Question
Suppose Walmart buys sells salmon from Alaska. The salmon had the following journey: Fishing close to Alaska, immediate freezing on the ship (the ship has
Suppose Walmart buys sells salmon from Alaska. The salmon had the following journey:
- Fishing close to Alaska, immediate freezing on the ship (the ship has costs of $8,000 per day and produces 20,000 kg per day).Selling on the coastal city, for 0.50 $ per kg.
- Transport to Shanghai, sold to a Chinese company for 0.7 $ per kg.
- Transport to Nanjing and cutting the Salmon into pieces, packaging and selling to another company for 1$ per kg.
- Transport to LA via Shanghai and sold to Walmart China for 1.2 $ per kg.
- Transport to Phoenix, Arizona. A competitor of Walmart offers to buy it in Phoenix wholesale for 1.4 $ per kg.
- But Walmart sells it at its own store for 1.49 $ per kg.
- It is estimated that the average customer is willing to pay 1.6 $ per kg.
Disclaimer: The numbers are simplified to aide the calculation.
The fishing ship has cost of 0.40 $ per kg. Hence, it has a profit of ??????? $ per kg.
The transport and duties across the ocean towards Shanghai costs about 0.05 $ per kg. Hence, that transporting company earns??????? $ per kg.
Transport within China, packaging etc. costs 0.26 $ per kg. The margin therefore is 0.04 $ per kg. The transport and trade towards LA is estimated to achieve a margin of 0.15 $ per kg. Likewise, the transport within the USA is costly and eats up 0.17 $ per kg, leaving a margin of 0.03 $ per kg for the transport. Indeed, Walmart thinks that the cost of selling it at its own store is 0.07 $ per kg, i.e., its profit in the shop is 0.02 $ per kg. Overall, the SC surplus is 0.39 $ per kg profits plus 0.11 $ per kg customer surplus.
Walmart thinks that certification would not increase the customer's willingness to pay but allow a price increase of 0.10 $ per kg because its competitors cannot offer such a product. Moreover, certification would not come at additional cost if done via long-term contracts. Overall, this would increase Walmart's profit from previously 0.15$/kg + 0.03$/kg + 0.02$/kg = 0.20$/kg by ??????%
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