Cross-Docking Rediscovered

As companies increasingly look to their supply chains for new cost-squeezing opportunities, improved efficiencies and customer satisfaction, many are finding that cross-docking meets all three goals.

While not a new practice, there has been a resurgence of interest in cross-docking in recent years. According to the 2011 Cross-Docking Trends Report, a recent study sponsored by Saddle Creek Corporation, cross-docking is on the rise, with 68.5% of survey respondents reporting that they use the practice today—up more than 16% from the benchmark study just three years ago.

With so many companies cross-docking, it makes sense to understand what motivates them to use the practice. While cross-docking offers numerous benefits, those most frequently mentioned in the study were improving service levels (37.9%) and reducing transportation costs (32.4%).

Improve Service

Cross-docking improves customer service—both to the direct customer and the end user—by enabling products to reach their end destination more quickly and economically than individual LTL shipments.

Cross-docking can also be used to get the right mix of products to the customer. Some cross-docks break apart pallets into individual orders—layer picking or even case picking to get stores what they need. Store-ready orders can be prepared by suppliers for shipment to the cross-dock, and then routed for store delivery utilizing the most cost-effective mode of transportation.

Reduce Transportation Costs

The biggest opportunities for cross-dock savings are transportation related. Taking advantage of transportation efficiencies allows companies to mitigate the impact of today’s rising fuel costs. Considerable freight savings also can be achieved by consolidating LTL shipments into full loads to the cross-dock and, whenever possible, combining outbound shipments with those of multiple vendors going to the same destination.

Cross-docking can also help to control overall logistics costs. The high velocity of cross-docking allows many companies to reduce inventory carrying costs since they are fulfilling exact orders and don’t require safety stock. This does require careful planning and order management for optimal effectiveness.

Better Product Quality

Cross-docking can be effective in helping to identify and address quality problems before they become issues. As today’s sustainability initiatives minimize protective packaging, products often arrive in sub-par condition. Production issues can also be a factor. When several incoming shipments are going to numerous destinations, cross-docking provides a central point for monitoring product quality. It offers the opportunity to inspect product from all incoming shipments and ensure that outgoing shipments are built consistently.

Cross-docking can allow for remarkable customization as well. For example, a customers’ product can be sorted and picked down to the case or even the “each” level. What’s more, promotional materials can also be delivered through the cross-dock supply chain versus the significantly more expensive parcel approach. Moving manual processes back upstream makes downstream distribution much more efficient.

It’s Economical

What makes cross-docking a viable strategy in today’s economic environment? The practice delivers significant value with very little commitment and a relatively minor financial investment. In place of bricks and mortar, cross-dock practitioners’ investments are in the form of time and energy put into process improvement and process change. They focus on improving communication flow, tightening up relationships with carriers, and improving service performance.

It’s not surprising, then, that more than 40% of survey respondents who have been cross-docking for four years or more say that recent challenging economic conditions have prompted them to increase cross-docking.

Where it Works Best

In its purest form, cross-docking is the process of receiving product and shipping it out the same day or overnight without putting it into storage. It typically works best with high-volume, low-touch products and a limited number of SKUs.

While high-volume durable goods are natural candidates, cross-docking is increasing for products with a short shelf life such as perishable or temperature-controlled items. The high turn rates and reduced handling associated with cross-docking also make it effective for high-value/high-security products—as cited by nearly 20% of survey respondents.

Cross-docking can be used in a variety of situations and with countless variations, but certain occasions lend themselves to cross-docking particularly well. The practice provides the greatest value when:

• Current order cycles and traditional distribution methods cannot handle customer needs;

• Outdated distribution strategies and networks create extended cycle times and compromise shelf-life guarantees;

• Inefficient distribution networks create plant inefficiencies;

• Over-extended transportation networks create unacceptable on-time performance rates at excessive cost;

• Distribution cost increases outpace sales growth.

Cross-Dock Considerations

Facilities. A cross-dock facility typically has truck or dock doors on two or more sides with little or no storage space, and is designed to accommodate product movement requirements, dock-area layout and capacity, yard management and material handling equipment. About half of respondents who cross-dock today (53.7%) use facilities that are specifically designed or set up for cross-docking, recognizing that they’re best suited to optimize their cross-dock operation.

Order placement. For 46.3% of respondents, orders are placed and product is picked before shipping to the distribution center. Technically, this scenario is considered to be pool distribution. With true cross-docking, product is shipped in bulk, and picked at the cross-dock—a practice adopted by 41.9% of survey respondents. This allows for changes to orders further down the supply chain—ensuring a more accurate process with shorter order cycles. While certainly a good first step toward cross-docking, pool distribution offers less flexibility to meet customer demand.

Product touches. The number of times product is touched at the cross-dock can vary significantly, but the greatest efficiency can be achieved with the least product handling. However, just 20.6% of respondents practice “pure” cross-docking—receiving and shipping product immediately with a single touch as product is received and loaded outbound without being placed on the warehouse dock. More common are “two-touch” (50%) or “multi-touch” (25%) options.

Velocity of inventory. In keeping with the high-velocity nature of cross-docking, products usually move through quickly, residing at the cross-dock facility for a day or less for 75.8% of respondents—with 36.8% moving products through in a half a day or less.

For some companies, however, incorporating dwell time can be an effective way to meet business needs. For example, one company has inbound loads every day, yet consolidates and ships just twice a week. With 100-plus turns annually, they’re able deliver the amount of product to meet their needs with a small amount of floor space.

Distance to destination. Cross-docks located close to the end-delivery point help to reduce short-haul miles and save on freight costs. For a quarter of respondents (26.5%), a typical shipment travels less than 100 miles once it has been cross-docked. However, many companies are not realizing these efficiencies. For 47.1% of respondents, shipments travel more than 250 miles once they’ve been cross-docked.

Measuring Effectiveness

In deciding to cross-dock, companies should have a solid understanding of their reasons for cross-docking—whether it is speed to market, transportation savings or customer service—and plans in place to measure the effectiveness of their operations.

Practitioners can select from a wide variety of metrics based on their strategic business objectives.

Freight turn time – While product may sit in a warehouse for a month before shipping, cross-docked products may go out within a day or two—significantly increasing the turn frequency.

Cube or weight efficiency – Pairing heavy products such as bottled beverages with lighter ones like paper towels allows companies to pack more product on outbound loads to better control transportation costs.

Order date to delivery date – Cross-docking can typically shave a day or two off delivery times when compared with LTL shipments, allowing the right mix of products to reach the customer faster and more efficiently.

Outsourcing Trends

Many companies turn to a third-party provider to do cross-docking. In fact, 40.4% of survey respondents use a 3PL exclusively or in addition to in-house resources. And a sizable percentage of those who cross-dock (43.6%) plan to increase outsourced cross-docking in the next 12 to 24 months.

Outsourcing allows companies to tap the experience and best practices of a third-party provider, so they can focus on their core competencies. It also gives them access to facilities and systems specifically designed for the practice without a major commitment or overhead investment. Integrating the cross-dock operation with other logistics services can also help to streamline operations.

Companies typically identify a segment of their business that lends itself to cross-docking and start on a small scale, testing its effectiveness.

Results of the cross-docking study support what we’re seeing firsthand in the marketplace today. Companies are realizing that cross-docking can help them to increase speed to market and improve service levels while reducing warehousing and transportation costs.

Mike DelBovo is senior vice president, Saddle Creek Transportation Inc. To download the 2011 Cross-Docking Trends Report, visit www.saddlecrk.com/xdock.

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