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Pricing and Delivery at KAR Foods Assignment
Kelli Ware
School of Business, Liberty University
Sunday, June 15, 2025
Introduction
KAR Foods, a Brazilian food processing company began as a slaughterhouse and later
evolved into a company that generates fresh and processed cuts of meat (Chopra, 2018). The
meat maker faces challenges in supply chain efficiency using a current discount pricing scheme
that incentivizes bulk ordering to offset exorbitantly high fixed and variable costs per order
offering a two percent discount on large lot sized orders of 27,000 kilograms or greater (Chopra,
2018). Typical supermarkets’ order sizes are approximately 10,000 kilograms per order, but the
discounting scheme that KAR uses almost triples that amount (Chopra, 2018). Studies have
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shown there are many negative impacts bulk ordering of perishable goods such as the bullwhip
effect, higher deterioration rates, increased spoilage, higher costs, distorted demand, and
diminished profits (Thangam, 2012). Moreover, Bray & Stamatopoulos (2021) assert that static
pricing incurs higher holding costs, shipping costs, and loss of stability across the entire supply
chain. This case study reviews the implications of static pricing, large lot size orders, and
proposes alternatives to the current discounting scheme in use at KAR Foods to decrease costs,
increase profitability, strengthen coordination and collaboration, and improve efficiency.
What do you think of the discounting scheme that KAR used historically? Do you think it
was justified given the circumstances?
Considering its prior market positioning, operating model, and relative stability, along
with the expensiveness of fulfilling small orders, it is quite understandable why KAR Foods never
changed their pricing promotion. Their historical discounting scheme offered a two percent
reduction in price from four real per order to 3.92 real for orders larger than 27,500 kilograms
which was designed to provoke bulk purchases which helped to offset the fixed inflated costs
associated with each order (Chopra, 2018). Given the tremendously high flat rate cost of 4,000
real per order the large lot selling format may have seemed effective, however this selling
format required the use of excessive space confining capital and facility storage (Chopra, 2018).
Moreover, the original discounting scheme placed undue burden on consumers to house and
preserve the bulk orders of perishable goods which led to costs exceeding the one hundred real
per and twenty percent annual holding costs (2018).
Even though the large-lot discounting plan minimized costs for KAR Foods (Chopra,
2018), the company experienced the negative implications of the bullwhip effect which
exacerbated demand variability, diminished forecast accuracy, created inventory backlogs, and
increased costs (Wu et al., 2024). The lack of communication and coordination of the selling
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tactics contorts demand analytics for every member of the supply chain leading to inefficient
operational decision-making (Chopra, 2018). While it made sense for KAR to use the original
discounting scheme for a short while, it became clear that the plan was neither sustainable nor
scalable as it increased costs for consumers and severely deteriorated 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?
Allowing the discounting scheme to remain unchanged after reducing the fixed cost of
4.000 real per order by ninety percent presents multiple disadvantages for KAR. First, the
existing discounting scheme continues to incentivize large lot ordering that fails to make the
most of the improved operational efficiency that accompanied the reduced fixed costs
squandering opportunities to mitigate housing costs associated with excessive stock levels and
inventory idling for both KAR and its consumers (Chopra, 2018). Keeping the scheme at the
status quo also fails to leverage more cost-efficient mix-load and small order fulfillment (Chopra,
2018). Secondly, Thangam (2012) asserts that large lot orders of perishable foods puts
unnecessary strain on retailers, increases spoilage losses and deterioration rates which is a
critical downside to maintaining the current sales strategy. Moreover, housing copious
quantities of perishable goods ties up facility space, labor, capacity, and capital that could be
used to scale the business (Chopra, 2018). Thirdly, regardless of the reduction in fixed costs to
400 real at KAR Foods, impacts of the bullwhip effect such as demand distortion, complicated
transportation requirements, difficulty in scheduling, and cost increases across the board
remain the same for all effected parties (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?
Studies reveal that discount pricing has some emphatic benefits and advantages
especially with the introduction of additional suppliers in the Brazilian market, which are not
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reflected in the historical discount scheme that KAR uses (Chopra, 2018). During their meeting
Carlos should suggest that Vanessa completely revamps the current discounting strategy and
replace it with a dynamic pricing framework that incorporates a combination of quantity and
time-based discounts that engenders smaller and regularly recurring orders that align with
supermarkets’ demand levels, creates realistic economic order quantities, reduces inventory
holding costs, and spoilage losses (Jain et al., 2013 & Thangam, 2012). Carlos should also
challenge Vanessa to develop a supply chain coordination strategy that optimizes sales and
operations planning, encourages cross-functional communication and information sharing,
inspires collaboration and cost-sharing between supply chain participants, reducing costs and
mitigating the impacts of demand variability across the board (Chopra, 2018). Potential
advantages of the smaller lot size suggestion include reduced cycle inventories, lowering holding
costs, lessened spoilage losses, increased profits, enhanced demand forecast accuracy and
optimal supply chain operations (Chopra, 2018; Jain et al., 2013 & Thangam, 2012). Possible
gains from the supply chain coordination strategy encompass enhanced efficiency and
responsiveness, improved supply chain communications, increased profitability, scalability, and
competitiveness (Chopra, 2018).
Conclusion
By adjusting its discounting strategy to a dynamic tiered pricing model that favors
smaller more frequent orders and utilizing a collaborative sale and operations planning
framework that incorporates all vested supply chain contributors, KAR Foods can substantially
optimize performance, reduce costs, and increase profitability (Chopra, 2018). The pivot away
from the large lot size ordering model and the static discounting scheme will lower housing
costs, reduce cycle inventory, diminish loss of perishable goods, and mitigate the bullwhip effect
that distorts demand forecasting (Bray & Stamatopoulos, 2021; Chopra, 2018; Jain et al., 2013 &
Wu et al., 2024). The use of a centralized, collaborative, and innovative supply chain structure
promotes efficiency, demand balance, and positions companies like KAR to be global
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competitors in the food supply industry (Song et al., 2021). Some of the most potent fuel that
powers scalability and growth are innovation and continuous improvement (Song et al., 2021),
and while status quo discounting scheme at KAR carried them to a certain level of success
(Chopra, 2018), the recommendations offered will contribute to their progress.
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 (7th ed.). Pearson Education.
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 Journal
of Operations & Production Management, 44(9), 1707–1731.
https://doi.org/10.1108/ijopm-08-2023-0667
