What Is Cross Docking? (Guide)

Speed and productivity of a supply chain has become an important factor of growth for organizations. Cross-docking is just one strategy that can be implemented to help achieve a competitive advantage. Implemented appropriately and in the right conditions, cross-docking can provide significant improvements in efficiency and handling times.

Supply chain management is all about flows. Material flowing through warehouses is no exception. Conventionally the warehouses were set up as inventory buffer points along the supply paths so that demand fluctuations across the network could be smoothed. That provided stability to the planning and operations of the supply chain.

But better technology, integrated systems and near real-time information exchange have all made it possible now to operate the warehouses more efficiently. Where the product and demand attributes allow, it is possible to leverage cross-docking opportunities and reduce the inventory buffers at the warehouses.

Cross-docking is a practice in logistics of unloading materials from an incoming semi-trailer truck or railroad car and loading these materials directly into outbound trucks, trailers, or rail cars, with little or no storage in between. This may be done to change the type of conveyance, to sort material intended for different destinations, or to combine material from different origins into transport vehicles (or containers) with the same or similar destinations.

Cross-dock operations were pioneered in the US trucking industry in the 1930s, and have been in continuous use in less-than-truckload (LTL) operations ever since. Wal-Mart began using cross-docking in the retail sector in the late 1980s.

In simple terms, inbound products arrive through transportation such as trucks/trailers, and are allocated to a receiving dock on one side of the ‘cross dock’ terminal. Once the inbound transportation has been docked its products can be moved either directly or indirectly to the outbound destinations; they can be unloaded, sorted and screened to identify their end destinations. 

After being sorted, products are moved to the other end of the ‘cross dock’ terminal via a forklift, conveyor belt, pallet truck or another means of transportation to their destined outbound dock. When the outbound transportation has been loaded, the products can then make their way to customers. In the LTL trucking industry, cross-docking is done by moving cargo from one transport vehicle directly onto another, with minimal or no warehousing. 

In retail practice, cross-docking operations may utilize staging areas where inbound materials are sorted, consolidated, and stored until the outbound shipment is complete and ready to ship. In most cases, the products sent from the manufacturing area to the loading dock has been allocated for outbound deliveries. In some instances, the products will not arrive at the loading dock from the manufacturing area but may arrive as a purchased product that is being re-sold or being delivered from another company’s manufacturing plants for shipment from the warehouse.

Cross docking solutions allow companies to expedite shipments to customers, which means that customers often get what they want when they want it - the goal of optimized supply chain. Many companies have benefited from using cross docking. Some of the benefits include:
  • Reduction in labor costs, as the products no longer requires picking and put away in the warehouse.
  • Reduction in the time from production to the customer, which helps improve customer satisfaction.
  • Reduction in the need for warehouse space, as there is no requirement to storage the products.

Types Of Cross Docking

There are a number of cross docking scenarios that are available to the warehouse management. Companies will use the type of cross docking that is applicable to the type of products that they are shipping.

Manufacturing Cross Docking – This procedure involves the receiving of purchased and inbound products that are required by manufacturing. The warehouse may receive the products and prepare sub-assemblies for the production orders.

Distributor Cross Docking – This process consolidates inbound products from different vendors into a mixed product pallet, which is delivered to the customer when the final item is received. For example, computer parts distributors can source their components from various vendors and combine them into one shipment for the customer.

Transportation Cross Docking – This operation combines shipments from a number of different carriers in the less-than-truckload (LTL) and small package industries to gain economies of scale.

Retail Cross Docking – This process involves the receipt of products from multiple vendors and sorting onto outbound trucks for a number of retail stores. This method was used by Wal-Mart in the 1980s. They would procure two types of products, items they sell each day of the year, called staple stock, and large quantities products which are purchased once and sold by the stores and not usually stocked again. 

This second type of procurement is called direct freight and Wal-Mart minimizes any warehouse costs with direct freight by using cross docking and keeping it in the warehouse for as little time as possible.

Opportunistic Cross Docking – This can be used in any warehouse, transferring a product directly from the goods receiving dock to the outbound shipping dock to meet a known demand, i.e. a customer sales order.


Products Suitable For Cross Docking

There are materials that are better suited to cross docking than others. The list below shows a number of types of material that are more suited to cross docking. 
  • Perishable items that require immediate shipment.
  • High-quality items that do not require quality inspections during goods receipt.
  • Products that are pre-tagged (bar coded, RFID), pre-ticketed, and ready for sale at the customer.
  • Promotional items and items that are being launched.
  • Staple retail products with a constant demand or low demand variance.
  • Pre-picked, pre-packaged customer orders from another production plant or warehouse.

What are the risks associated with cross docking?

Because products aren't put away in the company's prescribed fashion - there is increased risk with a loss of inventory control by using cross docking in the long term. To implement cost docking effectively, warehouse and supply chain managers should implement robust inventory control processes and train warehouse employees on those processes. 

Even though cross docked items are not put away in the company's prescribed fashion, that does not lessen the need to account for those goods while accounting for stock and reconciling supplier and customer invoices.

Warehouse management systems will typically need to be integrated with the enterprise systems to receive real-time updates on shipments, material requests, and distribution orders. They should be able to react to these changes and re-plan if required.

A paper based process in the warehouse cannot be used for changes in plans dynamically, make sure that the system supports the wireless handheld terminals in the warehouses. A warehousing system that is integrated with the automation/mechanization increases efficiencies, and reduces errors.

As cross-docking does not require the inventory to be stored at the warehouse. The warehouse directly moves from the receiving docks to the shipping docks or staging areas, hence warehouse operations are more efficient.

Fulfillment network must be reviewed to make sure that all stores are within an acceptable distance from their primary distribution center. Flow-through strategy may result in smaller but more frequent shipments to stores. Make sure that your distribution network is capable of handling such changes without adverse effect on the service levels.

Distribution processes get affected when the warehouse task planning reacts to real-time changes in receiving and shipment requests. Make sure that the people in the distribution center and the stores are aware and have bought into the strategy. Consider things like fixed schedules and frequency of receiving in the stores, relative priority of shipments received from the DC over shipments from suppliers, store labor planning and scheduling models.

All these processes may need to be reviewed and validated for their alignment with the new strategy. Your enterprise systems must be ready to support the changes in the business processes, and operations. Make sure that you have enough historical sales data and analytics capability to define the best targets for the flow-through strategy.

A flow-through environment makes it possible to review the original allocations again at the time of receiving the merchandise. Though it is not required, it allows the retailers to react to any demand changes in the time between when the order was placed and when the merchandise is received. The concept is very similar to manufacturing industries holding off the final assembly to the last possible minute. 

If you decide to re-allocate at receiving, make sure that the allocation systems are capable of reviewing and re-allocating merchandise on-demand. The alternative strategy also requires a review of the system to make sure that the order pegging is maintained between the DC and store orders.

Cross-docking or flow-through is definitely a strategy to consider when it comes to the following products lines:

Perishable items that require immediate shipment;

High-quality items that do not require quality inspections during goods receipt;

Products that are pre-tagged (barcodes, RFID), pre-ticketed, and ready for sale;

Promotional items and items that are being launched;

Staple retail products with a constant-demand or low-demand variance;

Pre-picked, pre-packaged customer orders from another production plant or warehouse.


Is Cross Docking The Solution For E-Business?

This is a good question and you have to know if and when doing cross docking makes sense for your e-business. Traditionally, the most suitable times for implementing a cross docking system are when there is a known demand for a specific product or group of products.

This demand can present itself in different promotional offers, or it can be guided by a particular season. For instance, if your business is having an extended Groupon sale of a specific product, or a product that has been historically been successful has just hit the market, then this would be a good time to consider cross docking.

As far as seasons go, the holidays are a top-selling season for many retailers. If this is the case for your business, then organizing some cross docking for that period of time would be advantageous. Remember that speed is the primary benefit of cross docking. You want to be able to manage the demand for your product and get it out to customers as fast as possible. 

Cross docking ensures that retailers are happy and that most importantly, your customers are satisfied and their demands are being met. And that is one of the main reasons why businesses are turning to cross docking more often. E-commerce has given customers all the power when it comes to choice. Companies need to be able to distinguish themselves any way they can, and often that is in the manner in which they deliver their products. 

Customers want their products quickly and they want them cheap, and lower delivery times and costs are synonymous with cross docking. When a crowdfunding campaign that raised money for products, like many on Indiegogo and Kickstarter, they are usually one off shipments to backers and the usual method of delivery involves crossdocking. 

In the same vein, when an e-commerce store has a flash sale or any big uptick in sales volume due to some special event–think Black Friday or Cyber Monday–then cross docking in usually the most cost effective way to deliver the inventory to the end user. Cross-docking remains an essential strategy for various logistics challenges.

For crowdfunding fulfillment, rewards are shipped to a campaign’s Indiegogo or Kickstarter backers almost always via the cross docking method. There are efficiency gains when shipping from a hub location.

This is one reason Hong Kong maintains a strategic advantage as an e-commerce distribution hub especially in the case of crossborder shipments out of China to the rest of the world: Hong Kong is the world’s largest by volume air freight hub. And moreover, it makes Hong Kong the best place for e-commerce merchants to process, what–until recently–was Shenzhen fulfillment.

The Difference Between Cross Docking And Drop Shipping

When businesses are faced with the decision of cross docking vs drop shipping, they must first understand how each of these practices work. Drop shipping differs significantly from cross docking. Cross docking minimizes or eliminates the need for a warehouse. Drop shipping however, reduces the role of a distributor to an entity that simply provides shipping information. 

In drop shipping, the burden of shipping is taken on by the manufacturer, which sends products directly to its customers. There is, of course, a fee associated with distributors or retailers providing the information to manufacturers. But for some businesses, this option may make better sense.

What Works Best for Manufacturers - Cross Docking or Drop shipping?

What works best for manufacturers depends on the goals and design of the company. With drop shipping in particular, there is a benefit for manufacturers in that they get to build a direct relationship with the customers. In business-to-business deliveries, this benefit may be even more helpful as the need for consistent communication is more pronounced.

But bearing all of the shipping burden comes with a price tag. And often that price tag can be hefty. With drop shipping, manufacturers must also deal with customer service. This in itself is a difficult undertaking, which is why companies must really think carefully before turning to this process.

Cross docking is the more popular choice for a reason. It keeps all of the necessary systems in play, removing only the need for long-term storage. It increases efficiency while not putting the onus on the manufacturer to provide customer service and shipping.

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