Parallel sourcing and supplier performance in the Japanese automobile industry

Japanese auto makers are reported to enjoy high supplier performance through long‐term relationships, specific investments, and sole sourcing. Quality management consultants in the U.S. have been strongly advocating adoption of these practices. But economic and management theorists would predict that the combination of a high level of relationship‐specific investments and sole sourcing will lead to problems with supplier performance. In fact the Japanese auto makers use a hybrid form of organization we term parallel sourcing. We present a transaction costs model that shows how parallel sourcing provides incentives for supplier performance associated with multiple sourcing while preserving claimed benefits of sole sourcing.