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Dilemma Demystified: Forward auction or Dutch Forward auction

Business needs: Auctions event organizer intends to sell inventory of used Tyres to perspective buyers for retreading.

Retreading is applied to casings of spent tires that have been inspected and repaired. It preserves about 90% of the material in spent tires and the material cost is about 20% compared to manufacturing new one .Please refer details of  retreading process after selecting below web url.

https://en.wikipedia.org/wiki/Retread

Forward auctions are used for selling products or services.

Ariba sourcing module have multiple templates enabled for different types of forward auction events like:

  1. Forward auction
  2. Forward auction with bid transformation
  3. Dutch forward auction
  4. Dutch forward auction with bid transformation

 

 For illustration ,One use case is used here to differentiate between forward auction and Dutch forward auction event.

 Forward auction:

Forward auction event used to sell surplus inventory that is no longer required.

Bidding starts at the minimum price acceptable to the seller and increases with every new bid by a fixed increment. Every buyer knows what price is being bid and the highest price bid wins the auction.

The following table displays configuration settings for forward auction event.

# Parts/Item Minimum quantity(No’s)

Start

price

Historic price Highest bid Price Number of bids
1 Tyres 1000 $185 $ 180 $226

4 by Supplier 1

3 by Supplier 2

At the scheduled time of bidding, item Tyres – is opened for bidding starting at $185 ($5/unit already earned with respect to historic price).

Say buyer “A” bids at start price of $185.

If buyer “A” bids second time, his next bid will be accepted by the system, only when? If new bid amount is equal or more by $5 with respect to his first bid (bid increment defined as nominal amount during bid configuration by auction organizer)

Multiple bids can be entered by multiple buyers to win.

One of the buyer places a bid of $226.00 within scheduled duration of event and other suppliers do not bid further, $226 bid remains final bid and that buyer wins.

Forward auction event completed in Ariba sourcing module-Screenshots:

Forward auction name: Selling of Inventory of used Tyres for retreading (collected from multiple city outlets)

Figure 1: Seller’s dashboard after completion of forward auction & here bids movement is in upward direction. 

Figure 2: Seller’s dashboard in log tab, for illustrative use case, two suppliers participated in auction event (multiple suppliers can be invited by event owners).

Figure 3: Buyer’s dashboard, bid increment (Nominal amount of $5) with every new bid entered by buyers.

Dutch forward auction:

Event organizer specifies a starting price, price change value, time interval between price changes, and the reserved price. The start price decreases until any supplier places a first bid or the start price reaches the reserved price. Dutch forward auction gets completed after first or single bid.

The following table displays configuration settings for a Dutch forward auction.

# Parts/Item Minimum quantity(No’s) Start price Historic price Price change Price change time
1 Tyres 1000 $250 $ 180 $5 60 seconds

At the scheduled time of bidding, Tyres – is opened for bidding at $250 (Very high price setting by suppliers or event organizer)

If no buyer bid for the item for a period of 60 Seconds, the price is decreased by $ 5.

If no buyer bid for the item at $245, the price is further decreased by $5 and will continue till first bid is entered by any of the participants.

If buyer bid at $225.00, item closes for bidding (Both the buyers waited for 5 minutes after starting of auction event to get asking price reduced from $ 250 to $ 225 by the system as per configured rules, every minute decrements of $ 5 after starting of auction event).

When a buyer places a first bid at $225.00, the Dutch forward auction is completed.

Dutch forward auction event completed in sourcing module-Screenshots:

Name of Dutch forward auction: Selling of Inventory of used Tyres for retreading (collected from multiple city outlets)

Figure 4: Seller’s dashboard after completion of Dutch forward auction & bid direction is downward

Figure 5: Seller’s dashboard in log tab, for illustrative case two buyers participated in auction event (multiple buyers can be invited), with first one bid forward Dutch auction completed. Price decrement by $ 5 every 60 seconds/Minute.

Figure 6: Price decrement rule setting during event creation by event owner (seller)

 

After completion of both types of auction and exploring  above screenshots, we can easily compare both.

Comparison between Forward and Dutch forward auction:

 

Sr No Forward Auction Dutch Forward Auction
1

Buyers bids for products or parts and highest bidder gets auctioned items.

Buyers continuously bid for items/services they intend to buy in competitive environment.

Buyers bids for products / parts or services and first bidder gets awarded.
2 Sellers specifies a starting floor price, price change value (bid increment) depends upon buyers bid action. Sellers specifies a starting price, price change value, time interval between price changes (bid decrement)
3 Price increment/bid increment with respect to buyer’s bidding action only (Not automatic) Starting price automatically decreases with respect to defined time interval until not bided by participants
4

Bid direction is from bottom to top

(ascending price auction)

Bid direction is from top to bottom (descending price auction)
5 Multiple bids can take place in this type of auction before completion of auction event Single bid from any one supplier ends auction immediately
6 Lot of competition is expected for auctioned items among suppliers and seller expects better prices for their products on block. Initial price is set very high and seller expect at reasonable price point buyers will be interested to bid and get awarded
7 Frequently used Less used.
8 For any items/services to be sold perishable items like veggies , flowers & fishes, exclusive edition of items/services

 

We have observed seller may use any of the auction event to sell product/parts.Typically, Dutch forward auction is used when seller intends to complete auction as early as possible (here first bid wins) or for a business scenario where very few suppliers and low competition for auctioned items/services.
Dutch forward auction may be used when event organizer (seller) is auctioning limited edition or exclusive niche products /services first time and initial market price is not known, in this case seller will start auction at very high price & prices decreases until a bidder/buyer accepts the price.

Forward auction event is used when multiple bidder/buyers are available to participate in auction & will be chasing to acquire auctioned item/service and seller expects good competition among buyers (highest bidder pays the price and wins)

Look forward to hear from you.

 

 

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