Journal of Materials Processing Technology 139 (2003) 147–152

Electronic commerce: supporting collaborationin the supply chain?

R. McIvor∗, P. Humphreys, L. McCurryFaculty of Business and Management, University of Ulster, Northern Ireland, UK

Abstract

This paper examines the influence of electronic commerce technologies in enabling companies to pursue more collaborative relationswith their suppliers. It is shown how electronic commerce is supporting more collaborative relations by describing a number of the keyareas of collaboration, where electronic commerce is having a considerable impact. Electronic commerce is radically re-shaping traditionalsupply chain structures in many industries and reducing the costs of closely integrating buyers and suppliers. However, it is argued thatelectronic commerce has yet to achieve its full potential in creating a transparent network of supply chain members. In particular, it isargued that a culture change is required in order to establish real partnerships between buyers and suppliers in which information can beexchanged on a regular basis in an environment of trust.© 2003 Elsevier Science B.V. All rights reserved.

Keywords:Electronic commerce; Partnership sourcing; Extranet; Intranet; Electronic data interchange

1. Introduction

Issues such as the trend towards increased outsourcinghave led companies to become more dependent on theirsupplier network[1]. The trend towards more collaborativerelations has led organisations to reduce the number ofsuppliers while at the same time fundamentally changingthe way in which they do business with their remainingsuppliers[2]. Companies are now pursuing more intensiveand interactive relationships with their suppliers, impactingbuyer–supplier relations in a number of key areas such as,supplier involvement in new product development activitiesand creating multi-functional teams in both the customerand supplier organisations to enable collaboration on arange of issues. One consistent theme throughout these in-teraction patterns between the customer and supplier is theenabling role of information technology. Electronic linkagesin the supply chain are already fundamentally changing thenature of inter-organisational relationships[3]. For exam-ple, Grover and Malhotra[4] have argued that innovationsin Internet technologies such as ‘intranets’ and ‘extranets’are critical in integrating and co-ordinating cross-functionalteams across organisational boundaries. Electronic com-merce technologies such as the Internet have been most

∗ Corresponding author. Tel.:+44-28-7137-5321;fax: +44-28-7137-5323.E-mail address:rmcivor@ulster.ac.uk (R. McIvor).

prevalent in business-to-consumer type trading exchanges.However, it is argued that the greatest potential for theapplication of electronic commerce technologies lies withbusiness-to-business transactions[5].

The objective of this paper is to examine the influence ofelectronic commerce technologies in enabling companiesto pursue more collaborative relations with their suppliers.An overview of the relevant literature is presented on col-laborative buyer–supplier relationships. An outline is thenpresented on how electronic commerce is facilitating greatercollaboration in the supply chain by describing a number ofthe key areas of collaboration where electronic commerceis having a considerable impact. It is shown how electroniccommerce is radically re-shaping traditional supply chainstructures in many industries and reducing the costs ofclosely integrating buyers and suppliers. The impedimentsto electronic commerce-enabled supply chain collaborationare identified. It is argued that electronic commerce has yetto achieve its full potential in creating a transparent networkof supply chain members. Finally, areas for future researchare identified.

2. Collaborative buyer–supplier relationships

The collaborative buyer–supplier relationships adoptedby Western companies have been adapted from the Japanesestyle partnership. The objective of Japanese partnerships is to

0924-0136/03/$ – see front matter © 2003 Elsevier Science B.V. All rights reserved.doi:10.1016/S0924-0136(03)00196-1

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increase quality while minimising the total costs associatedwith adding value incurred by both the buyer and supplier.In short, the goal is to create a ‘see-through’ value chainwhere the costs and problems of both parties are visible.Dyer and Ouchi[6] define the Japanese style partnershipas “an exclusive buyer–supplier relationship that focuseson maximising the efficiency of the entire business system(value chain)”. Due to the success attributed to Japanesestyle partnerships, and the emergence of Japanese trans-plants such as Honda and Nissan in the US and UK, West-ern companies have become interested in adopting manyof the features of partnership sourcing. Ellram[7] defines apurchasing partnership as—“an agreement between a buyerand a supplier that involves a commitment over an extendedtime period, and includes the sharing of information alongwith a sharing of the risks and rewards of the relationship”.

Gadde and Hakansson[1] emphasise the need for organi-sations to move toward closer co-operation in the buyer–sup-plier relationship. Market pressures for increased productcomplexity and variety based on a wide range of develop-ing technologies and response at higher levels of qualityand reliability but declining cost have demonstrated thatfew, if any, organisations can do it all by themselves. Theyneed to supplement their core competencies by allying withother providers of complementary competencies to satisfytheir customers. The real productivity, design and qualityimprovements are not obtainable unless the suppliers in thepartnering arrangement innovate to the best of their abilitiesin conjunction with the buyer organisation. This, however,requires a major shift in mind-set or operational paradigm,from what Sako[8] terms arms-length contractual relation toobligational contractual relation. Hence, there are a numberof intangible and tangible factors that must be present for apartnership to be successful. The intangibles are regarded assenior management commitment, trust, flexibility, teamworkand patience. The tangibles are reduced costs, adopting to-tal quality management, zero defects as a quality target, ontime payments, joint research and development, electronicdata interchange, faster time to market; on time deliverieswith JIT if necessary, the reduction/elimination of stock.

3. The implications of electronic commerce forsupply chain collaboration

3.1. Change in supply base structure

One of the most prominent indicators for a move towardspartnerships is the rationalisation and consolidation of thesupplier base[9]. The underlying reason is that reducingthe number of suppliers is a prerequisite for improved anda deepened supplier relationships. Reducing the immedi-ate supply chain has led to a changing of the structure ofthe chain and the number of tiers in it. These purchasingcompanies are buying assembled systems or complete subassemblies rather than individual components, thus intro-

ducing another level into the supply chain. Informationtechnology has a key role to play in managing such aninter-organisational network of supply chain members. Elec-tronic commerce can reduce the costs of closely integratingbuyers and suppliers and through electronic networks firmscan achieve an integration effect by tightly coupling pro-cesses at the interface between stages of the value chain[10]. The evolution of electronic commerce technologiesis having a considerable impact on the communicationpatterns between the supply chain members.

Traditional electronic commerce such as electronic datainterchange (EDI) transactions have been conducted overproprietary value-added networks (VANs) between theOEMs and tier one suppliers. However, Internet-basedelectronic communication is facilitating increased informa-tion sharing between members at lower levels in the inter-organisational network. For example, in an analysis ofthe buyer–supplier relations in the European automobilecomponent industry, Hyun[11] found increasing commu-nication exchange between the various parties involved likethe OEMs, the sub-assemblers, and the sub-suppliers. Theinformation flows are multi-directional within this suppliernetwork. The degree of communication linkage betweenthe three parties could vary depending upon the nature ofcollaboration. For example, in the new product develop-ment process, more communication and closer relationshipsbetween the sub-assemblers and OEMs is taking place.

Another trend radically changing the supply base struc-ture that is being enabled by electronic commerce is the in-creasing use of distributors by OEMs in many industries.OEMs use distributors to manage the logistics process be-tween their commodity type suppliers. The distributor actsas the interface between the OEM site and each componentsupplier maintaining and managing a store of items on thesite. The operation of such an arrangement depends uponelectronic commerce with limited intervention in the OEM.The distributor uses its distribution centre as the ‘hub’ forthe items it purchases from the suppliers. The initial runningof the system begins with the distributor receiving a forecastof usage for each component for the proceeding 6 months.Consequently, each week the distributor receives a revisedforecast of usage for the next 4 weeks from the OEM’s man-ufacturing system. Based on this forecast the distributor en-sures that the distributor’s on-site store has a stockholdingequivalent to this forecasted 4-week usage. On receipt of theweekly forecast the distributor guarantees 24 h delivery toensure necessary replenishment of the on-site store. The dis-tributor still ‘owns’ the stock while it is in the on-site store.When the OEM’s manufacturing systems uses the stock fromthe store it then becomes the property of the OEM.

3.2. Delivery management

A crucial area in which electronic commerce is having amajor impact is in the management and scheduling of prod-uct demand in the supply chain. A key requirement for an

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effective delivery management system is a high frequency ofinformation sharing between supply chain members. Timelyand accurate information sharing is crucial in this process.The information sharing strategies of the trading partners isrelated to supplier performance[12]. Effective use of elec-tronic commerce has the potential to improve the materialsmanagement process of both the buyer and supplier in areassuch as inventory reduction, delivery lot-size reduction andpurchase order and invoice reduction.

A key success factor in ensuring collaborative relationsbetween trading partners is accurate customer demandforecasting. This is an area where electronic commercetechnologies have had a major impact. One industry wheresupplier reliability and effective forecasting is crucial isthe supermarket industry due to the perishable nature ofmost of the items on sale. Traditionally, the supermarketsoperated EDI with their larger suppliers while traditionalpaper-based approaches have been used to manage smallersuppliers. However, large supermarket chains are now link-ing with smaller suppliers via the Web, taking advantageof the open standards technology of the Internet[13]. Forexample, Tesco has enabled remote suppliers to accesseverything from manuals on how to deliver goods to partic-ular stores to a directory of Tesco staff and locations, newsand service levels. Such ‘links’ allow suppliers to see howstocks stand within the different stores through exactly thesame database as Tesco staff use. Chrysler has also usedinformation technology to improve relationships with itssuppliers by using a computerised on-line system that trans-fers delivery and quality to suppliers in real time[14]. Theimplication of this evidence is that electronic commerce notonly benefits the customer, but there can be benefits to thesupply chain as well. Such a situation creates a higher levelof dependency in the relationship with both partners beingmore willing to make shared investments in informationtechnology in order to reduce costs.

At this stage it is worthwhile considering the variouselectronic commerce technologies which support differenttypes of purchased items. A significant point is that EDI hastended to be exclusively used by large companies becauseof its complexity and relatively high cost of implementation.Also, there have been problems with implementing EDI inmany industries. For example, in the UK car industry sup-pliers are frustrated by the different implementations of EDIemployed by the vehicle manufacturers, and appear to be un-able to cope with the inconsistency of business information.EDI has not been well implemented in the industry over thepast decade and some suppliers do not believe it is worth theeffort—given the alternatives of fax messages, electronicmail—despite the apparent benefits available from EDI interms of improved data accuracy. The EDI industry has nowturned to the Internet to extend its reach and make it easierand cheaper for small firms to use[5]. Such a trend hasenabled large companies to have different ‘electronic links’with their suppliers depending upon their size and level ofsophistication. Even though companies may have had EDI

links with their large suppliers, the predominant meansof communication with their smaller suppliers may havebeen fax or telephone message. One such company that hasexploited the use of Web technology is Daimler-Chrysler(DC). DC trades with its small suppliers via the Web witheach supplier being able to hook directly into DC’s system[15]. The ordering, invoicing and payment process is carriedout electronically with transactions being more accurateand small businesses getting paid more quickly.

3.3. Collaboration in new product development

Increased buyer–supplier collaboration has led to inc-reased supplier involvement in the design process withthe customer. One strategy that is facilitating the effectiveimplementation of new product development is concur-rent engineering. Concurrent engineering makes use ofmulti-functional teams and these may be part of the infrastructural features for the supply chain, involving both in-ternal and external representatives[16]. The importance ofhaving all the internal representatives, such as research anddevelopment, engineering, purchasing, production, and lo-gistics in the process is recognised. Concurrent engineeringis being facilitated through Internet technology as evidencedby Caterpillar and its suppliers. Caterpillar has adopted an‘open’ standards approach with its suppliers which enablespartners to access spreadsheets, charts, documents, schedul-ing charts, databases and computer-generated drawingselectronically[17]. Such an approach is vital for Caterpillarwith large and small suppliers having instant access to mu-tually shared information. This reduces time-to-market andcreates a lot of value that can be shared between the buyerand supplier.

A further example is provided by Huang and Mak[18]who describe the application of Extranet technology within amultinational electronics company, which embraces not onlythe design sites within the organisation, but also includesdesigners at key suppliers. The Intranet module developedhas been beneficial in a number of areas to the designers inthe customer and supplier organisations:

(i) Developing specifications—assists in changing, revis-ing and modifying tolerances, features and specifica-tions.

(ii) Interchangeable parts—provision of parts and compo-nents that have commercially available specificationsthat can be used interchangeably to produce the sameproduct without impairing the intended product utilityor function.

(iii) Part standardisation and simplification—identifyingcomponents which could be standardised and hence thegreater availability and abundance of supply sourceshas led to a reduction in production lead time, resultingin lower product and inventory costs.

(iv) Part exclusions—bringing attention to specified itemsthat had a long or unstable lead-time. Any shortages of

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such items can seriously hamper line balancing, result-ing in costly delays and inefficient use of resources.

From a management perspective the Web-based designtool has improved the communication linkages betweenthe customer and the supplier. Feedback between the cus-tomer and supplier on ongoing designs can occur on acontinuous basis. In addition, within the electronics indus-try product development times are measured in months andcompanies need to find innovative ways of compressingthe time-to-market in order to enhance their speed of re-sponse to the final customer. The system assists productdevelopment by bringing the suppliers organisation into theproject at an earlier stage. This helps in minimising designchanges (and consequently reduce costs) later on in the pro-cess. At the same time, the close communication betweendesigners in both companies as well as other members ofthe multi-functional procurement team, has enhanced therelationship between the two organisations.

3.4. Re-engineering the buyer–supplier interface

A key capability of electronic commerce is the automationof routine and clerical tasks at both the buyer and supplierinterfaces. Therefore, electronic commerce technologies areeliminating activities traditionally carried out by the relevantparticipants in both the customer and supplier. Such a changeprovides both a challenge and an opportunity to the rel-evant participants. With electronic commerce technologiesautomating the transaction type activities, the participants atboth the buyer and supplier interface are now able to focus on‘value adding activities’ as illustrated in the following areas:

(i) On the customer side, the role of the purchasing pro-fessional is moving from being involved in clericaltype activities, such as invoice processing and expedit-ing, to include activities such as integrating suppliersinto their new product development processes and jointinvolvement in total cost analysis. For example, Wangand Seidmann[19] have found that the successful im-plementation of IT at the buyer–supplier interface canreduce costs and allow purchasing personnel to havegreater time and ability to engage in more sophisticatedvendor evaluation programmes and value analyses,build closer relationships with key suppliers and ra-tionalise their supply bases. In this way, it is possiblefor the purchasing function to make the transition frombeing a transaction-oriented operation to one that has astrategic focus.

(ii) On the supply side, with the customer service functionhaving limited involvement in handling routine orderqueries they are able to focus more of their time onactivities such as managing and building the relation-ship with their key customers. For example, the useof electronic commerce has enabled Nortel, a strategicsupplier of BT, to devote more time to improvements inthe product launch process and in dealing with queries

to enable faster provision and product installation. Thisprovides Nortel with the opportunity to add value aspart of collaboration by increasing end customer serviceand product utilisation[3].

The implementation of electronic commerce cannot onlyadd value at the buyer–supplier interface but can also en-able the trading partners to build a closer relationship withthe end-consumer. For example, in the retail industry, infor-mation technologies are enabling retailers to identify trendsand target individual consumers. Using relational databasesand data mining techniques retailers are able to identifycustomer requirements and shopping habits. One companythat has successfully employed this technology is Wal-Mart.Wal-Mart stores data on point of sale, inventory, productsin transit, market statistics, customer demographics finance,product returns and supplier performance[20]. The data isused for three broad areas of decision support: analysingtrends, managing inventory and understanding customers.In particular, Wal-Mart has been able to build up ‘person-ality traits’ of each customer by analysing relationships andpatterns in customer purchases. Such innovations providegreater forward demand visibility throughout the value chainby knowing which consumer buys which products whereand at what time of the day.

Small to medium-sized companies can also benefit fromapplying Internet technology to increase value along thesupply chain[21]. A trading firm in Hong Kong, which dealsdirectly with retailers in the US has identified the Internetas an appropriate tool to link customers with suppliers as ameans of achieving competitive advantage. The intermedi-ary, known as Factory Network, supplies retailers in the USwith simple commodity-type products, such as toys, clocksand Chinese porcelain. These products are provided by anetwork of approximately 50 small to medium-sized compa-nies in southern China. In order to co-ordinate the activitiesof these enterprises along the value-chain, Factory Networkhas developed what is termed an inter-organisational infor-mation system (IOIS). This is an Internet site that facilitatesthe creation, storage, transformation and transmission of in-formation across the organisational boundaries, between theparties involved in the relationship. The IOIS allows the re-tailers to shop for products and to place order requests and atthe same time to check on the status of orders. The interme-diary transfers the order requests to the relevant enterprisesbased on an analysis of current production schedules andavailable capacity, in order to meet the customer lead-timerequests. The system has led to a number of benefits overthe conventional distribution channels including:

(i) Improvesinternal efficiencysince data is captured morequickly, leading to faster analysis and shorter responsetimes.

(ii) Enhancesinter-organisational efficiencyby, for exam-ple, allowing customers to shop and check order statuselectronically, without tying up customer service rep-resentatives.

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(iii) The provision ofunique product features, since it im-proves customer service by identifying and reportingproblems more quickly.

(iv) Reducessearch related costs, since the IOIS sug-gests alternative product specifications that reducecustomers’ costs or improve customers’ performanceand alerts customers to opportunities to obtain volumediscounts by altering order patterns.

4. Impediments to electronic commerce-enabledsupply chain collaboration

So far, the evidence presented would seem to indicate thatelectronic commerce has been successfully and universallyapplied to customers and their suppliers. However, there areconsiderable barriers to the implementation of electroniccommerce in the supply chain. Successful implementation ofelectronic commerce at the buyer–supplier interface requirescollaboration among customers and their suppliers[3].However, both customers and suppliers have had extremedifficulties with embracing this new ethos of openness, trustand collaboration. Collaborative buyer–supplier relationsare often perceived as the optimum approach to achievingsupply chain improvement through the development of moreeffective customer-supplier relationships. Evidence hasshown that this is an area where rhetoric seems to be mov-ing well ahead of reality. New and Burnes[22] conductedan empirical study of the benefits to be gained from collabo-rative buyer–supplier relationships. They found that the dis-tribution of the costs of improvement activities were biasedtowards suppliers, rather than customers. McIvor et al.[21]present evidence to suggest that procurement personnel havefound it difficult to adapt to the new ethos of openness withsuppliers. In addition, suppliers are expected to embrace acollaborative relationship, after many years of operating ina system in which trust was the last thing they expected.This evidence poses problems in the following areas:

(i) On the supplier side, there may be an unwillingnessto share information on prices or costs fearing that thecustomer might use such information to erode marginsor disclose costs to competitors. In many cases, costinformation is not used for mutual benefit, thus gaininga poor reputation because of its use as ‘just anotherweapon in the customer’s arsenal[23]’.

(ii) On the customer side, in a retail environment, the re-tailer may not wish to disclose information to suppliersconcerning sales promotions and product sales fearingthat the supplier might disclose such information tocompetitors. Clearly, if electronic commerce is to leadto the ‘seamless integration’ of supply chain partnersthen a culture change is required to establish real part-nerships in which information can be exchanged on aregular basis in an environment of trust.

Much of the evidence presented has shown how com-panies can exploit the open standards technology of theInternet to link up with suppliers that they have traditionallytraded with manually. However, there is still the significantproblem of incompatibility of the systems of the trading part-ners. There is evidence to suggest that closed network prob-lems can also affect the Internet with business-to-businesselectronic commerce running up against application inter-faces, which inhibit the operation of a fully transparentenvironment between trading partners. For example, theMidland Bank has found that the absence of standards hasmeant that not all the trading partners have the same tech-nical systems[24]. Related to technical considerations isthe issue of security. In particular, with the Internet using‘non-secured’ lines there are understandable fears in rela-tion to the transfer of funds and transmission of sensitiveinformation.

Historically, there has been a lack of information systemsin organisations that enable cross-location, cross-companyinformation transfer in planning. Within organisations dif-ferent functions or departments often have incompatiblesystems and objectives. Externally, supply chains with cus-tomers and suppliers are not homogeneous. Participantsoften have different communication infrastructures, withlanguage, currency and cultural barriers and legislative dif-ferences. In the context of developing effective supply chainmanagement systems, this is a significant[25]. Recent ev-idence suggests that the barriers to the adoption of suchtechnologies do not lie primarily with the technology butwith the business processes[21]. Even in the most success-ful companies there are few processes that are fully inte-grated horizontally. Effective implementation of electroniccommerce to support supplier relationships and to optimisethe supply chain requires that electronic commerce is fullyintegrated into both the business architecture and technol-ogy infrastructure of both the customer and the supplier.The redesign of processes must not only include internal or-ganisational processes but must include the wider businessnetwork. An organisation is just one entity in a value systemcarrying out processes that extend beyond the boundaries ofthe organisation into both its customers and suppliers. Whilecompanies may have often successfully focused on individ-ual processes, systems and departments, and optimised suchactivities, they have not considered the whole chain and iden-tified activities and links that are adding most value. MIT’s‘Management in the 1990s’ research project has shownthat a clear distinction now exists between business processre-engineering (BPR) and what is usually referred to as busi-ness network redesign (BNR)[26]. While BPR has clearlyfocused on the redesign of internal organisational processes.BNR is concerned with the wider business network. Theunderlying premise is that the firm is just one entity inan industry value system. Business network processes arethose processes that extend beyond the boundaries of the or-ganisation into suppliers, customers, regulators and alliancepartners.

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5. Conclusions

This paper has shown how electronic commerce radi-cally re-shaping traditional supply chain structures in manyindustries and reducing the costs of closely integratingbuyers and suppliers. There is clear evidence to show howelectronic commerce is enhancing the customer’s informa-tion management and transaction processing efficiency, thatin turn is improving demand forecasting and fosters closerrelationships with suppliers. These changes are having im-plications for the traditional roles of the functions involvedin managing the inter-organisational interactions. For ex-ample, with the participants at both the buyer and supplierinterface performing a more value-adding role, there aretraining and development implications. Electronic com-merce technologies can be used as a very powerful means ofintegrating and co-ordinating cross-functional teams acrossorganisational boundaries. With electronic commerce tech-nologies ‘blurring’ the traditional boundaries in the valuechain, suppliers and manufacturers must continuously eval-uate their established positions. Suppliers can add value totheir customer’s business by implementing innovations inelectronic commerce. These changes enable suppliers tomove from that of having a passive role to that of beinga strategic resource for the company. However, a culturechange must occur to establish real partnerships betweenbuyers and suppliers in which information can be exchangedon a regular basis in an environment of trust. Such a changeis essential to creating an effective integration of supplychain members. Closed network problems can also affectthe Internet with business-to-business electronic commercerunning up against application interfaces that inhibit the op-eration of a fully transparent environment between tradingpartners. This necessitates considerable resource allocationto ensure the compatibility of systems between the tradingpartners.

An important issue for further research and investigationare the change management implications of implementingelectronic commerce technologies. Processes that extendacross organisational boundaries need to be jointly designedand managed. Electronic commerce facilitates informationexchange and enhanced communications between organisa-tions and can also reduce costs, risk and uncertainty whilealso increasing interdependency and joint investment. Thelevel of adaptation and co-operation that is becoming nec-essary in the supply chain means that electronic commercetakes on an increasingly critical role. An understanding ofhow electronic commerce can be deployed by firms to ex-change information and to maintain and build relationshipsis important as it may impact on their ability to participatein a particular supply chain. Therefore, electronic com-merce needs to be viewed in the context of its wider impactin enabling business process redesign, the opportunities itoffers for exploiting information, the challenge of integra-tion with internal systems and its implementation throughsupporting technologies and applications.

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