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Management Information Systems

Notes Information Technology (IT) has been applied to support information sharing between
organizations and to streamline corporate purchasing. Such IOISs , as they are often referred to,
can form electronic marketplaces where buyers and sellers in a vertical market can exchange
information and make transactions. Before the commercial application of the Internet and the
World Wide Web, proprietary information systems such as electronic data interchange (EDI)
systems were the major means by which firms exchanged business documents electronically in
a standard machine-processable format. Although the EDI systems continue to enable firms to
achieve more efficient data and information management and to improve supply chain
management, there are still a lot of companies that do not yet use EDI due to the relatively high
costs of implementing and running such systems. These costs include the investments in installing
the systems and the expenses involved in leasing communications networks, or value added
networks (VANs), among other cost drivers.
Internet-based e-procurement systems and business-to-business (B2B) electronic marketplaces
are different from proprietary IOISs that involve EDI. They are open systems that enable firms
to reach and transact with suppliers and customers in virtual markets without investments in
dedicated systems. Figure 4.1 displays the above three IT-enabled procurement mechanisms.

Figure 4.1: IT-Enabled Procurement Mechanisms

According to a recent report, the value of goods and services sold via B2B electronic markets will
reach $2.7 trillion by year 2004, representing some 27% of the overall B2B market and almost 3%
of global sales transactions. This growth is slated to occur in the context of a global market for
B2B transactions worth $953 billion, growing to about $7.29 trillion by 2004. With more corporate
procurement completed online every month, the number of virtual marketplaces in the United
States has soared from 300 in June 1999 to more than 1000 in 2000. It is clear that by offering
lower prices and a wider range of suppliers, electronic markets are changing the way firms
procure their materials, equipments and supplies.
By connecting in the new electronic marketplaces of the World Wide Web, a buyer firm is able
to streamline its purchasing activities electronically, even when not all of its suppliers can
automatically process electronic orders.

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