Fawzy SOLIMAN and Ergun GIDE
School of Management
University of Technology, Sydney, AUSTRALIA
The current dynamic and turbulent business environment and the approaching 21st century have put pressure on business operations all around the world to change traditional methods of conducting business to Internet-Based Electronic Commerce (or Internet Commerce). The development of Internet-Based E-Commerce offers the most exciting business opportunities in the marketplace. Organisations that want to stay in business beyond to the turn of the century must re-evaluate every aspect of their strategy and operations and incorporate these technological changes. Internet-Based Electronic Commerce is essential for the survival of companies entering a virtual distribution marketplace.
Electronic Commerce has been an idealised trading concept for many years. But the lack of integrated applications and the unavailability of universally accepted methods of communication have been a constant plague. As the Internet develops there is every possibility that e-mail and applications-based technologies will take over from traditional telephony as the common method of communications. Furthermore, the Internet provides an unprecedented infrastructure for moving information. This will have immense repercussions within the commercial world.
The real key to making electronic commerce over the Internet a normal, everyday business activity is the convergence of the telecommunications, content/media and software industries. The business-to-business and business-to-customer segments of E-Commerce contain both common and differing characteristics that must be understood to succeed in a given implementation.
This study is an attempt to analyse the benefits and drawbacks of the Internet-Based E-commerce and its possible applications for the business operations in the future. Accordingly this paper offers an overview and highlights the benefits from using Electronic Commerce over the Internet as a tool for future manufacturing and business operations.

The application of Internet-Based Electronic Commerce in manufacturing is currently receiving a worldwide attention because of its promise of reducing the manufacturing costs and just-in-time (JIT) applications (Cronin, 1996).
The Internet-Based Electronic Commerce is rapidly emerging as an entirely new method to conduct business and to interact with customers, suppliers and partners. Electronic Commerce (E-Commerce) covers many aspects of buying/selling relationships. E-Commerce also covers many operations within production processes.
According to the inaugural report from Forrester Research’s Business Trade & Technology Strategies service, the value of goods and services traded between companies over the Internet is expected to skyrocket from $8 billion this year to $327 billion in the year 2002. In quantifying the potential of Internet commerce, Forrester researched the electronic commerce plans of 150 companies covering 12 major industrial categories. In-depth interviews were then conducted with executives at 63 of the businesses found to be actively trading goods and services over the Internet. Additionally, executives at 25 major suppliers of the Internet commerce software, services, and system integration providers were interviewed.
According to the same report, businesses are aggressively adopting inter-company trade over the Internet because they want to cut costs, reduce order-processing time, and improve information flow. For most firms, the rise in trade over the Internet also coincides with a marked decrease in telephone and facsimile use, allowing salespeople to concentrate on pro-actively managing customers’ accounts rather than serving as information givers and order takers.
A number of dominant industries have jumped on the Internet bandwagon. Examples are: the IT industry, publishers, retailers, banks and financial institutions, airlines and others. The following table (Table 1) highlights just a few of the thousands of examples.

Table 1: Examples of businesses using the Internet-Based E-Commerce
Application of Internet-Based E-Commerce
Over a hundred airlines have created Web sites and are actually receiving orders for tickets.
There are more than 140 banks on the Web from 26 countries.
Media & Publishing
Many publishing houses have developed Web versions of traditional print media, and entirely new Electronic Magazines “e-zines”.
Many retailers are now marketing on the Web with hundreds of on-line products and services are offered.

Electronic Commerce over the Internet is very much in its infancy. A limited number of pilots to provide a trading scenario have taken place in the US. These pilot projects involve EDI (Electronic Data Interchange) messages being encapsulated in e-mail messages. The following figure (Figure 1) is an illustration of the E-Commerce Framework Model.


Figure 1: A Model of Internet-Based E-Commerce in Manufacturing.

Electronic trading opportunities offer businesses the chance to compete for an international scale. These Electronic Trading Opportunities, are being expanded to Web sites and many trading forums emerging.

There has been phenomenal growth in commercial presence on the Internet in recent times. In the last 2 years the commercial domain registrations on the entire Internet have grown to represent some 85% of all organisations. This effectively kills the myth that the Internet is an academic and research playground. Facts and figures from industry analysis show that:

Internet-Based E-Commerce is expected to reach $150 billion by the year 2000 and more than $1 trillion by the year 2010;

The Internet has reduced the number of letters, voice calls and faxes around the globe. Thirty per cent of Internet users in one survey stated that Internet usage had resulted in new business opportunities and 43% said that it has increased productivity.  


Internet-Based E-Commerce is giving a new way to electronic commerce, with different characteristics than traditional EDI. Internet Commerce is not a repeat of EDI, but rather is an evolution from the EDI.
The Internet offers the greatest potential for Electronic Commerce known to date. According to Steel (1996) "there are less than 100,000 EDI (Electronic Data Interchange) users world-wide after 40 years or so of endeavour".
There is no exact definition of the Internet-Based E-Commerce. Since, Internet commerce is still immature, so is the definition. However, one definition made by Kalakota (1996), as “the process of converting digital inputs into value-added outputs”. Basically, this process involves taking information as raw material and producing value added information-based products or services out of the original raw information as shown in the following figure (Figure 2).

Figure 2: Illustration of the process of adding value to information in a manufacturing setting using the Internet-Based E-Commerce.

The above figure shows that the two models (Physical and Conceptual Models) in a manufacturing setting are similar. In the Physical Model raw material enters the system and leaves as finished goods. In manufacturing the raw material and converting into finished products, the Internet-Based E-Commerce is used through two platforms (User and Security Platforms). In the Conceptual Model raw information is entered in the system and leaves as processed information.
So, electronic commerce refers to an on-line production process owned by intermediaries. Producers of information interact with services and other processed information, such as orders, payments or instructions.
In reality, Internet Commerce is about businesses and consumers adopting a new process or methodology in dealing with each other. These processes are in essence supported by electronic interactions that replace close physical presence requirements or other traditional means. The following table (Table 2) summarises the fundamental differences between traditional E-Commerce (EDI) and the Internet-Based E-Commerce.

Table 2: Traditional E-Commerce (EDI) and the Internet-Based E-Commerce (Adopted from Mougayar, 1997).
Traditional E-Commerce (EDI)
Internet-Based E-Commerce
Implementation dynamics Proposition is biased towards a predetermined relationship, otherwise the transaction can’t happen. Customers decide and initiate the request to buy in a one-to-many relationship.
Business case Users develop transaction capabilities only after they know there is a market or willingness to use the channel. Users develop content and make it ready for a critical mass of buyers to get connected.
Financial transactions Financial transactions can take place over existing networks. Internet gateways to financial networks, new instruments and micro-payments. 
Effect on business processes Any transaction done has a direct effect on internal business processes. Transactions mirror reality or they should dramatically simplify a business process.
Frequency of transactions Smaller frequency, but higher dollar value per transaction.  Mass market, infrequent usage and lower dollar value per transaction are acceptable.
Choice of products Comparison-shopping is excluded. Comparison-shopping is essential.
Level of trust High. Low to medium.
Duration of relationship Long. Short to medium.
Cost Higher. Lower.
Reliability Higher. Lower (but getting better).
Flexibility Lower. Higher.
Effect on distribution channels No conflict of distribution channel due to primary focus on uniqueness of transactions. Channel conflict on line, as the transaction becomes the “back end”, and the consumer interface becomes the “front end”.

According to Mougayar (1997) there are various types of key measurements that must be tracked prior to embarking on a full implementation. Some of the important key elements to measure business value are:


There are two main drawbacks or challenges in using Internet-Based E-commerce, these are: security issues and payment tools. These two issues are receiving the highest priority and the best attention they deserve, both from vendors and users and implementers.

There are many traditional methods of payment are available in the real world such as: Cash, Cheques, Credit Cards, Traveller’s Cheques, Prepaid Cards, Debit Cards, Physical Tokens, Bank Notes, Secure Wire Transfers, Money Orders, Letters of Credit, etc. However, none of these mechanisms is directly transferable in an unmodified form to suit the Internet. This is because each method assumes a physical presence or that there is a delay incurred in the processing of funds so that fraud can be detected and stopped.
Some of the new E-Commerce payment tools that can be used in manufacturing and business operations are: The drivers for manufacturing are customer’s needs and time. Time is a major source of competitive advantage and competitive pressures requiring production schedules to be shortened.

Soliman (1997) demonstrated that if the various departments working in disjointed way were integrated it would lead to: 

This integration is possible by the implementation of the Internet-Based E-Commerce.


To date the major benefits from the Internet include improved internal and external communications. The Web has specifically brought a new marketing medium and enhanced information resource. Innovative applications are starting to appear which allow for sales and database interrogation. Other benefits such as e-mail and file transfer functionality, Web utilisation gave many companies 'Internet presence' and provided them with opportunities to develop and expand new services.

In manufacturing, traditionally Design Engineering, Procurement and Production Departments communicate with each other using paper based methods. However the introduction of Internet–Based E-Commerce and its superiority of over traditional EDI is adding new dimension to reducing the cost of manufacturing.
In a typical manufacturing setting Design Engineering Department supply design drawings and specification to Procurement Department to procure material, commence production, and ultimately deliver goods to customers as per orders. There are three types of flows in a general manufacturing setting. These are:

Improvement in the movement of raw material, Work-In-Process and Finished Goods is likely to occur as a result of using the Internet-Based E-Commerce. The main benefit to manufacturing lies in using the Internet for the second and third types of flow. The following figure (Figure 3) illustrates how clerical and production information can be efficiently communicated throughout the supply chain using the Internet-Based E-Commerce.   Figure 3: Supply Chain Communication in Manufacturing using Internet-Based E-Commerce.
The number of parts used in production could be in the order of thousands of items. These parts are usually purchased from suppliers on the basis of price, quality, and delivery on time and suppliers financial position and reputation in the industry.
Accordingly Material Procurement professionals must be equipped with timely and valuable information on parts and their suppliers. The Internet-Based E-Commerce provides them with a fast and efficient way of obtaining comprehensive information of the market, feedback from the industry and the performance of suppliers.
The reduction in time and costs in the whole manufacturing chain make it possible to gain competitive advantages in price, product innovation and service. Accordingly using Internet-Based E-Commerce is a significant factor in competition because it leads to shorter Opportunity to Delivery (OtoD) cycle times and lower costs.
The British Government's Department of Trade & Industry has recently launched the Information Society Initiative site containing some case studies of multimedia and Internet usage from around the UK. The following table (Table 3) shows excerpts from those case studies:
Table 3: Examples of Internet-Based E-Commerce.
Benefits from using Internet-Based E-Commerce
Fertiliser producer Received over 2,000 hits (page accesses) at their Web site every week, as well as communicating far more effectively via e-mail. 
Ornament manufacturer Has cut development time of products from 3 weeks to less than an hour through using the Internet to exchange design graphics and video images.
Bakery Received 12,000 hits in the first 6 months of Web marketing. Revenue from the Web runs at about 140 Pounds per week which is fairly profitable considering post set-up running costs are 2.50 Pounds per week.

Information Technology is developing so rapidly that it is difficult to predict correctly the future of Internet-based E-Commerce. However, expert predictions show that Internet-Based E-Commerce will dramatically change the way of conducting business in the near future. The early the firms adopt the Internet-Based E-Commerce, the more likely they will survive and compete with their rivals.
Over the next ten years, the growth of Internet-Based E-Commerce will outstrip the growth of traditional commerce. It is the commercialisation of the Internet that is leading the way to this remarkable growth in E-purchases. The Internet serves as a foundation for all of these new opportunities in commerce. The following table (Table 4) shows the projected growth of E-commerce purchases over the period 1994-2005.

Table 4: Projected growth of E-Commerce purchases in Billions of Dollars.
(Adapted from Lynch,1996).
Traditional Commerce
Electronic Commerce
Proportion of all purchases

With Internet Commerce already headed for $8 billion in 1997, up 1,000% from 1996, Forrester looked at which industries are at the centre of the dramatic growth. Three different company types were identified as shown in the following table (Table 5).

Table 5: Percentage distribution of usage of Internet-Based E-Commerce within three industries.
Industry Type
1997 % Sales
1997 $Billion
Manufacturers of electronics and aeroplane parts
Vendors of computer-related and office supplies
Services and utilities providers

It is clear from the above table that manufacturing is emerging as one of the main users of the Internet-Based E-Commerce.
According to the Internet marketing research firm ActivMedia (1997) projections indicate that global Web sales through 2002 could total $1.5 trillion, or about 3% of combined Gross Domestic Product (GDP) for all countries worldwide. The study tracked the following eight Web business segments: manufacturing, computers and software, business and professional, consumer, travel, investment/finance, publishing, and real estate. In addition the market research firm Paul Kagan and Associates released 10-year revenue projections for the interactive media industry, showing that in the year 2007, the Internet-related income is expected to be $46 billion, having risen from a projected $11.1 billion for 1997. Electronic Commerce, revenue is expected to increase from $0.9 billion in 1997 to $11.7 billion over the next 10 years.

Success in Internet-Based Electronic Commerce depends on how organisations strategically position their products and services through other Internet-based electronic communities and intermediaries, as well as on how they facilitate the interactions with their customers, suppliers, and partners.
Commerce over the Internet is very much in the early stages. Early indications are that (Electronic Data Interchange) EDI-over-the-Internet is a viable trading medium. The problems of cost, standards and a lack of interactivity will prohibit traditional batch-EDI scenarios.
Internet-Based E-Commerce is not an extension of EDI (Electronic Data Interchange) which has been primarily limited to computer-to-computer transactions, and has not been associated with major transformations of firms. Firms have to break new ground in Internet territory, in order to capture emerging digital markets or global Internet markets.
Even though E-Commerce makes sense theoretically for business activities, the reality is that it has to integrate with internal and external processes that are already in place. Sometimes, this integration is a challenge linked to a major re-engineering exercise accompanied by resistance to change. This is a threat, and at the same time an opportunity waiting for a positive outcome. Moreover, since E-Commerce implementation is in many cases evolutionary, organisations need to react to change the business process as demand increases.
Despite these benefits and success stories a number of issues remain to be resolved such as security. It is believed that this concern regarding security will be lessened due to a series of international developments.
Other issues regarding the growth of the Internet are the lack of: a public key infrastructure (particularly for international trade), governmental stance, access, reliability (service levels), integrated applications and understanding/awareness of the Internet-Based E- Commerce capabilities, and finally the relative cost of required technologies.