Abstract

Application of information technology to facilitate information flows associated with coordinating transactions between two are more organizations are commonly known as inter-organizational systems (IOS). Such systems, on one hand allow for smoother and cheaper linkage between two organizations by the transactions to take place more efficiently thus lowering the over all cost of transacting. On the other hand, they allow for the initiating firm to achieve an edge over its competition. Such a competitive edge (by the initiating) firm is achieved in a two-fold way: (i) by introducing systems which require large capital investment, the entry barrier is raised thereby decreasing threat of new entries and (ii) by forcing the other party (buyers or suppliers) to invest into specialized assets like hardware, software, and skills (which of course are eventually paid back by the reduced cost of transacting), thereby increasing the cost of switching. In some cases the benefits of an IOS were deemed by the initiator firm to be so significant that it provided the other party with the necessary equipment at a no cost. Because of their ability to provide the first-mover advantage, IOS have been labeled as "strategic systems." Recently, large retailers have used IOS toimplement Vendor Managed Inventory systems where even the demand analysis and forecasting decisions are delegated to the suppliers. Since the supplier has immediate access to the demand data it can adjust its production level more quickly in response to fluctuations in the demand. Many other retailers and consumer good producers have responded to the competitive threat posed by large retailers like Wal-Mart by developing joint warehousing systems, which are commonly known by Efficient Consumer Response systems, thereby providing benefits of virtual integration without individual firms loosing their identities. While in many cases, the focus of IOS has been dyadic relationship between buyers and sellers [GASK85, ZAHE94], for some industries, the entire value chain involving many different players have been transformed. In distribution channels (or just channels in the sequel) products flow through many different stages before (and in some cases even after) getting committed to a customer. Since channel members perform interrelated activities, the organizational effects of an IOS are not confined to just the immediate trading partners linked by the system. Rather, resulting changes percolate throughout the channel.

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