Chapter 5
Business-to-Business
Strategies: From EDI to
Electronic Commerce
Purchasing, Logistics, and
Support Activities

Electronic commerce has the potential to
reduce cost and improve the business
processes of purchasing, logistics, and
support activities.
Purchasing Activities

Purchasing activities include:
Identifying vendors
 Evaluating vendors
 Selecting specific products
 Placing orders
 Resolving any issues that arise after receiving the
ordered goods and services


By using a Web site to process orders, the
vendors in this market can save the cost of
printing and shipping catalogs and the cost
of handling telephone orders.
Purchasing Activities

Products that companies buy on a recurring
basis = maintenance, repair, and operating
(MRO) supplies.

Businesses involves direct and indirect
materials.
 Direct
materials are those materials that become
part of the finished product.
 Indirect
materials are all other materials that the
company purchases.
Logistic Activities

Objective of logistics = provide the right
goods in the right quantities in the right
place at the right time.
Support Activities

Support activities include:
 Finance
and administration
 Human resources
 Technology development
Network Model of Economic
Organization



The trend in purchasing, logistics, and
support activities - move from hierarchical
structures toward network structures – a
feature of the Web
Highly specialized firms can now exist and
trade services very efficiently on the Web.
The roots of Web technology for B2B
transactions lie in electronic data
interchange (EDI).
Electronic Data Interchange

EDI = computer-to-computer transfer of
business information between two
businesses that uses a standard format.
 Two
businesses that are exchanging
information = trading partners.
 Firms that exchange data in specific
standard formats = EDI-compatible.

Business information exchanged =
transaction data (paper invoices, purchase
orders, requests for quotations, bills of
lading, and receiving reports); can include
other information related to transactions,
such as price quotes and order-status.
Value-Added Networks

EDI
 reduces
paper flow
 streamlines the interchange of information among
departments within a company and between
companies.
Direct Connection Between
Trading Partners

Direct connection EDI - each business in
the network operates its own on-site EDI
translator computer.

These EDI translator computers are then
connected directly to each other using
modems and dial-up phone lines or
dedicated leased lines.
Direct Connection Between
Trading Partners
Indirect Connection Between
Trading Partners

Instead of connecting directly to each of its
trading partners, a company might decide to
use the services of a value-added network.

Value-added network (VAN) = a company
that provides the communications
equipment, software, and skills needed to
receive, store, and forward electronic
messages that contain EDI transaction sets.
Indirect Connection Between
Trading Partners
VAN

Companies that provide VAN services in US
= General Electric Information Services,
GPAS, Harbinger Corp., IBM Global
Services, etc.

Cost is an issue to VAN - require an
enrollment fee, a monthly maintenance fee,
and a transaction fee.
Supply Chain Management

A company’s supply chain for a
particular product or service includes all
the activities undertaken to design,
produce, promote, market, deliver, and
support each individual component.
Value Creation in the Supply
Chain

Supply chain management (SCM) = process of
taking an active role in working with suppliers to
improve products and processes .

SCM - used to add value in the form of benefits to
the ultimate consumer at the end of the supply
chain.

Can reduce production costs and increase the value
of product or service to the ultimate customer.
Using Internet Technology in
the Supply Chain

Clear communications and quick responses
to those communications = key elements
SCM.

Technologies of the Internet and the Web
can be very effective communication
enhancers.
Increasing Efficiency in the
Supply Chain

Many companies are using Internet and
Web technologies to manage supply chains
in ways that yield increasing efficiency
throughout the chain.

In 1997, production and scheduling errors
costing Boeing over $1.5 billion - using EDI
and Internet links, Boeing is working with
suppliers so that they can provide the right
part at the right time.
Electronic Marketplaces and
Portals

Web - companies can use it to establish information
hubs for each major industry - offer news, research
reports, analyses of trends, and in-depth reports on
companies in the industry AND offer marketplaces
and auctions.

Hubs - offer a doorway to the Internet for industry
members and would be vertically integrated, these
planned enterprises = vertical portals or vortals.
Industry Marketplaces

Ventro opened its first industry marketplace,
Chemdex, in 1997 to trade bulk chemicals.

Ventro also opened Promedix for specialty
medical supplies, Amphire Solutions for
food service, MarketMile for general
business products and services, and a
number of others.

CheMatch.com competed directly with
Ventro in the bulk chemicals market
Industry Marketplaces