How Can Cross Docking Save Money For My Small Business?

Cross docking reduces costs by shipping material as it is received

WERC Certification
WERC Certification. Martin Murray

Definition: Cross docking is a distribution system where items received at the warehouse are not received into stock, but are prepared for shipment to another location or for retail stores. Cross docking can realize a cost reduction by skipping put away and retrieval steps.

The objective of an optimized supply chain is to get your customers what they want, when they want it and to spend as little money as possible accomplishing that.

 Cross docking is a great tool in order to decrease warehousing and logistics time and increase throughput.  

If you own and manage your own warehouse operations, then you have the option of selecting which of your customer shipments can be selected for cross docking.  While cross docking is a way to help expedite customer shipments, it does have its drawbacks.  

Because the cross docking process skips put aways in the warehouse, it should ideally be used when the incoming shipments is the same as the outgoing shipment.  For example, if your customer has ordered 100 each of Product A and your supplier is delivering 100 each of Product A - you have an ideal candidate for cross docking.  

But if your customer has ordered 100 each of Product A and 25 each of Product B and 50 each of Product C, you won't be able to execute a complete cross dock operation.  In this case, you can pull the 25 each of Product B and 50 each of Product C, assuming you have them in your warehouse.

 If your customer is willing to accept a partial shipment, or if your shipment can wait for the delivery of Product A from your supplier, you can stage Product B and Product C.  If your customer needs Product B and Product C and will accept a partial shipment, you can ship those ahead of Product A.

 But if your customer will only accept the complete shipment, once Product A arrives at your dock from your supplier, you can cross dock Product A and put them with the pre-staged Product B and Product C.  This isn't a true cross dock, since Product B and Product C were already in your warehouse - but it's a partial cross dock.  

Cross docking is an expedite tool, but it's not a short cut.  Even though the put away process is skipped for cross docking, the same rigorous inventory control and quality control steps that you would normally take must be adhered to.  For instance, even with cross docking, you must match packing lists to an actual physical count of goods.  Your MRP or WMS must also recognize a receipt of the goods, so that your financial practices remain sound and so that your outbound shipment has the goods to decrement for your shipment.

Quality control inspections and processes can't be skipped during cross dock operations.  You wouldn't want to expedite a shipment of goods to your customer only to discover you've sent them bad product.  

If you don't use your own warehouse, but employ a 3PL - the logistics experts at the 3PL will understand the pro's and cons of cross docking.

 Some 3PL's don't like to use cross docking because it circumvents their normal receiving and inventory control processes.  Make sure you know your 3PL's policy about cross docking well before you need to ask them to cross dock on your behalf.  

Small businesses need to ensure that they are supplying their customers what their customers want, when they want it - and spend as little money as possible getting that done.  Cross docking is one tool that can help drive that success, but it has to be managed very closely so that inventory control and purchasing and production planning as an accurate count of goods throughout the supply chain.

Article has been updated by Supply Chain and Logistics Expert, Gary Marion.