What is the best way to approach cross docking in warehouse operation? Our guide outlines how to set up cross docking, the benefits and the risks.
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Optimize material movement costs in warehouse operation
In cross-docking, products are delivered directly to customers by a manufacturing company without a small or no material handling in between. Cross-docking not only reduces material handling, but also reduces the need to store the products in stock. In most cases, the products delivered from the manufacturing area to the loading dock have been assigned for deliveries.
Cross-docking solutions enable companies to accelerate delivery to customers. This means that customers often get what they want, when they want it – the goal of an optimized supply chain. However, cross-docking solutions also carry risks that companies should consider before implementing them in standard operating procedures.
Warehouse cross docking services
Many companies have benefited from cross-docking. Benefits include:
- Reduction of labour costs as products no longer need to be picked and deposited in warehouse
- Reduce time from production to customer, improving customer satisfaction
- Reduce storage space requirements because products do not need to be stored
Types of cross-docking
A number of cross-docking scenarios are available for warehouse management. Companies use the type of cross-docking that applies to the type of products they ship.
- Production Cross-Docking: This process involves receiving purchased and incoming products that are required by manufacturing. The warehouse can receive the products and prepare subassemblies for the production orders.
- Distributor Cross-Docking: In this process, incoming products from different manufacturers are combined into a mixed product range, which is delivered to the customer upon receipt of the final item. For example, distributors for computer parts can obtain their components from different manufacturers and combine them into one shipment for the customer.
- Transport Cross-Docking: In this process, shipments from various carriers in the LTL (low-as-truckload) industry are combined into small shipments to achieve economies of scale.
- Retail Cross-Docking: This process involves receiving products from multiple vendors and sorting on outgoing trucks for a number of retail stores. This method was used by Wal-Mart in the 1980s. They would procure two types of products, items they sell every day of the year, so-called staple foods, and large quantities of products that are bought once and are usually out of stock. This second type of sourcing is called direct freight, and Wal-Mart minimizes the cost of storage for direct freight by maintaining cross-docking in the warehouse for as long as possible.
- Opportunistic cross-docking: This can be used in any warehouse. A product is transferred directly from the receiving dock to the outgoing shipping dock to fulfill a sales order.
Products suitable for cross-docking
There are materials that are more suitable for cross-docking than others. The following list shows a number of types of material that are more suitable for cross-docking.
- Perishable items that need to be shipped immediately
- High-quality items that do not require quality inspection at goods receipt
- Products that are already tagged (barcodes, RFID), available in advance and ready for sale
- Promotional items and items that are launched
- Retail products with constant demand or low demand variance
- Pre-picked, pre-packaged customer orders from another production plant or warehouse
Risks of cross-docking
Because cross-docking products are not used in the way specified by the company, there is an increased risk of loss of inventory control if the method is used over the long term.
To effectively implement cost docking, warehouse and supply chain managers should implement robust inventory control processes and train warehouse staff for those processes. Even if cross-docking items are not disposed of in the company’s prescribed manner, this does not reduce the need to take these goods into account while inventory is recorded and supplier and customer invoices are matched.
Streamline internal processes and save costs
After the crisis, companies need to ramp up production quickly to defend their market position and strengthen customer relationships. At the same time, they must respond to supply chain bottlenecks, rising purchase prices and falling demand. The company’s in-house supply chainprovides starting points for rapid savings without loss of quality and productivity: The segment of the supply chain in-house – from material inflow to shipping – offers numerous savings potentials that can be quickly tapped. The problem is that many companies lack transparency about the real cost drivers.
Other savings potential in the internal supply chain:
Property costs
- Cost reduction through benchmarking
- Sustainable reduction of freight costs through more efficient transport organisation
Costs
- Effort reductions by optimizing internal material movements
- Partial and full automation of processes (e.g. in picking)
- Effort reduction of processes through system support/digital solutions
- Rapid optimization of capital input by optimizing inventories
Structural costs
- More efficient use of storage capacity
- Network optimization for inbound and outbound transports (e.g. consolidation of goods flows, multi-modal transports)
- Consolidation of warehouse locations
- Review of outsourcing
3PL or third party logistics as an option
Many companies today do not have sufficient resources to store and ship their goods. In this case, it is a good solution to outsource the logistics and rely on a 3PL service provider.
According to the 23rd Annual Third-Party Logistics Study, conducted by renowned companies such as Infosys Consulting, Penn State University, Penske Logistics and Korn Ferry, 89% of companies working with a 3PL service provider say they can improve their service to better satisfy their end customers.
