Cross Docking challenges in regional growth environment

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2007, April 24th, Metropol Hotel Moscow
Conference : ECR-RUS 3rd Annual
Conference, organized by ECR

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Cross Docking challenges in regional growth environment

  1. 1. 1
  2. 2. 2
  3. 3. 1/ Geographical Challenge New scales of retail / From Points … 3
  4. 4. 1/ Geographical Challenge New scales of retail / From Points to Chains Net increase of the Networks size through : • Regional Expansion • Merger & Acquisitions • Alliances & Franchise 4
  5. 5. 2/ Increasing competition pressure 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 5
  6. 6. 3/ New business shapes : Multiformat Strategies Windows of opportunity Analysis (Based on GRDI ranking for 1995 – 2006) 6
  7. 7. 4/ Formation of own image and identity: Larger and stricter assortments Enlargement of the product ranges in The consumer gets mature modern retail formats : •  Requires a sophisticated product offer •  consumers begin to spend more on non-food •  Compares the offer of stores items •  Explosion of the quantity of SKU’s to manage => Category Management, Promos ⇒  Hypermarkets, … For Logistics : - high volumes to treat - Every product is important (OOS) 7
  8. 8. Impacts onto logitics 8
  9. 9. 1. Capacity issues •  Necessary permanent increase of the logistics capacity 9
  10. 10. 2. New scales of retail / From Logistics Points … to Chains Apparition of network problematics 10
  11. 11. 3. Multiformats chain greatly impact requirements to supply chain (+) Inventory (-) (-) (+) Frequency of replenishment Hypermarket Maxi Express Convenience Store •  4 own-managed •  2 own-managed •  5 own-managed •  4 own-managed stores, 1 franchise stores stores stores •  Trading area: •  Trading area: •  Trading area: •  Trading area: 4,500-11,700 sqm 2,500-3,600sqm 1,000-1,800 sqm 80-400 sqm •  Up to 50,000 SKUs •  Up to 25,000 SKUs •  Up to 12,000 SKUs •  Up to 2,500 SKUs •  50% non-food •  40% non-food •  20% non-food •  10% non-food •  Moscow (4 stores) •  Krasnodar •  Chelyabinsk (4) •  Moscow (4 stores) •  Tyumen •  StPeterburg •  Krasnodar 11
  12. 12. What is cross docking ? Flow-through distribution Consolidation X docking Warehousing without inventory “JIT in the distribution arena“ - Napolitano (2000) 12
  13. 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. 13
  14. 14. 14
  15. 15. Cross Docking principles Supplier Store Supplier Store Supplier Store Supplier Store Supplier Store Supplier Store Supplier Store Supplier Store Supplier Cross- Cross- Store Cross Docking and consolidation Docking Docking center Terminal Terminal Supplier Store • greatly decreases the quantity of transactions between Supplier Store suppliers and stores • Allows to ship far small Supplier Store quantities Cross- Cross- Supplier Docking Docking Store Terminal Terminal Supplier Store 15
  16. 16. Cross Docking principles Pure Cross Docking Consolidation Cross Docking 16
  17. 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 Cross- Docking Terminal Store Store Store 17
  18. 18. Typical applications Consolidation arrangements, where a variety of smaller shipments are combined into one larger shipment for economy of transport Cross- Docking Terminal Store 18
  19. 19. Typical applications Deconsolidation arrangements, where large shipments (e.g. railcar lots) are broken down into smaller lots for ease of delivery. Store Store Store Cross- Store Docking Terminal Store Store Store Store 19
  20. 20. Typical applications 20
  21. 21. What is at stake ? 21
  22. 22. The ECR analysis : cost breakdown in retailer / supplier relationship model The adversarial mode ECR approach Result: Price= 100 Price= 100 Grow the cake Price= 96 Retailer Interface costs: 17 Interface costs : 13 Manufacturer Turnover Turnover Turnover Source: ECR France / BCG, 1998 22
  23. 23. Necessary Implementation Steps 23
  24. 24. Product selection 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 If demand is uncertain, industrial supplies are all taken directly to crossdocking is difficult the stores, rather than being run through because matching supply and the crossdock, because any savings in demand is diffcult. transportation costs would be oset by excessive handling costs. Perishable products that require immediate shipment Easy Highly to handle items that do not require extensive predictable Product quality checks during receipt Product (high cubic (low variance) volume) Product moving from one retail store to another High volume Compatible products !!! products (popularity) 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. 24
  25. 25. Supplier selection. Suppliers that have DCs Infrastructure Suppliers that configure Suppliers that consistently products for efficient handling provides the correct quantity of the correct High Service X Value Added through the next point in the supply chain, consistently product at the precise time Level Services comply with customer mandates it will be needed. for labeling, ticketing, packaging, and product quality Information Sharing Suppliers that effectively and efficiently share Unique supplier of information with their unique product !!! customers. (Private Label) 25
  26. 26. Planning and Designing the Operation because most cross-docking activity is concentrated at receiving and loading docks, Dock-area •  adequate number of dock doors (1 / 500m2) layout and capacity •  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, Yard Management •  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. Material Handling •  Using double pallet jacks to transport pallets can double throughput. Equipment •  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. Personnel •  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. 26
  27. 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. 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 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. 27
  28. 28. Implementation and Maintenance start with a pilot program 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. Be prepared for contingencies This may include keeping a small inventory of cross-docked product in your facility. Standard operating procedures 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). Continuous Improvement 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. 28
  29. 29. Cross Docking effects 29
  30. 30. Reduction of the Bullwhip Effect Consumer Sales at Retailer Retailer's Orders to Wholesaler 1000 1000 900 900 Consumer demand 800 800 Retailer Order 700 700 600 600 500 500 400 400 300 300 200 200 100 100 0 23 0 25 27 29 31 33 35 37 39 41 13 15 17 19 21 1 3 5 7 9 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 1 3 5 7 9 11 11 Wholesaler's Orders to Manufacturer Manufacturer's Orders with Supplier 1000 1000 Manufacturer Order 900 Wholesaler Order 900 800 800 700 700 600 600 500 500 400 400 300 300 200 200 100 100 0 0 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 1 3 5 7 9 11 16 19 22 25 28 31 34 37 40 10 13 1 4 7 30
  31. 31. When cross docking replaces warehousing, a number of benefits follow OPEX CAPEX •  reductions in storage-space requirements, Handling cost / simplify receiving at the retail •  less equipment required for handling and storing the outlets. products. •  By consolidating deliveries for one destination, the drop size for this destination can be greatly enhanced, CASH FLOW •  The cost of unloading and handling is therefore •  reductions in inventory investment reduced. •  reductions in order-cycle times as well as faster inventory turnover and accelerated cash flow. Outbound transport costs decrease •  sale space is increased in stores => more sales •  Consolidation of several delivery destinations bound to the same geographical area that may be served by the same delivery tour results in a CUSTOMER SERVICE higher stop density. •  High reactivity - Might improve based on the ability •  Due to consolidation additional drop points can to avoid some stockouts. be scheduled, therefore the distances between •  No constraints concerning expiry dates the stops are reduced. •  Less excess inventory generates reduced product •  High transport frequency (small lead times) damages and product obsolescence. •  All stated benefits should allow to increase, margins, Crossdocking consolidate shipments to achieve dcreases prices, increase competitiveness and sales inbound truckload quantities. •  a retailer can consolidate orders from a very big quantity of retail outlets to each and have the BUSINESS PROCESS uppliers ship full truckload quantities to a •  Less transactioins between suppliers and crossdock, rather than sending LTL shipments retailers directly to the outlets. •  more visible inventories •  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 31
  32. 32. General Figures McCain Foods USA Inc Cross-docking enables Wal-Mart to achieve the “We saved 20% to 30% in total warehouse costs by not economies that come with purchasing full truckloads sending product into storage. And that’s with just one of goods while avoiding the usual inventory and percent of our total SKUs (stock-keeping units) being handling costs. cross docked,” –  Wal-Mart runs a full 85% of its goods through its warehouse system -- as Director of Warehousing Timothy Egan opposed to only 50% for Kmart. How to be a lean, mean cross-docking machine –  Goods are crossed from one loading dock By Maida Napolitano to another in 48 hours or less This 2007 enables them to be in the store and ready to be sold For Carrefour : This reduces Wal-Mart's costs of sales by 2% to •  Average 20% of reduction of DC inventory level 3% compared with the industry average. (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 32
  33. 33. Cross Docking Challenges in Russian Environment 33
  34. 34. Challenges to consider 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 34
  35. 35. Designing Cross Dock areas ????? 35
  36. 36. Challenges to consider 1. Responsibility 6. Work load balance among gates •  Divided between the parties, therefore further clarification is needed 2. High control culture •  Control vs efficiency •  Is an obstacle to Cross Docking, SSCC, etc. Control Efficiency 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 estimated 12% reduction in labor costs due to travel weight and exact case weight (Fruits and and waiting. vegetables for instance) 36
  37. 37. Challenges to consider MON TUE WED THU FRI SAT SUN ? After 1500 – 2000 km Train is more cost effective 37
  38. 38. Challenges to consider Take into account the (poor) logistics infrastructure Capgemini Logistics Map of Russia 2007 38
  39. 39. Mosmart and Cross Docking 39
  40. 40. MOSMART in 2007 40
  41. 41. MOSMART’s Operations Operations : 2007-2008 projects considered : •  In house operations •  Opening of deconsolidation areas in regions •  Hub in Moscow •  Partial outsourcing •  Consolidation + Merge in transit •  Cross Docking for Fresh Products •  Started in 2006 •  Cross Docking on Rolls for convenience stores (Reverse logistics as a foreseen Enabling technologies : challenge) •  Radio Frequency Technologies •  EDI Key learnings : •  Electronic Order Consolidation System used •  Staff forecast is critical big sensitivity to (Cross Docking Module of “Meti” store fluctuations management system) •  Important learning curve and productivity gains Figures : •  Real possibility for Mosmart to guarantee its •  Delivery consolidation : 60 orders in 1 truck assortment matrix in the regions (Private •  20%+ of regional volumes cross docked labels for instance) •  1,5 days of stock only in average •  Real wins on minimal orders •  200+ suppliers cross docked •  CD much more economic than traditional DC •  Stores opening destabilize flows Geography : •  More than 4 regional destinations today •  At least 1 new regional destination per month •  Moscow destinations (Convenience Stores) 41
  42. 42. Conclusion 42
  43. 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 43
  44. 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. 44
  45. 45. Perspectives & Trends 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 Initiative to come from 3PLs increasing the capacity of transportation of each -  Cross Docking services as a perspective range of truck : towards an approval to 44T trucks, service demanded for example by trade-unions to the -  Specialised warehouses european commission –  Multi-Retailers’ warehouses ? –  Multi-Suppliers’ warehouses (Pooling) •  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 Initiative to come from suppliers and forlklifts : enabling 90% of higher density / retailers volume of deliveries. -  More visibility : -  VMI : helped to transfer order-management costs •  RFID on producers, and generated 30% stock reductions while keeping an availibility of stock of •  New Softwares Generations, on the edge of ERP 99,5%(B.Viallon CPV Associés). and WMS : opportunistic (unplanned) Cross-Docking -  CPFR algorithms : -  POS data sharing –  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. 45
  46. 46. Cross Docking is a Formula One in logistics Where every victory … … is the fruit of a well orchestrated team work 46
  47. 47. Questions ? 47
  48. 48. Thank You for attention! Feel free to contact s_rivet@mosmart.ru 48
  49. 49. 49
  50. 50. References 50
  51. 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) 51
  52. 52. General References Bartholdi, J. J., Gue, K. R., and Kang, K. Crossdocking: Just-In-Time for (2001). Throughput Models for Unit-Load Distribution Kevin R. Gue Crossdocking. In review. Graduate School of Business & Public Policy Schaer, B. (1997). Implementing a Naval Postgraduate School Crossdocking Operation. IIE Solutions, Monterey, CA 93943 kevin.gue@nps.navy.mil pages 34-36. 2001 Stalk, G., Evans, P., and Shulman, L. E. CROSS-DOCKING IN THE SALES (1992). Competing on Capabilities: The SUPPLY CHAIN: INTEGRATION OF INFORMATION AND COMMUNICATION New Rules of Corporate Strategy. (I+C) RELATIONSHIPS Harvard Business Review, pages 57-69. Tamás BABICS Department of Transport Technology "A Lean Approach to Cross Docking," Faculty of Transportation Engineering Budapest University of Technology and Robert L. Cook, Brain Gibson, and Economics Douglas MacCurdy babics@radiant.tvnet.hu 2004 52
  53. 53. Specific references for Cross Docking Layouts Reducing Labor Costs in an LTL Cross-docking Terminal Powell, W. B., Jaillet, P., and Odoni, A. (1995). John J. Bartholdi, III - School of Industrial & Systems Stochastic and Dynamic Networks and Routing. Engineering - Georgia Institute of Technology - In Ball, M., Magnanti, T., Monma, C., and Atlanta, GA 30332 - Kevin R. Gue - Department Nemhauser, of Systems Management - Naval Postgraduate School - Monterey, CA 93943 - February 25, G., editors, Handbooks in Operations Research 1999 and Management Science, Volume 8: Network Routing, chapter 3, pages 141{295. Elsevier Bihr, R. A. (1990). A Conceptual Solution to the Aircraft Science. Gate Assignment Problem Using 0,1 Linear Programming. Computers & Industrial Engineering, 19:280{284. Powell, W. B. and She, Y. (1989). Design and Implementation of an Interactive Optimization Gue, K. R. (1995). Freight Terminal Layout and System for Network Design in the Motor Carrier Operations. PhD thesis, Georgia Institute of Technology. Industry. Operations Research, 37(1):12{29. Gue, K. R. (1998). The Eects of Trailer Scheduling on the Layout of Freight Terminals. Transportation Science. Roy, J. and Delorme, L. (1989). NETPLAN: A forthcoming. Network Optimization Model for Tactical Planning in the Less-Than-Truckload Motor-Carrier Mangoubi, R. S. and Mathaisel, D. F. X. (1985). Optimizing Industry. INFOR Journal, 27(1):22{35. Gate Assignments at Airport Terminals. Transportation Science, 19(2):173{188. Su, Y. Y. and Srihari, K. (1993). A knowledge Mathaisel, D. F. X. (1996). Decision support for airline based aircraft-gate assignment advisor. system operations control and irregular operations. Computers & Industrial Engineering, 25:123{126. Computers & Operations Research, 23:1083{1098. Tsui, L. Y. and Chang, C.-H. (1990). A Peck, K. E. (1983). Operational Analysis of Freight Microcomputer Based Decision Support Tool for Terminals Handling Less Than Container Load Assigning Dock Doors in Freight Yards. Shipments. PhD thesis, University of Illinois at Urbana Champaign. 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. 53
  54. 54. References Main references materials will be available on Eastern _ Europe _ Logistics _ Community Yahoo!Group 54

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