The history of electronic B2B systems starts with the electronic data interchange (EDI) systems which were first developed in the mid 1960s. Prior to the advent of EDI, when one company generated paperwork to be sent to another company, the receiving company would be required to retype that paperwork into the format that they wanted for their computer-based systems (refer to Figure 11.4). This would occur even if both the producing and the receiving companies were using computer-based systems, because the means of transmitting of data between them was still that piece of paper that had been used for thousands of years for this purpose.
An EDI system facilitates a computer-to-computer exchange of data according to predefined standards. Thus, both the company generating the data and the company receiving the data must agree in advance as to the exact electronic format that the transmitted data will take. Only then, an electronic file can be exchanged between the two companies instead of paper. This type of data exchange greatly reduces the human labor, and therefore the cost, of exchanging data between companies. The typical use for EDI is in the procurement of goods and services. Most likely the exchange is between a big company and its suppliers (refer to Figure 11.5).
The advantage of EDI systems is twofold, efficiency and effectiveness. The first is associated with automation. As discussed elsewhere in this book, efficiency is a result of doing more with less. Electronic communications between the buyer and suppliers result in the elimination of paper-based documents and all the manual processes involved in handling, verifying, entering, sending, receiving, and recording these transactions, plus the reduction in time for completing many of the procurement processes involved. Additionally, accurate and timely information helps EDI partners improve the effectiveness of their collaborative business relationships, particularly when business processes are redesigned.
The main obstacle for implementing EDI is the setup cost required for both EDI technology and the changes required in business processes to utilize this technology effectively. These setup costs can be substantial. For this reason, it is more affordable for big businesses that have both the financial resources and IT expertise to facilitate its adoption. Nevertheless, there is little benefit to any business in using EDI if the majority of its small-andmedium supply chain partners are reluctant to invest in EDI. Consequently, the big business that is still committed to EDI may have to use a combination of strategies to encourage its adoption among suppliers[8, 9]. These include (1) providing financial subsidies, (2) providing technological assistance, and (3) enforcing mandatory use as a condition for doing business.
Even now when the Internet has become a universal platform that facilitates anytime-anywhere communication, the majority of e-commerce transactions are still conducted using EDI. Considering that big businesses are typically the initiators and key users of this technology, the significant number of transactions they generate may be responsible for such a result. This is expected to change in the future when small businesses become comfortable and more technologically capable with using ecommerce tools, particularly with the introduction of Internet-based technologies such as Web services and service oriented architecture (SOA).
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