Business To Business Activities Improving Efficiency and Reducing Costs - 20231017 - 083421 - 0000

Chapter 5
BUSINESS-TO-
BUSINESS ACTIVITIES:
IMPROVING
EFFICIENCY AND
REDUCING COSTS
63%
LEARNING OBJECTIVES
In this chapter, you will learn about
• How businesses use the Internet to improve purchasing, logistics, and

other support activities
• Electronic data interchange and how it works
• How businesses have moved some of their electronic data interchange
operations to the Internet
• Supply chain management and how businesses are using Internet

technologies to improve it
• Electronic marketplaces and portals that make purchase–sale negotiations
easier and more efficient
PURCHASING, LOGISTICS, AND
SUPPORT ACTIVITIES
As Internet technologies become commonplace in businesses, the potential
for synergies increases. Many of these synergies are forming the basis for
second-wave electronic commerce opportunities.
An important characteristic of purchasing, logistics, and support activities is

flexibility. A purchasing or logistics strategy that works this year may not work next year.
Fortunately, economic organizations are evolving from the hierarchical structures used
since the Industrial Revolution to new, more flexible network structures. These network
structures are, in many cases, made possible by the transaction cost reductions that
companies realize when they use Internet and Web technologies to carry out business
processes.
Purchasing Activities
Purchasing activities include identifying and evaluating vendors,

selecting specific products, placing orders, and resolving any issues that
arise after receiving the ordered goods or services.
Direct vs. Indirect Materials
Purchasing
Direct materials are those materials that become part of

the finished product in a manufacturing process.
Indirect materials are all other materials that the company

purchases, including factory supplies such as sandpaper, hand
tools, and replacement parts for manufacturing machinery.
Logistics Activities
The classic objective of logistics is to provide the right goods in the right quantities in the
right place at the right time.
Logistics activities include managing the inbound movements of

materials and supplies and the outbound movements of finished
goods and services.
Support Activities
Support activities include the general categories of finance and
administration, human resources, and technology development.
E-Government
Governments also operate businesslike activities; for example, they employ

people, buy supplies from vendors, and distribute benefit payments of many
kinds. They also collect a variety of taxes and fees from their constituents . The
use of electronic commerce by governments and government agencies to perform
these functions is often called e-government
Network Model of Economic
Organization in Purchasing
Highly specialized firms can now exist and trade services very
efficiently on the Web. The Web is enabling this shift from hierarchical
to network forms of economic organization. These emerging networks
of firms are more flexible and can respond to changes in the eco?nomic
environment much more quickly than hierarchically structured
businesses. You can learn more about the economics of networked
organizations at the Network Economics
ELECTRONIC DATA
INTERCHANGE
It is very important that you understand what EDI is designed to accomplish and how it
came to be the preferred way for businesses to exchange information, because most B2B
electronic commerce is an adaptation of EDI or is based on EDI principles.
Another important reason for being familiar with EDI is that EDI is
still the method used for most electronic B2B transactions. According
to industry analysts, the dollar amount of EDI transactions is about
equal to the total amount of all other B2B electronic transactions
combined.
Early Business Information Interchange
Efforts
The emergence of large business organizations in the late 1800s

and early 1900s brought with it the need to create formal records
of business transactions. In the 1950s, companies began to use
computers to store and process internal transaction records, but
the information flows between businesses continued to be
printed on paper; purchase orders, invoices, bills of lading,
checks, remittance advices, and other standard forms were used
to document transactions.
EDI, the first example of electronic commerce, was
first developed by freight companies to reduce the
paperwork burden of processing repetitive
EDI transactions. The spread of EDI to virtually all large
companies over the past 30 years has led smaller
businesses to seek an affordable way to participate in
EDI. The Internet is now providing the inexpensive
communications channel that EDI lacked for so
many years and is allowing smaller companies to
participate in Internet EDI.
Emergence of Broader
EDI Standards
How EDI Works
Although the basic idea behind EDI is straightforward, its implementation can be complicated, even in fairly
simple business situations. For example, consider a company that needs a replacement for one of its metal-
cutting machines. This section describes the steps involved in making this purchase using a paper-based system,
and then explains how the process would change using EDI. In both of these examples, assume that the vendor
uses its own vehicles instead of a common carrier to deliver the purchased machine
SUPPLY CHAIN MANAGEMENT USING
INTERNET TECHNOLOGIES
When companies integrate their supply management and

logistics activities across multiple participants in a particular
product’s supply chain, the job of managing that integration is
called supply chain management. The ultimate goal of supply
chain management is to achieve a higher-quality or lower-cost
product at the end of the chain.
SUPPLY CHAIN MANAGEMENT
The increase in communications capabilities offered by the Internet

and the Web is, and will continue to be, an important force driving the
adoption of supply chain management techniques in a variety of
industries. Supply chain management incorporates several elements
that can be implemented and enhanced through the use of the Internet
and the Web. Increasingly, firms are connecting with their supply
chain alliance partners and other companies, such as 3PL providers, to
become more efficient and provide more value to the ultimate
consumer of their value chains’ products and services
ELECTRONIC MARKETPLACES AND
PORTALS
In the late1990s a number of industry-focused hubs opened and began

offering marketplaces and auctions in which companies in the industry
could contact each other and transact business. The idea was that these
hubs would offer a doorway (or portal) to the Internet for industry
members. Because these hubs were vertically integrated (that is, each
hub would offer services to just one industry), they were called
vertical portals, or vortals.
The emergence of industry electronic marketplaces in the mid-1990s gave way to the development
of several different models for B2B electronic commerce, including private stores, customer
portals, private marketplaces, and industry consortia-sponsored marketplaces.
Today, all four of these models continue to coexist with the

original industry marketplace model. Although industry
consortia-sponsored marketplaces appear to be the most
successful today, most B2B experts believe that all five
models will continue to exist in one industry or another for
the foreseeable future.
Chapter 5
BUSINESS-TO-
BUSINESS ACTIVITIES:
IMPROVING
EFFICIENCY AND
REDUCING COSTS
63%

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Chapter 5

• How businesses use the Internet to improve purchasing, logistics, and

• Supply chain management and how businesses are using Internet

An important characteristic of purchasing, logistics, and support activities is

Purchasing activities include identifying and evaluating vendors,

Direct materials are those materials that become part of

Indirect materials are all other materials that the company

Logistics activities include managing the inbound movements of

Governments also operate businesslike activities; for example, they employ

The emergence of large business organizations in the late 1800s

When companies integrate their supply management and

The increase in communications capabilities offered by the Internet

In the late1990s a number of industry-focused hubs opened and began

Today, all four of these models continue to coexist with the

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