This is part 3 of a 4 part guide to setting up eAuctions. To view parts 1, 2, and 4 follow the links at bottom.

 

Setting Reserve and Ceiling Prices


Setting reserve and ceiling prices are a big part of the RFQ. Setting them incorrectly can skew your bid results. The reserve price is the price at which the buyer has decided that they would be willing to consider awarding business to a different supplier.

 

How might you go about calculating what the reserve price should be? Ceiling price is the highest price that you would allow a supplier to enter. It is normally not set higher than the current or historic price. We didn’t used to use a ceiling price because we knew that the market would eventually reach a fair market price. However, we found that suppliers would start as high as possible and it would take a very long for the price to finally climb down. An incorrectly set reserve price can really affect the outcome of your event. Please set it carefully.

 

Plastic Molded Part Example

 

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Reserve Price

  • Price at which buyer is willing to switch business from current supplier
  • Reflects known switching costs and implementation risks
  • Bears no systematic relationship to current pricing
  • Is not a “Target Price”

 

 

Ceiling Price

  • Maximum permissible bid
  • Starts bidding at a credible level
  • Screens out noncompetitive suppliers
  • Minimizes risk of price increase
  • If market trend is upward could be higher than Historic cost

 

 

 

 

 

Reverse Auction
Forward Auction
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4 Elements to an eAuction setup parts 1, 2, and 4

Part 1: Pre-Bids

Part 2: Bidding and Timing Rules

Part 4: Supplier Visibility Formats