Lo2 EYkli Model Manufacturing is a company that specializes

Lo2 EYkl-i. Model Manufacturing is a company that specializes in producing model cars, trains, and airplanes for customers of all ages. Model has been in business for over 50 years, and has provided genera- tions of detailed models which can be customized by color, type of metal, size, and numerous other features. The company sells its completed models to merchandising companies, which then adver- tise and sell the products to the end consumer. Because Model produces mass quantities of models, it requires efficient operations to ensure timely delivery of quality products to merchandisers. Model can obtain varying qualities of metal and other materials that it uses to produce models. Why would the company choose to spend more for materials of higher quality when it can pro- a. duce cheaper, similar models with lower-quality materials? b. Model\'s customers are mainly merchandising companies. Is Model more or less likely to enter into long-term contracts with these companies than Model would with an end consumer? Why?

Solution

a) Model would choose to spend more for materials of higher quality as with quality materials, it will be able to manufacture quality models of cars, trains and aeroplanes. It is very important for a company to maintain product quality to survive in the market. The company has been in business for the past 50 years becuase of the quality of prodcuts it manufactures, hence if the company were to use cheaper models with low quality materials, it will soon run out of business.

b) Since Model customers are mostly merchandising companies, it is most likely to enter into long term contracts with these companies than it would with an end customer. This is becuase the merchandising companies will continuosly purchase from Model in order to sell to its end customers. Also these companies will have to stock the prodcuts for sale to end customers. Since merchandising companies are in the business of selling these models, they will buy on an on going basis.