Electronic Data Interchange (EDI) is the transfer of data using a standardized format between two companies over a network, has been around for many years.

Enables businesses to carry out transactions electronically following structured standards which govern the presentation and processing of data.

May involve proprietary systems requiring customized links between partners, which is labor-intensive and therefore costly.

An EDI message is called a transaction set, and it is composed of a header, data segments, and a trailer. Unfortunately, different industries tend to use slightly different variations of EDI, which has hampered its growth. Before the widespread use of the Internet, EDI was used on expensive private networks, which limited its use to large companies.

An EDI transaction starts with the buying organization when it uses its purchasing application to create application files containing the purchasing information.
The EDI system processes these application files and translates them into EDI-standardized format.

The EDI files are then sent over an EDI network (the Internet, a VPN, or a private Value Added Network).

The selling organization receives the EDI files and translates them into a format that can be understood by the order processing program.
The order processing software reads the translated application files and starts the process of fulfilling the order.

EDI, which has no built-in security, uses Secure/Multipurpose Internet Mail Extensions (S/MIME), since most information is sent through e-mail. S/MIME uses a process called enveloping because it takes a lot of computing power to encrypt large messages using public keys.

The message is encrypted with a private key using one of three symmetric encryption algorithms: DES, Triple DES, or RC2. Public key encryption is used to encrypt the private key.

S/MIME encryption - The message is encrypted with private key encryption, and the session key is encrypted with public key encryption.

Emerging systems for B2B

Open Buying on the Internet (OBI) - defines standardized procedures so that different e-commerce systems can talk to each other.

Open Trading Protocol (OTP) - developed as competition for OBI; it standardizes payment-related activities, such as purchase agreements, receipts for purchases, and payments.

OBI (Open Buying on the Internet) is a protocol based on open standards specifically targeted for high-volume, low-cost transactions. Because it is based on open standards, it can use Secure Sockets Layer (SSL) for securing its transactions. SSL is also used for secure Web servers.

OBI transactions have four components:

Requisitioner - person who starts the purchase transaction The requisitioner is the individual in the organization who decides which commodities the organization needs.
Buying Organization - the company for which the requisitioner works
Selling Organization - the company the requisitioner is trying to buy from
Payment Authority - a neutral third party that handles the financial part of the transaction

In an OBI transaction, the payment authority, which is a bank or lender, handles the billing and transfer of funds.

OTP (Open Trading Protocol) defines trading protocol options for describing how transactions will occur and how payment will be handled. It also can provide a record of the trade and supports physical and electronic delivery of products.

OTP uses Extensible Markup Language (XML) to define tags that define the elements of the transaction.

Business-to-business networks supply the infrastructure to bring buyers and sellers together. A business-to-business site helps a business to reduce costs by reducing the overhead required to requisition goods. Web sites that create networks of buyers and sellers provide the infrastructure and purchasing support. Business-to-business networks provide a Web site and the infrastructure to bring buyers and sellers together. This allows businesses that don't have the infrastructure or can't afford it to take advantage of the economies of e-commerce.

The B2B model is more complex than the business-to-consumer model for several reasons. Businesses expect discounts for bulk purchases and have stricter needs for processing and delivery. The seller also has stricter guidelines for payment.

A portal is a collection of vendors who serve a certain market. The portal packages the services of the vendors together into an easy-to-use Web interface and provides a common payment system for the vendors. A customer can browse a catalog containing the merchandise from multiple vendors.

The chief disadvantage to using a portal as a long-term B2B solution is that the portal does not automate the process the way a dedicated e-commerce infrastructure would. A portal is an inexpensive and easy way to get started, however.

E-business is a broader category that includes e-commerce. E-business involves an integration of the business processes of the partner companies so orders made to one company are automatically tied to inventory of the other company. E-business is an automated relationship between the companies and is a goal for many companies doing e-commerce today.

A supply chain is a channel a company uses to get the supplies and materials it needs to produce its products. Managing a supply chain effectively is very difficult because timing and inventory have to be managed carefully.

Horizontal marketing is an effort involving two or more companies in related but not competing businesses. The goal is to create more opportunities and better service by combining the offerings of the two businesses.

Vertical marketing is a combination of multiple businesses in the same industry. Its goal is to make distribution and supply chain channels more efficient.