Integrated cross-dock location and supply mode planning in retail networks

Abstract

This paper considers the problem of integrating cross-docks (CDs) into a given retail supply network with the aim of minimizing related logistics costs. These comprise transportation costs, costs for setting up and operating CDs, inventory holding and purchasing costs. We present a novel mixed integer program (MIP) for optimizing the number and locations of CDs within the supply network as well as the selection of flow type (cross-docking or direct-to-warehouse shipping) and the associated delivery pattern tailored to a specific supplier. A numerical study shows that the original problem is difficult to solve for real-sized instances using a standard MIP solver. We therefore develop a hierarchical decomposition approach that achieves cost-efficient results compared to heuristic approaches, which assume linear transportation costs. In order to demonstrate the model’s applicability to real-life instances and to gain further practical insights we conducted a case study using data from a major European retail company. In this study we found that more than 6% of related logistics costs can be saved by setting up CDs within the supply network. We also show that existing approaches in literature may lead to unfavorable results in certain settings due to an overestimation of transportation bundling effects. Extensive numerical experiments and scenario analyses provide further managerial insights into the problem characteristics.