2. Perdue supplies frozen chicken wing to the local grocery chain Shop Rite. The

Question

2. Perdue supplies frozen chicken wing to the local grocery chain Shop Rite. The variable cost for Perdue is $200/box. Perdue sells it to Shop Rite at the price of $400/box. The retail price at Shop Rite is $700/box. Two weeks before the expiration date, any unsold chicken wing will be sold to a discount channel at the price of $100/box. n the current sales season, the chicken wing demand of Shop Rite can be 300, 350, 400, 450, 500 boxes, each with probability of 20% You only need to consider the sales of the current season. There is only one chance to order for each season, therefore, this is a one shot decision. (1) How many boxes of chicken wings should Shop Rite Order? (2) In average, how many boxes will be sold through the discount channel? (3) What is the expected profit for Shop Rite? (4) If the supply chain is fully coordinated, what is the supply chain profit? (5) Keeping the $400/box wholesale price, Perdue want to propose a (lowest cost) buyback contract to coordinate the supply chain. What should be the buyback price? Please round to integer dollar value (6) Please discuss the potential implementation issue of the buyback contract. (7) Please design an options contract that is equivalent to the buyback contract in (5) (8) Shop Rite makes a proposal to Perdue suggesting Perdue to reduce the whole sale price to $300/box. n exchange, Shop Rite is willing to share 10% of their revenue. Should Perdue accept this offer i.e., does Perdue make more money? (9) What is the equivalent revenue sharing contract of the buyback contract in (5)? What is the problem with this contract? How to solve the problem?

Explanation / Answer

Variable cost=$200 per box.

Sold to shoprite for $400 make $200 per box as profit.

Retail Price or MRP at Shoprite is $700.

2 Weeks before expiration the Boxes will be sold at $100 discount which is $600 per Box.

In the present season or scenario the demand would be in the multiples of 50 or it may be like 300,350,400,450,500 boxes with approximately the probability ratio be 20% of the current demand.

Answering the following questions in chronological orders.

1.Seeing the present scenario where the probability of selling is not more they need to curtail their order reason being that the probability ratio of the boxes to be picked are bleak. therefore between the range of 300 boxes need to be ordered.

2. On an average the dicount channel will sell 100 boxes seein the probability ratio of sale is 20%.

3. Expected profit for Shoprite will be 300 per Box and before the expiration that is 2 weeks the profit per box will be 200 as 100 dollar dicount will be given before the expiry.

4.The Supply chain if coordinated properly the supply chain profit will be $1500

5.$400 per box for the wholesale price sold by perdue. Lowest buyback contract will be less 100$ per box which is approximately $300 per box.

6.Potential implementation of the Buyback plan/contract will be based on the number of boxes that are remaining as well as the best discount which will be offered to liquidate the stock.

7.The option plan B which shall be disgned for buyback contract will be giving further dicounts so as to liquidate the stock completely.this may be increased in the ratio of 5% of the total cost as and when seeing the demand and supply.

8.Yes perdue should accept the offer as the expiry is coming near even the cost can be recovered yes perdue makes more money the reason will be the sale would be more due to reduction of prices.

9.The problem with the contract is that their is lack of coordination and the supply chain does not want to shoulder the problem which is becoming difficult for executing the plan this can be solved with the help of right coordination.

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