The Good, The Bad, and The Ugly: An Empirical Analysis of Cross Docking

Abstract

Using a large-scale, product-level dataset collected from one of the largest Chinese supermarket chains, we develop econometric models to evaluate operations performance of cross docking (CD). We find that CD is, but not always, beneficial in improving operations performance. CD improves operations performance by increasing order fill rate and reducing inventory at both the distribution center and stores, but harm operations performance by increasing order leadtime. Furthermore, there exists learning spillover that the products managed by traditional warehousing (TW) but alongside with CD practice have better operations performance, in terms of lower order leadtime and inventory levels, than the products managed by TW alone. By doing CD, stores directly increase their CD products’ order fill rate by 679.31%, reduce their inventory by 74.58%, and increase their order leadtime by 142.59%; and, indirectly reduce their TW products’ inventory by 68.77% and their order leadtime by 20.56% through learning spillover. Our results are not only statistical significant but also economically significant. We estimate that a store can save inventory cost by as much as $28.40 per day or $10,366 annually for a CD product and by as much as $20.87 per day or $7,618 annually for a TW product alongside CD practice.