Blockchain is revolutionizing the practice of reverse auctions

Published in the dossier of December 2020

In the context of the global health crisis, the procurement divisions are on the frontline, exposed to the risk of a breakdown in transactions in the supply chain. A major risk that can prove extremely expensive: when cities are in lockdown, any direct negotiations with suppliers become impossible and procurements are interrupted de facto.
These risks are now controlled at Veolia thanks to the development of a reverse auction1 digital platform dedicated to calls for tender, based on blockchain technology2, in China in the midst of the pandemic.

This innovation proved crucial at the heart of the Covid-19 crisis: call for tender mechanisms — especially those linked to the supply of coal — were able to take place entirely online.
In the end, the platform combines every advantage: security, traceability and reduced-cost transactions. This digital tool not only saves on administrative fees, but it guarantees that the local teams obtain the most competitive prices on the free market. For the platform makes it possible to compare and rank the bids from all the potential suppliers, automatically and at the time of the transaction. As each of them is given a random identity, the risk of collusion (and thus price distortion) is minimized. Finally, as the tool is fully owned by Veolia, its use does not incur any license fees.

Following three incident-free auctions since the beginning of the health crisis, the method will be extended to other calls for tender for other raw materials. It enables Veolia to be prepared for other potential crisis situations, where face-to-face negotiations would be once again impossible.

1 In a reverse auction, the winner is the one who offers the lowest price. A major lever of procurement performance in a digital world, this auction system pits suppliers against each other, incorporating several complex criteria of choice from the call for tender, and secures the negotiations and contracting from the beginning of supplier relations.

2 Blockchain is a secure and transparent data storage and transmission technology that functions without a central authority. Technically speaking, it is a distributed database whose information and internal links to the database are validated and grouped into blocks at regular time intervals, forming a chain. The whole process is secured by cryptography.