Authors: Frank A.G. Den Butter
Addresses: Department of Economics, VU University Amsterdam, de Boelelaan 1105, 1081 HV Amsterdam, The Netherlands
Abstract: Fragmentation of production into more and more complex supply chains is a prominent feature of globalisation. Transaction management purports to minimise the transaction costs associated with this fragmentation of production. In this era of globalisation, transaction costs carry a large weight in total costs of ownership which is the relevant cost function in procurement decisions. This article discusses how transaction management can be helpful to these procurement decisions. An analysis of the various types of transaction costs is essential in the 'make or buy' and location decisions in global sourcing. In general, a distinction can be made between 'hard' and 'soft' transaction costs when making strategic procurement decisions. Soft transaction costs are difficult to quantify but become more important now that formal trade barriers gradually disappear and transport costs are reduced. Business strategies to keep transaction costs low in the long run can also, to a considerable extent, explain socially responsible business conduct from the perspective of rational economic behaviour.
Keywords: procurement; outsourcing; transaction costs; strategic management; transaction management; supply chain management; SCM.
International Journal of Procurement Management, 2012 Vol.5 No.2, pp.123 - 139
Published online: 16 Aug 2014 *Full-text access for editors Full-text access for subscribers Purchase this article Comment on this article