The transaction management perspective on procurement in the era of globalization

Fragmentation of production into more and more complex supply chains is a prominent feature of globalization. Transaction management purports to minimize the transaction costs associated with this fragmentation of production. In this era of globalization, 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