cross docking challenges in regional growth environment

3

1/ Geographical Challenge New scales of retail / From Points …

4

Net increase of the Networks size through : • Regional Expansion • Merger & Acquisitions • Alliances & Franchise

1/ Geographical Challenge New scales of retail / From Points to Chains

5

The competitive pressure forces retailers to –  Be more competitive –  Perform better service –  Deliver right products at the right place & at the right time –  Work on their own differentiation

2/ Increasing competition pressure

6 Windows of opportunity Analysis (Based on GRDI ranking for 1995 – 2006)

3/ New business shapes : Multiformat Strategies

7

Enlargement of the product ranges in modern retail formats :

•  consumers begin to spend more on non-food items

•  Explosion of the quantity of SKU’s to manage

⇒  Hypermarkets, …

The consumer gets mature

•  Requires a sophisticated product offer •  Compares the offer of stores

=> Category Management, Promos

For Logistics : - high volumes to treat - Every product is important (OOS)

4/ Formation of own image and identity: Larger and stricter assortments

8

Impacts onto logitics

9

1. Capacity issues

•  Necessary permanent increase of the logistics capacity

10

2. New scales of retail / From Logistics Points … to Chains

Apparition of network problematics

11

•  4 own-managed stores, 1 franchise

•  Trading area: 4,500-11,700 sqm

•  Up to 50,000 SKUs

•  50% non-food

3. Multiformats chain greatly impact requirements to supply chain

Hypermarket Maxi Express

•  2 own-managed stores

•  Trading area: 2,500-3,600sqm


•  40% non-food


•  Trading area: 80-400 sqm


•  10% non-food


•  Trading area: 1,000-1,800 sqm


•  20% non-food

•  Moscow (4 stores) •  Tyumen

•  Krasnodar •  StPeterburg

•  Chelyabinsk (4) •  Krasnodar

•  Moscow (4 stores)

Convenience Store

(+) (-) Inventory

(-) (+) Frequency of replenishment

12

What is cross docking ?

Flow-through distribution

Consolidation

X docking

Warehousing without inventory

“JIT in the distribution arena“ - Napolitano (2000)

13

What is cross docking ?

Cross-docking is a practice in logistics of unloading materials from an incoming transport unit and loading these materials in outbound transport unit, with little or no storage in between.

This may be done : •  to change type of conveyance, •  or to sort material intended for different destinations, •  or to combine material from different origins.

In purest form this is done directly, with minimal or no warehousing.

15

Supplier

Supplier

Supplier

Supplier

Supplier

Supplier

Supplier

Store

Store

Store

Store

Store

Store

Store

Cross Docking principles

Supplier

Supplier

Supplier

Store

Store

Store

Cross- Docking Terminal


Supplier

Supplier

Supplier

Supplier

Store

Store

Store

Store



Cross Docking and consolidation center

• greatly decreases the quantity of transactions between suppliers and stores • Allows to ship far small quantities

16

Consolidation Cross Docking

Сборка

Pure Cross Docking

Cross Docking principles

17

Typical applications

"Hub and spoke" arrangements, where materials are brought in to one central location and then sorted for delivery to a variety of destinations


Store

Store

Store

Store

Store

Store

18

Consolidation arrangements, where a variety of smaller shipments are combined into one larger shipment for economy of transport

Cross- Docking Terminal Store


19

Deconsolidation arrangements, where large shipments (e.g. railcar lots) are broken down into smaller lots for ease of delivery.


Store

Store

Store

Store

Store

Store

Store

Store


20


21

What is at stake ?

22

The ECR analysis : cost breakdown in retailer / supplier relationship model

The adversarial mode

Manufacturer

Retailer

Turnover

Price= 100 ECR approach

Turnover

Price= 100

Interface costs: 17

Source: ECR France / BCG, 1998

Result: Grow the cake

Turnover

Price= 96

Interface costs : 13

23

Necessary Implementation Steps

24

Highly predictable

Product (low variance)

Easy to handle Product

(high cubic volume)

High volume products

(popularity)

Perishable products that require immediate shipment

items that do not require extensive quality checks during receipt

Product moving from one retail store to another

Compatible products !!!

Product selection

If demand is uncertain, crossdocking is difficult

because matching supply and demand is diffcult.

demand for the product must be suffcient to warrant frequent shipments. If demand is too low,

frequent shipments lead to excessive inbound transportation costs, and the warehouse would be

better holding stock rather than crossdocking.

For example, Home Depot chooses which products go through its crossdocks after

carefully analyzing current inbound transportation costs and ease of handling.

Items such as lumber and awkward industrial supplies are all taken directly to the stores, rather than being run through

the crossdock, because any savings in transportation costs would be oset by

excessive handling costs.

25

Infrastructure

Supplier selection.

High Service Level

Value Added

Services

Information Sharing

X

Suppliers that have DCs

Suppliers that effectively and efficiently share

information with their customers.

Suppliers that configure products for efficient handling through the next point in the supply chain, consistently comply with customer mandates for labeling, ticketing, packaging, and product quality

Suppliers that consistently provides the correct

quantity of the correct product at the precise time

it will be needed.

Unique supplier of unique product !!! (Private Label)

26

Planning and Designing the Operation

because most cross-docking activity is concentrated at receiving and loading docks, •  adequate number of dock doors (1 / 500m2) •  Where possible, eliminate racks to create more dock space. •  Make sure product can flow quickly and freely through the DC. •  Visible floor layouts, processes and systems. •  Well laid out visible floor areas to enable management by sight. •  Clear floor policy at end of shift periods.

to comply with the rigid schedules needed for cross docking, •  you may need a yard tractor and trained driver to move trailers around the yard. •  A yard manager must also be on hand to ensure that trucks are spotted at the right doors at the right

times, resolve equipment issues, and coordinate incoming and outgoing trucks so that delays can be avoided.

Because it’s important to move large volumes of product in a short time. •  Using double pallet jacks to transport pallets can double throughput. •  Conveyors that are installed on the floor of truck trailers and connect to inbound and outbound pallet

conveyors within your facility can significantly speed up pallet transfer •  Where appropriate, powered extendibles can aid in loading and unloading cartons as well.

When it’s time to choose managers for a new cross-docking operation, remember that forward thinking is a critical success factor. •  Cross docking cannot fully achieve its objectives without a good core of receiving/shipping

supervisors and logistical planners who can identify product that needs to be cross docked and redirect personnel to make it happen. Supervisors must be able to recognize opportunities for pre-receiving or pre-allocating receipts before the actual product arrives.

•  Training at both the supplier and DC locations will be necessary. For the supplier, training on the specific requirements (as noted in policies/procedures) of a customer must be developed.

•  For the DC, training on how to handle cross-dock product versus standard receipt-to-storage product will be necessary.

Dock-area layout and capacity

Yard Management

Material Handling Equipment

Personnel

27

Planning and Designing the Operation

Quality communication –  Clear inbound information flows of what is due to arrive. –  Clear outbound information flows of what, where and when goods need to be shipped. –  Clear product labelling and routing information on all pallet consignments.

Enabling communication technologies –  EDI –  Serial Shipping Container Code (SSCC)

-  The benefits of the SSCC are: »  Logistics Units are identified with a worldwide unique number »  Provides a link with bar coded information on a logistics unit and the

information that is communicated between trading partners via electronic business transactions.

»  All numeric structure leads to faster data processing

real-time IS are preferred to paper-based systems –  RF (RFID??) –  it’s important to not only capture data in real time but to also utilize it right away.

-  fill discrepancies in real time.

One strategy that retailers use is to have centralized buyers determine what gets shipped to stores, instead of the stores themselves; that is, it is strictly a push distribution system and there is no need to carry safety stock. The buyers have effectively taken all variance out of the demand (from the retail outlets, not from the customer). Retailers like Wal-Mart and Ross Stores use this technique.

Cross Docking relies on continuous communication between Wal Mart’s suppliers, distribution centers, and every point of sale system in each store. For this purpose, Wal Mart operates their own satellite network that sends the point of sale (POS) data directly to 4,000 vendors.

Centralize your organization

28

Implementation and Maintenance

That will allow you to study the effects of cross docking on a small scale and resolve any weaknesses before rolling it out to an entire product line or network of facilities.

This may include keeping a small inventory of cross-docked product in your facility.

Standard operating procedures should also be in place so orders are not delayed and product can still be cross docked even when fewer units than expected are received (perhaps due to miscounts or damage).

Once your cross-docking operation is up and running smoothly, don’t sit back and assume that your job is done. Supply and demand conditions change constantly, so periodically monitor cross-docked products to determine their sustainability in your program.

start with a pilot program

Be prepared for contingencies

Continuous Improvement

Standard operating procedures

29

Cross Docking effects

30

Reduction of the Bullwhip Effect Consumer Sales at Retailer

0 100 200 300 400 500 600 700 800 900 1000 1 3 5 7 9 11

13

15

17

19

21

23

25

27

29

31

33

35

37

39

41

Con

sum

er d

eman

d Retailer's Orders to Wholesaler

0 100 200 300 400 500 600 700 800 900 1000

1 3 5 7 9 11

13

15

17

19

21

23

25

27

29

31

33

35

37

39

41

Ret

aile

r O

rder

Wholesaler's Orders to Manufacturer

0 100 200 300 400 500 600 700 800 900 1000

1 3 5 7 9 11

13

15

17

19

21

23

25

27

29

31

33

35

37

39

41

Who

lesa

ler

Ord

er

Manufacturer's Orders with Supplier

0 100 200 300 400 500 600 700 800 900 1000

1 4 7 10

13

16

19

22

25

28

31

34

37

40

Man

ufac

ture

r O

rder

31

When cross docking replaces warehousing, a number of benefits follow

OPEX

Handling cost / simplify receiving at the retail outlets. •  By consolidating deliveries for one destination,

the drop size for this destination can be greatly enhanced,

•  The cost of unloading and handling is therefore reduced.

Outbound transport costs decrease •  Consolidation of several delivery destinations

bound to the same geographical area that may be served by the same delivery tour results in a higher stop density.

•  Due to consolidation additional drop points can be scheduled, therefore the distances between the stops are reduced.

•  High transport frequency (small lead times)

Crossdocking consolidate shipments to achieve inbound truckload quantities. •  a retailer can consolidate orders from a very big

quantity of retail outlets to each and have the uppliers ship full truckload quantities to a crossdock, rather than sending LTL shipments directly to the outlets.

•  Reduction of queues and delays

Warehousing costs dramatically decreases storage and order picking are typically the most costly functions of warehousing, beside receiving and shipping

CAPEX •  reductions in storage-space requirements, •  less equipment required for handling and storing the

products.

CASH FLOW •  reductions in inventory investment •  reductions in order-cycle times as well as faster

inventory turnover and accelerated cash flow. •  sale space is increased in stores => more sales

CUSTOMER SERVICE •  High reactivity - Might improve based on the ability

to avoid some stockouts. •  No constraints concerning expiry dates •  Less excess inventory generates reduced product

damages and product obsolescence. •  All stated benefits should allow to increase, margins,

dcreases prices, increase competitiveness and sales

BUSINESS PROCESS •  Less transactioins between suppliers and

retailers •  more visible inventories

32

General Figures

Cross-docking enables Wal-Mart to achieve the economies that come with purchasing full truckloads of goods while avoiding the usual inventory and handling costs.

–  Wal-Mart runs a full 85% of its goods through its warehouse system -- as opposed to only 50% for Kmart.

–  Goods are crossed from one loading dock to another in 48 hours or less This enables them to be in the store and ready to be sold

This reduces Wal-Mart's costs of sales by 2% to 3% compared with the industry average.

McCain Foods USA Inc “We saved 20% to 30% in total warehouse costs by not sending product into storage. And that’s with just one percent of our total SKUs (stock-keeping units) being cross docked,” Director of Warehousing Timothy Egan

How to be a lean, mean cross-docking machine By Maida Napolitano 2007

For Carrefour : •  Average 20% of reduction of DC inventory level

(France) •  50% decrease of out-of-stocks (Poland) •  100% detention rate (Colombia)

Carrefour CIES Conference Geneva 12 October 2006 Pooling / Consolidation - One year after Xavier HUA

33

Cross Docking Challenges in Russian Environment

34

Defining Cross Docking areas, consider the following :

–  A. Lead Times and Security Stocks should not become so high that »  Time to market is lost »  Security Stocks become to high

Otherwise Cross Docking becomes Pointless

–  B. Sub Regions should be defined -  1 Cross Docking area for all Russia seems difficult

-  C. Cross Docking should not be the security net of the buying departments

-  “If we can’t source locally – we’ll cross dock” is not always the best algorithm

-  “If we can’t produce locally – we’ll cross dock” is not always the best algorithm

-  D. With important regional development, cross docking centers may -  move on the map (to east, to south) -  Become more numerous

Challenges to consider

35

Designing Cross Dock areas

?????

36


1. Responsibility •  Divided between the parties, therefore further

clarification is needed

2. High control culture •  Control vs efficiency •  Is an obstacle to Cross Docking, SSCC, etc.

3. Far small stores can not receive too “Consolidated” volumes •  For instance 20t truck to convenience store !

4. Bulk and weighted products •  Make a decision between average case

weight and exact case weight (Fruits and vegetables for instance)

6. Work load balance among gates

estimated 12% reduction in labor costs due to travel and waiting.

Control Efficiency

37

MON TUE WED THU FRI SAT SUN

?

After 1500 – 2000 km Train is more cost effective


38

Capgemini Logistics Map of Russia 2007

Take into account the (poor) logistics infrastructure


39

Mosmart and Cross Docking

40

MOSMART in 2007

41

MOSMART’s Operations

Operations : •  In house operations •  Hub in Moscow •  Consolidation + Merge in transit •  Started in 2006

Enabling technologies : •  Radio Frequency Technologies •  EDI •  Electronic Order Consolidation System used

(Cross Docking Module of “Meti” store management system)

Figures : •  Delivery consolidation : 60 orders in 1 truck •  20%+ of regional volumes cross docked •  1,5 days of stock only in average •  200+ suppliers cross docked

Geography : •  More than 4 regional destinations today •  At least 1 new regional destination per month •  Moscow destinations (Convenience Stores)

2007-2008 projects considered : •  Opening of deconsolidation areas in regions •  Partial outsourcing •  Cross Docking for Fresh Products •  Cross Docking on Rolls for convenience

stores (Reverse logistics as a foreseen challenge)

Key learnings : •  Staff forecast is critical big sensitivity to

fluctuations •  Important learning curve and productivity

gains •  Real possibility for Mosmart to guarantee its

assortment matrix in the regions (Private labels for instance)

•  Real wins on minimal orders •  CD much more economic than traditional DC •  Stores opening destabilize flows

42

Conclusion

43

Cross Docking is one of the answers to the new retail challenges in Russia

•  Moving growing ranges of volumes, –  quickly, –  across a large country (continent),

•  Gaining in competitiveness

•  Gaining in customer service level

•  Decreasing the inventory pressure all along the Supply Chain

44

Golden Rules / Changes in traditional philosophy

COLLABORATING extensive coordination between the distributor and its suppliers and customers •  Implementing a cross-docking operation often means that channel partners may

experience at least a few headaches along the way.

RELYING increased requirement for quality in receiving. •  there is no time to inspect quality on the receiving dock. Ideally, this would

eliminate counting as well, although this level of confidence is rare.

COMMUNICATING Increased communications between channel partners •  important challenge of the extended supply chains on the side of I+C is that

information flow must be assured through passing company limits.

RECONSIDERING costs along the supply chain •  channel partners may experience increased costs •  But the savings associated with crossdocking must always overcome these extra

costs for the system to be viable.

45

Perspectives & Trends

Initiative to come from 3PLs -  Cross Docking services as a perspective range of

service -  Specialised warehouses

–  Multi-Retailers’ warehouses ? –  Multi-Suppliers’ warehouses (Pooling)

Initiative to come from suppliers and retailers

-  More visibility : -  VMI : helped to transfer order-management costs

on producers, and generated 30% stock reductions while keeping an availibility of stock of 99,5%(B.Viallon CPV Associés).

-  CPFR -  POS data sharing

Initiative coming for the logistics community (3PLs, supliers, retailers)

•  Increase of the length of trailers –  Problematics : Too many trucks on roads –  Proposal : Reduce the number of trucks by

increasing the capacity of transportation of each truck : towards an approval to 44T trucks, demanded for example by trade-unions to the european commission

•  More Productivity : Equip delivery points of double fork forklifts –  Problematics : Today, only single pallets

deliveries can be done to hypermarkets and/or retailers’ warehouses.

–  Proposal : Equip delivery points of double forks forlklifts : enabling 90% of higher density / volume of deliveries.

•  RFID

•  New Softwares Generations, on the edge of ERP and WMS : opportunistic (unplanned) Cross-Docking algorithms : –  Detecting opportunities for cross docking in a

dynamic environment, the system generates a cross-docking decision during the process of transfer order creation ( after the arrival of the incoming stock or release of the outgoing document).

–  Cross-docking streamlines warehouse processes and eliminates unnecessary material handling.

46

Cross Docking is a Formula One in logistics

Where every victory …

… is the fruit of a well orchestrated team work

47

Questions ?

48

Thank You for attention!

Feel free to contact [email protected]

50

References

51

Key References

ECR Blue Book •  The transport optimization report •  March 2000 - ECR Europe

ECR Europe Transport challenges and proposals •  FM Logistic Presentation •  on ECR Europe sustainable transport workshop •  Prague - 9 March 2007

Making the Move to Cross Docking. •  Napolitano, M. (2000) •  Warehousing Education and Research Council.

(WERC)

52

General References

Bartholdi, J. J., Gue, K. R., and Kang, K. (2001). Throughput Models for Unit-Load Crossdocking. In review.

Schaer, B. (1997). Implementing a Crossdocking Operation. IIE Solutions, pages 34-36.

Stalk, G., Evans, P., and Shulman, L. E. (1992). Competing on Capabilities: The New Rules of Corporate Strategy. Harvard Business Review, pages 57-69.

"A Lean Approach to Cross Docking," Robert L. Cook, Brain Gibson, and Douglas MacCurdy

Crossdocking: Just-In-Time for Distribution Kevin R. Gue Graduate School of Business & Public

Policy Naval Postgraduate School Monterey, CA 93943 [email protected] 2001

CROSS-DOCKING IN THE SALES SUPPLY CHAIN: INTEGRATION OF INFORMATION AND COMMUNICATION (I+C) RELATIONSHIPS Tamás BABICS Department of Transport Technology Faculty of Transportation Engineering Budapest University of Technology and

Economics [email protected] 2004

53

Specific references for Cross Docking Layouts

Reducing Labor Costs in an LTL Cross-docking Terminal John J. Bartholdi, III - School of Industrial & Systems

Engineering - Georgia Institute of Technology - Atlanta, GA 30332 - Kevin R. Gue - Department of Systems Management - Naval Postgraduate School - Monterey, CA 93943 - February 25, 1999

Bihr, R. A. (1990). A Conceptual Solution to the Aircraft Gate Assignment Problem Using 0,1 Linear Programming. Computers & Industrial Engineering, 19:280{284.

Gue, K. R. (1995). Freight Terminal Layout and Operations. PhD thesis, Georgia Institute of Technology.

Gue, K. R. (1998). The Eects of Trailer Scheduling on the Layout of Freight Terminals. Transportation Science. forthcoming.

Mangoubi, R. S. and Mathaisel, D. F. X. (1985). Optimizing Gate Assignments at Airport Terminals. Transportation Science, 19(2):173{188.

Mathaisel, D. F. X. (1996). Decision support for airline system operations control and irregular operations. Computers & Operations Research, 23:1083{1098.

Peck, K. E. (1983). Operational Analysis of Freight Terminals Handling Less Than Container Load Shipments. PhD thesis, University of Illinois at Urbana Champaign.

Powell, W. B., Jaillet, P., and Odoni, A. (1995). Stochastic and Dynamic Networks and Routing. In Ball, M., Magnanti, T., Monma, C., and Nemhauser,

G., editors, Handbooks in Operations Research and Management Science, Volume 8: Network Routing, chapter 3, pages 141{295. Elsevier Science.

Powell, W. B. and She, Y. (1989). Design and Implementation of an Interactive Optimization System for Network Design in the Motor Carrier Industry. Operations Research, 37(1):12{29.

Roy, J. and Delorme, L. (1989). NETPLAN: A Network Optimization Model for Tactical Planning in the Less-Than-Truckload Motor-Carrier Industry. INFOR Journal, 27(1):22{35.

Su, Y. Y. and Srihari, K. (1993). A knowledge based aircraft-gate assignment advisor. Computers & Industrial Engineering, 25:123{126.

Tsui, L. Y. and Chang, C.-H. (1990). A Microcomputer Based Decision Support Tool for Assigning Dock Doors in Freight Yards. Computers in Industrial Engineering, 19:309{312.

Tsui, L. Y. and Chang, C.-H. (1992). Optimal Solution to a Dock Door Assignment Problem. Computers & Industrial Engineering, 23:283{286.

54

References

Main references materials will be available on Eastern _ Europe _ Logistics _ Community Yahoo!Group