Beating the supermarkets by reducing transaction costs

All transactions in a business have their costs but removing or nreducing transaction costs should be a business priority for any nbusiness.

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The concept of transactions costs is generally attributed to British nNobel prize winning economist Ronald Coase, and the publication of his n1937 paper “The nature of the firm”.

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Transaction costs will always be present, they are the enablers of ann organisation. The challenge is squeezing the maximum productivity out nof the transaction costs you will inevitably incur.

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Like all costs, transaction costs fall into three categories:

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1. Those that are necessary for the sale, and that add value to the customer, so they would be willing, if you asked them (and this is the big test) to pay for it. Things like delivery of physical products fall here, and we all know  there is no such thing as “cost free delivery”. ,

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2. Those that are necessary, but do not add value to the customer. Costs associated with compliance, your training and innovation programs, taxes and charges all fall here.

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3. Those costs incurred that do not add value in any way, just consume time and money, such as rework, picking up wrong deliveries, or correcting wrong invoices. You generally do not need an activity costing initiative to know that this third category is usually uncomfortably large, and should be eliminated.

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