Question

The firm fixed price compensation arrangement is suitable when: (a). The buyer wishes to avoid cost risk (b). Vendor costs are reimbursed by the buyer (c). Profit limitations are imposed (d). All of the above

Single sourcing may be justified in any but one of the following circumstances: (a). Lower total costs results from higher volume (economies of scale) (b). Acquisition and contract management costs are lower (c). Just-in-time manufacturing requires a single source (d). Time to market is critical (e). Reciprocity and vendor exclusion is desired

Answer 1

1. (a). The buyer wishes to avoid cost risk

This is applicable when the cost risk and schedule risk is low and the specifications are well defined too.

2. (c). Just-in-time manufacturing requires a single source

The JIT manufacturing uses such a source in order to ensure better effectivness and impact and to avoid any kind of confusion too.