December 1, 2020 Growing & Complex Businesses en_US Learn how you can cross-docking to more efficiently manage your supply chain. Read the complete guide from QuickBooks. https://quickbooks.intuit.com/cas/dam/IMAGE/A5QonQQbi/What-are-the-benefits-of-cross-docking.jpg https://quickbooks.intuit.com/r/growing-complex-businesses/cross-docking/ How can businesses use cross-docking to improve their supply chains?
Growing & Complex Businesses

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

By Ben Oliveri December 1, 2020

During the first ten days of the 2020 holiday shopping season, American consumers have spent $21.7 billion online, representing a 21% year-over-year increase. As the world copes with the new realities of the COVID-19 global health crisis, the surge in e-commerce consumption is expected to continue through the holiday shopping season and into 2021.

With accelerated shifts in consumer habits and less predictable markets, businesses need to pursue more lean, agile operations—especially those responsible for delivering goods to market.

To that end, many companies are investing in order management and supply chain logistics, including building greater capacity for cross-docking.

Lowe’s, for example, plans to pursue more market-responsive operations by building 50 new cross-dock terminals, seven bulk distribution centers, and four e-commerce fulfillment centers over the next year and a half.

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 even 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.

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. When an order comes, those items are pulled back into the supply chain. They must be picked, packed, and dispatched, and inventory records updated. By unloading, sorting, and reloading products directly cross-dock, this warehousing process is skipped over, bringing greater speed and efficiency to supply chain management.

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. At the dedicated facility, disparate orders and items will be re-sorted and combined onto the appropriate transport vehicle. This type of cross-docking is used for less than truckload (LTL) orders, in which numerous smaller orders are put together. Alternatively, it is used to break down larger bulk orders into smaller individual orders.

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 number of 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 more easily 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.

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 they are needed. Many automobile companies were early adopters of cross-docking both 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.

Final Thoughts

After implementing cross-docking and embracing data analytics in the 1980s, Walmart was so successful they became the largest US retailer by revenue by the end of the decade. While they were early adopters of cross-docking, technology advances have made this fulfillment strategy more accessible to businesses looking to boost their operational efficiency.

To successfully implement cross-docking and reap the benefits, forward-thinking businesses are investing in their fulfillment capabilities to increase supply chain efficiency, as well as software solutions that provide end-to-end visibility from fulfillment to delivery.

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