To solve the problem of costs for inventory and storage, cross-docking is the optimal form chosen to eliminate the work of storing and collecting goods during transportation. In this article, we will discuss what does cross-docking mean and what is the cross-docking example you should know to gain benefits for your business.
Table of Contents
- What is cross-docking?
- Cross-docking types
- Cross-docking advantages
- Cross-docking disadvantages
- Cross-docking strategy
- Wal-Mart: A famous cross-docking example
What is cross-docking?
The cross-docking definition is a distribution system of goods, whereby goods are received directly at the warehouse or a distribution center. Goods are not stored in storage but are always ready to be shipped to retail stores. Cross-docking requires harmony and rhythm between receiving and delivery activities. The cross-docking technique significantly reduces distribution costs in logistics.
Warehouse operations have 4 main functions, including Receiving, storing, collecting orders, and sending goods. In particular, the two stages of storing and collecting orders cost the most. Therefore, when applying the cross-docking form, it saves a large amount of money from storage and the shipment only takes a day or less at the cross-dock before shipping to customers.
Cross-docking meaning is that there will not be goods available in the warehouse, so instead of taking the goods from the warehouse for delivery, in this field, the goods must be transported from the supplier to the warehouse. However, cross-docking is only used in the event of a strict on-time commitment to offset any uncertainties associated with the extended lead time.
The administration of the warehouse has a range of cross-docking situations. Companies will use the method of cross-docking specific to their shipping type.
This process includes the receipt by the production of purchased and inbound goods. The warehouse may receive the products and prepare subsets for the manufacturing orders.
For example, a manufacturer may rent a warehouse in the vicinity of its plant and use it to prepare the necessary components for assembly or collection. Since the needs of each component are identified in advance based on the development of an MRP (production resource planning system), a certain amount of inventory is not needed.
The process consolidates incoming items from various suppliers into a mixed product palette that is shipped to the consumer upon receipt of the final item. For instance, distributors of computer parts may obtain components from different suppliers and combine them into one customer shipment.
Grupo Eroski successfully used the cross-docking formula in its distribution center in Agurain (Álava, Spain). Since the food business carries expired goods, it operates with very near delivery times. In addition, Grupo Eroski has confronted the task of meeting an increasingly demanding customer base for service in the retail chain of the group.
Cross-docking is essential for the logistics complex operated by Grupo Eroski: the region devoted to this mission covers 1.48 acres, from which a large amount of orders is being handled. By using this process, 80% of the goods were delivered on the same day to high-level business centers and the remainder to 20% on the next day.
This service incorporates shipments from many carriers in less-than-truckload (LTL) and the small package sectors for economies of scale. This operation combines transport from a range of carriers.
Examples are the shift of transport, the consolidation of several deliveries to the new transport, or the centralization of export activities. Where the final location is a fulfillment center or warehouse at the customer’s site, one of the transportation cross-docking advantages is built on a purchase order in the area of customer relations. You can also transport your transportation cross-docking to your final warehouse. The basis for transportation cross-docking, in this case, is the inventory transfer order.
This procedure involves receiving and sorting items from several suppliers for many retail stores on outbound trucks.
In the 1980s, Wal-Mart employed this approach. Two types of goods will be procured, commodities sold every day, called staples, and large quantities of products sold once and not normally stored again. This second method of procurement is called direct goods, and Wal-Mart keeps warehouse costs as little as possible by using cross-docking.
This is possible in every storage facility. Moving to a shipping dock to fulfill an order from the customer requires that a commodity be transferred directly from the receiving dock.
Owens Corning, based in Toledo, OH, records a spread of between 40 to 50 percent. This producer performs “opportune” cross-docking and direct loading of the outbound shipments from the production line. Opportunistic cross-docking involves directly transferring “hot” products, such as re-order or late-entry goods into shipping areas rather than moving them first to storage or putting them down. Even if some of the goods needed are stored, it is necessary to save time and to speed up orders to cross-dock the arrival pieces.
The application of cross-docking to the business process brings a lot of great advantages to businesses. The most prominent must be mentioned are:
Easy material handling
The handling of materials is much smoother and smoother. Cross-docking increases operating performance and increase productivity significantly. It also provides improved operation for in-motion labeling and measuring, label checking, destination scanning, and so on.
Reduces warehouse rental or property costs
The ownership or rental of a store is a great cost to every business. They must be large to allow lorries and vehicles to get inside and out and they have to be protected with 24/7 safety because of the high value of the products.
You will remove the majority of these costs as one of the cross-docking advantages so you don’t have to rent a warehouse any longer and can quickly transfer the goods from A to B. You will need to rent a smaller facility to unload your lorries, but the costs will be much lower than renting a complete holding.
Reduces staff costs
It is impossible to operate a warehouse itself. It requires a host of employees to move goods not only for safety but also from the containers to the storage. Managers must also make sure the warehouse is running smoothly and the space for the incoming shipments continuously suffices.
Although cross-docking does not eliminate all employees from their transportation, it reduces the numbers required for a fast turnaround and ensures that the costs and profits of the customers remain satisfied.
Your products get on the road faster
The key to ensuring the efficient functioning of any supplier is pace. Customers want to know that their goods will reach them in record time. Cross-docking meaning is that the time that the goods spend on transport is reduced.
Cross-docking allows most products to get directly on the road if not in a few hours. This is great for your client, particularly at a time when clients can see exactly where their packages are at all times.
It would always be better to see product packages on the road than to see them still sitting in a warehouse.
Reduces transport and fuel costs
There is an argument that cross-docking is good for the environment because it ensures that any truck or truck is not used for a few deliveries from the warehouse but rather must be complete. This also ensures that fewer trucks and vans are used.
In addition, the cost of operating a warehouse is minimized, such as heating and electricity.
Reduces handling of products
A shipping company’s most serious mistake is that it breaks a package. It means that after the goods have been delivered they must pay the consumer.
Accidents occur from time to time, but these occur mostly not when carriages are made, but during the process of handling: when employees in the warehouse are required to carry the product around the warehouse using forklifts, and if they wish to store the products in the warehouse.
The less the goods are treated, the less they are likely to break. Cross-docking decreases the interaction between the goods because transport is less important. Instead of being carried and transported into a shop, the goods are directly carried by the supplier and by the truck.
Cross-docking is future-proof
Cross-docking is excellent because it will further the business’ costs in the future. In Sweden and also in the UK driverless trucks are currently being tested. You will soon ship your goods around the country without the labor costs associated with it.
The whole cross-docking process can soon be automated and nobody needs to attend a shipping company from the shipper to the truck or drivers to hire.
If your company has already dumped its storehouses then you are already halfway there and need to make no radical change as new technology starts transforming the industry in the next ten or 20 years.
While cross-docking saves warehouse property, decreases labor costs and enables consumers to get goods faster, some drawbacks are known to intelligent retailers.
Cross-docking might sound like time-saving and efficiency improvement, but management must devote more time to planning and monitoring to ensure the process works effectively. Cross-docking maybe not the best option if you want to make your service smoother.
More investment in capital
Companies can save money on labor costs by introducing cross-docking, but it takes time and expenses to set up the terminal structures. To make the transfer of goods work smoothly, the systems must in some way be constructed.
Since cross-door transfers rely on the team from inbound to outbound, companies need to be able to deliver the right item and quantity to the device on time. There is little space for error in cross-docking – continuous errors will greatly reduce production, waste time, and cost the company its customers due to late or incorrect delivery.
A suitable number of carriers will be required for operation to make cross-docking a useful method. Because it is primarily dependent on trucking, the cost is higher, the need for space outside the warehouse is higher and enough docks are needed to enforce the system. The cross-docking of organizations in hopes of reducing cost might not be the solution.
Risk of shrinkage
Because goods are not packed in compliance with the company’s particular system or style, long-term cross-docking increases the risk of lost inventory or defective products.
Cross-docking is an approach to the supply chain that eliminates the warehouse – in principle at least. In reality, cross-docking is usually more difficult as a supply chain strategy; for example, the trucks outbound can be delayed. As a consequence, in a supply chain model that relies on cross-docking, there is normally at least some allowance for short-time storage.
You may already know that a cross-docking strategy is one of the best solutions. Efficient cross-docking allows you to distribute your goods more quickly and saves you a lot of money with little or no stockpiling.
But do you know how full-speed cross-docking will improve the supply chain and warehouse management? Let’s take some useful and easy-to-follow hints in this article to boost your cross-docking system.
Effective cross-docking strategies
Two different models typically are followed by cross-docking in the supply chain. The first is a single point-to-point channel model which is normally used when freight is transferred from one means of transport to another. Both good examples are the pallets being transferred from a train car to a truck or containers from a ship to a camion. Like those used in US airports, a hub-and-spoke system is the most popular model for cross-docking. Freight from long distances arrives at a central location in which the large load is divided into smaller lots. These lots are then taken to smaller vehicles serving local locations around the loading dock. This is analogous to how passengers land from big jetliners to smaller airports. The load levels under which the outgoing shipments are broken into may further categorize cross-docking strategy:
Load unit level
Pallets are moved from one transport type into another intact when the loading unit level cross-docking. The goods in the facilities are little to no handling and simply transferred from one car to another. With little overhead, it’s simple, fast, and cost-effective.
In cases or as individual cartons, products are shipped out. In essence, greater incoming loads arrive on the pallets and are discharged to separate boxes. Then they are delivered as single packets. A single Stock Keeping Unit (SKU) determines the redistribution on the board. This model forms the basis of most online retail sales and delivery and is typically distributed through packaging services.
Mixed case level
The most work and equipment required is for cross-docking in a mixed case level. Pallet loads are not transported as they are or simply split up, but are unpacked and sorted for final shipment and redistributed to the customer onto new pallets.
Cross-docking is only one of the techniques to be applied to improve the efficiency of delivery. It would only be possible to introduce cross-docking alone without paying attention to other creative techniques. For cross-docking to be efficient, other related developments are required. For instance, Wal-Mart has introduced a range of other capabilities to improve its competitiveness (e.g. good dealer position, low prices on a daily basis, cost-effective articles, and fast response systems). Simultaneous implementation of other technologies such as postponement, mass customization, channel distributorships, effective customer response, vendor-controlled inventory, rapid response systems, and the use of third-party logistics providers should have the greatest impact on channel performance.
Wal-Mart: A famous cross-docking example
A company that students have been studying supply chain management is Wal-Mart for decades. Wal-Mart is one of the best-known examples of a cross-docking business. The cross-docking strategy has been used to gain a competitive advantage over near competing players.
Wal-Mart’s strategic corporate marketing is mostly Everyday low prices (EDLP) and is the location of comparatively low prices of goods, which creates and maintains consumer trust in pricing compared with daily market prices. Wal-Mart uses both the ‘clicks and bricks’ approach as well as a ‘bricks and mortals’ strategy for the marketing of its products. Wal-Mart has a massive competitive advantage because I have a “price match guarantee” that other rivals have challenged to reduce their prices. Wal-Mart’s plan was effective due to its efficient supply chain management system. The supply chain of Wal-Mart has been categorized into three different sections: Acquisitions & distribution, logistics, and inventory management.
The rapid growth of Wal-Mart stores made it important for the company to provide a good communication system. They ensured since they permitted the individual stores to control their resources, that any unproductive inventory is much less than possible. This helps them minimize package dimensions and timely price markdowns on several different categories. In addition to all the techniques addressed, they often make more inventories accessible to their customers via traditional information technology infrastructure. Wal-Mart implemented a cross-docking system in the early 1980s to make its inventory processes more reliable and competitive. The Massive Parallel Processor, which helps them monitor their movement of products through all their centers and shops, has helped this method. With a Radio Frequency Network, the Wal-Mart workers keep track of their inventories in supermarkets, transportation supply, and backup goods in stock at their different distribution centers. The administration of your orders and the refilling of your stocks is done with the help of a standard information system. Both these systems and their database centralization system in real-time have helped them in their cross-docking strategy. Wal–Mart employs staging areas for sorting, consolidating, and storing inbound items before the outbound delivery is fully finished.
Wal-Mart helped streamline the supply chain from the root to the end of sales by using the cross-docking technique, which saved handling costs, cost of operation and cut stock storage costs dramatically. It also allowed them to reach the final customer more quickly.
Cross-docking is the direct flow, with minimal dwell time and the lowest handling and storage time possible, for the products from the receiving area to the shipping zone inside the warehouse. Cross-docking uses shipments to optimize shipping costs wherever possible while optimizing inventory keeping costs simultaneously. Cross-docking also reduces order cycle time and increases delivery system responsiveness and versatility. Cross-docking is likely to be adopted more widely between producers and distributors as production, distribution centers, and processing devices expand and as purchasing and delivery requirements shift. It will probably be a form of all companies that warehouse products.