Cost Effects of Delivery Frequency from Logistics Service Provider?s Perspective



Cost Effects of Delivery Frequency from Logistics Service Provider?s Perspective

Authors

A Kraemer, P Bartke, L Filipova-Neumann, FZI Karlsruhe, DE

Description

High frequency deliveries offer a new chance to carriers to raise their market share without investing in new technologies or resources. We analyze how increasing the frequencies of delivery to customers affects the costs of the carriers.

Abstract

Flexibility is becoming an essential factor for success in the logistics industry. Traditionally, transport networks are known for their static and long-term arrangements. To satisfy the increasing demand for flexibility, logistics service providers have started offering new concepts such as high frequency deliveries in milk runs. Higher frequencies allow customers to reduce their stocks, which leads to lower storage costs as well as lower expenses for capital commitment.

High frequency deliveries offer a new chance to logistics service providers to raise their market share without investing in new technologies or resources. In this article, we analyze how increasing the frequencies of delivery to customers affects the costs of the logistics service provider. Using a simulation approach we examine how changing frequencies alter the distances of routes. Route planning in the simulation for pickup or delivery is based on the savings algorithm for one depot route planning with the objective of minimizing distances. We focus on short distances in pre- and on-carriage due to a framework with multi modal transport network shifting transportation from truck to railroad for the main carriage.

Topologies of customers around the depot are based on real data of German industries. We consider several data sets of different areas to isolate the effects of the density of customers around the depot. Different scenarios of frequencies, truck capacities and customers? quantity of freight are examined in a sensitivity analysis.

The results of the simulation exhibit two cost effects of delivery frequencies:
? A higher frequency entails higher costs for the logistics service provider caused by transport costs for longer distances and fix stop costs.
? The former cost increasing effect is partially offset by a cost-reducing community effect, which results from synergies as well as economies of scale. The more demand a single logistics service provider faces, the higher is the load efficiency. Moreover, the consolidation of several customers? orders also carries potential for increasing cost efficiency. The size of the community effect depends not only on the quantity of freight and the number of customers, but also on the degree of similarity of the customers with regard to the delivery frequency, delivery days and times and the kind of freight. In our analysis we focus on the similarity of frequency in order to demonstrate and quantify the cost potential of consolidating customers with similar frequencies. The highest cost efficiency can be achieved by equal delivery or pickup frequencies.

For the logistics service providers, with increasing frequencies the effect of frequency causes higher costs while the effect of community reduces the costs per transport unit. The simulation quantifies the effects for the data sets and reveals weak points of traditional calculations of costs and of cost-based prices relating to high frequency deliveries.

The analysis is performed as part of the research project LogoTakt, which is sponsored by the Federal Ministry of Economics and Technology. It targets a network, which combines clocked and multimodal transportations for single pallets. Through increased efficiency of average truck loads and load shifting from truck to railroad for the main leg, road transport shall be reduced by at least 10%. Several partners from academia and the logistics industry, including logistics service providers on road and railroad are involved in the project. Finally, the project also addresses robustness of the network as well guaranteed, reliable pickup and delivery times.

Publisher

Association for European Transport