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Follow UsThe shift of commerce from the physical
world to the virtual world will force companies to get in sync with
ecommerce or left behind by tomorrow’s business.
Business-to-business
EC
Business-to-business EC can be divided into several categories:
EDI, in its traditional and web-based forms; ‘buy-side’ procurement
applications designed to automate corporate purchasing, particularly
for routine, low-value transactions; and ‘sell-side’ catalog-based
sites, which in some cases include complex configuration mechanisms
to allow customers to configure and price larger, high-ticket orders.
Prior to conducting transactions in
the business-to-business venue, the buyer and the seller typically
establish a contractual relationship with each other. This process
differs from business-to-consumer EC, where a consumer can buy from
a website just by providing a credit card number. Also, under the
current business-to-business model, the seller usually extends credit
to the buyer. As commercial activity begins to migrate to the internet,
some modification in the way in which transactions are initiated
and flow through the enterprise will occur.
Business-to-business EC activity typically
has been initiated via a purchase order, a business form (either
paper or electronic) that becomes the basis for linking the various
processes and stages of the transaction life cycle in both the buyer’s
and seller’s computer systems. The stages of the transaction linked
by means of the purchase order include origination and processing
of the order, delivery, receipt, invoicing, payment and the related
financial recording.
Business-to-business ecommerce products
often include features such as specialized product indexes, parametric
searching by product characteristics and the ability for a purchasing
agent to download a catalog for offline searching. These products
also support order and billing processes that include customized
pricing and the use of purchase orders because most commercial customers
buy at negotiated prices and payment terms. In addition, business-to-business
applications should support the internal budgeting and approval
policies needed by corporate customers through workflow management.
Electronic Data Interchange
(EDI)
Until the widespread deployment of internet-based technologies in
the mid-1990s, enterprises that conducted EC primarily used a highly
secure form of computer-to-computer communication known as EDI.
In fact, EC virtually was synonymous with EDI for many years.
EDI is the electronic transmission
of documents from one company to another using a set of standard
forms, messages and data elements. Documents that can be transmitted
electronically include shipping notifications, invoices, purchase
orders, remittance advice and acknowledgements. EDI data is exchanged
through point-to-point connections–either via leased lines or where,
by authorized pre-arrangement, the buyer’s computer dials the seller’s
computer, and ordering and acknowledgement data is transmitted–via
private networks or value-added network (VAN) services, and more
recently, via the internet. Using EDI to carry out the procurement
cycle creates cost savings, provides trading partners with increase
access to information and reduces errors.
Traditional EDI
typically has the following characteristics:
- Direct application-to-application
exchange of information; for example, an auto parts supplier’s
computer system may generate invoices automatically and submit
them to the auto manufacturer’s accounts payable system when parts
are shipped. - Well-defined, tightly specified
message formats and industry standards. - Store-and-forward messaging to transport
documents through an intermediary (the VAN) that provides services
such as security, authentication, delivery confirmation and an
audit trail. - Batch-oriented (or asynchronous)
rather than interactive operation; that is, one computer application
is sending messages that are queued up for delivery to another
computer system over a store-and-forward network. - Business-to-business interactions.
- Interactions based on preexisting
contractual relations between the two parties so that EDI is used
to carry out transactions that effectuate an existing business
relationship, rather than create a new business relationship. - Used primarily within a given industry,
or an industry and its trading partners and characteristically
concentrated in specific industries such as manufacturing, health
care and consumer goods retailing. - Often established at the behest
of a single company that requires its trading partners to adopt
EDI as a condition of doing business.
Web-based EDI:
The cost of the proprietary networks needed to support EDI transactions,
along with the technical complexity of EDI itself, historically
have made EDI suitable mainly for very large enterprises and their
immediate suppliers in part because EDI transaction files have to
be interpreted and processed by existing back-office applications
to achieve true end-to-end automation–a task that often involves
significant custom programming.
Now new technologies and capabilities
developed for the internet are influencing EDI information transport
technology and applications. The internet allows more small and
mid-sized businesses to use EDI economically. Although traditional
EDI requires complex interfaces to applications and a significant
financial investment, web-based EDI requires only a PC, an internet
connection and a standard browser for a company to participate in
an existing EDI infrastructure. Although this approach does not
provide full end-to-end automation, businesses can substitute manual
interaction and not implement the complicated EDI translation sets
when using web-based EDI.
The internet will be a critical factor
in expanding the number of new EDI subscribers, as large EDI-enabled
enterprises increasingly require the use of EDI–not just by their
major suppliers but also by second-tier trading partners by leveraging
lower-cost, internet-based options.
However, the internet inherently is
more prone to variations in service quality than VAN services, web
EDI therefore is a complement to, rather than a replacement for,
traditional EDI, allowing companies to reach new customers and create
new trading relationships. At most, web EDI only will begin to supplant
existing EDI systems during the forecast period.
EDI Standards:
Although EDI was first used more than 25 years ago, the slow development
of standards and numerous proprietary formats made a complex process
even more unwieldy. Many industries developed their own standards,
which further confused the marketplace. By the early 1990s, however,
EDI standards had emerged.
Current EDI standards are maintained
by two groups. The Accredited Standards Committee X12 standard (ASC
X12) was developed by the American National Standards Institute
(ANSI). The other standard, the Electronic Data Interchange for
Administration, Commerce and Transport (EDIFACT), was developed
by the United Nations Economic Commission for Europe. (UN/ECE).
Both X12 and EDIFACT define a common
set of business forms, data elements and protocols that allows business
applications in different organizations to exchange information
automatically and securely. EDIFACT has been proposed as a worldwide
standard that would merge with the X12 standard. At the same time,
the Royal Bank of Scotland and CoreStates Financial are pioneering
new techniques that offer end-to-end capability that enables automatic
translation of an EDIFACT standard transaction into an X12 standard
transaction.