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What is Inter-Organizational E-commerce?

5 min read
What is Inter-Organizational E-commerce?

Inter-organizational e-commerce refers to the full spectrum of e-commerce that can occur between two organizations. It is the e-commerce between businesses i.e. the businesses focus on selling to other businesses in the B2B e-commerce.

It includes companies doing business with one-another with a goal to save money on purchases that can be negotiated easily. Companies are now mutually buying and selling products and services on the internet.

Inter-organizational e-commerce many reduce the transaction costs, increase the availability of products and suppliers and reduce dependencies on a few trading partners and products.

Moreover, they offer many secondary services towards integrating purchasing, distribution, and inventory processes, streamlining the entire transaction process. Thus, it allows better inventory management, quality control and supply chain processes.

Business organizations are constantly buying and selling goods and services. Shops buy products in bulk from their suppliers and sell those goods in small quantities to their customers.

Manufactures buy raw material or components from their suppliers, assemble them into new products and sell them to their customers. Retailers make a great number of transactions and the whole operation of their business is dependent on their effective execution.

Other business service sector organizations such as accountants may be less dependent on a constant flow of goods but they still need supplies and they are careful to account for the transactions with their transactions.

For all businesses, there is a web of inter-organizational transactions. This web of transactions forms a value chain and is illustrated as the Logistics Network in the following figure:

 

Credit Transaction Trade Cycle:-

Most inter-organizational trade transactions take place as a part of an established, ongoing trade relationship. The trade cycle for inter-organizational transactions is generally a credit trade cycle. The stages in the credit trade cycle are:

  • Pre-sales:-

Before trading starts, the two organizations need to make contact (search) and agree trading terms (negotiate). The customer organization may go out to tender or simply contact a firm it knows. The supplying firm may want to run credit checks on the customer. Both organizations will need to agree the price of goods, conditions of delivery and terms of payment.

  • Execution:-

Execution consists of requesting the goods (order) and then collecting or receiving them (delivery). For most supplies, firms will have formal purchasing procedures-order originate from a purchasing department. The delivery of the goods is also formalized- goods come with a delivery note that is cross checked manually or electronic with the original purchase order to complete the stage.

  • Settlement:-

The supplier of the goods has to be paid with inter-organizational transaction that usually takes place after delivery. The supplier requests payment (invoice) and the customer settle the account by making the payment.

  • After-sales:-

In any transaction, there can be problems, damaged or faulty goods, and these issues are sorted out after the execution phase. For items such as machinery, there can be an ongoing process of warranty or maintenance (after sales).

Many inter-organizational transactions will be repeated on a regular basis. For example, the produce purchases of the retailer and the component orders of a vehicle assembler- this is shown by loop of the execution and settlement stages.

Additionally, customers and suppliers will re-visit price and other conditions of the contract on a periodic basis or the customer will switch to an alternative supplier, shown as a loop back to the negotiate and search phases respectively.

Each stage of the inter-organizational trade cycle is documented and both the customer and supplier have systems to trace the progress of the transaction. The customer will check for delivery of the goods and will not want to pay before the delivery is recorded in their system.

The supplier integrates the order entry system with a stock control or production control and certainly needs to check payment against the invoices that are issued. The exchange of documents  for the trade cycle of a simple transaction is shown below:

 

Varity of Transaction:-

There are many organizations and there is a variety of the transactions that takes place. The organizations range from a large supermarket chain down to a local corner shop. The type of transaction that takes place and how it is executed depends on the size of the business involved, the nature of the business and the norms of the particular trade sector. A variety of transactions that can take place are:

  • Discrete transactions of commodity items.
  • Repeat transactions of commodity items.
  • Discrete transactions of non-commodity items.

These differing transactions may be done electronically and can be mapped onto the various e-commerce technologies:

  • Electronic Markets:-

An electronic market is an inter-organizational information system that allows the participating buyers and sellers to exchange information about prices and product offerings.

They are the commerce sites on the internet that allow large numbers of buyers and suppliers to meet and trade with each other. Electronic markets provide an efficient search mechanism to compare commodity product offerings and find a suitable supplier.

Many electronic markets also offer additional services, such as payment or logistics services that help member complete a transaction.

  • Electronic Data Interchange (EDI):-

Electronic data interchange (EDI) is the electronic exchange of business documents in standard, computer-processable, universally accepted format between the business partners.

EDI comes into its own once the supplier has been located and terms of trade arranged. It enables the computer in one organization to communicate with a computer in another organization without producing any paper documents or human intervention. It provides for the automation of regular repeat orders and other standardized exchanges on a weekly, daily or even hourly basis.

  • Internet Commerce:-

In addition to the large and regular purchases, organizations will be making once-off, consumer style purchases e.g. stationery purchases. Such purchases are not the subject of electronic markets and probably do not justify an EDI system but they can be undertaken using e-commerce facilities on the internet.

All these e-commerce technologies could be used by a single company as per their requirements.

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