Cross-Docking: Bypassing Storage

Customers expect products when they are ordered—on demand, with an unprecedented level of compliance. To be competitive, companies must focus on moving product in and out of the warehouse in the most cost-effective, efficient, and timely manner possible, while providing the services customers demand. They need to position distribution as a front-line business strategy.

For many, cross-docking can be a valuable part of this strategy.

The process of moving material from the receiving dock to the shipping dock, bypassing storage, cross-docking reduces inventory carrying costs, transportation costs, and costs associated with order fulfillment and material handling. Holding inventory, moving it, counting it, picking it, and sometimes losing it costs money. While not a solution for everyone, such as those with strict first-in first-out (FIFO) requirements, cross-docking can lead to significant benefits.

Who does the work?
Cross-docking involves an inbound shipment to and an outbound shipment from the facility performing the cross-dock activity. A decisive issue is who prepares the material for the outbound shipment.

Some companies, most notably retail chains, will negotiate with their vendors to have the vendors prepare the product specifically for cross-docking before shipping it to the retailer’s distribution center. The vendor may have to label cases for automatic sorting upon arrival at the retailer’s DC, or the vendor may be required to sort and palletize cartons for each of the retailer’s stores for quick and easy cross-docking. A firm that ships full pallets or floor-loaded trailers with just a few SKUs is dealing with a labeling–and soon, an RFID–task. If it must prepare orders for possibly hundreds of stores, it is facing a completely different level of effort—one requiring systems, software, and automation.

On the other hand, the company receiving the shipment may want to handle the cross-docking itself, usually within hours of receipt of the inbound shipment. This involves its own unique set of requirements.

Cross-docking requirements
The proper processes, systems, and supply chain relationships must be in place to successfully cross-dock on a large scale. With the right combination of these key elements, some distribution centers are able to cross-dock more than 70% of their products. These systems include automated material handling, warehouse management systems (WMSs), order processing systems, quality controls systems, and strong relationships between supply chain partners.

Automated material handling systems are often crucial for a cross-docking operation. An automated cross-docking system typically consists of a series of conveyors for receiving and sorting cases. Barcode scanners read an identification code on each case to track the product through the cross-dock system and, based on information from a WMS or an order system, the automated system sorts the cases to trucks or pallets for shipping.

On the software side, business systems may require special functionality to efficiently allocate inbound goods to existing orders, matching supply to demand. Some WMSs permit opportunistic cross-docking functionality to allocate received product to current demand in real-time. And there is little stress on software systems when buyers predetermine distribution for special purchases or seasonal items.

Stringent yet agile quality control (QC) operations are increasingly important as the volume of cross-dock business increases, especially when handling new suppliers. Good QC is essential to avoid delays, bottlenecks, or the costs associated with shipping inferior product.

Failing to establish a good working relationship with your supply chain partners can lead to failure in a cross-dock endeavor. The sharing of information, clear communication, confidence in the quality and conformance of goods, and product availability are a few characteristics that produce effective cross-docking.

Apparel supplier takes action
A major North American apparel supplier operates a cross-docking operation in one of its distribution facilities. In order to avoid smaller inbound shipments to regional DCs, shipments are brought into the cross-dock facility and combined with product from other sources to form full loads for shipment to the regional DCs. This arrangement, while adding very little time to the supply cycle, provides transportation savings and a centralized QC operation with inherent benefits.

The facility uses an automated material handling system that interfaces with a host software system. Cartons are placed on truck-unloading conveyors at the receiving dock and scanned by online scanners as they enter the processing system. The host system is notified of each scan and determines the disposition of each carton. Typically a sample of each SKU is routed to quality inspection while the balance is forwarded to holding. Upon passing inspection, the SKU is released. At this time the product, which is still on the conveyor, is sorted for shipment to the various regional facilities, including local stock.

The company could achieve the same benefits (transportation savings, QC, reserve stock) without the cross-docking material handling system, but at a significant increase in labor and handling. The central DC would be required to put the receipt away into storage and then, upon release by quality control, manually pick orders for shipment to the other facilities—not a trivial task given the style, color, and size mixes of the apparel industry.

Distribution on demand
Cross-docking is one of the many tactical initiatives being used by companies such as the apparel merchant mentioned above. Such companies are embracing the distribution on demand (DOD) approach as they focus on driving costs out of their operations while satisfying customer demand. These companies are moving away from a static distribution model as they seek to be more competitive in the marketplace. Cross-docking is a vehicle for decreasing operating expense while delivering quality goods in a timely manner.

Jerry Vink is the vice president of engineering for Mason, OH-based supply chain services consultancy Forte.