Exam CSCP topic 1 question 659 discussion

The most appropriate contract for the firm to offer the supplier is A. Cost sharing. Explanation: Cost sharing incentivizes the supplier to increase output by splitting the investment costs associated with capacity expansion. The firm would agree to contribute a portion of the expansion costs, encouraging the supplier to undertake the necessary upgrades to meet the increased demand. This arrangement benefits both parties as the firm gains access to more of the fast-selling product, and the supplier receives financial assistance to expand their production capabilities.

cost-sharing contract, the buyer and supplier agree to share the costs of expanding the supplier's capacity. This type of contract is well-suited to situations where the buyer is experiencing a supply constraint for a fast-selling product and the supplier is hesitant to invest in expanding capacity due to the financial risk involved.

The company can offer to share the costs of expanding production capacity, which may allow the supplier to increase production without assuming all the financial risk associated with the investment.

Why not D ?