Inventory storage costs are one of the most significant expenses a company incurs during a product's life. In fact, storage costs can get as high as 67% of your total warehousing costs, especially if the product ends up as excess inventory or dead stock. This is where cross-docking comes in — saving you both time and money.
We'll walk you through the basics of what cross-docking is, how it works, and which companies benefit the most from using this logistical process.
Cross Docking Definition
Cross-docking is an operational procedure where products are directly transferred from incoming to outbound transport. Unlike traditional warehousing, you do not typically handle or store any product.
Cross-docking reduces inventory and operation costs by eliminating unnecessary handling and storage.
Cross Dock Warehouse
Cross-docking usually occurs at a warehouse or distribution docking terminal, where trucks can continuously come and go. There are often two separate sides for inbound and outbound shipments, with a dedicated middle area to sort and pack inventory.
Simply put, shipments are received in the inbound dock from a truck, ship, or airplane. They are then moved to the middle area for sorting and inspection. Once completed, they are directly put on outbound transport to be shipped off to customers.
Most shipments typically spend less than 24 hours in a cross-dock before they are sent out to their final destinations.
Direct Shipment vs. Cross Docking
Direct shipping differs from cross-docking because products are sent directly from the supplier to the consumer. In most cases, the customer will purchase an item directly from the manufacturer. This method greatly reduces transportation costs but requires extra logistical planning and storage space for the seller.
It's important for suppliers to always have enough product because they are shipping out items directly. Even going as far as taking pre orders. If they needed more inventory, they would either have to manufacture it or source it from a third party, resulting in a backorder and delayed shipping times for the customer.
This method is popular amongst most apparel brands and many types of online businesses because they have complete control over what happens to the item before shipping.
Cross Docking vs. Drop Shipping
Cross-docking and drop shipping are very different inventory management techniques that keep inventory from sitting in storage in your warehouse. With drop shipping, items are directly sold from your supplier to your consumer, meaning you will never touch any of the items yourself. In cross-docking, the product is shipped to your warehouse where it is sorted and immediately sent back out to the customers.
Drop shipping is a popular inventory management technique because the seller doesn't have to pay for storage or any physical counts of inventory.
Advantages & Disadvantages of Cross Docking
As with all logistical systems, there are both advantages and disadvantages of using a cross-docking system.
Advantages of Cross Docking
- Reduces Storage Space. Companies generally spend between $4-7 per square foot of warehouse space. Cross-docking allows you to reduce your storage space, contributing to overall cost savings.
- Reduces Inventory Carrying Costs. It costs money to store, manage, count, secure, and insure inventory. Further, when inventory spoils or is damaged, you lose out on more money. Cross-docking reduces inventory costs because items are going immediately from inbound to outbound transport, with little to no holding involved.
- Increases Overall Product Quality. Cross-docking reduces the risk of damage to your products because most items aren't stored in a warehouse. Damage tends to occur when you are continuously moving products in and out of storage, and this logistical process eliminates that.
- Decreases Shipping Time. Cross-docking dramatically reduces the time it takes to ship items. As soon as inventory reaches your warehouse, you move it swiftly from one truck onto another and ship it out to the customer.
Disadvantages of Cross Docking
- Process Is Time-Consuming. To be successful, cross-docking needs to be properly planned and executed. This can help prevent any scheduling conflicts and other mishaps that can happen when warehouse management systems are not in place. Shipments should not spend more than 24 hours in a warehouse or distribution center.
- It's Expensive. Setting up a cross-docking operation isn't cheap. You would have to have access to a lot of capital to set up dock terminals and purchase a large number of transport vehicles to service your business.
Using Cross Docking Software
In order to run a successful cross-docking operation, you should invest in a warehouse management system. The right software will analyze your data and create a management plan from scratch.
Most warehouse management software has the following capabilities:
- Electronic Advance Ship Notice Transmission: Transmits data in real-time for inbound and outbound products
- Barcode Scanning: Provides inventory accuracy by integrating data from computers and UPC barcode scanners
- Inbound and Outbound Freight Management Systems: Input data from received and shipped products
- Workforce Planning: Helps track and schedule shipments to ensure all operations run smoothly
Companies That Use Cross-Docking
- Cross-docking can be an extremely beneficial operational system. However, specific industries reap more rewards from cross-docking than others.
- Here are the most common types of companies that use cross-docking:
- Food and Beverage Industry: Restaurants need a steady stream of supplies to operate smoothly. Cross-docking decreases the chances of any food spoilage because products move quickly through the supply chain, with no storage involved.
- Consumer Goods: Due to big-named brands like Amazon and Walmart, most consumers expect goods in hand immediately. Businesses now need to keep up and offer the same services consumers have grown accustomed to. Cross-docking helps companies move items faster and avoid costly storage fees.
- Automotive Industry: Cross-docking has been a staple of the automotive industry for decades because it relies on just in time delivery. This means that the production process only begins when a customer places an order and inventory stock is delivered as needed.
- Chemicals: Chemical products have specific storage requirements, making them both expensive and dangerous to ship. They should be handled as minimally as possible and be sent directly to the customer, which cross-docking allows.
Don’t Cross The Streams
Now that you know how cross-docking works, you can make an informed decision about whether this is suitable for your company. The logistical procedure has many benefits, including lowering your overall costs and reducing your need for storage space.
If you do go the cross-docking route, make sure you work with your supplier to create an operational plan, so your inventory flows smoothly from one dock to the other. You can also look into the reverse dropshipping model, where margins are high and you sell overseas.