How can businesses use cross-docking to improve their supply chains?

An ongoing goal of any organization is to optimize its supply chain and get products to customers as soon as possible. The longer an item stays in transit or in storage, the more a company will pay for its overhead costs. In 2021, total warehousing costs saw a 5.6% increase compared to the previous year, amounting to $7.91 per square foot. 

Cross-docking is a system designed to reduce the amount of storage needed by a supply chain. It creates a logistics schedule where finished products are transferred from one vehicle directly to the next, eliminating the need for any interim storage. 

This not only reduces overall costs, it also streamlines order management, results in faster shipping times, and generates value to the company at a quicker rate.

What is cross-docking? 

Cross-docking is considered a just-in-time (JIT) shipping method that skips over the step of warehousing products after they leave the supplier. In practice, this means that raw materials, components, or finished products are dispatched directly for delivery to the next stakeholder in the supply chain. That may be a manufacturer, shipping and logistics partner, wholesaler or distributor, or even the end consumer.

Cross-docking occurs at a distribution center or docking facility. Products are unloaded from inbound vehicles and sorted. They are then directly transferred to outbound docks using forklifts, conveyor belts, pallet trucks, or robots. Various products from different orders are combined on one outbound truck departing for the same destination or route. 

Since the inventory never enters into storage at a third destination, companies can reduce the number of touches required to deliver goods to the final consumer.

Types of cross-docking

There are two main types of cross-docking: pre-distribution and post-distribution.

Pre-distribution cross-docking is usually done earlier in the supply chain or is done by companies with vertically integrated supply chains. Under this method, goods are sorted and loaded before they leave the supplier, and already have customer delivery instructions. 

Retailers like Wal-Mart, for example, receive all types of products to massive distribution centers and then sort the items for delivery to specific store locations. A subcategory of this method is manufacturing cross-docking. In manufacturing cross-docking, a manufacturer receives and sorts parts and builds products or sub-assemblies for dispatch further down the supply chain. 

Post-distribution cross-docking occurs at a dedicated distribution center or cross-docking facility after goods have left the supplier. Disparate orders and items will be re-sorted and combined onto the appropriate transport vehicle at the dedicated facility. This type of cross-docking is used for less than truckload (LTL) orders, in which numerous smaller orders are put together. Alternatively, it breaks down larger bulk orders into smaller individual ones. 

The post-distribution method is more likely to be carried out by third-party cross-docking services with dedicated distribution infrastructure and sorting facilities. In post-distribution scenarios, items may not yet have an assigned order and will incur storage time and costs at the cross-docking facility. These two factors make post-distribution cross-docking more expensive.

What are the benefits of cross-docking?

By leveraging cross-docking to achieve fewer order touches in the supply chain, businesses can experience a several benefits.

Cost savings

By cutting back unnecessary warehousing operations, businesses can reduce expenditures on warehouse real-estate and the associated costs, including climate control, lighting, maintenance, and labor costs. In addition, by delivering products in a just-in-time fashion, businesses avoid the age-old problem of inventory depreciation.

Improved material handling

By removing redundant picking and packing steps, businesses reduce the opportunities for product damage. Furthermore, with items remaining in open staging areas, workers can inspect orders to ensure damaged products are not sent out.

Speed of delivery

Cross-dock operations not only boost efficiency by eliminating unnecessary touches, but distribution centers are strategically located near customers for timely dispatch and delivery. With faster dispatch and delivery, businesses can achieve improved customer satisfaction.

What are the disadvantages of cross-docking?

The benefits of cross-docking are compelling, but to realize these results, your business needs to ensure certain conditions are met.

Capacity

While cross-docking reduces the need for warehouse space, it brings the need for more terminal and dock space, as well as more transport vehicles. Distribution centers must have the facilities, know-how, and technology to make this work.

Precision

Trading bulk orders and bulk storage in favor of smaller JIT shipments requires a great deal more precision. Companies must be able to track individual items throughout the supply chain at the speed of travel. Getting the right products to the right place will require well-trained personnel, carefully planned storage space, and accurate order tracking software.

Control

Organizations that don’t have a well-built shipping and logistics arm will find it necessary to entrust this function to a cross-docking operations services provider. This entails relinquishing some control after orders are handed off. A trustworthy partner with integrated systems will be key in maintaining the visibility of operations and quality of service.

Three methods for using cross-docking in your business 

A cross-docking system can be implemented in several ways, depending on the type of business and products it sells. 

Continuous cross-docking

The simplest type of the three types, continuous cross-docking is designed so products are nearly always in transit. In a central cross-docking terminal, inbound and outbound vehicles are scheduled, so one is available for transfer as soon as a new delivery arrives. 

Continuous cross-docking creates a non-stop logistics flow, with the only wait time being when products are loaded between vehicles.

Consolidation arrangements

It’s common for a single shipment to be combined with other shipments. For example, if one shipment contains relatively few products, it wouldn’t be efficient to use up an entire vehicle for delivery. 

In these cases, consolidation cross-docking includes setting aside a small area in the terminal for short-term storage. Once there are enough smaller shipments, they are then combined and justify moving to the next leg of delivery.

Deconsolidation cross-docking

As one can quickly guess, de-consolidation cross-docking is the exact opposite of consolidation cross-docking. 

In deconsolidation cross-docking, either a larger shipment is divided into smaller quantities and then shipped to their next destination, or individual products are immediately sent directly to the final customer.

Which type of business and products are a good fit for cross-docking? 

Cross-docking is based on the just-in-time principles to pull materials into production only as needed. Many automobile companies were early adopters of cross-docking within their manufacturing plants and distribution systems. 

Beyond heavy industries like automobile production, cross-docking is highly effective for high-volume, high-demand items and perishable goods. Consider these product categories for cross-docking implementation: 

• Perishable items with low shelf-life 
• Cold food chain items
• Food and beverage
• Staple retail products with consistent demand 
• Promotional items and new product releases
• Chemicals

Of course, items like perishable goods and cold food chain products cannot sit on the receiving dock for too long—otherwise, they would spoil and need to be recalled. To make sure items move swiftly through the supply chain, your organization will need to have advanced item tracking capabilities with barcoding, QR codes, or RFID tags that automatically submit real-time data to your order management system for end-to-end fulfillment visibility. 

Crossdocking FAQ

What’s the difference between cross-docking and warehousing? 

Cross-docking operations remove the need for warehousing. In warehousing, items are checked into a depot’s storage facility and incur costs as standing inventory. Those items are pulled back into the supply chain when an order comes. They must be picked, packed, and dispatched, and inventory records updated. This warehousing process is skipped over by unloading, sorting, and reloading products directly cross-dock, bringing greater speed and efficiency to supply chain management.

What’s the difference between cross-docking and dropshipping?

Cross-docking still involves the management of inventory, but reduces the need for warehouse operations. Dropshipping is a common type of ecommerce business that offloads inventory management, manufacturing, and distribution to a third party. Dropshippers act as a middleman between the manufacturer or distributor and the end customer via their ecommerce store line. Dropshippers do not handle manufacturing or distribution, whereas cross-docking handles all of these but helps reduce the need for warehousing.

What’s the difference between cross-docking and direct shipment?

Direct shipment cuts out a distributor and directly ships products from the manufacturer to the customer. This removes the need for a wholesaler, distributor or retailer. Cross-docking uses distributors and wholesalers but reduces the need for warehousing, making the shipping process more efficient.

Final thoughts

There are multiple reasons businesses opt to use cross-docking when transporting their goods. In addition to reducing warehouse costs, this logistics system also leaves less room for error and results in more efficient operations. 

The benefits of cross-docking are even greater when coupled with proper inventory management. QuickBooks Enterprise offers an inventory management functionality where you can track and manage your products in real-time.

With built-in automations and end-to-end visibility into all inventory data, businesses can increase supply chain efficiency and improve their bottom line all from a single platform.