Cross-docking is a distribution strategy that virtually eliminates the need for warehouse storage and pick-and-pack labor. Though cross-docking requires excellent organization and forecasting, it can significantly reduce fulfillment costs and maximize efficiency.
Cross-docking is a distribution model in which inventory is unloaded from an incoming freight truck, sorted, and immediately loaded onto another truck bound for the customer. The inventory literally crosses the distribution center’s docks, lending the model its name. It’s most commonly used for wholesale or B2B orders, but it can also be used for direct-to-consumer purchases (especially for large goods like appliances).
Cross-docking eliminates the period of inventory holding between incoming restock orders and outgoing consumer orders, with the goal of moving incoming shipments to outgoing trailers as quickly as possible.
While the inventory is not stored in a warehouse during cross-docking, warehouses are still a critical element of cross-docking distribution. The employees still perform receiving, packing, and shipping functions, but the picking element of pick and pack is eliminated, since the products are not first transferred to warehouse shelves or storage areas.
Instead of focusing on traditional storage and order picking, cross-docking focuses on receiving and staging. Without the storage element of the supply chain, warehouses can receive incoming deliveries more efficiently. Products are unloaded from rail cars or trucks and sorted, then put on other trucks or rail cars to go to their final destinations. Cross-docking may or may not involve repackaging the inventory between receipt and shipment. If there are products from multiple inbound shipments going to one destination, this method allows for easy consolidation.
Cross-docking solutions may be used for just-in-time inventory control and lean distribution. Products keep moving, and companies can reap multiple benefits including lower costs and faster delivery times.
Because the inventory isn’t stored in the warehouse, orders arrive to the customer much faster through cross-docking. And since big inventory batches are broken down into smaller shipments and loaded onto freight trucks going in the same direction, cross-docking makes for more efficient shipping.
Companies that employ cross-docking also benefit from less complex receiving, since the inventory doesn’t need to be scanned into a warehouse management system (WMS) and loaded onto warehouse shelves.
Cross-docking significantly reduces labor costs associated with order fulfillment by cutting out pick and pack service, and completely eliminates fees incurred for storing inventory at the warehouse.
Freight shipping is also more cost-efficient than the carrier service provided by companies like UPS and FedEx. Fewer trips and transport vehicles means lower fulfillment costs.
When using cross-docking, inventory goes through fewer hands—meaning less complex inventory tracking and lower risk of product damage. This is especially beneficial for fragile or high-value products and items with a finite shelf life, like perishable food items or vitamins and supplements.
Cross-docking gets orders out the door faster, which in turn gets the product to the customer faster. This could mean getting an order to its end user more quickly—a major consideration among ecommerce shoppers—or delivering a wholesale shipment to a retailer faster. Retailers will especially appreciate expediency for perishable products, as it will allow them more time to sell the inventory before its expiration date.
The specifics of cross-docking can take several forms. There are two primary types of cross-docking known as pre- and post-distribution. Within these two categories, there are more specific cross-docking techniques.
Pre-distribution cross-docking is used when there is an identified buyer. The shipment arrives at the warehouse with predetermined instructions for handling, which may include unloading, sorting, and repacking the inventory.
Post-distribution cross-docking is used when the inventory arrives at the warehouse before its destination is determined. In this case, the inventory will sit at the warehouse slightly longer, until the next leg of its journey is identified.
For example: a large retailer like Target might send a purchase order to a distribution facility, then determine which store locations need more stock. Target would then communicate the distribution instructions to the warehouse so the inventory could be sorted and delivered per the stores’ needs—two pallets to Store A, five pallets to Store B, and so on.
With this approach, shipments arrive at the dock already sorted with SKUs. Multiple customer orders may be combined on one pallet, which requires some unloading before reshipment. Orders may be repalletized with additional products for the same customer before they’re shipped.
This is one of the most affordable methods, since it’s the simplest. Incoming shipments are pre-sorted based on outgoing order requirements. Workers simply identify the right shipments to put in the correct outgoing trucks. One example of this is a less-than-truckload (LTL) terminal where shipments go directly from one truck to the next, never hitting the warehouse floor.
Popular or in-demand items may be cross-docked when other products sold by the same company are normally stored. These hot items may be combined with other products or sent directly upon receipt. An example of this is immediately sending out items on backorder when they arrive at the warehouse.
This involves blending incoming products with stored items to send. The combined products are palletized and routed to outgoing trucks. In this case, a portion of an incoming shipment may be stored while the rest is cross-docked.
This strategy is often used for seasonal or promotional products. It may also be used for bulky or awkward items. The goods are temporarily stored offsite until just before shipping. At that point, they are moved back to the cross-docking area. This helps warehouses reduce onsite storage demands.
For some companies, incoming shipments arrive by both rail and truck. When this happens, they may need to consolidate items from both transport sources to fulfill customer orders. This approach involves sorting and combining items within a day or two. This is similar to pool-car forwarding, which involves picking up items by truck and shipping them by rail. The goods then go to another facility where they are unloaded onto trucks bound for the final destination.
As with all logistics practices, there are some potential risks or drawbacks with cross-docking. The keys to making it a success are using it when appropriate and taking steps to mitigate risks.
Cross-docking requires strict organization and demand forecasting, but supply and demand are affected by unpredictable economic factors. Using the wrong cross-docking approach during periods of demand instability can be detrimental to the business. Research shows pre-distribution is preferable during periods of demand stability, while post-distribution is better when demand is unstable.
Some internal factors can affect processing time and cause delays. Employee shortages or inefficiencies can slow down processes, costing the company both time and money. Processing delays can also stem from things like insufficient internal resources or equipment problems.
Successful cross-docking requires rigorous schedule management. External factors like inclement weather or traffic can impact truck arrival, but internal factors can wreak havoc, too. Miscommunications, unrestricted arrival or departure times, and other schedule management mishaps can disrupt cross-docking flow.
Airhouse provides customized and innovative logistics solutions that reduce operating costs and boost efficiency. To learn how Airhouse can improve your fulfillment operations, schedule a call with us.
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