Reducing information technology‐based transaction costs in supply chains

Abstract

PurposeThe purpose of this paper is to address the intersection between supply chain coordination and information technology (IT) by building on transaction cost analysis. Literature frequently predicts that the application of IT reduces transaction costs. Often, no real explanation is given, and the impact of IT on supply chain management (SCM) is not assessed.Design/methodology/approachDiscussing the application of IT in SCM, a classification of different forms of collaboration (integration) is presented. Building on the essential transaction cost elements of specificity and uncertainty, the (high) costs of transactions in different supply chain integration forms are revealed.FindingsThe claim that IT reduces transaction costs is objected to in its general form. The reduction of transaction costs is dependent on the form of supplier integration. Through market transactions (not managed process links) and monitored process links, a reduction of transaction costs by using IT is likely. In the case of managed process links and non‐member process links, a reduction of transaction costs is achieved only if certain conditions apply. A conceptual framework is presented, using uncertainty and specificity to explain which IT applications can reduce transaction costs in a supply chain.Research limitations/implicationsThe research is based on conceptual thought. Beyond this framework for reducing IT‐based transaction costs in supply chains empirical research is needed to validate the findings.Practical implicationsCompanies need to be aware that applying IT in their supply chain is not sake in itself. The classification provided in this paper support‐related decision by pointing out that different IT‐solutions fit different business process links.Originality/valueThe paper presents a more detailed analysis of the impacts IT applications have in SCM. This includes a discussion on how uncertainty and specificity influence the implementation of IT in supply chains.