Summary
The current arrangement made by RBC and GF mainly focuses on a current delivery contract that encompasses a fixated average delivery price despite the quality and quantity. Accordingly, the agreement was a sufficient incentive for Gordon to continue trading with GF. However, the set price was an undermining factor to GF, irrespective of the quality. For instance, whether GF supplied high-quality products of the best quantity, they were expected to receive a similar amount as per the agreement. Therefore, I think, to some extent, the agreement was insufficient to motivate the effective continuity of the business. Such was mainly attributed to variance in terms of quality and quantity. The greater beneficiary was RBC, as it was standing a better chance to gain from the agreement since it was obliged to pay the standardized price, which would not be the case for better quality products. Therefore, this study will focus on analyzing the agreement between RBC and GF to effectively stimulate a discussion on the most profitable approach to be adopted to enhance operational activities.
Arguably, the current agreement is not optimal for the two companies. Considerably, RBC Company, in its analysis, found out that the agreement was not sufficient enough to motivate high quality from GF. It was a factor of the agreement that the agreed unit price was suggested to be effective irrespective of quality and quantity. Such action highly discouraged GF from producing high-quality tomatoes. They opted to optimize grade B to avert additional costs associated with grade A. Conclusively, the production of a larger quantity of grade B relative to grade A limited ability of RBC to optimize its profitability.
However, GF’s adoption of the agreement resulted in more focus on the production of grade B tomatoes. Such highly limited its profitability compared to the profits that it could attain from Grade A (Taleizadeh et al., 2018). As a result, the agreement was ineffective in realizing sales optimizations from GF. The advancement of products to produce more quality would have been attributed to higher operating costs which could have directly cut into GF’s profit.
Advantages and Disadvantages of the Agreement
The agreement is advantageous for RBC Company since it enables it to access an unlimited range and quality of both grades A and B at a fixed unit price. Such directly minimizes cost implications, increasing its profitability instead of differential pricing of the products without the agreement (Hoenig, 2018). However, RBC Company stands to lose on quality as the fixed unit price does not provide a sufficient incentive to motivate GF to deliver higher-quality tomatoes. Lack of high-quality limits RBC’s ability to enhance its profitability and meet high-quality product needs. As a result, RBC Company has not yet achieved its optimal operation efficiency, particularly where all factors are not fully optimized in their production process. Such results in a limited range of profitability within RBC, thus calling to revisit the pricing strategy.
Secondly, GF Company enjoys the agreement and considers it advantageous to its operation since it does not limit its delivery to a certain quality or quantity despite the price unit being fixed. Therefore, GF enjoys the benefit of scale from the attained profit as it can effectively balance its output component to a more profitable quality mix (Rashid, 2019). The observation clarifies that the major advantage enjoyed by RBC stands out to be a disadvantage on the side of the GF. However, GF Company is highly disadvantaged due to an indiscriminative pricing strategy limiting its ability to value its high-quality products differentially. This directly limits its expansion in profitability.
Uncertainties and Solutions
Uncertainty mainly emerges from a series of instances within the companies. Firstly, quality uncertainty results from the delivered quality due to selected unit pricing. Arguably, the stipulated pricing strategy within the agreement is the major concern for RBC Company. For instance, fixed unit pricing stands as a concern that directly limits the ability of the company to produce better-performing products. The uncertainty in quality forces RBC to institute subsequent arrangements through liaising with GF by providing them with an incentive to motivate quality. The solution to these uncertainties is attained through practical consideration of the price per unit, mainly through a collaborative agreement between RBC and GF.
Secondly, uncertainty emerges from relocation-related costs from the side of GF Company; such uncertainties highly impact the profitability ratio of the copy. Arguably, the uncertainty is associated with the increased cost of relocation, followed by the increased cost associated with the production of high-quality tomatoes after relocation (Heikkinen, 2020). Such uncertainty limits the ability of the company to effectively reprice its products after the process of relocation. According to RBC company desires, GF is supposed to relocate to a newer location to meet the production demands resulting from RBC. Such has direct cost implications and can extrapolate into the GF company profit.
RBC demands an increment in the quality of grade tomatoes. Such as direct production costs, which could further extrapolate into the company’s profitability. To solve this uncertainty, the supply chain should strategize pricing and cost estimation to effectively account for the related cost attributed to relocation and changes in product quality during the production stage. Finally, pricing uncertainty is mainly manifested within the external operation of GF in terms of product quality delivery, hence forming a concern that Gordon wished to address in a meetup with Watson (Souza de Cursi, 2022). For instance, GF Company is advised to revisit its production to suit the demands of RBC. Based on the stipulated demands, the company should produce as much as grade A compared to grade B. however, the price per unit remains uncertain. Whether RBC Company will agree upon the set price remains uncertain. Arguably, GF is unsure if RBC will agree to the planned pricing proposal following the production increment in grade A tomatoes. As part of the solution to the pricing strategy, both companies need to conduct a review to first walk through the impact of the previously agreed pricing strategy. Such can be done through a planned meeting between Gordon and Watson. Such a meeting will also facilitate the creation of a platform to discuss the most appropriate strategy to be implemented in the event RBC requires to increase in the production of Grade A.
Current Pricing Scheme and How It Can Be Improved
Arguably, the current pricing scheme is not sufficient to enhance the success of the operation of both companies (Zhang & Wang, 2018). For instance, the pricing strategy limits the ability of RBC to comparatively attain greater profits due to an inadequate supply of grade A tomatoes. Similarly, the pricing strategy limits GF’s ability to produce more grade-tomatoes due to cost factors. As a result, a direct cost implication hinders both companies’ optimality.
Secondly, the current pricing scheme hinders progressive adjustment occurrence. For instance, the pricing strategy cannot allow GF to effectively meet the relocation needs to be closer to the market as required by RBC company. Such acts as barriers for RBC to expand and serve its customers efficiently. Nevertheless, the current pricing scheme can be effectively improved to optimally meet both companies’ desires. As an improvement, the two companies can adopt a memorandum of association to effectively harmonize their processes according to the price matrix to attain the optimal operational price that will favor both companies (Kuncoro & Sutomo, 2018). Regarding improvement in the quality of value relative to the product pricing. The companies should agree to decide on the best set of product compositions most favored for a reasonable set price.
Finally, the analysis indicates strong interdependency between the two companies. There exists mutual reliance among the companies in the course of their trading. While RBC mainly relies on the products of GF, the latter relies on the revenue attained to enhance its production operations. Therefore, both organizations must actively engage in mutual consideration to enhance their operability. Such actions will directly enhance the improvement of the profitability of both companies. The overall goal is to maximize probability. Effectiveness in the pricing strategy is a critical element that will highly stimulate the realization of origination performance. Hence effective price strategies should be adopted and embraced by both companies to enhance a win-win situation. Such will aim to ensure maximum utilization of existing opportunities, spearheading the two companies’ growth differently. Moreover, being of diverging interests, the companies can opt to engage in diplomacy with each other (Zhou, 2019). Such will streamline the contract agreement to more suitable solutions, enhancing meeting their needs differently.
In conclusion, the efficacy of understanding between the two companies should be arrived at with maximum leniency and consideration from RBC and GF. Such will be instrumental in spiraling the profitability margins of both companies. Moreover, the effectiveness of the negation will mark the epitome of cooperation and continuity of business amongst the companies. As a result, the derivation of a uniform agreement in favor of all companies could stimulate both companies to adhere to the demands of each other smoothly, thus marking the success in terms of performance as implicated in profitability.
References
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