CASE STUDY: PRICING AND DELIVERY AT KAR FOODS
Lisa Borgese
School of Business, Liberty University
BUSI740: Managing the Supply Chain
Dr. Thomas Spotts
September 21st, 2025
Introduction
A Brazilian food processing company, KAR Foods started off as a slaughterhouse, then
reschemed themselves as a company that produces processed and fresh cuts of meat (Chopra,
2018). The company is facing problems in their supply chain due to the use of their current
discount pricing scheme, which gives incentives for bulk ordering that is supposed to offset the
company’s high fixed and variable costs, offering customers a two percent discount on orders
that are 27,000 kilograms or larger (Chopra, 2018). The average order by supermarkets is
approximately 10,000 kilograms per order, however the discounting scheme that KAR utilizes
practically triples that amount (Chopra, 2018). Thangam states that there are many negative
effects associated with bulk ordering, such as higher deterioration rates, higher costs, bullwhip
effects, increase spoilage, diminished profits, and distorted demand (Thangam, 2012).
PRICING AND DELIVERY AT KAR FOODS 1
Furthermore, static pricing invites higher shipping costs, holding costs, and the loss of stability
throughout the whole supply chain. (Bray & Stamatopoulos, 2021). This case looks at the
potential consequences of large lot size orders, static pricing and it offers alternatives to KAR
Foods’ discounting scheme to ensure the company is decreasing costs, increasing profitability,
improving their efficiency, and strengthening their collaboration and coordination.
What do you think of the discounting scheme that KAR used historically? Do you think it
was justified given the circumstances?
Considering KAR Foods’ prior operating model, marketing position, and their stability,
along with the expenses they incur fulfilling small orders, one can understand why the company
did not change their pricing promotion. Historically, KAR’s offered a two percent discount on the
price from four real/order to 3.92 real/order on orders that are larger than 27,500 kilograms,
which was created to promote bulk buying and help offset fixed inflated costs linked to these
orders (Chopra, 2018). With an extremely high flat rate cost of 4,000 real/order, it may have
seemed like an effective way to sell their products, however this selling format used excessive
space confining the company’s capital and facility storage (Chopra, 2018). Furthermore, the
company’s discounting scheme put excessive costs onto their customers, who had to store and
preserve their bulk orders of perishable goods, leading to fixed costs of one hundred real
associated with each order and an annual holding cost of 20% (Chopra, 2018).
Though the discounting scheme that KAR Foods utilized helped to minimize their costs,
the company experienced the negative effects of bullwhip, intensified demand variability,
created inventory backlogs, diminished forecast accuracy, and increased costs (Wu et al., 2024).
Ineffective communication and coordination of selling strategies skews the demand analytics for
the rest of the supply chain, which leads to inefficient operational decision-making (Chopra,
2018). While it was effective for KAR to utilize their original discounting scheme in the
beginning, after a while, it was not scalable or sustainable to maintain because it had increased
PRICING AND DELIVERY AT KAR FOODS 2
the costs for KAR’s customers and weakened the company’s operational efficiencies (Chopra,
2018).
Once KAR has reduced its fixed cost per order to 400 real, what are the downsides to
leaving the discounting scheme unchanged?
Permitting the discount scheme to remain unchanged while reducing the fixed costs to
four hundred real/order, grants many disadvantages for KAR Foods. The current discount
scheme continues to promote customers to large-lot ordering which fails to utilize the improved
operational efficiencies, reducing fixed costs, and wasting opportunities to ease the
housing/storage costs that are associated with high stock/inventory levels for both KAR and
their customers (Chopra, 2018). Remaining at status quo, the scheme does not leverage a more
costefficient, mix-load and small order fulfillment for KAR Foods (Chopra, 2018). Furthermore,
Thangam states that large-lot orders of perishable foods places strains on retailers, deteriorate
rates, and increase spoilage, all of which are the major downsides to continuing the company’s
current sales strategy (Thangam, 2012). Also storing high quantities of perishable goods
occupies facility space, capacity, capital, and labor that could be utilized to measure business
(Chopra, 2018). Finally, despite the reduction in fixed costs to four hundred real/order, KAR
Foods experienced the impacts of bullwhip like complicated transportation requirements,
demand distortion, cost increases, and difficulty in scheduling, remaining the same for the
supply chain (Chopra, 2018 & Wu et al., 2024).
What should Carlos suggest to Vanessa at the upcoming meeting? What are the potential
gains for KAR from this suggestion?
According to Chopra, “discount pricing has shown some benefits and advantages when
additional suppliers are introduced into the Brazilian market, which was not reflected in the
historical discount scheme that KAR Foods utilized” (Chopra, 2018).
PRICING AND DELIVERY AT KAR FOODS 3
In their meeting, Carlos could recommend that Vanessa ditch the company’s current
discounting strategy and replace it with a pricing structure that combines quantity with
timebased discounts and promotes smaller and reoccurring orders that would align with
consumers’ demand levels, which would reduce inventory holding costs, spoilage, and create a
more realistic quantity order (Jain et al., 2013). Furthermore, he could also suggest that Vanessa
create a supply chain coordination strategy that would improve operations planning and sales,
promote crossfunctional communication and collaboration, encourage cost-sharing between
supply chain participants, which would reduce costs and mitigate the impact on demand
(Chopra, 2018).
There are advantages of smaller lot size orders, such as lowering holding costs, reducing
spoilage, reducing cycle inventories, more accurate forecasting, increased profits, and efficient
supply chain operations (Jain et al., 2013). Furthermore, with a revamped supply chain
coordination strategy, KAR Foods could experience improved efficiency and responsiveness,
increased profitability, improved supply chain communications, competitiveness, and scalability
(Chopra, 2018).
Conclusion
KAR Foods can improve their performance, increase their profitability, and reduce their
cost by simply replacing their discounting scheme with a tiered pricing model that would favor
smaller, reoccurring orders and implementing collaborative sales and operations planning
structure that would include all those involved in the supply chain (Chopra, 2018). Moving away
from large-lot size ordering and their current discounting scheme will lower spoilage, reduce
bullwhip effects that distort demand forecasting, lower costs associated with housing/storage,
and reduce cycle inventory (Bray & Stamatopoulos, 2021). Moreover, Song et al. state that “the
use of centralized, collaborative, and innovative supply chain scheme promotes efficiency,
demand balance, and positions companies such as KAR, to be global competitors in the food
PRICING AND DELIVERY AT KAR FOODS 4
supply industry” (Song et al., 2021). While the discounting scheme that KAR Foods currently has
in place helped the company obtain a certain level of success, the recommendations suggested
will progress the company in years to come.
References
Bray, R. L., & Stamatopoulos, I. (2021). Menu costs and the bullwhip effect: Supply chain
implications of dynamic Pricing. Operations Research, 70(2), 748–765.
https://doi.org/10.1287/opre.2021.2175
Chopra, S. (2018). Supply Chain Management: Strategy, Planning, and Operation (7th ed.).
Pearson Education (US). https://libertyonline.vitalsource.com/books/9780134732459
Jain, V., Kundu, A., Chan, F. T. S., & Patel, M. (2013). A Chaotic Bee Colony approach for
supplier selection-order allocation with different discounting policies in a coopetitive
multi-echelon supply chain. Journal of Intelligent Manufacturing, 26(6), 1131–1144.
https://doi.org/10.1007/s10845-013-0845-8
Song, J., Chutani, A., Dolgui, A., & Liang, L. (2021). Dynamic innovation and pricing decisions in a
supply-Chain. Omega, 103, 102423. https://doi.org/10.1016/j.omega.2021.102423
Thangam, A. (2012). Optimal price discounting and lot-sizing policies for perishable items in a
supply chain under advance payment scheme and two-echelon trade credits.
International
Journal of Production Economics, 139(2), 459–472.
https://doi.org/10.1016/j.ijpe.2012.03.030
Wu, L., Wang, M., Kumar, A., & Choi, T. (2024). Mitigating the bullwhip effect through supply
chain ESG transparency: roles of digitalization and signal strength. International
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Journal of Operations & Production Management, 44(9), 1707–1731.
https://doi.org/10.1108/ijopm-08-2023-0667
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