You are on page 1of 7

Optimal Decision-making on Product Ranking For Crossdocking/Warehousing Operations

Zhengping Lii, Malcolm Yoke Hean Lowii, Yuan Guan Limiii, Bin Maiv Singapore Institute of Manufacturing Technology, 71 Nanyang Drive, SINGAPORE 638075. ii School of Computer Engineering, Nanyang Technological University, Nanyang Avenue, SINGAPORE 639798. {izpli,iiiyglim,ivbma}@simtech.a-star.edu.sg, iiyhlow@ntu.edu.sg
i,iii,iv

Abstract- The physical distribution of goods is one of the key success factors in todays fast moving markets. Many companies are involved in the search for efficient distribution alternatives, as the lead times for customer order-fulfillment need to be shortened while the costs and risks of warehousing need to be minimized. Crossdocking is defined as an operation strategy that moves items through flow consolidation centers or cross docks without putting them into storage. This removes the need for distribution warehouses in the supply chain, and allows the customers to receive complete deliveries for their orders. However, not all products are suitable for crossdocking operations. In real practice, a pure crossdocking scenario is not common. A crossdocking center or distribution center is normally a combination of crossdocking and warehousing facilities. Industry needs guideline and model to support crossdocking/warehousing decision-making and to evaluate the applicability of crossdocking operations for their particular business situation. This paper presents a systematic procedure and model for the evaluation of the ranking of products suitability for crossdocking in a distribution center or crossdocking center. A prototype system based on the approach had been developed and is also introduced in the paper.

I.

BACKGROUND

Due to high inventory carrying costs, it is often not possible to stock all the products in a distribution warehouse. Direct deliveries from manufacturers remove the need for warehousing in the supply chain, but often result in multiple deliveries to the customer with high transportation costs. Crossdocking is an operation strategy that moves items through flow consolidation centers or crossdocks without putting them into storage. It can help to reduce inventory and consolidate transportation at the same time. The traditional warehousing and distribution faces the challenge of fulfilling increasing consumer demand. The new challenges put pressure primarily on the companies warehousing and distribution system. As the number of partners and delivery points grow, the volume of orders decreases, but their frequency increases. As the time for receiving goods becomes shorter, the prescription relating to the working hours of drivers becomes stricter and also order lead time becomes even shorter [1]. There is ever increasing pressure to reduce inventories. So a trend toward smaller and fewer warehouses will transfer many warehouse operations into crossdocking operations in the 21st century [2]. The warehouse is undergoing a transformation from a solid physical facility used to house inventory to one that distributes

products in the shortest possible time at the lowest possible cost. In addition, Just-In-Time concept being accepted widely, make-to-order and assemble-to-order production policies are applied to more and more products. The implementation of crossdock operations repositions the focus from warehousing inventory to one of managing inventory through-flow in transit from suppliers to customers. In the fast moving consumer goods (FMCG) crossdocking scenario, retailers submit their order to suppliers on a specific day. Each supplier consolidates orders and sends truckloads of product to the crossdock. There, workers transfer products to trailers bound for individual stores, so that outgoing trailers contain products for a single store from many vendors. Transportation costs are lower because shipments in and out of the crossdock are in truckload quantities. In this process, the warehouses acting as crossdocks are transformed from inventory repositories to points of delivery, consolidation and pickup [3]. However, crossdocking operations increase the complexity of material flow control. This is especially evident when a multitude of suppliers are included in the processes. Each of the individual consignments related to an end customer delivery must be identified and information on the associated customer order must be available at all the terminals where consolidation is performed. Due to the complexities and challenges of crossdocking operations, industry needs systematic approaches for evaluating the potential for crossdocking application. Not all products are suitable for crossdocking. Distribution center is normally a combined model of warehousing and crossdocking. It means that both traditional warehousing and crossdocking co-exist. With different cost structure and the limited capacity of crossdocking and warehousing, one key question that needs to be answered is that what products should go through crossdocking and what product should go through warehousing. In this paper, we reviewed current research and applications on crossdocking planning and operations. Based on this, we propose approaches for evaluating products suitability for crossdocking to enable user to make optimal decision on crossdocking or warehousing decision. A tool for crossdocking product ranking is developed and will be briefly introduced.

II.

LITERATURE REVIEW

In FMCG crossdocking, retailers receive products from multiple vendors who use distributors with multiple warehouses. In general, crossdocks are complex and requires a high degree of coordination between suppliers, customers and distributors to create shipments based on anticipated supplies and demands [4]. A significant amount of research work on crossdocking has focused on the crossdock facility design. Barthold and Gue [5] studied the best shape for a crossdock by analyzing the assignment of receiving and shipping doors. The staging of products in a crossdock to avoid floor congestion and increase throughput has also been studied together with the effects of different combinations of number of workers in receiving and shipping on throughput [6]. A simulated annealing procedure was used to construct effective layout to reduce labor costs [7]. Another important research area for crossdocking is to treat crossdocks as a network of distribution and transshipment points. Donaldson et al. [8] studied a network of crossdocks for the US Postal Service where 148 Area Distribution Centers serve as crossdocks, each receiving, sorting, packing and dispatching mail according to operating schedules. Mail not processed on time must be shipped by air, incurring additional costs and critical-entry times, when mail must arrive at the destination center, must be coordinated with transportation schedules to avoid overshooting specified cut off times. Each distribution center serves as an origin as well as destination node where schedules were driven by mail delivery standards. Ratliff et al. [9] studied a load-driven network, in which deliveries take place when there are sufficient products waiting for transportation. They studied the North American automobile delivery systems to determine the ideal number and location of crossdocks in a network and how shipments flowed between them. In their study, a minimum inventory strategy was the key in attempting to minimize the number of vehicles at the mixing center (crossdocks). Crossdocking operations planning and scheduling also has been studied in recent years. Chen, Guo and Lim [10] studied crossdocking network scheduling where time windows for deliveries and pickups are considered. They also considered crossdock-handling costs which are use to penalize delays. Yu and Egbelu [11] studied the scheduling issue of inbound and outbound trucks in crossdocking systems with temporary storage. They try to find the scheduling sequence for both inbound and outbound trucks to minimize total operation time when a temporary storage buffer to hold items temporarily is located at the shipping stock. Chen and Lee [12] develop polynomial approximation algorithm and branch-and-bound algorithm to minimize the makespan for products going through a crossdocking facility. Crossdocking can be complex and difficult to manage, involving a large number of transshipment points and vehicles. The well-known success of Wal-Mart [13] in crossdocking requires coordinating 2000 dedicated trucks over a large network of warehouses, crossdocks and retail points. Maytag, a

large distributor of household appliances maintains 41 crossdock facilities where no inventory is held [14]. Despite there being several research publications, there is very little published research on the approaches for evaluating the potential of crossdocking operations for a company and the suitability of a product for crossdocking operations. This is perhaps because the complexity of its implementation on a large scale has prevented crossdocking from becoming a common systematic distribution model. However, logistic service providers capable of offering a crossdocking service are increasingly available on the market, and the developments in information technology have also made the management of crossdocking operations easier. Nevertheless, there is still an absence of systematic guidelines that can help supply chain managers to determine the suitability of crossdocking for certain business and products and assess the benefits of crossdocking for their particular business situation. There is a requirement for a model to support crossdocking and warehousing decision-making. This topic is still not well studied and this paper will work on the issue. III. PROBLEM DESCRIPTIONS

Traditionally, goods are processed in warehousing approach, where it arrives from the manufacturer and is stored into inventory at the warehouse. Goods take up space in the facility and are stored there for a period of time for anticipated demand. In crossdocking, goods arrive from the manufacturer into the crossdock. Goods are stored in the facility for at most 24hours. They are then consolidated, sorted and sent to their respective destinations. Comparing to traditional warehousing, crossdocking has some obvious advantages. First crossdocking eliminates two cost- and labor-intensive functions: storage and order picking of a traditional warehouse, while still allowing it to serve receiving and shipping functions. Handling costs is reduced because it minimizes the number of touches. Second, the speed of material movement is faster, cargo normally takes a few days and even months in traditional ware housing and it only normally takes less than 24 hours in a crossdock. Third, inventory is much lower and the throughput is higher in crossdocking compared to traditional warehousing. In addition, when timing is well coordinated, products can be made available in shorter time windows, thus reducing cycle times. So crossdockings impact to supply chain is to make it more responsive to customer demand as compared to traditional warehousing. In real practice, a pure crossdocking scenario is not common. A crossdocking center or distribution center is normally a combination of crossdock and warehouse. Some products go for crossdocking and some products go for warehousing based on product property, user demand and facility capacity. Even for the same type of product, part of the products could go for crossdocking and the rest go for warehousing. This is because not all products are suitable for

crossdocking, and even if they are suitable, logistics managers are still skeptical to the idea of not having any safety inventory or crossdocking capacity is not enough for all the suitable products. Especially in FMCG supply chain, a model combining both crossdocking and traditional warehousing operations is highly feasible and cost effective due to the characteristics of fast moving consumer goods. The selection of distribution strategy for the products depends on a number of factors such as product volume, product value, product life cycle, and facility space constrains. Many companies invest a lot of time and money to investigate on this area to gain a competitive edge over their rivals especially for Fast Moving Consumer Goods (FMCG) products that have a quick turnover and relatively low cost. While the profits made from these individual products are relatively, they are often sold in big volume and the cumulative profit on such products can be significant. To increase their revenue, companies have realized the importance of reducing their distribution cost and at the same time meet the customer demand. Currently, there is a lack of a proper system or tool to assist logistics managers to evaluate and select the type of distribution strategy for a particular product. The crossdockingwarehousing decision on what and how many products should go for crossdocking could be a complex decision considering product popularity, volume, demand variation and product life cycle. It is a challenge task for a crossdocking manager or operators to make the right decision given these complexities. The purpose of this research is to study the approach and develop tools for Crossdocking Product Ranking so as to assist logistics managers in their product distribution strategies. With product data input from the user, the application will generate scores to rank products on their suitability for crossdocking. The ranking result could be used by a company to define product distribution strategy and determine the crossdocking/warehousing capacity of facilities. The product ranking includes two main steps: First, product property information is collected. These include product type, volume, destination, product life, packing attributes, and historical demand information. Product data is preprocessed according to system requirement. Second, a products suitability for crossdocking will be evaluated based on product information and weights of different factors will be calculated. With the product ranking result, trade-off between crossdocking and warehousing could be evaluated. The evaluation result could also be used for strategic level crossdockingwarehousing decision making, such as for facility capacity and layout design. IV. CROSS-DOCKING PRODUCT RANKING MODULE DESIGN AND DEVELOPMENT

Figure 1: Evaluation of product suitability for crossdocking A. Factors to be Considered in Crossdocking Suitability The product ranking and selection logics take in product details and previous inventory movement data to generate scores and rankings for products according to their suitability for cross docking. The suitability of products for crossdocking is evaluated from four aspects: Product Popularity, Total Cubic Movement (volume), Demand variation and Product Value & Life (Figure 1). Popularity: refers to the number of times a product appears on the orders from the customers. A higher popularity would mean more frequent and larger quantity of the product would be moving through the facility. A product with a higher popularity would be more suited for crossdocking as the products need not be stored into inventory and is transported straight to the destination. It is reasonable to put high priority for crossdocking to those products with high popularity. We define popularity = number of appearances on orders. For the computation of popularity, the Crossdocking Product Ranking and Selection Tool do not take into account the quantity sold. The omission of quantity in the calculation of popularity is because quantity factor has already been taken into consideration in the total cubic movement category. Total Cubic Movement: refers to the total volume of a product that is moved through the facility. As space is a constraint in a facility, assigning a product with a high cubic movement through a crossdock would definitely save inventory cost. The product no longer needs to take up storage space in the facility for a longer period of time, allowing the space to be utilized for other products. So crossdocking should be conducted for those items with higher cube movement, so that less storage space is needed. Product volume * demand = total cubic movement Demand Variation: refers to the demand patterns of a product. A product with a constant demand is more suitable for crossdocking since this will make the crossdocking operations efficient. It is more suitable to keep an inventory for a product with erratic demand and fulfill the related orders with stock.

Coefficient of variation = standard deviation / (mean) A low coefficient of variation means low demand variation Product Value & Life Cycle: the inventory risk and cost for products with higher values and short life cycle (e.g. MP3 players) and product shelf life (such as flesh milk). Products nearing the end of product lifecycle will be higher than those products with lower value and long product life cycle. In this study, product life refers to the lower number of product life cycle and product shelf life (by weeks). Since products with short life become obsolete faster, it is necessary to push these products to the sales floor as fast as possible. Distribution of these types of products through a crossdock is appropriate. Priority = value per unit / product life

B. Product Crossdocking Ranking Calculation To generate scores for the products, attributes of each product must be used to calculate the values for the four factors. Equations for the computation of values for each factor are as follows: popularity = number of appearances on orders product volume * demand = total cubic movement coefficient of variation = standard deviation / (mean) priority = value per unit / product life cycle After calculating the values for the four factors, as the range of values differ in every score category, there is a need to normalize the values to an identical scale. The Min-Max Normalization method is used to normalize the values into the desired range of 0.0 to 1.0, which is the range use in our tool to represent and rank the scores. Min-Max Normalization Formula for the original data is defined as:
(current value min_value _ ) (new_ max new_ min)+ new_ min (max_ value min_value )

Here min_value, max_value is the initial range. By normalization, the four types of product data are in a more comparative format. Besides normalizing the scores to an identical scale, users might need to place an importance on certain score categories. Therefore the system will require the user to input weights for each score category for each product such that the total value of the weights sum up to 1.0. Using the normalized values and user specified weights for each product, the final score of a products suitability for crossdocking is calculated by adding the values for the four factors together. The higher the score is for a product, the more suitable it is for crossdocking. The final computation of the scores is shown below: Final score = Weight A * Popularity Score + Weight B * Cubic Movement Score + Weight C * Variation Score + Weight D * PLC Score Where Weight A + Weight B + Weight C + Weight D = 1.0

C. Make Use of the Ranking Information Once the products suitability ranking for crossdocking obtained, it is important to make use of the ranking information. First, the ranking data could be used for strategic level decision to decide what products should go for crossdocking or warehousing. The product volume could be calculated based on historical demand and/or demand forecast for a particular time period. In strategic level, a facility capacity plan should be generated to decide on how much crossdocking and warehousing capacity would be maintained for a period. Secondly, the product ranking for crossdocking suitability could be used in the calculation of unit product cost for crossdocking and warehousing. A high ranking for crossdocking means the products relative cost for crossdocking would be lower than that of warehousing. The unit cost information could be used in allocating products to crossdocking and warehousing operations optimally in a distribution center. The table below shows an example of unit costs (for crossdocking and warehousing) of products passing through a facility. Thirdly, the ranking for products suitability for crossdocking is very useful for allocating products to crossdocking and warehousing in operational level. During a time period, the available capacity for crossdocking and warehousing in a facility is limited. The products processing in the facility should be optimized (minimum processing cost) by the proper allocation of products to crossdocking and warehousing. So the ranking data could be used on a crossdocking/warehousing product allocation planning that yields the minimum total processing cost [15]. As shown in Fig 2, Rxd refer to products suitability ranking for crossdocking and Rwh refer to the relative suitability ranking for warehousing (Rwh=1-Rxd). Rxd/Rwh is the relative index for the products suitability for crossdocking. Products with Rxd/Rwh >1 are prefer for crossdocking.

Fig 2: UNIT PRODUCT OPERATION COSTS

V.

MODULE DEVELOPMENT

A crossdocking product ranking tool has been developed to compute the ranking of products suitability for crossdocking/warehousing. With the described factors above taken into consideration, the system will need the following input data from the user:

Product details: dimensions (volume), weight, value and product life cycle. Product delivery orders that passes through the facility. The order information is used for the computation of demand variance and popularity. Product handling and holding cost by crossdocking and warehousing of the facility. The can also be calculated based on the properties of the product. The desired output from the Scoring and Ranking Module is a list of products ranked according to their suitability for crossdocking. Then we do analysis on the output data and attempt to explain the results in detail. The output of the module is the ranked product list with their suitability for crossdocking. Figure 3 shows the flow of the generation of product ranking. Firstly, all product details and demand history are read into 2 separate arrays. The system will scan through the details array and demand array to compute the scores. Once the product ID is matched from both arrays, the particular record will be inserted into the SelectedList array and the total quantity and popularity values will increase. The mean of the product will then be calculated and used to compute the variance and standard deviation while scanning through the SelectedList array . Volume and product life cycle value will also be computed.

service. Retailer X is interested in looking at the possibility of implementing a crossdock facility for its own operations as well. Its current distribution system consists of a warehouse (700m2) and a network of trucks to transport their goods to and from their many stores around the island. We assume that Retailer Xs warehouse has the geographical and physical requirements of a crossdock, and that the transportation and information system of the company meets the basic needs for crossdocking operations.
Table 1: Product Attribute Data
PRODUCT NAME Bread Detergent Rice Fresh Milk Television Digital Camera Nike Shoes Apple Ipod T-Shirts DVD Player Facial Cotton Foamy Facial Wash Prickly Heat Powder Laurier Super Nabisco Biscuits Coffee Maker Coke Drink FHM Magazines Campbell Soup VALUE (/SKU) 100 120 50 35 500 350 200 200 600 300 180 144 192 96 100 120 24 120 72 DIMENSION 70x70x100 70x100x70 100x100x20 80x70x40 100x100x70 50x50x30 50x50x50 80x50x30 60x80x75 30x60x80 67x54x25 40x40x50 60x50x40 80x60x50 70x50x75 80x100x80 40x60x40 60x40x60 90x60x20 WEIGHT (kg) 50 40 5 5 15 1 0.1 1 25 2 10 10 10 15 30 30 24 5 20 LIFE CYCLE (weeks) 4 100 100 2 20 12 10 5 12 12 100 30 100 6 4 3 6 1 6

Figure 3: Crossdocking product ranking module development VI. CAST STUDY AND TESTING

With the above modeling and solution approach, we have carried out testing with a case study. The description of the scenario is as follows: Retailer X has a chain of stores selling a variety of products. These products include household items, electronic goods, grocery products, toiletries, foodstuff, fresh meat and poultry, pharmaceuticals and clothing. Retailer Xs business has grown over the past few years, starting from a small store to a chain of stores all over the island. Competition however has also become more intense, and Retailer X realizes the need to improve on its operations to lower cost and increase bottom line profits. Retailer X relies greatly on its distribution operation for its business. A good and efficient distribution system would greatly improve Retailer Xs profits and improve customer

The company supplied a subset of their inventory product data (for SKU) (shown in Table 1), together with a weeks collection of inventory movement data through its warehouse facility. Processing costs per SKU are also given by the company. Average weightages (0.25 each) are given to the four factors of popularity, cubic movement, demand variation, and value/PLC. Retailer X hopes that through the Crossdocking Product Ranking & Selection Tool, they can identify which products are most suitable for crossdocking and obtain a possible optimal distribution plan that will yield the lowest holding and handling cost for the subset of products. Calculation results are obtained by the ranking tool as shown in Table 2. Observations made from the case study are as follows: Generally daily foodstuff has a higher cubic movement and popularity, with low demand variance as they are consumed all the time, which explains the higher rankings. Some of the ranking results are predictable,

e.g. Rice and Bread which are consumed daily tops the list with majority of the non-food stuff on the bottom half of the list.
Table 2: Product Ranking Results

procedure and model for the evaluation of ranking of products suitability for crossdocking in a distribution center or crossdocking center. A prototype system based on the approach discussed in the paper had been developed and is introduced in this paper. With the approach proposed, a case study is conducted for a subset of data from a retailing company. The case study demonstrates that the approach is feasible. The result provides a guideline for the company to allocate products to crossdocking operations and determine the capacity of the facility. Observations from the case study and discussion on the further usage of the approach is provided. The approach and tool described in this paper provide industry with guideline and model to support crossdocking/warehousing decisionmaking and to evaluate the applicability of crossdocking operations for their particular business situation. Based on the ranking and other factors, we have carried out further work in developing optimal system to take into account the goal of finding the minimum cost of distributing the products to crossdocking and warehousing operations. Further work will also be carried out to incorporate the ranking of the suitability for crossdocking as considerations for strategic level capacity allocation and planning in crossdocking network. REFERENCES
[1] [2] [3] [4] [5] [6] [7] [8] [9] [10] [11] [12] [13] [14] T. Babics, Crossdocking in the Sales Supply Chain: Integration of Information and Communication Relationships, Periodica Polytechnica Ser. Transp. Eng. Vol. 33, No. 12, pp. 6976 (2005); October, 2004. T. Brockmann, 21 Warehousing Trends in the 21st century, IIE Solutions, July 1999; http://solution.iienet.org. P. Chen, Y. Guo, A. Lim, and B. Rodrigues, Multiple Crossdocks with Inventory and Time Windows, Computers and Operations Research, 2006. B. Shaffer, Implementing the Crossdocking Operation. IIE Solutions 2000;30(5):203. J.J. Bartholdi and K.R. Gue, The Best Shape for a Crossdock. INFORMS National Conference, San Antonio, TX, 2000. J.J. Bartholdi, K.R. Gue and K. Kang, Staging Freight in a Crossdock. Proceedings of the International Conference on Industrial Engineering and Production Management, Quebec City, Canada, 2001. J.J. Bartholdi and K.R. Gue, Reducing Labor Costs in an LTL Crossdocking Terminal. Operations Research 2002;48(6): 82332. H. Donaldson, E.L. Johnson, H.D. Ratliff and M. Zhang, Network Design for Schedule-Driven Cross-Docking Systems, Georgia Tech TLI Report, 1998. H.D. Ratliff, J.V. Vate and M. Zhang, Network Design for Load-Driven Cross-docking Systems, TLI Webpage, http://www.isye.gatech. edu/research/files/misc9914.pdf., 2001. P. Chen, Y. Guo, A. Lim and B. Rodrigues, Multiple Crossdocks with Inventory and Time Windows Computers and Operations Research Volume 33(1) (2006) pp. 43 63. W. Yu, Egbelu P.J., Scheduling of inbound and outbound trucks in crossdocking systems with temporary storage, Europe Journal of Operations Research, pp.377-396, 2007. F. Chen, and C.Y. Lee, Minimizing the makespan in a two-machine cross-docking flow shop problem, European Journal of Operational Research, October 2007. D. Simchi-Levi, P. Kaminsky,and E. Simchi-Levi, Designing and managing the supply chain. 2nd ed., NewYork: McGraw-Hill, 2003. Logistics today, 10 Best Supply Chains, December 2003, www.logisticstoday.com. B. Ma, Z.P. Li, M.Y.H. Low and Y.G. Lim, Development of Crossdocking Product Ranking and Selection Tool, Technical Report, SIMTech, 2007.

Food stuff such as bread and rice are in high popularity. Also their demand variations are low and cubic movements are high. So they ranked high in suitability for crossdocking. For electronic products, there is a split between the rankings, with half on the top and half at the bottom. This is mainly due to the popularity and total cubic movement of the different electronics products. Magazine is another exception, although scoring low, magazines product life cycle priority is very high. This is because a magazine has short shelf life, after which it will be obsolete. This explains why it is ranked higher than some of the other products. Toiletries are also split throughout the ranking list. Although all of them are daily used items, their rankings differ because of their total cubic movement and popularity. As mentioned in previous section, popularity only takes into account the number of orders made and not the quantity ordered. VII. CONCLUSION

[15]

This paper investigates the approach for ranking products suitability for crossdocking and presents a systematic

You might also like