Exchanging Order Information

Many IOIS arrangements do not involve sharing firm-specific operations information; they merely improve logistics processes through efficiency gains from EDI. We treat this case – where the companies exchange ordering information – as our base case. (Figure 2)

Figure 2: EDI — exchanging transaction information

This is one of the oldest and most widely prevalent forms of IOIS, and is aimed at reducing transactions costs and the duration of order cycles.

At this level, both parties gain from reduced order cycle times (which reduce inventory levels). The value gained is not joint; each party improves efficiency independently, and hence there are no value sharing issues. There is the issue, however, of information technology costs. One party may find it cost- effective to invest in an EDI system that enables these improvements; the other may not. However, both need to invest in the system in order to transact electronically.