Rising customer expectations, intense competition and the need to cut supply chain costs allput pressure on businesses to deliver products more quickly and efficiently. Cross-dockingis a supply chain management strategy that can help. The process involves directlytransferring goods from inbound trucks or railcars to outbound vehicles at a speciallydesigned logistics facility, thus speeding delivery, reducing costs and minimizing or eveneliminating the need for warehouse storage at the facility. A wide variety of companies usecross-docking, including ecommerce and brick-and-mortar retailers, manufacturers and freightcarriers. Here’s what you need to know about how cross-docking works, its differenttypes, plus the advantages and risks of this strategy.
What Is Cross-Docking?
Cross-docking is a logistics technique that aims to accelerate goods delivery and increasesupply chain efficiency. It involves unloading goods from vehicles making incoming shipmentsat a logistics facility and transferring them to vehicles handling outgoing shipments,requiring little or no storage time in between. Companies take advantage of cross-docking toconsolidate products from multiple suppliers, break down bulk shipments into smaller lotsand reorganize items for efficient delivery to retail stores, fulfillment centers andcustomers. Cross-docking requires close coordination among a company’s supply chainpartners, including its suppliers and freight carriers. This effort often pays off inmultiple ways: Companies can deliver products faster, minimize the need for warehouse space,optimize inventory control and reduce transportation and labor costs.
Key Takeaways
- Cross-docking is a logistics approach that can accelerate delivery and increase supplychain efficiency.
- The strategy involves directly transferring goods from vehicles arriving at a logisticsfacility to vehicles handling outgoing shipments, requiring little or no warehousestorage of products.
- Cross-docking is used by a diverse range of companies, including retail stores,ecommerce companies, manufacturers and freight carriers.
- In addition to faster delivery, cross-docking benefits include minimizing the need forwarehouse space, optimizing inventory control and reducing transportation and laborcosts.
Cross-Docking Explained
Cross-docking was pioneered by the trucking industry in the 1930s as a way to improveefficiency. In its purest form, it involves directly transferring goods from inbound tooutbound shipments at a logistics facility without the need to place the goods in storage.The strategy is called cross-docking because goods "cross the docks," moving from vehiclesthat arrive at a receiving dock to vehicles that accept the goods at a shipping dock.Although products typically don’t spend much time in the facility, in some casescross-docking may involve short-term storage of goods.
Because cross-docking speeds delivery times, the method is widely used for supply chain management by companies thatneed to move high volumes of goods quickly, especially if those goods are perishable.Supermarkets, for example, use cross-docking to move foods quickly from farms, factories andother suppliers via distribution centers to retail stores. Truckloads of produce arrivingfrom farms are split, reorganized and combined with goods from other suppliers to createoutgoing truckloads of products that are then shipped to individual stores.
Many companies perform cross-docking at specialized docking facilities located near majortransportation hubs, such as seaports and airports. These cross-docking facilities aretypically I-shaped, with inbound docks on one side and outbound docks on the other. Thisconfiguration maximizes the number of docks that can be used by vehicles at one time whileminimizing the distance between receiving and shipping goods at the facility.
Pre-Distribution vs. Post-Distribution Cross-Docking
Cross-docking can be divided into two categories: pre-distribution and post-distribution.
- Pre-distribution cross-docking: With this approach, a goods supplieridentifies the final customer or destination for each product before shipping truckloadsof items to a cross-docking distribution facility. At the cross-docking facility, thegoods are unloaded, sorted and placed onto outgoing trucks based on predeterminedinstructions. This approach minimizes the need for storage space at the cross-dockingfacility, and it typically comes into play when retailers and manufacturers know inadvance how much inventory each store or customer needs.
- Post-distribution cross-docking: With post-distribution cross-docking,the final destination of goods is determined after products have arrived at thecross-docking facility. The goods are stored at the facility until the destination isdetermined and then they’re loaded onto outgoing trucks. This gives suppliers moretime to determine where goods should ultimately be shipped, based on demand. Efficientwarehousemanagement helps companies move goods in and out of storage and keepsoperational costs low.
Dropshipping vs. Cross-Docking
Dropshipping and cross-docking are two different approaches for efficiently moving productsthrough the supply chain. Dropshipping is a businessmodel that separates sales from fulfillment. A retailer or ecommerce company sells aproduct, but it doesn’t stock the product itself. Instead, the product is stocked andshipped directly to the customer by another company — typically a manufacturer ordistributor. Cross-docking, in contrast, is a technique for efficiently distributing goodsand materials by directly transferring them from inbound to outbound carriers at a logisticsfacility. Major retailers and ecommerce companies may use cross-docking to move products,first through distribution centers and ultimately to retail stores or directly to customers.
Direct Shipment vs. Cross-Docking
Direct shipment and cross-docking are both methods for minimizing supply chain costs andspeeding the delivery of goods. With direct shipping, suppliers send goods directly toconsumers, bypassing the need for retail stores or distributors. Companies that sellproducts directly to customers, also known as direct-to-consumer (DTC) brands, often usedirect shipping to deliver products without maintaining a physical retail presence. Incontrast, cross-docking, which involves moving goods directly from inbound to outboundcarriers at a distribution center, is used by many major retailers and other companies thatneed to get products to their final destinations quickly and efficiently.
Types of Cross-Docking
There are several types of cross-docking, each one tailored to meet different needs.Continuous cross-docking focuses on shortening overall delivery lead times by continuouslymoving goods through a distribution facility. Consolidation and deconsolidationcross-docking involve combining or splitting shipments at the facility; these methods aim tominimize transportation costs, as well as ensure timely delivery of goods. A single companymay use more than one type of cross-docking, depending on the needs of the business.
Continuous Cross-Docking
Continuous cross-docking involves a continuous flow of products through a cross-dockfacility, requiring little or no storage time. Products are unloaded from incoming trucks or other containers and immediatelyloaded onto outbound containers that take the products to their final destination. The goalis to move goods through the supply chain as quickly as possible. This type of cross-dockingrequires a high level of coordination and synchronization among suppliers, carriers and thecompany operating the cross-dock facility. Continuous cross-docking is particularly usefulfor high-volume products that are in constant demand, such as food.
Consolidation Cross-Docking
Consolidation cross-docking involves merging multiple smaller incoming shipments at across-docking facility to create one larger outbound load. The primary goal is often toreduce shipping costs, since it typically costs less to ship one large load than to shipmultiple smaller loads. Unlike continuous cross-docking, consolidation cross-dockingrequires goods to be efficiently warehousedat the facility until the company has amassed a full truckload for outgoing shipment. A warehouse managementsystem can help companies track and automate processes, such as receiving andmanaging inventory and coordinating with supply chain partners. Among the businesses thattake advantage of consolidation cross-docking are less-than-truckload (LTL) carriers, whichare logistics companies that specialize in transporting small loads for business customers.International freight forwarders often consolidate multiple loads into a single shippingcontainer when transporting products overseas.
Deconsolidation Cross-Docking
Deconsolidation cross-docking is the opposite of the consolidation method. A large incomingload is divided at the cross-docking facility into multiple smaller shipments for deliveryto customers. For example, parcel carriers may move goods across the country in a singlelarge shipment and then split the shipment into smaller loads for delivery to customers.Retail stores receive large shipments from suppliers at their distribution centers and thendivide the shipments into smaller batches for delivery to individual stores.
When Is Cross-Docking Used?
Cross-docking is well-suited to specific business needs and product types. For example,companies that need to ship large volumes of time-sensitive goods use cross-docking as a wayto quickly get products to stores. Ecommerce suppliers use cross-docking as part of abroader competitive strategy to offer fast shipping to customers. Here are examples ofproducts that are a good match for cross-docking:
- Perishable goods: Businesses need to deliver food and otheragricultural products to consumers while the items are as fresh as possible. The longershipping takes, the less time stores have to sell the goods before they expire.
- Seasonal or promotional merchandise: These products need to get tostores quickly since they will be in demand for only alimited time.
- High-volume products with steady demand: A steady level of demand makesit easier for companies to forecast the volume of products they’ll need to movethrough the cross-docking facility at any time. They can then arrange delivery withtheir suppliers and ensure that they have adequate carrier capacity to move productscontinuously through the facility. Many large retailers use cross-docking to replenishthe supply of high-volume staple products at their stores.
- Items that don’t require inspection: If products don’t needto be inspected on arrival to ensure compliance with industry standards, they can bemoved directly from inbound to outbound carriers.
- Products that require specialized environmental conditions: Someproducts, such as certain medications, must be kept at specific temperatures andtransported in trucks capable of maintaining those temperatures. Cross-docking reducesthe need for expensive, environmentally controlled warehouse capacity at distributionfacilities because the products can be transferred directly between inbound and outboundtrucks.
Advantages of Cross-Docking
Cross-docking can provide a range of business benefits. In addition to enabling fastershipping, cross-docking can help companies increase supply chain efficiency by reducing thecosts of storing, handling and transporting inventory. Some of the key advantages include:
- Faster shipping. Cross-docking accelerates the delivery of goods tobusiness partners and customers because the products spend little to no time inwarehouses. This is particularly important for retail and B2B sellers that are underincreasing pressure to deliver products more quickly to meet buyer expectations.
- Reduced inventory storage costs. Cross-docking reduces and in somecases eliminates the need for expensive warehouse space to store productsduring their journey from suppliers to customers. This system also reduces otherwarehouse management costs, such as the need to track items while they’re in thewarehouse.
- Reduced labor costs. Eliminating the need for warehouse storage meansless handling is required. Workers only need to move products between inbound andoutbound trucks; they don’t need to route products from inbound docks intowarehouse storage, manage them as warehouse inventory and then retrieve them foroutbound shipping.
- Lower shipping costs. Consolidation and deconsolidation cross-dockingtypically allow companies to save on shipping costs. Businesses can combine or splitloads to optimize the number and size of vehicles needed to distribute goods.
- Lower risk of product damage or spoilage. Generally, the morefrequently products are handled and the longer they’re kept in storage, thegreater the risk of damage. Cross-docking cuts down on the amount of handling required,so there’s less risk that items will suffer damage. In addition, becauseperishable items aren’t stored in a warehouse for an extended period,there’s less risk of spoilage or product expiration.
Risks of Cross-Docking
Despite its many advantages, cross-docking comes with some risks. It takes considerableplanning, investment and sustained effort to set up and maintain an efficient cross-dockingfacility. Cross-docking also requires good visibility into supply and demand, as well ascoordination with other companies within a supply chain. Here are some of the main risks toconsider:
- Initial investment. Significant planning is required to design andbuild specialized cross-docking terminals that meet companies’ needs. Since thegoal is to transport goods quickly and efficiently, companies often invest in warehouse automationtechnology, such as conveyer belts and robotics to help move goods around thefacility, as well as sensors and other tools to track their movement. While thistechnology requires a significant up-front investment, companies often recoup theseexpenditures through improved supply chain efficiency and quicker delivery times.
- Supply chain vulnerability. Supply chain reliability is critical forbusinesses. Because companies hold less inventory in warehouses, they can be morevulnerable to unexpected supply chain disruptions. Any interruption to the flow of goodsfrom suppliers can mean companies quickly run out of goods to sell to customers.Real-time inventory managementtechnology can help companies keep tabs on their current inventory and ensure that theymaintain adequate supplies of critical goods.
- Demand forecasting errors. At times businesses may miscalculate thevolume of products their customers want and come up short because they haven’tkept excess inventory in storage. Accurate demand forecasting is crucial to ensure thatsupplies are received and available when customers want them.
- Coordinating carriers and supply chain partners. Cross-docking requiresclose coordination across the entire supply chain. A company must ensure that itssuppliers can deliver inbound goods when it needs them and that it has enough outboundcarrier capacity at exactly the right time to move the goods out of the cross-dockingfacility as soon as they arrive. Enterprise resource planning (ERP) systems withcomprehensive supply chain management capabilities can help companies forecast demandand ensure they’re able to meet customer needs in a timely manner.
Why Businesses Choose Cross-Docking
In a highly competitive global business environment, companies are under increasing pressureto cut costs and deliver products more quickly. Ecommerce has accelerated these trends, withtwo-day shipping or even same-day shipping becoming the norm for both business-to-consumerand business-to-business sales. Cross-docking helps companies meet customer expectations byaccelerating the movement of goods through the supply chain and into customers’ hands.Because cross-docking reduces the need for warehouse storage and the associated labor andmanagement costs, it can also help companies cut expenses.
Industries that Use Cross-Docking
Cross-docking is used by a diverse range of industries, from department stores andpharmaceutical manufacturers to auto parts suppliers. Though these industries differ in manyways, they share the need to move goods through the supply chain to customers quickly whileminimizing costs. Here are some industry sectors that rely on cross-docking:
- Supermarkets use cross-docking to ensure a daily flow of fresh produceand other foods from suppliers to retail stores.
- Department store chains use cross-docking to maintain a steady supplyof goods to their retail outlets. For example, Walmart uses cross-docking extensively aspart of a broader strategy to cut costs and maintain low prices.
- Parcel delivery and logistics companies use cross-docking to speedpackage delivery for their customers.
- Manufacturers and product distributors apply cross-docking to minimizeinventory costs as well as ensure rapid delivery of products.
- Pharmaceutical companies use cross-docking to help ensure timelydelivery of medicines and other products, including some that must be kept at certaintemperatures. Cross-docking can also reduce the need for costly specialized storagefacilities.
Invest in NetSuite’s WMS and ERP Systems to Run a SuccessfulCross-Docking Operation
Managing a successful cross-docking operation requires real-time visibility into supply anddemand, accurate inventory management and coordination with supply chain partners to ensurea streamlined, efficient flow of goods from suppliers to customers. NetSuite ERP helps businesses achieve tighter control overoperations and clear visibility into data with a single cloud-based solution that integratesaccounting, supply chain management, inventory management, warehouse operations and more.
Improved supply chain management translates into higher customer satisfaction, increasedprofitability and reduced risk. With increased visibility, companies can track and managethe flow of goods at each step along the supply chain as they move from suppliers andmanufacturers to distributors. Integrated demand planning, procurement, inventory managementand predictive analytics help companies ensure that supply chain execution stays on track.NetSuite’s Warehouse ManagementSystem (WMS) automates day-to-day warehouse operations to help businesses increaseefficiency and consistently meet customer expectations. Inbound logistics capabilitiescoordinate transportation, receipt and storage of inbound inventory, enabling companies totrack shipments along their journey.
Cross-docking is a valuable logistics method that helps businesses deliver products fasterwhile increasing the efficiency of supply chains. By directly moving goods from inbound tooutbound shipments, companies can minimize or eliminate the need for warehouse storage andreduce handling costs. Technology can help companies gain the supply chain visibility andoperational control required to successfully manage a complex cross-docking facility. Thebenefits include greater customer satisfaction, higher profits and fewer risks.
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Cross-Docking FAQs
What is a cross-dock warehouse?
A cross-dock warehouse is a distribution center or other logistics facility specificallydesigned for quickly transferring goods from inbound to outbound shipments while minimizingthe need for long-term storage. Goods arrive and are quickly unloaded, sorted andreorganized to accommodate orders. The goods are then loaded directly onto outbound trucksfor delivery to stores and customers.
What’s the difference between cross-docking andwarehousing?
The primary difference between cross-docking and warehousing is the length of time thatproducts are stored in a logistics facility. With traditional warehousing, goods arereceived, unpacked and stored in the facility for days, weeks or even months until they needto be shipped to customers. With cross-docking, in contrast, goods are not stored at thefacility for an extended period of time. Instead, they are received, sorted and quicklytransferred to outbound trucks for delivery.
What are cross-docking warehouse design best practices?
Cross-docking warehouses are designed to facilitate the smooth transfer of goods fromincoming to outgoing trucks. Typically, facilities are designed in an I-shapedconfiguration, with inbound docks on one side and outbound docks on the other. Thismaximizes the number of incoming and outgoing vehicles that the dock can accommodate. Largercross-docking warehouses may use more complex T-shaped or X-shaped configurations.
What is cross-docking, and when can you use it?
Cross-docking is a method for distributing products more efficiently without needing to storethem in warehouses for long periods of time. Incoming goods are received and sorted at across-docking facility and then loaded directly onto outgoing trucks for shipment. Theprocess is widely used for high-volume goods and those that are perishable ortime-sensitive, such as fresh produce and pharmaceuticals.
What are the benefits of cross-docking?
The benefits of cross-docking include lower inventory storage costs because products requirelittle, if any, warehouse space. Cross-docking can also speed delivery and increaseefficiency by reducing the time required for moving products at every step of the supplychain, from supplier to customer. The strategy can also improve the quality of goods, sinceit reduces the need to handle and store products in warehouses where they can be damaged orexpire.
What is cross-docking in logistics management?
Cross-docking is a supply chain management technique that involves the direct transfer ofgoods from inbound trucks to outbound trucks with little or no need to warehouse the goods.Cross-docking can accelerate the movement of goods through the supply chain and reduceinventory holding costs by bypassing the need for storage.
Who uses cross-docking?
Cross-docking is used by a wide range of companies that need to move goods quickly andefficiently through the supply chain. These companies include retailers, food and beveragecompanies, automotive industry suppliers, pharmaceutical manufacturers and package deliveryfirms.
