In recent decades, innovation has doubled automobile performance at a time when outsourcing has increased. But outsourcing is subject to contracting hazards that would also limit outsourcing for innovation. We examine how supplier firms generate innovation in the presence of such hazards, using a recent survey of the US automotive supply chain containing new measures of innovative activity. First, we identify three supplier innovation strategies-distinct combinations of various innovative activities. Next, we find evidence that each strategy represents a response to transactional hazards associated with innovating in this environment. Finally, the coexistence of heterogeneous supplier strategies enhances our understanding of the buyer’s make-buy problem, providing a clearer picture of the various approaches to transactional hazards that buyers employ simultaneously.