Cross-docking: The need for speed

In today’s high velocity supply chain world, companies are increasingly focusing on distribution methods that will drive efficiency and increase customer satisfaction. Gone are the days where customer service was merely a buzz word. With the focus on customer service, companies have moved away for a supply driven business towards a demand driven business.  Companies are also constantly searching for ways to reduce inventory and holding cost. The increase in speed has forced companies to search for ways to reduce product cycle time and move product quickly and cost effectively.

Over the years, companies have seen a dramatic increase in the number of stock keeping units (SKU). The increase in the number of SKUs has added complexity to the business and also has increased the cost and time needed to manage the business. Department heads face additional pressure as they are required to stock shelves with the right products and ensure that customer demand is met all times. In today’s high speed world, shipping windows are changing rapidly, as retail clients demand increased speed to meet store requirements. To achieve these goals, cross-docking has been pushed to the frontline of the distribution strategy.

What is cross-docking?

Cross-docking is a system that relies on speed and agility and is normally used in hub-and-spoke operations. Cross-docking, in short, is the shipment and receiving of goods by bypassing the storage facility. In the process of cutting out the need for a storage facility, inventory can move quickly from one end of the supply chain to the other. Cross-docking is a fairly simplistic way of handling inventory that involves loading and unloading inventory from an incoming truck onto an outboard truck. During cross-docking storage time varies. However, most experts would agree that anything less than two days can be considered as cross-docking. In some cases staging also takes place.

For all of its simplicity, cross-docking requires detailed planning and collaboration with partners. Companies require advance knowledge of product shipment and final destination of goods. Setting up the required infrastructure and systems can take time and capital. Logistic managers are increasingly making use of technology such as Warehouse Management Systems (WMS) and automated processes. It is important to note that technology is not the key to success.  However, the right system can smooth out problems and increase visibility in the chain. Companies now have the ability to send products on a Friday night, receive them on Saturday, and sell the products later in the day.

How is it used?

Cross-docking is used in a variety of strategies that include consolidating loads of less-that-truck load (LTL) carriers, consolidate loads from multiple suppliers and/or plants, deconsolidating orders, and preparing for shipping. Cross-docking can be divided into different complexity levels including one-touch, two-touch and multiple-touch. One-touch is considered the highest productivity as products are not loaded on the dock, but is loaded directly on the truck. During two-touch the focus is on load optimization and driving efficiencies. Inventory is received and staged on the dock, without making use of a storage facility. During multiple-touch, products are received and staged for reconfiguration and customization.

An increasing number of companies are starting to use cross-docking in their operations. In a 2008 cross-docking trends report in the US, 52 percent of respondents stated that use cross-docking with a further 13 percent planning to start cross-docking in the next 24 months. A number of companies are outsourcing cross-docking.  By doing so, they avoid the challenges of setting up and running a cross-docking operation. Many companies start small and pilot projects are common as they explore the configuration that best fits their needs. For cross-docking to succeed it needs to be a coordinated effort that relies on close partnership and collaboration.

What are the advantages?

One of the key advantages of cross-docking is that companies are reducing their need for warehousing space, which reduces inventory holding cost. Cross-docking facilities are much cheaper to set up and run than warehouses and companies can save on the capital investment in warehouses. In some cases, companies can reduce warehouse floor space and sell off or lease out underutilized facilities. Companies like Toyota have designed and built their own cross-docking facilities. Normally these facilities are strategically located to reduce distance and maximize support.

Some of the biggest advantages for companies are transport related. Companies can achieve significant cost savings, by consolidating loads of LTL carriers. Pallets that are heading for the same destination are consolidated and staged by order sequence. By doing this, companies can reduce the distribution cost of the total supply chain and pass the savings on to the consumer. By making use of cross-docking, companies can furthermore reduce the impact of rising energy cost. Companies like Toyota have used this strategy to great effect. With the increased reliance on Just-in-Time (JIT), parts are being shipped at higher frequency and lower quantity. By making use of cross-docking, Toyota has reduced distribution cost by consolidating smaller part supplies into consolidated loads. Cross-docking has allowed companies to increase JIT and remove waster or muda in the organization.

The increased speed in the supply chain helps companies to reduce product cycle time and move product quickly and efficiently down or up the chain. In Toyota’s case, this has allowed them to increase delivery frequency and in some cases even double delivery cycles. Cross-docking also have some major benefits where inventory is limited. As inventory is not kept in storage, companies require less stock.  The reduction in inventory will reduce holding cost and at the same time satisfy demand. One of the major benefits of cross-docking is also the reduction of labour cost. With the downturn in the economy, companies will increasingly look at cross-docking as a possibility. Cross-docking can reduce staff numbers and their associated labour cost and also gives the organization greater flexibility during an economic downturn.

Many companies, however, do not start cross-docking primarily for cost reasons.  They start to improve customer service. Today’s customers require greater speed and are also more demanding. Companies should establish clear goals and be willing to test different options. For companies that want to streamline operations and increase the supply chain velocity, cross-docking may be the right solution.

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