Cross docking is a popular distribution system for fast-moving consumer goods. However it can be used in a variety of other industries, and is an option to consider if you’re thinking about ways to streamline your supply chain.
In this article we explain the the meaning of cross docking, look at what a cross dock warehouse does, explore cross docking pros and cons, and present three short cross docking case studies.
We also look at how you can work out if cross docking would suit your business – and if so, how you’d go about implementing it.
What is cross docking?
Cross docking is when you receive goods from a supplier’s vehicle (train or truck) and move them directly onto an outbound vehicle to be transported to your customer – so there’s minimal to no storage time.
In practical terms, cross docking means goods are transported into a docking terminal, then shifted within a short time to outbound transportation. The goods are sorted and transported to their final destination.
This removes the ‘storage’ element of warehousing logistics, and saves on costs, warehousing space, time and labour.
Cross docking originated in the 1930s, and has evolved over time as logistics and management of goods has become more reliant on technology. But the principles of the ‘light touch’ transfer of goods has remained largely the same.
Pre-distribution vs post-distribution cross docking
Cross docking is usually split into two types – pre-distribution, and post-distribution.
In pre-distribution cross docking, goods are arranged and packed for final delivery to identified customers – in other words, goods are assigned to customers even before they leave the supplier.
In the post-distribution system goods are sorted at a later stage, once the customers have been identified. By delaying decisions about how to distribute the goods, the business can make informed decisions to meet customer demand using up-to-date sales data. On this model, goods can spend slightly more time in the distribution centre.
Cross docking vs direct shipments – what’s the difference?
Cross docking is widely used by manufacturers, but there are alternatives like direct shipping – and there are significant differences between the two.
Cross docking involves using a distribution centre – albeit for a short time – while the goods are transferred from inbound to outbound transportation. That means cross docking relies on a hub that has the infrastructure and expertise to ensure the efficiency of the delivery chain.
There’s inevitably some lag in the cross docking process compared with transporting goods direct to a customer, and this can sometimes be problematic – so it can be a step that the manufacturer thinks it’s better to skip entirely.
This brings us to direct shipments. As the name suggests, this means the goods are shipped directly from the manufacturer to the end customer. This has clear benefits – like the savings on time and cost associated with adding a distribution centre to the delivery chain.
However, the process of delivering to end consumers – who are often situated around the globe – is not always easy. Direct shipments can create headaches for companies when distribution is not part of their core business. Ensuring goods are delivered on time and as promised can create a significant administrative workload and may ultimately prove a drain on company resources, meaning direct shipping is not the best option.
Cross docking vs warehousing – what’s the difference?
So what’s the difference between cross docking and the more traditional means of organising distribution, warehousing?
Warehousing is where goods are stored on site until such time as customers request a delivery – so it’s different from cross docking, where goods are pushed rapidly through a distribution hub.
As its name suggests, warehousing involves using large premises to store goods. This system has several potential benefits, including:
- Ensuring security
- Control of conditions
- The ability to respond rapidly to customer delivery requirements
- Freeing up space at the main business site
- The ability to sell in bulk directly out of the warehouse.
But there are downsides too – like the additional time and cost involved in setting up a warehouse and its operations.
The Ultimate Supply Chain Management Guide
Why is cross docking used?
Cross docking is used to effectively cut out a step in the distribution chain. This means a significant saving in labour and costs, since goods are transferred in a rapid inward-outward system, with minimal time at the distribution hub.
Cross docking is especially efficient when dealing with certain types of products and supply chains – perishable goods, for instance, that need to be delivered to the end customer quickly. It is also useful for retailers dealing with consistently high customer demand, since they often need large product deliveries at short notice.
What are the types of companies and industries that benefit from cross docking?
Several types of companies and industries use and benefit from cross docking, including:
- Food & beverage
- Defence & aerospace
- Consumer goods
Industries that trade in time-critical deliveries – like food & beverage and pharmaceuticals – lean heavily on cross docking practices to shift large quantities of goods. This is due to the sensitivities of the product – such as medications that require controlled temperatures and rapid delivery to the consumer.
E-commerce operations that require a fast and efficient turnover of goods also lean on cross docking to support their distribution chain. Since e-commerce is dealing with real-time information, it’s especially suited to cross docking. E-commerce systems can assess delivery requirements quickly so that supply and demand can be closely matched, and this minimises the need for warehousing and waiting for consumer demand.
Despite the challenges that Covid-19 has posed, cross docking is an increasingly popular option, estimated to reach a market value of around US$340 billion in the next decade.
How can I implement a cross docking strategy?
Broadly speaking, there are two approaches to implementing a cross docking system: you can develop this internally, or you can use an existing service.
Creating your own cross docking system is similar to developing a warehousing system in many respects.
First, you’ll need to set up a warehouse with a platform for incoming and outgoing goods. This will need plenty of room for cross docking terminals so goods can be transferred from one vehicle to another. You’ll also need to design a platform to enable rapid transfer, coordinate transportation and manage inventory – and your staff will need training to ensure your operation runs smoothly.
Alternatively, you could choose to work with a third-party provider of cross docking services. This has several benefits, especially for SMEs: you can avoid steep investment costs, and take advantage of the specialised skills and knowledge a 3PL cross docking provider offers.
What are the advantages of cross docking?
Cross docking is generally most useful as a strategy for fast-moving or perishable goods, where it can offer several advantages. These advantages include reduced delivery time, and cost-savings on labour and storage.
Another benefit is that goods that are rapidly moved to the next phase of delivery are less likely to be damaged in transit.
All of these advantages are naturally aligned to suit rapid transit and delivery requirements and can prove extremely valuable for certain businesses.
What are the disadvantages of cross docking?
There are of course some disadvantages that need to be considered as well.
- Upfront costs of developing your own cross docking system
If you develop a cross docking system internally, the upfront cost can be substantial. It will include the cost of developing the warehouse, ensuring the platform is designed to be as effective as possible for rapid transfers, and investing in a transport fleet and staff training. The investment in transportation, in particular, can be a huge cost – and it can take time to research appropriate vehicles, fleet size and labour requirements.
- Time to deliver goods
Cross docking can add additional time to the delivery process compared to, for example, a direct shipment strategy that involves the direct transfer to the end customer.
- Cost compared with direct shipment
Cross docking is also more costly than direct shipment, given the extra – albeit brief – step involved in the delivery process. It could also create additional shipping costs, depending on how the transportation is planned and labour used.
- Ongoing charges when using a 3PL supplier
If a manufacturer works with a cross docking supplier, upfront costs can be saved – but you’ll still have ongoing charges for use of the service to consider.
How do I know if cross docking is right for my business?
Understanding the correct type of distribution strategy for your business is important, and should involve analysis of several aspects of your business.
Some factors to consider include:
- The type and volume of product you are selling
- How rapidly it needs to be delivered to the end consumer: are there issues of perishability or rapid demand requirements?
- The planning required to ensure the most efficient delivery
As we discussed above, cross docking generally lends itself well to industries that are demand a rapid turnover of products or are sensitive to time delays – such as the food & beverage and pharmaceuticals industries.
And while cross docking may seem appealing at first glance, it’s important to ensure it’s the right fit for your business. If your cross docking strategy is unsuited to your business or badly executed, it can cause unnecessary delays and costs to the delivery process.
Who uses cross docking? Three case studies
Cross docking strategies are used around the world and across different industries.
Here we give three examples that show how companies’ different requirements can be met by a suitable cross docking strategy.
1. Roche Diagnostics (Switzerland)
In the pharmaceutical industry, Roche Diagnostics uses cross docking for its transportation of products.
Roche is a multinational healthcare manufacturer and a major supplier on the world stage, and the majority of its products are perishable and need same-day delivery.
These requirements meant Roche’s distribution chain is best served by a cross docking system, and it uses cross docking suppliers to ensure its products are maintained at certain temperatures and as such have a high level of quality control.
2. Amazon (USA)
The retail behemoth Amazon uses cross docking for its retail deliveries. Amazon’s business model is based on products being available quickly – which means speedy distribution.
This retail model lends itself to using a cross docking system that ensures delays are minimised and customers are delivered goods within a short timeframe after they’re ordered.
Amazon has invested heavily in cross docking centres, opening massive facilities like this one in Germany, which it described as its first inbound cross docking distribution centre.
The centre receives products directly from suppliers and distributes them across Europe within a day. Inside the facility, huge robotic operators work alongside humans to maximise the facility’s efficiency.
3. Mainfreight (NZ)
Mainfreight is another entity that deals with cross docking. Unlike Roche and Amazon, Mainfreight offers a range of cross docking services, and has facilities for this across New Zealand and the world.
According to Mainfreight, their cross docking services consolidate freight movement, reduce warehousing costs, save on delivery time and lessen processing bottlenecks.
Mainfreight also notes that certain products are more suitable for delivery through cross docking, including perishable items, retail products with constant demand, and products that are already barcoded and ready for sale.