Transaction Costs, Early Sourcing Policy and Supplier Performance: A Test of An Administrative Innovation in Two Firms

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This research has theoretical and practical implications for the current debates about America's industrial competitiveness. It involves the optimal structure, costs and quality of buyer and seller relationships between and within firms in an industry. This project will investigate the product delivery process and the performance of supplier relationships within the context of two large U.S. multinational consumer durable and capital goods firms. It also has the potential of adding to our knowledge on how to foster innovation. Supplier performance is studied in the framework of three research objectives. First, the recent spate of empirical work using Williamson's transaction cost model is consolidated and expanded to generate hypotheses specifying differences in performance between suppliers inside and outside the buyer firm and between outside suppliers. Second, an administrative innovation in supplier management recently implemented in both firms provides an opportunity to examine a form of "relational" contracting that applies to both inside and outside suppliers. The third research objective focuses on differences between the two participating firms in the success of implementing the supplier management innovation; the basis for the hypothesized differences is the dissimilarity of the firms' vertical integration policies.