Would the Preferred provider model or the Performance-based model be applicable? What would further information would help you decide? Can FastTires gain a long term advantage by having the 2 suppliers compete for the contract? If so, how?

Additional information - FastTires

In addition to their existing products, FastTires wants to develop a stable product line for the performance car market. They plan on releasing the first batch of these new tires by Jan 31 2020. Market research shows that the target consumers stay loyal to a product for around 4 years. FastTires plans to continue R&D to develop additional refinements/product lines during this time.

FastTires expects the following demand figures: Year 1 3200 units per year ; Year 2 - 4000 units per year ; Year 3 - 5200 units per year ; Year 4 6000 units.

The R&D team at FastTires has shortlisted 6 potential additives to achieve their performance targets. Further refinement is required in terms of the optimal mix and quantities of these additives.

FastTires has also completed an internal cost analysis and has determined that the investments necessary to produce it in house would be too high. Once the R&D has been completed, both Supplier 1 and Supplier 2 would be able to produce it for less.

Additional information - Suppliers

Research has shown that both suppliers have good customer reviews and the test reports on their existing products are quite similar and they have been performing reasonably well.

If you share your R&D information with them, both suppliers should be able to conduct additional testing to identify the optimal mix and quantities of the 6 additives. The R&D team at Supplier 1 currently has 10 members. It used to be 12 members. In the past year, 2 members left to join the R&D teams of the customers for whom they developed new products. Supplier 2 currently has 5 members on its R&D team. In the past year, it brought on 1 new graduate.

Since FastTires wants an innovative product, to avoid contamination, these need to be produced on specially prepared production lines. In out example, lets call this an SPL. Supplier 1 has a total capacity of 80,000 units per year on its SPL. They are currently running at 72,000 units per year. Supplier 2 has a total capacity of 10,000 units per year on its SPL. They are currently running at 4,000 units per year.