acceptable and who want to continue in the auction, show their willingness by clicking Submit Bids.