New communication technology1 brought high expectations and a great deal of frustration into the business world. Business managers were thrilled by promises of efficiency, effectiveness and innovation that would overcome barriers in time and geography. At the same time, however, many early adopters of electronic market systems experienced bitter failures. By using transaction cost analysis, this paper closely examines the effect of new communication technology on supply chain management. In particular, it looks at three major sources of transaction costs: transaction asset specificity, behavioral uncertainty and environmental uncertainty. Consequently, we propose that transaction asset specificity is the major factor to be considered in the adoption of new communication technology to supply chain management.