Executive Briefings

Cross-Docking Increases as Supply Chain Shifts to Demand Chain

Across the country, companies are finding value in cross-docking-the practice of receiving goods at one door of a facility and shipping out through the other door almost immediately without putting them in storage.

This trend is increasingly evident, especially in the food and beverage industry. Nearly 43 percent of food and beverage industry logistics executives surveyed have increased cross-docking practices in the past five years.

What's driving the trend? Company growth certainly plays a role. Companies are also seeking new ways to adjust to customer demand and the need for just-in-time service. In the transportation industry, the change in hours of service, rising LTL rates and increasing fuel prices are driving companies to find new ways to control costs.

Ultimately, cross-docking gives companies an important opportunity to take costs out of their supply chains and accelerate the velocity of inventory, so they can get their products to market more quickly and economically. Companies are recognizing the impact that this optimization can have on their supply chain, their risk profile, service to their end customer, and, ultimately, their bottom line.

Today, companies are faced with the challenge of minimizing inventory while keeping retailers' shelves full-in addition to reducing costs throughout the supply chain. Cross-docking shifts the focus from "supply chain" to "demand chain."

No one wants products sitting in inventory-especially high value or perishable items. Cross-docking gives companies the ability to send products in Monday night, deliver them Tuesday and sell them that evening. Products coming into a cross-docking center usually have been pre-allocated against a replenishment order. They're able to carry less inventory in the stores, so they have fewer overstocks, and yet the shelves are full. It's all about speed and turnover.

This high velocity has an associated benefit. It allows companies to force the carrying cost of the goods back into the supply chain. If they have a predictable need and can forecast well, they can avoid inventory and taking title to goods earlier than necessary. They want to put the onus of inventory back on the supplier or plant.

Improved service to customers is a key reason to consider cross-docking. Perishable products reach the marketplace faster, preserving quality and freshness. Retailers and distributors are able to keep fresher product on their shelves consistently.

Cross-docking can also be used to get the right mix of products to the customer. Some cross-docks break 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, then routed for store delivery.

Cross-docking also offers opportunities for cost control and reduction in many areas. The inherent simplicity of a traditional pallet-in, pallet-out cross-dock makes it a fairly inexpensive way to handle product. Since you can handle considerable volume on a relatively small scale, you don't need the major bricks-and-mortar investment of a huge warehouse or the costs associated with that facility.

Technology requirements can also be positively affected. Handling full pallets may require a simpler technology platform, so systems can be less sophisticated.

Since product doesn't need to be handled multiple times, labor can be reduced. Product isn't put into storage to be picked later. Companies save on labor costs when they accumulate freight coming in, mix and match it, and put it on trucks. The product waits for shipment on the trailer it will ship on, so they bypass extra handling effort. This is particularly valuable with today's ever-increasing labor issues.

The biggest opportunities for savings are transportation related. By consolidating LTL shipments into full loads, there can be considerable freight savings. One fresh product manufacturer can't afford to let product sit because of shelf life. Initially, they shipped truckloads from a single plant to as many as 25 different locations, but costs associated with stops and out-of-route miles became prohibitive. By consolidating their LTL shipments into full loads at dedicated cross-dock facilities, they justify the expense of a dedicated cross-dock based on the transportation savings alone. They also benefit from incremental labor savings.

Cross-Docking Opportunities

While more companies are seeing the value of cross-docking, some are better suited for the operation than others. Product characteristics, shipping patterns, system support, and customer commitment all play a part in an effective cross-dock environment.

Product characteristics. Just about any type of product can be cross-docked. Products that are typically full-pallet-in, full-pallet-out are most easily cross-docked, but even less-than-pallet quantities can work although they are more labor intensive.

Cross-docking is particularly effective for companies that are moving heavy volume on any given day and need to do it in a precise way where service is critical. Food and beverage products with a short shelf life (i.e. baked goods, snack foods, beer) are good examples. The system works well for perishable products that need to be delivered within 24 to 48 hours.

Companies with high-volume, high-value products also see value in cross-docking. Manufacturers and distributors want to avoid products sitting in inventory where there may be greater potential for loss due to theft. In addition, they incur added carrying costs for the high-value inventory.

Other durable goods that aren't as time sensitive can also achieve efficiencies, particularly with traditional rail cross-docks. The industry is even seeing some imports as ocean freight delivery dates are becoming more reliable.

Shipping patterns. High-volume products with a short time window work best in cross-dock situations.

Historically, a limited number of SKUs and full truckload shipments are a solid recipe for success with traditional cross-docks. This is most effective when the product turns consistently to avoid a backlog at the final destination.

Multiple SKUs in LTL quantities can also be cross-docked effectively. Companies that are shipping multiple items to multiple locations consistently are prime candidates for cross-docking. Some store chains bring them into one location and split them up for multiple locations, perhaps combining clothing and food items, or another combination of products. Cross-docking also works well for order fulfillment processes.

Recently, companies have explored variations on traditional cross-docks, including dwell time to fit their business needs. For example, one company has inbound loads every day, yet ships just twice a week. Other companies want a longer dwell time, storing product in the warehouse for a week or two.

System support. Across many industry categories, the common denominator is that companies usually have very strong system support-both from IT and a well-coordinated supply chain. It's systemic, not an ad hoc effort.

The fast pace of a cross-dock environment demands an efficient and responsive flow of information. "Do I need 100 associates working tonight or 150?" "How many trucks will I need?" Business processes and IT support go hand in hand.

A good planning mechanism and impeccable scheduling are also vital. There must be reliability from the supply side on product and good forecasting and demand planning on the demand side. It is important to know how much product customers will require.

Customer commitment. Companies often overlook the need to have their customers committed to working in a cross-dock environment. Cross-docks are a demand-driven model, but the demand needs to be predictable.

In a warehouse situation, for example, if a customer wants to delay shipment, there's space for it. But in a cross-dock there's nowhere to put it.

Fortunately, there are resources to help address the challenges associated with establishing a cross-dock operation.

Outsourcing to a third-party provider offers the ability to share a cross-dock facility with multiple shippers. This not only helps to defray the overhead costs, but it also accommodates peaks and valleys in the shipping cycle.

An experienced third-party provider can find the right combination of companies with complementary shipping cycles. When one company's business is spiking, another's may be slower. The 3PL can ensure that there's a consistent flow across the dock, so costs can be shared among customers.

Of course, if a company has sufficient volume, a dedicated cross-dock facility may be most effective. If cross-docking is not an internal core competency, some third-party providers will build and manage a dedicated facility as well.

Companies considering cross-docking for the first time should take a real, honest look internally. Does their organization possess the necessary reliability in its supply chain? Do they have the processes in place to support a cross-dock, or are they willing to find a partner who offers them? Are their customers ready to participate in this kind of endeavor?

It is important to identify the ultimate objectives. If goals include streamlining the supply chain and getting products to market more efficiently and economically, cross-docking may be the right answer.

Stephen Cook is vice president of sales and marketing at Saddle Creek Corp., a 3PL based in Lakeland, Fla. A copy of the company's 2007 Food Logistics Industry Report is available at www.saddlecrk.com/fl

Across the country, companies are finding value in cross-docking-the practice of receiving goods at one door of a facility and shipping out through the other door almost immediately without putting them in storage.

This trend is increasingly evident, especially in the food and beverage industry. Nearly 43 percent of food and beverage industry logistics executives surveyed have increased cross-docking practices in the past five years.

What's driving the trend? Company growth certainly plays a role. Companies are also seeking new ways to adjust to customer demand and the need for just-in-time service. In the transportation industry, the change in hours of service, rising LTL rates and increasing fuel prices are driving companies to find new ways to control costs.

Ultimately, cross-docking gives companies an important opportunity to take costs out of their supply chains and accelerate the velocity of inventory, so they can get their products to market more quickly and economically. Companies are recognizing the impact that this optimization can have on their supply chain, their risk profile, service to their end customer, and, ultimately, their bottom line.

Today, companies are faced with the challenge of minimizing inventory while keeping retailers' shelves full-in addition to reducing costs throughout the supply chain. Cross-docking shifts the focus from "supply chain" to "demand chain."

No one wants products sitting in inventory-especially high value or perishable items. Cross-docking gives companies the ability to send products in Monday night, deliver them Tuesday and sell them that evening. Products coming into a cross-docking center usually have been pre-allocated against a replenishment order. They're able to carry less inventory in the stores, so they have fewer overstocks, and yet the shelves are full. It's all about speed and turnover.

This high velocity has an associated benefit. It allows companies to force the carrying cost of the goods back into the supply chain. If they have a predictable need and can forecast well, they can avoid inventory and taking title to goods earlier than necessary. They want to put the onus of inventory back on the supplier or plant.

Improved service to customers is a key reason to consider cross-docking. Perishable products reach the marketplace faster, preserving quality and freshness. Retailers and distributors are able to keep fresher product on their shelves consistently.

Cross-docking can also be used to get the right mix of products to the customer. Some cross-docks break 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, then routed for store delivery.

Cross-docking also offers opportunities for cost control and reduction in many areas. The inherent simplicity of a traditional pallet-in, pallet-out cross-dock makes it a fairly inexpensive way to handle product. Since you can handle considerable volume on a relatively small scale, you don't need the major bricks-and-mortar investment of a huge warehouse or the costs associated with that facility.

Technology requirements can also be positively affected. Handling full pallets may require a simpler technology platform, so systems can be less sophisticated.

Since product doesn't need to be handled multiple times, labor can be reduced. Product isn't put into storage to be picked later. Companies save on labor costs when they accumulate freight coming in, mix and match it, and put it on trucks. The product waits for shipment on the trailer it will ship on, so they bypass extra handling effort. This is particularly valuable with today's ever-increasing labor issues.

The biggest opportunities for savings are transportation related. By consolidating LTL shipments into full loads, there can be considerable freight savings. One fresh product manufacturer can't afford to let product sit because of shelf life. Initially, they shipped truckloads from a single plant to as many as 25 different locations, but costs associated with stops and out-of-route miles became prohibitive. By consolidating their LTL shipments into full loads at dedicated cross-dock facilities, they justify the expense of a dedicated cross-dock based on the transportation savings alone. They also benefit from incremental labor savings.

Cross-Docking Opportunities

While more companies are seeing the value of cross-docking, some are better suited for the operation than others. Product characteristics, shipping patterns, system support, and customer commitment all play a part in an effective cross-dock environment.

Product characteristics. Just about any type of product can be cross-docked. Products that are typically full-pallet-in, full-pallet-out are most easily cross-docked, but even less-than-pallet quantities can work although they are more labor intensive.

Cross-docking is particularly effective for companies that are moving heavy volume on any given day and need to do it in a precise way where service is critical. Food and beverage products with a short shelf life (i.e. baked goods, snack foods, beer) are good examples. The system works well for perishable products that need to be delivered within 24 to 48 hours.

Companies with high-volume, high-value products also see value in cross-docking. Manufacturers and distributors want to avoid products sitting in inventory where there may be greater potential for loss due to theft. In addition, they incur added carrying costs for the high-value inventory.

Other durable goods that aren't as time sensitive can also achieve efficiencies, particularly with traditional rail cross-docks. The industry is even seeing some imports as ocean freight delivery dates are becoming more reliable.

Shipping patterns. High-volume products with a short time window work best in cross-dock situations.

Historically, a limited number of SKUs and full truckload shipments are a solid recipe for success with traditional cross-docks. This is most effective when the product turns consistently to avoid a backlog at the final destination.

Multiple SKUs in LTL quantities can also be cross-docked effectively. Companies that are shipping multiple items to multiple locations consistently are prime candidates for cross-docking. Some store chains bring them into one location and split them up for multiple locations, perhaps combining clothing and food items, or another combination of products. Cross-docking also works well for order fulfillment processes.

Recently, companies have explored variations on traditional cross-docks, including dwell time to fit their business needs. For example, one company has inbound loads every day, yet ships just twice a week. Other companies want a longer dwell time, storing product in the warehouse for a week or two.

System support. Across many industry categories, the common denominator is that companies usually have very strong system support-both from IT and a well-coordinated supply chain. It's systemic, not an ad hoc effort.

The fast pace of a cross-dock environment demands an efficient and responsive flow of information. "Do I need 100 associates working tonight or 150?" "How many trucks will I need?" Business processes and IT support go hand in hand.

A good planning mechanism and impeccable scheduling are also vital. There must be reliability from the supply side on product and good forecasting and demand planning on the demand side. It is important to know how much product customers will require.

Customer commitment. Companies often overlook the need to have their customers committed to working in a cross-dock environment. Cross-docks are a demand-driven model, but the demand needs to be predictable.

In a warehouse situation, for example, if a customer wants to delay shipment, there's space for it. But in a cross-dock there's nowhere to put it.

Fortunately, there are resources to help address the challenges associated with establishing a cross-dock operation.

Outsourcing to a third-party provider offers the ability to share a cross-dock facility with multiple shippers. This not only helps to defray the overhead costs, but it also accommodates peaks and valleys in the shipping cycle.

An experienced third-party provider can find the right combination of companies with complementary shipping cycles. When one company's business is spiking, another's may be slower. The 3PL can ensure that there's a consistent flow across the dock, so costs can be shared among customers.

Of course, if a company has sufficient volume, a dedicated cross-dock facility may be most effective. If cross-docking is not an internal core competency, some third-party providers will build and manage a dedicated facility as well.

Companies considering cross-docking for the first time should take a real, honest look internally. Does their organization possess the necessary reliability in its supply chain? Do they have the processes in place to support a cross-dock, or are they willing to find a partner who offers them? Are their customers ready to participate in this kind of endeavor?

It is important to identify the ultimate objectives. If goals include streamlining the supply chain and getting products to market more efficiently and economically, cross-docking may be the right answer.

Stephen Cook is vice president of sales and marketing at Saddle Creek Corp., a 3PL based in Lakeland, Fla. A copy of the company's 2007 Food Logistics Industry Report is available at www.saddlecrk.com/fl