Characteristics of relevant costs
Various operational costs are impacted by the selection of delivery patterns. Sternbeck and Kuhn (2014) identify these decision-relevant costs per period, which can be divided into (A) costs that rise when delivery frequency a increases, C+(a), and (B) costs that decrease with more frequent deliveries, C−(a).
(A)
Costs that are directly related to an order rise when delivery frequency increases. Such costs include store ordering and store receiving costs. Due to the shipments of smaller batches and the larger number of orders per period, the overall costs increase for these cost types. In addition, fewer economies of scale can be achieved with smaller store order volumes, especially during the picking process at the DC, the transportation process from the DC to the stores, and the initial shelf-filling process at the stores. Thus, assuming a constant sales volume per period, the average volume per order decreases and therefore the costs for picking and packaging, transportation and initial shelf-filling per period rise when the delivery frequency increases.