Supply chain as a concept is heavily dependent on execution and integration, says Gus Pagonis, senior vice president-supply chain with retail giant Sears, Roebuck & Co. “A simple plan well executed is better than all the sophistication in the world,” he observes.
The simple model that works for component manufacturer National Semiconductor Corp. might not be the right approach for other high-tech companies. But simplicity is what works for Larry Stroud, the company’s manager of global logistics.
Each year, the microchip maker processes five billion chips and ships direct to 4,000 customer locations around the globe. Product is manufactured in two plants in Singapore and Malaysia. All chips are processed through a single distribution center (DC) in Singapore, operated by UPS Supply Chain Solutions.
“Having one inventory in one facility gives us a tremendous advantage from an inventory standpoint,” says Stroud. “And we can systematically look at orders worldwide.”
Although National Semiconductor’s chips are made to forecast rather than to order, when product comes off the line at the factory, Stroud’s team can immediately match some chips to customer orders and code them for crossdocking, thus bypassing put away and order picking. Product information flows electronically from the factory to the DC so the DC can rev into receipt mode.
At the DC, carton bar codes alert receiving personnel if the order is already allocated to a specific order. Those hot shipments move to what Stroud calls the “immediate need area” for crossdocking.
“Our physical handling is fairly manual. There are not a lot of conveyors due to the nature of the product. However, systems technology is extremely integrated, real-time. Yet none of our systems are specific to crossdocking. It’s just one more process,” states Stroud.
The DC which UPS manages for National Semiconductor operates totally electronically. Since the DC’s warehouse management system (WMS) is integrated with National Semiconductor’s business management systems, transaction instructions and confirmations flow back and forth electronically.
“Our inventory accounting system matches UPS’ so we know where inventory is in the warehouse — and it all happens electronically,” comments Stroud.
When chips are allocated to a particular customer as they leave the manufacturing floor, National Semiconductor sends UPS an electronic advance ship notice (ASN) with multiple orders to multiple customers. Not only does UPS combine crossdock orders with orders filled from inventory, the UPS supply chain unit consolidates shipments to a region.
“That lowers their cost of shipment and cuts Customs time. All orders they send to us for Customs in the U.S., we consolidate to aggregate weight and reduce Customs clearance time,” notes Peter Brennan, vice president of the high tech sector of UPS Supply Chain Solutions.
“We put together consolidated Customs documentation,” Brennan adds. “It’s much simpler and less costly than multiple entries. In the destination region, we break down the shipment and deliver through our network to customers. On average, crossdocking improves National Semiconductor’s transit time by a full day.”
Improving transit time is an issue for Sears as well. “The merchant wants you to keep everything staged to deliver in 24 hours,” notes Pagonis. “We combine crossdocking with direct to store and inventory staged to get to the store quickly. Crossdocking is just part of our overall strategy.”
“We have three kinds of products,” elaborates Bill Kenney, vice president logistics planning and productivity with Sears. “The first needs to be in the store by a specific date, like snow blowers for the winter season. The second we have to be able to replenish quickly. The third we have to move to the store at the right cost. For this third category, crossdocking is a cost-effective strategy.”
Sears uses multiple channels to flow goods from vendor to customer. Six million deliveries each year move directly to customers’ homes — things like appliances, treadmills and tractors. In this channel, crossdocking speeds cycle time and reduces inventory.
Regardless of the channel, Sears ships full truckloads from vendors to direct delivery centers and, where possible, crossdocks direct to stores or delivery operations across the U.S.
“If we can get the vendor to incorporate the destination store number in the bar code, that carton can be scanned and automatically routed to the shipping door for the correct store,” notes Pagonis.
Vendor cooperation can be an important element of crossdocking.
“There are two approaches to inbound, depending on the relationship with the vendor,” explains Jerry Vink, vice president, engineering with Forte Industries, a distribution operations improvement firm. “The vendor prepares the shipment for you before shipping. Perhaps you need broken cases or pallets packed to fit needs at the store level. These store-level orders might be pre-labeled and bar coded, identified for each store. Or the vendor ships generic goods with a bar code label or radio frequency identification (RFID) tag on the carton. You then split the order per your needs when it arrives at your DC.
“If the vendor preps the order, you need a higher level of confidence in the quality of the product and the accuracy of the order, possibly allowing you to reduce or eliminate quality inspections at the dock, a step that slows crossdocking,” Vink continues.
“On the supplier side, if the vendor prepares the order for the client and labels the carton, the effect is to raise vendor costs,” notes Vink. “But benefits to the supplier can offset the higher cost. As the vendor provides a higher, more dependable level of service, it puts them in a partnership relationship that typically leads to increased business.”
Does crossdocking fit into your supply chain strategy? Look at the quality of your vendors, the amount of visibility and control you can expect, and your ability to execute flawlessly. LT
Crossdocking pluses and minuses
Crossdocking takes a full day of cycle time out of National Semiconductor’s process. “We can get it there a day sooner to meet customer requirements or use slower transportation. It’s a tool that enables us and the customer to reduce inventory,” agrees Larry Stroud, manager of global logistics with National Semiconductor.
Because crossdocking reduces cycle time, it improves Stroud’s flexibility. If product is on the shelf many days early, he can opt for slower transportation. If product is available in a shorter window, he spends a little more for speedy transportation. If he can match production with customer orders, he reduces inventory levels.
What effect does crossdocking have on supply chain flexibility? “If the vendor puts together cases or pallets for specific destinations, once the order is released, it is more difficult to change,” suggests Gealy. “The time, effort and money to make it happen have already occurred, so there’s less flexibility if a change is required. On the other hand, the company that performs the crossdocking may have less inventory and theoretically more space for other functions.”
How to succeed in crossdocking
A major limiting factor is vendor compliance, Gealy stresses. “If the business has numerous suppliers, it’s difficult to set up compliance programs with all of them.”
The relationship must be one in which information is exchanged so the supplier understands what the client wants to order and the receiver has visibility to what is actually sent. “You must have consistency from vendors,” he notes.
You also must integrate information systems with vendors. “To have an effective crossdock operation, link purchasing, order management systems, warehouse management systems and advance ship notice applications,” urges Gealy. “Crossdock is directly related to timing. Can you receive and ship with few touches in a limited time? Material handling equipment and automation can increase a company’s effectiveness in crossdocking,” he claims.
“You also must have a strong quality control program for inbound,” adds Jerry Vink, vice president, engineering with Forte. “If you cannot quickly inspect inbound goods and meet your quality standards, you cannot crossdock effectively. If you experience a high level of rejects and don’t detect them, you could end up with inferior product downstream. Strong vendors who consistently produce quality product are good candidates for crossdocking.”
National Semiconductor Corp.
Sears, Roebuck & Co.
UPS Supply Chain Solutions
U.S. Bureau of Customs and Border Protection