Unraveling Cross Docking: Operations Performance, Demand Uncertainty and Fulfillment Mechanism

Abstract

Problem definition: We develop econometric models to evaluate operations performance of cross docking (CD).

Academic/practical relevance: Most studies on CD have used analytical modeling under various assumptions, but they have not reached a consensus on CD’s benefits. Our study is among the first attempt to study CD empirically.

Methodology: We collect a large-scale, product-level dataset from a large supermarket chain. We examine CD’s operations performance in terms of its effects on inventory and stockouts at the store, DC, and the system.

Results: We find that the benefits of CD are more nuanced than we thought. On average, CD does not affect inventories but increases stockouts at the stores compared to traditional warehousing (TW). The effects differ in product’s demand characteristics. CD products with lower demand or higher demand uncertainty have lower inventories, while CD products with higher demand or lower demand uncertainty have higher inventories than TW products. At the DC and in the system, CD reduces the inventories by as much as 65.10% and 23.99% on average, respectively. Our results show that CD not only reduces the total inventory in the system but also re-distributes the inventory from the DC to the stores for some products. On average, in terms of stockouts, CD products have higher stockouts than TW products at the stores, but the effects are weaker when demand level and demand uncertainty are high. Our findings, supported by our interviews with store managers, suggest that increased fulfillment uncertainty resulting from imperfect order consolidation and synchronization in CD may in part be the sources of performance degradation.

Managerial implications: The effectiveness of CD depends on the demand characteristics of products. A tailored distribution strategy for different products may bring positive net benefits. Even if CD is effective, store managers may need to trade off between inventories and stockouts.

Keywords: Cross Docking; Inventory; Stockouts; Empirical Analysis