*Like all invited papers and invited notes, the original version of this manuscript underwent a double-blind review process.
OUTSOURCING: TRANSACTION COST ECONOMICS AND SUPPLY CHAIN MANAGEMENT*
Article first published online: 3 APR 2008
© 2008 Institute for Supply Management, Inc.™
Journal of Supply Chain Management
Volume 44, Issue 2, pages 5–16, April 2008
How to Cite
WILLIAMSON, O. E. (2008), OUTSOURCING: TRANSACTION COST ECONOMICS AND SUPPLY CHAIN MANAGEMENT. Journal of Supply Chain Management, 44: 5–16. doi: 10.1111/j.1745-493X.2008.00051.x
Acknowledgment: This paper has its origins in the keynote address that I gave at the “International Conference on Large and Small Business Cooperation” on August 4, 2007, in Seoul, Republic of Korea.
- Issue published online: 3 APR 2008
- Article first published online: 3 APR 2008
- outsourcing (make or buy);
- supply chain management
This article examines outsourcing from the transaction cost economics (TCE) perspective. The transaction is made the basic unit of analysis and the procurement decision, as between make and buy, is made (principally) with reference to a transaction cost economizing purpose. As sketched herein, the ease of contracting varies with the attributes of the transaction, with special emphasis on whether preserving continuity between a particular buyer–seller pair is the source of added value. The basic regularity is this: as bilateral dependency builds up, the efficient governance of contractual relations progressively moves from simple market exchange to hybrid contracting (with credibility supports) to hierarchy. This last corresponds to the “make” decision, which, as viewed from the TCE perspective, is viewed as the organization form of last resort. The article successively describes the lens of contract approach to economic organization, the operationalization of TCE, different styles of outsourcing, qualifications to the foregoing and the main lessons of TCE for the supply chain literature.