Frequency Of Ordering By Store versus Out-of-Stock at Distribution Centre (DC)

We know that ordering and receiving products often reduces safety stock at the store and at DC because the lead time is shorter at store, assuming lead time to DC is unchanged.

What about the cost of ordering and picking? Wouldn't it be more expensive to order and pick the same product again at the DC? Especially picking when the picker will now pick in smaller quantities.

Well, it depends on what you view as sunk cost, no cost and what is of higher cost.

If there are deliveries are twice or three times a week, and you are ordering once, you want to consider ordering your highly variable and easy to pick products, like cartons of can drinks, twice or three times a week. This is because we can consider deliveries as sunk cost. The store needs to order other products for the 2nd or 3rd delivery anyway so it is marginal cost to order one more product. Picking 2 cartons is about twice the work of picking one carton, so it doesn't matter if the picker at warehouse picks is in one day or in 2 days. That leaves cost out of stock at store to be usually higher, when you factor in loss of goodwill and customer satisfaction.

Besides inventory savings in safety stock, one will also have a higher resolution of demand variation data (2 data points a week rather than 1)to calculate safety stock by pooling variation. More variation data means more confidence in variability and consequently, the safety stock available at DC to meet demand variability from all stores.