The supply chain is determined by the design of a capable transportation network. There are two types of transportation networks that companies can use to cut costs so that original products remain the choice of consumers. This type is shipping through central distribution with storage and shipping through transit points with cross-docking.

between those two transportation networks, which transportation network is possible to reduce transportation costs? Explain!

Shipping through transit points with cross docking would cost less than central distribution with storage system.

For a distribution system that involves a network of warehouses and the materials are stored in a network of warehouses, the company has to pay a cost to acquire/build/rent the warehouse, additional cost that would be invested in material handling movement like forklifts, overhead stacker, robotic arms, palletizers and many others. This type of central distribution system usually involves the product sitting at the warehouse until an order fulfillment cycle occurs to fill a customer order. Until the time it remains unsold and in the posession of the warehouse, it usally incurs an inventory holding cost. This traditional method of distribution does incurr high operational cost. This distribution method can work well in cases when the organization have not invested in information technology and inventory visibility systems and live inventory tracking.

On the other hand, shipping though transit point using cross docking is a much more faster and cheaper in terms of transportation cost because cross docking involves unloading materials from incoming trucks or railcars, gets segregated and sorted, and get re-loaded into outgoing trucks or rail cars with little to no storage of materials in between. Incoming trucks usually contain full truckloads of one product coming from the manufacturer of that particular product. Then the truck arrives at the cross dock, and the full truckloads of product is segregated by the product ordered by for example, a retail store. Consider the distribution of a grocery store.

They might have a truck that contains only milk, another truck that contains vegetables, another truck for meats, a fourth truck for sodas and other drinking items. Then those trucks arrive at the cross dock and segregation happens so that each outbound truck contains some milk, some vegetables, some meat and some drinks that will be used to replenish inventory at a grocery store.

This type of distribution needs the organization to invest in information technology, live inventory tracking systems for coordination between inbound and outbound trucks at the cross dock. In the long run, the savings realized by reduced transportation costs outweigh the upfront costs for implementing information technology systems.