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Back Cross-Docking – A Primer for Supply Chain Professionals
By KEOGH Consulting
While the concept of Cross-Docking has been practiced in some form or fashion since the early 60’s, a growing number of Supply Chain professionals and businesses are developing ways to speed the flow of goods from Supplier to customer and reducing operational costs through collaboration with Suppliers who are able to package, label, and ship product in a highly coordinated and efficient manner. Such processes have been adapted to a wide variety of industry segments, including manufacturers, distributors, 3PL service providers, retailers, and others.
For purposes of this article, we will focus primarily on the Retail industry since much progress has been made in recent years by major retailers seeking to drive time and cost out of moving goods from suppliers and ultimately on to the store location for ultimate sale to the retailer’s customers. As retailers have shifted more and more from domestic to global sourcing and competition has grown in the retail and direct to consumer industry, it has become increasingly more important to streamline processes that result in low cost / high speed movement of goods through a company’s supply chain. Cross-Docking is one such tool that can be made to achieve these goals.
What is Cross-Docking?
Cross-Docking is only one of several processes that may be used to move goods through a company’s supply chain. From a retailer’s perspective, the options can include some or all of the following:
- Supplier Direct to Store Shipments (package, LTL, and / or TL)
- Supplier to Retailer and / or 3PL Warehouse / DC Facilities
- Supplier to Retailer and / or 3PL Dedicated Cross-Dock Facilities
- DC Bypass – Supplier ships to Port of Entry for Reconsolidation and Re-shipment to Stores
- Combinations of above strategies
Cross-Docking is a logistics process that allows products to be received in a Distribution Center or Cross-Docking facility in a manner that allows the received goods to be unloaded, sorted, and moved directly to the Shipping Docks for expeditious loading on outbound trucks, semi-trailers, or other transportation modes. From time to time, these goods may be moved directly to awaiting outbound delivery equipment, but more frequently, the sorted goods (by destination or route) must first be “staged” until such time that the shipment has been consolidated with other goods and scheduled for outbound loading.
Typically, the incoming goods have been processed and packed in a “floor ready” condition by the Supplier such that upon transfer of the goods to the store destination, the cross-docked merchandise may be immediately unloaded, scanned, and moved directly to the sales floor or back room without opening, detailed checking, ticketing, or further processing. In order to achieve the full value of cross-docking, the Supplier will have performed all value added services (e.g. ticketing, hanger insertion, assortment make-up, etc.) that are required prior to shipment to the end destination (stores).
Types of Goods Suitable for Cross-Docking
Fast moving, high volume goods having predicable demand are generally the first to be considered for cross-docking. Such goods achieve the needed “economies of scale” that allow substantial transportation cost reductions to be achieved both from an “inbound to DC” perspective as well as the consolidation of outbound goods from multiple suppliers to the store destinations. The “predictability of demand” is important so as to reduce the possibility of over shipment of goods to the slower selling stores that would then require mark-downs or costly transfer to other stores that required replenishment due to higher sales.
Often, a retailer may cross-dock a high percentage of an initial distribution of newly released merchandise in readiness of a new selling season or planned promotion of goods that are new to the current stock assortment. Such goods are “pushed” to the individual stores based on the collaborative forecasting efforts by the retailer and its suppliers.
For fashion merchandise, it is not uncommon for the cross-docked goods to be packaged and labeled by the supplier in “Standard Assortment Packs” (e.g. Packed by Style – solid color / assorted sizes). Typically, the Merchandising Dept. Buyer specifies the pre-pack specifications (assortment mix, ticketing specifications, value added services, etc.) and the Allocation Department determines the specific distribution quantities required on a store by store basis.
In addition to saleable merchandise, a Retailer may also chose to cross-dock store supplies and store fixturing required in advance of new store openings.
Expected Cross-Docking Benefits
The main goal of Cross-Docking is to allow inbound goods to be consolidated and shipped to the Retailers’ designated Cross-Dock / Distribution Center in truckload (or container load) or near truckload quantities in a manner to allow the goods to be efficiently unloaded, sorted, and immediately moved to the shipping docks for loading (or short term staging) by outbound carrier route. A properly planned and executed Cross-Dock Program will result in a significant reduction in the time, labor, and space that would otherwise be required using traditional Receive / Store / Replenish / Pick / Pack and Ship processes.
Since the implementation of Cross-Docking requires a high degree of coordination of standardized systems and procedures between the Supplier and Retailer, it is desirable that both parties of the relationship benefit from its implementation. Unfortunately, often the Retailer is the recipient of the greatest benefits and the Supplier is required to adjust its processes to accommodate the unique requirements of its individual customers.
Suppliers of the very largest retailers are often required to comply with the retailer’s requirements as a condition of doing business. Failure to consistently comply with the retailer’s requirements can expose the supplier to charge-backs and various penalties when exceptions to the required standards are not met. Probably the biggest advantage to the Supplier is associated with attainment of a “preferred supplier” status and the opportunity for increased sales afforded to conforming suppliers.
From a standpoint of the Retailer, the major benefits are summarized below:
- Increased Speed to Market
- Competitive Advantage – goods arrive at stores in advance of competition
- Reduced Mark-downs – more days available for sale
- Store Ready Receipts – reduced in-store labor
- Reduced DC Inventories
- Greatly reduced DC inventories and proportionate increase in inventory turns
- Elimination of DC Space required for Storage, Picking, and Value Added Processing
- Reduced DC Labor required for Storage, Picking, and Replenishment handling
- Operating Cost Reduction
- Transportation Costs
- Inbound Consolidations – Multi-Stores from Single Supplier Goods
- Outbound Consolidations – Multi-Supplier goods to Stores
- DC Space and Labor Costs
- Inventory Carrying Cost Reduction
- Transportation Costs
Types of Cross-Docking
There are two basic forms of cross-docking that are used in a retail distribution and / or cross docking facility. The term “Pre-Distribution” is used to designate those goods ordered from the Supplier with a pre-determined set of distribution instructions. Such goods will be packed and labeled with the store destination clearly printed on the shipping carton (or pallet) address label. Upon receipt of such goods at the receiving DC or Cross-Dock facility, the goods are typically received, unloaded, and sorted to the end destination (store), or at minimum, by outbound carrier transport route.
The term “Post-Distribution” is an alternate and often preferred process that allows deferral of the “allocation” of specific goods to a specific destination (store) until closer to the time that the inbound vehicle arrives at the receiving facility. Deferral of the distribution decision provides the Retailer with additional time to determine the optimum store location to which the goods are to be shipped based on current store in-stock position, forecasts, and point of sale trends.
Potential Constraints and Barriers to Implementation
Although the benefits of a properly planned and executed Cross-Docking Program are compelling, the administrative complexities are significant. In order to achieve success, it is important that details of the proposed implementation be closely coordinated with a significant number of the supporting organizations within both the Retailer and Supplier.
- Retailer Contraints
- Merchandising and Allocation Operations
- IT Systems
- Transportation Operations
- Accounting and Accounts Payable Operations
- Quality Assurance Operations
- DC Facility and Operational Constraints
- Truck Dock Doors
- Processing / Staging Space
- Material Handling Systems and Equipment
- Store Operations
- Supplier Constraints
- Manufacturing Plant / DC Constraints
- Quality Control Operations
- Packaging and Labeling Issues
- Truck Dock Doors
- Processing / Staging Space
- Material Handling Systems and Equipment
- IT Systems
- Transportation Operations
- Quality Assurance Operations
- Other as unique to individual Suppliers
- Manufacturing Plant / DC Constraints
Summary
Over the past several years, competition in the Retail sector has grown significantly as a result of the emergence of the big box retailers, direct to consumer / Internet channel, and the over building of Retail space. It has recently been reported that the U.S. averages approximately 26 square feet of retail space per capita. This oversaturation of retail space coupled with news of high unemployment and a struggling economy has led to increased pressure on companies to reduce inventories, streamline distribution processes, and reduce supply chain and logistics costs. Those who are unable to respond to such challenges and move goods to market in the shortest time possible may risk the prospect of bankruptcy similar to the once profitable but now defunct companies such as Sharper Image, Bombay Co., Steve & Barry's, CompUSA, Linens 'N Things, Fortunoff, and Bennigan's. Cross-Docking has proven to be an extremely valuable tool in reducing costs and synchronizing the flow of goods to retail stores through careful planning, sharing of common systems, and close collaboration between the retailer and its supplier partners. Over the past 20 years, Wal-Mart has developed into the largest and highest profit retailer in the world and is reported to deliver approximately 85% of the merchandise shipped to its stores through the use of its Cross-Docking program.