Procurement: the Transaction Costs Perspective in a Globalising World

12122 Words49 Pages
TI 2007-091/3

Tinbergen Institute Discussion Paper

Procurement

Frank A.G. den Butter

VU University Amsterdam, and Tinbergen Institute.

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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

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This version: 19 November 2007

Procurement: the transaction
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Obviously purchase and sales play a prominent role in this orchestrating function. Against this background this paper discusses how globalisation and the increasing importance of transaction costs affect strategic decision making in supply chain management which is essential to procurement. Here, in line with the Wikipedia definition, procurement is the acquisition of goods and/or services at the best possible total cost of ownership (TCO), in the right quantity and quality, at the right time, in the right place for the direct benefit or use of governments, corporations, or individuals, generally via a contract. Simple procurement may involve nothing more than repeat

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purchasing. Complex procurement could involve finding long term partners – or even 'co-destiny ' suppliers that might fundamentally commit one organization to another. Obviously, procurement becomes a more vital element of value creation in economic activities, when (worldwide) fragmentation of production increases. In a global market procurement decisions are directly linked to sourcing strategies, so that procurement, in abroad sense, becomes an integral part of the general management of an internationally operating company or organization. The next section (section 2) discusses

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