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 generations 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 advertise 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.

a. 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 produce 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?