Delivery Lot Splitting as an Enabler for Cross-docking and Fast Delivery

Abstract

In business sectors like the pharmaceutical industry fast customer order deliveries can be crucial both for the businesses’ and the customers’ viability. To accomplish this, finished products need to be stocked close to the customers at the expense of higher inventory holding and obsolescence costs in the distribution centres. Cross-docking of full orders as an approach for increasing the inventory efficiency is not feasible where delivery distances for replenishment of the distribution centres are long.An approach that could enable cross-docking despite rigid delivery lead time constraints is the “partial shipment strategy”. This delivery strategy splits large order volumes into smaller delivery lot sizes that are shipped to the customers at different points in time. This is based on the knowledge that many customers do not consume the entire ordered quantity at once. Several numerical studies have shown that the optimal delivery lot size can reduce inventory levels and increase the general supply chain efficiency. However, they fail to capture the details associated within complex distribution systems. Therefore, in this paper an agent-based distribution system model is developed in order to simulate the partial shipment strategy. A real industry case is used to investigate implications of implementing such a strategy in a warehouse environment. The developed model allows users to analyse the impact of split deliveries on the operations and inventory levels within distribution centres as well as the viability of cross-docking in a warehouse environment without compromising customer lead time.