"Electronic Commerce has emerged as a term describing a variety of market transactions that are enabled by information technology" (Applegate ’96)
The phenomenon of e-commerce is the latest development in the Information Systems area, yet it’s something that has evolved over the past 25 years. It was brought about by the long-term evolution of the business environment coupled with technological developments. E-commerce can be defined as the,
"automation of commercial transactions using computer and communication technologies" ( Class Notes)
Three overlapping categories of Electronic Commerce exist, with each having an important role to play. These markets are Electronic Markets, Electronic Data Exchange (EDI) and Internet Commerce.
In B2B transactions currently there is nothing more important than EDI. The role of EDI is order exchange and, potentially, all exchanges in the execution and settlement stages of the trade cycle.
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EDI creates inter-organisation networks involving at least two organisations but can be extended to a very large number.
"EDI is the transfer of structured data by agreed message standards from computer to computer by electronic means" (Class Notes)
An Internet Service Provider (ISP) runs an EDI network and therefore one doesn’t have to worry about compatibility with trading partners, the system just needs to be compatible with the ISP. EDI files can be sent to a large number of recipients.
While the initial reasons for using EDI are usually economic, trading partner’s pressure can influence a company. As a result many companies have been seen to introduce EDI without any opportunity to achieve major benefits in their own organisation. This is the re-active approach to EDI adoption. A pro-active approach implies a company takes the initiative to introduce EDI, as it believes it can gain substantial benefits. Benefits can only be maximised if EDI is introduced in a pro-active way otherwise, standards are directed and controlled by an organisations partners. Companies need to formulate an EDI strategy and redesign processes to fully exploit EDI.
These benefits are: -
There are set up difficulties like the integration with the existing systems. For success to be attained a high level of commitment is needed from partners. The introduction of EDI into an organisation is a phased process. This enables companies to spread the use and development of EDI at a pace that allows them to understand and absorb the various impacts.
The six stages in the development of EDI within an organisation are: -
Most B2B transactions including EDI are carried out on the Internet. The Net and its development will primarily affect the future of E-commerce. The Internet has been in existence since 1969 and originally was a communication network for the US Military. There then was a dormant period but recently there has been an explosion of Internet use and initiatives. In the past ten years the number of computers connected to the Internet has increased tenfold.
So what were the precursors to the World Wide Web? There were more than 2000 initiatives introduced over the past 20 years with the most successful being France’s Minitel, which still exists today. From a technological point of view it was a cruder version of the Web. The success was due to infrastructure being made available to companies to sell services through telephone lines and also France Telecom’s actions in equipping the entire user population within two years. Everyone who had a phone had Minitel and they were able to buy such items as plane and train tickets, just like the Web today.
Some reasons for the success of the Internet are that: -
At present though there are limitations to the websites available. Only 3% of sites are for direct sale with 9% being equipped for on-line transactions. It has been discovered that 50% of users go online to make a purchase with only 15% buying something due to the site not easily allowing them to do so. A study of shopping trolleys shows that 2/3 of customers that place goods in them fail to complete the transaction. This is the situation at present but reality is that there is real potential to enable radical changes.
An important Case Study in E-commerce implementation is Dell. Through proper implementation Dell has modernised their service to their customers. Products reach their customers much quicker now than before. EDI has enabled Dell to develop their Build To Order (BTO) model for selling PCs. The company does not manufacture a PC before an order is received. It’s estimated that Dell sell over 50% of total sales online. They have narrowed focus on Supply Chain Management. The three plants are located close to their suppliers and operate in Just In Time (JIT). Automated customer requests mean operators are shown by flashing lights what components to use. Therefore through the low cost structure of having virtually no inventory due to the proper implementation of E-commerce techniques Dell has gained a competitive advantage.
Therefore, because of the ever-changing market demands, co-operation between companies is becoming critical to both profitability and survival. Companies can no longer afford to remain isolated and must look for new ways in which to integrate more closely with important trading partners and become more flexible. EDI has been the main item to help companies try to achieve this. It has the ability to handle routine and repetitive tasks so companies find that communications improve with trading partners. The most important factor to realise is that benefits will be maximised if EDI is implemented in a pro-active way.