The limitation of using short-term contracting as an alternative method to make an in-house component is that the supplier gets no reward in relation to transaction-specific investments for enhancing performance or quality.
Option D is the correct answer.
What do you mean by component in-house?
Component in-house refers to producing the goods or services in the company itself, that is, in the factories.
A short-term contract is a type of contract which is generally not more than one year. The supplier could not get any kind of profit or rewards from short-term contracts which they can use for raising its performance and quality. This happens due to the shorter duration of the contract.
Therefore, there are no gains to the suppliers from investments made in the short-term contract if they use it as a method of making an in-house component.
Learn more about the short-term contracts in the related link: