Rising customer expectations, intense competition and the need to cut supply chain costs all put pressure on businesses to deliver products more quickly and efficiently. Cross-docking is a supply chain management strategy that can help. The process involves directly transferring goods from inbound trucks or railcars to outbound vehicles at a specially designed logistics facility, thus speeding delivery, reducing costs and minimizing or even eliminating the need for warehouse storage at the facility. A wide variety of companies use cross-docking, including ecommerce and brick-and-mortar retailers, manufacturers and freight carriers. Here’s what you need to know about how cross-docking works, its different types, plus the advantages and risks of this strategy.
What Is Cross-Docking?
Cross-docking is a logistics technique that aims to accelerate goods delivery and increase supply chain efficiency. It involves unloading goods from vehicles making incoming shipments at a logistics facility and transferring them to vehicles handling outgoing shipments, requiring little or no storage time in between. Companies take advantage of cross-docking to consolidate products from multiple suppliers, break down bulk shipments into smaller lots and reorganize items for efficient delivery to retail stores, fulfillment centers and customers. Cross-docking requires close coordination among a company’s supply chain partners, including its suppliers and freight carriers. This effort often pays off in multiple ways: Companies can deliver products faster, minimize the need for warehouse space, optimize inventory control and reduce transportation and labor costs.
- Cross-docking is a logistics approach that can accelerate delivery and increase supply chain efficiency.
- The strategy involves directly transferring goods from vehicles arriving at a logistics facility to vehicles handling outgoing shipments, requiring little or no warehouse storage of products.
- Cross-docking is used by a diverse range of companies, including retail stores, ecommerce companies, manufacturers and freight carriers.
- In addition to faster delivery, cross-docking benefits include minimizing the need for warehouse space, optimizing inventory control and reducing transportation and labor costs.
Cross-docking was pioneered by the trucking industry in the 1930s as a way to improve efficiency. In its purest form, it involves directly transferring goods from inbound to outbound shipments at a logistics facility without the need to place the goods in storage. The strategy is called cross-docking because goods "cross the docks," moving from vehicles that arrive at a receiving dock to vehicles that accept the goods at a shipping dock. Although products typically don’t spend much time in the facility, in some cases cross-docking may involve short-term storage of goods.
Because cross-docking speeds delivery times, the method is widely used for supply chain management by companies that need to move high volumes of goods quickly, especially if those goods are perishable. Supermarkets, for example, use cross-docking to move foods quickly from farms, factories and other suppliers via distribution centers to retail stores. Truckloads of produce arriving from farms are split, reorganized and combined with goods from other suppliers to create outgoing truckloads of products that are then shipped to individual stores.
Many companies perform cross-docking at specialized docking facilities located near major transportation hubs, such as seaports and airports. These cross-docking facilities are typically I-shaped, with inbound docks on one side and outbound docks on the other. This configuration maximizes the number of docks that can be used by vehicles at one time while minimizing the distance between receiving and shipping goods at the facility.
Pre-Distribution vs. Post-Distribution Cross-Docking
Cross-docking can be divided into two categories: pre-distribution and post-distribution.
- Pre-distribution cross-docking: With this approach, a goods supplier identifies the final customer or destination for each product before shipping truckloads of items to a cross-docking distribution facility. At the cross-docking facility, the goods are unloaded, sorted and placed onto outgoing trucks based on predetermined instructions. This approach minimizes the need for storage space at the cross-docking facility, and it typically comes into play when retailers and manufacturers know in advance how much inventory each store or customer needs.
- Post-distribution cross-docking: With post-distribution cross-docking, the final destination of goods is determined after products have arrived at the cross-docking facility. The goods are stored at the facility until the destination is determined and then they’re loaded onto outgoing trucks. This gives suppliers more time to determine where goods should ultimately be shipped, based on demand. Efficient warehouse management helps companies move goods in and out of storage and keeps operational costs low.
Dropshipping vs. Cross-Docking
Dropshipping and cross-docking are two different approaches for efficiently moving products through the supply chain. Dropshipping is a business model that separates sales from fulfillment. A retailer or ecommerce company sells a product, but it doesn’t stock the product itself. Instead, the product is stocked and shipped directly to the customer by another company — typically a manufacturer or distributor. Cross-docking, in contrast, is a technique for efficiently distributing goods and materials by directly transferring them from inbound to outbound carriers at a logistics facility. Major retailers and ecommerce companies may use cross-docking to move products, first through distribution centers and ultimately to retail stores or directly to customers.
Direct Shipment vs. Cross-Docking
Direct shipment and cross-docking are both methods for minimizing supply chain costs and speeding the delivery of goods. With direct shipping, suppliers send goods directly to consumers, bypassing the need for retail stores or distributors. Companies that sell products directly to customers, also known as direct-to-consumer (DTC) brands, often use direct shipping to deliver products without maintaining a physical retail presence. In contrast, cross-docking, which involves moving goods directly from inbound to outbound carriers at a distribution center, is used by many major retailers and other companies that need to get products to their final destinations quickly and efficiently.
Types of Cross-Docking
There are several types of cross-docking, each one tailored to meet different needs. Continuous cross-docking focuses on shortening overall delivery lead times by continuously moving goods through a distribution facility. Consolidation and deconsolidation cross-docking involve combining or splitting shipments at the facility; these methods aim to minimize transportation costs, as well as ensure timely delivery of goods. A single company may use more than one type of cross-docking, depending on the needs of the business.
Continuous cross-docking involves a continuous flow of products through a cross-dock facility, requiring little or no storage time. Products are unloaded from incoming trucks or other containers and immediately loaded onto outbound containers that take the products to their final destination. The goal is to move goods through the supply chain as quickly as possible. This type of cross-docking requires a high level of coordination and synchronization among suppliers, carriers and the company operating the cross-dock facility. Continuous cross-docking is particularly useful for high-volume products that are in constant demand, such as food.
Consolidation cross-docking involves merging multiple smaller incoming shipments at a cross-docking facility to create one larger outbound load. The primary goal is often to reduce shipping costs, since it typically costs less to ship one large load than to ship multiple smaller loads. Unlike continuous cross-docking, consolidation cross-docking requires goods to be efficiently warehoused at the facility until the company has amassed a full truckload for outgoing shipment. A warehouse management system can help companies track and automate processes, such as receiving and managing inventory and coordinating with supply chain partners. Among the businesses that take advantage of consolidation cross-docking are less-than-truckload (LTL) carriers, which are logistics companies that specialize in transporting small loads for business customers. International freight forwarders often consolidate multiple loads into a single shipping container when transporting products overseas.
Deconsolidation cross-docking is the opposite of the consolidation method. A large incoming load is divided at the cross-docking facility into multiple smaller shipments for delivery to customers. For example, parcel carriers may move goods across the country in a single large shipment and then split the shipment into smaller loads for delivery to customers. Retail stores receive large shipments from suppliers at their distribution centers and then divide the shipments into smaller batches for delivery to individual stores.
When Is Cross-Docking Used?
Cross-docking is well-suited to specific business needs and product types. For example, companies that need to ship large volumes of time-sensitive goods use cross-docking as a way to quickly get products to stores. Ecommerce suppliers use cross-docking as part of a broader competitive strategy to offer fast shipping to customers. Here are examples of products that are a good match for cross-docking:
- Perishable goods: Businesses need to deliver food and other agricultural products to consumers while the items are as fresh as possible. The longer shipping takes, the less time stores have to sell the goods before they expire.
- Seasonal or promotional merchandise: These products need to get to stores quickly since they will be in demand for only a limited time.
- High-volume products with steady demand: A steady level of demand makes it easier for companies to forecast the volume of products they’ll need to move through the cross-docking facility at any time. They can then arrange delivery with their suppliers and ensure that they have adequate carrier capacity to move products continuously through the facility. Many large retailers use cross-docking to replenish the supply of high-volume staple products at their stores.
- Items that don’t require inspection: If products don’t need to be inspected on arrival to ensure compliance with industry standards, they can be moved directly from inbound to outbound carriers.
- Products that require specialized environmental conditions: Some products, such as certain medications, must be kept at specific temperatures and transported in trucks capable of maintaining those temperatures. Cross-docking reduces the need for expensive, environmentally controlled warehouse capacity at distribution facilities because the products can be transferred directly between inbound and outbound trucks.
Advantages of Cross-Docking
Cross-docking can provide a range of business benefits. In addition to enabling faster shipping, cross-docking can help companies increase supply chain efficiency by reducing the costs of storing, handling and transporting inventory. Some of the key advantages include:
- Faster shipping. Cross-docking accelerates the delivery of goods to business partners and customers because the products spend little to no time in warehouses. This is particularly important for retail and B2B sellers that are under increasing pressure to deliver products more quickly to meet buyer expectations.
- Reduced inventory storage costs. Cross-docking reduces and in some cases eliminates the need for expensive warehouse space to store products during their journey from suppliers to customers. This system also reduces other warehouse management costs, such as the need to track items while they’re in the warehouse.
- Reduced labor costs. Eliminating the need for warehouse storage means less handling is required. Workers only need to move products between inbound and outbound trucks; they don’t need to route products from inbound docks into warehouse storage, manage them as warehouse inventory and then retrieve them for outbound shipping.
- Lower shipping costs. Consolidation and deconsolidation cross-docking typically allow companies to save on shipping costs. Businesses can combine or split loads to optimize the number and size of vehicles needed to distribute goods.
- Lower risk of product damage or spoilage. Generally, the more frequently products are handled and the longer they’re kept in storage, the greater the risk of damage. Cross-docking cuts down on the amount of handling required, so there’s less risk that items will suffer damage. In addition, because perishable items aren’t stored in a warehouse for an extended period, there’s less risk of spoilage or product expiration.
Risks of Cross-Docking
Despite its many advantages, cross-docking comes with some risks. It takes considerable planning, investment and sustained effort to set up and maintain an efficient cross-docking facility. Cross-docking also requires good visibility into supply and demand, as well as coordination with other companies within a supply chain. Here are some of the main risks to consider:
- Initial investment. Significant planning is required to design and build specialized cross-docking terminals that meet companies’ needs. Since the goal is to transport goods quickly and efficiently, companies often invest in warehouse automation technology, such as conveyer belts and robotics to help move goods around the facility, as well as sensors and other tools to track their movement. While this technology requires a significant up-front investment, companies often recoup these expenditures through improved supply chain efficiency and quicker delivery times.
- Supply chain vulnerability. Supply chain reliability is critical for businesses. Because companies hold less inventory in warehouses, they can be more vulnerable to unexpected supply chain disruptions. Any interruption to the flow of goods from suppliers can mean companies quickly run out of goods to sell to customers. Real-time inventory management technology can help companies keep tabs on their current inventory and ensure that they maintain adequate supplies of critical goods.
- Demand forecasting errors. At times businesses may miscalculate the volume of products their customers want and come up short because they haven’t kept excess inventory in storage. Accurate demand forecasting is crucial to ensure that supplies are received and available when customers want them.
- Coordinating carriers and supply chain partners. Cross-docking requires close coordination across the entire supply chain. A company must ensure that its suppliers can deliver inbound goods when it needs them and that it has enough outbound carrier capacity at exactly the right time to move the goods out of the cross-docking facility as soon as they arrive. Enterprise resource planning (ERP) systems with comprehensive supply chain management capabilities can help companies forecast demand and ensure they’re able to meet customer needs in a timely manner.
Why Businesses Choose Cross-Docking
In a highly competitive global business environment, companies are under increasing pressure to cut costs and deliver products more quickly. Ecommerce has accelerated these trends, with two-day shipping or even same-day shipping becoming the norm for both business-to-consumer and business-to-business sales. Cross-docking helps companies meet customer expectations by accelerating the movement of goods through the supply chain and into customers’ hands. Because cross-docking reduces the need for warehouse storage and the associated labor and management costs, it can also help companies cut expenses.
Industries that Use Cross-Docking
Cross-docking is used by a diverse range of industries, from department stores and pharmaceutical manufacturers to auto parts suppliers. Though these industries differ in many ways, they share the need to move goods through the supply chain to customers quickly while minimizing costs. Here are some industry sectors that rely on cross-docking:
- Supermarkets use cross-docking to ensure a daily flow of fresh produce and other foods from suppliers to retail stores.
- Department store chains use cross-docking to maintain a steady supply of goods to their retail outlets. For example, Walmart uses cross-docking extensively as part of a broader strategy to cut costs and maintain low prices.
- Parcel delivery and logistics companies use cross-docking to speed package delivery for their customers.
- Manufacturers and product distributors apply cross-docking to minimize inventory costs as well as ensure rapid delivery of products.
- Pharmaceutical companies use cross-docking to help ensure timely delivery of medicines and other products, including some that must be kept at certain temperatures. Cross-docking can also reduce the need for costly specialized storage facilities.
Invest in NetSuite’s WMS and ERP Systems to Run a Successful Cross-Docking Operation
Managing a successful cross-docking operation requires real-time visibility into supply and demand, accurate inventory management and coordination with supply chain partners to ensure a streamlined, efficient flow of goods from suppliers to customers. NetSuite ERP helps businesses achieve tighter control over operations and clear visibility into data with a single cloud-based solution that integrates accounting, supply chain management, inventory management, warehouse operations and more.
Improved supply chain management translates into higher customer satisfaction, increased profitability and reduced risk. With increased visibility, companies can track and manage the flow of goods at each step along the supply chain as they move from suppliers and manufacturers to distributors. Integrated demand planning, procurement, inventory management and predictive analytics help companies ensure that supply chain execution stays on track. NetSuite’s Warehouse Management System (WMS) automates day-to-day warehouse operations to help businesses increase efficiency and consistently meet customer expectations. Inbound logistics capabilities coordinate transportation, receipt and storage of inbound inventory, enabling companies to track shipments along their journey.
Cross-docking is a valuable logistics method that helps businesses deliver products faster while increasing the efficiency of supply chains. By directly moving goods from inbound to outbound shipments, companies can minimize or eliminate the need for warehouse storage and reduce handling costs. Technology can help companies gain the supply chain visibility and operational control required to successfully manage a complex cross-docking facility. The benefits include greater customer satisfaction, higher profits and fewer risks.
What is a cross-dock warehouse?
A cross-dock warehouse is a distribution center or other logistics facility specifically designed for quickly transferring goods from inbound to outbound shipments while minimizing the need for long-term storage. Goods arrive and are quickly unloaded, sorted and reorganized to accommodate orders. The goods are then loaded directly onto outbound trucks for delivery to stores and customers.
What’s the difference between cross-docking and warehousing?
The primary difference between cross-docking and warehousing is the length of time that products are stored in a logistics facility. With traditional warehousing, goods are received, unpacked and stored in the facility for days, weeks or even months until they need to be shipped to customers. With cross-docking, in contrast, goods are not stored at the facility for an extended period of time. Instead, they are received, sorted and quickly transferred to outbound trucks for delivery.
What are cross-docking warehouse design best practices?
Cross-docking warehouses are designed to facilitate the smooth transfer of goods from incoming to outgoing trucks. Typically, facilities are designed in an I-shaped configuration, with inbound docks on one side and outbound docks on the other. This maximizes the number of incoming and outgoing vehicles that the dock can accommodate. Larger cross-docking warehouses may use more complex T-shaped or X-shaped configurations.
What is cross-docking, and when can you use it?
Cross-docking is a method for distributing products more efficiently without needing to store them in warehouses for long periods of time. Incoming goods are received and sorted at a cross-docking facility and then loaded directly onto outgoing trucks for shipment. The process is widely used for high-volume goods and those that are perishable or time-sensitive, such as fresh produce and pharmaceuticals.
What are the benefits of cross-docking?
The benefits of cross-docking include lower inventory storage costs because products require little, if any, warehouse space. Cross-docking can also speed delivery and increase efficiency by reducing the time required for moving products at every step of the supply chain, from supplier to customer. The strategy can also improve the quality of goods, since it reduces the need to handle and store products in warehouses where they can be damaged or expire.
What is cross-docking in logistics management?
Cross-docking is a supply chain management technique that involves the direct transfer of goods from inbound trucks to outbound trucks with little or no need to warehouse the goods. Cross-docking can accelerate the movement of goods through the supply chain and reduce inventory holding costs by bypassing the need for storage.
Who uses cross-docking?
Cross-docking is used by a wide range of companies that need to move goods quickly and efficiently through the supply chain. These companies include retailers, food and beverage companies, automotive industry suppliers, pharmaceutical manufacturers and package delivery firms.