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To improve efficiency, some large retailers, suppliers, and distributors have begun to conduct business-to-business commerce electronically. This practice could grow rapidly if the Internet becomes the primary low-cost network for such transactions. Before the Internet can fully support business-to-business commerce, however, companies must overcome several technological and security obstacles.
In recent years, a number of companies have reported gains in operating efficiency through the use of business-to-business electronic commerce, or the movement of information electronically between businesses over computer networks. This success could have important implications for U.S. industry. By extending the benefits of computers to the exchange of information among suppliers, manufacturers, and retailers, businessto-business electronic commerce may give companies the added advantage that they need to achieve measurable productivity gains.
The idea of using computers in commerce is not newmany business processes have been automated over the past decade. Until recently, however, most companies have used the computer primarily as a tool for storing and analyzing proprietary data related to internal operations or to customers. Today, several advances in computer network technology are helping companies to extend the use of computers to the procurement, production, and distribution processes. Through the electronic exchange of information with suppliers, distributors, and retailers, companies can better direct the production, inventory, and distribution of goods and more promptly alter prices and production strategies.
This article looks at how business-to-business electronic commerce can help companies more efficiently manage the various steps involved in bringing goods to the market. In addition, we examine some of the obstacles that have hindered the widespread use of electronic commerce between businesses. Finally, we consider how the computerization of information exchange between companies might affect business-to-business relationships and industry overall.
The Logistics of the Supply Chain
To understand the potential benefits of business-to-business electronic commerce, we need to look at the supply chain, or the flow of intermediate goods and services from one business to another. The movement of these goods and services on a timely basis is critical for effective inventory management, accurate production scheduling, and the successful delivery of goods to the retail market.
Figure 1 gives a simple example of a supply chain. The figure is meant to illustrate the basic exchange of goods and information among suppliers, manufacturers and...