Impacts of EDI on the supplier

Abstract

In the new era of electronic commerce (EC), electronic data interchange (EDI) is continuously playing a critical role for many businesses. EDI can reduce cost and improve service and thus is a valuable tool in enhancing a company's competitiveness. In this paper, we use a simple EDI adoption model to capture a supplier's decision process in adoption of EDI, and to study the impacts of EDI on the supplier. Results show that the supplier may exercise price discrimination towards its downstream buyers, due to EDI adoption and the heterogeneity of each buyer's EDI system. Depending on the supplier's economic behavior and EDI adoption cost, the supplier may benefit the most by adopting all, a fraction, or none of its buyers' EDI systems. As a result, buyers whose EDI systems are not adopted by the supplier may lose their competitiveness. Consequently, the supplier's buyers' base may be reduced due to EDI adoption. This result is consistent with the scenario in the retailing industry observed by Schiller and Zellner (1992), and it is also reported in European Commission (1997).