If Jim bids too cautiously on the job, he may lose it to someone else. That's double the percentage predicted for this year. The thinking is that by putting surplus stock up for bid, a company can garner higher prices than it might otherwise receive, as long as there are enough bidders. In the short term, auctioning off surplus goods can help a company cover its fixed costs. But it may damage the company's profitability in the long term, says George Cressman, senior pricer at Waltham, Mass.-based Strategic Pricing Group.
Reverse auctions can be an even scarier proposition for sellers.
If you're going to give reverse auctions a try, get ready for some thrills and chills Read More can make buyers more price sensitive, Cressman says. And they can inspire sellers to get caught in an underbidding frenzy, going lower and lower to grab the piece of business that's on the table. He urges sellers to resist the temptation to do so. Despite the potential drawbacks of reverse auctions, some sellers may have no choice but to participate in them if their customers want them to do so. Suppliers need to have a good handle on their costs.