Pricing Delivery Incentives
9 members have voted
Assume you are soliciting quotes for an item of supply. Suppliers A, B, and C each sell the item for about $100/unit. However, the probability of late delivery is different for each supplier. Supplier A has a 31% chance of delivering late, Supplier B has a 21% chance of delivering late, and Supplier C has a 4% chance of delivering late. There’s a 100% chance that all suppliers will deliver no later than one week after the delivery date and any damages due to late delivery will be negligible.
Your solicitation requests that vendors quote both a unit price and a per-unit delivery incentive. The supplier can only earn the delivery incentive if delivery is on time. Otherwise, the Government only pays the unit price.
Supplier A quotes a per-unit price of $71 and a $41/unit delivery incentive.
Supplier B quotes a per-unit price of $65 and a $41/unit delivery incentive.
Supplier C quotes a per-unit price of $59 and a $41/unit delivery incentive.
Considering only the total amount the Government would expect to pay, which quote do you think is best?