Scribd Logo
Upload

Welcome to Scribd!

  • 41 views

    Adhiraj Chauhan 3D SCM KAR

    Uploaded by

    Adhiraj Chauhan
    KAR Foods historically offered quantity discounts to customers who purchased orders over 27,500 kg. The document analyzes the costs and profits with and without this discount scheme. With the discounts, customers place larger orders to get the discount, which increases KAR's holding costs. The analysis shows KAR would be better off financially by canceling the discounts and having customers place smaller, more frequent orders instead. The document recommends KAR re-evaluate their discount policy given the increased fixed costs and potential for higher profits without discounts.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    Adhiraj Chauhan 3D SCM KAR

    Uploaded by

    Adhiraj Chauhan
    41 views1 page
    KAR Foods historically offered quantity discounts to customers who purchased orders over 27,500 kg. The document analyzes the costs and profits with and without this discount scheme. With the discounts, customers place larger orders to get the discount, which increases KAR's holding costs. The analysis shows KAR would be better off financially by canceling the discounts and having customers place smaller, more frequent orders instead. The document recommends KAR re-evaluate their discount policy given the increased fixed costs and potential for higher profits without discounts.

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    KAR Foods historically offered quantity discounts to customers who purchased orders over 27,500 kg. The document analyzes the costs and profits with and without this discount scheme. With the discounts, customers place larger orders to get the discount, which increases KAR's holding costs. The analysis shows KAR would be better off financially by canceling the discounts and having customers place smaller, more frequent orders instead. The document recommends KAR re-evaluate their discount policy given the increased fixed costs and potential for higher profits without discounts.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    41 views1 page

    Adhiraj Chauhan 3D SCM KAR

    Uploaded by

    Adhiraj Chauhan
    KAR Foods historically offered quantity discounts to customers who purchased orders over 27,500 kg. The document analyzes the costs and profits with and without this discount scheme. With the discounts, customers place larger orders to get the discount, which increases KAR's holding costs. The analysis shows KAR would be better off financially by canceling the discounts and having customers place smaller, more frequent orders instead. The document recommends KAR re-evaluate their discount policy given the increased fixed costs and potential for higher profits without discounts.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 1

    KAR FOODS

    ADHIRAJ SINGH CHAUHAN 3D


    What do you think of the discounting scheme that KAR had used historically? Do you think it was justified given the circumstance?

    Without no discount scheme: Without discount scheme: No discount Discount


    Annual Order (D) = 12*10,000= 120,000kg Annual Order (D) = 120,000kg Scheme Scheme
    S (Fixed Order Cost / lot) = 100 real C (Unit Cost/kg) = 4 real S (Fixed Order Cost / lot) = 100 real C (Unit Cost/kg) = 3.92 real Revenue 480,000 470,000
    Holding cost / year (as a fraction of unit cost), h = 0.2 Holding cost / year (as a fraction of unit cost), h = 0.2
    Annual Material 300,000 300,000
    Optimal order size for the supermarket = Q* = Sqrt [2DS/hC] Optimal order size for the supermarket = Q* = Sqrt [2DS/hC] Cost (Real)
    = sqrt{(2*120,000*100)/(0.2*4)} = 5477.23 kgs ≈ 5478 kg = sqrt{(2*120,000*100)/(0.2*3.92)} = 5532.83 kgs ≈ 5533 kg
    Annual Holding Cost 1,370 6,875
    As, the EOQ obtained in both schemes is less than 27,500 kg, (Real)
    it is not entitled for the reduced price (Since discount is
    With discounted scheme at lot sizes of 27,500 kg, KAR foods Annual Order Cost 87,623 17,455
    offered beyond lot size greater than 27,500 Kg). So, the (Real)
    have better profit (Difference = 55,063 real)
    supermarket candidate solution for the supermarket will be
    any lot size of 27,500 kg or greater Profit (Real) 91,007 146,070

    What do you think of the discounting scheme that KAR had used historically? Do you think it was justified given the What should Carlos suggest to Vanessa at the upcoming
    circumstance? meeting? What are the potentialgains for KAR from
    With the new fixed cost of 400 real, the following would be the the suggestion?
    No discount Discount downsides to leave the discount scheme unchanged: During his meeting with Vanessa, Carlos should
    Scheme Scheme
    • The customers would still order higher quantities in order to recommend that KAR foods re-evaluate and change their
    Revenue 480,000 470,000 avail the discounting scheme, and KAR foods would incur 20% discounting scheme as follows:
    Annual Material 300,000 300,000 holding cost on those orders. So, the total cost would not come • Reduce discount value from 0.08 Real per kg to
    Cost (Real) down as anticipated. somewhere between 0.01 and 0.02 Real per kg
    Annual Holding Cost 1,370 6,875
    • The company would be losing 2% on every order of 27,500 kg • Reduce discounting volume to kick in at 9,608 kg per
    (Real) or more and also pay 20% holding cost on them. order (instead of 27,500 kg per order)
    • The routing software which allows them to plan deliveries to • If there is a risk that retailers may not take up this
    Annual Order Cost 8,762 1,745
    (Real)
    multiple customers offer (due to their relatively low savings from
    • With the new fixed cost, the discount scheme predicts optimization), then mandate an MOQ of 9600 kg per
    Profit (Real) 169,868 161,780
    deteriorating figures as compared to the non-discounted order
    (Difference = 8088 real). Hence, KAR food should immediately • Consider volume discounts (instead of lot sized
    review their discount policies to get profitable. Cancel discounts) – however this may need further analysis.
    discounts, if necessary
    PUBLIC

    You might also like