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Impact of cross-docking on the bullwhip effect

Article in Journal of Modelling in Management · September 2022

DOI: 10.1108/JM2-03-2022-0088

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Yassine Benrqya Imad Jabbouri

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Impact of
Impact of cross-docking on the cross-docking
bullwhip effect
Yassine Benrqya and Imad Jabbouri
School of Business Administration (SBA),
Al Akhawayn University, Ifrane, Morocco
Received 21 March 2022
Revised 29 June 2022
Abstract Accepted 24 August 2022

Purpose – An important phenomenon often observed in supply chain, known as the bullwhip effect, implies
that demand variability increases as we move up in the supply chain. On the other hand, the cross-docking is
a distribution strategy that eliminates the inventory holding function of the retailer distribution center, where
this latter functions as a transfer point rather than a storage point. The purpose of this paper is to analyze the
impact of cross-docking strategy compared to traditional warehousing on the bullwhip effect.
Design/methodology/approach – The authors quantify this effect in a three-echelon supply chain
consisting of stores, retailer and supplier. They assume that each participant adopts an order up to level
policy with an exponential smoothing forecasting scheme. This paper demonstrates mathematically the
lower bound of the bullwhip effect reduction in the cross-docking strategy compared to traditional
warehousing.
Findings – By simulation, this paper demonstrates that cross-docking reduces the bullwhip effect upstream
the chain. This reduction depends on the lead-times, the review periods and the smoothing factor.
Research limitations/implications – A mathematical demonstration cannot be highly generalizable,
and this paper should be extended to an empirical investigation where real data can be incorporated in the
model. However, the findings of this paper form a foundation for further understanding of the cross-docking
strategy and its impact on the bullwhip effect.
Originality/value – This paper fills a gap by proposing a mathematical demonstration and a simulation,
to investigate the benefits of implementing cross-docking strategy on the bullwhip effect. This impact has not
been studied in the literature.
Keywords Cross-docking, Traditional warehousing, Bullwhip effect, Inventory management,
Exponential smoothing, Order up to level
Paper type Research paper

1. Introduction
Suppliers and distributors are nowadays facing several key logistics challenges (Ekinci and
Baykasog
lu, 2019; Benrqya and Jabbouri, 2021). The main challenge for retailers is to reduce
cost to low prices, expand their network of stores and retain customers’ loyalty (Alikhani
et al., 2021). One of the solutions for the retailers to reduce cost is to adopt cross-docking
strategy. Cross-docking is a distribution strategy that eliminates inventory at the retailer’s
warehouse, which operates as a distribution center that consolidates products coming from
multiple suppliers to different stores without storage between reception and delivery of the
products (Torbali and Alpan, 2022; Goodarzi et al., 2022).
The cross-docking strategy has both negative and positive impact on supply chain
performance (Torbali and Alpan, 2022; Goodarzi et al., 2022). The cross-docking strategy
compared to the traditional warehousing reduces inventory costs, improves time to market
and lowers handling costs. The cross-docking strategy also accelerates cash flow in the Journal of Modelling in
Management
supply chain (Braz et al., 2018; Benrqya, 2019). On the other hand, cross-docking impacts the © Emerald Publishing Limited
1746-5664
supplier’s transportation because of ordering of small batches from the retailers. DOI 10.1108/JM2-03-2022-0088
JM2 Cross-docking also impacts the service level because of the increased lead-time to the stores
(Benrqya, 2019).
A benefit of cross-docking distribution strategy, which is not often considered in the
literature, is the reduction of the bullwhip effect (Nagano, 2020). Cross-docking is
reducing the bullwhip effect, as it brings a direct connection between the stores and the
supplier distribution center (DC) (Nagano, 2020). The inventory normally held at the
retailer DC adds variability in the supply chain because of forecasting, ordering and
safety stock. As a matter of fact, cross-docking removes several elements which normally
drives the bullwhip effect.
The two major benefits of cross-docking which can reduce the bullwhip effect are: first,
the removal of intermediate echelons in the supply chain which has a positive impact on the
bullwhip reduction. In fact, removing an echelon in the supply chain will reduce
the variability of orders in the echelons upstream of this removed echelon. And second,
the cross-docking will force both the retailer and the supplier to order and deliver only the
needed quantities, which reduces the effect of batches and then reduces the bullwhip effect.
A significant amount of literature has developed in recent years analyzing and
comparing the performance of cross-docking and traditional warehousing strategies
(Gebennini et al., 2013; Benrqya et al., 2014). However, only a few articles have been devoted
to discussing the impact of cross-docking on the bullwhip effect (Eftekhar et al., 2008;
Kadivar and Shirazi, 2018). In fact, Eftekhar et al. and Kadivar and Shirazi are among the
few authors that have analyzed the impact of a cross-docking strategy on the bullwhip
effect. Eftekhar et al. (2008) used the Lyapunov exponent to estimate the difference between
the bullwhip effect in traditional warehousing compared to cross-docking. The study was
conducted in a multistage supply chain where store demand is autoregressive and supply
chain actors use a moving average forecasting technique. The authors of this paper
demonstrate the presence of bullwhip effect reduction in a supply chain with a cross-
docking distribution strategy. Kadivar and Shirazi (2018) studied the bullwhip effect in three
different supply chains: (a) with a central warehouse, (b) with a cross-docking system and (c)
without any distribution system. The authors used a three-stage model with a demand
process following an autoregressive moving average mixed model, and all stages use the
base stock policy for stock replenishment. In this study, the authors showed that the cross-
docking strategy reduces the bullwhip effect and that the selection of the most effective
strategy is based on the lead-time, the market share of each retailer, the autoregressive
coefficient and the parameter of moving average.
It should be noted that the works cited above present some limitations. Regarding supply
chain structure, Eftekhar et al. (2008) and Kadivar and Shirazi (2018) have compared the
cross-docking and traditional warehousing based only on one single retailer/store supply
chain. In addition, the two papers have focused on the impact of the lead-time, forecasting
model and demand process to analyze the reduction in the bullwhip effect. Point of sales
(POS) data has not been used. Finally, none of the papers cited above used an empirical
investigation based on a real case study to analyze the effect of cross-docking on the
bullwhip effect reduction in a retail supply chain context.
We attempt to bridge this gap in the literature through a case study done in collaboration
with a “Fast-Moving Consumer Goods company” and a major French retailer, both located
in France. Based on the literature cited above, cross-docking reduces the bullwhip effect. Our
main objective in this paper is to demonstrate empirically the hypothesis of the existence of
a reduction in a bullwhip effect in the cross-docking distribution strategy. In addition, we
attempt to assess in which situation (lead-time, demand variability and review period) the
reduction is more or less important.
 This paper proposes the following research question: Impact of
RQ1. What is the impact of cross-docking on the bullwhip effect reduction?
cross-docking
Inspired by Chen et al. (2000b) model structure, we investigate a sequential three echelon
supply chain. The actors in the supply chain are the stores, a retailer DC and a supplier DC.
Moreover, we assume that each participant adopts the order-up-to (OUT) policy with
exponential smoothing forecasting scheme. POSs data is used to simulate the shopper
demand. Moreover, we use a spreadsheet environment for simulation.
Our paper is organized as follows. In Section 2, we present a literature review where we first
describe the two distribution strategies (cross-docking and traditional warehousing), their
characteristics and performances. Second, we define also the bullwhip effect, and finally, we
present the forecasting and inventory models used to measure the bullwhip effect in traditional
warehousing and in the cross-docking strategy. In Section 3, we present the literature review on
the bullwhip effect and the relation with cross-docking. In Section 4, the forecasting and
inventory control used in the paper are introduced. In Section 4, we present an empirical
investigation based on a case study, and we present and analyze the results. In Section 5, we
present a discussion and managerial insights of our study. We conclude in Section 6.

2. Literature review
2.1 Distribution strategies
To deliver the customers, there exist numerous distribution strategies; each one corresponds to a
specific supply chain goal in terms of responsiveness, flexibility, effectiveness, etc. Based on these
goals, different distribution strategies may be used to move products from the manufacturer to
the customer. The major strategies used are direct deliveries from the manufacturer or supplier
DC, traditional warehousing and cross-docking (Van Belle et al., 2012; Ehrenthal and Stölzle, 2013;
Benrqya, 2019; Chen, 2019; Benrqya et al., 2020). In our study, we are interested to compare the
traditional warehousing to the cross-docking strategy in terms of the bullwhip effect.
Traditional warehousing is a widely used distribution strategy in the retail supply chain
(Benrqya, 2021). In this strategy, the retailer DC operates as an inventory storage point
(Torbali and Alpan, 2022). Suppliers and retailers keep stock at their DCs. Products are first
received and stored at the retailer DC, and when a store orders a product, the retailer DC
workers pick it from the DC racks and ship it to the store (Zhang, 2016). In this strategy, the
stores generally face a short lead-time because of their geographic proximity to the retailer
DC (Van Belle et al., 2012; Benrqya et al., 2014). With a short lead-time, the stores’ inventory
costs are low. On the one hand, inventory costs for retailers and suppliers using this strategy
are high (Van Belle et al., 2012; Benrqya et al., 2014).
Cross-docking is a distribution strategy in which the retailer DC operates as a transfer
point to harmonize the continuous physical flow through a supply chain with the least
storage. In comparison with traditional warehousing, in the cross-docking strategy, the
retailer DC functions as an inventory coordination point where the products coming from
different suppliers are consolidated and send to the store, rather than an inventory storage
point, where the product are stocked in the warehouse waiting for the stores’ orders
(Benrqya, 2019; Torbali and Alpan, 2022; Goodarzi et al., 2022).

2.2 Bullwhip effect description

The bullwhip effect is known as the tendency of orders to increase in variability as one
moves up a supply chain (Ma et al., 2013; Dominguez et al., 2015; Jin et al., 2015; Benrqya and
Jabbouri, 2021). This occurs when the variance of orders placed is distorted along the supply
JM2 chain. The bullwhip effect is a topic widely studied in the past years. Forrester (1961) was
the first who demonstrated the existence of the bullwhip effect and discussed its causes and
the possible solutions to avoid or soften this phenomenon.
Several researchers present the drivers and the causes of the bullwhip effect and
numerate more or less the same main causes, that can be summarized in five major causes:
separate demand forecasting, lead-time, batch ordering, price fluctuation and supply chain
structure (Forrester, 1961; Nielsen et al., 2017; Wiedenmann and Größler, 2019; Dolgui et al.,
2020).
For the separate demand forecasting, let suppose that a store got a surge of demand in a
short period. This surge will be considered as a signal of high future demand and the store
will order more quantity. This quantity includes both of the forecasted demand and the
additional safety stock. The same reasoning is considered for the upstream facility but with
the shop demand and not with the shopper demand. Thus, the safety stock increases in the
whole supply chain for just a peak of demand. The variability of demand is also amplified as
the difference between the facilities’ orders and the shopper demand increases more and
more when passing upstream (the symmetric reasoning is considered for a decrease of
demand) (Chatfield and Pritchard, 2013; Wiedenmann and Größler, 2019; Dolgui et al., 2020).
Lee et al. (1997) demonstrated in their paper that an important lead-time (including the
information processing time) tends to distort the variability and increases the safety
stock. This is mainly because the downstream facilities order for next periods assuming
that the demand will continue to increase (or decrease) and will order an important
additional quantity that includes the supposed demand increases during the lead-time.
And the supplier would see only an instant huge increase of demand that will lead to an
important distortion of the variability. In addition, several papers study the effect of
stochastic lead-time on a simple or multiple stage supply chain and concluded that lead-
time variance is in fact a major cause of bullwhip effect (Nielsen et al., 2017; Engelenburg
et al., 2018).
The batch ordering is also a main cause of the bullwhip effect. When a retailer orders in
batches, it creates a large order followed by several periods of no orders. This way of
ordering does not reflect the real shopper demand and increases the variability of the
demand seen by the supplier and magnifies the bullwhip effect (Lee et al., 1997; Jin et al.,
2015; Osadchiy et al., 2021).
The supply chain structure has an impact on either amplifying the demand variance or
mitigating it (Dominguez et al., 2015). The structural design of the supply chain network is
defined by the number of echelons and the number of nodes; its divergence has an impact on
the bullwhip effect (Dominguez et al., 2015).
Finally, when prices become low, the retailers often build up stocks. And this creates a
fictive demand trend variation, as the orders will be stored and sold after. Once the stock is
built up and the prices rose, the retailer will lower the orders and create a pit. These practices
create a false high demand variation (Lu et al., 2017). The same impact is caused by the
promotions.
The bullwhip effect has a number of negative consequences on the supply chain. The
main consequences are (Lee et al., 1997; Chan et al., 2002; Hussain et al., 2012):

Loss of track of real demand patterns: this is mainly because of the amplification of
the demand variation (unreal variation).

Increased safety stock: as each node of the supply chain bases its forecast on the
demand of the other actor and not on the shopper demand, each one needs to build
up its own safety stock to prevent itself from out of stock (OOS).

Reduced service level: this is because of the high variation distortion caused by the Impact of
bullwhip effect and also the inefficient methods used to try to cope with the increase cross-docking
of the safety stocks.

Inefficient allocation of resources: as the demand is amplified, the plant and the DCs
may produce or store products, which they do not need, instead of needed products.

Increased transportation costs: to cope with extra unreal demand, facilities may
produce sub-optimal transportation costs in emergency.

Missed productions schedules: when reacting to some peak of demand, the plant may
change their schedules to have enough capacities. However, a part of the need can
be postponed.

2.3 Bullwhip effect models

Many papers have mathematically investigated the existence of the bullwhip effect and
quantified the increase in demand variability. The papers mathematically quantifying the
bullwhip effect are highly relevant to our work. The literature review of these papers is an
important issue in our research. We present an overview of the papers in this sub-section.
The supply chain models differ in six aspects: demand process, inventory policy, forecasting
method, number of echelons, information sharing and bullwhip measure.
2.3.1 Traditional warehousing. Chen et al. (2000a) analyzed the bullwhip effect by the
variance ratio (variance of orders over the variance of demand) for a two-echelon supply
chains consisting of a single retailer and a single manufacturer using statistical method. In
their model, they assume that the demand seen by the retailer is autocorrelated AR1 process.
They assume also that the retailer adopts an OUT inventory policy and moving average
forecasting scheme. In addition, they extend these results to multiple-stage supply chains
with and without centralized customer demand information and demonstrate that the
bullwhip effect can be reduced, by centralizing demand information.
Chen et al. (2000b) quantify the bullwhip effect by the variance ratio in a two-echelon,
supply chains consisting of a single retailer and a single manufacturer. In their model, they
consider two types of demand processes, a correlated demand process and a demand
process with a linear trend. They assume also that the retailer adopts an OUT inventory
policy and exponential smoothing forecasting scheme.
Xu et al. (2001) consider a two-echelon supply chain model in which the consumer
demand process is an AR1, and each echelon uses an OUT policy and exponential
smoothing forecasting method. In this paper, the authors quantify the variance ratio in the
collaboration supply chain with information sharing versus a supply chain without
information sharing.
Alwan et al. (2003) study the bullwhip effect by the variance ratio in a two-stage supply
chain with an OUT inventory policy a AR1 demand process and three different forecasting
schemes [mean square error, moving average and exponential smoothing]. In this paper, the
authors study the impact of the forecasting method on the bullwhip effect in a supply chain
with decentralized information sharing.
Cho and Lee (2013) studied supply chain dynamics using a seasonal autoregressive-
integrated moving average process of customer demand and lead-times at each stage;
the generalized ordering policy at each stage is used to control the tradeoffs between
the variation in inventory and the variation in differencing orders.
Costantino et al. (2015) evaluate a signal processing forecasting system to counteract the
bullwhip effect while keeping a competitive inventory performance. The performance of the
JM2 signal processing forecasting is evaluated and compared with moving average and
exponential smoothing in a four-echelon supply chain uses the OUT inventory policy,
through a simulation study.
Dolgui et al. (2020) conducted a simulation-based study to investigate the
interrelationships between the training effect and the bullwhip effect. The authors used a
production and contingent supply control policy that provides results in favor of
information coordination in managing SC disturbances to mitigate both spillover and
spillover effects of whip. The results demonstrated that the training effect influences the
bullwhip effect through the accumulation of delays during the period of disturbance because
of uncoordinated control and production planning policies.
Pastore et al. (2020) studied a two-echelon single-product supply chain with final demand
distributed according to a known AR(1) process but with unknown parameters. The results
show that the bullwhip effect is affected by unknown parameters and is influenced by the
frequency at which the parameter estimates are updated. For unknown parameters, the
strength of the bullwhip effect is also influenced by the number of demand observations
available to estimate the parameters.
Table 1 reports an overview of relevant supply chain contributions published on
the bullwhip effect. The table includes the main assumptions of these studies, such as the
demand model, ordering policy, forecasting technique, number of echelons and the
distribution strategy studied.
2.3.2 Cross-docking. The benefit of cross-docking which is the reduction of the bullwhip
effect was not often considered in the literature. Eftekhar et al. (2008) and Kadivar and
Shirazi (2018) appear to be among the few papers studying the impact of cross-docking on
the bullwhip effect.
Eftekhar et al. (2008) used Lyaponov exponent, which is a quantity that characterizes the
rate of separation of two trajectories, to estimate the difference between the bullwhip effect
in traditional warehousing versus cross-docking. The study is done in a multistage supply
chain where the store demand is autoregressive, and the actors of the supply chain use a
moving average forecasting technique. The authors in this paper demonstrate the existence
of a reduction in bullwhip effect with a supply chain with cross-docking distribution
strategy. Here, the authors start from the initial assumption that cross-docking distribution
strategy suggests that demand information is shared with each stage of the supply chain
(supply chain with centralized information), and in the traditional warehousing, the
information is not shared with all participants in the supply chain (supply chain with
decentralized information) and compare the bullwhip effect in the two cases. This
assumption not always reflects the reality. In fact, moving to the cross-docking strategy not
necessarily implies the sharing of information in all stages. If the supply chain with
traditional warehousing is decentralized, then it will remain the same when moving to cross-
docking. The information sharing is not dependent on the distribution strategy used.
Kadivar and Shirazi (2018) investigate the measure of the bullwhip effect in three
different supply chains; (I) with a central warehouse, (II) with a cross-docking system and
(III) without any distribution systems. The authors used a three-echelon model with a
demand process following a mixed autoregressive-moving average model and all the stages
use the base stock policy for inventory replenishment. In addition, the supply chains studied
assumed to have two members in the retailer stage. In this study, the authors show that the
selection of the most effective strategy is based on the lead-time, market share of each
retailer, autoregressive coefficient and moving average parameter.
Despite the richness of studies tackling the bullwhip effect in supply chain, no study has
particularly analyzed the impact of cross-docking and traditional warehousing on the
 Performance
Authors Demand model Ordering policy Forecasting method metrics No. of echelons Distribution strategy

Chen et al. (2000a) Autoregressive Order-up-to Moving average Order variance Two echelons Traditional
(AR1) policy ratio Multi-echelon warehousing
Chen et al. (2000b) Autoregressive Order-up-to Exponential smoothing Order variance Two echelons Traditional
(AR1) policy ratio Multi-echelon warehousing
Xu et al. (2001) Autoregressive Order-up-to Exponential smoothing Order variance Two echelons Traditional
(AR1) policy ratio Multi-echelon warehousing
Alwan et al. (2003) Autoregressive Order-up-to Mean square error Order variance Two echelons Traditional
(AR1) policy Exponential smoothing ratio Multi-echelon warehousing
Moving average
Dejonckheere et al. (2003) i.i.d Order-up-to Minimum mean square Order variance Two echelons Traditional
policy error ratio Multi-echelon warehousing
Exponential smoothing
Moving average
Zhang (2004) Autoregressive Order-up-to Minimum mean square Order variance Two echelons Traditional
(AR1) policy error ratio Multi-echelon warehousing
Exponential smoothing
Moving average
Kim et al. (2006) i.i.d Order-up-to Moving average Order variance Five echelons Traditional
policy ratio warehousing
Kelepouris et al. (2008) POS data Order-up-to Exponential smoothing Order rate variance Traditional Two Traditional
policy Ratio fill rate echelons warehousing
Cho and Lee (2013) AR (1) model Order-up-to MMSE Order variance Multistage Traditional
SARIMA policy ratio warehousing
Jonsson and Mattsson i.i.d Order-up-to Moving average Order variance Multistage Traditional
(2013) policy ratio warehousing
Costantino et al. (2015) AR (1) Order-up-to Signal processing Order variance Four-echelon Traditional
policy ratio warehousing
Pastore et al. (2020) AR (1) Order-up-to ARIMA Mean square error Two echelons Traditional
policy warehousing
cross-docking

Bullwhip effect
Overview of relevant
Table 1.
Impact of

literature
models used in the
JM2 bullwhip effect in a three-stage supply chain with multiple stores, one retailer DC and one
supplier DC using an OUT-level policy and an exponential smoothing forecasting scheme.
We introduced in the lower bound of the bullwhip effect a review interval T which is more
appropriate for the retail supply chain context. In addition to proving mathematically
the lower bound of the bullwhip effect in the two strategies and comparing them, we
empirically validate the lower bound found and compare the bullwhip effect of the two
distributions strategies.
It should be noted that the studies cited above present some limitations. Regarding
supply chain structure, Eftekhar et al. (2008) and Kadivar and Shirazi (2018) have compared
the cross-docking and traditional warehousing based only on one single retailer/store
supply chain. In addition, the two papers have focused on the impact of the lead-time,
forecasting model and demand process to analyze the reduction in the bullwhip effect. POSs
data has not been used. In addition, the impact of review period/ordering frequency has not
been analyzed. For instance, in some situations, to cope with the impact on deliveries in
small batches and improve transportation costs, retailers and suppliers may be tempted to
increase the review period. Finally, none of the papers cited above used an empirical
investigation based on a real case study to analyze the effect of cross-docking on the
bullwhip effect reduction in a retail supply chain context.
We attempt to bridge this gap in the literature through a case study done in collaboration
with a “Fast-Moving Consumer Goods company” and a major French retailer, both located
in France. Based on the literature cited above, cross-docking reduces the bullwhip effect. Our
main objective in this paper is to demonstrate empirically the hypothesis of the existence of
a reduction in a bullwhip effect in the cross-docking distribution strategy. In addition, we
attempt to assess in which situation (lead-time, demand variability and review period) the
reduction is more or less important.

3. The three-echelon inventory control model

In this part, we will describe the three-echelon inventory model composed of one store, on
retailer DC and one plant. The objective of this part is to describe and validate our model in a
sample case. Before we explain how we model the three-echelon inventory control model, let
us first introduce the assumptions used in the model.

3.1 Traditional warehousing strategy model

3.1.1 Stores’ ordering model. In this part, we will first provide a lower bound for the
bullwhip effect at the level of each individual store. In the second phase, we will extend our
demonstration to multiple stores case.
3.1.1.1 Single store. We consider a periodic review system in which each echelon reviews
its inventory level and replenishes its inventory from the upstream echelon every period. We
assume that the replenishment lead-time from the retailer DC to the store is Li. The observed
demand Dt can be modelled as:

Dt ¼ m þ rDt þ et

where m is a nonnegative constant, r is a correlation parameter with jrj < 1 and the error
terms et are independent and identically distributed (i.i.d.).
First, let us describe the store’s ordering process. At the beginning of time period Ti, after
demand Dt1,i has been realized, each store i observes the inventory level and places an
order of size Ot,i, to the retailer DC to replenish their inventory. The store will receive the
shipment of this order at the beginning of time period Li þ Ti.
 We assume that each store i follows a simple OUT inventory policy in which the OUT Impact of
point OUTt,1 is estimated from the observed demand as: cross-docking
pffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi
OUTt;i ¼ D ^ t;i ðLi þ Ti Þ þ z s
^ e;t;i Li þ Ti (1)

where D ^ t;i ðLi þ Ti Þ is an estimate of the mean demand over the protection interval (Li þ Ti),
pffiffiffiffiffiffiffiffiffiffiffiffiffiffi
ffi
s
^ e;t;i Li þ Ti is an estimate of the standard deviation of the (Li þ Ti) period forecast error
and z is a constant chosen to meet a desired service level. Note that z is also known as the
safety factor.
To quantify the bullwhip effect, we must determine the variance of Ot,i relative to the
variance of Dt,i, that is, the variance of the orders placed by the store to the retailer DC
relative to the variance of the demand faced by the store. Under OUT policy, the order Ot,i
placed by the store at the beginning of period t can be expressed as:
 
Ot;i ¼ Dt1;i þ OUTt;i  OUTt1;i (2)

The OUT must be calculated to protect the inventory during the protection interval (Li þ Ti).
Thus, using equations (1) and (2), we can write the order quantity as:
  pffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi
Ot;i ¼ Dt1;i þ D ^ t;i  D
^ t1;i ðL1 þ T1 Þ þ z ðs
^ e;t;i  s
^ e;t1;i Þ Li þ Ti (3)

To estimate the demand at time t, we use exponential smoothing scheme:

D ^ t1;i
^ t;i ¼ aDt1;i þ ð1  a ÞD (4)

where 0 < a < 1 is the smoothing constant.

The standard
pffiffiffiffiffiffiffiffiffiffiffiffiffiffi
ffi deviation of the (Li þ Ti) period forecast error can be expressed as
se;i Li þ Ti , where se,i is the standard deviation of the single period forecast error.
To estimate se,i, we use the mean absolute deviation denoted by:
 
Dt ¼ E jet;i  Eðet;i Þj

where et,i is the forecast error at period t expressed as:

^ t;i
et;i ¼ Dt;i  D

We assume that the forecast error et,i follows a normal distribution with variance equal to
s2e;i . Based on this assumption, Dt can be expressed as:
rffiffiffiffi
2
Dt;i ¼ s
p e;i

For more details about the proof of this estimation, please refer to Brown (1959, Chap.19,
p. 93).
At the beginning of period t, we can estimate se,i as:
rffiffiffiffiffi
pffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi p
s
^ e;t;i ¼ Li þ Ti ^ t;i
D
2
JM2 ^ t;i can be calculated using exponential smoothing:
Finally, D

^ t;i ¼ ajet1;i j þ ð1  a ÞD
D ^ t1;i

The OUT level can be expressed now as:

^ t;i ðLi þ Ti Þ þ z Ki D
OUTt;i ¼ D ^ t;i

where
rffiffiffiffiffi
pffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi p
Ki ¼ Li þ Ti
2

The order quantity in period t is expressed now as:

 
Ot;i ¼ Dt1;i þ OUTt;i  OUTt1;i

   
Ot;i ¼ Dt1;i þ D^ t;i  D
^ t1;i ðL1 þ T1 Þ þ z Ki D^ t;i  D
^ t1;i

 
Ot;i ¼ Dt1;i þ D ^ t1;i ðL1 þ T1 Þ þ z Ki
^ t;i ðL1 þ T1 Þ  D ^ t;i  D
D ^ t1;i (5)

Using equations (4) and (5), the order is expressed as:

^ t1;i  D
Ot;i ¼ Dt1;i þ aðL1 þ T1 ÞDt1;i þ ð1  a ÞðL1 þ T1 ÞD ^ t1;i ðL1 þ T1 Þ
 
þ z Ki D ^ t1;i
^ t;i  D

 
^ t1;i þ z Ki
Ot;i ¼ ð1 þ aðL1 þ T1 Þ ÞDt1;i  aðL1 þ T1 ÞD ^ t;i  D
D ^ t1;i (6)

Taking the variance of equation (6), we have:

   
^ t1;i þ z2 K2
Var Ot;i ¼ Var ð1 þ aðL1 þ T1 Þ ÞDt1;i  aðL1 þ T1 ÞD i
  
Var D^ t;i  D
^ t1;i þ Cov ð1 þ aðL1 þ T1 Þ ÞDt1; i  a

 
^ t1;i Þ; D
ðL1 þ T1 ÞD ^ t;i  D
^ t1;i

As demonstrated by Chen et al. (2000a):

   
^ t1;i ; D
Cov ð1 þ aðL1 þ T1 Þ ÞDt1;i  aðL1 þ T1 ÞD ^ t;i  D
^ t1;i ¼0

In addition:
  
^ t1;i ¼ ð1 þ aðL1 þ T1 Þ Þ2
Var ð1 þ aðL1 þ T1 Þ ÞDt1;i  aðL1 þ T1 ÞD Impact of
  cross-docking
  2 ^ t1;i
Var Dt1;i þ a 2 ðL1 þ T1 Þ Var D
 
^ t1;i
2að1 þ aðL1 þ T1 Þ ÞðL1 þ T1 ÞCov Dt1;i ; D (7)

As demonstrated by Chen et al. (2000a):

   
^ t1;i ¼ ar
Cov Dt1;i ; D Var Dt;i
1  br
and
     
^ t1;i ¼ a 2 arb
Var D Var Dt;i þ Var Dt;i
2a ð2  a Þð1  rb Þ
where b = 1 – r.
Equation (7) can be now expressed as:
 
^ t1;i
Var ð1 þ aðL1 þ T1 Þ ÞDt1;i  aðL1 þ T1 ÞD
2   2 a  
¼ ð1 þ aðL1 þ T1 Þ Þ Var Dt1;i þ a 2 ðL1 þ T1 Þ Var Dt;i ¼
  2  a
2  
¼ 1 þ a 2 ðL1 þ T1 Þ þ2aðL1 þ T1 Þ Var Dt;i

2 a  
þa 2 ðL1 þ T1 Þ Var Dt;i
2a

By putting it all together and rearranging terms, the variance of the orders placed by the
store to the retailer DC satisfies the following lower bound:
2
Var ðOi Þ 2a 2 ðLi þ Ti Þ 1 r
 1 þ 2aðLi þ Ti Þ þ
VarðDi Þ 2a 1  br

3.1.1.2 Multiple stores. In the lower bound presented above, we have not considered a
multistage system with multiple stores. In the following, we will extend our results to the
multiple stores case.
Assume that there are I stores. Store i observes customer demand in time t - 1, Dt-1,i uses
an exponential smoothing forecast scheme to forecast the mean demand D ^ t;i and standard
^
deviation D t;i over the protection period calculates the OUT point, OUTt,i , and places an
order Ot,i, to the retailer DC.
Given the orders placed by each store in period t, the retailer DC sees a total order:
X
I X
I X
I
Qt ¼ Ot;i ¼ Dt1; i þ ðL1 þ T1 Þ
^ t;i
D
i¼1 i¼1 i¼1
X
I I 
X 
ðL1 þ T1 Þ ^ t1;i þ z
D ^ t;i  Ki D
Ki D ^ t1;i
i¼1 i¼1
JM2 As demonstrated by Chen et al. (1999), if each store uses an exponential smoothing forecast
scheme and an OUT inventory policy, then the variance of the total order, Qt, placed by the
stores to the retailer DC satisfies:
X 
T
Var Q 2
t 2a 2 ðLi þ Ti Þ 1 r
Xt¼1   1 þ 2aðLi þ Ti Þ þ (8)
Var
I
D 2  a 1  br
i¼1 i

For a more detailed discussion of the multiple retailer case, please see Ryan (1997).
3.1.2 Retailer distribution center’s ordering model. In this part, we present the ordering
model of the retailer DC. The retailer DC handles his ordering process as follows. At the
beginning of time period t, the retailer receives and ships the required order quantity to
the stores Qt to the stores. The retailer DC will review its inventory and place an order Ot,j to
the supplier DC.
The order placed by the retailer DC at the end of beginning of t can be expressed as:
 
Ot;j ¼ Ot1;j þ OUTt;j  OUTt1;j

qffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi
^ t Lj þ Tj  þ z s
OUTt;j ¼ Q ^ e;t;j Lj þ Tj

where Q^ t;i Lj þ Tj  is an estimate of the mean demand (stores’ orders) over the protection
pffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi
interval (Lj þ Tj), s ^ e;t;j Lj þ Tj is an estimate of the standard deviation of the (Lj þ Tj)
period forecast error, and z is a constant chosen to meet a desired service level.
To estimate the retailer DC demand at time t, we use exponential smoothing scheme:

^t ¼
Q ^ t1
aQt1 þ ð1  a ÞQ

Using the same approach discussed in the previous part, the lower bound of the variance
ratio of the retailer DC in the multiple stores case can be expressed as:
  2
Var Oj 2a 2 ðLi þ Ti Þ
X   1 þ 2aðLi þ Ti Þ þ
Var
I
D 2a
i¼1 i
"  2 !#
  2a 2 Lj þ Tj 1 r 2
 1þ 2a L j þ Tj þ  (9)
2a 1  br

3.1.3 Supplier’s ordering model. In this part, we present the ordering model of the
supplier DC. The supplier DC handles his ordering process as follows. At the beginning
of time period t, the supplier receives and ships the required order quantity to the
retailer Qt,2 to the stores. The supplier DC will review its inventory and place an order
Ot,3 to the plant.
The order placed by the supplier at the beginning of period t can be expressed as:
 
Ot;k ¼ Ot1;k þ OUTt;k  OUTt1;k
 pffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi
^ t;j ðLk þ Tk Þ þ z s
OUTt;k ¼ O ^ e;t;k Lk þ Tk Impact of
cross-docking
where O ^ t;j ðLk þ Tk Þ is an estimate of the mean demand (Retailer DC’ orders) over the
pffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi
protection interval ðLk þ Tk Þ, s^ e;t;k Lk þ Tk is an estimate of the standard deviation of the
(Lk þ Tk) period forecast error, and z is a constant chosen to meet a desired service level.
To estimate the supplier DC demand at time t, we use exponential smoothing scheme:

^ t;j ¼ aOt1;j þ ð1  a ÞO
O ^ t1;j

Using the same approach discussed in the previous part, the lower bound of the variance
ratio of the supplier DC can be expressed as:
2
Var ðOk Þ 2a 2 ðLi þ Ti Þ
X   1 þ 2aðLi þ Ti Þ þ
Var
I
D 2a
i¼1 i
"  2 ! #
  2a 2 Lj þ Tj
 1 þ 2a Lj þ Tj þ
2a
2 2
2a 2 ðLk þ Tk Þ 1 r
 1 þ 2aðLk þ Tk Þ þ  (10)
2a 1  br

3.2 Cross-docking model

In the traditional warehousing strategy, the inventory kept at the retailer DC is decoupling
the store replenishment and retailer DC replenishment process. When moving to cross-
cocking, this decoupling point disappears. From a store point of view, the delivery lead-time
increases, as the products arrive from the supplier and no more from the retailer DC. With
cross-docking, the stores face a much longer lead-time, namely, (Li þ Lj). In addition, another
change between cross-docking and traditional warehousing, which is not directly linked to
moving to cross-docking but can happen in parallel, is the change in the review period Ti.
For instance, in most cases, the store review period does not need to be changed when using
cross-docking. However, it can be reduced (if possible) to balance the increase in the lead-
time.
3.2.1 Store’s ordering model. At the beginning of time period T’i, after demand Dt1,i has
been realized, each store i observes the inventory level and places an order of size O’t,i, to the
retailer DC to replenish its inventory. The store will receive the shipment of this order at the
beginning of time period Li þ Lj þ T’i.
Under OUT policy, the order placed by each store at the beginning of period t can be
expressed as:
qffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi
OUT0t;i ¼ D ^ t;i Li þ Lj þ Ti  þ z s
^ e;t;i Li þ Lj þ T 0i

 
O0t;i ¼ Dt1;i þ OUT0t;i  OUT0t1;i

To estimate the mean demand, we use exponential smoothing scheme:

JM2 ^ t;i ¼ aDt1;i þ ð1  a ÞD
D ^ t1;i

Using the same approach in the previous part, the variance of the total order Q’t, placed by
all the stores to the retailer DC in the cross-docking strategy, satisfies the following lower
bound:
X 
T  2 !
Var Q0t   2a 2 Li þ Lj þ T 0i 1 r
Xt¼1  1þ 0
2a Li þ Lj þ T i þ  (11)
Var
I
D 2a 1  br
i¼1 i

3.2.2 Retailer. The retailer function is used as a transfer point and no inventory control
model or forecasting is needed at this echelon of the supply chain.
3.2.3 Supplier’s ordering model. In the cross-docking strategy, the order placed by the
supplier at the beginning of period t can be expressed as:
 
O0t;k ¼ O0t1;k þ OUT0t;k  OUT0t1;k

pffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi
OUT0t;k ¼ Q^0t ðLk þ Tk Þ þ z s
^ 0e;t;j Lk þ Tk

where Q^0t ðLk þ Tk Þ is an estimate of the mean demand (stores orders) over the protection
pffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi
interval (Lk þ Tk), s^ 0e;t;k Lk þ Tk is an estimate of the standard deviation of the (Lk þ Tk)
period forecast error and z is a constant chosen to meet a desired service level.
To estimate the supplier DC demand at time t, we use exponential smoothing scheme:

Q^0t ¼ aQ0t1 þ ð1  a ÞQ
^0
t1

Using the same approach discussed in the previous part, the lower bound of the variance
ratio of the supplier DC can be expressed as:
  "   !#
Var O0k   2a 2
Li þ Lj þ T 0 2
X   1 þ 2a Li þ Lj þ T 0i þ i

Var
I
D 2  a
i¼1 i
2 2
2a 2 ðLk þ Tk Þ 1r
 1 þ 2aðLk þ Tk Þ þ  (12)
2a 1  br

3.3 Bullwhip effect gain “cross-docking vs traditional warehousing”

In this section, we will determine a lower bound of the bullwhip effect at the supplier level, in
other words the gain in variability of the orders seen by the supplier DC.
Let the bullwhip effect upstream the chain in the traditional warehousing strategy be
given by:
VarðOk Þ
BWETW½Supplier ¼ X 
I
Var i¼1
Di
And for cross-docking: Impact of
 
Var O0k cross-docking
BWEXD½Supplier ¼ X 
I
Var D
i¼1 i

Our objective is to compare the bullwhip effect at supplier DC in cross-docking compared to

traditional warehousing. We calculate the supplier bullwhip effect gain for cross-docking
situation compared to traditional warehousing situation as follows:

BWEXD½Supplier
BWEGain½Supplier ¼ 1  (13)
BWETW½Supplier

From equations (10), (12) and (13), we can express the bullwhip gain as:

BWEGain½Supplier  1

  2a 2 ðLi þLj þT 0i Þ2 h  i  2
Lk þTk Þ2
 1 þ 2aðLk þ Tk Þ þ 2a ð2 1 r
2
1 þ 2a Li þ Lj þ T 0i þ 2a a  1 br
h  i h  i 
2 L þT Þ2   2a 2 ðLj þTj Þ2 2 L þT Þ2
2
1 þ 2aðLi þ Ti Þ þ 2a ð2
i
a
i
 1 þ 2a Lj þ Tj þ 2a  1 þ 2aðLk þ Tk Þ þ 2a ð2 k
a
k 1 r
 1 br

BWEGain½Supplier  1

  2a 2 ðLi þLj þT 0i Þ2
1 þ 2a Li þ Lj þ T 0i þ 2a
h  i
2   2a 2 ðLj þTj Þ2  
1 þ 2aðLi þ Ti Þ þ 2a ð2
2 L þT Þ 1 r
i
a
i
 1 þ 2a Lj þ Tj þ 2a  1br

It can be easily shown that there will be always a gain in the bullwhip effect at the supplier
level if the review period T’i does not increase in cross-docking strategy compared to the
traditional warehousing. In the retail supply chain context, this assumption is always true,
as in the cross-docking strategy, the review period at the stores tends to be decreased to
balance the effect of the increase of the lead-time.
On the other hand, the expression shows that the supplier lead-time has no impact on the
bullwhip effect gain. For instance, when moving to cross-docking, the change on the lead-
time from the plant to the supplier DC will have no impact on the bullwhip reduction.

4. Empirical investigation and results analysis

4.1 Case study description
The quantitative assessment of the impact of cross-docking on the bullwhip effect is
based on a “representative” French retail supply chain with a global Fast-Moving
Consumer Good (FMCG) company operating in France (We will use from now on the term
Supplier Y to refer to the multinational FMCG company), and a major French retailer. A
scheme of the supply chain investigated is provided in Figures 1 and 2. The work aims to
assess the impact of using the cross-docking strategy on the bullwhip effect upstream in
the supply chain. The work started from a real need of the Supplier Y and Retailer X
Supply Chain and is a part of an historical context of collaboration between the two
companies. The cross-docking strategy was first used in 2005 by a push from the retailer
to reduce its inventory and improve working capital. Several projects and discussion
JM2 were initiated with the objective to assess the benefits of using this strategy in their
supply chain. One of the works was related to the hidden benefit in terms of bullwhip
effect reduction.
The data related to the supply chain considered in this paper was collected in the field
of the retail supply chain. In this context, a working group has been set up including
supply chain managers from the two companies to highlight the key parameters that
change when moving from one strategy to the other. As preliminary to the construction
of the model described before, the working group abstracted from the real system studies
all the parameters and their interactions that are relevant for inclusion in the model. For
instance, all the information regarding the lead-time and review period between each two
consecutive echelons, as well as the POSs data, was collected. A list of 100 skus in the
assortment was considered. After collecting the POS data of these products, a normality
test has been conducted using Shapiro–Wilk test. A sample of 36 skus was selected. In
fact, the other skus POS data contained some promotional sales in some periods of the
year which impact the normality of the data. A simple elimination of these outliers would
not have been rigorous.
Tables 2 and 3 summarize all the data collected:
For the simulation, we used data for one year, equivalent to 316 working days. As we are
interested by the bullwhip gain, the gains are aggregated, and the results are shown as an
average gain for all the products studied.

18

Q t = ∑ Ot,i Oj OK
Demand =1
Figure 1. Stores Retailer Supplier Plant
Lead-time :Li Lead-time :Lj DC Lead-time :Lk
Traditional DC

warehousing

18

Q′t = ∑ O′t,i O′K

Demand =1
Figure 2. Stores Retailer Supplier Plant
Cross-dock Lead-time :Li + Lj DC Lead-time :Lk
Cross-docking

Stores Retailer DC Supplier DC

Table 2.
Descriptive of the Number 18 1 1
supply chain Lead-time Li = 1 Lj = 2 Lk = 1
network data Review period Ti = 3 Tj = 3 Tk = 1

Table 3.
Descriptive statistics
Average daily sales Standard deviation of daily sales Coefficient of variance
of the characteristics
of the products per Minimum 1.12 0.5 39%
store Maximum 4.5 10 81%
4.2 Model verification and validation Impact of
For developing our model and for its validation and verification, we followed the model cross-docking
development process shown in Figure 3 developed by Sargent (2010).
The problem entity is the real business case of the supply chain of a major French retailer
and a multinational FMCG manufacturing company, to be modeled; the conceptual model is
the forecasting, inventory control and cost model representation of the problem studied; and
the computerized model is the conceptual model implemented using Excel and VBA as a
simulation environment.
Conceptual model validation is defined as determining that the assumptions used in the
conceptual model are correct and that the model representation of the problem is “realistic”
for the intended purpose of the model. in this validation phase, we used face validity
approach to validate the assumptions taken and the model developed. Computerized model
verification is defined as assuring that the computer programming and implementation of
the conceptual model is correct. In this phase of validation, internal validity approach and
confidence intervals have been used. Operational validation is defined as determining that
the model’s output is accurate. In this phase, sensitivity analysis approach has been used.
4.2.1 Conceptual model validation. The objective of the conceptual model validity is to
determine that the theories and assumptions underlying the conceptual model are correct
and that the model’s representation of the problem entity and the model’s structure are
“reasonable” for the intended purpose of the model (Sargent, 2010). In our study, a face
validity approach has been used for the conceptual model validation. Face validity requires
that individuals knowledgeable about the system are asked whether the model and/or its
behavior are reasonable (Sargent, 2010). During the development of the conceptual model,
open-ended interviews and several meetings with supply chain managers from the two
companies, as well as onsite observations in the DCs of Retailer X and Supplier Y have been
carried out. Following is the list of assumptions made using face validity approach:
Assumption on inventory policy: We assume that each echelon in the supply chain
(stores, retailer DCs and supplier DC) follows an OUT policy with a review interval of T
(days, week and month) and lead-time of L (multiple of elementary time period which is
the day). In this policy, the inventory position is reviewed periodically, and if it is below a
certain level, then an “order” is placed to bring the inventory position “-up-to” a defined
level. As the inventory management is different for each business case (tradelane) and in
different echelons (store, retailer DC and supplier DC), we choose to use a standard
inventory control model that captures the elements of the inventory management. This

Problem Entity
(System)
Conceptual
Operational Model
Validation Validation
Analysis
Experimentation and
Modeling

Computerized Computer Programming and Conceptual

Model Implementation Model

Figure 3.
Simplified version of
Computerized the modeling process
Model
Validation (Sargent, 2010)
JM2 method is based on a periodic inventory replenishment; it allows to consolidate orders
and it is close to what is used in reality. The supply chain managers on both companies
agreed to use this inventory control model because it reflects best how inventory is
managed in the supply chain.
Assumption on forecasting method: We assume that each echelon in the supply chain
(stores, retailer DCs and supplier DC) uses an exponential smoothing forecasting scheme. It
is a weighted average method. In other words,, recent observations are given relatively more
weight in forecasting than the older observations. We choose this method for its simplicity
and robustness. In fact, for the type of products we choose (stationary demand without trend
or seasonality), this type of forecasting method is the more adapted. The review of sales data
shows that there is no seasonality or trends for the products studied.
Assumption on the lead-time: In cross-docking strategy and as the products come directly
from the supplier DC (products pass through the retailer DC only for picking activities), the
lead-time increases. We assume that the lead-time to the stores in the cross-docking strategy
is the sum of the lead-time from the supplier DC to the retailer DC and the lead-time from the
retailer DC to the stores. In traditional warehousing, the products come from the retailer DC
and the lead-time is shorter. The supply chain managers from both companies deemed that
this assumption is correct for our purposes.
4.2.2 Computerized model verification. Computerized model verification ensures that
the computer programming and implementation of the conceptual model are correct.
The model has been implemented on Microsoft Excel and Visual Basic for
Applications. The spreadsheets have been used for the inventory control and
forecasting model formulas. By means of routines programmed in Visual Basic, the
performance measures of cost and service level are calculated and transferred to a new
sheet for each product, in each simulation run. The VBA program is used also to export
data related to each product (sales data, lead-time, delivery frequency, shelf space,
pallet composition [. . .]). It should be pointed out that in our study, we use a
deterministic simulation model and that all the parameters used are deterministic and
no randomness is considered.
To verify the computerized model, an internal validity approach has been used. in
internal validity, several replications of the model are made to determine the amount of
(internal) stochastic variability in the model. For the purpose of internal validity, we used
normally distributed demand rather than POS data, and we used confidence limits to test the
validity of the outputs of the model which the cost and the on shelf availability (OSA). Recall
that the statistical formulas for 95% confidence limits are:
s
upper confidence limit ¼ x þ ð1:96Þ pffiffiffi
n
s
lower confidence limit ¼ x  ð1:96Þ pffiffiffi
n

where x is the mean of the output (total supply chain cost and OSA), s is the standard
deviation of the results and n is the number of replications. We used 100 replications, and we
found that the results are within the confidence interval for all the simulation replications
carried out.
4.2.3 Operational validity. Operational validation is determining whether the simulation
model’s output behavior has the accuracy required for the model’s purpose (Sargent, 2010).
To obtain a high degree of confidence in our simulation model and its results, comparisons
of the model’s and system’s output behaviors for several different sets of Impact of
experimental conditions is required. For the purpose of operational validity, we used cross-docking
two different techniques, namely, the historical data validation and the sensitivity
analysis. In historical data validation, the experimental data is compared with the
historical data, to check whether if the model behaves in the same way the system
does (Martis, 2006).
In our study, we obtained real historical orders data from the retailer to validate the
simulation model. After running the simulation program, we obtained a time series of
simulation output (stores orders per product), and we compared that time series with the
historical time series provided by the retailer. To test if the simulation model “accurately”
reflects the phenomena of interest, then we compared the real data to the simulation results
for the stores orders. The results showed that the system react the same way as the
simulation model in terms of number of orders, total quantity ordered, its average and
variance.

4.3 Simulation results

4.3.1 The impact of the lead-time. As shown in different studies, the lead-time has a great
impact on the bullwhip effect. The variance ratio grows fast if the lead-time becomes larger.
In that case, the store must forecast the demand over a long period, which leads to large
forecast errors and a high order variance. The order variance is amplified as we move
upstream in the chain.
In our study, we are interested by the gain in the bullwhip effect when we move to the
cross-docking strategy.
Figure 4 presents the lower bound and simulation estimates for the bullwhip gain in
cross-docking compared to traditional warehousing for different values of L1 (stores lead-
time). The results are provided as a function of the smoothing parameter a = 0.2, Lj = 2,
Lk = 1, Ti = Tj = 3, Tk = 3 and z = 1.96.
The results show that the bullwhip gain obtained by the theoretical analysis and the
simulation model are very close. Otherwise, the results show that the bullwhip effect gain
increases with the increase of the store lead-time.
The increase in the bullwhip effect is minor, by increasing the store’s lead-time from one
to five days, the gain increases by 4% for the lower bound and only about 1.2% for
the simulated data. We can conclude that the store’s lead-time L1 has minor impact on the
bullwhip effect gain. The same conclusion can be done for the retailer DC lead-time
(Figure 5).

74.0%

72.0%
Bullwhip effect gain

70.0%

68.0%

66.0%
BWEgain LB
64.0%
BWEgain Simu Figure 4.
62.0% Analytical and
simulation results for
60.0%
the stores lead-time
58.0% impact on the
1 2 3 4 5
bullwhip effect gain
Stores lead me Li
JM2 4.3.2 The impact of the review period. Another major change when moving to cross-docking
is the stores review period. Supply chain managers can decide to increase the deliveries
frequency to increase the responsiveness and reduce the risks of OOS at the stores. For
instance, because of the increase of the lead-time to the stores (L1 þ L2 instead of L1), the risk
of OOS is higher. One of the solutions to cope with this risk is to increase the delivery
frequency to the stores. On the other hand, supply chain managers can also decide to
decrease the deliveries to the stores to benefit from the temporal aggregation by aggregating
orders over a longer time horizon before shipping them out from the supplier DC to the
stores. Temporal aggregation and reduction of the deliveries to the stores will help the
supplier to exploit economies of scale and incur a lower transportation cost because of larger
shipments.
To analyze the effect of the store review period in cross-docking, different values of the
review period have been used, ranging from 1 (daily deliveries) to 6 (delivery every six days
or weekly deliveries). Figure 4 presents the lower bound and simulation estimates for the
bullwhip gain in cross-docking compared to traditional warehousing for different values of
the review period. The results are provided as a function of the smoothing parameter a =
0.2, Li = 1, Lj = 2, Lk = 1, Ti = Tj = 3, Tk = 3 and z = 1.96.
The figure below shows the effect of store review period change in cross-docking on the
bullwhip effect gain.
Figure 6 shows that the bullwhip effect gain decreases with the decrease of the review
period. Compared to the actual situation with a review period of three (deliveries every three
days), if we decrease the review period (increase the number of deliveries), then the bullwhip
effect gain will increase by 10% per day. Increasing the number of deliveries has positive

74.0%

72.0%

Figure 5.
Bullwhip effect gain

70.0%

Analytical and 68.0%

simulation results for 66.0%

BWEgain LB
the retailer 64.0%
BWEgain Simu
distribution center 62.0%
lead-time impact on 60.0%
the bullwhip effect 58.0%
gain 2 3 4 5 6
Retailer DC lead me Lj

90.0%
80.0%
70.0%
Bullwhip effect gain

60.0%
50.0%
40.0% BWEgain LB
Figure 6. 30.0% BWEgain Simu
Analytical and 20.0%
simulation results for
10.0%
the stores review
period impact on the 0.0%
1 2 3 4 5 6
bullwhip effect gain
Stores review period in cross-docking T'i
impact on the bullwhip gain, as well as on the responsiveness to the stores and reduce the Impact of
stores’ inventory. On the other hand, increasing the review period (decreasing the number of cross-docking
deliveries) decreases the bullwhip effect by 10% per day. The decrease in the number of
deliveries will allow the supplier to aggregate orders and send larger shipments.
As shown in Figure 7, when the review period increases to a certain level, in this case
above 11 days, the bullwhip gain becomes negative, which means moving to cross-docking
and increasing the review period to a certain, to benefit from the temporal aggregation, will
offset the gain we can have in terms of bullwhip effect reduction.
4.3.3 The impact of the smoothing coefficient. Figure 8 shows the results of the bullwhip
effect gain based on the smoothing parameter a. The results are provided as a function of Li = 1,
Lj = 2, Lk = 1, Ti= Tj = 3, Tk = 3 and z = 1.96. We can see in this figure that the bullwhip effect
gain grows if we increase the smoothing parameter a (if we put more weight on the last observed
demand). Using the last observed demand makes the demand forecast more volatile and leads in
100.0%

50.0%

0.0%
Bullwhip effect gain

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21

–50.0% BWEgain LB
BWEgain Simu

–100.0%
Figure 7.
Analytical and
–150.0% simulation results for
the stores review
period impact on the
–200.0% bullwhip effect gain
Stores review period in cross-docking T'i

120.0%

100.0%
Bullwhip effect gain

80.0%

60.0%
BWEgain LB
40.0% BWEgain Simu Figure 8.
Analytical and
20.0% simulation results for
the smoothing
0.0% parameter a impact
0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 on the bullwhip effect
gain
Smoothing parameter α
JM2 general to a higher order variance in the two distribution strategies. The best value for a is
chosen according to the forecast accuracy. Even if the bullwhip effect gain can increase, this
increase can be done against a hurt in the service level and inventory availability. In the literature
for normal distributed demand, it is suggested to use values of a between 0.1 and 0.3.

5. Discussion and managerial insights

The results of this paper provide several key managerial insights. It is clear that the cross-
docking allows a reduction in bullwhip effect in all most of the situations. The removal of
one intermediate echelon in the supply chain can have a positive impact on the variability
reduction.
The reduction in bullwhip effect because of cross-docking distribution strategy is a
function of several parameters.
First, the lead-time from the stores to the supplier: As shown in the bullwhip effect gain
formula, the bullwhip reduction at the supplier level is not related to the replenishment lead-
time from the plant. On the other hand, the reduction is related to the lead-time from the
store to the supplier. However, this reduction is not significant. For instance, the increase in
the bullwhip effect gain is minor, by increasing the store’s lead-time from one to five days,
the gain increases by 4% for the lower bound and only about 1.2% for the simulated data.
Second, another major change when moving to cross-docking is the stores review period
that can be decreased to increase the responsiveness and reduce the risks of OSS or
increased depending to benefit from the temporal aggregation to exploit economies of scale
and incur a lower transportation cost because of larger shipments. The results show that
when the review period is reduced, the bullwhip effect gain increases. On the other hand,
when the review period is increased, the supply chain can benefit from a bullwhip reduction
up to a certain level, where the bullwhip became negative. When moving to cross-docking,
managers should pay a special attention to this parameter that can in some cases offset the
benefits of the bullwhip effect reduction coming from this strategy.
Finally, the smoothing parameter that has a big impact on the bullwhip effect gain: The
bullwhip effect gain grows if we increase the smoothing parameter a. Even if the bullwhip
effect gain can increase, this increase can be done against a hurt in the service level and
inventory availability. For this parameter, a deeper analyze must to be done to see the
balance between the bullwhip effect gain and the inventory availability in the supply chain.

6. Conclusion and future research

In this study, we investigated the bullwhip effect reduction for a three-stage supply chain
consisting of stores, one retailer distribution center and one supplier when the demand
follows a normal distribution. OUT ordering policy and exponential smoothing forecasting
technique were implemented, respectively, for replenishment and forecasting lead-time
demand in this study. Using a real data from French retail supply chain with a global FMCG
company operating in France and a major French retailer, an empirical investigation has
been performed.
The bullwhip effect gain in cross-docking strategy compared to traditional warehousing
has been studied. The results show that, in most cases, there is a bullwhip effect reduction in
cross-docking compared to traditional warehousing. Contrary to initial presumptions which
assumed that eliminating the stages of a supply chain help to reduce the bullwhip effect, this
study demonstrated that increasing the review period can increase the bullwhip effect even
if a stage in the supply chain is eliminated.
It should be also noted that the lead-time from the stores to the supplier has a small
impact in terms of the bullwhip effect reduction.
6.1 Contribution to theory Impact of
This paper contributes to the theory of bullwhip effect studies by examining the impact of cross-docking
an emerging distribution strategy on this phenomenon.
The study shows that the cross-docking strategy allows a reduction in bullwhip effect in
most of the cases and situations. The reduction is significant for high and short lead-times,
for any forecast smoothing coefficient and for different demand. However, when the review
period increases to a certain level, the bullwhip gain becomes negative, which means
moving to cross-docking and increasing the review period to a certain, to benefit from the
temporal aggregation, will offset the gain we can have in terms of bullwhip effect reduction.
These are important contributions to the ongoing debate over the question: What is the
impact of cross-docking on the bullwhip effect? (Eftekhar et al., 2008; Kadivar and Shirazi,
2018). Thus, this paper addresses a gap in the understanding of the impact of distribution
strategies on the bullwhip effect.

6.2 Implications to practice

The results have shown that the cross-docking strategy reduces the bullwhip effect in most
of the cases. The benefits of removing the inventory at the retailer DC will allow for a
reduction in the bullwhip effect. The benefits may be offset if managers decide to increase
the review period to benefit from the temporal aggregation. To supply chain managers in
the retail supply chain context, we recommend cross-docking and to not change
substantially the review period.
Finally, this paper provides recommendations for supply chain managers on the impact
of cross-docking on bullwhip effect reduction. Decision-makers in the retail supply chain
context are encouraged to use cross-docking for products with a high number of items per
pallet.

6.3 Limitations and future research

The paper presented is based on a case study of an FMCG company and a French retailer.
Therefore, the findings form a foundation for further understanding of the bullwhip effect
phenomenon in retail supply chains. However, a quantitative case study may not be highly
generalizable. In addition, the model used in this study is an ad hoc method adapted to the
case study; however, it can be adapted and generalized in future studies to take into account
different contexts and situations. Hence, extending the analysis by including more business
cases from the retail industry and adapting the model proposed would be an interesting
avenue for further research, contributing to the generalizability of this article’s findings.
Other interesting avenues for further research could be considered. First, order batching
can be considered to understand the impact of this bullwhip effect cause in a cross-docking.
Therefore, future work should investigate the impact of order batching in multi-echelon
supply chains. Additionally, batching is also associated with transportation costs and
related economies of scale. Considering transportation costs and the tradeoff between these
costs and reduction in the bullwhip effect would be another interesting avenue for future
research.
Finally, there are applications in terms of supply chain structure. In the considered case,
we studied a supply chain composed of a single retailer involved in cross-docking strategy.
In some cases, suppliers supply products to multiple retailers, some of them involved in
cross-docking and others not. Considering a supply chain with multiple retailers would be
an interesting avenue for future research. Additionally, other distribution strategies may be
included in future studies. For instance, in the retail supply chain, many retailers receive
deliveries directly from the suppliers’ plants or warehouses in a direct-to-store-delivery
JM2 strategy (DSD). Moving from DSD to cross-docking strategy may influence in different
ways the bullwhip effect. Considering the impact of DSD on the bullwhip effect would be
another interesting avenue for future research.

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Corresponding author
Yassine Benrqya can be contacted at: y.benrqya@aui.ma

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