Procurement: the Transaction Costs Perspective in a Globalising World
TI 2007-091/3
Tinbergen Institute Discussion Paper
Procurement
Frank A.G. den Butter
VU University Amsterdam, and Tinbergen Institute.
Tinbergen Institute
The Tinbergen Institute is the institute for
economic research of the Erasmus Universiteit Universiteit Amsterdam. Tinbergen Institute Amsterdam Roetersstraat 31 The Netherlands Tel.: Fax: 1018 WB Amsterdam +31(0)20 551 3500 +31(0)20 551 3555
Rotterdam, Universiteit van Amsterdam, and Vrije
Tinbergen Institute Rotterdam Burg. Oudlaan 50 The Netherlands Tel.: Fax: 3062 PA Rotterdam +31(0)10 408 8900 +31(0)10 408 9031
Most TI discussion papers can be downloaded at http://www.tinbergen.nl.
This version: 19 November 2007
Procurement: the transaction costs perspective in a globalising world
Frank A.G. den Butter ∗
Abstract Fragmentation of production into more and more complex supply chains is a prominent feature of globalisation. It implies that transaction costs as part of total costs of ownership carry a large weight in procurement decisions. An analysis of the various types of transaction costs is also essential in the “make or buy” and location decisions in global sourcing. A distinction can be made between “hard” and “soft” transaction costs. Soft transaction costs are difficult to quantify but become more important in strategic business decisions 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, managing transactions, orchestrating the supply chain. JEL-codes: F23, M14, M21
A previous version of this paper was presented at the “Supply management summit: Globalisation, how far can we go?”, November 8th and 9th, 2007, De Holtweijde, Lattrop.
∗
Vrije Universiteit, Department of
Tinbergen Institute Discussion Paper
Procurement
Frank A.G. den Butter
VU University Amsterdam, and Tinbergen Institute.
Tinbergen Institute
The Tinbergen Institute is the institute for
economic research of the Erasmus Universiteit Universiteit Amsterdam. Tinbergen Institute Amsterdam Roetersstraat 31 The Netherlands Tel.: Fax: 1018 WB Amsterdam +31(0)20 551 3500 +31(0)20 551 3555
Rotterdam, Universiteit van Amsterdam, and Vrije
Tinbergen Institute Rotterdam Burg. Oudlaan 50 The Netherlands Tel.: Fax: 3062 PA Rotterdam +31(0)10 408 8900 +31(0)10 408 9031
Most TI discussion papers can be downloaded at http://www.tinbergen.nl.
This version: 19 November 2007
Procurement: the transaction costs perspective in a globalising world
Frank A.G. den Butter ∗
Abstract Fragmentation of production into more and more complex supply chains is a prominent feature of globalisation. It implies that transaction costs as part of total costs of ownership carry a large weight in procurement decisions. An analysis of the various types of transaction costs is also essential in the “make or buy” and location decisions in global sourcing. A distinction can be made between “hard” and “soft” transaction costs. Soft transaction costs are difficult to quantify but become more important in strategic business decisions 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, managing transactions, orchestrating the supply chain. JEL-codes: F23, M14, M21
A previous version of this paper was presented at the “Supply management summit: Globalisation, how far can we go?”, November 8th and 9th, 2007, De Holtweijde, Lattrop.
∗
Vrije Universiteit, Department of