Every business is made up of a complex set of relationships between the business, as a producer of goods or services, and its suppliers and customers. This set of relationships is called a supply chain (refer to Figure 11.2).
It is from within its supply chain that a business must first be able to procure its raw materials and other necessary means of production from its suppliers. This requires that the business be able to communicate what it needs to those suppliers. Suppliers who have the materials that meet those needs must then offer them to the business. Then, following its evaluation of the available offers, the business must actually purchase the materials from its preferred supplier. This communication of needs, offers, and purchases results in much paperwork - requests for quotation (RFQs), quotations, purchase orders (POs), etc. The purchased materials must then be delivered to the business' place of production. Hence, more paperwork is generated by the actual delivery of the purchased material - bills of lading, receipt documentation, invoices, and finally payment. All of this paperwork is both time consuming and expensive to all of the organizations involved.
The other end of a business' supply chain shows its relationships with its customers to whom it sells its products. Once the goods of the business have been produced, yet another set of paperwork is generated with sales orders from the customer, sales receipts to the customer, shipping documents and invoices to the customer, and finally, payment from the customer. There is additional expense in generating all of this paperwork, but paperwork is just another one of the costs of the production of the goods or services of the business.
Successful businesses generate wealth by identifying opportunities to produce desired goods and/or services at prices that will make it possible to sell those goods and/or services to enough customers to produce a profit. One way that businesses can increase their profits is to reduce the costs of production of their goods and/or services. Thus, businesses must constantly monitor and, when possible, improve their internal processes in order to identify opportunities to reduce their costs of production. This is the application of microeconomic, or transaction cost theory, analysis to the operations of the business. The application of transaction cost theory to reduce production costs was the impetus for first automation and, more recently, the implementation of ERP systems. But a business must also monitor and improve its external relationships, in both directions, within its supply chain. B2B systems include those efforts to monitor and improve the firmís external relationships and to integrate the processes involved in supporting these relationships.
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