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Backward Thinking

Reverse auctions could help you get more contracts.

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This story appears in the November 2004 issue of Entrepreneur. Subscribe »

When most people think of auctions, they picture the price goingup. But there's a different game in the B2B world. It'scalled the "reverse auction," where suppliers anddistributors underbid each other online in real time until thecontract price drops as low as it will go.

Home Depot, Sun Microsystems and 3M are just a few companiesthat use reverse auctions. Almost half of large buyers used reverseauctions by mid-2003 and saw an average of 15 percent in costsavings, according to a recent National Association ofWholesaler-Distributors study. "Buyers have been adopting thisquickly," says Adam Fein, author of the study and president ofPembroke Consulting, a Philadelphia managementconsulting firm that helps wholesale distributors, manufacturersand B2B tech companies build market share.

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