In setting up their delivery operations, Peapod had to decide on the service offering. This involves determining the number of weekly time slots to offer, the length of the time slots, and the actual times at which time slots are offered in the different zipcodes served. At the moment, Peapod offers overlapping 2- and 3.5-hour time slots. Peapod charges a delivery fee dependent on the order size: $6.95 for orders over $100, $7.95 for orders between $75 and $100, and $9.95 for orders less than $75.00. Customer service considerations, as well as delivery cost considerations, play a role in deciding on the service offering. Offering more time slots may increase customer service, but it will likely reduce the drop-density, i.e., the number of visits a delivery truck makes in a specific zip code, which in turn may result in higher delivery costs. Similarly, shorter time slots may provide greater customer convenience, but they decrease routing flexibility and may therefore increase delivery costs. Peapod uses zipcode specific characteristics, such as population density, Internet penetration, and historical demand data to define service requirements for each zipcode. Peapod reevaluates their service offering every six months. Issues related to service offerings and time slot schedule design are addressed in Section 3.