What is cross-docking and why is it important in the e-commerce age?

The rise of e-commerce and changes in consumer behavior have fuelled demand for fast shipping. According to a McKinsey report, more than 90% of consumers expect two to three-day deliveries.

Cross-docking with its focus on fast fulfillment has become the need of the hour with retailers and shippers keen to invest in processes that not only accelerate shipping but also reduce operational costs.

Cross-docking is a process that involves the transfer of goods from an inbound carrier to an outbound carrier. The goods are brought into a facility from the supplier or the manufacturer's end and then swiftly moved toward the consumers or the retailers. The facility is not meant to keep the products for a long time, like a warehouse, instead, it acts as a distribution center where goods are sorted and then directed toward their final destination. 

Goods brought in via trucks or a railroad are unloaded in a marked area in the facility. The package labels are scanned and the products are then organized into smaller, different lots or combined into one shipment as per requirements. The goods are then moved to the loading area using forklifts or conveyor belts before being loaded onto outbound transport that carries the goods to their final location. 

A cross-docking warehouse can be defined as any such location or premises where goods are brought in, sorted, repacked, or relabelled if needed, and then loaded onto trucks for shipping. Unlike a traditional warehouse, a cross-docking warehouse is not designed for the storage of goods for long periods. A cross-dock warehouse is built on the principle of 'just-in-time' strategy that focuses on efficient distribution and reduction in inventory levels and delivery time.

Cross-docking can be broadly divided into two types - pre-distribution cross-docking and post-distribution cross-docking.

Pre-distribution cross-docking

In pre-distribution cross-docking, the location of the customer or the retail outlet is known. Once the goods are brought into the facility, they are sorted and repackaged according to the given instructions. The shipments stay in the facility only for a brief time before they are redirected for final delivery. 

Post-distribution cross-docking

Post-distribution cross-docking is more demand-driven. The goods stay in the facility a little longer because the customers or the retail outlet that the goods will be forwarded to is not known. The cross-docking process of unloading, arranging, repacking, and loading is deferred until the end customers have been identified.

The time that the products spend at the facility is used by suppliers and retailers to make intelligent decisions on routing the shipments based on inventory and demand forecasts. 

Cross-docking leads to several benefits ranging from efficient supply chain management to faster fulfillment.

Faster deliveries

Since there's no need to store products at a warehouse, suppliers and manufacturers can ship their products quickly, leading to faster fulfillment rates. Reduced delivery time brings down the chances of delayed deliveries and positively impacts the consumer experience.  

Reduced costs

Holding inventory is costly. With little to no storage required for cross-docking, inventory costs and the cost of carrying out deliveries comes down drastically. Less inventory also means that there are fewer people needed to manage the cross-docking process. This results in a sharp reduction in labor costs. Cross-docking also reduces the need for large warehouse spaces to store inventory which in turn cuts down fixed costs. 

Fewer chances of damage

The goods do not sit in the distribution center for a long period which considerably reduces the chances of them getting damaged. There is minimal handling of the shipments during cross-docking so the risk of damage dilutes appreciably.

Lean supply chain

Cross-docking makes the supply chain lean and agile. It helps suppliers and manufacturers bring in more efficiency within their logistics processes. There’s optimal utilization of the distribution center which makes the supply chain more productive.

While there are several benefits of cross-docking, the process also comes with its own set of disadvantages.

Transport fleet

An effective cross-docking operation involves high usage of transport fleets that facilitate the movement of goods between inbound and outbound terminals. Handling a large number of trucks is not cost-friendly.   

Huge capital investment

Before cross-docking comes the process of setting up a terminal for cross-docking. This requires massive investments upfront. It also involves the purchase of forklifts, pallet trucks, or the setting up of a conveyor belt to move the shipments within the cross-docking facility. Not just physical assets, organizations need to invest money in inventory management softwares, cross-dock solutions, and automation tools before embracing cross-docking. 

Efficient planning

Cross-docking needs to be well-planned. If it's not executed properly it can quickly become a roadblock to a smooth supply chain process. A good cross-docking process heavily banks on the support of the suppliers. If suppliers aren't reliable, the cross-docking process suffers and ultimately impacts customer satisfaction. 

Cross-docking facilities are tightly managed and minor errors can often lead to big mishaps. Cross-docking can become time-consuming if it is not meticulously planned.

Supply chain risks

Cross-docking removes the barrier of storing goods and speeds up the shipping process. The lack of long-term storage makes the supply chain vulnerable to disruptions. 

There are three ways in which cross-docking can be done:

Continuous cross-docking

In continuous cross-docking, there is a steady flow of goods in and out of the facility. The process of unloading, sorting, and loading shipments is continuous. Once you plan and set up the cross-docking process, it mostly runs without the need for any intervention. This is the simplest way cross-docking can be implemented by organizations. 

Consolidation Arrangements

A consolidation arrangement combines multiple small shipments into one, single package before finally loading it on the outbound transport. This method requires some amount of storage as the shipment is held within the cross-docking facility before other items that need to be loaded with the same shipment have arrived. 

Deconsolidation

The opposite of consolidation - deconsolidation breaks large packages into small batches. This is done to expedite shipments and mostly takes place when the products need to be directly sent to the end consumer.

The application of the three cross-docking methods depends on factors like the inventory level that the organization wants to hold at a time, the product delivery window, the number of suppliers and manufacturers that are involved in the process, and the type and size of the goods that need to be shipped. 

Cross-docking benefits a range of industries with its strategic focus on shipping deliveries more quickly. 

Consumer packaged goods (CPG) industry

Cross-docking is a boon for the consumer packaged goods sector that deals with items like perishable food and beverages, cleaning products, and cosmetics. The consumption rate of CPG is high and therefore these goods need to be made available to the end consumers quickly. Cross-docking specifically makes sense when handling perishable goods that require little to no storage time.

Automotive industry

With the automotive industry using the just-in-time production strategy, cross-docking helps maintain the flow of goods and provides industries with the specific quantity only at the specific time that they need it. The automotive industry has been using cross-docking for a long time. 

E-commerce industry

E-commerce companies like Amazon and Walmart have made big investments in cross-docking facilities. Online shoppers often demand fast shipping and using cross docking, e-commerce can deliver products easily depending on the demands of the consumers. Cross-docking helps e-commerce companies assess inventory levels and then manage their fulfillment operations conveniently.

Pharmaceutical industry

Like the CPG industry, the pharmaceutical industry also banks on cross-docking for making faster deliveries and replenishing stock. At times, certain medicines or injections are temperature-sensitive and not only need to be stored in a controlled environment but also need to be moved quickly to the retail outlet or the consumer's doorstep. Pharma companies leverage cross-docking to increase swiftness and urgency within their supply chain systems.

FarEye can help solve several challenges and build a robust cross-docking system. FarEye's last-mile delivery management platform can help enhance dispatch turnaround times and cut down the percentage of lost goods during the cross-docking process. 

With FarEye's cross-docking solution, you can keep an eye on the fluctuating demand by classifying goods based on storage time. You can also maximize truck utilization time and reduce infrastructure costs.