DMOP Homework 1

Q6- RBC Case

6-1.a RBC was currently supplying 600000 units of Tomato A and 2400000 units of Tomato B, which was
giving them a surplus of 136066 (Which is there contribution to overhead and profit). They should
explore alternatives to the current pricing scheme as increasing the proportion of grade A quality alone,
or increasing the production of B with significant higher production of grade A tomatoes would provide
RBC with more revenue and improve their financial performance

6-1.b GF’s reaction to RBC’s concern: Watson- the controller of GF responded to RBC’s concern by
putting forward the point that moving to the region RBC prefer might land them into a higher cost
production region which would entail with the reduction in profit, unless the unit price is changed to a
higher one. He also said that he will try to bring out rational from the numbers from RBC sheet with his
colleagues. The final discussion was that if both the party wins from this alteration in the product mix,
then the incremental profits needs to be shared in equal parts between them

6-2.a Win-Win Situation for the supply chain will be that when both the GF and RBC combined in the
system has increased their surplus from the current scenario. Surplus defined in the hypothetical supply
chain where RBC and GF are part of the organization will be the revenue that RBC makes from it’s
customer minus the cost that GF has to incur for the manufacturing the product. (Note that the revenue
of GF and cost of RBC gets nullified because they are part of a single supply chain where GF is supplying
to RBC internally)

Surplus (New Combined): Surplus of RBC+ Surplus of GF

6-2.b Payoff for the supply chain will be just the addition of the surplus of RBC and GF. The desired mix
of the supply chain will be one where the payoffs gets maximized. Here, we can see from the figure
below that the payoff is maximized at Grade A= 850000 units and Grade B= 2300000