Why Electronic Commerce?

Ultimately, the reason to use electronic commerce is based on the classic business equation:

Profit = Revenue - Costs

Businesses use electronic commerce to either lower operating costs or increase revenue, or both.

Electronic commerce can reduce operating costs through transaction management by:

Better coordination between sales, production, and distribution (that is, supply chain management, customer relationship management (CRM), etc.).
Consolidating operations and reducing overhead.

Electronic commerce can increase revenue by:

Creating new markets for old products.
Creating new information-based products.
Establishing new service delivery mechanisms to better server customers.

To be more specific, business-to-business computer applications are developed to facilitate the management of the areas outlined in the following table.

Management Areas

Area	Management Improvements
Inventory	Shorten the order-ship-bill cycle. Overall levels can be reduced. Reduce turn-around time. Reduce out-of-stock occurrences.
Supplier	Rreduce the number of suppliers. Reduce Purchase Order (PO) processing costs and time. Increase the number of PO's processed in the same amount of time. Increase PO processing accuracy. Reduce the number of people required to process POs.
Distribution and channel	Better tracking of goods from supplier to consumer Better tracking of documentation Better information distribution to trading partners
Payments and funds transfer	Payments sent and received electronically Reduced clerical errors Lower transaction costs

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