Warehouse Logistics: How Does Cross-Docking Work?

Ricardo AlvarezExports, Freight Forwarding, General, Imports, Ocean Freight, Shipping Guide, Warehousing1 Comment

The Ins and Outs of Cross-Docking

Cross-docking is an industry practice involving the delivery of products from the manufacturer’s plan to the customer directly without involving all the middle parties. This approach reduces the role of material handling and should ideally be less onerous for the customers and manufacturers. Besides, there is the additional advantage of reducing the need to store products in warehouses. These storage modalities can be expensive and require much time or organization. Therefore, the use of cross-docking can be a seemingly better alternative. 

What is involved in cross-docking?

There are many instances where the manufacturer sends the products to the loading dock and are allocated for outbound deliveries. Through cross-docking, it is possible to expedite shipments to customers. The implication is that the customer is more likely to get what they want and when they want it. In other words, cross-docking is part of developing an optimized supply chain. Nevertheless, it is also essential to acknowledge the fact that there are risks involved in cross-docking. 

Companies should always consider the cross-docking risks before adopting it as their preferred delivery modality. Certainly, the standard operating procedures for each company should be clear and optimized to ensure that cross-docking does not fall into some of the pitfalls associated with the practice. This requires significant and conscientious planning to ensure that the supply chain is not disrupted and the quality of the customer experience is not compromised. 

The key benefits of cross-docking

Several benefits have been associated with cross-docking as a practice in logistics:

  1. Cost reductions: Cross-docking has been associated with marked reductions in the labor costs associated with logistics and transportation. This is because the products transported in this way no longer require picking and storage. The entire logistics process is made much simpler through cross-docking. 
  2. Time management: The way that cross-docking is organized will save time for manufacturers and customers alike. Things get delivered on time, and that means that customers are happy. The manufacturer spends less time dealing with complaints and can instead concentrate on increasing the quality of their output. 
  3. Warehouse space management: Cross-docking is associated with a significant reduction in the need for warehouse space. Manufacturers will no longer have to spend time and money looking for suitable warehouse space. Instead, the products are delivered directly to the customer with minimal intermediaries. 

Typologies of cross-docking

As interest in cross-docking possibilities has increased, many typologies have emerged. The manufacturer can choose from any of the types depending on their needs and circumstances. Some of these typologies emanate from the different scenarios that manufacturers and transporters face when making critical operational decisions. Typically, the manufacturer will select the type of docking most suitable for their product types. Here is an outline of the typologies: 

  1. Manufacturing cross-docking: This variety comprises receiving purchased inbound products as required by the manufacturer. In these cases, the warehouse receives products before preparing sub-assemblies for the production orders. This is more of a situation in which the demand will determine how the various packages are organized and assembled to reach the relevant customers. 
  2. Distributor cross-docking: Here, the process involves consolidating inbound products. These products are sourced from different vendors before being organized into a mixed product pallet. That pallet is then delivered to the customer as the final product received. A case in point is how computer parts can be sourced from a range of vendors and combined into a single shipment for the customer who orders the computer. 
  3. Transportation cross-docking: In this case, there is a combination of shipments from different carriers. Such practices occur in industries that specialize in small packages. It is also a means of dealing with less-than-truckload (LTL) packages. The underlying goal is to benefit from economies of scale even if the individual manufacturers cannot command large orders. 
  4. Retail cross-docking: There is a receipt of products from multiple vendors before setting them into packages that are put on outbound trucks. The trucks service several retail stores. One of the famous cases of this type of cross-docking was by Wal-Mart in the 1980s. Under that arrangement, Wal-Mart stocked two types of products. The first are products that are sold every day of the year. This was what was known as staple stock. The second category involved massive quantities of products purchased on a one-off basis and not stocked again. The second form of procurement was called direct freight. In this way, Wal-Mart could minimize the costs of hiring or running warehouses. They would use direct freight and cross-docking to keep products in the warehouse for the least amount of time possible. 
  5. Opportunistic cross-docking: This typology can be applied in any warehouse. It involves transferring products directly from the receiving dock to outbound shipping docks. The determinant is the customer sales order and occurs when required. 

What products would be suitable for cross-docking?

Despite its advantages and typologies, cross-docking is not universally applicable. Some products are more suitable for the practice than others, including: 

  • Any perishables that need immediate shipping
  • High-quality products that are not subjected to inspections during receipt
  • Pre-tagged products using RFID or barcodes
  • Pre-ticketed items ready for immediate sale
  • Recently launched items
  • Promotional items
  • Staple retail products that have a low demand variance and constant demand
  • Pre-picked or pre-packaged orders from another warehouse or production plant

Key risks of cross-docking

It is essential to be aware and wary of potential risks emanating from using cross-docking as a logistics practice. The first risk is a loss of control over inventory because the products are put away in a prescribed manner. That is why long-term cross-docking is considered risky by many companies. Nevertheless, this risk can be mitigated by using proper planning, expertise, and resources.

It is imperative to have a robust inventory control process. The employees that manage this process must be well trained and supported to do their work well. Moreover, there should be proper accountability throughout the supply and delivery chain. Hence, the need to reconcile customer and supplier invoices regularly. 

Wrapping up

Cross-docking is an alternative for those manufacturers dealing with definite demand. In this case, the intermediary processes are cut to allow direct delivery to customers. In that way, costs and time are saved. However, there is a risk of losing control over inventory unless the correct monitoring and accountability systems are put in place as a prerequisite to cross-docking.

Ricardo Alvarez
Ricardo Alvarez is our Customer Relationship Manager here at ShipLilly. He writes and shares his wisdom on everything you need to know about the best practices in logistics.

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