What is Cross-Docking For Ecommerce and How Does Your Business Benefit?

What is Cross-Docking For Ecommerce and How Does Your Business Benefit?

what is cross-docking

Supply chain speed and productivity are a constant concern for companies in the 21st century. As the global economy expands and businesses collaborate with suppliers at home and abroad, managing logistics has become more critical than ever.

Because of this, most companies are looking for a competitive advantage over their rivals.

Cross-docking is one way your business can ramp up speed and productivity in your supply chain, helping you grow faster and stay ahead of the competition.

Today, we’ll break down what Cross-docking is, how it can benefit your business, and potential problems to consider. 

What is Cross-Docking?

Cross-docking is a logistics method wherein products from the supplier or manufacturer are distributed directly to a customer or retail chain.

This basically means inbound freight is unloaded directly to an outbound shipment, eliminating the need for storage or warehousing. With this scenario, the distribution center is used more for sorting products than as a warehouse or storage location for your inventory.

What this means, in practical terms, is that in a cross-docking facility, the distribution center serves as a hub where inventory is quickly processed and moved to the next part of the shipping process.

Since storage space is at a premium in this setup, it’s important that everything moves quickly. Inbound items are sorted, organized, processed, and placed into outbound trucks or containers in 24 hours or less for maximum efficiency.

For this to happen, a cross-docking solution will require a fair amount of automation. Inventory management software solutions can help with this by ensuring maximum visibility at each stage while also keeping things moving from inbound to outbound with minimal human oversight.

This is the basic breakdown of how cross-docking works.

Cross-docking is viable for many different products and industries, but there are a few where it’s a real game-changer. In the next section, we’ll talk about those.

When is Cross-Docking Used?

While cross-docking can be used for a wide range of products and industries, it works better with some items than others. Because of this, it’s important to do your research and make an informed decision before going all-in on cross-docking.

If you deal with one of the following types of inventory, cross-docking can be a particularly effective way to maximize the speed and efficiency of your supply chain.

  • Perishable Goods

If your supply chain features perishable goods like food or drinks or even medicine, cross-docking can be a genuine boon. 

The shorter lifespan of perishable goods means you need a logistics strategy that minimizes storage. With cross-docking, goods move directly from the point of supply to the final destination with minimal storage time wasted along the way.

Large-scale retailers of perishable items like fruits and vegetables use cross-docking to minimize losses on perishable items.

  • Supplier Components and Raw Materials

Another area where cross-docking can be effective is when it comes to moving large quantities of components and raw materials.

From a logistics standpoint, it’s beneficial for the end-user if components for manufacturing and raw materials aren’t held up in storage at some point in the supply chain, as this can impact production times.

Cross-docking can help solve this issue by ensuring products move through the supply chain with minimal delays on the way to their final destination. 

  • Pre-Packed and Sorted Products

One final place where cross-docking shines is with pre-packed and sorted products.

By their very nature, these items don’t require much sorting or organizing when received at a distribution center. Storing these products for any amount of time longer than 24 hours is often an unnecessary expense.

Cross-docking allows you to move these items through the supply chain without wasting extra time and human resources on storing them.

Cross-Docking Methods

If you’re ready to dive into cross-docking after reading the previous sections, we can help make the transition seamless by highlighting some of the different ways to set up and run your program.

  • Continuous Cross-docking

Our first approach is continuous cross-docking.  This is the simplest way to add cross-docking practices to your supply chain.

In continuous cross-docking, products constantly move through a central site. Inbound items are received, processed, and immediately shipped outbound to their next destination.

This is the most direct cross-docking approach of the three. Once you’ve set up your operation, it tends to run on its own as long as you have good automation tools and a proper transport system in place.

  • Consolidation Arrangements

Consolidation arrangements are the second potential way you can implement cross-docking into your business’s logistics approach.

Consolidation arrangement is the practice of combining several small products or shipments into a larger outbound package. This is performed inside your cross-docking facility.

With this approach, there is often a need for additional storage as the merging of items into one large shipment usually results in your storing some items while you wait for others to arrive.

If you have the space for storage, this approach can save you money by consolidating your shipping.

  • Deconsolidation

Our third method is called deconsolidation. If you guessed it’s essentially the opposite of consolidation above, you’re correct.

In the deconsolidation method, large shipments are received, then broken down into smaller shipments for easier transport or faster shipping times.

This approach is often used when the product or material goes directly from your distribution center to a consumer. A large batch of product is broken down in the shipping center, then sent to an individual.

All three of these methods have their strengths and weaknesses. Continuous cross-docking is a great solution for businesses with a steady supply chain filled with items coming from and going to the same places.

Consolidation works if you have items coming from various partners but all going to one central point. Deconsolidation works the same way, just in reverse.

Choosing the right method for your business is key, but making the call about which method is right for you becomes easier if you understand the various options.

Pre-Distribution Cross-Docking Vs. Post-Distribution Cross-Docking

Beyond the three methods of cross-docking we outlined in the last section, there are also two overarching categories that categorize cross-docking practices: pre-distribution cross-docking and post-distribution cross-docking.

Let’s break them down.

Pre-distribution cross-docking refers to a system wherein items are unloaded, sorted, and repacked according to predetermined instructions.

In simple terms, the customer who will receive the goods is known before the products leave the supplier.

In post-distribution cross-docking, the sorting and repackaging are delayed until customers and the facility are chosen. This is determined based on demand.

In the post-distribution process, more time will be spent storing items. However, the benefit here is that this extra time allows businesses to make more informed decisions because they have additional time to analyze forecasts, customer demand, store inventory levels, and other data.

There’s no right or wrong answer as to which method your business should utilize. Being aware of the differences between pre-and post-distribution cross-docking will simply allow you to decide which works best for you.

Benefits of Cross-Docking

Now that you have a firmer grasp of what cross-docking is and the various approaches you can use to implement the practices, let’s talk about the pros and cons of this method of inventory management.

We’ll start with the benefits.

  • Creates a Streamlined Supply Chain

With cross-docking, you eliminate the need for a dedicated distribution center or warehouse. Product is moved quickly and efficiently from one location to the next without storing it for extended periods.

Because of this, you’ll not only save money by reducing your warehouse and distribution center costs (and the cost of managing them), but you’ll also have a leaner supply chain that operates with maximum efficiency.

  • Labor Cost Reduction

Building on that previous point, handling less inventory means you’ll need fewer workers to manage that inventory. This results in lower labor costs.

  • Reduced Inventory Costs

Beyond the labor cost reduction, you’ll also see a decline in inventory damage and inventory holding costs because the merchandise spends less time in your warehouse or distribution centers.

The decrease in inventory costs alone can make switching to cross-docking a profitable decision in short order.

 Beyond this, you may also be able to downsize your warehouse since you’re not storing as much product.

  • Reduces Damages

We touched on this in the previous point, but it bears repeating. Cross-docking dramatically reduces the amount of time inventory is in your distribution center. Unloading product and reloading it immediately for shipment reduces the risk of damaging the product as it sits in your warehouse.

  • Reduces Delivery Times

The last major benefit of cross-docking is a big one for your partners and customers: reduced delivery times.

As items are immediately unloaded and repackaged for shipment to their final destination (often within 24 hours or less), there’s less of a delay for shipping.

In a traditional set-up, an item would be received, entered into inventory, processed through the warehouse, then shipped out at some point after. Cross-docking removes some of those steps, meaning the products are on their way to customers faster.

Risks of Cross-Docking

 Like anything in life, cross-docking is not without its potential problems. Here are a few of the most common risks companies will face when implementing a cross-docking program.

  • Heavy Upfront Investment

Once your cross-docking setup is built and established, it can save your company money. The catch is that setting it up will require a hefty initial investment.

Building cross-docking terminals will require a fair amount of capital. If your company doesn’t have the money, this can be a considerable barrier to entry. Beyond that, be prepared to invest in inventory management software and automation tools.

The investment is worth it in the long run, but be prepared for the costs to get started.

  • Requires a Transport Fleet

Another cost most businesses don’t consider is the amount of money required to run a transport fleet. To truly take advantage of all the benefits cross-docking can provide, you’ll need a large number of vehicles to move things between your inbound and outbound terminals.

  • Additional Shipping Costs

Finally, you’ll need to consider the additional shipping costs you can accrue with a cross-docking operation, particularly if you’re using something like deconsolidation.

These shipping costs can quickly add up over time. The benefits are worth the added expenditure in the long run, but it’s best to be prepared for these expenses before diving in.

Final Thoughts

Cross-docking is an excellent potential solution for companies looking to reduce warehousing costs as it provides a major savings opportunity.

However, it’s not a one size fits all solution perfect for every business. The automotive industry, food and beverage companies, and companies that consistently move a high volume of products will benefit from utilizing this inventory system.

If your business doesn’t move a lot of product, then cross-docking might not be worth the time or the upfront initial investment. This is why it’s important to understand how cross-docking works, how the approaches vary, and then spend time looking at your own business and analytics before deciding.

To truly make cross-docking work, companies need to be transparent in their inventory and supply chain practices, and commit to building an automation infrastructure capable of handling the fast pace of this logistics approach.

SkuVault is happy to help with that, whether by answering questions and helping you make a more informed decision, or providing a software solution that makes your inventory management more efficient.

Schedule a demo with us today. 

Want to learn more about cross-docking, inventory management, and how to streamline your supply chain so it works more effectively? Then be sure to subscribe to our blog so you don’t miss our latest posts!

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