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Chapter 10 E-commerce: Digital Markets, Digital Goods 429

of B2B e-commerce is changing existing patterns and systems of procurement,
and designing and implementing new Internet-based B2B solutions.
Business-to-business e-commerce refers to the commercial transactions
that occur among business firms. Increasingly, these transactions are flowing
through a variety of different Internet-enabled mechanisms. About 80 percent
of online B2B e-commerce is still based on proprietary systems for electronic
data interchange (EDI). Electronic data interchange enables the computer-to-
computer exchange between two organizations of standard transactions such as
invoices, bills of lading, shipment schedules, or purchase orders. Transactions
are automatically transmitted from one information system to another through
a network, eliminating the printing and handling of paper at one end and the
inputting of data at the other. Each major industry in the United States and
much of the rest of the world has EDI standards that define the structure and
information fields of electronic documents for that industry.
EDI originally automated the exchange of documents such as purchase
orders, invoices, and shipping notices. Although many companies still use EDI
for document automation, firms engaged in just-in-time inventory replenish-
ment and continuous production use EDI as a system for continuous replenish-
ment. Suppliers have online access to selected parts of the purchasing firm’s
production and delivery schedules and automatically ship materials and goods
to meet prespecified targets without intervention by firm purchasing agents
(see Figure 10.6).
Although many organizations still use private networks for EDI, they are
increasingly Web-enabled because Internet technology provides a much more
flexible and low-cost platform for linking to other firms. Businesses are able to
extend digital technology to a wider range of activities and broaden their circle
of trading partners.
Take procurement, for example. Procurement involves not only purchasing
goods and materials but also sourcing, negotiating with suppliers, paying for
goods, and making delivery arrangements. Businesses can now use the Internet
to locate the lowest-cost supplier, search online catalogs of supplier products,
negotiate with suppliers, place orders, make payments, and arrange transporta-
tion. They are not limited to partners linked by traditional EDI networks.
The Internet and Web technology enable businesses to create new electronic
storefronts for selling to other businesses with multimedia graphic displays and
interactive features similar to those for B2C commerce. Alternatively, businesses
can use Internet technology to create extranets or electronic marketplaces for
linking to other businesses for purchase and sale transactions.

FIGURE 10.6 ELECTRONIC DATA INTERCHANGE (EDI)

Companies use EDI to automate transactions for B2B e-commerce and continuous inventory replenish-
ment. Suppliers can automatically send data about shipments to purchasing firms. The purchasing
firms can use EDI to provide production and inventory requirements and payment data to suppliers.

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