Unraveling cross docking: Operations performance, demand variation, and fulfillment mechanism

Cross docking (CD) is a supply chain strategy that moves products from the inbound dock directly to the outbound dock with little or no storage at a warehouse. Using product-level data collected from one of the largest supermarket chains in China which consists of 71 supermarket stores and a single warehouse and a cross-docking station located in the DC, we develop econometric models to evaluate the operations performance, the effect of demand variation, and the fulfillment mechanism of cross docking (CD). We find that the benefits of CD are more nuanced than we thought. At the stores, on average, CD does not affect on-hand inventory but increases days of stockouts compared to traditional warehousing (TW). The effects differ in products' demand characteristics. CD products with lower demand or higher demand variation have lower on-hand inventories than TW products, and CD products with higher demand or higher demand variation have lower days of stockouts than TW products. We do not find the heterogenous effect of the supply-side factor on CD's performance. At the distribution center (DC) and system, CD reduces the inventories by as much as 93.68% and 25.86% on average, respectively, suggesting 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. Our findings, supported by our interviews with store and DC managers, suggest that increased fulfillment uncertainty resulting from imperfect order consolidation and synchronization in CD may be the sources of performance degradation.