Measure Transaction Risk and Build Your Supplier Relations
Measure of Transaction Cost / Risk
Transaction cost to an organization rises due to uncertainty in business transactions with external sources, information asymmetry, lack of trust and commitment, and frequent re-negotiations with suppliers.
In scale economy, transaction costs were quite high due to less reliability of suppliers. This enticed firms to acquire or internalize the sources of supply. In knowledge economy, however, transaction cost is getting flattened due to supplier reliability and advancements in transportation, telecommunication and information technology capabilities, and thus encouraging dispersing the operations and ownership of production.