Post date: Jan 16, 2010 11:26:42 PM
A multiechelon supply chain has many players and stages across the supply chain. The real challenge in the said scenario is to get all these stages in sync so as to minimize the overall Cycle Inventory across the supply chain. The extent of cross docking across the supply chain proves out to be vital, in decreasing the overall cycle inventory across the supply chain.
A simple multi echelon scenario would be a linear supply chain with dependent players at each stage. Here each player fulfill his requirements in terms of goods and other materials from the preceding stage.
----------(3) -------(4)-------(5)-------(6) ------- Fig: 1.0
The role played by cross docking comes into effect, when data regarding the ordering cycle for all the players and their lot sizes are known. The case of synchronization among the stages across the supply chain can be split into two parts.
1. When the lot size at each stage is an integral multiple to the lot size at its immediate stage,
a portion of the delivery can be cross docked to the next stage. The extent of the cross docking in this stage depends upon the holding cost (H), and the order placing cost (S). With the ratio of H/S getting closer between the two stages the extent of cross docking increases as well.
The ratio of H/S is an important factor in determining the lot size and number of orders that is to be placed. If we can look at the optimal lot size Q = (2DS/HC)^0.5. Here the demand along the two stages will be equal and there will be a slight variation in the variable C, which is the cost per unit of the material. Thus ratio H/S proves out to be a prime factor in determining the extent of cross docking.
The above scenario holds good for the arrangement of stages as shown in Fig:1.0.
2. Secondly there is a integer replacement policy. Here the ordering frequency among the players at every stage across the supply chain equals integral multiple of some base period.
The above case depicts the case where there are two stages as shown below.
Stage 1--------------Stage 2
Distributor-----------Retailer 1
------------------------Retailer 2
As the distributor has its supplies every week, he straight away cross docks the replenishment to the retailer 1 and 2. After 1 week the supplies to the two retailers were drawn from the distributor inventory which he holds. similarly for the next two weeks the supplies are taken from the distributor inventory and with the coming fourth week the supplies are again cross docked.
The perfect synchronization in this case will occur when the customer at every stage of the supply chain, has a longer ordering period and its period should be an integer multiple of its immediate supplier. Thus the supplier in this case will be able to cross dock all the orders from its customer who reorder less frequently then the supplier himself.
The integer replacement policy is successful only, when the demand at every stage is predictable. The stability in demand governs the timing of an reorder, which proves out to be the backbone of this policy. The synchronization along the supply chain is based on the ordering frequency and it can be disturbed easily with its variation.