Order Batching and The Bullwhip Effect Reduction in A Cross-Docking Strategy

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Order Batching and the Bullwhip Effect Reduction in a Cross-

Docking Strategy
Article in Transportation Journal · October 2022

DOI: 10.5325/transportationj.61.4.0369
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Order Batching and the Bullwhip Effect Reduction in a
Cross-Docking Strategy
Yassine Benrqya
Abstract
The purpose of this article is to analyze the effect of order batching on the
bullwhip effect in a cross-docking strategy. The model proposed uses sim-
ulation to analyze empirically the impact of order batching on the bullwhip
effect in cross-docking strategy compared to traditional warehousing. The
study is based on a case study of a fast-moving consumer goods company
and a French retailer. In the model, a three-stage supply chain composed of
one supplier DC, one retailer DC, and 10 retailer stores is considered. The
order-up-to (OUT) level policy is used to control inventory at each stage.
The demand is forecasted using a simple moving average scheme. The
empirical investigation shows that the use of cross-docking leads to a bull-
whip effect gain upstream in the supply chain in all cases and situations.
Moreover, we show that there exists a high positive correlation between the
physical volume of a product (measured by the number of items per pallet)
and the bullwhip effect gain. Finally, the increase in lead time to the stores
has little impact on the bullwhip effect gain upstream in the supply chain.
Keywords
Retail supply chain, cross-docking, traditional warehousing, bullwhip
effect, order batching
This article deals with a multi-echelon retail supply chain where the retailer
distribution center (DC) can operate as a traditional warehouse or as a
cross-docking facility. Traditional warehousing (TW) is a distribution strat-
egy widely used in the retail supply chain. In this strategy the retailer DC
operates as a traditional warehouse. The retailer DC receives the products
Yassine Benrqya Transportation Journal, Vol. 61, No. 4, 2022

Al Akhawayn University Copyright © 2022 The Pennsylvania State
y.benrqya@aui.ma University, University Park, PA
https://doi.org/10.5325/transportationj.61.4.0369
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370 / TRANSPORTATION JOURNAL™
from suppliers and stores them while waiting for the stores’ orders (Ekinci
and Baykasoğlu 2019). Cross-docking (XD) is a distribution strategy that
has drawn the attention and interest of supply chain managers in recent
years (Ekinci and Baykasoğlu 2019; Mejías, Paz, and Pardo 2016; Benrqya and
Jabbouri 2021). In this strategy the retailer DC operates as a transfer point
rather than as a warehousing point. Products are received from suppliers,
broken into smaller batches, consolidated, and shipped to the stores with-
out being stored in the DC (Cattani, Souza, and Ye 2014; Benrqya et al. 2014,
2020; Kuik and Diong 2019).
The XD strategy impacts the supply chain performance both negatively
and positively. The XD distribution strategy compared to TW reduces inven-
tory costs, reduces the time to market, and decreases handling costs. The
XD strategy also accelerates cash flow in the supply chain (Ferdows 2018;
Benrqya 2019). On the other hand, XD impacts the supplier’s transportation
costs by increasing the number of inbound deliveries, increases the suppli-
er’s handling costs due to ordering in small batches, and finally impacts the
service level due to the increase in the lead time to stores (Gebennini et al.
2013; Benrqya et al. 2014).
In addition, the XD distribution strategy can reduce the bullwhip
effect as it brings a direct connection between the store and the supplier
DC (Eftekhar, Makui, and Lumsden 2008; Kadivar and Shirazi 2018; Benrqya
2021). The inventory held at the retailer DC adds variability in the supply
chain due to forecasting, ordering, and safety stock. XD reduces the bull-
whip effect due first to the removal of inventory at the retailer DC (Eftekhar,
Makui, and Lumsden 2008) and second to the reduction in lot sizes since the
economies of scales is no more exploited by the retailer and the supplier,
and the stores order in small batches. This way of ordering in XD reduces
the effect of batching and hence reduces the bullwhip effect (Benrqya 2015;
Jin et al. 2015).
An important literature has developed in recent years analyzing and
comparing the performances of XD and TW strategies (Kreng and Chen
2008; Gebennini et al. 2013; Benrqya et al. 2014). However, only a few papers
have been dedicated to discussing the impact of XD on the bullwhip effect;
in fact, Eftekhar, Makui, and Lumsden (2008) and Kadivar and Shirazi (2018)
are among the few works that have analyzed the impact of a XD strategy on
the bullwhip effect.
Eftekhar, Makui, and Lumsden used the Lyapunov exponent to esti-
mate the difference between the bullwhip effect in TW versus XD. The
study was conducted in a multistage supply chain where store demand is
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Benrqya: Order Batching and the Bullwhip Effect Reduction \ 371
autoregressive and the actors of the supply chain use a moving average
forecasting technique. The authors of this paper demonstrate the presence
of a reduction in the bullwhip effect in a supply chain with a XD distribu-
tion strategy.
Kadivar and Shirazi (2018) investigated the bullwhip effect in three dif-
ferent supply chains: (a) with a central warehouse, (b) with a XD system,
and (c) without any distribution system. The authors used a three-echelon
model with a demand process following a mixed autoregressive-moving
average model and all the stages employ the base stock policy for inven-
tory replenishment. In this study the authors showed that the XD strategy
reduces the bullwhip effect and that the selection of the most effective
strategy is based on the lead time, market share of each retailer, autoregres-
sive coefficient, and moving average parameter.
It should be noted that the works cited above present some limitations.
With regard to supply chain structure, Eftekhar, Makui, and Lumsden
(2008) and Kadivar and Shirazi (2018) have compared the XD and TW
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. The impact
of the batching was neglected. Finally, none of the papers cited above used
an empirical investigation based on a real case study to analyze the effect
of order batching 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”
(FMGC) 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 article is to demonstrate empirically the hypothesis of the
existence of a reduction in a bullwhip effect in the cross-docking distri-
bution strategy. In addition, we attempt to assess in which situation (lead
time, demand variability, and review period) the reduction is more or less
important. The proposed work aims to assess the impact of batch order-
ing on the bullwhip effect in a XD strategy. The configurations studied are
traditional warehousing strategy (in our study TW is considered as a ref-
erence strategy and we compare it with cross-docking); and cross-docking
strategy.
This article proposes the following two research questions:
What is the impact of cross-docking on the bullwhip effect reduction?

What is the impact of order batching on the bullwhip effect reduction

in a cross-docking strategy?
Literature Review
The bullwhip effect refers to the amplification of demand fluctuations from
downstream to upstream in a supply chain (Zhu, Krikke, and Caniëls 2016),
whereby a small change in demand among end customers is amplified as
it progresses upstream along the supply chain (Sari 2008; Li et al. 2019).
In fact, the lack of information sharing and coordination among partners
in a supply chain is recognized as one of the major causes of the bullwhip
effect (Mora-Monge et al. 2010). Several researchers present the drivers and
the causes of the bullwhip effect, which can be summarized as having five
major sources: separate demand forecasting, lead time, price fluctuation,
supply chain structure, and batch ordering (Forrester 1961; Chatfield and
Pritchard 2013; Kumar, Srinivasan, and Tanwar 2013; Dominguez, Cannella,
and Framinan 2015; Nielsen et al. 2017).
Order batching, also known as lot sizing, is one of the major causes of
the bullwhip effect in a supply chain (Lee et al. 1997; Riddalls and Bennett
2001). Batching amplifies the demand as it passes up a supply chain while
the real demand is rounded up to whole batch sizes for production pro-
cesses and ordering from suppliers. This rounding-up stacks up along
the supply chain when different batch sizes are used. Ordering in batches
creates a large order followed by several periods of no orders. This way of
ordering does not reflect actual shopper demand and increases dramati-
cally the variability of demand seen by the supplier and thus magnifies the
bullwhip effect. Finding an optimal lot size is not easy since it is directly
related to inventory holding, transportation cost, and risk of shortage. For
retailers, ordering in large quantities (e.g., full truckload, full container, or
full pallet) can help to reduce transportation and ordering costs. For the
manufacturer, significant economies of scale can be achieved by producing
in large batches. Companies prefer to order or produce in batches to gain
economies of scale.
Caplin (1985) was one of the first authors to study the impact of batch
ordering on the bullwhip effect. He considered a continuous review system
in which the retailer continuously controls the inventory level, and when
the inventory level drops to s he places an order to raise the inventory level
to S. The author proves that for independent and identically distributed
(i.i.d.) demand the variance of the orders increases linearly in proportion

to the size of the orders. Pujawan (2004) considered the impact of temporal
aggregation of orders on bullwhip. He investigated the impact of two dif-
ferent batch size rules, namely the Silver-meal rule and the Least unit cost
rule on the bullwhip effect. The results show that the Silver-meal rule pro-
duces more variable order quantities. Conversely, the Least-unit cost rule
results produced more stable order quantities. Holland and Sodhi (2004)
studied a two-echelon supply chain with a manufacturer and a retailer and
found through simulation that the level of the bullwhip is proportional to
the square of the batch size. Potter and Disney (2006) considered scenarios
where orders are placed only in multiples of a fixed batch size. Using simu-
lation, the authors’ results show that a manager can achieve cost reduction
through batching and at the same time minimize the impact on bullwhip if
the selection of the batch size is made judiciously. Hussain and Drake (2011)
studied using system dynamics, a four-echelon supply chain composed
of a retailer, a wholesaler, a distributor, and a factory. Their results show
that the relationship between batch size and bullwhip effect is reduced for
large batch sizes when combined in integer multiples. Vicente, Relvas, and
Barbosa-Póvoa (2018) performed their analysis using a mixed-integer lin-
ear programming (MILP) model that takes into account an inventory and
distribution system formed by multiple warehouses and retailers plus the
impact of order batching on the bullwhip effect. The results of the study
show that (1) using a batching policy reduces instability, (2) batching
may reduce in general order variance if using larger batches, and (3) cycle
demand length has no major impact on the bullwhip effect.
On the other hand, the XD strategy reduces the bullwhip effect by
eliminating a storage echelon in the supply chain (Eftekhar, Makui, and
Lumsden 2008; Kadivar and Shirazi 2018). Additionally, XD allows a direct
connection between suppliers and the point of sale, and hence implies more
frequent ordering of small batches (Apte and Viswanathan 2000; Kreng and
Chen 2008; Agustina, Lee, and Piplani 2014).
Based on a case study done in collaboration with a FMGC and a major
French retailer, both located in France, this article focuses on the impact
of batch ordering on the bullwhip effect in a XD strategy. It fills a gap
in the literature on the impact of order batching on the bullwhip effect
in a XD. A few studies have been conducted to analyze the impact of XD
strategy on the bullwhip effect (Eftekhar, Makui, and Lumsden 2008;
Kadivar and Shirazi 2018), and this article has studied the impact of order
batching on the bullwhip effect in a XD strategy compared to traditional
warehousing.

Research Methodology
Case Study and Research Questions
The proposed research project is done in collaboration with a global FMCG

(from now on referred to as Supplier Y) and a major French retailer (Retailer
X). The objective of this research project is to evaluate the pros and cons for
both parties when using the XD strategy in their supply chain. The proj-
ect is part of a historical collaboration between the two companies. Since
2005 Retailer X has been using the XD strategy to improve its working cap-
ital. The collaboration began by a pilot of XD for beauty care products. The
rationale of using this category as a pilot is that the cost of picking will not
be highly affected due to the already low batch sizes of this category in tra-
ditional warehouses (cases, inners). A few years after this pilot, Retailer X
pushed Supplier Y to move their products through XD one after the other.
Supplier Y showed some reluctance to move all products to XD. In this con-
text, a project was launched between the two companies, first to analyze the
impact of the XD strategy on the supply chain costs and service level, and
second to choose the right distribution strategy for each product based on
its characteristics. The current article analyzes the impact of batch order-
ing in a XD strategy on the bullwhip effect.
In order to answer the research question, we collected data from the
retailer and the supplier. The data are related to the supply chain network,
with the location of the supplier DCs, the location of the retailer DCs,
the number of stores, and their location. We also collected data related to
the product (e,g., demand, lead time, review period). For demand data,
point-of-sales data has been collected for the products studied. Historical
orders data prior to the implementation of the XD strategy between the
company have also been collected in order to validate the model. The lead
time (i.e., lead time between the placement of an order and the delivery)
between the supplier DC and the retailer DC and between the retailer DC
and the stores have also been collected. In this supply chain, the supplier
DC delivers the retailer DC two or three times per week depending on the
product category and the demand typology of a product: three times per
week for fast-moving products and twice a week for slow movers.
To answer the research questions, a combination of statistical
approaches and simulation is used. The statistical approach will allow us to
have insights into the structure of the forecasting, inventory management,
and ordering process as we move up in the supply chain. The simulation
will help us to test the effects of different factors in several time periods. To
be able to construct a simulation model as realistic as possible we worked

closely with an FMCG manufacturer and a major French retailer involved in

XD distribution strategy. The company currently has a XD agreement with
a retailer. The company believes that benefits in terms of bullwhip effect
reduction can be obtained thanks to XD strategy implementation and the
reduction of the batch sizes resulting. Actual point-of-sales (POS) data
available to the retailer, as well as lead time and other supply chain param-
eters, were used in the simulation model.
The simulation model is built in a spreadsheet environment using
inventory control mathematical equations. We investigate a sequential
three-echelon supply chain. The participants in the supply chain are the
stores, the retailer DC, and the supplier DC. The retailer stage in the model
represents the distribution center in the TW strategy and a XD platform in the
XD distribution strategy. Moreover, we assume that each participant adopts
an OUT-level policy with a simple moving average forecasting scheme.
The research herein is concerned with how the structure of the ordering
process (order batching) evolves as the orders move up the supply chain in the
two situations (i.e., TW vs. XD). We measure the magnitude of the bullwhip
effect at the supplier level, which gives us the level of variability of orders
perceived by the plant in TW and in XD distribution strategies. After that we
calculate the bullwhip effect gain in the XD situation as compared to XD. In
addition, real data about the batch sizes of orders in each echelon is consid-
ered, and the effect of the batch sizes on the bullwhip effect gain is measured.
We will next present the model and collected data used for the purpose
of the empirical investigation.
Multi-Echelon Supply Chain Model
In this article a three-echelon supply chain composed of one supplier DC,

one retailer DC and multiple retailer stores is considered. The inventory at
each echelon is controlled according to an order-up-to (OUT) level policy.
The demand level is estimated by using a simple moving average. In the two
models (TW and XD), we use the index i to represent the supplier DC eche-
lon, while j represents the retailer DC echelon and k = 1 . . . 10 represents the
store index. For the products, we use the index p = 1 . . . 18. The forecasting
and inventory models are described in the following.
TW Model
At any period t, the demand forecast dˆpt is expressed as follows:
dˆpt = _
t−1
41 ∑ dnp
n=t−4

where dipis given by:
⎧dkp for k = 1 . . . . 10 (POS data)

⎪ 10
dip = ⎨
∑‾
   p (demand faced by the retailer
Ot−1,j
      DC = sum of stores orders)
⎪k=1p
‾
⎩O (demand faced by the supplier DC = retailer DC order)
t−1,j
_
Otprepresents the demand of an echelon in a period t.
The OUT is calculated at each period and each echelon to cover the
demand during the protection interval (L + T) as follows:
OU Ttp = dˆpt(L + T) + K σp√ L + Te Ot−T

_
p
(where L represent the lead time and T the review period). The first term
represents the lead-time demand of each product p at any echelon. The sec-
ond term represents the safety stock. The safety factor k can be obtained
by using the inverse of the normal distribution of the target service level.
In our model, we use a safety factor equal to 1.96 corresponding to a target
service level of 97.5 percent.
At each period t, each echelon reviews the inventory level and places an
order. The ordering quantity is given by:
⎧Max{OUTt,k
p − IPt,k
p ; 0}( k = 1 . . . 10)
⎪
tp = ⎨
O   
   {OUTt,jp − IPt,jp ; 0}
Max
⎪
⎩ Max{OUTt,ip − IPt,ip ; 0}
(where I Ptprepresents the inventory position of product p in period t).

The orders are based on a batch size rule. A round function that rounds
the order up to the next integer and multiple of the batch size is introduced:
⎪
⎧− Nbcasesp × Itempwhere Nbcasesp = ⌈Op / Itemp⌉
t,k t,k t,k
− Nbpalletst,jp × Palletp or Nblayerst,jp × Itemp
⎪
_
Otp = ⎨
⌈ layer ⌉
where Nbpalletst,jp = ⌈
_⌉
     
    
     Ot,jp Ot,jp
and Nblayerst,jp = _p
Pallet
⎩− Nbpalletst,i × Pallet where Nbpalletst,i = ⌈Ot,i / Pallet ⌉
p p p p p

_
Where O tpis the corrected order based on the batch size, Itemp is the
number of items per case, Palletpis the number of items per pallet and layerp
is the number of layers per pallet. Nbcasestpis the number of cases ordered,
Nbpalletstpis the number of pallets ordered, and Nblayerstpis the number of
layers ordered.
In the TW strategy and in the case study under consideration, the stores
usually order by cases, which represents the batch size. For the retailer DC,
the order quantity is either pallets for fast-mover products or layers for
slow movers. For the supplier DC, the order quantity (to the plant) is always
in pallets.
At time t, NStp (net stock of product p at period t) and IPtp are updated
based on the observed demand and the placed orders, as follows:
⎧NSt−1,k
p
+ ‾ p − d t,k
Ot,k p
⎪
NStp = ⎨
N
  
  St−1,j
p
+ ‾
Ot,jp − Dt,jp
⎪
⎩NSt−1,i
p
+ ‾
Ot,ip − ‾
Ot,ip
Le
IPtp = NStp + ∑‾
Ot−T
p for i, j and k
T=1
Measuring the Bullwhip Effect in TW Strategy
Several approaches can be applied to measure the bullwhip effect. A com-

monly used approach is based on variance of orders and on the variance of
customer demand (Chen et al. 2000). The bullwhip effect at the supplier DC
in TW (BWETW) be expressed as follows:
Var(‾
Op )
TW = _
t,i
B WE
∑10
k=1
Var(dkp )
XD Model
In the XD strategy, the same ordering policy is used for the stores, and the
only difference concerns the lead time. In fact, in the XD strategy the stores
receive the orders directly from the supplier DC and go through the retailer
XD platform for picking activities. We replace Lk by ( Lk + Lj)in the OUT-level
expression.

In the XD strategy the retailer DC functions as a transfer point and

hence no inventory model or forecasting is needed. The retailer DC faces
a demand denoted by d 'pt,j, which is equal to the sum of the store orders d
‾
24
'pt,j = ∑O 'pt,k. The retailer DC will then aggregate the store orders and transfer
k=1
them to the supplier DC.
The supplier will receive an aggregated order and will have no informa-
tion about the specific order of each store. The retailer DC ordering quan-
‾
24
'pt,j = ∑O
tity is given by O 'pt,k. The supplier DC handles the ordering process
k=1
as follows: (1) at the beginning of time period t, the supplier receives and
ships the required order quantity O 'pt,jto the retailer, and (2) the supplier DC
reviews its inventory and places an order O ‾ 'pt,i to the supplier. Note that in
the XD strategy the supplier DC will receive the exact quantity ordered by
the stores, which in this case is a multiple of cases (instead of pallets in TW,
where the products are stored first at the retailer DC).
Measuring the Bullwhip Effect in XD Strategy
The bullwhip effect at the supplier DC in XD can be expressed as follows:
Var(O‾
'pt,i)
= _
BWEXD 10
∑k=1Var(dkp )
The Bullwhip Effect Gain
We calculate the supplier bullwhip effect gain for the XD situation

compared to the TW situation as follows:
BWEXD

= 1 − _
BWEgain
BWETW

Model Verification and Validation
For developing our model, and for its validation and verification, we fol-
lowed the model development process shown in figure 1, as 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 manufactur-
ing company to be modeled; the conceptual model is the forecasting, the
inventory control of the problem studied; the computerized model is the

Figure 1 Simplified version of the modeling process. Source: Sargent 2010.
conceptual model implemented using Microsoft Excel and Visual Basic for
Applications (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 the face validity approach to vali-
date the assumptions taken and the model developed. Computerized model
verification is defined as assuring that the computer programming and
implementation of the conceptual model are correct. In this phase of val-
idation, the internal validity approach and the confidence intervals were
used. Operational validation is defined as determining that the model’s out-
put is accurate. In this phase, the sensitivity analysis approach was used.
Conceptual Model Validation
The objective of conceptual model validity is to determine that the theo-

ries and assumptions underlying the conceptual model are correct and that
the model’s representation of the problem entity and the model’s struc-
ture are “reasonable” for the intended purpose of the model. In our study,
a face validity approach was 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, were

carried out. The objectives of the face validity phase are (1) to identify the
main parameters impacted by the distribution strategies and which of
them are relevant for consideration in our model, and (2) to validate the
assumption taken in the forecasting inventory management model.
Computerized Model Verification
Computerized model verification ensures that the computer programming

and implementation of the conceptual model are correct. The model was
implemented on Microsoft Excel and VBA. The spreadsheets were 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 was also used 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 used a deter-
ministic simulation model and that all the parameters are deterministic
and no randomness is considered.
In order to verify the computerized model, an internal validity approach
was used. In internal validity several replications of the model were 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 are the cost and the OSA.
Operational Validity
Operational validation is determining whether the simulation model’s out-

put 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 experimental conditions is required. For the pur-
pose of operational validity, we used two different techniques, namely the
historical data validation and the sensitivity analysis. In historical data vali-
dation, the experimental data is compared with the historical data to check
whether the model behaves in the same way the system does (Martis 2006).
In our study we obtained real historical orders data from the retailer
in order to validate the simulation model. After running the simulation
program, we obtained a time series of simulation output (store 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, we compared the real data to the simulation

results for the store orders. The results showed that the system reacts the
same way as the simulation model in terms of the number of orders, the
total quantity ordered, and its average and variance.
Empirical Data
The companies under consideration provided the required supply chain

structure related data, including the lead time between the echelons and
the review period or delivery frequency for each echelon. Additionally, a
sample data set for SKUs from different product families/ categories for the
supply chain studied has been obtained. Before showing the model output,
let us first look at the data, which will help us better understand the results
presented later.
The lead time between the supplier DC and the retailer DC is two days.
The lead time between the retailer DC and the stores is one day. On the other
hand, the supplier DC delivers the retailer DC two or three times per week.
The stores are delivered to three times a week.
The sample data set contains a total of 18 SKUs. The products selected
all have different batch size orders in TW compared to XD. The stores
always order in cases. At the retailer DC level and in TW some products are
ordered in layers and others in pallets. Finally, at the supplier DC level, the
batch size is always in pallets. When moving to XD the stores will order in
cases as in TW. On the other hand, since there is no intermediate storage at
the retailer DC, the latter will simply aggregate the orders of the 10 stores
and send the aggregated order to the supplier DC. Hence, the batch size of
the retailer in XD will be a multiple of cases.
The sample data includes 52 weeks of daily sales (point-of-sales data).
The demand of products is stationary and relatively stable and no trend
or seasonality has been identified in the annual demand patterns for the
selected products.
Description of the products considered is presented in table 1. We
report the daily demand rate, the standard deviation of daily demand, and
batch size per echelon per strategy. The values below the batch size corre-
spond to the number of items per batch.
Results Analysis
In this section, we first investigate the impact of the XD strategy on the
bullwhip effect reduction without order batching constraint. The impact of
XD is analyzed independently from the order batching, in order to separate

Table 1/Description of the characteristics of the Products Studied
Batch Size
TW XD
Mean Standard Store Retailer Supplier Store/Retailer Supplier
Product Demand Deviation (Case) X X (Pallet) X (Case) Y (Pallet)
1 5.8 2.9 24 Layer 864 24 864
144
2 7.1 3.6 24 Layer 2880 24 2880
480
3 3.8 1.6 12 Pallet 1440 12 1440
1440
4 3.0 1.6 12 Pallet 1320 12 1320
1320
5 2.3 1.4 12 Pallet 1320 12 1320
1320
6 3.3 1.4 30 Pallet 2520 30 2520
2520
7 3.0 1.2 16 Layer 640 16 640
128
8 0.5 0.3 6 Layer 54 432 6 432
9 1.2 0.7 8 Layer 96 1056 8 1056
10 0.5 0.3 20 Pallet 1200 20 1200
1200
11 1.3 0.7 8 Layer 96 576 8 576
12 0.5 0.4 6 Pallet 792 6 792
792
13 4.9 2.4 8 Pallet 560 8 560
560
14 1.4 0.9 8 Pallet 560 8 560
560
15 1.5 0.9 8 Pallet 560 8 560
560
16 1.4 0.8 8 Layer 80 400 8 400
17 1.2 0.6 4 Layer 64 384 4 384
18 3.7 1.6 20 Pallet 1200 20 1200
1200
each one of the two effects on the bullwhip effect reduction. Second, the
impact of the batch size on the bullwhip effect reduction in XD strategy
compared to TW is analyzed under different scenarios of demand volume
and variability.

Impact of XD on the Bullwhip Effect Reduction
We believe that XD is reducing the bullwhip effect as it brings a direct con-

nection between the store and the supplier DC. The inventory normally held
at the Retailer DC creates a decoupling point that adds variability in the
supply chain due to forecasting, ordering, and safety stock. As a matter of
fact, XD removes several elements that normally drive the bullwhip effect.
In order to highlight the effect of only XD in the reduction of the
bullwhip effect, a simulation has been carried out for different lead-time
values and without a batch-size constraint. For instance, in the scenarios
simulated the batch ordering constraint has been relaxed, and each echelon
order is exactly what is needed based on an OUT-level inventory strategy.
We tested different values of the lead times for two major reasons. The
first is to demonstrate the existence of a reduction on the bullwhip effect in
different scenarios. The second is the fact that the lead time is an important
factor that may impact the bullwhip effect gain when changing the distri-
bution strategy.
In TW the stores experience a short lead time for their replenishment (
L1 = 1), with geographically near distribution centers (Retailer DCs). In XD
the stores receive the orders directly from the Supplier DC, which implies
an increase in the lead time (L1 + L2 = 3). Where L1 is the lead time from the
Retailer DC to the stores and L2 is the lead time from the Supplier DC to the
Retailer DC.
The results of the increase/decrease of the lead time on the bullwhip
effect gain are shown in figure 2. The lead time to the stores ranges from
2 to 10:
Figure 2 Impact of the lead time on the bullwhip effect gain

The bullwhip effect gain increases with the increase of the lead time
to the stores. However, the increase of the gain is negligible, ranging from
27 percent for a 2-day lead time to 32 percent for a 10-day lead time. For
instance, as demonstrated by Chen et al. (1999), the lead time magnifies
the increase in the bullwhip effect due to demand forecasting and that
lead-time reduction can significantly reduce the bullwhip effect through-
out a supply chain. The results may seem counterintuitive and not in accor-
dance with previous work, but this can be explained by the fact that the
amplification in both TW and XD is equivalent and proportional to the
lead-time increase, and the gain is due only to the elimination of one stor-
age point and the reduction in batch orders. These results demonstrate that
the gain in the bullwhip effect is similar for supply chains with large lead
times and supply chains with short lead times.
On the other hand, the results validate our initial hypothesis regard-
ing the positive impact of XD on the bullwhip effect reduction in supply
chains. We can see that by eliminating one inventory location in the supply
chain the bullwhip effect is reduced.
Impact of Batch Ordering on the Bullwhip Effect Reduction
In TW strategy the retailers usually order products in full pallets or full lay-
ers. This way of ordering allows for a reduction of the supplier’s picking
costs and transportation costs; furthermore, it simplifies the reception,
control, and warehousing activities at the retailer DC. On the other hand,
this way of ordering is an additional cause of the bullwhip effect. In fact,
when a retailer orders in batches, it creates a large order followed by sev-
eral periods of no orders, thus significantly increasing the variability of the
demand seen by the supplier and thus magnifies the bullwhip effect.
XD distribution strategy will force both the retailer and the supplier
to order and deliver the exact quantity needed by the stores (i.e., only cases
instead of layers or full pallets) since there is no more inventory at the
retailer DC. This new way of ordering can also help to reduce the bullwhip
effect.
The simulation is done for a three-echelon supply chain with 10 stores
and 18 products each with different batch sizes. Table 2 shows the results of
the simulation for the 18 products. The results are ranked in a decreasing
order of the bullwhip effect gain. The results show that for all the prod-
ucts there is always a reduction in the bullwhip effect when moving to XD,
regardless of the batch size. These empirical results, based on a real case
study, are in accordance with the findings of Eftekhar, Makui, and Lumsden

Table 2/Simulation Results
Batch Size BWEgain
Traditional Warehousing XD
Product Store (Case) Retailer X Supplier X Store/Ret X Supplier Y

6 30 Pallet 2520 2520 30 2520 84.00%
14 8 Pallet 560 560 8 560 78.50%
3 12 Pallet 1440 1440 12 1440 78.20%
4 12 Pallet 1320 1320 12 1320 77.70%
15 8 Pallet 560 560 8 560 77.70%
13 8 Pallet 560 560 8 560 77.50%
18 20 Pallet 1200 1200 20 1200 77.50%
5 12 Pallet 1320 1320 12 1320 76.70%
12 6 Pallet 792 792 6 792 75.60%
10 20 Pallet 1200 1200 20 1200 70.30%
7 16 Layer 128 640 16 640 25.30%
1 24 Layer 144 864 24 864 23.30%
11 8 Layer 96 576 8 576 15.10%
9 8 Layer 96 1056 8 1056 15.00%
16 8 Layer 80 400 8 400 14.70%
2 24 Layer 480 2880 24 2880 13.40%
17 4 Layer 64 384 4 384 11.50%
8 6 Layer 54 432 6 432 11.00%
(2008) and Kadivar and Shirazi (2018) who demonstrated mathematically

that XD reduces the bullwhip effect upstream the chain in all situations.
The average reduction in the bullwhip effect is 50 percent but there
are noticeable differences between the individual products. For some prod-
ucts, the reduction is between 11 and 15 percent, whereas the maximum
reductions are more than 80 percent. When analyzing the bullwhip gain
results, considerable differences between the products could be observed.
We can see that for products with large batch sizes in TW (products with
physical volume measured by the number of items per pallet), the bullwhip
effect reduction is more significant. Product 6 is ordered from the supplier
in batches of 2,520 units (full pallets) in traditional warehousing. When
moving to XD the batch size became 30 units (cases), which represents a
reduction of more than 95 percent in the batch size and results in a bull-
whip effect gain of more than 80 percent. The results show that there is a
significant positive correlation between the batch size of the retailer and

Table 3/Impact of Demand Variability on the Bullwhip Effect Gain
Standard Coefficient of
Product Mean Demand Deviation Variation BWEgain
12 0.5 0.4 71% 75.60%
8 0.5 0.3 64% 11.00%
14 1.4 0.9 64% 78.50%
10 0.5 0.3 62% 70.30%
5 2.3 1.4 60% 76.70%
15 1.5 0.9 60% 77.70%
9 1.2 0.7 56% 15.00%
16 1.4 0.8 55% 14.70%
17 1.2 0.6 55% 11.50%
4 3.0 1.6 54% 77.70%
11 1.3 0.7 53% 15.10%
2 7.1 3.6 51% 13.40%
1 5.8 2.9 50% 23.30%
13 4.9 2.4 50% 77.50%
3 3.8 1.6 43% 78.20%
18 3.7 1.6 43% 77.50%
6 3.3 1.4 42% 84.00%
7 3.0 1.2 40% 25.30%
the bullwhip effect gain, R2 = 0.69, p < 0.001. There is also a significant pos-
itive correlation between the batch reduction and the bullwhip effect gain,
R2 = 0.77, p < 0.001.
The most important benefit of the XD strategy when compared to TW
is that one level of order batching is removed (the retailer DC order). This
means that the impact of access to store data is typically greater for prod-
ucts with a significant order size.
In order to investigate more the impact of order batching on bullwhip
effect reduction, other important factors such as demand variability should
be investigated. Table 3 shows the results of bullwhip effect gain based on
demand variability in the presence of order batching. Demand variability
is measured using the coefficient of variation (CV), the standard deviation
of daily demand divided by the mean. The results are ranked in a decreas-
ing order of the coefficient of variation. The results show that there is no
relationship between the demand variability and the bullwhip effect gain
(R2 = 0.03). We can conclude that the demand variability of the products has
no impact on the bullwhip effect gain upstream the supply chain.

This conclusion is counterintuitive. We can imagine that the gain

in terms of bullwhip effect must be substantial for products with high
demand variability. But we see indeed that for products with high demand
variability and in XD strategy the bullwhip effect at store level is amplified,
which minimizes the bullwhip effect reduction upstream the supply chain.
Conclusions
This article provides a simulation study of the impact of order batching in a
cross-docking strategy on the bullwhip effect reduction upstream the chain.
In particular, the impact on the bullwhip effect of using cross-docking, com-
pared to traditional warehousing, is investigated, taking into consideration
an actual case study of a FMCG company and a major French retailer. The con-
tributions this article makes are presented in terms of theory and practice.
Contribution to Theory
This article contributes to the theory of bullwhip effect studies by exam-

ining the distribution strategies in a retail supply chain context, which is
necessary due to their complex structure and to their differences in terms
of impact on the bullwhip effect. The study shows the benefits of using the
cross-docking strategy in a retail supply chain context and, in particular,
the impact of cross-docking on the bullwhip effect. The analysis shows that
the cross-docking strategy allows a reduction in bullwhip effect in all cases
and situations. This is an important contribution to the ongoing debate
over the question: What is the impact of cross-docking on the bullwhip
effect? (Eftekhar, Makui, and Lumsden 2008; Kadivar and Shirazi 2018).
Thus, this article addresses a gap in the understanding of the impact of dis-
tribution strategies on the bullwhip effect.
The results also showed that the batch size can have a huge impact on the
bullwhip effect reduction upstream the supply chain in a cross-docking strat-
egy. For instance, the results show that products with a high number of items
per pallet have a high positive impact on reducing the bullwhip effect. Thus,
this research contributes to the ongoing debate: What is the impact of order
batching on the bullwhip effect? (Hussain and Drake 2011; Kumar, Srinivasan,
and Tanwar 2013; Dominguez, Cannella, and Framinan 2015; Nielsen et al. 2017).
Implications to Practice
The results have shown that the cross-docking strategy reduces the bull-
whip effect in all cases. The benefits of removing the inventory at the retailer
DC and reducing the batch size of the retailer will allow for a reduction in

the bullwhip effect. The reduction is more substantial for products with
high number of items per pallets (low physical volume). To supply chain
managers in the retail supply chain context, we recommend cross-docking
for products with a low physical volume.
On the other hand, the results show that there is no relationship
between the demand variability and the bullwhip effect gain (R2 = 0.03).
The results show also that lead time magnifies the increase in the bullwhip
effect and the lead time increases of the bullwhip effect gain upstream in
the supply chain.
Finally, this article 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.
Limitations and Future Research
The article 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 addi-
tion, 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 anal-
ysis by including more business cases from the retail industry and adapt-
ing the model proposed would be an interesting opportunity for future
research, contributing to the generalizability of this article’s findings.
Other interesting avenues for further research could be considered.
First, in terms of supply chain cost, batching is associated with the inven-
tory holding and backlog cost. Therefore, future work should investigate
the cost implications 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 studies.
Another limitation of the study is the overlap of the cross-docking
strategy with the order batching in the retail industry. For instance, in the
retail supply chain, moving to cross-docking has as direct consequence the
reduction of the batch size. Explicitly delineating these two aspects will
bring additional insights.

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 prod-
ucts 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 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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Order Batching and the Bullwhip Effect Reduction in a Cross-

Article in Transportation Journal · October 2022

The user has requested enhancement of the downloaded file.

Yassine Benrqya Transportation Journal, Vol. 61, No. 4, 2022

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What is the impact of cross-docking on the bullwhip effect reduction?

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What is the impact of order batching on the bullwhip effect reduction

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The proposed research project is done in collaboration with a global FMCG

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closely with an FMCG manufacturer and a major French retailer involved in

Multi-Echelon Supply Chain Model

In this article a three-echelon supply chain composed of one supplier DC,

At any period t, the demand forecast d​ˆ​pt​ is expressed as follows:

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where ​di​p​​is given by:

⎧​dk​p ​for k = 1 . . . . 10 ​(POS data)​

​OU ​Tt​p​​ = d​ˆ​pt​(L + ​T​) + K ​σ​p​​√ L + ​Te​ ​ ​Ot−T

(where ​I ​Pt​p​​represents the inventory position of product p in period t).

− ​Nbpallets​t,jp ​ × Palle​t​p​ or ​Nblayers​t,jp ​× Ite​m​p​

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Measuring the Bullwhip Effect in TW Strategy

Several approaches can be applied to measure the bullwhip effect. A com-

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In the XD strategy the retailer DC functions as a transfer point and

The bullwhip effect at the supplier DC in XD can be expressed as follows:

The Bullwhip Effect Gain

We calculate the supplier bullwhip effect gain for the XD situation

Model Verification and Validation

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Figure 1 Simplified version of the modeling process. Source: Sargent 2010.

The objective of conceptual model validity is to determine that the theo-

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as well as onsite observations in the DCs of Retailer X and Supplier Y, were

Computerized model verification ensures that the computer programming

Operational validation is determining whether the simulation model’s out-

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the phenomena of interest, we compared the real data to the simulation

The companies under consideration provided the required supply chain

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Table 1/Description of the characteristics of the Products Studied

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Impact of XD on the Bullwhip Effect Reduction

We believe that XD is reducing the bullwhip effect as it brings a direct con-

Figure 2 Impact of the lead time on the bullwhip effect gain

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Impact of Batch Ordering on the Bullwhip Effect Reduction

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Table 2/Simulation Results

Batch Size BWEgain

Product Store (Case) Retailer X Supplier X Store/Ret X Supplier Y

(2008) and Kadivar and Shirazi (2018) who demonstrated mathematically

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Table 3/Impact of Demand Variability on the Bullwhip Effect Gain

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This conclusion is counterintuitive. We can imagine that the gain

This article contributes to the theory of bullwhip effect studies by exam-

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Limitations and Future Research

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At any period t, the demand forecast dˆpt is expressed as follows:

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where dipis given by:

⎧dkp for k = 1 . . . . 10 (POS data)

OU Ttp = dˆpt(L + T) + K σp√ L + Te Ot−T

(where I Ptprepresents the inventory position of product p in period t).

− Nbpalletst,jp × Palletp or Nblayerst,jp × Itemp

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