Research paper

B2B commerce and its implications for the

buyer-supplier interface
Paul Humphreys, Ronan McIvor and Trevor Cadden
Faculty of Business and Management, University of Ulster, Newtownabbey, UK

Abstract
Purpose – The purpose of this article is to examine how electronic commerce can fundamentally change the inter-organisational processes at the
interface between the buyer and supplier.
Design/methodology/approach – First, an overview is provided of the evolution of B2B commerce and the typical business models that have been
developed. Second, a number of factors are identified which impact on the buyer-supplier interface in B2B commerce. Finally, the conclusions will
examine the implications for managers involved in B2B commerce who have to interact across organisational boundaries.
Findings – Electronic commerce not only enables the redesign of internal organisational processes but is extended into both the buyer and supplier
organisations. Innovations in electronic commerce have a key role to play in managing inter-organisational networks of supply chain members. It is also
found that in many instances electronic commerce is radically changing the way in which organisations have traditionally traded. As well as impacting
the external trading arrangements between buyers and suppliers, electronic commerce is also affecting the traditional roles of the functions involved in
managing the buyer/supplier relationship.
Practical implications – It is essential for top management to understand that the internet is more than a tool or technique, but rather something that
is woven into the fabric of the organisation and the relationship with its environment. Adopting such an approach represents a drastic change from
traditional management thinking and, more importantly, for management’s behaviour.
Originality/value – This paper provides an improved understanding of how the internet represents a powerful technology for commerce and
communication at the buyer-supplier interface. This will be a useful insight for academics and practitioners alike.

Keywords Internet, Electronic commerce, Supply chain management

Paper type Conceptual paper

Introduction more than a quarter of their business via e-markets by 2004

(Nairn, 2000). Goldman Sachs (Anon, 2000a) estimates that
The objective of this paper is to examine the implications of online purchasing could save firms anything from 2 per cent
business-to-business (B2B) commerce for the buyer-supplier in the coal industry to perhaps 40 per cent in electronic
interface. In the business-to-business environment, inter- components. As a result of such cost savings, Goldman Sachs
organisational information systems (IOS) have been used estimates, business-to-business (B2B) commerce could
since the 1970s to link one or more organisations to their increase the level of output in the developed economies by
customers or suppliers through private value added networks an average of 5 per cent over time. More than half of that
such as electronic data interchange (EDI) (Archer and Yuan, increase would come through within ten years, an increase of
2000). Significant interest has grown in the potential use of 0.25 per cent a year in the rate of growth over the next
the internet at the buyer-supplier interface due to the decade. Therefore, the importance of B2B commerce is
potential benefits associated with the open systems protocol. increasing dramatically, either as private networks connecting
By bringing together large numbers of buyers and suppliers co-operating organisations, or as networks linked through the
and automating transactions, internet-enabled markets Internet (Segev et al., 1997).
expand the choices available to buyers, give suppliers access Innovations in electronic commerce have a key role to play
to new customers and reduce transaction costs for all in managing inter-organisational networks of supply chain
participants (Kaplan and Sawhney, 2000). In a recent members. The evolution of electronic commerce technologies
survey of Europe’s 50 largest companies, Forrester Research is having a considerable impact on the communication
found that 70 per cent of those interviewed expect to conduct patterns in supplier networks in many industries. Electronic
commerce can reduce the costs of closely integrating buyers
The current issue and full text archive of this journal is available at and suppliers and through electronic networks firms can
[Link]/[Link] achieve an integration effect by tightly coupling processes at
the interface between stages of the value chain (Benjamin
et al., 1986). Business-to-business e-commerce can reduce an
Supply Chain Management: An International Journal organisation’s costs in a number of ways. It reduces
11/2 (2006) 131– 139
q Emerald Group Publishing Limited [ISSN 1359-8546]
procurement costs, both by making it easier to find the
[DOI 10.1108/13598540610652528] lowest priced supplier and through efficiency gains. It is much

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Paul Humphreys, Ronan McIvor and Trevor Cadden Volume 11 · Number 2 · 2006 · 131 –139

less costly to place an order online, and there are likely to be Williams, 1996). A good example is Uilever-Sagit operating in
fewer errors in orders and invoicing. Cisco Systems reports the Italian frozen food market that used a private EDI
that a quarter of its orders used to have to be reworked network to manage its distribution channels (Calza and
because of errors in the telephone and fax ordering system. Passaro, 1997).
When it switched to online ordering, the error rate fell to 2 Whilst considerable benefits were achieved by those
per cent, saving the company $500 million. Research carried companies that implemented EDI effectively, it tended to be
out by Aberdeen (1999) has shown that B2B e-commerce can only large companies and their suppliers that applied EDI due
lead to average 5-10 per cent price reductions for products to the significant costs associated with implementation. EDI
and services through lower material and service costs, requires significant investments in systems and organisational
reductions in acquisition and order fulfilment cycle times of infrastructure as well as a large volume of transactions to
50-70 per cent, reductions in requisition processing costs of justify the level of investment.
70 per cent per order, and improved inventory management The objective for many EDI applications at the buyer-
practices. This article focuses on how internet technologies supplier interface has been to reduce the supply base while at
represent a powerful force in the evolution of the development the same time enhancing the quality and efficiency of the
of inter-organisational communication and trading. It is procurement function (Walton and Marucheck, 1997).
shown how electronic commerce technologies radically However, in the mid-1990s the advent of the internet has
change the interaction patterns for the buyer and supplier led to an explosion in connectivity that allows companies of
by identifying the implications of electronic commerce at the different sizes and resource bases to interact. The internet is a
buyer-supplier interface. The effectiveness of electronic public network that is connected and routed over gateways.
commerce implementations at the buyer-supplier interface is The internet evolved from a software convention for
assessed. It is argued that closed network problems and the computer networking developed by the US Army’s
nature of buyer-supplier relations present major impediments Advanced Research Projects Agency. This open standard,
to electronic commerce achieving its full potential at the termed the transmission control/internet protocol (TCP/IP),
buyer-supplier interface. was adopted by wide-range of research, education and public
This paper examines the implications of electronic sector organisations as a means of integrating previously
business-to-business intermediaries for the buyer-supplier incompatible computer applications. In the late 1980s a point
interface. The paper is structured as follows. Firstly, an and click, hypertext interface was developed for the internet
overview is provided of the evolution of B2B commerce and which was called the “world-wide web”. This development
the typical business models that have developed. Secondly, a led to the explosion in interest in internet usage with
number of factors are identified which impact on the buyer- organisations and individuals being able to easily access and
supplier interface in B2B commerce, such as: streamlining the use the internet. Barnatt (2000) argues that the significant
order management process, the intensity of the buyer-supplier difference between the internet protocol and other forms of
relationship and the changing roles of the participants in the computer networks was that the open standard allows
buyer and supplier organisations. Finally, the conclusions will seamless integration between many incompatible computer
examine the implications for managers involved in B2B applications and legacy systems. Also, the easy to use browser
commerce who have to interact across organisational interface ensured rapid adoption of the technology by both
boundaries. organisations and individuals.
The connectivity associated with the internet has the
potential to bring an industry’s customers and suppliers in a
The evolution of B2B commerce
unified and economically perfect marketplace. For example,
Electronic business-to-business commerce has progressed an organisation offering a range of products and services can
through a number of phases, with the two key technologies now create an electronic catalogue on its website in order to
being: electronic data interchange (EDI) and the internet achieve global reach. In addition, Fraser et al. (2000) provide
(Croom, 2000). In the 1960s and 1970s, mainframe solutions a number of case studies of leading UK companies who have
focused initially on internal automation and proprietary EDI adopted internet technology, including Tesco, BBC and the
links with suppliers. EDI allows for the electronic Co-operative Bank. With the advent of internet-enabled
transmission of information and documents such as invoices communications, it is now possible for an organisation to
or purchase orders between computer systems in different establish links with other organisations at significantly lower
organisations based on a standard, structured, machine- costs than with previous technologies. A significant
retrievable format (Sanchez and Perez, 2003). development from innovations in internet technology has
EDI has been primarily used in the subcontracting area and been the growth of electronic intermediaries. It is now
has proven most effective in supporting operational-level possible to offer an intermediary service, developed around a
applications, mainly due to its limited technical capabilities sophisticated IT platform. The intermediary has a web front
and the existence of multiple technical standards (Li and end, allowing buyers to order from supplier catalogues,
Williams, 2000). It has seen widespread use in many participate in auctions or conduct tendering online (John,
industries, but particularly in automotive and retail 2000). This is significantly different from EDI. EDI tended to
environments (Bhatt, 2001; Weber and Kantamneni, 2002). be based on a “hub and spoke” arrangement – with one large
In order to support more complex and strategically more company acting as a hub and suppliers trading electronically.
important applications and processes, some organisations In contrast, an electronic intermediary can act as a single
have maintained dedicated data links between their computer gateway to a range of products or services that are provided by
systems by themselves, using various interfaces and a number of suppliers. It is designed to allow a number of
communication protocols capable of handling more suppliers to interact with a number of buyers through one
sophisticated forms of information exchange (Borman and connection.

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Models of B2B commerce computers to catering services and travel. There are two types
of hubs:
Although the exploitation of internet technologies at the (1) Vertical. Focus on an industry and provide content that is
business-to-business level is in its infancy, a number of models specific to the industry’s value system of buyers and
have begun to emerge that manage transactions between suppliers (Afuah and Tucci, 2001). Examples include
buyers and suppliers. e-Steel that acts as an intermediary between steel-makers
and customers, and VerticalNet that provides
Established buyer-supplier relationship intermediaries for many industries including
This is a pre-determined one-to-one relationship between a electronics, process, telecommunications, and utilities.
buyer and supplier that is supported by electronic commerce (2) Horizontal. Provide the same function for a variety of
technologies and is typically used in the procurement of industries. An example is [Link] that acts as an
strategic items. Due to the aforementioned limitations intermediary between buyers and suppliers of used
associated with EDI companies have now turned their capital equipment in different industries.
attention towards the internet to support these types of
buyer-supplier relationships. Companies are now pursuing An intermediary may be closed – where members and trading
more intensive and interactive relationship with their partners are vetted for legal and financial probity – or open to
suppliers, impacting upon the buyer-supplier relationship in all-comers, with the marketplace itself acting as a trusted
a number of areas including the integration of manufacturing intermediary. It is important to note that intermediaries may
systems and supplier involvement in new product be biased towards either buyers or suppliers. Supply-side
development. Exchanging information via the internet costs intermediaries may be run by consortia of manufacturers such
less and is more effective than through older traditional as Chemdex that acts as an intermediary for suppliers to the
methods such as faxes and voicemail. For example, NEC has life sciences industry. Similarly, buy-side intermediaries may
developed an advanced information system to carry out a be run by a consortia of customers, such as Covisint for car-
large part of its procurement activities, ranging from makers, or by independent organisations, such as Achilles for
procurement notices to settlement on the internet utilities (Bray, 2000). These intermediaries may attempt to
(Nakamoto, 1997). aggregate demand for buyers in order to obtain reduced prices
and more favourable terms from suppliers. In relation to
Supplier-oriented marketplace payment, some intermediaries may charge a flat fee per
In this model, both organisations and consumers use the transaction to both the buyer and suppliers. Alternatively, a
supplier-provided marketplace. This is the most common type percentage may be charged in the case of value-added services
of B2B model. In this model, both business buyers and such as auctions. In the case of large, repetitive transactions,
individual consumers use the same supplier-provided to achieve maximum benefit the intermediary should be
marketplace. An example of this model is RS Components linked seamlessly to buyer’s purchasing and the suppliers
([Link]). RS Components is a leading distributor of systems so that the entire purchasing process can be executed
electronic, electrical and mechanical components, electronically.
instruments, and tools in Europe. The marketplace provides
fast search and retrieval of 100,000 products, combined with
The implications for the buyer-supplier interface
personalised customer promotions based on the buying
profiles of its major customers. A supplier-oriented Streamlining the order management process
marketplace may also provide an auctioning facility to A key requirement for the effective implementation of an
offload surplus inventory or offer discounts to customers. effective delivery management system is a high frequency of
information sharing between the supply chain partners (Yasin
Buyer-oriented marketplace et al., 1997). This is a crucial area in which internet
Under this model, a buyer opens an electronic market on its technologies are having a major impact. Timely and accurate
own server and invites potential suppliers to bid on the information sharing is crucial in this process. The information
announced requests for quotation (RFQs) (Turban et al., sharing strategies of the trading partners is related to supplier
2000). One company that has successfully exploited this performance (Walton and Marucheck, 1997). Effective use of
model is GE Lighting. The purchasing department receives electronic commerce has the potential to improve the
electronic requisitions from internal customers that are then materials management process of both the buyer and
sent to potential suppliers over the internet. Within two hours supplier in areas such as inventory reduction, delivery lot-
of the purchasing department starting the process, suppliers size reduction and purchase order and invoice reduction. A
are notified of incoming RFQs and are given seven days to key success factor in ensuring collaborative relations between
prepare bids and send them back over the extranet to GE. trading partners is accurate customer demand forecasting.
With the transaction handled electronically, the procurement This is an area where electronic commerce technologies are
function has been able to concentrate on more strategic having a major impact. One industry where supplier reliability
activities rather than clerical and administration tasks. and effective forecasting is crucial is the supermarket industry
due to the perishable nature of most of the items on sale. For
Business-to-business intermediary example, over-supply means the supermarket is reducing
This model is sometimes referred to as a “hub” or cash-flow, while under-supply means gaps on the shelves and
“exchange”. It is established by an electronic intermediary poor customer service. Traditionally, the supermarkets
that runs a marketplace where suppliers and buyers have a operated EDI with their larger suppliers while traditional
central point to come together. These B2B hubs tend to focus paper-based approaches have been used to manage smaller
mainly on non-core items that may range from stationery and suppliers. However, large supermarket chains are now linking

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with smaller suppliers via the web taking advantage of the 1997). One of the most prominent indicators for a move
open standards technology of the internet (Hewson, 1999). towards partnerships is the rationalisation and consolidation
For example, Tesco has enabled remote suppliers to access of the supplier base (Matthyssens and Van den Builte, 1994).
everything from manuals on how to deliver goods to particular Organisations cannot develop successful collaborative
stores to a directory of Tesco staff and locations, news and relationships with a large supply base. The underlying
service levels. Such “links” allow suppliers to see how stocks reason is that reducing the number of suppliers is a
stand within the different stores through exactly the same prerequisite for improved and deepened supplier
database as Tesco staff use. Such innovations impact the relationships. Reducing the immediate supply chain has led
performance of both the customer and the supplier. For
to a changing of the structure of the chain and the number of
example, when Sainsbury set up an extranet link with Nestle
tiers in it. In a manufacturing context, original equipment
availability on the shelves rose by 2 to 97 per cent while
manufacturers (OEMs) are buying assembled systems or
overstocking fell by a quarter (Hewson, 2000). Chrysler has
also used information technology to improve relationships complete sub assemblies rather than individual components,
with its suppliers by using a computerised online system that thus introducing another level into the supply chain. Since the
transfers delivery and quality to suppliers in real time (Anon, introduction of these policies, subcontractors are now
1995). The implications of this evidence is that electronic commonly referred to as belonging to a particular level or
commerce not only benefits the customer, but there can be tier of the supply chain. The first-tier supplier will supply the
benefits to the supply chain as well. Such a situation creates a assembled system and is likely to be responsible for
higher level of dependency in the relationship with both investment in product design and process development. The
partners being more willing to make shared investments in first-tier supplier will then be responsible for co-ordinating the
information technology in order to reduce costs. required supply of inputs from the second-tier suppliers.
The implementation of electronic commerce not only First-tier suppliers take on the main burden of co-ordinating
occurs at the buyer-supplier interface but can also enable the the activities of second-tier suppliers.
trading partners to build a closer relationship with the end- Information technology has played a key role in managing
consumer. For example, in the retail industry information such an inter-organisational network of supply chain
technologies are enabling retailers to identify trends and target members. Electronic commerce can reduce the costs of
individual consumers. Using relational databases and data closely integrating buyers and suppliers and through
mining techniques retailers are able to identify customer electronic networks firms can achieve greater integration at
requirements and shopping habits (Taylor, 1997). One the buyer-supplier interface. The evolution of electronic
company that has successfully employed this technology is
commerce technologies is having a considerable impact on the
Wal-Mart. Wal-Mart stores data on point-of-sale, inventory,
communication patterns between the supply chain members.
products in transit, market statistics, customer demographics
Traditional electronic commerce such as EDI transactions
finance, product returns, and supplier performance (Turban
et al., 2000). The data is used for three broad areas of decision have been conducted over proprietary networks between the
support: analysing trends, managing inventory, and OEMs and tier one suppliers. However, internet-based
understanding customers. In particular, Wal-Mart has been electronic communication is facilitating increased
able to build up “personality traits” of each customer by information sharing between members at lower levels in the
analysing relationships and patterns in customer purchases. inter-organisational network. For example, in an analysis of
Such innovations provide greater forward demand visibility the buyer-supplier relations in the European automobile
throughout the supply chain by knowing which consumer component industry, Hyun (1994) found increasing
buys which products where and at what time of the day. communication exchange between the various parties
Milgrom and Roberts (1992) argue that information involved like the OEMs, the sub-assemblers, and the sub-
technology can enhance the customer’s information suppliers. The information flows are multi-directional within
management capabilities and transaction processing this supplier network. The degree of communication linkage
efficiency that in turn can be used to foster closer relations between the three parties could vary depending upon the
with suppliers. nature of collaboration.
A crucial area of collaboration between the customer and
Enhancing buyer-supplier coordination supplier supported by internet technologies is integrated
mechanisms product development. This involves using multi-functional
teams from both the customer and supplier organisations. It is
Electronic linkages in the supply chain have been important to have all the customer representatives, such as
fundamentally changing the nature of inter-organisational
research and development, engineering, purchasing,
relationships (Roberts and Mackay, 1998). Electronic
production, and logistics involved in the process. Caterpillar
commerce technologies have supported more collaborative
has adopted such an approach with its key suppliers in the
relationships by changing the multi-functional interactions
between customers and their suppliers. For example, Grover design process. Caterpillar has adopted an “open” standards
and Malhotra (1997) have argued that innovations in the use approach with its suppliers which enables partners to access
of internet technologies are critical in integrating and co- spreadsheets, charts, documents, scheduling charts, databases
ordinating cross-functional teams across organisational and computer-generated drawings electronically (Houlder,
boundaries. The trend towards more collaborative relations 1997). Such an approach is vital for Caterpillar with large and
has led organisations to reduce the number of suppliers while small suppliers having instant access to mutually shared
at the same time fundamentally changing the way in which information. This reduces time-to-market and creates a lot of
they do business with their remaining suppliers (McIvor et al., value that can be shared between the buyer and supplier.

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The shifting focus of intermediaries The greater liquidity and transparency that flow from
e-marketplaces have enabled more efficient pricing and more
Many of the intermediaries that have been established have effective matching of customers and suppliers, and most
attempted to create commodity-like markets for everything important, value has shifted from the product itself to
from chemicals to steel. A significant number of these information about the product. Therefore, value resides in the
operations have been start-up companies that have been information management rather than the processing of
expected to replace traditional distributors by brokering transactions. While the transfer of physical products will
transactions electronically between buyers and suppliers remain the end result of a business transaction, the
without being involved in fulfilment. These companies are information that shapes the transaction – price, availability,
established on IT platforms providing standard services such quality, quantity – can now be separated and exchanged
as online auctions typically earning a commission on the electronically. This distinction between the internet and the
transaction volume generated. Many of these auctions have physical purchasing process is a significant factor. This is
tended to be reverse auctions, where bidders progressively illustrated by a trading firm in Hong Kong, that deals directly
make lower commitments to what they would be prepared to with retailers in the US, has created an intermediary to link
supply products for (Emiliani, 2000). However, it must be retailers with suppliers as a means of achieving competitive
stressed that most items within a company’s purchasing advantage (Humphreys et al., 2001). The intermediary,
portfolio cannot be purchased through auctions. Typically, 80 known as Factory Network supplies retailers in the US with
per cent of a company’s purchasing portfolio are traded simple commodity-type products, such as toys, clocks and
through negotiated contracts that may last for more than a Chinese porcelain. A network of approximately 50 small- to
year. Therefore, these types of items are inappropriate to medium-sized companies in Southern China provide these
“spot” sourcing. By focusing on these commodity items many products. The intermediary facilitates the creation, storage,
intermediaries have not achieved the necessary liquidity to transformation and transmission of information across the
survive. In effect, these B2B operations have been attempting organisational boundaries, between the parties involved in the
to replicate eBay’s business-to-consumer business model in a relationship. It allows the retailers to shop for products and to
business-to-business environment. Therefore, this model has place order requests and at the same time to check on the
struggled due to a proliferation of new entrants into the status of orders. The system also provides information on
marketplace that has led to the squeezing of margins. For product suggestions, delivery and pricing options and
example, AMR Research in the US found that not a single promotes special items. The intermediary transfers the order
one of the 600 B2B intermediaries studied had reached even 1 requests to the relevant enterprises based on an analysis of
per cent of overall trading volume in the industry (Anon, current production schedules and available capacity, in order
2000b). to meet the customer lead-time requests. This intermediary
It is clear that these intermediaries will have to provide enables retailers to gain access to detailed information on
more sophisticated services to potential users rather than potential supply sources. Under the traditional purchasing
purely transaction and auction facilities. For example, process this type of information would have been very difficult
Freemarkets has developed to provide far more than an to obtain. In effect, access to this information can be as
auctioning service. It now assists customers in the collection valuable to the retailers as the physical product.
and analysis of information required in purchasing more
complex products and services online. It creates value for the
customer through identifying and qualifying bidders and The roles of the participants at the buyer-supplier
creating detailed, standardised requests for proposals that interface
enable the bidders to provide comparable quotes even on The application of electronic commerce technologies is
highly specialised products. Due to the ease with which start- blurring the traditional boundaries in the value chain
up companies can replicate the auctioning process it has now between suppliers, manufacturers, retailers and end-
become a commodity service. Wise and Morrison (2000) customers. A key capability of electronic commerce is the
argue that as Freemarkets handles more transactions, its automation of routine and clerical tasks at both the buyer and
product descriptions will become more refined and supplier interfaces. Electronic commerce technologies are
standardised, reducing the investment it has to make in eliminating activities traditionally carried out by the relevant
subsequent auctions and expanding the range of auctionable participants in both the customer and supplier. Electronic
items. In this way, these intermediaries will take on some of commerce technologies can provide facilities such as web-
the roles traditionally undertaken by the purchasing function based interfaces, integration with supplier catalogues and
in the customer organisation. It is likely that they will provide internal information systems, and built-in business
the online capability to identify product features that best transaction rules based on purchase limits or negotiated
meet a particular buyer’s needs. Another feature emerging on contracts. These facilities allow end-users to order products
these intermediaries is online communities that allow and services online without intervention by the purchasing
members to participate in discussions on common issues. department, including automatic fulfilment by the supplier,
Intermediaries are using communities to add value to the and payment via electronic funds transfer or purchasing cards.
services on offer. As an illustration, Medoxline was set up to Also, in relation to intermediaries the customer is outsourcing
allow buyers and suppliers to interact and carry out procurement activities traditionally carried out internally.
transactions in the healthcare sector. A key feature of this These developments provide both a challenge and an
site is an online community that replicates the sharing of ideas opportunity to the relevant participants. With electronic
and the discussion of problems normally carried out at commerce technologies automating the transaction type
conferences (Prigg, 2000). activities, the participants at both the buyer and supplier

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Paul Humphreys, Ronan McIvor and Trevor Cadden Volume 11 · Number 2 · 2006 · 131 –139

interface are now able to focus on “value adding activities” as organisation. Also, externally order information from this
illustrated in the following areas: system should be easily transferable to the systems of
.
On the customer side: the role of the purchasing professional suppliers. Therefore, standards would have to be agreed so
is moving from being involved in clerical type activities, that the systems of the customer and suppliers would be
such as invoice processing and expediting, to include directly interfacing with each other.
activities such as integrating suppliers into their new In the case of intermediaries, this problem is further
product development processes and joint involvement in exacerbated due to the number of buyers and suppliers that
total cost analysis. McIvor et al. (2000) found that the are brought together. Ideally, it should be possible for the
successful implementation of IT at the buyer-supplier participants involved to access the appropriate information to
interface can reduce costs and allow purchasing personnel support the relationship. Information is sent and received for
to have greater time and ability to engage in more a number of purposes including product and pricing
sophisticated vendor evaluation programmes and value information in an electronic catalogue, placing orders and
analyses, build closer relationships with key suppliers and managing inventory. To ensure integration it is necessary to
rationalise their supply bases. In this way, it is possible for get all the participants involved to agree to a common set of
the purchasing function to make the transition from being rules. However, it is very difficult to ensure integration from
a transaction-oriented operation to one that has a strategic order placement to payment due to the range of systems
focus. involved that cut across both internal and external systems.
.
On the supply side: with the customer service function Wheatley (2000) found that digital links to core financial
having limited involvement in handling routine order functions, such as general ledger and payments systems, do
queries they are able to focus more of their time on not exist in many organisations. As a result, companies are
activities such as managing and building the relationship buying and selling online but are settling invoices with devices
with their key customers. The use of electronic commerce such as purchasing cards, and this is still standard practice
has enabled Nortel, a strategic supplier of BT, to devote with many intermediaries. Therefore, in many circumstances
more time to improvements in the product launch process it may be of no advantage to become involved with an
and in dealing with queries to enable faster provision and intermediary to source or sell items due to problems
product installation. This provides Nortel with the associated with systems integration. A buyer may, for
opportunity to add value as part of collaboration by example, use an auction process to obtain lower prices for
increasing end customer service and product utilisation commodity-type items. However, the savings obtained as a
(Roberts and Mackay, 1998). result of the reduction in the price of the items may be offset
against the costs associated with upgrading and adapting the
Such changes have considerable behavioural implications, systems to ensure efficient and effective integration in the
with the participants at both the buyer and supplier interface order management process. The Chartered Institute of
performing a more value-adding role, there are training and Purchasing and Supply (CIPS) has found that price is only
development implications. Related to this is the fact that the about one-third of the cost of incorporating the goods and
participants are being empowered to make more informed services into the final product (Newing, 2000). Also, suppliers
decisions through greater access to information. may be unwilling to become involved with intermediaries.
Although suppliers may have more access to customers with a
The integration issue reduction in marketing costs, the consequent downward
pressure on price will seriously undermine those potential
Much of the evidence presented has shown how companies benefits. Suppliers are likely to be unwilling to become
can exploit the open standards technology of the internet to anonymous participants in ruthless price bidding wars.
link up with suppliers that they have traditionally traded with This evidence would appear to contradict the argument of
manually or access to new suppliers. The internet has made a Benjamin and Yates (1991) that “innovations in information
communication medium similar to EDI available universally, technology will enable the unit costs of co-ordination
so that adding or deleting trading partners is a much more transactions to approach zero, thus enabling the design of
straightforward process (Tyler, 1999). With better linkages, innovative co-ordination transactions to fit new business
transaction costs will be reduced and the relationship between needs”. Although commodity-type items are conducive to
the buyer and supplier will be more efficient and effective. electronic trading through intermediaries, the difficulties
Tapscott et al. (2000) argue that “pervasive, elegant, and associated with integrating systems across organisational
cheap internet technologies enable true end-to-end boundaries pose enormous challenges. One key aspect is
integration, fusing enterprises with one another and bringing that with the implementation of information technology at the
the customer inside the value chain”. However, there is still buyer-supplier interface it is very difficult to eliminate the
the significant problem of incompatibility of the systems of the human element. In addition, recent evidence suggests that the
trading partners. There is evidence to suggest that closed barriers to the successful exploitation of Internet technologies
network problems can also affect the internet with business- at the buyer-supplier interface do not lie primarily with the
to-business electronic commerce running up against technology but with the business processes (Taylor, 1997).
application interfaces which inhibit the operation of a fully The perception is growing that the real benefits of electronic
transparent environment between trading partners (McIvor linkages will not come from “streamlining” the supply chain
et al., 2000). With an e-procurement system it is important to management process electronically, but from re-defining it
ensure consistency of purchase and that the purchasing completely. Seamless integration of buyers’ and suppliers’ key
professional has control of the system with the necessary systems across the total purchasing portfolio, rather than
authorisation procedures established. The system should have commodity-type items, should be the key objective rather
to be integrated with the internal systems of the customer than attempting to reduce price or administration costs. Even

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Paul Humphreys, Ronan McIvor and Trevor Cadden Volume 11 · Number 2 · 2006 · 131 –139

in the most successful companies there are few processes that costs to competitors. For example, the sharing of cost
are fully integrated horizontally. Effective implementation of information is an area which customers may use to obtain
electronic commerce to support supplier relationships and to increased power over suppliers. In many cases, cost
optimise the supply chain requires that electronic commerce information is not used for mutual benefit, thus gaining a
is fully integrated into both the business architecture and poor reputation because of its use as “just another weapon
technology infrastructure of both the customer and the in the customer’s arsenal” (Lamming, 1996).
supplier. The redesign of processes must not only include .
On the customer side: in a retail environment, the retailer
internal organisational processes but must include the wider may not wish to disclose information to suppliers
business network. An organisation is just one entity in a value concerning sales promotions and product sales fearing
system carrying out processes that extend beyond the that the supplier might disclose such information to
boundaries of the organisation into both its customers and competitors. Clearly, if electronic commerce is to lead to
suppliers. While companies may have focused on individual the “seamless integration” of supply chain partners then a
processes, systems and departments, and optimised such culture change is required to establish real partnerships in
activities, they have not considered the whole chain and which information can be exchanged on a regular basis in
identified activities and links that are adding most value. an environment of trust.
MIT’s “Management in the 1990s” research project has
shown that a clear distinction exists between business process Conclusion
re-engineering (BPR) and what is usually referred to as
business network redesign (BNR) (Venkatraman, 1994). BPR The evidence presented in this paper has illustrated that the
has clearly focused on the redesign of internal organisational internet represents a powerful technology for commerce and
processes. BNR is concerned with the wider business communication at the buyer-supplier interface. It has been
network. The underlying premise is that the firm is just one shown how internet technologies are having a considerable
entity in an industry value system. Business network processes impact on the communication patterns at the buyer-supplier
are those processes that extend beyond the boundaries of the interface. Effective use of electronic commerce has the
organisation into suppliers, customers, regulators and alliance potential to improve the materials management process of
partners. both the buyer and supplier in areas such as inventory
reduction, delivery lot-size reduction and purchase order and
invoice reduction. Electronic commerce can reduce the costs
Transparency and buyer-supplier relations of closely integrating buyers and suppliers and through
In the case of established buyer-supplier relationships it is electronic networks firms can achieve greater integration at
important to consider the nature of the buyer-supplier the buyer-supplier interface. For example, electronic
relationship on the exploitation of Internet technologies. commerce technologies can enhance the customer’s
Successful implementation of electronic commerce at the information management and transaction processing
buyer-supplier interface requires collaboration among efficiency that in turn improves customer demand
customers and their suppliers (Roberts and Mackay, 1998). forecasting and fosters closer relationships with suppliers. It
However, both customers and suppliers have had extreme is essential for top management to understand that the
difficulties with embracing this new ethos of openness, trust internet is more than a tool or technique, but rather
and collaboration. Collaborative buyer-supplier relations are something that is woven into the fabric of the organisation
often perceived as the optimum approach to achieving supply and the relationship with its environment. Adopting such an
chain improvement through the development of more approach represents a drastic change from traditional
effective customer-supplier relationships. Evidence has management thinking and, more importantly for
shown that this is an area where rhetoric seems to be management’s behaviour. The availability of information
moving well ahead of reality (McIvor et al., 1997; Burnes and through the Internet allows organisations to overcome
New, 1996; Lamming, 1994). It is certainly true that traditionally cost-prohibitive infrastructure barriers and
partnership is described in simplistic terms, thus making the establish a global presence.
potential benefits appear easier to achieve than is the case. In It must be pointed out that the internet is in its infancy with
addition, the distribution of the benefits that can be achieved the underlying infrastructure having some way to go before
through customer-supplier improvement activities is a more full development. Internet search tools will become more
contentious issue than much of the literature acknowledges. sophisticated and advances in the extensible mark-up
New and Burnes (1997) conducted an empirical study of the language (XML) will make it possible to identify products,
benefits to be gained from collaborative buyer-supplier features, and prices with far greater precision. Buyers will be
relationships. They found that the distribution of the costs able to set much more detailed search criteria, which gives
of improvement activities was biased towards suppliers rather them immediate access to even richer sources of information.
than customers. McIvor et al. (1996) present research to In particular, innovations in technology will dictate the pace
suggest that procurement personnel have found it difficult to at which intermediaries will evolve to add more value and
adapt to the new ethos of openness with suppliers. In encapsulate items of greater complexity. Currently the core
addition, suppliers are expected to embrace a collaborative skills of intermediaries are information technology,
relationship, after many years of operating in a system in commodity-management and an understanding of point-to-
which trust was the last thing they expected. This evidence point buyer-supplier interactions. It is quite clear that
poses problems in the following areas: intermediaries must redefine their roles and functions if they
.
On the supplier side: there may be an unwillingness to share are to be effective for buyers and suppliers. In the main, these
information on prices or costs fearing that the customer intermediaries provide commodity-type items and act as a
might use such information to erode margins or disclose “meeting” facility for buyers and suppliers. At the moment

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Paul Humphreys, Ronan McIvor and Trevor Cadden Volume 11 · Number 2 · 2006 · 131 –139

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